What We're Reading ~ Analytical Links 2/25/15

An interview with The Outsiders author William Thorndike [Joe Magyer]

The extraordinary story of America's most successful industry [Morgan Housel]

Howard Marks: have an approach and hold it strongly [Reformed Broker]

Observations from a decade in the investment business [Wealth of Common Sense]

What is Yahoo worth after the Alibaba spinoff? [MicroFundy]

A look at CDK Global [Scuttlebutt Investor]

The problem with intuitive investing [Wealth of Common Sense]

Profile of SC Fundamental: old school investors [Barrons]

Calculating the odds of a Comcast / Time Warner Cable deal [NYTimes]

The high cost of falling prices [Economist]

Robert Shiller's CAPE ratio recently passed its 2007 high [Twitter]

Americans are borrowing more [WSJ]

Russia's Yandex takes on Google, Android [Barrons]

Millennials ditching their TV sets at a record rate [NYpost]

Capitalism's unlikely heroes: activist investors [Economist]

Profile of one of the most important people at Apple: Jonathan Ive [New Yorker]

Amazon bought this man's company, now he's coming for them [Bloomberg]

Netflix's long-term view [Netflix]

Kingstown Capital Files 13D on Home Loan Servicing Solutions

Michael Blitzer's hedge fund Kingstown Capital has filed a 13D with the SEC regarding shares of Home Loan Servicing Solutions (HLSS).  Per the filing, Kingstown now owns 5.1% of the company with 3.6 million shares.

This is a newly disclosed position for the firm and their 13D indicates that they oppose the announced transaction between the company and New Residential Investment Corp (NRZ).

They write that they "do not believe a transaction at GAAP book value adequately compensates the Issuer's shareholders for the value of its assets, which have historically traded between 1.2x - 1.3x book value according to the Issuer’s September 2014 Investor Presentation.  The Reporting Persons further note the overly conservative nature of the assumptions underlying the Issuer’s book value, including (i) an assumed weighted average prepayment rate of 18% versus the actual 10.3% for the nine months ending September 30, 2014, (ii) an assumed weighted average delinquency rate of 25% versus actual non-performing residential assets of 18.5% of UPB as of September 30, 2014, (iii) an assumed weighted average discount rate of 19% versus a 10% discount rate used by NRZ to value its own MSR assets, and (iv) the exclusion of any value from deferred servicing fees, which were $470M at year-end 2013.      

Kingstown went on to write:

"The Reporting Persons believe that adjusting these assumptions to reflect recently observed rates and the discounted value of deferred servicing fees, among other factors, could add more than $7 per share of additional value above the stated book value.  Notwithstanding a higher offer from NRZ or others, the Reporting Persons believe the most value-enhancing strategies for the Issuer are continuing its servicing relationship with Ocwen Financial Corporation, completing refinancing initiatives recently highlighted by management and executing the Issuer’s growth initiatives as its financing and operations normalize in due course.  The Reporting Persons plan to communicate with the Issuer’s shareholders, management and Board of Directors (the “Board”) as well as other third parties to oppose the current transaction and may present other proposals that offer the Issuer’s shareholders more value. "

Per their 13D, Kingstown was buying HLSS shares throughout January and February at prices ranging from $12.xx to $18.xx.

It's also worth noting that Kingstown holds a large position in Bill Erbey's company Ocwen Financial (OCN) as well (9.5% of the company according to a February 13D filing.) 

They originally started an OCN position in the third quarter of 2014 and were buying on the way down as the company came under siege from the New York Department of Financial Services and regulator Benjamin Lawsky.  This investigation ended with OCN paying a hefty fine and Erbey leaving the company.  Kingstown's 13F filing that details their 2014 year-end portfolio indicated they sold entirely out of their OCN stake.  Then, in a new 13D filing in February, it shows that they started buying OCN again after shares had dropped 50%.

This is worth highlighting due to the fact that both HLSS and OCN have Bill Erbey in common; both are part of the halo of companies he assembled in the mortgage servicing space as HLSS was spun-off from Ocwen a few years ago.  As such, Kingstown's previous work on OCN likely came into play on their HLSS position given the close ties between the companies.

Per Google Finance, HLSS is "a development-stage company. The Company was formed to acquire mortgage servicing assets consisting of mortgage servicing rights, rights to fees and other income from servicing mortgage loans, and associated servicing advances. The Company operates its business as a single reportable segment. HLSS primary source of income is interest income on the Notes receivable – Rights to MSRs. HLSS do not originate mortgage loans, and as a result are not subject to the risk of loss related to the origination of mortgage loans. The Company engaged Ocwen, a residential mortgage loan servicer, to service the mortgage loans underlying HLSS Mortgage Servicing Assets .The Company has not and do not intend to develop its own mortgage servicing platform but instead will rely on high quality third-party residential mortgage loan servicers."

H Partners & Chieftain Capital Both File 13D's on Tempur Sealy

Two investment firms have recently filed 13D's with the SEC regarding shares of Tempur Sealy (TPX).


H Partners Sends Letter to Tempur Sealy's Board 

Rehan Jaffer's hedge fund H Partners currently owns 9.97% of the company with 6,075,000 shares, according to their latest 13D filed with the SEC.  This is the same amount of shares they owned as of the end of 2014 as well.

H Partners runs a highly concentrated portfolio focused on long-term investments.  Prior to founding H Partners, Jaffer worked at Third Point.

The hedge fund also sent a letter to the Tempur Sealy, calling for a new CEO, among other things.  They highlight the company's underperformance and their entire letter is embedded below:




Chieftain Capital Echoes Support

Second, John Shapiro's investment firm Chieftain Capital has filed a 13D on shares of the company as well.  In it, they disclose they own 5.78% of the company with over 3.51 million shares.

They've trimmed their Tempur Sealy position size by around 10% since the end of 2014.  The filing was made due to activity on February 19th and they were selling some shares around $55. 

Chieftain has owned TPX since 2010 and their 13D echoes support for H Partners' proposals for new management and would like to see H Partners get a seat on the board as well.

Per Google Finance, Tempur Sealy is "a bedding provider. The Company develops, manufactures, markets, and distributes bedding products, which it sells globally. The Company operates in three segments: Tempur North America, Tempur International and Sealy. The Company’s brand portfolio includes TEMPUR, Tempur-Pedic, Sealy, Sealy Posturepedic, Optimum, and Stearns & Foster."

New Hedge Fund Wisdom Issue Out Now Featuring Analysis of Colfax (CFX) & American Realty Capital Properties (ARCP)

The brand new Q4 issue of Hedge Fund Wisdom is now available.  Subscribers please login at www.hedgefundwisdom.com to download it.

Included In The New Issue:

• Equity analysis of Colfax Corp (CFX): A 'younger' version of Danaher (DHR) in the making is down 40% from its 52-week high due to macro headwinds.  See which hedge funds like this stock and why.

• Equity analysis of American Realty Capital Properties (ARCP):  Activists have gotten involved with a REIT that has yet to file third quarter financials after going through a transformational acquisition spree.  Catch up quickly on the bull and bear cases.

• The latest portfolios of 25 top hedge funds: New fund added this quarter: Jonathan Auerbach's Hound Partners

• Updated consensus buy/sell lists: Find out which stocks are most popular among hedge funds

To Read The New Issue Immediately, Subscribe Below:  


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Free Sample Of Our Hedge Fund Wisdom Newsletter: New Issue Out In One Week

As 13F filings start to roll in, a brand new issue of our Hedge Fund Wisdom newsletter will be released in one week.  In the mean time, check out what you've been missing out on.  Embedded below is a free full past issue. 

It features equity analysis on two popular hedge fund bets: Allison Transmission (ALSN) and Armstrong World Industries (AWI).  It also shows you our newsletter format with consensus buy/sell lists, individual manager commentary, and of course the 13F filing summaries.




Free Sample Issue:  Click here to download a .pdf version


Sign Up Below To Receive Next Week's New Issue

A brand new issue will be released next week.  Sign up now so you don't miss it!

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What We're Reading ~ Hedge Fund Links 2/13/14

Stock picks from the Harbor Investment Conference [Business Insider]

This quiet investor has averaged 19% returns for more than a decade [Bloomberg]

Interview with Kyle Bass [RealVision] 

Lone Pine sounds alarm over tech valuations [ii alpha]

Lee Cooperman bullish despite fund loss [CNBC]

Citadel's Ken Griffin gives warning for road ahead [CNBC]

This woman is rocking the hedge fund world [CNBC]

Is gender a factor in fund performance? [FT]

Hedge funds keep winning despite losing [WSJ]

Hedge fund-backed investor puts himself up for GM board [Dealbook]

Why the smart money is running from hedge funds [Marketwatch]

Hedge funds can benefit by using captive insurance companies [Forbes]

Fund pros who live together, buy together [WSJ]

Blackstone's chief has a warning for Wall Street's entrepreneurs [Dealbook]

Nelson Peltz & Trian Partners' Presentation on DuPont

Nelson Peltz's activist investment firm Trian Partners has been involved with shares of duPont (DD) for a little while now and recently released a presentation entitled "A Referendum on Performance and Accountability"

Embedded below is Trian Partners' presentation "DuPont Can Be Great":



You can download a .pdf copy here.

What We're Reading ~ Analytical Links 2/11/15

Henry Singleton's five strategies for business success [ValueWalk]

A list of blogs/financial sites you should be reading [Morgan Housel]

A look at AutoCanada [Value Venture]

A pitch on Graham Holdings [Beyond Proxy]

Meditations on the Eurozone and secession [All About Alpha]

Investment Managers are human too [Squared Away]

Thoughts about risk and portfolio management [Value Venture]

The digital future of TV networks & the original series crunch [Media Redefined]

Zulily: the billion-dollar e-commerce company you know nothing about [Fast Company]

China's biggest problem [Joe Magyer]

Devaluation by China is the next great risk for a deflationary world [Telegraph]

General Motors: saved by the trucks [Economist]

Why Nordstrom's digital strategy works [HBR]

Amaya: is PokerStars a high-quality, high-growth business? [Alpha Vulture]

Baupost Group Starts Bellatrix Exploration Stake, Adds to SunEdison, Reduces Syneron Medical

Seth Klarman's hedge fund firm Baupost Group has filed three 13G's with the SEC.


New Position in Bellatrix Exploration

First, Baupost Group has disclosed a new equity position in Bellatrix Exploration (BXE) and they now own 11.38% of the company with over 21.8 million shares.  The filing was made due to activity on January 31st.

Per Google Finance, Bellatrix Exploration is "a Canada-based company engaged in exploration and production of oil and gas. The Company is focusing on developing its two core resource plays, the Cardium and the Notikewin/Falher intervals. The Cardium is into accumulation of light oil in the Western Canadian Sedimentary Basin with approximately 20,000 square miles and 1.38 Billion barrels produced to date. Notikewin/Falher is located in a regional stacked Upper Mannville Channel. The main type of reservoir is incised channel fill sandstones cutting finer-grained non-marine deposits."


Increases SunEdison Semiconductor Position

Second, Seth Klarman's firm has increased its position in SunEdison Semiconductor (SEMI).  They now own 19.03% of the company with over 7.89 million shares.  This is an increase of over 3.75 million shares since the end of the third quarter and the filing was due to activity on January 31st.

Per Google Finance, SunEdison Semi "is engaged in the development, manufacture and sale of silicon wafers to the semiconductor industry. The Company’s products include polished, epitaxial (EPI), silicon on insulator (SOI), perfect silicon and magic denuded zone (MDZ) wafers ranging in diameter from 100 millimeter (mm) to 300 mm. The Company sells its products to semiconductor manufacturers, including integrated device manufacturers and pure-play semiconductor foundries, and to a lesser extent, companies that specialize in wafer customization."


Decreases Syneron Medical Exposure

Third, Baupost has disclosed a 3.07% ownership stake in Syneron Medical (ELOS) with over 1.12 million shares.  This is a decrease of over 1.86 million shares from their previous stake at the end of the third quarter.  The filing was required due to portfolio moves on January 31st.

Per Google Finance, Syneron Medical "designs, develops and markets aesthetic medical products based on its various technologies including its Electro-Optical Synergy (ELOS), technology, which uses the synergy between electrical energy, including radiofrequency (RF) energy, and optical energy to provide aesthetic medical treatments. The Company’s products, which it sells primarily to physicians and other practitioners, target a range of non-invasive aesthetic medical procedures, including hair removal, wrinkle reduction, rejuvenation of the skin’s appearance through the treatment of superficial benign vascular and pigmented lesions, acne treatment, treatment of leg veins, treatment for the temporary reduction in the appearance of cellulite and thigh circumference and laser-assisted lipolysis."

You can view additional recent portfolio activity from Baupost Group here.

Makaira Partners Trims Capella Education Stake

Tom Bancroft's hedge fund firm Makaira Partners has filed an amended 13G with the SEC regarding their position in Capella Education (CPLA).  Per the filing, Makaira now owns 2.4% of the company with 296,437 shares.

This means they've reduced their position size by 178,420 shares since the third quarter.  The notice was made due to activity on December 31st.

For more from this manager, we just posted up other recent activity from Makaira Partners here.

Per Google Finance, Capella Education is "an online postsecondary education services company. The Company offers doctoral, master’s and bachelor’s programs in the markets. The Company focuses on masters’ and doctoral degrees. The Company targets relevant portions of the adult learner population and provide offerings in demand areas of study such as business and information technology, health care and nursing, social and behavioral science, education and public service leadership. The Company’s support services include: academic services, such as advising, writing, tutoring and research services; administrative services, such as online class registration and transcript requests; library services; financial aid counseling and career counseling services."

Corvex Management Increases ARCP Stake, Writes Letter to Board

Keith Meister's hedge fund firm Corvex Management has filed an amended 13D with the SEC regarding their position in American Realty Capital (ARCP).  They now own 7.8% of the company with exposure to over 70.6 million shares.

This is an increase of over 5.9 million shares since Corvex first reported its ARCP stake in December.  They acquired call options and common stock in late December/early January and sold put options as well.

The activist filing also includes an open letter that Corvex has written to the board of ARCP and to candidates for Chairman and CEO.  You can read the full letter here.

Per Google Finance, American Realty Capital is "a real estate investment trust (REIT). The Company owns and acquires single-tenant, freestanding commercial real estate primarily subject to medium-term net leases with credit quality tenants." 

Phil Hempleman's Ardsley Partners Adds To Bioscrip

Phil Hempleman's hedge fund firm Ardsley Partners has filed a 13G with the SEC regarding their position in Bioscrip (BIOS).  Per the filing, Ardsley now owns 5.1% of the company with over 3.53 million shares.

They've increased their position size by over 1.9 million shares since the end of the third quarter.  The filing was made due to activity on January 29th.

Hempleman founded Ardsley in 1987 and is a long/short equity focused fund that uses bottom-up stockpicking to build its portfolio.  We've covered other portfolio activity from Ardsley here.

Per Google Finance, Bioscrip is "provides home infusion and other home healthcare services. The Company’s services are designed to improve clinical outcomes for patients with chronic and acute healthcare conditions while controlling overall healthcare costs. The Company’s platform provides nationwide service capabilities and the ability to deliver clinical management services that offer patients a high-touch, home-based and community-based care environment. Its core services are provided in coordination with, and under the direction of the patients' physicians."

JANA Partners Completely Exits PetSmart

After going activist on PetSmart (PETM), Barry Rosenstein's hedge fund JANA Partners got the company sold and has been trimming its exposure to the stock since.  Now, in their latest 13D filing with the SEC, we see that JANA has completely exited PetSmart shares.  The filing was made due to activity on February 5th.

As the stock has effectively traded sideways as a risk arbitrage play, one possible explanation is that JANA didn't want to sit around and wait to capture a tiny spread and instead saw more attractive uses for that capital.

PetSmart is set to be acquired by BC Partners in an $8.7 billion deal.

Per Google Finance, PetSmart "supplies products, services and solutions for the lifetime needs of pets. The Company operates a website for pet supplies, foods and different animal needs. The Company's stores also feature pet styling salons that offer pet grooming services, from full-service styling to baths, toenail trimming and teeth cleaning."

Makaira Partners Increases Wesco Aircraft Stake

Tom Bancroft's hedge fund firm Makaira Partners has filed a 13G with the SEC regarding their position in Wesco Aircraft Holdings (WAIR).  Per the filing, Makaira now owns 7.5% of the company with over 7.37 million shares.

This is an increase of over 1.62 million shares since the end of the third quarter.  The filing was made due to portfolio activity on December 31st.  Wesco was already their top holding and they've further increased their stake.

If you're unfamiliar with Makaira, manager Tom Bancroft was listed as one of the people Todd Combs of Berkshire Hathaway would choose when asked who else he would hire.  The other two names were Lou Simpson and Meryl Witmer.   Makaira runs a smaller portfolio, with 10 stocks listed in their Q3 2014 13F filing. 

Per Google Finance, Wesco Aircraft "formerly Wesco Holdings, Inc., a holding company for Wesco Aircraft Hardware Corp. The Company is a distributor and provider of supply chain management services to the global aerospace industry. Its services range from traditional distribution to the management of supplier relationships, quality assurance, kitting, just-in-time (JIT), delivery and point-of-use inventory management."

Third Point Q4 Letter: New Position in Fanuc

Dan Loeb's hedge fund Third Point is out with their fourth quarter letter to investors.  They reveal their thesis on a new long position in Fanuc and touch on their pre-existing long Amgen (AMGN).  Additionally, they highlight general market thoughts and take another look at the situation in Greece.

They've lowered gross and net exposures this year, but are looking to "add exposure during market dislocations."  Their letter notes they're investing in various large cap companies where they can engage with constructive talks with management about improving shareholder value.

Embedded below is Third Point's full Q4 2014 letter:



For more from this manager, be sure to check out Dan Loeb's recommended reading list.

Balyasny Asset Management Starts Peabody Energy Position

Dmitry Balyasny's hedge fund firm Balyasny Asset Management has filed a 13G with the SEC regarding shares of Peabody Energy (BTU).   Per the filing, Balyasny now owns 5.17% of the company with over 14 million shares.

This is a newly disclosed equity position for the firm as they did not own a position at the end of the third quarter.  The filing was made due to activity on January 30th.

Per Google Finance, Peabody Energy "owns interests in 28 active coal mining operations located in the United States and Australia. The Company has a majority interest in 27 of those coal operations and a 50% equity interests in the Middlemount Mine in Australia. The Company also owns a noncontrolling interest in a mining operation in Venezuela. In addition to the Company's mining operations, the Company markets and broker coals from its operations and other coal producers, both as principal and agent, and trade coal and freight-related contracts through trading and business offices. The Company conducts business through four principal segments: Western United States. Mining, Midwestern U.S. Mining, Australian Mining and Trading and Brokerage."

You can view more recent portfolio activity from Balyasny Asset Management here.

Cantillon Capital Exits The Brink's Company Stake

William von Mueffling's investment firm Cantillon Capital has filed a 13G with the SEC regarding shares of The Brink's Company (BCO).  Per the filing, Cantillon no longer holds any shares.

The filing was made due to activity on December 31st.  Previously, they held over 3 million shares of BCO.

Cantillon used to be a hedge fund, but in around five years ago morphed into a long-only firm.  To learn more about this manager, head to von Mueffling's interview with Columbia Business School.

Per Google Finance, The Brinks Company is "a provider of secure logistics and security solutions services ATM replenishment and maintenance, secure international transportation of valuables and cash management services, to financial institutions, retailers, government agencies including central banks, mints, jewelers and other commercial operations around the world. The Company operates in four geographic segments: Latin America; Europe, Middle East, and Africa (EMEA); Asia Pacific, and North America."

Alex Denner's Sarissa Capital Starts Aegerion Pharmaceuticals Stake

Alex Denner's hedge fund firm Sarissa Capital has filed a 13D with the SEC regarding shares of Aegerion Pharmaceuticals (AEGR).  Per the filing, Sarissa now owns 5.76% of the company with over 1.63 million shares.

Prior to founding Sarissa, Denner worked with Carl Icahn and before that was at Viking Global.  Sarissa's focus is the healthcare/biopharma space.

This is a newly disclosed position as Sarissa did not own any AEGR shares at the end of the third quarter.  The disclosure was made due to portfolio activity on January 30th.  They were out buying primarily in the $23-24 range between January 14th and February 4th.

The activist 13D filing notes that Sarissa intends to engage in discussions with management and has the standard boilerplate under the "purpose of transaction" section.

Per Google Finance, Aegerion Pharmaceuticals is "a biopharmaceutical company dedicated to the development and commercialization of innovative therapies for patients with debilitating rare diseases. The Company’s first product, lomitapide, received marketing approval, under the brand name Juxtapid capsules, from the United States Food and Drug Administration as an adjunct to a low-fat diet and other lipid-lowering treatments in adult patients with homozygous familial hypercholesterolemia (HoFH)."

What We're Reading ~ Hedge Fund Links 2/6/14

Summary of hedge fund stock picks at the Breakers conference [CNBC]

Hedge funds making profits using freedom of information act requests [ValueWalk]

Hedge fund manager Odey turns super bear on QE [WSJ]

Reinsurance, hedge fund tax 'loophole' rule set for the spring [RiskMarketNews]

Ackman to invest in Clearfield Capital hedge fund [Reuters]

Girls who invest would change Wall Street [Bloomberg View]

Tips for successfully marketing a hedge fund [FINalternatives]

Big money looking for smart plays on energy [CNBC]

Pickens' hedge fund to trade on oil panic in fundraise [Bloomberg]

Why invest in hedge funds if they don't outperform? [Forbes]

Short Selling: Cleaning Up After Elephants By Guy Judkowski

Guy Judkowski, managing member of Waterloo International Advisors, LLC, has authored a piece entitled, Short Selling: Cleaning Up After Elephants, An Investor's Guide to Wall Street's Toughest Job.  He released it on his website here.

He co-managed a short-biased hedge fund for 13 years and has published short sell reports for over 20 years.  His piece looks at numerous case studies including Fruit of the Loom (FTL), Alpharma (ALO), Fossil (FOSL), American Italian Pasta (AIPC), Serologicals (SERO), Orthodontic Centers of America (OCA), Safeskin (SFSK).

Additionally, he highlights certain metrics and patterns to look for in shorts. 

Embedded below is the short selling guide, Cleaning Up After Elephants:



You can download the .pdf here.