David Neuhauser's Presentation at Value Investing Congress Las Vegas

We've posted up notes from the Value Investing Congress in Las Vegas and next up in the series is David Neuhauser of Livermore Partners who pitched Pacific Rubiales Energy (TSE:PRE) and talked about Occidental Petroleum (OXY) and Zargon (TSE:ZAR).


David Neuhauser's Value Investing Congress Presentation

•    Based Chicago – energy, financials, industrials focus.

•    Pacific Rubiales Energy (TSE:PRE) – Knows the Management team well.
•    Became attractive in the 1st quarter – took a large position or 10%. It’s been up 40% since the last couple weeks.
•    How do you extract value? Do the work – can’t simply say this is a cheap company and here is our time frame. Need to be proactive. 
•    One view - Management teams have been asleep at the wheel for a long time. Many are promotional. Focus on the downside. Worked for Leon Greenblatt out of school – focused on risk arb. and also bought big stakes in thrifts and filed 13Ds.
•    Livermore uses their vast networks to find opportunities and learn about businesses. Used their PE relationships like Wilbur Ross and Riverstone Holdings to help provide a level of conviction, etc. Further, they can introduce their companies to private equity funds, which is a benefit for both sides.
•    Some ideas they are focused on today – volt information sciences – unlisted $170MM market cap – 40% owned by the management team. Had to write a letter to the board. Had an accounting restatement in the past. Catalyst in relisting shares – operating margins to grow. Trades at $8 – TBV is $10, IV $15 - $20. Pressure the management team to create value.


•    Occidental Petroleum (OXY) – special situation 1 ½ ago. Break-up value is higher. Chairman tried to reinvigorate himself and take over the CEO spot from an excellent CEO. Sent a letter and the Chairman exited. Now OXY is spinning off assets.


•    Zargon (TSE:ZAR) – small energy company focused on exploitation - not trying to find oil, but use techniques to further extract oil.
•    Street didn’t like the name. Pressed management for a buyback which is in place. CEO owns 5%. Yield is 9%,
•    Met with management to hit achievable production targets and a sustainable dividend. Trades around $8.
•    New project 400 bpd coming online this year.
•    Heavy CapEx spend now behind them.
•    Should be viewed as a low-decline stable oil company.
•    Oil companies need low-decline supply.
•    Look at NAV on 2P reserves. NAV around ~$12 per share.
•    EV/EBITDA – in line with comps, would be worth $13 per share.
•    Also looking at Talisman Energy – working with Icahn’s team to find every avenue to unlock value. They do have a strong management.
•    Competitive advantage – bring PE guys in.

Be sure to check out the rest of the Value Investing Congress presentations.

Notes From 2013 Value Investing Congress Las Vegas: Day 1

Here's some brief notes from the 2013 Value Investing Congress taking place in Las Vegas.  This event has somewhat of a new format with a lot more speakers presenting rapid fire ideas.  As such, we'll highlight the takeaways from each pitch below from day 1.  Check back tomorrow as we'll have notes from day 2 as well.

*** 50% discount to next VIC: Also, there's currently a 50% off sale for the New York Value Investing Congress in September. This is the biggest discount to the event you'll see and the sale ends tonight!  Sign up here with discount code N13MF


Steven Romick, FPA Funds: Occidental Petroleum (OXY) & Oracle (ORCL)

Romick likes to focus on contrarian names that investors have seemingly forgotten about.  He mentioned old large cap tech names such as Oracle (ORCL), Microsoft (MSFT), and Cisco Systems (CSCO).  He likes ORCL because they offer a unique product and have recurring revenue streams.  His other idea was Occidental Petroleum (OXY), an oil producer that isn't really focused and can make a lot of adjustments to create value now that the chairman is gone.  Romick says OXY is a sum of the parts play.


Phil Goldstein, Bulldog Investors: Imperial Holdings (IFT)

The company was raided by the FBI and lawsuits post-raid and Bulldog started buying around $1.60.  They went activist and got seats on the board and he thinks there's value to be unlocked there.


John Hempton, Bronte Capital: Transglobe Energy (TGA)

He mentioned he's short an astonishing 120 companies.  His specialty is frauds and he looks for fake cash and fake assets (receivables, goodwill, etc).  He spoke negatively about Transglobe Energy, pointing out they don't collect on oil they've sold until 7 months later.  He's also skeptical since the company shows no inventory and he has other balance sheet questions.  Additionally, he flagged Jos A. Bank (JOSB) due to potential inventory issues and PureCircle (PURE.LN) for balance sheet issues.


David Nierenberg, D3 Funds: Rosetta Stone (RST)

His firm runs a concentrated portfolio of microcap stocks (typically busted growth names).  His pitch was on Rosetta Stone (RST), the popular language learning software company.  Nierenberg notes RST's solid brand in a fragmented industry.  He highlighted that the company has $7 per share in cash and no debt and has been cutting costs by closing some of their mall kiosks. He sees upside of 75% but notes that competition in the space could intensify and free offerings could emerge.


Tim Eriksen, Eriksen Capital Management: First Internet Bancorp (INBK)

He focuses on the section of the market where many companies are ignored (companies with market caps below $100 million) and he also runs a concentrated portfolio.  His pick was First Internet Bancorp (INBK):  $45m market cap, trading below TBV, with a potential catalyst of rising interest rates (loan growth).  Eriksen argued it's cheap because no one really knows about it, investors are still somewhat hesitant about financials and it's slightly illiquid.


Marcelo Lima, Heller House Capital: Hargreaves Services PLC (HSP.LN)

Lima pitched the out of favor coal industry via a UK play: Hargreaves Services PLC (HSP.LN), noting that the UK gets around 40% of its electricity from coal power.  He likes the acquisitions they've made at less than 7x earnings and highlights the benefits of their long-term contracts not being vulnerable to the ebbs and flows of commodity prices.  In the past, fraud at a Belgian subsidiary and issues at a mine weighed on shares but those problems are now gone.


Geoffrey Batt, Euphrates Advisors: Baghdad Soft Drinks (IBSD.IQ)

Batt runs the Euphrates Baghdad Fund and compared Iraq to Germany after World War II, South Korea in the 1960's and Russia in the 1990's. He sees countries that have undergone chaos as opportunities ripe for investing and Iraq fits the bill this time around.  But obviously, he points out, you still need to see stabilization in the economy and if things gradually become less worse, then equities there can head higher.  He says that the country has begun a private credit cycle and notes their oil production potential is huge.  However, he didn't pitch anything oil related.  Instead, he said he likes soda via Baghdad Soft Drinks, a Pepsi bottler.


Zack Buckley, Buckley Capital Partners: Bluecora (BCOR)

His expertise is technology stocks and he pitched Bluecora (BCOR), formerly Infospace.  He likes that they bought TaxACT and highlights Bluecora's $700 million in net operating losses (NOLs).  He said they'll probably look to do acquisitions within a year or so.


Isaac Schwartz, Robotti & Co: Halyk Bank of Kazakhstan (LON:HSBK)

He pitched Halyk National Savings Bank of Kazakhstan (Borat, anyone?) as he likes to play "ugly ducklings."  Schwartz notes the company trades around TBV and is the largest bank in the country (even though its market share is only around 20%) with the dividend now back at 4%.


Amitabh Singhi, Surefin Investments: Greenply (MTLM.IN)

He specializes in India and mentioned that Indians are fixated by gold.  Sighi likes the underappreciated, unfollowed small cap sector in India.  He's looking long-term and thinks agriculture could be a big winner.  Singhi notes that land prices have accelerated higher and while there's around 400 million acres of ag-land in the country, farms are usually only around 5 acres each.  His pick was Greenply (MTLM.IN), an Indian plywood maker.


Chan Lee & Albert Yong, Petra Capital: Sebang, Sebang Global Battery

These two harped on how South Korean equities are very cheap compared to other equity markets (they're based there).  In particular, they're focused on small & mid caps and note how these plays give you access to emerging markets exposure.  They like Sebang the holding company and subsidiary Sebang Global Battery.  They also mentioned Daechang Forging.


Jeff Pintar, Pintar Investment Company: Residential Real Estate

Pintar owns a ton of residential properties, over 2000 as the real estate bubble created immense opportunities.  He pointed out that demand for new homes is rising and supply can't keep up so more homes need to be built.  As to where the biggest demand will be in the future, he singled out Texas, Florida, California and the Carolina regions.  He thinks values can head as high as 50% in select areas.


Chris Mayer, Capital & Crisis Newsletter: First Citizens Bank (FCNCA), Atlas Financial (AFH)

He manages a newsletter with 28,000 subscribers and talked about the positives of investing in owner-operators and likes management to have skin in the game.  Mayer pitched First Citizens Bank as it's 33% family owned and also lauded Atlas Financial (AFH), Howard Hughes (HHC) and Covanta (CVA).


Be sure to check back tomorrow for notes from day 2 of the Value Investing Congress 2013 in Las Vegas.


*** Special discount for Market Folly readers:  The New York Value Investing Congress will take place in September and you can currently get a 50% discount to the event with code: N13MF.  This discount expires tonight (Tuesday) so take advantage while it lasts.  This is the biggest discount you will see for the VIC. ***

Coverage Ratio Scan: Companies With Debt That Can Survive the Recession

Wanted to pass along this interesting scan I saw on Seeking Alpha. Basically, it takes the cash flow to debt coverage ratio to show a company's ability to cover total debt with operational cash flow. Thus, the higher the ratio is, the more likely a company can carry its total debt.

They scanned for companies with a ratio of 0.75 or more and cross-referenced it with the S&P500 for a final result of 23 stocks. In no particular order:

1. Aflac (AFL)
2. Bard (BCR)
3. CF Industries (CF)
4. Coach (COH)
5. Gap (GPS)
6. Jacobs Engineering (JEC)
7. Altria Group (MO)
8. Occidental Petroleum (OXY)
9. Robert Half (RHI)
10. Southwestern Energy (SWN)
11. Stryker (SYK)
12. Titanium Metals Corp (TIE)
13. MEMC Electronic (WFR)
14. Exxon Mobil (XOM)
15. Adobe (ADBE)
16. Amazon (AMZN)
17. Apollo Group (APOL)
18. Autodesk (ADSK)
19. Citrix Systems (CTXS)
20. Juniper Networks (JNPR)
21. Microsoft (MSFT)
22. Qualcomm (QCOM)
23. Yahoo (YHOO)
    

A lot of companies on the list are very cash-rich. Companies with large cash stock piles and no debt, like Apple (AAPL), do not make the list because they have no debt to service. So, you could run an additional scan for companies with high cash levels and no significant debt in order to find some more gems. OXY is interesting because we have seen a ton of hedge fund buying in that name over the past few quarters. It is easily one of the most popular oil names among hedge funds. QCOM is another hedge fund favorite and is easily one of the most widely held stocks. Additionally, we know that Carl Icahn and many others have been rabblerousing in YHOO. Lastly, we see that WFR makes the list. David Einhorn has recently been buying this one as he thinks it is cheap (and they have a ton of cash too). The underlying theme here is to find companies that have an abundance of cash in an environment where cash and liquidity is king. And conversely, you could even put on a pairs trade by shorting companies that will have problems servicing their debt due to overleverage or lack of capital. Long deleveraging, short leverage.

Analyst Calls & Goldman Sachs Conviction Buy List

I've said before that I typically don't place too much weight on analyst calls, but today numerous analyst calls caught my eye and I wanted to post them up.

Firstly, in the oil arena, there were a few active analysts who revealed a myriad of opinions. Firstly, Morgan Stanley upgraded Transocean (RIG) to Overweight, citing that they think the credit crunch gives them an advantage, as smaller drillers will struggle to finance projects. This makes sense to me just given the fact that RIG is a behemoth in the drilling space now. But, I wouldn't cite it as one of the main reasons they will outperform. They've got tons of rigs already and have other ones scheduled to come off construction in coming years. RIG is easily one of my favorite long-term plays due to their dominant market positioning, their ability to raise dayrates fairly consistently, and the armada of rigs that they will have coming online in the near future.

Back in September, RIG was added to Goldman Sachs' Conviction Buy List. Shares have been demolished as of late, offering a possible opportunity for those with a long-term bullish thesis on oil and deepwater drilling. Boone Pickens' BP Capital had RIG as their 2nd largest holding as of last quarter. RIG has been trampled partly due to the decrease in the price of oil and partly due to forced selling by various hedge fund and mutual fund names. Overall, I figure RIG is a solid buy as long as oil remains above $70 a barrel, which gives them enough room to still maintain or increase the high dayrates they charge. They are seeing operating margins of 46% and return on equity of 38%. Their valuation is absurdly cheap, but I won't dwell on that given the fact that in this market, valuation got thrown out the window a long time ago. And, the cheap can always become even cheaper. But, the fact is that this company has solid fundamentals going forward long-term. They are seeing quarterly revenue growth of 116% and quarterly earnings growth of 101% on a year over year basis. They do have a lot of debt, but their strong cashflow generation should alleviate any major stress from that.

There was also a bevy of other oil related calls today by an analyst from Deutsche Bank. They downgraded tons of oil names, citing a worldwide recession in 2009. They have cut oil price forecasts to $60 per barrel in '09 and $58 per barrel in '10. They wrote, "This view implies that the marginal oil company will make zero profit for the next two years. It implies leveraged oil companies may go bankrupt. It implies GDP-sensitive (ie refiners/chemicals) companies will suffer. Ultimately, it strongly suggests upheaval in oil-revenue dependent states." While anything is possible considering the grave state of numerous economies worldwide, I still do not think a worldwide recession is in the cards. This will have to be continually evaluated as we receive new data each quarter, but I think this is a slightly harsh call. Should a worldwide recession emerge though, their call makes sense in that the leveraged companies will find it increasingly difficult. They have downgraded a myriad of names, including Marathon (MRO), Conoco Phillips (COP), Suncor (SU), and Hess (HES) among others. Its interesting to now note that they only have "buys" on two oil names: Occidental (OXY) and Canadian Natural Resources (CNQ). OXY is a name that has seen vast hedge fund ownership, including by that of Atticus Capital, Caxton Associates, Tudor Investment Corp, and BP Capital, among many others.

Lastly, Goldman Sachs was out making changes again to its Conviction Buy List. They added Waste Management (WMI) to the list, and removed Allied Waste (AW) from the list. However, they still maintain a 'buy' rating on AW (just not a 'conviction buy'). Additionally, they also added Marsh & McLennan (MMC) and Applied Materials (AMAT) to their Conviction Buy List.