What We're Reading ~ 7/6/17

A look at Trupanion (TRUP) - a long-term compounder [Variant Views]

Jim Chanos: US economy is worse than you think [INET Economics]

A chat with Peter Bernstein [Jason Zweig]

Bob Rodriguez: We're witnessing development of "perfect storm" [Advisor Perspectives]

A skeptic's view of popular stocks [Barrons]

Bruce Berkowitz seeks return to glory by betting on Sears (SHLD) [WSJ]

Stockpicking is dying because there are no more stocks to pick [WSJ]

Surveying the direct to consumer landscape [Medium]

Tencent rules China; the problem is the rest of the world [Bloomberg]

A pitch on Cars.com (CARS) [Barrons]

Habits of people who know how to bring out the best in others [Fast Company]

JANA Partners Starts EQT Stake, Opposes Rice Transaction

Barry Rosenstein's activist hedge fund firm JANA Partners has filed a 13D on shares of EQT (EQT).  Per the filing, JANA now owns 5.8% of EQT with over 10.13 million shares (inclusive of options to purchase 1.86 million shares).

This is a newly disclosed equity position  for JANA. They purchased shares in April, May and June at prices ranging from $53.xx to $60.xx.

JANA's Letter to EQT Board

Rosenstein's firm also sent a letter to the board of directions and say they invested because "we believe that the Company trades at a substantial discount to its intrinsic value and has a ready opportunity to unleash this value potential by immediately separating its E&P and midstream businesses into two separate companies, which we estimate could create as much as $4.5 billion (or $26 per share) of value for EQT shareholders."

Additionally, they lay out their case as to why they are against the company's acquisition of Rice Energy.

Embedded below is JANA's letter to EQT:



If you overlaid this position on JANA's portfolio as of the end of the first quarter, EQT would be their second largest position, behind only Whole Foods (WFM).

You can view other recent portfolio activity from JANA Partners here.

Warren Buffett Interview With PBS

Berkshire Hathaway's Warren Buffett recently sat down with Judy Woodruff of PBS for an interview on a wide range of topics like the economy, income inequality, taxes and more.

Here's the video of part 1 of the interview:



And here's the video of part 2 of the interview:



For more on Buffett, we've also highlighted some recent buying activity from Berkshire Hathaway.

Tiger Management Shows Ooma Position

Julian Robertson's hedge fund firm Tiger Management has filed a 13G with the SEC regarding shares of Ooma (OOMA).  Per the filing, Tiger now owns 6.7% of OOMA with 1.22 million shares.

This is a newly disclosed equity position for the fund and the filing was made due to activity on June 21st.

You can view other recent portfolio activity from Tiger Management here.

Per Google Finance, Ooma is "a communications platform for small businesses and consumers. Ooma serves as a communications hub, which offers cloud-based telephony, Internet security, home monitoring and other connected services. Ooma combines PureVoice high definition (HD) call quality features with mobile applications anytime, anywhere calling. Ooma is a full router capable of prioritizing voice data and directing traffic to ensure reliable phone service. Its enterprise-grade phone service built for small business includes features, such as calling features, including unlimited calling in United States and Canada, 911 service and toll-free numbers available; office features, including virtual receptionist, extension dialing and voicemail; mobility features, including call forwarding, voicemail forwarding and multi-ring, and one-touch Internet protocol (IP) phone features, including three way conference, transfer calls and call on hold."

Mohnish Pabrai's Recommended Reading List

Investor Mohnish Pabrai recently recommended a few books at his talk at Google which we just highlighted.


Mohnish Pabrai's Recommended Reading List

  Am I Being Too Subtle? by Sam Zell.  Pabrai said it was great and personally preferred to listen to the audiobook.


  Damn Right: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger by Janet Lowe. The other biography on Charlie Munger that Pabrai said included interesting tidbits not seen before.


  The Beak of the Finch: A Story of Evolution in Our Time by Jonathan Weiner.  Mohnish said he was fascinated by it.  "Unrelated to investing but a great read."


And in the past, Pabrai has also frequently recommended books such as:

  Poor Charlie's Almanack by Charlie Munger.  The classic text that any follower of his should read.


  The Essays of Warren Buffett by Warren Buffett.  Another classic.


And while he didn't recommend his own book, it's worth noting Pabrai has authored The Dhando Investor: The Low-Risk Value Method to High Returns.


For more book recommendations from top investors check out the right sidebar of Market Folly as we've posted many lists.

Mohnish Pabrai's Talk at Google on Entrenched Biases

Fund manager Mohnish Pabrai recently gave a talk at Google on how intensive stock research can be injurious to financial health. 

The video's description is "how the plethora of deeply entrenched biases and flawed evolutionary brain wiring makes us prone to make plenty of mistakes when picking stocks.  Specifically, the more time we spend analyzing a given business, the more likely we are to like it and invest in it. 

But if we don't spend time studying a business, how are we expected to understand its prospects and likely future?  This strong commitment bias is an important reason why most investment managers have trouble beating the index. 

Mohnish will lay out the origins of this bias problem and a few hacks to get around it."

Embedded below is the video of Mohnish Pabrai's latest talk at Google:



For more from this investor, we've posted Pabrai's talk on value investing as well.

For other investor talks at Google, we've posted many of those presentations and you can scroll through that link.

What We're Reading ~ 6/28/17

Taking the pulse of Disney's behemoth ESPN [Sports Business Daily]

The end of car ownership [WSJ]

Pitch on Bank of the Ozarks [Barrons]

Five ways a company can keep its competitive edge [Fortune]

Morningstar's updated top 10 holdings of ultimate stock pickers [Morningstar]

Half of Americans are spending their entire paycheck (or more) [CNN Money]

'How many jobs will be killed by A.I.?' is the wrong question [LinkedIn]

Inside the secret world of the shipping industry [Longreads]

Compound interest applied to learning [Kottke]

How to predict if a borrower will pay you back [NYMag]

Charlie Munger on The Psychology of Human Misjudgement

Investor Charlie Munger is well known for delivering his talk on The Psychology of Human Misjudgement at Harvard in 1995. 

A company called Tiny has created an animated and abridged version of the speech that hits the highlights and puts a visual twist on the talk.  So if you missed his talk or are looking for a quick refresh, this is a great synopsis. 

Embedded below is the video of Charlie Munger on the Psychology of Human Misjudgement:



For more on this investor, check out Charlie Munger's recommended reading list.

Steadfast Capital Boosts Trivago Position

Robert Pitts Jr.'s hedge fund firm Steadfast Capital has filed a 13G with the SEC regarding shares of Trivago (TRVG).  Per the filing, Steadfast now owns 5.4% of the company with over 1.60 million shares.

This is an increase of over 1.05 million shares since the end of the first quarter when they owned 550,074 shares.  The filing was made due to activity on June 14th.

We've previously highlighted how Foxhaven Asset Management has also built a Trivago stake. 

Per Google Finance, Trivago "operates an online hotel search platform. The platform allows users to search for, compare and book hotels. It gathers information from various third parties' platforms and provides information about the hotel, pictures, ratings, reviews and filters, such as price, location and extra options. The Company offers access to approximately 1.3 million hotels in over 190 countries via more than 50 localized websites and applications in various languages. The Company also offers marketing tools and services to hotels and hotel chains, as well as to online travel agencies and advertisers, among others. Its principal executive offices are located in Germany."

Paulson & Co Increases Valeant Pharmaceuticals Stake

John Paulson's hedge fund firm Paulson & Co has filed a 13D with the SEC regarding shares of Valeant Pharmaceuticals (VRX).  Per the filing, Paulson now owns 6.3% of VRX with over 21.81 million shares.

This marks an increase of 2.42 million shares since the end of the first quarter when they owned 19.38 million VRX shares. 

Per the 13D filing, Paulson & Co bought 2.71 million shares at a weighted average price of $13.7080 on May 11th.  They then sold 137,000 shares on June 8th at $13.2914.

The filing also notes that on June 14th, John Paulson was appointed to the board of directors.

Per Google Finance, Valeant Pharmaceuticals is "a pharmaceutical and medical device company. The Company is engaged in developing and marketing a range of branded, generic and branded generic pharmaceuticals, over-the-counter (OTC) products, and medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment, and aesthetics devices). It operates through two segments: Developed markets and Emerging markets. In the Developed Markets segment, it focuses on the areas of dermatology, neurology, gastrointestinal disorders, and eye health therapeutic classes. In the Emerging Markets segment, it focuses on primarily on branded generics, OTC products and medical devices. Its pharmaceutical products include Xifaxan, Solodyn and Glumetza. Its OTC products include PreserVision, Biotrue and Boston. Its other generic products include Latanoprost and Metronidazole. Its ophthalmic surgical products include intraocular lenses, such as Akreos, enVista, Crystalens and Trulign."

Third Point Takes $3.5 Billion Nestle Stake: Letter

Dan Loeb's hedge fund firm Third Point has released a letter that reveals they've taken a $3.5 billion stake (including options) in Nestle in their hedge funds as well as a special purpose vehicle they raised for the opportunity.

They see four areas for improvement:

1) Improving productivity: adopt a formal margin target

2) Capital return: adopt a leverage target and buyback stock

3) Re-shape the portfolio: perhaps sell some businesses

4) Monetize their L'Oreal stake


Third Point feels that Nestle can hit earnings per share 50% higher than today.

Embedded below is Third Point's letter on Nestle:



You can download a .pdf copy here.

We've also posted other recent portfolio activity from Third Point here and you can also read Third Point's Q1 letter.

Berkshire Hathaway Invests in Home Capital Group and Store Capital

News has recently come out that Warren Buffett's Berkshire Hathaway has made two recent investments:

Berkshire Hathaway Invests in Home Capital Group (HCG)

First, Berkshire will indirectly purchased C$400 million of Home Capital shares via a private placement (40 million shares at around C$10 per share).  Additionally, Berkshire will give the company a C$2 billion line of credit.

Of the investment, Buffett said, "Home Capital's strong assets, its ability to originate and underwrite well-performing mortgages, and its leading position in a growing market sector make this a very attractive investment."

Berkshire will own just over a 38% equity stake in the company.  The company had been undergoing a strategic review as it sought ways to raise capital.

Home Capital had been a popular short among investors betting that Canada could see fallout from a subprime housing crisis of its own.  Buffett has clearly zagged the other direction with this bet.

After falling 45% over the past six months, HCG shares are now up 82% over the past few weeks.

For more on Berkshire Hathaway, we highlighted an interview with Warren Buffett last month.

Per Google Finance, Home Capital is "Canada-based holding company that operates through its subsidiary, Home Trust Company (Home Trust), which offers deposits, residential and non-residential commercial mortgage lending and consumer lending. It offers deposits through brokers and financial planners, and through its direct-to-consumer deposit brand, Oaken Financial. Home Trust, through its subsidiary, Home Bank, offers mortgage, deposit and personal banking products. Its mortgage lending includes Traditional Single-family and ACE Plus Lending; insured residential lending; residential commercial lending, and non-residential commercial lending. Its consumer lending includes credit card and line of credit lending, and other consumer retail lending. In addition it manages a treasury portfolio to support liquidity requirements and invest excess capital. Its operations also include Payment Services Interactive Gateway Inc., the Company's subsidiary involved in payment processing."


Berkshire Invests in Store Capital (STOR)

Secondly, Warren Buffett's firm has also made a bet on another industry that's seen some struggles: physical retail.  While it's not an actual retailer, it still has exposure to the industry as it's a REIT focused on single tenant commercial operational real estate. 

Berkshire has invested $377 million in Store Capital (STOR) according to the company, which turns out to be around a 9.8% stake.  The private placement issued 18.6 million shares at $20.25 per share.

Per Google Finance, Store Retail is "an internally managed net-lease real estate investment trust. The Company is engaged in the acquisition, investment and management of single tenant operational real estate (STORE) properties. As of December 31, 2016, the Company owned a portfolio that consisted of investments in 1,660 property locations operated by 360 customers across 48 states. Its customers operate across a range of industries within the service, retail and manufacturing sectors of the United States economy, with restaurants, early childhood education centers, movie theaters, health clubs and furniture stores. The Company's portfolio includes investments in approximately 1,330 property locations operated by over 300 customers across approximately 50 states. The Company provides real estate financing solutions principally to businesses that own STORE properties and operate within the broad-based service, retail and industrial sectors of the United States economy."

For more from Warren Buffett, we've highlighted other Berkshire Hathaway portfolio activity here.

Sohn India Conference Notes 2017: Agarwal, Singh, Prakash & More

We couldn't make it to the Sohn India Conference but luckily Alpha Ideas has allowed us to share their notes from the event as a guest post. 


Sohn India Conference Notes 2017


Raamdeo Agarwal (Motilal Oswal):  Pick was PNB Housing Finance. He termed it a ‘Lakh Crore Ki Kahani’In India, there are only 27 Companies which have a market cap of more than 1L Crores.  For a company to break into this elite club, there must be strong tailwinds and a long runway in place.  Some such megatrends that he has seen in his career are IT Services, Private Banks, Pharma etc.  He analyzed the Company using his QGLP model.  Its a business with secular growth drivers.  India’s Mortgage to GDP is very low (9%) and level of urbanization is only 33%.  Both these figures can only go up.  The Gross NPAs in this business is only 0.8%For all practical purposes, it is Carlyle which owns 38% of the company is running the business.  They have put in top class processes and practices.  Agarwal quipped –‘I own a housing finance business myself and hence can judge the high quality and scalability of PNB’s processes.’  The management plans to double assets by 2020.  Modi’s ‘Housing For All’ can create a 50L Crores Mortgage Market.  The Company has grown at 52% CAGR in the last 4 years and increased its market share.  He expects the stock to break into the 1 Lakh Crore Club by 2024…a CAGR of 24%.


Sunil Singhania (Reliance Mutual Fund):  Being from Mutual Fund Industry, compliance demands he can’t give stock picks but can speak on sectors.  His pick was the Cement Sector.  Felt while the current demand is low, the sector will benefit from the Govt’s infrastructure and housing boost.  The problem is that cement stocks have significantly increased in price.  He presented an interesting way to play this sector.  Said the most significant wealth creation in Shree Cements happened when capacity when from 15 Million Tonnes to 25 Million Tonnes–stock price went up by 3x/4x.  He suggested to buy two companies - one North/Central India and the other South India - which have around 15 Million Tonnes each and are ramping up capacity.  Enjoyed the clear thinking and analysis of Sunil Singhania.


Shankar Sharma (First Global):   Explained that he liked companies with high leverage because when debt gets paid off, correspondingly market value increases.  Recommended MEP Infrastructure Developers Ltd.  Basically, a toll operator with 19 Toll Plazas including Mumbai entry points, Bandra sea link etc.  For the first time since inception it has made a profit now.  Expects debt leveraging to happen.


Saurabh Mukherjea (Ambit):  Recommended Garware Wall Ropes.  Top manufacturer of nets and ropes in the world.  Exports 3000 SKUs to 80 countries.  Its expertise in blending high end polymer chemistry with high labor intensity is unmatched.  His Primary checks tell him customers are very satisfied with the Company products.  Growth will come from Defense, Agri, Infra etc.  Management is prudent in their capital allocation, had bought back their own shares in the past.


Navneet Munot (SBI Mutual Fund):  Being from Mutual Fund Industry,compliance demands he can’t give stock picks but can speak on sectors.  His sector pick was Telcos.  There will be a bloodbath in the sector for next 2-3 quarters.  The Telcos which survive will make a lot of money as Data addiction now is a bigger addiction than alcohol, tobacco etc.  Push by the Govt - show a Modi video clip.  Consolidation–>Pricing Power—>ROCE.


Aanand Chouhan (Stockpicking Competition Winner):  Aanand had won a stock picking competition organized by Sohn and hence was given opportunity to present his idea.  His stock pick was Infoedge.  Felt the company’s core business (Naukri), Internet Portfolio (99acres, Jeevansathi, etc) and VC Investments (Zomato, PolicyBazaar etc) were valuable and could grow well.  Gave a target price of 1570 Rs/share over the next 3 years.


Jeff Gundlach (DoubleLine Capital):  Via video: He said there is no such thing as passive investing as the index constituents are decided by a committee.  Said to go long emerging markets and short S&P 500.


Kenneth Andrade (Old Bridge Capital Management):  His top pick was ENI.  Its the market leader in the Radio space with 30% market share and recognizable brand (Radio Mirchi).  It will have second frequency in 11 Metros.  National footprint with 60 cities.  Radio is an attractive space with 4% of Media spend and growing at a CAGR of 16.9%.  ENI has already done significant capex and its time to reap the benefits.


Shashank Singh (Apax Partners):  His top pick was DCB Bank.  His investment thesis was Retail private banks with clear product/customer strategy will do well.  DCB Bank reinvented itself after 2010 under current leadership.  Suppressed earnings due to network rollout and hence attractive valuations.  Felt the Bank has a conservative credit culture with the CEO himself doing surprise audits.  Earnings will improve with time as the branch network gets more ‘seasoned.’


Hiren Ved (Alchemy Capital):  His top pick was Varun Beverages.  Said the Company is a good proxy for Pepsi in India.  Not just a bottler but also a manufacturer, marketer and distributor.  Felt one unanticipated impact of 24*7 electricity is more people consuming more beverages.  Coming to valuations, he said Varun is cheap compared to other consumer plays like Jubilant Food/Page Industries.  Found the comparison very funny.


Ashwini Agarwal (Ashmore):  His top pick was Persistent Systems.  Said the company was not a typical IT services provider as it is into outsourced product management.  Three investment reasons IBM-Watson tie up begins to pay off.  Growth in Digital business -40% CAGR is possible.  Core IT services revenue shows 6-8% CAGR.  Two investment risks:  Rupee Strengthening, Curbs/high fees on H1B Visas.


Akash Prakash (Amansa):  His top pick was Infoedge.Second time the stock was discussed today.  He felt it was the ultimate India Internet play.  He also felt due to network effects the value of Naukri, 99 acres, Zomato etc will keep growing.  He feels the real estate classifieds space is 5x bigger than the recruitment space and the restaurant space is bigger than the real estate classifieds space.  The company's VC fund also lets the investor bet on interesting Internet opportunities which otherwise one could not.  He felt the downside risk was minimal while upside could be 3x/4x.


The conference ended by a video clip of Social Capital's Chamath Palihapitiya who discussed Tesla and made a case for buying its convertibles.  (MF note: he pitched this idea at a previous conference as well).


Thanks again to Alpha Ideas for the guest post.


For coverage of other Sohn Conferences, head to our notes from Sohn Hong Kong 2017 as well as notes from Sohn New York 2017.

What We're Reading ~ 6/22/17

Payments industry overview: Analysis of Visa, Mastercard, American Express [Value Seeker]

Brexit in reverse? [George Soros]

If you can't explain something in simple terms, you don't understand it [Kottke]

On the popular 'FANG' stocks [AQR]

How to survive the retail crisis: a master class from T.J. Maxx [WSJ]

Starbucks' Howard Schultz has something left to prove [Fortune]

Blockchain 101 [CFA Institute]

How a 36-year old Wall Street prodigy saved Burger King [Business Insider]

Why grocery retail is the 'holy grail' [Bloomberg]

A look at subprime auto debt [NYTimes]

Profile of Citron's Andrew Left [NYTimes]

Mary Meeker's 2017 internet trends report [KPCB]

Essilor's CEO on an eyewear megamerger with Luxottica [FT]

Why is Trump causing chaos in Washington but not in the stock market? [Five Thirty Eight]

Sohn Conference Hong Kong Notes 2017: Block, Krishnan, Shah & More

The 2017 Sohn Conference in Hong Kong recently took place and featured managers sharing investment ideas to benefit the Karen Leung Foundation for gynecological cancer.  Here's quick summaries of each speaker's stock idea and pitch from the Asia Society Hong Kong Center.


Sohn Conference Hong Kong Notes 2017

Carson Block (Muddy Waters): Short Man Wah Holdings (1999.HK).  Pitch highlighted taxes and concerns over debt and free cashflow.  Also questioned sales from export.  He thinks they generate 50% of net income from Macau but has a 0% tax rate?  "Our opinion is this is tax evasion at best, but we think more likely a major component of financial fraud."  Says company has undisclosed debt off books and total debt is around 48% greater than reported.  "MWH has inconsistencies in its taxes, a strong indicator of fraud.  MWH has an entity in Macau that books over half of consolidated net profits.  Fieldwork casts doubt on China sales growth story."


Eashwar Krishnan (Tybourne Capital): Long Rolls Royce (RR.LN).  Argued that its position as a UK manufacturer with currency weakness makes the company stronger.  "Rolls Royce's 3-year expected return of 85% including dividends, thanks to around a 10% free cashflow yield."  Likes the new management team and CEO Warren East, thinks they can improve margins.  Highlighted disparity between RR at 5.3% margin and main competition GE/Safran at ~20%.  Says capex and research/development will be source of operating leverage and RR can double its market share over the next decade, highlighting company's large order book growing.  Aerospace engine makers are an attractive business model as it's a razor/razor blade model with pricing power on the aftermarket service portion of the business.  High barriers to entry, sizeable investment costs, strong regulatory hurdles.  Duopoly (one of 2 engine makers in widebody and 3 engine makers overall).  Points to secular growth in miles flown.  Accelerating global travel is the key driver for RR.  Prior to founding Tybourne, Krishnan was the Asia head at Lone Pine Capital.


Shashin Shah (Think Investments): Long Indiabulls Real Estate (IBREL).  Play on Indian real estate restructuring.  Bull market there created by increasing affordability and government regulations that are favorable (Real Estate Regulatory Act: RERA).  Thinks it can double over the next 3 years, says co has excellent track record of execution.


James Tu (Nine Masts Capital): Long Sina convertible bonds/Weibo (WB).  Play Weibo via Sina convertible bond.  SINA 1% 12/1/2018 Convertible Bond.  CB Price 106, Matures with accrued 101, conversion price 115.88.  Thinks Sina's CEO may do everything to "push up WB valuation through spinning off."  Sees 50% margin of safety here, argues it is a much smaller Facebook.  Has MAU of 340 million, 154 million DAU, $16b market cap.


Seth Fischer (Oasis Management): Long Sony (SNE / 6758.JP).  Valuation is not demanding (just under 17x forward earnings and 5.7x EV/EBITDA), high potential to grow, sees 39% upside as management completes turnaround.  Thinks they should start diversifying financial risk better, bring in partners, and utilize tax farming for movie production better.  Entertainment is a strength for the company as it grows its TV programming biz.  Argues it's one of the best players in virtual reality (VR).  PlayStation players spend a lot of time with the device and have attractive demographics.  Company has solid corporate governance.  Notes company's revenue from third party gaming software is growing 11-30% annually. 


Dan David (FG Alpha Management): Short Dali Foods Group.  Company's operating costs are too low he argues (a third of peers' costs).  His concerns include: advertising expenses, cash advances, capex spending, low operating expenses, SAT and SAIC inconsistencies. "We consulted an industry expert to estimate Dali's capex spend in 2013-2014.  Their cumulative estimate for both years is about $1 billion RMB less than Dali reported.  Based on our research, the company's operating expenses and salary are unbelievably lower than publicly traded peers."  Compared Dali's costs to WantWant.  David said he's also still short Fullshare 607.HK


Ethan Devine (Indus Capital): Long Yahoo Japan (4689.JP).  Sees shares doubling as it's one of the biggest value creators in Japan and dominant digital advertising play there.  Thinks EPS can see CAGR of 26% through 2020 and co can reduce share count by 36%.  Also posited that it's possible for Alibaba to sell its stake in Yahoo JP.


Yuet Wei Wan (Wei Capital): Long Great Wall Motor (2333.HK).  Chinese automaker, local brands gaining market share.  Largest SUV maker has product upgrade this year.  Sees 48% upside in base case and 100% upside in best case.  Targeting 5-8x 2018 PE with a price range of HKD 7-17.  "The Street already thinks it's going to fail."  Sell side estimates have EPS growth from (5%) in 2017 up to 6% in 2018 while she thinks it will head from (9%) this year to 45% in 2018 with a 7% jump in ROE year over year.  Says they're following the Hyundai playbook of selling affordable premium cars.


Brandon Lin (SPQ Asia Capital): Long Momo.  Long the Chinese dating world, livestreaming, social platform.  Thinks recent price drop is an attractive entry point.  "Momo can continuously grow thanks to its short video business and strong campaign."  Highlighted time spent per daily active user per day.  Momo beats YY, Weibo, Kuaishou, and Inka.  Momo has over 200 million registered users and 85 million MAU.


Rajesh Sachdeva (Flowering Tree Investement Management): Long Shankara Building Products.  Notes how home improvement stores have done well around the world (i.e. Home Depot).  Thinks can do well in India as GDP and middle class grows in the country.  Shankara is the largest organized retailer in India for home improvement.  Sees revenue growing 18-20% and margins expanding by 40-50 basis points per year for 3-5 years, so earnings grow around 25% with ROCE of around 27%


Michael Lowy (SC Lowy): Long Peabody Energy (BTU).  Been a career debt investor but pitched common stock here as an equity reorg play, sees around 60% upside as company ramps cash flow and is reintroduced to the capital markets.  Used a blend of 5.5x !*E EBITDA and a 9% FCF yield to get to $37.5 per share.  It's historically traded at a premium (1-2x) of Arch Coal, which would yield $29-36 per share.  He expects dividend and buyback program.  "Conversion of cash-backed LC's into bank guaranteed LC's will release ~$4/share in cash.  Net cash position by the first half of 2018. 


Arjun Menon (Highbridge Capital): Long KEPCO (Korean Electric Power ~ 015760.KR).  Likes it due to low valuation, stable dividend.  Forward ROE goes up while forward P/B stays low.


For more coverage of recent investment conferences, head to our notes from Sohn New York Conference, as well as notes from the London Value Investor Conference.

Corvex Management Ups CenturyLink Stake

Keith Meister's activist firm Corvex Management has filed an amended 13D with the SEC regarding its position in CenturyLink (CTL).  Per the filing, Corvex now owns 5.6% of CTL with over 30.99 million shares.  This is made up of 18.99 million shares and 12 million shares underlying call options.

This is an increase of around 1 million shares from the beginning of May when Corvex first revealed its stake in CTL.  The latest filing was made due to activity on June 16th and it notes they bought CTL at $25.91.

We previously highlighted Meister's presentation on CenturyLink at the Sohn Conference New York.  CenturyLink is merging with Level 3, which Meister thinks is a game changer.

Per Google Finance, CenturyLink is "an integrated communications company. The Company is engaged in providing an array of communications services to its residential and business customers. Its segments include business, which provides strategic, legacy and data integration products and services to small, medium and enterprise business, wholesale and governmental customers, including other communication providers, and consumer, which provides strategic and legacy products and services to residential customers. Its communications services include local and long-distance voice, broadband, Multi-Protocol Label Switching (MPLS), private line (including special access), Ethernet, colocation, hosting (including cloud hosting and managed hosting), data integration, video, network, public access, Voice over Internet Protocol (VoIP), information technology and other ancillary services. As of December 31, 2016, it served approximately 5.9 million broadband subscribers and 325,000 Prism TV subscribers."

NYU Stern eValuation Newsletter: Spring 2017

The spring 2017 edition of NYU Stern's Investment Management and Research Society's latest newsletter eValuation has been released.  This issue focuses on investing in a changing world.

It features interviews with J. Daniel Plants of Voce Capital, Blu Putnam of CME Group, Roderick Wong of RTW Investments, Professor Paul Wachtel of NYU Stern, and Professor Vasant Dhar of NYU Stern.

The issue also includes investment pitches from students, including: long American Railcar (ARII) and long Lending Club (LC).

Embedded below is the latest issue of NYU Stern's eValuation newsletter:



For other MBA student investment newsletters, we've also posted up the recent newsletter from Columbia Business School as well.

Corvex Management Adds To Energen Stake

Keith Meister's activist firm Corvex Management has filed an amended 13D with the SEC regarding its stake in Energy (EGN).  Per the filing, Corvex now owns 6.6% of EGN with over 6.39 million shares.

This is up from the 5.37 million shares Corvex owned at the end of May when they previously filed a 13D. 

The latest filing was made due to activity on June 14th and it notes that Covex acquired over the counter American style call options and sold over the counter European style put options.  You can view all their transactions here.

You can view other recent portfolio activity from Corvex Management here.

Per Google Finance, Energen is "an oil and natural gas exploration and production company. The Company is engaged in the exploration, development and production of oil and natural gas properties and natural gas. Its operations are conducted through subsidiary, Energen Resources Corporation and occur within the Midland Basin, the Delaware Basin and the Central Basin Platform areas of the Permian Basin in west Texas and New Mexico. The Company is focused on increasing its oil, natural gas liquids and natural gas production and proved reserves through active development and/or exploratory programs in the Permian Basin. As of December 31, 2016, oil, natural gas liquids and natural gas represented approximately 60%, 20% and 20% of its reserves. As of December 31, 2016, its development activities added approximately 327 million barrels of oil equivalent (MMBOE) of reserves from the drilling of 623 gross development, exploratory and service wells and 73 well recompletions and pay-adds."

Market Folly's Summer Reading List

If you've got a vacation / holiday coming up and need some reading material, here are some recommended books on investing, hedge funds, business, decision making, and life in general.  Some are newer books, others are classics you might have missed and should catch up on.

Have any other suggestions?  Hit the comments below.  Enjoy!

2017 Summer Reading List


  Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street by Sheelah Kolhatkar.  If you're looking for a financial thriller centered around the hedge fund world, this is it.


  Competition Demystified: A Radically Simplified Approach to Business Strategy by Bruce Greenwald and Judd Kahn.  Classic text on important concepts. 


  Narrative and Numbers: The Value of Stories in Business by Aswath Damodaran.  New book from the NYU Stern Professor. 


  The Master Switch: The Rise and Fall of Information Empires by Tim Wu.  Relevant read in this day and age. 


  Shoe Dog: A Memoir by the Creator of Nike by Phil Knight.  Recommended by Warren Buffett recently.  


  The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance by Ron Chernow. Biography that's been recommended by many.   


  Option B: Facing Adversity, Building Resilience, and Finding Joy by Sheryl Sandberg and Adam Grant.  New book from the Facebook COO and the Wharton professor.  


  Essentialism: The Disciplined Pursuit of Less by Greg McKeown.  Learn how to stop being busy and start being productive.

Senator Investment Group Shows Spirit Realty Capital Stake

Alex Klabin and Doug Silverman's hedge fund firm Senator Investment Group has filed a 13G with the SEC regarding shares of Spirit Realty Capital (SRC). 

Per the filing, Senator now owns a 7.23% ownership stake in SRC with 35 million shares.  This is a newly disclosed equity position and the filing was made due to activity on June 1st, 2017.  In late April, shares traded from $10.44 down to a low of $6.71 in May and now trade around $7.70.

Per the company's website, Spirit Realty Capital is "one of the largest publicly traded triple net-lease real estate investment trusts (REITs) in the United States."