Mick McGuire Long Corepoint Lodging & Extended Stay America: Sohn San Francisco 2018

We're posting up notes from the Sohn San Francisco 2018 investment conference.  Next up is Mick McGuire of Marcato Capital Management who pitched 2 longs: Corepoint Lodging (CPLG) and Extended Stay America (STAY).


Mick McGuire's Sohn San Francisco Presentation: Two Longs

•    Corepoint Lodging (CPLG) – lodging REIT spun off from La Quinta
•    Spun off from La Quinta recently so a new company in equity markets
•    315 properties REIT with all La Quinta branded properties and operated by Wyndham
•    Some classic dynamics of spin-off at play (Less analyst coverage, noisy financials, atypical shareholder base due to spin)
•    Earnings were temporarily depressed and should increase as 1) hotels impacted by hurricanes in Texas and Florida will come back online and contribute to earnings; 2) renovations are completed
•    Trading at a discount to peers at 8.3x EV/EBITDA vs median of 10.6x
•    Other sources of earnings upside are increased oil and gas activity – have more exposure to oil and gas markets
•    Trading at a discount based on hard asset value
•    Substantial opportunity to improve hotel level profitability
•    If margin improvement doesn’t happen, business likely to be sold (Taxable spin purposefully preserved ability to sell immediately)
•    55% upside based on current price, using 11x multiple and 2019 EBITDA of $232m


•    Extended Stay America (STAY) – hotel owner/operator with 599 properties and 27 franchisees
•    La Quinta part 2 but at the beginning of the story
•    Largest single brand hotel owner and operator in North America
•    Longer length of stay, less labor and higher margins versus typical lodging operator
•    Company knows current structure is sub-optimal and seems motivated to do something, which could unlock value
•    Highest margins relative to peers, strong cashflow profile, positive industry fundamentals, discounted valuation
•    Re-franchising less profitable units
•    Building new hotels with cash flow
•    Last of its kind to separate its hard real estate assets from its brand company
•    Capital deployment likely to drive shareholder value: stable cash flow from retained hotels, refranchising less profitable hotels, goes into: repurchasing shares, new hotels, growing franchise business which is minimal cost and high returns
•    Attractive valuation: Trading at discount to peers. 8x EBITDA versus peers at an average of 10.7x
•    Argues co belongs in a larger portfolio
•    134% upside to $38.12 target price based on 2022E Maintenance FCF/Share of $2.29 and 15x multiple


Be sure to check out the rest of the Sohn San Francisco 2018 presentations.

Notes From Sohn San Francisco Investment Conference 2017: Okada, McGuire & More

We've already posted up notes from the Next Wave Sohn San Francisco Conference which featured emerging managers.  Now it's time for the main event presentations which featured top hedge fund managers sharing investment ideas to benefit the Excellence In Investing For Children's Causes Foundation.


Notes From Sohn San Francisco Investment Conference 2017

Mark Okada, Highland Capital Management

Idea: Vistra (VST)

Business: Integrated IPP.  Thesis:  Strong market position in bottoming cyclical industry.  An attractive valuation, balance sheet optionality / M&A opportunity.  Lower leverage than peers.  Texas is a power island (barrier to entry) and a rapidly growing state.  Imminent supply rationalization.  Optimal capital structure of 3.5x leverage could drive 13% FCF yield.  M&A potential - lot of interest in the space from 'smart money.'

Valuation: Current share price $19, multiple ways to win and drive a higher share price



Mick McGuire, Marcato Capital Management

Idea: Deckers Brands (DECK)

Activist position that they haven't spoken about publicly before.  Own ~6% of the company, 2nd largest position in their fund.

Business:  Multi-branded footwear and apparel company.  Known primarily for the Ugg shoe brand but also own Hoka One One (cult running brand), Sanuk and Teva brands.

Activist agenda:  Focus on core Ugg brand; pursue sale or spin off of non-core brands.  Reduce costs (best in class consultants think that the cost savings opportunity is $150mm-$200mm.  Recapitalize balance sheet to 1x net debt/EBITDA.  Use proceeds of recapitalization and sale of brands to repurchase shares.  Align management comp with margin, return and TSR improvement.  Ugg has been cast as a fad but has continued to grow.  Retail expansion has hurt margins and revenue per store has continued to decline.  Margins can double from 9% to 19% with recommended strategy.

Valuation:  Opportunity to unlock value from non-core brands - $464 million with very modest topline expectations. $66 share price today - can get to $135 to $158 based on a multiple of 7.0x to 8.0x



Christopher Lord, Criterion Capital Management

Idea: MercadoLibre (MELI)

Business: largest eCommerce and payments platform in Latin America (based in Argentina).  Operates across 18 countries in largest markets in Brazil, Argentina, and Mexico.

Thesis:  Large TAM: $1.2T with long growth runway with more e-commerce adoption.  Adoption should be supported by increasing broadband penetration and smartphone penetration.  Created their own logistics marketplace to help with deliveries.  LatAm has a large emerging middle class.

Growth rates have begun to inflect.  Mobile is expanding the addressable market.  Payments is becoming important to the business - developed a proprietary payments platform similar to PayPal; increases the TAM to $1.8T; provides option value.  Have 27% share of ecommerce in LatAm - expected to increase by 2020.  Revenue growth estimates are significantly higher than consensus for 2018, 19, and 20.

Valuation:  looks conservative relative to TAM opportunity versus analogs like Alibaba.

Bonus short idea: iRobot (IRBT).  Very high share of robot vacuums but Shark will introduce its own robotic vacuum at a very competitive price.  Consensus estimates are too high given the competitive launch.



Nancy Davis, Quadratic Capital Management

Idea: shorting leveraged credit (equity tranche of CLOs)

Thesis: CLOs are popular investments among insurance companies.  Levered credit market will be the first place that will feel the brunt of monetary tightening.

Ways to play it: Short BDCs: TICC Capital (TICC) and Prospect Capital Corp (PSEC).  Valuations are way too high given where LIBOR rates are.



Glen Kacher, Light Street Capital

Idea: Delivery Hero (DHER)

Business: consists of consumer platform, tech stack to transmit orders to restaurants and delivery operations.  #1 player in 35/43 countries; several top markets: Germany, South Korea, Turkey, Saudi Arabia, Kuwait; by far the dominant player in long tail markets

Online food ordering marketplace that operates in Europe.  Marketplace model is ~90% of orders and delivery model is ~10% of orders.  Little to no capex required.  Dark kitchen model where players operate food operations in competitors like SpoonRocket, Sprig, and Munchery has struggled; better business is the delivery and platform for existing restaurants.

Thesis: TAM of 72bn Euros across all markets where online delivery is underpenetrated.  Pricing power to raise prices because they provide value ot restaurant customers.  Expect EBITDA margins to scale significantly.  Multiple ways to win (increase in food delivery TAM, increase in online penetration, increase in market share, delivery hero take rate, LT EBITDA margin.

Valuation: Implied share price of 76 Euros based on the 20x EV/EBITDA multiple, 127% upside to current



Carl Kawaja, Capital Group

Idea: Sony (SNE)

Return of the Daikaiju

Thesis: New management is changing the culture.  Content is king - Sony's presence is underappreciated and the business is under earning.  Gaming, image sensors, music are the businesses that are very valuable; they comprise 2/3 of operating income and 1/3 of revenue.

Gaming: business is large and is evolving to a recurring revenue stream model where you pay a monthly subscription fees supplemented by in-game purchases.  Additionally, they have had some success in mobile games, have the #2 selling mobile game.  Transition to digital game downloads should lift margins.

Sensors:  Photo and video is the future of social interaction so images will continue to be an important business.  Sony's image sensors are critical for digital camera option.  Hal of all CMOS image sensors are Sony; 100% share of iPhone 7 and 8.  Profitability has been deperessed.

Music:  ~92 million paid music subscriptions globally.  #1 music publisher globally with 30% share and #2 record label.  Streaming is now 60% of digital revenues.  Digital music is more profitable than physical music.

Valuation:  Expect 50% upside based on sum of the parts valuation



Oleg Nodelman, EcoR1 Capital

Idea: Ironwood Pharmaceuticals (IRWD)

Business: Biotech company whose primary drug is Linzess - drug for Irritable Bowel Syndrome Constipation (IBSC); marketed by Allergan.

Thesis: Addressable market of 40mm Americans.  Linzess has safety and efficacy superior to competitive drugs.  Management with a long term focus.  Option value with another 7 drugs in the pipeline - current price gives no value to these R&D efforts.

Valuation: $16 per share price but intrinsic value is as high as $43 per share.  Adding in total pipeline value could increase value of $200/share.  Trades at a discount to peers in the space at 9.6x EV/Revenue.




Dan Morehead, Pantera Capital

Idea: Cryptocurrency

Bitcoin is a digital currency protocol similar to TCP/IP for the internet.  Blockchain is a serial killer (better than a category killer).  Fiat currencies are poor stores of value - even the dollar has still lost over 90% of its purchasing power since 1950.

Huge addressable market of the industries that Bitcoin could disrupt.  The protocol layer (Bitcoin) captures most of the value in crypto currency versus the internet where the application that is built on the protocol layer captures most of the value.

Two potential ideas: Kik will be the first major company to tokenize their entire cap table.  Funfair is a fast, fair secular online casino; Funfair aims to cut out the middleman.



Be sure to also check out the pitches from emerging managers via our notes from the Next Wave Sohn San Francisco Conference 2017 as well.

Delivering Alpha Conference Notes 2017: Robertson, Dalio, Chanos, Cooperman & More

CNBC and Institutional Investor's Delivering Alpha Conference just took place and featured many big name speakers.  Here's notes from the event itself and summaries of television interviews as well:


Delivering Alpha Conference Notes 2017


Julian Robertson (Tiger Management)

Robertson noted that interest rates need to increase because there's a bubble forming in the stock market.  Since rates are low, stocks don't really have much in the way of competition for money.  He also predicts that Trump will ask Janet Yellen to stay on as Federal Reserve Chair.

He recently got back into Alibaba (BABA).  He previously owned it at "a very low price" (seven years ago) but sold it around $100 but now he's back in.  Says it's unbelievable how the company has seen 50% in earnings.  While other investors claim it to have accounting issues, Robertson said, "It would have to be such a giant fraud.  I mean, I can't imagine anything would be that colossal."

Argued that Apple (AAPL), Facebook (FB), and Google (GOOG) are cheaper than they would have been in the 1960's, 70's or 80's.  On Netflix (NFLX), he noted "does anyone not like it?"  He said it "might be a little out of reach" now but it's still tempting him because it's run by good people and he loves it.

He likes the cruise industry, saying that "(It) has come of age.  And older people my age are attracted to the cruise ship industry.  And they are booming right now, and all over the world they are booming.  And I think they're for the golden oldies."

Robertson still also owns Air Canada: "We got into it at around 8 or 9.  And it's now 23, approaching 24, and the multiple is about the same as when we got in, which is all of five times earnings.  So we have too much Air Canada, but I can't make myself sell it."

Also noted he doesn't think he'll ever understand Bitcoin.

He also continued to share his view that part of the hedge fund crisis is exacerbated by the fact that there's so many of them now and they compete against each other.

Robertson also gave advice to the younger generations: be sure that you love the field and let that be what guides you.



Ray Dalio (Bridgewater Associates)

Dalio's biggest concerns were the following: wealth gap, social conflict, and various financial burdens (debts and pensions).

"I think we're probably in a 2.5% type of growth environment.  I mean, the real question is, to some extent, whether you can unleash the productivity by some of the changes that a pro-business environment can produce."

He thinks tax reform etc will be a watered down version and will come later.

He likened the current environment to 1937 in terms of the early stages of a tightening.

Dalio thinks that we're in an environment with a lot of conflict: political, conflict between parties, conflict between countries.  "This is very important.  This is even more important than how the tax changes are going to take place."

The Bridgewater founder then talked about balancing alpha and beta.  He said gold is essential and part of that balance.  He called it "an effective diversifier of assets" as well as "an alternative version of cash."  He feels it should be 5-10% of everybody's portfolio.

He also thinks it'd be terrible if Gary Cohn left the administration and it'd be bad for the market too.

When asked what he's most worried about, Dalio mentioned risks like North Korea, but said his bigger worry is long-term: wealth and social gap and the conflicts that arise from that.  He's worried about the various debt and pension burdens.

We also recently posted Ray Dalio's TED talk which takes you inside a meeting at Bridgewater.  He also has penned a new book, Principles.



Leon Cooperman (Omega Advisors)

He said that "Conditions that normally lead to significant market decline are either not present or not forecastable."

"The market is in a zone of fair and full valuation.  I see very few signs of exuberance."

Stocks mentioned by Cooperman include First Data (FDC), which he's owned for some time now and called very cheap.

Also, United Continental (UAL), which he felt has solid management that's identified a lot of cost opportunities.  He thinks earnings there can see around 15% over the next few years.  Operating profits could rise by 50% over the next few years and the company has bought back 2% of its shares

He also pitched two energy ideas: Hess (HES), as well as WPX Energy (WPX).  "The solution for low oil prices is low oil prices.  These two (stocks) have growing production profiles and a net asset value well above current prices at existing oil prices."  He thinks oil is headed higher to $60.  Says the sector has been overly discounted.  Says Hess in particular will increase production.

He also likes Shire (SHPG), citing its growth, positive pipeline, and the expectation of stock buybacks.

Said bonds look like they're in a bubble but at same time notes the Fed has been 'forcing people into risk' via its monetary policies.  It will change one day he says, but not yet.



Boaz Weinstein (Saba Capital)

He warned investors to avoid junk bonds.  Argued that half or a third of junk bonds today are held by retail investors, who have a ton of exposure, partly due to the rise of ETFs.  He feels the high yield market is overheated and he's short bonds of various retailers and hospitals.  At the same time, he's long equity of some of those same companies.  "Equity is at a much more rational price and credit markets are ignoring those signals."

Noted that portfolio protection is cheap but few are buying it.  "Does everyone think they can get out on the top?"



Jim Chanos (Kynikos Associates)

He says that "what's worked will continue to work" and monetary will stay easy and investors will live with the valuations.

Chanos says it's easier to find short ideas in this environment, but those ideas "don't work" due to the underlying upward trend.  He says the market was far more correlated last year than it has been this year.

He's short Continential Resources (CLR).  "People have been looking at the industry with rose colored glasses.  This is a problem with the North American shale business.  If we don't get a pickup in the company's fortunes in the back half of the year it's going to struggle."



Jeff Smith (Starboard Value)

Pitched Perrigo (PRGO), generic drug maker.  Says a lot of these products are sold on Amazon now and the company can expand sales of its over-the-counter medicines via that channel.  Shares have been undervalued from pricing pressures.

Also mentioned Altaba (AABA) as a top idea.  This is the former Yahoo stub that is left after selling the core Yahoo business.  What's left is a stake in Alibaba (BABA) and Yahoo Japan, etc.  It's basically a holding company.



Mick McGuire (Marcato Capital)

The activist investor has taken a new stake in Terex (TEX), the company that makes construction equipment.  They started buying last year and roughly own around 1.1 million shares per a recent SEC filing as they own 6% of the company

McGuire feels the company should see a revenue boost after a strategic re-positioning.  It's in the middle of an operating turnaround and is reducing SG&A, so there's operational profit upside.  The company also switched its sourcing program which could potentially save them around $500 million annually.  Thinks shares could triple, and has already doubled since he invested in 2016.



Chamath Palihapitiya (Social Capital)

The venture capitalist who now also runs public investments, said that he's massively long cryptocurrency bitcoin.  He calls the blockchain technology disruptive.

He argued that tech investors need to look at a company's ability to innvoate: "There's just this massive trade right now between the disruptors and the disrupted."  He says there's a lot of opportunity to be long disruptors and short the disrupted.



Jamie Dimon (JPMorgan Chase)

He called bitcoin worse than Tulip Bulbs and thinks it will eventually blow up.  Said he'd fire any of his traders trading bitcoin for being stupid.  Says it could go up to $100,000 before it blows up, who knows.  His daughter bought it, it went up, now she thinks she's a genius, he said.  Thinks it could be vulnerable to government intervention.

Thinks government policies are stifling growth.  If things changed, we'd see 3% growth rather than sub 2% which we've seen annualized now.  Singled out small businesses as most impacted.

Argued banks in the US are very sound at the moment.  Says the successor to JPMorgan is inside JPMorgan.



Mary Erdoes (JPMorgan Asset Management)

When asked about US stocks or bonds, she said none of the above.  Sees enormous opportunities in Europe, Japan, and emerging markets.  Thinks that some investors are worried about emerging markets due to the US dollar as an 'anchor' currency.



Steve Mnuchin (Treasury Secretary)

He says that tax reform is too important not to be passed and that it can occur this year and might even be retroactive back to the beginning of 2017.  Said the President's number one concern is North Korea and security.  Said hedge funds wouldn't have the carried interest provision under Trumps tax proposal.



Steve Schwarzman (Blackstone Group)

He's optimistic on tax reform, saying the 'worst' we'd do is a tax cut somewhere around 25-28%.

He thinks the biggest risk to markets are geopolitical, in particular North Korea.  He said "i would not be buying office buildings in Seoul" though didn't comment further on how this would affect investment decisions.

Schwarzman also argued that he relationship between China and North Korea is not friendly as it is perceived to be.  "The Chinese do not want a nuclearized Korean peninsula, and they're very serious about that.  They also don't want to have a shooting war occur and have 20 million refugees from North Korea go into China.  So it's complicated for them as to what they do."



Barry Sternlicht (Starwood Capital)

"It feels like the ocean is full of money, but it could evaporate."  Says he's most worried about potential problems from North Korea or Syria.

Marcato Capital's Presentation on Buffalo Wild Wings

Activist investor Mick McGuire's Marcato Capital Management has filed an amended 13D with the SEC regarding its position in Buffalo Wild Wings (BWLD).  Per the filing, Marcato has sent a letter indicating they think the board and management at the company needs to be replaced (letter here).

Marcato has also created a separate slideshow presentation and has outlined a multi-step plan to help turnaround the business: 

1) Refocus the company on its core brand and value proposition,

2) Sell stores to new and existing franchisees (targeting 90% mix of franchised stores by 2020),

3) Create a capital deployment strategy based on returns and profitability, 

4) And finally, realign management incentives to focus on returns on capital and per-share value instead of top-line growth or profit dollars.

Embedded below is Marcato's presentation on Buffalo Wild Wings:



You can download a .pdf copy here.

You can follow Marcato's presentations at the website www.winningatwildwings.com.

Notes From Sohn San Francisco 2016: Morfit, McGuire, Palihapitiya & More

Below are notes from the 2016 Sohn San Francisco investment conference where investment managers presented their latest ideas to benefit charities.  We also posted up notes from the Next Wave Sohn San Francisco conference as well that featured emerging managers.

Notes From Sohn San Francisco 2016 Conference


Mason Morfit, ValueAct Capital

• Idea: Long Morgan Stanley (MS)
• Try to find businesses with enduring franchise value
• 3 defined business units
• 7 defined revenue types
• Did a lot of work to understand the unit economics
• 75% of the revenue and 85% of the profit come from asset light fee based businesses (not capital intensive businesses)
• Long term trend is very positive
• MS has maintained and in some cases grown its share in wealth management and investment banking advisory 
• Risk factors: earnings decline, principal loss, liquidity/access to capital

Mick McGuire, Marcato Capital Management

• Idea: Long Buffalo Wild Wings (BWLD)
• Owns 5% of the company
• Differentiated concept focused on wings, beers, sports
• ~1,200 units with potential to grow to 1,700 units
• Long history of industry leading same store sales (SSS) growth
• Central component of investment thesis:
• Differentiated concept with long runway for growth
• SSS declines and capital allocation missteps have hurt shares
• Opportunity to create shareholder value by: transitioning to a 90%+ franchised model by 2020, improve 4 wall margins (several hundred bps opportunity), and optimize capital structure
• Multiple has compressed as traffic has slowed and costs continue to rise
• When growth slowed, BWLD acquired franchised stores for high multiples
• Average replacement cost is ~$2.3mm per unit but in 2015, spent $3.5mm per unit - overpaid; bad use of capital
• Incentives are weighted singularly towards growth, not ROI
• While unit volumes have increased significantly since IPO, ROI has decreased because the cost to build a unit has increased
• Franchised businesses command higher multiples; higher franchise mix correlated with higher multiples
• BWLD is 50/50 today but recommending that they go to 90% franchised model by refranchising units at multiple of 6.0x EBITDA
• Valuation: if they can move to a higher franchised model range of value from $218 to $311 (versus ~$141 today)

Chamath Palihapitiya, Social Capital

•  Primarily invests in fast growing private tech companies
• Multi-trillion dollar opportunity hiding in plain sight
• Retail will be a $1T business by 2025
• Every company succeeds based on three factors: build a great product with great market fit, develops adjacent products in deep verticals, invests in features to drive ARPU
• Amazon (AMZN) thesis based on AWS and outsourcing infrastructure spending and moving it to the cloud; reshaping economics by taking out costs
• Similar concept for software that will move to the cloud

• Idea: Long Workday (WDAY) 
• $100bn opportunity in 10 years; 20% IRR
• Workday is the system of record for HR and is viewed as the best in class product among CIOs
• Leading market share supporting the largest global employee bases including Samsung, McDonalds, IBM
• HCM product manages 19mm employees on behalf of its employers
• Adjacent products in deep verticals: Workday Financials - system of record to manage financials; now manages financials for global companies
• Invest in features to drive ARPU (payroll and many other features)
• Rapid pace of innovation
• Workday competes against Oracle (ORCL) and SAP (SAP)
• Lowest spend on M7A over the last 5 years
• "M&A is what you do when what you do doesn't work anymore."
• Done< $0.3bn over last 5 years, SAP and Oracle have had a lot of M&A
• Netflix ability to close the books and file with the SEC went down significantly with Workday versus Oracle
• Workday is an enterprise product company
• Best management team in software
• Fully aligned, long term oriented
• 97% customer satisfaction; very high consistent with consumer tech like Facebook, Google, Apple but this is enterprise tech
• Following the Salesforce playbook but doing it better
• $100bn company in 10 years

Carson Block, Muddy Waters Capital

• Idea: Short Tutor Perini (TPC)
• Construction company
• Nearly all analysts have the stock as a buy
• FCF is the Achilles heel - the company bleeds cash in working capital driven by growing accounts receivable
• Loan agreement has been amended 6 times in 5 years and there is a chance that banks could pull RC facility; Business has $94mm of cash on BS but 79% of cash sits in JV so it could run into a major liquidity problem
• 4 CFOs over 9 years
• Summary: business can't consistently generate cash, projected earnings growth highly questionable, lack of management credibility, and liquidity could become challenged

Mihir Wohra, PIMCO

• Idea #1: Rates trade - Hawkish Fed
• Market is currently underpricing the possibility of a Fed hike or that there will just be one hike
• Buy a pair: buy a put on the 1 year rate

• Idea #2: Dovish Fed - Buy REITs
• REIT prices tend to be correlated to equities over the short-term but underlying economic factors prevail over the long term
• Will do well if Fed doesn't raise rates or cuts

• Idea #3: Commodities trade: Long call options on 2018 Natural Gas - No Fed correlation
• In the midst of global price convergence that will pull US natural gas prices higher while lowering global prices; US is opening new LNG export terminals and US nat gas is the cheapest in the world so there are buyers
• Buying 2018 at a discount to 2017 is attractive given US LNG exports are only increasing over the next few years

• Idea #4: Bonus trade: sell puts / buy calls on October VIX Futures
• Volatility should rise towards long term averages if election stays close
• Volatility could rise more if Trump probability of winning increases

• Idea #5: Bonus trade: Currencies - works if Trump win probability decreases
• Mexican peso has significantly underperformed other EM and commodity currencies in 2016 due to possibility of Trump victory and tougher US policies toward Mexico

Jeff Osher, Harvest Capital Strategies

• Idea: Long Echostar (SATS)
• Global provider of satellite services, video, delivery solutions and broadband satellite technologies
• Echostar Technologies: set top box business with $1.3bn revenue; $100mm EBITDA, 7.6% EBITDA margins
• Satellite services: $445mm revenue; 84% EBITDA margins; very good business with long dated contracts
• HughesNet: $1/4bn revenue; provide consumer broadband for households that can't get wired broadband
• Duopoly: Hughes and Viasat
• Hughes has 1mm subscribers with 30% EBITDA margin
• Business is capacity constrained
• 2016 launches will drive 50% revenue growth for Hughes within 3 years.  Given higher incremental margins, EBITDA should nearly double
• Sum of the parts valuation results in target price of $71.76 (versus today at ~$44)
• Other actions could result in homerun scenarios: Echostar Technologies divestiture, Echo Mobile, Dish Mexico, Sling TV, Brazil orbital slot, Pay TV, positioning for opportunistic M&A

Joseph Lawler MD, JFL Capital Management

• Idea: Short IP Group (IPO.LSE)
• Publicly traded fund that invests in healthcare companies
• Most publicly traded investment firms trade at a discount to NAV but IPO trades at a premium
• Adverse selection process - they seem to invest in companies that other VCs have passed on
• Investments are overvalued especially investment in Oxford Nanopore.  It's a DNA sequencing company; the cost of DNA sequencing has gone down significantly and has become commoditized

Arjun Divecha, Grantham May Van Otterloo & Co

• Idea: Investing in Indian financials (non state-owned banks)
• Never think of an emerging market as a place to permanently put capital
• India from a long term point of view looks pretty good as a place to invest - well positioned for economic growth over next 5 years
• Private sector financials are taking market share away from state owned banks
• Dependency ratio looks pretty good in the future versus other countries like US, Japan, and China.  Dependency ratio = ratio of non-working to working people
• India looks good because of improving fiscal discipline, improving inflation, current account benefiting from oil windfall (big importer of oil), capacity utilization is very low
• India is massively under-urbanized
• Household debt to GDP is 9% versus US where it is ~100%
• Huge scope for increase in consumer loans
• Pitch was about investing in non state-owned banks, like publicly traded ones such as HDFC Bank, Axis Bank, IndusInd Bank and Yes Bank; State owned banks can't make loans anymore due to loan issues
• The private banks are very well run; 3-6-3 banks
• Not easy for foreign investors - must have access to local market
• HDFC Bank (HDB) and ICICI Bank (IBN) are listed on the NYSE 
• 4-5% net interest margins
• Valuations are high but earnings growth has historically justified high valuation
• HDFC trading at 4.5x price to book
• 26.7% earnings growth over 20 years
• Thesis summary: well positioned for economic growth, low penetration of financial sector, well run financials are taking market share from well run banks

Peter Palmedo, Sun Valley Gold

• Idea: Gold: data and dogma
• Discovered Summers-Barsky Gold Thesis: price of gold is driven by the real return in capital markets
• From 2002 to 2015 gold real return was 7.9% versus a blended real return of 4.5%
• China gold demand in excess of domestic supply
• Most PMs hold unsubstantiated beliefs about gold but the algorithmic, data driven models will get it
• Own gold in the simplest form
• Cheap, safe and stable; think about gold in the context of portfolio insurance and risk diversification 
• Buy gold if you think we are in a low real return world

Be sure to also check out the presentations from the Next Wave Sohn San Francisco conference as well, which featured emerging fund managers.

Marcato Capital Sells Some Sotheby's Shares To Company

Mick McGuire's activist firm Marcato Capital Management has filed an amended 13D on its position on Sotheby's (BID).  Per the filing, Marcato now owns 4.9% of BID with 2.62 million shares.

This is a change from the 5.27 million shares they reported on their 13F filing at the end of the second quarter.

The filing notes that Marcato entered into a share repurchase agreement with Sotheby's where BID agreed to purchase 2.05 million shares of BID from Marcato at $36 per share on October 4th.

For more on this fund, we've highlighted other recent portfolio activity from Marcato.

Per Google Finance, Sotheby's is "a global art business company. The Company operates in two segments: Agency and Finance. The Agency segment earns commissions by matching buyers and sellers of authenticated fine art, decorative art, jewelry, wine and collectibles (collectively, art or works of art or artwork or property) through the auction or private sale process. Agency segment activities also include the sale of artworks that are principally acquired incidental to the auction process and the activities of RM Sotheby's. The Finance segment earns interest income through art-related financing activities by making loans that are secured by works of art. Its activities include Sotheby's retail wine operations, Acquavella Modern Art, an equity investee, and sales of the remaining inventory of Noortman Master Paintings, an art dealer that was owned and operated by Sotheby's are reported within all other segment."

Marcato Capital Exercises Call Options on Buffalo Wild Wings

Mick McGuire's activist investment firm Marcato Capital Management has filed an amended 13D with the SEC regarding its stake in Buffalo Wild Wings (BWLD).  Per the filing, Marcato owns 5.2% of the company with 950,000 shares.

Their overall economic stake remains unchanged from when they originally filed their 13D back in August.  But the filing indicates they exercised their call options on September 12th at $114 per share.

Marcato has also put together a slide deck on its thesis on BWLD and you can view it here.

Per Google Finance, Buffalo Wild Wings is "an owner, operator and franchisor of restaurants featuring various menu items. The Company's restaurants feature a bar, which offers a selection of 20 to 30 domestic, imported and craft beers on tap, as well as bottled beers, wine and liquor. The Buffalo Wild Wings restaurants feature various menu items, including its Buffalo, New York-style chicken wings spun in one of its signature sauces from sweet to screamin' hot, which includes Sweet barbeque (BBQ), Teriyaki, Bourbon Honey Mustard, Mild, Parmesan Garlic, Medium, Honey BBQ, Spicy Garlic, Asian Zing, Caribbean Jerk, Thai Curry, Hot BBQ, Hot, Mango Habanero, Wild and Blazin', or signature seasonings, Buffalo, Desert Heat, Chipotle BBQ, Lemon Pepper, and Salt & Vinegar. Its restaurants include a multi-media system, a bar and an open layout. It operates Buffalo Wild Wings, R Taco and PizzaRev restaurants, as well as sells Buffalo Wild Wings and R Taco restaurant franchises."

Marcato Capital Takes Terex & Buffalo Wild Wings Stakes

Mick McGuire's activist firm Marcato Capital Management has recently taken stakes in two companies.


Marcato Discloses Terex (TEX) Stake

First, Marcato just filed a 13D with the SEC regarding shares of Terex (TEX).  They now own 5.1% of the company.  CNBC reported that the firm will urge a spinoff and restructuring but support the CEO.

Per Google Finance, Terex is "a lifting and material handling solutions company. The Company is focused on providing its operations and delivering solutions for a range of commercial applications, including the construction, infrastructure, mining, manufacturing, transportation, energy and utility industries. It operates through five segments: Aerial Work Platforms (AWP), Construction, Cranes, Material Handling & Port Solutions (MHPS), and Materials Processing (MP). The AWP segment designs, manufactures, services and markets aerial work platform equipment, telehandlers and light towers. The Construction segment designs, manufactures and markets over two primary categories of construction equipment and their related components, and replacement parts. The Cranes segment designs, manufactures, services, refurbishes and markets mobile cranes. MHPS designs, manufactures, services and markets industrial cranes. The MP segment designs, manufactures and markets materials processing equipment."


McGuire Starts Buffalo Wild Wings (BWLD) Position

Second, McGuire has also filed a 13D with the SEC regarding shares of Buffalo Wild Wings (BWLD).  Per the filing, Marcato now owns 5.1% of the company with 950,000 shares.  The stake is comprised of various common stock holdings as well as the purchase/sale of various options which you can view here at the very bottom.

This is a newly disclosed position.  They were active in shares and options as early as June 20th and as late as July 22nd.

The filing notes they've already had discussions with directors and will continue to have discussions.

Per Google Finance, Buffalo Wild Wings is "an owner, operator and franchisor of restaurants featuring various menu items. The Company's restaurants feature a bar, which offers a selection of 20 to 30 domestic, imported and craft beers on tap, as well as bottled beers, wine and liquor. The Buffalo Wild Wings restaurants feature various menu items, including its Buffalo, New York-style chicken wings spun in one of its signature sauces from sweet to screamin' hot, which includes Sweet barbeque (BBQ), Teriyaki, Bourbon Honey Mustard, Mild, Parmesan Garlic, Medium, Honey BBQ, Spicy Garlic, Asian Zing, Caribbean Jerk, Thai Curry, Hot BBQ, Hot, Mango Habanero, Wild and Blazin', or signature seasonings, Buffalo, Desert Heat, Chipotle BBQ, Lemon Pepper, and Salt & Vinegar. Its restaurants include a multi-media system, a bar and an open layout. It operates Buffalo Wild Wings, R Taco and PizzaRev restaurants, as well as sells Buffalo Wild Wings and R Taco restaurant franchises."

Marcato Capital Exercises Calls on LPL Financial; Owns 6.4% of the Company

Mick McGuire's activist firm Marcato Capital Management filed an amended 13D with the SEC recently regarding its position in LPL Financial (LPLA).  Per the filing, Marcato now owns 6.4% of the company with over 6 million shares.

This is up from the 550,000 shares Marcato owned at the end of the third quarter and is mainly due to Marcato exercising call options on November 20th at a unit cost of 20 each.

Per Google Finance, LPL Financial is "an independent broker-dealer, a custodian for registered investment advisors (RIAs) and an independent consultant to retirement plans. The Company provides a platform of brokerage and investment advisory services to independent financial advisors, including financial advisors at around 700 financial institutions, enabling them to provide their retail investors with objective financial advice. It also supports approximately 4,400 financial advisors who are affiliated and licensed with insurance companies through customized clearing services, advisory platforms, and technology solutions. It provides its advisors with the front-office, middle-office, and back-office support. The Company provides its technology and service to advisors through a technology platform that is server-based and Web-accessible. Its subsidiaries include LPL Financial LLC, The Private Trust Company, N.A., Independent Advisers Group Corporation and LPL Insurance Associates, Inc."

Mick McGuire's Sohn Canada Presentation: Long Sotheby's & Virtus Investment Partners

We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.)  Next up is Mick McGuire from Marcato Capital.  He presented two long ideas: Sotheby's (BID) and Virtus Investment Partners (VRTS).

Mick McGuire's Sohn Canada Presentation

-    LONG Sotheby’s (BID) 
-    Agent in the art collection industry primarily hosting auctions and private sales
-    Trading at 8x EBITDA, 31% EBITDA margin, 47% share of a $12.9Bn market
-    Business is split into two divisions: agency and financial services
-    Agency performs the auction and private sale process

•     Not capital intensive, provides consistent return with a fairly amount of inherent leverage as larger purchases provide additional commissions. 

-    Financial services business is where they lend on the purchase of art

•     Interest at 7%, < 50% LTV, guaranteed by collector 
•     Funds this business with a low cost $1Bn revolver 
•     Run rate $50MM 

-    Frothy art market may be a negative catalyst but Mick sees growth in the private sales market as this has little penetration to date from Sotheby’s.
-    Opportunity to grow financing division to add additional net interest income
-    Reasons for undervaluation

•     $450MM excess cash on books 
•     $250MM in inventory a.k.a. art and jewelry, sell side appoints no value to this but there is definitely value in these items 
•     Real estate owned by the company, approximated value of $175MM for the NYC location and $250MM for the London location 
•     Additional value in the loan book 
•     Currently $774MM in loans, $594MM in debt against these loans, currently 77% LTV with a target of 85% providing additional interest margin. 

-    Catalysts

•     Refinancing of the NYC location should close in Q3 
•     $250MM share repurchase  
•     Approximately $1.1Bn in non-operating assets a.k.a. redundant assets that could be sold which is 40% of the market cap 
•     A new CEO was brought in and personally invested $2MM and has a compensation package oriented to long term stock price appreciation. 
•     With the redundant assets removed, the stock is trading at 4.1x EBITDA 
•     Mick sees the position at ~$50/share or 60% upside from today’s prices.      

-    LONG Virtus Investment Partners Inc (VRTS) 
-    Asset management with a distribution platform that primarily uses sub advisors to manage funds.
-    The balance sheet is misunderstood providing upside for the stock if value can be released.
-    It has a market cap of approximately $1Bn and an enterprise value of $480MM
-    Trading at 6x earnings
-    Has a 15% AUM CAGR (which is evenly distributed between net inflows and performance)
-    VRTS seeds most of its own capital to begin with, due to accounting these are seen as cash outflows which skews the cash flows from operations
-    This is called their accelerate seed program and it is funded by a $100MM issuance and FCF -    They have $115MM in FCF when adjusted for this
-    EV/LTM EBITDA is 3.7x
-    Have a reputational concern due to a fund “AlphaSector Fund” using backtested returns for marketing. Outflows from this fund have skewed the net inflows/outflows figure to the worse causing the trend to look poorly. When adjusted the AUM has had consistent inflows. Once the AlphaSector is behind them in Q1 2016, the figures will market properly.
-    Industry EV/EBITDA is closer to 8x
-    Cash and investments are approximately 50% of the net assets, most sell side analysts are putting discounts on this figure for unjustified reasons.
-    Currently trading at $98, sees the stock at $224/share in 2-3 years through the combination of value activation activities such as returning cash to shareholders.


Be sure to check out the rest of the presentations from the Sohn Canada Conference.

Marcato Capital Starts LPL Financial Stake

Mick McGuire's activist hedge fund Marcato Capital has filed a 13D with the SEC regarding shares of LPL Financial (LPLA).  Per the filing, Marcato now owns 6.3% of the company with over 6 million shares.

This is a newly disclosed position for the firm as they did not own any shares at the end of the second quarter.  The filing was made due to activity on September 21st.

McGuire's firm was out buying shares in late August and throughout September at prices between $39.10 and $42.94.  Shares currently trade around $42.50.

The 13D contains the typical activist boilerplate that they may engage management, etc.

We've covered other previous portfolio activity from Marcato here.

Per Google Finance, LPL Financial is "an independent broker-dealer, a custodian for registered investment advisors (RIAs) and an independent consultant to retirement plans. The Company provides a platform of brokerage and investment advisory services to independent financial advisors, including financial advisors at around 700 financial institutions, enabling them to provide their retail investors with objective financial advice. It also supports approximately 4,400 financial advisors who are affiliated and licensed with insurance companies through customized clearing services, advisory platforms, and technology solutions. It provides its advisors with the front-office, middle-office, and back-office support. The Company provides its technology and service to advisors through a technology platform that is server-based and Web-accessible. Its subsidiaries include LPL Financial LLC, The Private Trust Company, N.A., Independent Advisers Group Corporation and LPL Insurance Associates, Inc."

Marcato Capital Increases Avis Budget Stake

Mick McGuire's activist investment firm Marcato Capital Management has filed a 13G regarding shares of Avis Budget (CAR).  Per the filing, Marcato now owns 5.4% of the company with over 5.71 million shares.

This is up from the 3.34 million shares that Marcato owned at the end of the first quarter.  The filing was made due to activity on July 9th.  CAR traded at $65 to start the year, but has since slowly declined down to current levels of around $42 and Marcato has used the weakness to boost its exposure to the name.

The thesis here has largely been based on the industry consolidating down from a lot of companies into a few major ones, creating an oligopoly.  The thought is that they could act rationally together, raise prices, and profit.  Thus far, that road has been a little bumpier than expected for bulls.

While Marcato primarily takes activist stakes in companies, this looks to be a passive investment, at least for now.  Prior to founding Marcato, McGuire worked at Bill Ackman's Pershing Square.

We've highlighted previous Marcato portfolio activity here.

Per Google Finance, Avis Budget is "a provider of vehicle rental and car sharing services. The Company operates three brands, which include Avis, Budget and Zipcar. Avis is a rental car supplier and Budget is a rental vehicle supplier. The Company also own Payless, a car rental brand and Apex, which is a car rental brand in New Zealand and Australia. The Company operates in three segments: North America, International and Truck Rental. North America segment provides car rentals in the United States and vehicle rentals in Canada, as well as ancillary products and services. International segment provides and licenses the Company’s brands to third parties for vehicle rentals and ancillary products in Europe, the Middle East, Africa, Asia, South America, Central America, the Caribbean, Australia and New Zealand. Truck Rental segment provides truck rentals and ancillary products and services to consumers and commercial users in the United States.."

Marcato Capital Exits Life Time Fitness

Mick McGuire's hedge fund firm, Marcato Capital Management, has filed an amended 13D with the SEC regarding its stake in Life Time Fitness (LTM).  Per the filing, Marcato no longer holds shares in the company (they previously owned over 3.11 million shares).

The filing was made due to activity on March 16th.  Life Time Fitness recently agreed to a buyout from Leonard Green and TPG in a $4 billion deal.  As such, LTM stock has traded as a risk arbitrage name.  If we were to speculate, Marcato probably saw more attractive uses for their capital, rather than waiting around to capture the deal spread.

For more from this hedge fund, we also recently posted Marcato's presentation on Bank of New York Mellon.

Per Google Finance, Life Time Fitness is "engaged in designing, building, and operating multi-use sports and athletic, professional fitness, family recreation and spa centers in a resort-like environment, principally in residential locations of major metropolitan areas in the United States and Canada."

Marcato Capital's Presentation on Bank of New York Mellon

Mick McGuire's hedge fund firm, Marcato Capital Management, has released a letter and presentation to shareholders of Bank of New York Mellon (BK) outlining their thoughts on the company and why they feel a leadership change is in order.

Embedded below is Marcato's letter to BK shareholders:



You can download a .pdf copy of the letter here.


And also embedded below is Marcato's presentation on Bank of New York Mellon:



You can download a .pdf copy of the presentation here.


McGuire is known for taking an activist approach in his investments and this case is no different.  Prior to founding Marcato, he worked at Bill Ackman's Pershing Square, another well known activist investment firm.

Bill Ackman's Fireside Chat at Invest For Kids Chicago

We're posting up notes from Invest For Kids Chicago 2014.  Next up is a fireside chat that Mick McGuire of Marcato Capital had with Bill Ackman of Pershing Square.  McGuire worked at Pershing before launching his own fund.


Bill Ackman's Fireside Chat at Invest For Kids Chicago

•    Pershing Square up over 30% this year. Benefiting from a Jim Bean sale, Platform Specialty, Air Products, Burger King, Herbalife continue to play out, Pershing Square Holdings and other newsworthy items.


•    Allergan (AGN) – revised their disclosure to include they are in active merger discussions with what Bill thinks is Actavis.
•    Ackman believes VRX can offer the most value versus Actavis. VRX has demonstrated track record for material acquisitions. More comfort with VRX vs. Acatvis. Actavis could be the white knight perhaps.
•    Either party will have to offer stock in the deal. Allergan has put themselves up for sale.
•    Thinks the best thing is that AGN asks for bids from VRX/Actavis and take the best/highest bid. December meeting is relevant. Co did everything they can to stop shareholders from voicing their views.
•    Incentive to negotiate before directors get thrown off.
•    AGN – essentially a management change with many synergies if VRX acquires.



•    Fannie and Freddie (FNMA / FMCC) now. They were short when Mick was at Pershing. Increased exposure in light of the case.
•    Fannie/Freddie two of the best businesses in the world.
•    Very safe business. Allows banks to sell/offload 30 yr mortgage which isn’t a good instrument for banks yet is very helpful to homeowners.
•    They di-worisified their business by buying fixed income securities (subprime, etc.). That is why Pershing was originally short before the US government recapitalized the company.
•    Became profitable in late FY11, when housing markets recovered. Over-reserved during the crisis. Heading back to their core mission/business. Bought them on that basis.
•    USA government took 100% of future profits of both entities, excuse was that they could never pay the government back. That was false, on their way to pay back the government.
•    Largest taking of a private asset by the government. Thankfully, it’s illegal. 5th amendment.
•    Judge Lamberth decision wasn’t about the takings claim which matters the most.
•    His best argument (for a hostile judge) is that shareholders can still trade the stock and make a profit. This could ultimately go to the Supreme Court.
•    Maybe Republicans want to get this solved and recapitalized. Very interesting risk reward, stock went from a dollar on the lost. Think it’s worth $40 - $50.
•    Reminds him of GGP when it was bankrupt.
•    “Always bet on America”
•    How do you size an opportunity on Fannie/Freddie? AGN hard to lose money but make 2x, make it bigger. Fannie could lose a lot but make a ton, hence for Pershing its 2% position.


•    Canadian Pacific (CP) next topic. Started buying September 2011. June 2012 gained control. One of the best industrial turnarounds.
•    Canadian Pacific approached CSX about a potential transaction, was rebuffed.
 •    Investment business – learned a lot over time. Started out buying cheap companies, now really emphasizes quality of business. Didn’t emphasize management at first, but Hunter at Canadian Pacific really shows the power of a strong management team.


•    Air Products (APD): Thinks the company could improve with the new CEO.


•    Howard Hughes (HHC) – brought on a strong management team that developed the assets and created a lot of value.


•    Platform Specialty Products (PAH) was a cash shell, great example of management. Raised $900MM, Pershing brought $300MM. Martin the CEO made an acquisition, the stock doubled. Bought a business in an auction. Starting to consolidate the specialty chemical industry.


•    On Executive Compensation: When you are going into these situations how do you think about the ideal CEO compensation structure? Bill’s response: S&P 500 co usually pays $10MM - $12MM, mix of cash options, restricted stock. Doesn’t align mgmt as they continually want lower priced options, especially if an acquisition occurs (more upside to them ~ not exact wording)
•    Sold a warrant of 4% of the outstanding shares with sale restriction at FMV to the CEO (did this for Howard Hughes).  Warrant went from $15MM to $250MM, 6 yr holding period, alignment and good upside for the CEO.
•    With Hunter who was 67, his incentives was also reputational. Gave him options upfront.


•    Thinking of Philanthropy: Always viewed as business as a way to make money in order to do good.  A lot of good is created by capitalism.
•    One philanthropy investment in Mexico giving iPads to store owners to run their stores better. Pepsi/ Nestle tracking data and the small store owners become more profitable through better management.
•    No cure – medical device to solve certain cancers. Prefers to invest in for profit to solve good as people are economically incentivized.
•    For things that there is no for profit solution, will do big grants (cultural, etc.). Never invest in a not for profit if there is a for profit competitor/solution.

For more from Ackman, he recently talked at the Great Investors' Best Ideas Dallas conference as well.


Be sure to check out the rest of the hedge fund presentations from Invest For Kids Chicago here.

Sohn Conference San Francisco 2014 Notes: Ubben, Billick, McGuire & More

The 5th Annual Sohn Conference San Francisco took took place on Wednesday October 29th.  MarketFolly was there to cover the event. Excellence SF is in partnership with the Sohn Conference Foundation and is focused on improving educational opportunities and life outcomes for underserved youth.  Conference proceeds also support the Sohn Conference Foundation.  Donations may still be made at www.excellencesf.org 


Sohn Conference San Francisco 2014 Notes


Jeff Ubben - ValueAct Capital - LONG Agrium (AGU) Thesis:  They have a $750M stake in the company.  Generally sees opportunity in the space.  AGU has continued to invest in the business the past 7 years, thinks this investment will start to show returns.  JANA went after mgmt and lost proxy battle, but this still lead to change in mgmt.  They agreed with Jana.  AGU's retail business is the jewel of the company.  Wholesale business is volatile.  AGU has put $7.6B into capex since 2012.  $1.7B should start to get returned to stockholders starting in 2016 or 2017.  Sees a share price of $120 to $150 a share. 

Key reasons for liking AGU:
1)  New CEO has a more focused game plan;
2)  Strong growth in FCF despite down cycle;
3)  Cheap any way you look at it;
4)  Well positioned in consolidating market. Thinks this is a good investment that offers potential returns of 20% a year for a few years.  


Kurt Billick - Bocage Capital - LONG Lundin Mng (LUNMF) Thesis:  Has a commodity focus.  For a while, China had been the key driver in increased commodity demand.  The lack of investment in infrastructure up to that point, lead to a steep climb in prices, which in turn lead to more capital and investment.  Nickel and Zinc are seeing excess inventories absorbed.  Copper is even more interesting.  Likes mining companies that mine base metals and LUNMF mines Nickel, Zinc and Copper.  


Mick McGuire - Marcato Capital Management - LONG Packaging Corp of America (PKG) Thesis:  Started his presentation out by noting that his pick from last year Sotheby's (BID) is down since he presented, and he likes it even more than he did last year.  With respect to PKG, it has a market cap of roughly $7B and they own roughly 3% of that.  Favorable trend for companies in this space as there has been consolidation leading to pricing power.  There's also an opportunity for part of the business that processes virgin wood pulp to become an MLP.  Sees possible price of $122 or 77% upside compared a price of roughly $70 at the time of the presentation.


Brian Zied - Charter Bridge Capital - LONG CaesarStone (CSTE) Thesis:  Likes to focus on industries driven by evolving consumer landscape.  CSTE's product is engineered quartz surfaces for kitchen countertops, bathrooms, floors and walls.  Quartz is gaining share vs. granite and marble.  Quartz has similar aesthetic, but superior performance.  Better characteristics include: scratch and heat resistant, non-porous, identical slabs, lifetime warranty.  Quartz is less expensive too.  Kitchens have become a larger part of the American home over time and are now a focal point of the home compared to say the 50s or 60s.  Remodels now usually also focus on kitchens first.  Quartz is gaining share relative to granite and marble.  CSTE is the only branded luxury quartz countertop maker.  EBIT margin and ROE are much higher than peers.  Compound sales growth over the last two years has been 45%.  Sees a possible stock price of $97 based on eventual EPS of $6.50 and a PE multiple of 15.  


Carl Kawaja - Capital Research Company - LONG Zulily (ZU) Thesis:  Internet retailer that is largely unpopular right now with large short interest.  IPO in November of 2013.  Most people in the audience at Sohn in SF are men, and men don't get ZU.  ZU vs AMZN, about half of items on ZU are not on AMZN.  Site is customized and successful.  ZU offers merchants better terms on their site.  Potential market is big.  Typical customer spends $150 in first year, but if they stay, they eventually avg $500 a year.  Reminds him of Costco.  Bear arguments include:  slow ship time, shipping charges not sustainable, and kid sales are dropping.  By 2018 he sees a potential market value of $11B compared to a bit over $4B right now.  


Sandy Colen - Apex Capital - LONG Container Store (TCS) Thesis:  Likes big opportunities that can be held for a long time.  TCS is down 60% YTD.  IPO'd at 18 and went to the 40s and is now at 17.  Some see weak traffic.  Keys to success include:  grow store base, branded closet line, controlled spending, improve operating leverage.  Sees potential EPS of $1.40 in 2017 and $8.50 in 2025 compared to analyst consensus of $1.00 for 2017.  


Mick Hellman - HMI Capital - LONG LPL Financial (LPLA) Thesis:  In money management there are two key groups, the manufacturers and the distributors.  LPL is in distribution.  Has over 14,000 advisors with $465B in Assets Under Control.  Stock is down a lot recently, but believes problems are solvable.  90% return on tangible capital.  Tailwinds include: large recurring opportunity, more need for financial advice, mix to fee based, client money tends to stay on platform.  Chokepoints include:  best platform, compliance and practice mgmt, scale play, stickiness of platform, flexible product platform.  Sees opportunity for low 20% annual returns.  


Scott Fearon - Crown Capital Management - LONG Grand Canyon Education (LOPE) Thesis:  Owns 115,000 shares of LOPE.  Focus is companies less than a couple billion in market cap.  Lots of money managers don't understand LOPE.  Of the for profits, LOPE is the only one up since 1/3/2012.  Revenues have also been growing.  There is a large short interest in the stock.  There are 11,000 students in the physical school and another 53,000 online.  Four positives about LOPE include: ground campus, affordable, christian, relevant degrees.  Outside possibility of turning dorms into REIT.  Admission standards are high.  Low default rates on student loans on par or better than traditional nonprofit colleges.  Potential for $12 in EPS in 10 years with a 15 PE implies a price potential of $180.


Meridee Moore - Watershed Asset Management - LONG W.R. Grace (GRA) Thesis:  This was also her stock pick in 2011.  Feels like October 2011 again.  All chemical companies are down, but GRA is different kind of chemical company.  Three main lines: Catalyst Technologies, Materials Technologies, Construction Products.  Focus is on ROIC.  Stock is at $89 now.  Was roughly at $39 when she recommended it in Oct. of 2011.  GRA emerged from Chapter 11 in February of 2014.  Stock could be up 37% a year from now based on peer value of EBITDA.  Risks: global slowdown, high rare earths prices, strong dollar, delaying in construction infrastructure spending, recent declines in oil if sustained could mean low prices for Catalyst Technologies.  


Jose Medeiros - Stonerise Capital Partners - LONG QVC (QVCA) Thesis:  Likes to have concentrated portfolio of 6 to 8 long investments a year.  QVC is value hiding in plain sight.  Digital retail.  High retention rates with spend per customer going up.  Attractive financial model and 8% FCF yield.  Was buried in LINTA before, but now trading.  Not much analyst coverage yet.  Trades at $25 with potential for a price of roughly $42 in 2016. Second Pick: LONG Global Eagle (ENT) Thesis:  In flight entertainment and connectivity is a growing market and ENT is a leader.  Has 150+ airline customers.  Deals with airlines are recurring and have long term contracts of 7 - 10 years.  Air traffic is doubling every 15 years and connectivity is growing even faster.  Penetration and take rates are low now.  Gogo, a competitor, is based on ground to air.  Doesn't work over water and other issues as well as that.  Satellite based better.  Market cap of $800M.  Is down more than 40% in the last 12 months.  Has a strong balance sheet.  Other potential catalysts like Dish sponsorship deal.  


Jeff Osher - Harvest Small Cap Partners - LONG Green Dot (GDOT) Thesis:  They own over $50M of stock.  Sees at least 88% upside over 6 to 12 months as concerns get addressed.  Growth is reaccelerating.  30% of cap is cash.  Has a $1.1B market cap.  TAM is 160M customers (17M unbanked, 51M underbanked, 90M unhappily banked).  Simple financial model, sales come from: sale of cards, transfers / reloads, interchange.  Amex entry into market scared investors, but Amex not doing well with prepaid cards.  Misconceptions include:  concerns about collapsing margins, structural growth issues, loss of WMT will destroy GDOT.  


For more recent conference coverage, head to our notes from Sohn Canada investment conference as well as a summary of the stock picks from the Robin Hood Investors' Conference.

Marcato Capital Sends Letter to Life Time Fitness, Proposes Separation of Real Estate Assets

Mick McGuire's activist hedge fund firm Marcato Capital recently filed an amended 13D with the SEC regarding their position in Life Time Fitness (LTM).  Per the filing, Marcato continues to own 8% of the company with approximately 3.1 million shares.

Marcato's filing includes a letter to Life Time's Chairman commending the company for exploring a potential REIT conversion.

McGuire writes, "In our opinion, many investors and analysts do not fully appreciate the transformational nature of the Company's announcement.  Based on Marcato's analysis, at the mid-point of our valuation range, we believe the shares of LTM could reach $70 per share upon separation of the Company's real estate assets."

We had previously highlighted how Marcato increased its Life Time Fitness stake this summer and now they're taking things a step further.

Embedded below is the full letter to the board as well as Marcato's presentation on valuation:

Marcato Capital Increases Life Time Fitness Stake

Mick McGuire's hedge fund firm Marcato Capital today filed an amended 13D with the SEC regarding their stake in Life Time Fitness (LTM).  Per the filing, Marcato has indicated they own 7.6% of the company now with over 3.11 million shares.  This is up from the 2.9 million shares they previously disclosed.

The filing notes that "On June 17th (Marcato) received notification granting their request for early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.  Following such notification, (Marcato) exercised options that they owned and purchased additional shares."

We highlighted Marcato's original 13D filing on LTM here.

Per Google Finance, Life Time Fitness "operates multi-use sports and athletic, professional fitness, family recreation and spa centers in a resort-like environment."

Marcato Capital Files 13D on Life Time Fitness

Mick McGuire's hedge fund firm Marcato Capital Management has filed a 13D with the SEC on Life Time Fitness (LTM).  This is a brand new position for the hedge fund and they now own 7.2% of the company with over 2.9 million shares.

The filing was made due to activity on May 12th.  The activist investor included the typical boilerplate in the 13D and didn't outline any specific plans at this time.

Marcato's position is comprised of various stock options as they have calls referencing an aggregate of over 1.7 million shares with an exercise price of $30 and expire in July 2014.  They also sold put options for the same underlying amount of shares with the same strike and expiration date.  They've also entered into swaps.

Their trading activity log shows they were buying stock at the end of March around $47.80, the end of April around $47.74 and in the middle of may around $48.45.

Per Google Finance, Life Time Fitness is "operates multi-use sports and athletic, professional fitness, family recreation and spa centers in a resort-like environment."

For more on this hedge fund, check out Marcato's presentation on Sotheby's & Dillards.

Marcato Capital's Presentation on Sotheby's & Dillard's

Mick McGuire of hedge fund Marcato Capital Management recently made a presentation on both Sotheby's (BID) and Dillard's (DDS) at the Active Passive Investor Summit.

They are activist investors in Sotheby's and their thesis is summed up by: significant levels of unproductive capital, inappropriate mix of debt & equity, and desire for more shareholder friendly capital allocation.  Daniel Loeb's Third Point is also a BID activist here.

Marcato also presented a passive investment example in Dillard's where activists got involved in the stock a few years ago, the stock continued to drop and the activists eventually bailed on their position. 

Dillard's went on to turn itself around and Marcato thinks it's an attractive passive investment opportunity today as it trades at a 12% free cash flow yield and is using FCF to buy back shares.  The hedge fund thinks DDS could head as high as $155 per share (currently trades around $95).

Embedded below is Marcato's slideshow presentation:




You can view other activity from Marcato here.