We're proud to announce a new series here on MarketFolly.com: stock of the week. This series aims to provide a quick summary of what hedge fund managers and well known investors might see in a particular company.
These posts are written by Tsachy Mishal who is the Portfolio Manager at TAM Capital Management. He provides background on the situation, as well as what he likes and dislikes about the company. Here's his take on what Carl Icahn sees in WebMD (WBMD):
Carl Icahn is so well known for putting fear in the heart of corporate boards and entrenched managements everywhere, that his amazing record as an investor is often overshadowed. When I saw WebMD trading at a 52 week low I was eager to take a look as Carl Icahn bought 11.64% of the company at significantly higher prices.
WebMD is the most visited health related website in the US by both patients and doctors. People visit the site in order to learn more about drugs, illnesses, and general health issues. WebMD largely makes its money off of advertising. WebMD has stumbled recently as pharmaceutical companies have cut ad spending. Pharmaceutical companies are facing a patent cliff which is a double whammy for ad spending. There are fewer drugs to advertise and companies are looking to offset lost revenue with lower costs.
WebMD has a market cap of $1.4 billion and $320 million in net cash for an enterprise value of $1.08 billion. In 2011 WebMD produced $558 million in revenue and $116 million in free cash flow. In 2012 revenue is expected to fall to $507 million and free cash flow is expected to fall to $65 million.
What I like:
- WebMD trades at a little over 9 times 2011 free cash flows. If they could turn around their revenue decline and cut costs, the stock would be very attractively priced.
- Carl Icahn seems to be influencing the company as the recent tender offer is straight out of his playbook.
- There is a tender offer for $150 million worth of shares. Tender offers tend to have a positive short term effect on stock prices.
What I don't like:
- WebMD trades at 16 times forward free cash flow, which seems high for a stumbling company.
- Stock option expense is nearly $40 million a year, which is a very large portion of free cash flow and earnings.
- Content creation on the internet does not have any barriers to entry.
- There do not seem to be any potential acquirers as the company unsuccessfully tried to sell itself recently.
I must admit to scratching my head when first looking at the company, trying to figure out what Carl Icahn sees. Then, I realized that just a few months ago there were expectations for growing revenue and free cash flow. I'm not certain that Carl Icahn would have gotten himself into this situation had he known he was looking at a revenue and free cash flow decline. However, as owner of 11.6% of the company, it's difficult for him to turn back. WebMD is now a turnaround situation and with Carl Icahn calling the shots I wouldn't bet against them. That said, I'm not interested in betting alongside Carl Icahn in WebMD.
That concludes the first entry in MarketFolly's new series: stock of the week. The above was written by Tsachy Mishal, Portfolio Manager at TAM Capital Management.
Tuesday, March 6, 2012
What Carl Icahn Sees in WebMD: Stock of the Week
Alan Fournier's Pennant Capital Starts HomeServe Position
Alan Fournier's hedge fund Pennant Capital disclosed a new position in HomeServe (LON:HSV) traded in the UK.
On March 2nd, 2012, Pennant crossed the 3% ownership threshold required for regulatory notification. The hedge fund now owns over 9.7 million shares of HSV. They have over 10.6 million in voting rights which is equivalent to a 3.24% stake.
We've detailed the rest of Pennant's portfolio in the latest issue of our Hedge Fund Wisdom newsletter that was just released.
Per Google Finance, HomeServe "provides home emergency and repair services to over 4.9 million customers across the United Kingdom, the Unites States of America, France and Spain. Services are provided through its membership businesses, which are responsible for the marketing and administration of over 11 million home repair and appliance warranty policies."
We've also detailed how Pennant has been active in shares of Huntington Ingalls Industries.
Steve Cohen's SAC Capital Boosts Dynavax Technologies Stake
Steve Cohen's hedge fund SAC Capital just filed a 13G with the SEC regarding shares of Dynavax Technologies (DVAX).
The hedge fund has boosted its holdings by 831,731 shares, almost a 12% increase in their position size since the end of 2011.
SAC Capital now owns 7,856,130 shares of DVAX which is a 5.1% ownership stake in the company. The SEC filing was made due to trading activity on February 22nd. You can also see some of SAC's other recent portfolio activity here.
Per Google Finance, Dynavax Technologies is "a biopharmaceutical company that discovers and develops products to prevent and treat infectious diseases, asthma and inflammatory and autoimmune diseases. The Company’s principal product candidate is HEPLISAV, a Phase III investigational adult hepatitis B vaccine. Its pipeline of product candidate includes HEPLISAV; its Universal Flu vaccine; clinical-stage programs for hepatitis C and hepatitis B therapies, and preclinical programs partnered with AstraZeneca and GlaxoSmithKline (GSK)."
SAC Capital was recently named one of the top 10 hedge funds by net gains since inception.
Tom Brown's Second Curve Capital Raises Stake In The Bancorp (TBBK)
Tom Brown's hedge fund firm Second Curve Capital just filed a 13G with the SEC regarding shares of The Bancorp (TBBK).
Due to trading activity on March 1st, 2012, Second Curve has disclosed a 5.1% ownership stake in The Bancorp with 1,692,832 shares. This is an increase of 37% in their position size since the end of 2011.
About Second Curve Capital
Prior to founding Second Curve, Tom Brown headed the financial services group at Julian Robertson's Tiger Management. As such, it should come as no surprise that his fund largely focuses on financials.
About The Bancorp
Per Google Finance, The Bancorp is "a financial holding company with a wholly owned subsidiary, The Bancorp Bank (the Bank). Through the Bank, the Company provides a range of commercial and retail banking services and related other banking services, which include private label banking, health savings accounts stored value (prepaid debit) cards and merchant card processing to both regional and national markets."
Soros Ramps Up Holdings in Acacia Research (ACTG)
George Soros' hedge fund turned family office, Soros Fund Management, filed a 13G with the SEC in regards to Acacia Research Corp (ACTG). They've revealed a 5.64% ownership stake in the company with 2,801,180 shares.
This marks almost a 600% increase in their position size since the end of 2011. The disclosure was made due to trading activity that crossed the regulatory threshold on February 21st.
Per Google Finance, Acacia Research Corp "through its operating subsidiaries, acquires, develops, licenses and enforces patented technologies. The Company’s operating subsidiaries generate revenues and related cash flows from the granting of rights for the use of patented technologies, which its operating subsidiaries own or control.
Its operating subsidiaries assist patent owners with the prosecution and development of their patent portfolios, the protection of their patented inventions from unauthorized use, the generation of licensing revenue from users of their patented technologies and, if necessary, with the enforcement against unauthorized users of their patented technologies.
In January 2012, the Company acquired ADAPTIX, Inc. In January 2012, the Company acquired patents relating to catheter ablation technology. In February 2012, the Company’s subsidiary acquired over 300 patents from Automotive Technologies International."
Soros Fund Management was recently listed as one of the top 10 hedge funds by net gains since inception.
Friday, March 2, 2012
Dan Loeb's Third Point Starts Apple (AAPL) Stake: Top Positions & Latest Exposures
Dan Loeb's $4.6 billion Offshore Fund at Third Point finished February up 1% and is now up 4.9% for the year. As of the end of February, here are their top stakes:
Third Point's Top Positions
1. Yahoo! (YHOO)
2. Gold
3. Eksportfinans ASA
4. Delphi (DLPH)
5. Apple (AAPL)
Apple now makes an appearance in Loeb's top holdings and is the big takeaway here because the hedge fund did not own AAPL at the end of the year.
Third Point also revealed that one of their big winners in the month was the Medco Health (MHS) and Express Scripts (ESRX) arbitrage play. This is another new play that was not present in Third Point's portfolio at the end of the year. To read about this arbitrage play, check out a free excerpt from our newsletter as it's briefly discussed in the Omega Advisors section.
Latest Equity Exposure
In equities, Third Point is 53.2% long and -16.5% short, leaving them 36.7% net long. They've continued to ramp up their net long exposure as they were 28.2% net long just a month ago.
Their largest allocation continues to be in the technology sector at 16.2% net long (largely due to their activist position in Yahoo). Their next highest exposure is the consumer sector at 7% net long.
One of their losers in the past month was Marvell Technology (MRVL), a new stake they initiated in the fourth quarter. Apple (AAPL) was one of their big winners in the month as it ramped up right after they initiated a stake.
Credit Exposure
In credit, Loeb's firm is 18.7% net long (40% long and -21.3% short). This is up from 15.6% net long exposure in January. Their biggest net long allocation is in asset backed securities (ABS) at 14.3% net long and they continue to be net short government issues at -14.2%.
For some thoughts on their portfolio, head to Third Point's Q3 letter.
Nelson Peltz Sells Some H.J. Heinz (HNZ)
Trian Fund Management's Nelson Peltz has filed a slew of Form 4's with the SEC regarding his stake in H.J. Heinz (HNZ). Between February 24th and 28th, Peltz has sold 209,200 HNZ shares. He's reduced his position size by almost 20%.
The bulk of his share sales came at a price of $53.5713, though he also sold at $53.0968 just three days ago. HNZ currently trades around that level, at $52.98. As of February 28th, Peltz now owns 837,884 shares of Heinz.
Per Google Finance, Heinz "together with its subsidiaries is engaged in manufacturing and marketing a range of food products throughout the world. The Company’s principal products include ketchup, condiments and sauces, frozen food, soups, beans and pasta meals, infant nutrition and other food products. The Company’s products are manufactured and packaged to provide safe, wholesome foods for consumers, as well as foodservice and institutional customers."
Warren Buffett's Annual Letter 2011: Key Takeaways
If you haven't seen it already, Warren Buffett is out with his 2011 annual letter to Berkshire Hathaway shareholders. Here are some key takeaways:
- Succession: Buffett puts the succession talk (somewhat) to rest as the company has identified a successor at CEO. They also have two backup candidates as well. The problem is, people will take issue with the fact that the identities still haven't been revealed.
So, when Buffett does finally decide to step down from Berkshire (or when he passes on, because he could certainly work there until the day he dies), the company will be able to transition to the next era. The question now becomes, how much "Buffett premium" is in the stock?
We've also long detailed how Buffett has chosen two new investment manager successors as well. He hired Todd Combs from hedge fund Castle Point Capital and Ted Weschler from hedge fund Peninsula Capital Advisors.
- Buybacks: The Oracle of Omaha clearly thinks his company's stock is undervalued and is anxious to buy back Berkshire Hathaway shares as high as 1.1x book value, which would be around $110,000 on the A shares (BRK.A) as of year-end. Shares currently only trade around 7% higher at $117,755.
- Acquisitions: The two most recent major acquisitions for Berkshire Hathaway, Lubrizol and Burlington Northern Santa Fe, have delivered record operating earnings. So yet again, Buffett has made some prescient buys.
It's also not out of the question that Buffett could possibly make some additional acquisitions in the near future. After all, his Berkshire businesses are throwing off around $1 billion per month as a whole that he could use. While he doesn't specifically mention anything in the letter, it seems like an obvious possibility. As to where he might look, we've detailed in the past how Buffett likes businesses with pricing power (Lubrizol).
Embedded below is what value investors have deemed a must read every year: Warren Buffett's annual letter to Berkshire Hathaway shareholders (you can download a .pdf copy here):
For more resources from one of the greatest investors ever, check out:
- Warren Buffett's recommended reading list
- Top 25 Warren Buffett quotes
- A compilation of Buffett's partnership letters
- Buffett's worst trade
Thursday, March 1, 2012
Jeremy Grantham's 10 Investment Lessons
GMO's Jeremy Grantham is out with a February 2012 letter which he has entitled, "The Longest Quarterly Letter Ever." In it, he outlines 10 investment lessons for individual investors.
Jeremy Grantham's 10 Investment Lessons:
1. Believe in history: "history repeats and repeats, and forget it at your peril. All bubbles break, all investment frenzies pass away."
2. Neither a lender nor a borrower be: "Unleveraged portfolios cannot be stopped out, leveraged portfolios can. Leverage reduces the investor's critical asset: patience."
3. Don't put all your treasure in one boat: "This is about as obvious as any investment advice could be ... Several different investments, the more the merrier, will give your portfolio resilience, the ability to withstand shocks."
4. Be patient and focus on the long term: Wait for the good cards. If you've waited and waited some more until finally a very cheap market appears, this will be your margin of safety."
5. Recognize your advantages over the professionals: "The individual is far better-positioned to wait patiently for the right pitch while paying no regard to what others are doing, which is almost impossible for professionals."
6. Try to contain natural optimism: "optimism comes with a downside, especially for investors: optimists don't like to hear bad news."
7. But on rare occasions, try hard to be brave: "You can make bigger bets than professionals can when extreme opportunities present themselves because, for them, the biggest risk that comes from temporary setbacks - extreme loss of clients and business - does not exist for you."
8. Resist the crowd, cherish numbers only: "this is the hardest advice to take: the enthusiasm of a crowd is hard to resist. The best way to resist is to do your own simple measurements of value, or find a reliable source (and check their calculations from time to time) ... and try to ignore everything else."
9. In the end it's quite simple, really: "GMO predicts asset class returns in a simple and apparently robust way: we assume profit margins and price earnings ratios will move back to long-term average in 7 years from whatever level they are today. We have done this since 1994 and have completed 40 quarterly forecasts ... Well, we have won all 40."
10. This above all, to thine own self be true: "To be at all effective investing as an individual, it is utterly imperative that you know your limitations as well as your strengths and weaknesses ... you must know your pain and patience thresholds accurately and not play over your head. If you cannot resist temptation, you absolutely must not manage your own money."
Grantham elaborates on each lesson and address other topics in his full quarterly letter, embedded below:
For more insight and market commentary, be sure to also check out Howard Marks' latest letter, as well as Eric Sprott's commentary.
What We're Reading ~ 3/1/2012
Tiger Global gets rich off IPOs long before you see them [Forbes]
Shifting hedge fund landscape: operations & due diligence [AllAboutAlpha]
Hedge fund risk management a work in progress [Simon Kerr]
A peak at Einhorn on the job [Dealbook]
Wall Street was never on your side [Abnormal Returns]
Hedge funds faulted for not being short-term enough [Reuters]
Also: Howard Marks on the hedgie performance paradigm [Market Folly]
Why hedge fund managers need fewer friends [eFinancialNews]
Dan Zwirn's fall a horror story of doing right [Bloomberg]
Warren Buffett is wrong about gold [AR+Alpha]
On what David Tepper sees in Boston Scientific [CapitalObserver]
Write up on Media General (MEG) [Kinnaras Capital]
Newer hedge funds saw $12.4 in deposits since 2009 [Bloomberg]
A secretive hedge fund legend prepares to surface [CNBC]
Confessions of a reformed stockbroker [BusinessWeek]
The new ETF that could kill mutual funds [Fiscal Times]
Bill Gross' Investment Outlook: Defense
PIMCO's Bill Gross is out with his latest 2012 investment outlook, entitled "Defense." Given all the equity commentary on the site lately, we thought we'd add some fixed income color.
In his commentary, Gross outlines the core tenets of PIMCO's "offense" from 1981 to 2011. Now, from 2012 onwards, Gross says that "successful investing in a deleveraging, low interest rate environment will require defensive in addition to offensive skills."
To learn what exactly that means, here is Gross' entire commentary below:
- Over the past 30 years, an offensively minded Federal Reserve and their global counterparts were printing money, lowering yields and bringing forward a false sense of monetary wealth.
- Successful investing in a deleveraging, low interest rate environment will require defensive in addition to offensive skills.
- The PIMCO defensive strategy playbook: Recognize zero bound limits and systemic debt risk in global financial markets. Accept financial repression but avoid its impact when and where possible. Emphasize income we believe to be relatively reliable/safe; seek consistent alpha.
My point about pigskin offense and defense is the perfect metaphor for the world of investing as well. Offensively minded risk takers in the markets have historically been the ones who have dominated the headlines and won the hearts of that beautiful gal (or handsome guy). Aside from the rare examples of Steve Jobs and Bill Gates, however, the secret to getting rich since the early 1980s has been to borrow someone else’s money, throw some Hail Mary passes and spike the ball in the end zone as if you had some particular genius that deserved monetary rewards 210 times more than a Doctor, Lawyer or an Indian Chief. Nah, I take that back about the Indian Chief. The Chiefs, at least, have done pretty well with casinos these past few decades.
Still, the primary way to coin money over the past 30 years has been to use money to make money. Although the price of it started in 1981 at a rather exorbitantly high yield of 15% for long-term Treasuries, 20% for the prime, and real interest rates at an almost unbelievable 7-8%, the gradual decline of yields over the past three decades has allowed P/E ratios, real estate prices and bond fund NAVs to expand on a seemingly endless virtuous timeline. Books such as “Stocks for the Long Run” or articles such as “Dow 36,000” captured the public’s imagination much like a Montana to Jerry Rice pass that always seemed to clinch a 49ers victory. Yet an instant replay of these past few decades would have shown that accelerating asset prices weren’t due to any particular wisdom on the part of academia or the investment community but an offensively minded Federal Reserve and their global counterparts who were printing money, lowering yields and bringing forward a false sense of monetary wealth that was dependent on perpetual motion. “Rinse, lather, repeat – Rinse, lather, repeat” was in effect the singular mantra of central bankers ever since the departure of Paul Volcker, but there was no sense that the shampoo bottle filled with money would ever run dry. Well, it has. Interest rates have a mathematical bottom and when they get there, the washing of the financial market’s hair produces a lot less lather when it’s wet, and a lot less body after the blow dry. At the zero bound, not only are yields rendered impotent to elevate P/E ratios and lower real estate cap rates, but they begin to poison the financial well. Low yields, instead of fostering capital gains for investors via the magic of present value discounting and lower credit spreads, begin to reduce household incomes, lower corporate profit margins and wreak havoc on historical business models connected to banking, money market funds and the pension industry. The offensively oriented investment world that we have grown so used to over the past three decades is being stonewalled by a zero bound goal line stand. Investment defense is coming of age.
While Wall Street and levered investors have fared better than their Main Street counterparts, it’s not as if they’re in “primetime Deion Sanders” shape either. Conceptualize the historical business model of any financially-oriented firm for the past 30 years and you will see what I mean. Insurance companies, for instance, whether they be life insurance with their long-term liabilities, or property/casualty insurance with more immediate potential payouts, have modeled their long-term profitability on the assumption of standard long-term real returns on investment. AFLAC, GEICO, Prudential or the Met – take your pick – have hired, staffed, advertised, priced and expensed based upon the assumption of using their cash flows to earn a positive real return on their investment. When those returns fall from 7% positive to an approximate 1% negative, then assumptions – and practical realities – begin to change. If these firms can’t cover inflation with historical real returns from their float, then they begin to downsize in order to stay profitable. The downsizing is just another way of describing a transition from offense to defense in a zero bound nominal interest rate world where almost any level of inflation produces negative real yields on investment.
- Recognize downward trend in interest rates and scale duration accordingly.
A. Emphasize income and capital gains. PIMCO Total Return Strategy.
B. Utilize prudent derivative structures that benefit from systemic leveraging – financial futures,
swaps (but no subprimes!)
C. Combine A and B along with careful bottom-up security selection to seek consistent alpha.
Ready, Set, Hut, Hut, Hut –
- Recognize zero bound limits and systemic debt risk in global financial markets. Accept financial repression but avoid its impact when and where possible.
A. Emphasize income we believe to be relatively reliable/safe.
B. De-emphasize derivative structures that are fully valued and potentially volatile.
C. Combine A and B along with security selection to seek consistent alpha with admittedly lower nominal returns than historical industry examples.
So there you have it – the PIMCO playbook. I suppose if I had any common sense I would hold up that clipboard to the front of my mouth like sideline coaches do during big games. Don’t want to chance any of the competition reading our lips to get a heads up on PIMCO’s next offensive play call. But then that’s never been my or Mohamed’s style, given the importance of informing you, our clients, of what we are thinking when it comes to investing your hard-earned capital. Go ahead competitors and read our lips, we’ll just pound that pigskin down the field anyway. Besides, as I’ve pointed out, the emphasis these days should be on the defensive coach. Leveraging has turned into deleveraging. 15% yields have turned into 0% money. The Super Bowls of the future will have their Mannings and Bradys, but the defensive line may record more sacks and make more headlines than ever before.
For other market commentary, we've posted up Jeremy Grantham's 10 investment lessons as well as Oaktree Capital and Howard Marks' latest letter.
Wednesday, February 29, 2012
Top 10 Hedge Funds By Net Gains Since Inception
Bloomberg is out with an interesting piece examining the top 10 hedge funds by net gains since inception. The list contains the who's who among the hedge fund elite and is pretty much who you'd expect to be on it.
The data was compiled by LCH Investments NV (part of the Edmond de Rothschild Group) and is based on audited reports from each investment firm, discussions with the funds, as well as confidential sources.
Top 10 Hedge Funds By Net Gains Since Inception
1. Ray Dalio's Bridgewater PureAlpha: $35.8 billion net gain since 1975
2. George Soros' Quantum Endowment: $31.2 bn net gain since 1973
3. John Paulson's Paulson & Co: $22.6 bn net gain since 1994
4. Seth Klarman's Baupost Group: $16 bn net gain since 1983
5. Brevan Howard: $15.7 bn net gain since 2003
6. David Tepper's Appaloosa Management: $13.7 bn net gain since 1993
7. Bruce Kovner's Caxton Associates: $13.1 bn net gain since 1983
8. Louis Bacon's Moore Capital: $12.7 bn net gain since 1990
9. Thomas Steyer's Farallon Capital: $12.2 bn net gain since 1987
10. Steve Cohen's SAC Capital: $12.2 bn net gain since 1992
One interesting tidbit here is that Louis Bacon's Moore Capital makes the top ten, but his mentor Paul Tudor Jones (Tudor Investment Corp) does not. Tudor was largely responsible for seeding Bacon's fund by sending him investors that Tudor had to turn away back when he was first getting started.
Compare the above to the top 10 biggest hedge funds in 2010 and it's no surprise that there's considerable overlap as some of the most successful hedge funds have become some of the largest. Also, the two funds that have been around the longest on the list (Bridgewater and Soros) are the two that occupy the top positions.
Five of the managers above are featured in our Hedge Fund Wisdom newsletter and you can see their latest investments in our brand new issue.
Oaktree Capital's Howard Marks on Assessing Performance Records
Oaktree Capital's Howard Marks is out with his latest market commentary. In it, he details a case study on assessing performance records.
Marks writes: "the ability to ignore relative performance depends on the circumstances and, in particular, the constituencies the performance has to please."
This is an interesting point, because more often than not in markets, investors are fixated on relative performance (comparing returns to the S&P 500 or other benchmarks relevant to their strategy).
If a manager doesn't want to focus on relative performance, Marks says that it's very important he/she effectively manages expectations from the start, or finds an investor base that shares the same vision.
Take an all too common scenario on Wall Street: a manager underperforms a benchmark and flippant investors quickly move their money to the next hot manager. Managers who are constantly compared to benchmarks by their investor base obviously have little to no chance of ignoring relative performance.
Marks then touches on a point that's very relevant to the hedge fund industry:
"In order to survive and have a chance to produce long-term performance, investors have to live up to their constituents' expectations in the short run. Of course, it's important to inculcate reasonable expectations, or to choose clients who have them. But ultimately, the manager's job isn't to make money, it's to deliver client satisfaction, so expectations have to matter."
A prime example of short-term expectations from investors influencing things is Chris Shumway's now defunct hedge fund, Shumway Capital Partners. Shumway returned capital to investors largely because investors were fixated on short-term performance, while he argued his performance was largely driven by taking longer term positions.
Marks makes a bunch of excellent points in his piece and as always his full missive is worth reading. Embedded below is Howard Marks & Oaktree Capital's commentary:
For more from this hedge fund manager, be sure to check out Marks' book: The Most Important Thing: Uncommon Sense for the Thoughtful Investor.
You can also scroll through Marks' past commentaries here.
Strategist Jeff Saut Cautious, But Likes Certain Dividend Stocks
It's been a while since we've checked in on what market strategist Jeff Saut has had to say. Given the drastic run up in equities this year, Saut is cautious. Yet while he's cautious, he doesn't want to bet on the downside.
This is because he thinks there's a likelihood the market could just as well see a sideways consolidation. In general, Saut has long believed it's imprudent to be bearish because a turn in the economy would translate into profits exploding, inventory rebuilding, and a capital expenditure cycle, topped off with a reduction in unemployment.
Lack of Down Days in the Market
Saut is most intrigued by the fact that the market has been able to jump over a ton of hurdles (a 21% rise in the price of gas being one of them).
He writes, "the SPX has now gone 35 trading sessions in 2012 without suffering a 1% down day. There have been 12 other years since 1928 where the SPX has traded higher for 30 sessions, or more, without a 1% down day. In all but one of those occurrences the SPX was higher at year's end with a median gain of more than 15%."
Dividend Stocks Saut Likes
So while he does think this bodes well for the market, he is still a bit cautious in the near-term as the market's recent rise has felt "unnatural" to him. As such, he has recommended the following conservative dividend stocks: Abbott Labs (ABT), Aflac (AFL), Chevron (CVX), McDonald's (MCD), Norfolk Southern (NSC), and Huntington Bancshares (HBAN).
Embedded below is Jeff Saut's recent commentary:
You can download a .pdf copy here.
For more recent market commentary, yesterday we posted up Eric Sprott's February commentary on why 2012 is the year of the Central Bank, as well as Passport Capital's John Burbank saying this is a stockpicker's market.
Tuesday, February 28, 2012
Wall Street Journal for 50% Off and Four Weeks Free
Just wanted to give readers a head's up that you can get the Wall Street Journal for 50% off plus four weeks free. Take advantage of the discount while it lasts!
Passport Capital's John Burbank: 2012 is a Stockpicker's Market
John Burbank of $4 billion hedge fund Passport Capital recently sat down with Bloomberg TV to discuss his outlook on the markets and oil, among other things.
On Why This is a Stockpicker's Market
The founder touched on his fund's strategy for those looking for more insight into his ways:
"We’re stock pickers. In fact, this is a great year to be long and short individual securities. In 2008, everything went down. In 2009, everything went up. In 2010, everything moved together and eventually ended up. Last year, things started separating. Our strategy is to be picking individual securities, companies that are not depending on economic growth.”
You can see Passport Capital's latest equity holdings in the brand new issue of our Hedge Fund Wisdom newsletter that was just released.
On Healthcare & Biotech
He also went on to say that, “Biotech and healthcare is one of those sectors. There hasn't been an obesity drug approved in over 30 years and we thought QNEXA would have a good chance of being approved…We were one of I think four big holders in the stock. We think it can double again because we think a large pharma would probably like to own the company at some point."
QNEXA is the drug made by VIVUS (VVUS). In addition to Passport, large holders of the stock at the end of Q4 were Caxton Associates, Citadel Advisors, D.E. Shaw & Co, and SAC Capital.
On Oil
Burbank also addressed some macro topics like oil. "[Oil] is up 16%, more than any of the indices. It's a big problem for the rest of the world - central bank easing and liquidity providing presents a lot of problems for the average consumer here but also for emerging markets around the world.”
Burbank also mentioned where he has allocated a sizable portion of his capital:
“The one market it really helps is the Saudi market. We have 15% of our capital in the Saudi market - only about 1% is held by foreigners. It should be opening up this year. So we think unfortunately QE3, which is now being pursued in Europe and Japan, essentially in the U.S. with other programs, has negative feedback loops. And oil we think is the one. Gold goes up 10%, 20%, 50%, it doesn't cause any problems with people the way banking is done these days, but oil does… I don't think oil is going to stop until the economy breaks which is a real risk."
Embedded below is the video of John Burbank's interview with Bloomberg TV:
Eric Sprott's Latest Commentary: 2012 is Year of the Central Bank
It's been a while since we've covered Eric Sprott and his Canadian firm Sprott Asset Management. He's out with his February 2012 commentary entitled, "Unintended Consequences." In it, Sprott discusses how 2012 is shaping up to be the year of the Central Bank.
He writes,
"There is unfortunately no economic textbook to guide us through these strange times, but common sense suggests we should be extremely wary of the continued maneuvering by central banks. The more central banks print to save the system, the more the system will rely on their printing to stay solvent – and you cannot solve a debt problem with more debt, and you cannot print money without serious repercussions.
The central banks are fueling a growing distrust among the creditor nations that is forcing them to take pre-emptive actions with their currency reserves. Individual investors should take note and follow-suit, because it will be a lot easier to enjoy the “Year of the Central Bank” if you own things that can actually benefit from all their printing, as opposed to things that can only be destroyed by it."
One of the main 'things' he is referencing there is obviously gold. Sprott has long been an advocate of the precious metal and has called gold the ultimate Triple-A asset.
We've also highlighted how Sprott started a physical gold trust (ticker: PHYS) back in 2009 that competes with the popular exchange traded fund SPDR Gold Trust (GLD).
Embedded below is Sprott's February 2012 commentary, Unintended Consequences:
Thursday, February 23, 2012
What We're Reading ~ 2/23/12
Free excerpt from the new issue of Hedge Fund Wisdom [Market Folly]
Bridgewater sells stakes to institutional investors [FINalternatives]
Retail brokerages: 2012 online broker review [Stockbrokers.com]
It's never been a better time to be an individual investor [AbnormalReturns]
David Einhorn & levered equities [Distressed Debt Investing]
Notes from Bloomberg portfolio manager conference [ReformedBroker]
Seth Klarman bets on mega quarry [Fortune]
Hedge funds exit stage left, pursued by bearishness [FT Alphaville]
The placebo effect of large hedge funds [Pension Pulse]
The 400% return fund manager [SmartMoney]
Small hedge funds draw investments as bigger funds stumble [Bloomberg]
The Norway vs Yale models: who wins? [aiCIO]
Superinvestor Walter Schloss dies at 95 [Bloomberg]
Leon Cooperman on Bonds, Stocks, and Apple vs. Research in Motion
Leon Cooperman of hedge fund firm Omega Advisors yesterday sat down with Bloomberg Television to talk about the markets, his portfolio, and what he likes/dislikes at this juncture.
On Treasuries:
Cooperman said that, "I have great confidence the Fed is ultimately going to get their way. The Fed is trying to elevate asset prices, help consumption, help the economy and in two-three years time, we will be worrying about inflation and interest rates will be materially higher. An instrument that I have absolutely no interest in - the most widely traded instrument in the world - is US government bonds. I don’t think people understand how risky a US government bond is at 2% return."
On Equities:
After bashing government bonds, Cooperman also examined the potential of investing in high yield bonds but dismissed them as fully priced. So he turned to equities and said that, "the S&P, which is 13 ½ earnings, yields a bit over 2%, 10% below the historical multiple at a time when interest rates are below historical and you can find lots of cheap stocks out there that will yield more than bonds today that are good companies that will grow over time."
This is largely in line with what the hedgie has been preaching for sometime now. We've highlighted in the past his trademark phrase that equities are the best house in the financial asset neighborhood.
On Apple (AAPL) versus Research in Motion (RIMM):
The Omega Advisors founder thinks Apple (AAPL) is worth north of $600. On Research in Motion (RIMM), he notes that, "It's funny, it was really like a mass hysteria. We put about a half of one percent of our assets into RIM late last year on a theory that they had a revenue base that was being mispriced by the market. Which was 20% of what we had in Apple, we've owned Apple now for a long time, and we continue to own a big position, so we had five times more Apple investment than RIM."
He says they sold RIMM due to stop loss discipline, but he admits that it's still intriguing. David Einhorn's hedge fund Greenlight Capital recently bought shares of RIMM, as highlighted in this free excerpt from our newsletter.
Cooperman also mentioned that he likes gold, Qualcomm (QCOM), JPMorgan (JPM), Bank of America (BAC), Altisource Portfolio Solutions (ASPS), Unitedhealthcare (UNH), WellPoint (WLP), Boston Scientific (BSX), Echostar (SATS), and Dish Network (DISH).
Embedded below is the video from Cooperman's interview with Bloomberg TV:
For more from this hedgie, you can view Cooperman's presentation on risks to the equity outlook.
Balestra Capital on Gold and Inflation: Quarterly Commentary
James Melcher's hedge fund Balestra Capital focuses on thematic global macro investing and has seen a compound annual growth rate (CAGR) of 24.3%. They're out with their quarterly newsletter where they discuss gold, inflation, and the evolution of money.
On Gold
On the precious metal, Balestra writes that,
"While gold does not pay interest or a dividend, unlike fiat currencies, it cannot be created in infinite amounts ... Gold deposits have become harder to find and far more expensive to mine and process. Central banks have recently been building their gold reserves, instead of selling them. Gold is not substantially held across the worldwide spectrum of investors. Nevertheless, if for no other reason than that the global store of gold is limited while paper money is rapidly proliferating, gold's role as a store of value is expanding, and its investment profit potential is rising."
Gold has been a popular investment among numerous hedge funds, though John Paulson's gold fund probably got the most media attention, as betting against the US dollar was his 'next big wager' after his successful subprime short.
However, what's interesting is the rising number of long/short equity portfolio managers that have allocated a percentage of their portfolios to either physical gold, the SPDR gold trust (GLD), or various gold miners.
David Einhorn's Greenlight Capital owns both gold and gold miners. Dan Loeb's hedge fund Third Point continues to hold gold as its second largest position. Stephen Mandel's Lone Pine Capital just started a position in gold last quarter ...and the list goes on.
Balestra's macro focus has led them to own physical gold and gold derivatives since 2002 and it's been their single largest asset. The main difference between all these hedge funds that own gold is their rationale for doing so. Some are using it as a hedge against fear and uncertainty, while many others (like Balestra) are using it as a vehicle to bet on currency debasement and inflation.
Summary of Balestra's Viewpoints
The hedge fund has summarized their macro views as follows:
"
1. The developed world is overly indebted.
2. So far, there is little indication that heavily indebted countries will be able to grow their way out of debt.
3. Recent measures to cut government spending will create further headwinds to near-term economic growth.
4. Failure to provide added monetary stimulus will likely risk a fall into a debt deflation spiral (this risk is heightened by the Euro zone situation).
5. Central banks will continue to 'print money', as needed, to prevent debt deflation
"
All of these point to one main conclusion in Balestra's eyes: more monetary stimulus is on the way and gold prices are going higher.
Embedded below is Balestra Capital's commentary on gold & inflation courtesy of ValueWalk:
For more on the topics of gold & inflation, be sure to also check out:
- Gold versus gold miners
- Oaktree Capital's Howard Marks on gold
- Best investments during inflation
About Balestra Capital
James Melcher founded Balestra in 1979 and has had a long career in the hedge fund and asset management industry. He received his Bachelor of Arts degree from Columbia University. Since January 1999, the hedge fund has returned 1625.62% and has seen a CAGR of 24.3%. Balestra returned 1.71% in 2011, -3.18% in 2010, 4.22% in 2009, 45.78% in 2008, and 199.82% in 2007.
Wednesday, February 22, 2012
FREE Excerpt From the New Issue of Hedge Fund Wisdom
The brand new Q4 issue of our Hedge Fund Wisdom newsletter was just released. For a LIMITED TIME ONLY, we're offering a free excerpt from the new issue.
Included in this free 16-page excerpt:
- See the Latest Portfolios From: Warren Buffett's Berkshire Hathaway, Seth Klarman's Baupost Group, David Einhorn's Greenlight Capital, & Leon Cooperman's Omega Advisors
- Equity Analysis of United Rentals (URI)
To receive your FREE excerpt from the new issue, please click here to download.
We've also embedded the excerpt below:
Citadel Boosts Position in Ultrapetrol (ULTR)
Ken Griffin's hedge fund firm Citadel recently filed a 13G with the SEC regarding shares of Ultrapetrol (ULTR).
Citadel has disclosed a 4.9% ownership stake in Ultrapetrol (ULTR) with 1,550,689 shares. They've increased their position size by 185,833% over the past two months (they only owned 834 shares at the end of 2011). The SEC filing was made due to trading activity on February 15th.
In other portfolio activity, we also detailed how Citadel boosted its stake in Constant Contact (CTCT) as well.
About Ultrapetrol (ULTR)
Per Google Finance, ULTR is "an industrial shipping company serving the marine transportation needs of clients in the geographic markets. It serves the shipping markets for grain, forest products, minerals, crude oil, petroleum, and refined petroleum products, as well as the offshore oil platform supply market through its operations in three segments of the marine transportation industry: River Business, Offshore Supply Business and Ocean Business. Its River Business, with 591 barges and 30 pushboats, is an owner and operator of river barges and pushboats that transport dry bulk and liquid cargos through the Hidrovia Region of South America, a region with growing agricultural, forest and mineral related exports. Its Offshore Supply Business owns and operates vessels that provide logistical and transportation services for offshore petroleum exploration and production companies, in the North Sea and the coastal waters of Brazil. Its Ocean Business operates nine ocean-going vessels."
Scout Capital Builds Sally Beauty (SBH) Stake
James Crichton and Adam Weiss' hedge fund Scout Capital filed a 13G with the SEC in regards to their new position in Sally Beauty (SBH).
Scout originally started a brand new position in Sally Beauty in the fourth quarter. And according to their most recent SEC filing, they've continued to buy SBH shares in the new year. Scout now shows a 5.9% ownership stake in SBH with 10,986,862 shares.
At the end of 2011, they owned just over 7 million shares. Over the past two months, they've increased their position size by almost 56%. The SEC disclosure was triggered due to portfolio activity on February 7th.
For more from this hedge fund, we've previously posted Scout's presentation on Williams (WMB) & Sensata Technologies (ST).
About Scout Capital
Scout was founded and is co-managed by James Crichton and Adam Weiss. Before founding Scout, Crichton worked at Zweig-DiMenna and received his MBA from Harvard. Weiss, on the other hand, worked at Dan Loeb's Third Point and received his MBA from Columbia.
About Sally Beauty
Per Google Finance, Sally Beauty is "an international specialty retailer and distributor of professional beauty supplies with operations primarily in North America, South America and Europe. The Company operates primarily through two business units: Sally Beauty Supply and Beauty Systems Group (BSG). Through Sally Beauty Supply and BSG, the Company sells and distributes beauty products through 4,128 Company-owned stores, 181 franchised stores and 1,116 professional distributor sales consultants. Sally Beauty Supply stores target retail consumers and salon professionals, while BSG exclusively targets salons and salon professionals."
Tuesday, February 14, 2012
New Hedge Fund Wisdom Newsletter Next Week: A Look at Last Quarter's Winners
A brand new issue of our Hedge Fund Wisdom newsletter is due out early next week. If you haven't yet, subscribe below to see what you're missing.
We also wanted to highlight how stocks featured in our equity analysis section have fared. Last quarter's issue featured equity analyses on Netflix (NFLX), Visa (V), and Lowe's (LOW). Since publication on November 21st, 2011, these stocks have outperformed:
- NFLX: +65.10%
- V: +25.03%
- LOW: +17.80%
- S&P 500: +12.89%
To see what stocks 25 top hedge fund managers have been buying and selling this time around, subscribe below to find out early next week:
1 Year Subscription (Save 20% with this option): $299.99 per year
Quarterly Subscription: $89.99 per quarter
P.S. - Check out a free sample by clicking here (.PDF)
Friday, February 10, 2012
Phil Falcone's Harbinger Capital Scooping Up Shares of Spectrum Brands (SPB)
Phil Falcone's hedge fund Harbinger Capital Partners has been on a buying spree as of late. Per an amended 13D with the SEC, Harbinger's various entities combined now own 55.9% of Spectrum Brands (SPB) with 28,988,997 shares.
While the Harbinger Capital Partners Master Fund only owns 180,189 shares, the overwhelming majority of the position is owned by Falcone's Harbinger Group (HGI).
Overall, Harbinger's entities have scooped up 768,850 shares since January 20th. This most recent disclosure was made due to trading activity on February 8th. The majority of Harbinger's recent purchases have come at a price of around $29.50 per share.
Harbinger's History With SPB
So while this offers investors a somewhat rare chance to buy at prices right alongside a hedge fund, just know that they've built their stake up over time and these most recent shares are just a drip in the their bucket full of shares.
We originally detailed Harbinger's original acquisition of SPB shares back in August 2009 when the company emerged from reorganization relief under Chapter 11.
The hedge fund manager also explained Harbinger's Spectrum Brands thesis at a hedge fund best ideas conference back in September of last year.
About Spectrum Brands
Per Google Finance, SPB is "a consumer products company. The Company manufactures and markets alkaline, zinc carbon and hearing aid batteries, herbicides, insecticides and repellants and specialty pet supplies. Its consumer products have positions in seven product categories: consumer batteries; pet supplies; home and garden control products; electric shaving and grooming products; small appliances; electric personal care products, and portable lighting."
While Harbinger certainly owns a huge stake in Spectrum, keep in mind that this hedge fund has made a much bigger bet on a 4G wireless venture: LightSquared.
Alan Fournier's Pennant Capital Buys More Huntington Ingalls Industries (HII)
Alan Fournier's hedge fund firm Pennant Capital filed an amended 13G with the SEC regarding its position in Huntington Ingalls Industries (HII). Per the new filing, Pennant now owns 8.91% of HII with 4,347,499 shares.
This marks a boost of almost 59% in their position size due to trading activity on January 31st, 2012.
Pennant started a new stake in Huntington Ingalls in late November of last year, originally purchasing 2,734,343 shares and they've clearly continued to build their position.
About Pennant Capital
Alan Fournier founded Pennant after working at David Tepper's Appaloosa Management where he was responsible for the global equity portfolio. He graduated from Wentworth Institute of Technology's Mechanical Engineering program.
About Huntington Ingalls Industries
Per Google Finance, HII "designs, builds and maintains nuclear and non-nuclear ships for the United States Navy and Coast Guard, and provides aftermarket services for military ships around the globe. HII’s business divisions are Ingalls Shipbuilding and Newport News Shipbuilding (NNS). Ingalls Shipbuilding has the development and production of warships for the surface Navy fleet, United States Coast Guard, United States Marine Corps, and foreign and commercial customers."
Seth Klarman's Baupost Group Drastically Reduces PDL BioPharma (PDLI) Stake
Seth Klarman's hedge fund firm Baupost Group filed an amended 13G with the SEC regarding their position in PDL BioPharma (PDLI). The new filing shows Baupost has a 2.15% ownership stake in PDLI with 3,000,000 shares.
This is a decrease of almost 81% in their position size since the end of the third quarter. This is obviously a drastic reduction and comes in stark contrast to the buying of PDLI shares they were doing last July.
Baupost made the filing due to trading activity on January 31st, 2012.
Per Google Finance, "PDL BioPharma is engaged in the management of its antibody humanization patents and royalty assets, which consist of its Queen et al. patents and license agreements with pharmaceutical and biotechnology companies. The Company receives royalties based on these license agreements on sales of a number of humanized antibody products marketed and also may receive royalty payments on additional humanized antibody products launched before final patent expiry in December 2014."
Thursday, February 9, 2012
Bill Ackman & Pershing Square's Presentation on Canadian Pacific (CP)
Below is Bill Ackman & Pershing Square Capital's presentation on Canadian Pacific (CP), entitled 'The Nominees for Management Change.' As we've detailed, Ackman has gone activist on CP and is seeking to shake-up management.
In the presentation, the hedge fund highlights their past success with General Growth Properties (GGP), JC Penney (JCP), and more. Currently, CP is Pershing's second largest investment as they own 14.2% of the company.
With their proxy contest, they highlight how CEO Fred Green has underachieved and how Hunter Harrison would have been a better selection.
They also highlight the economic rationale for such a change: "Canadian Pacific is 70% the size of Canadian National, yet has an enterprise value 40% as large, due to its inferior profitability and asset utilization."
Embedded below is Ackman & Pershing's presentation on CP (email readers click to view):
For other investment theses from this hedge fund, you can view Pershing's presentation on Fortune Brands Home Security as well.
Bridgewater's Ray Dalio Interview With Charlie Rose
Late last year Ray Dalio, the founder of hedge fund behemoth Bridgewater Associates, sat down for his first interview with Charlie Rose. He talked about Bridgewater's culture, investment process, and more.
Embedded below is Ray Dalio's interview with Charlie Rose for those who may have missed it (email readers click the link to watch):
We've posted up other resources from Bridgewater such as Ray Dalio's principles.
What We're Reading ~ 2/9/12
Paulson & Co pushes for Hartford breakup [FINalternatives]
Credit Suisse global investment returns yearbook 2012 [Abnormal Returns]
8% annual return target? Try 4% [World Beta]
How to pick mutual funds [World Beta]
No one is ever wrong anymore [Reformed Broker]
Performance for pay: Is your CIO cost effective? [Skorina Letter]
Tepper protege forges new fund [Absolute Return/Alpha]
Warren Buffett on why stocks beat gold & bonds [Fortune]
Successful short selling: an effective but rare skill [FT]
Endowments slow to recover from 2008 crisis [BostonGlobe]
Goldman says L/S equity should not be ignored [COOConnect]
Estimize: new platform providing buy-side analyst estimates [IBD]
The housing bottom is here [Calculated Risk]
The value trap of deeply cyclical stocks [Institutional Investor]
10 reasons why investing in actively managed funds is a losers game [Stockopedia]
The restaurant investor [MaxCapital]
T2 Partners January Letter: Portfolio Update
It's been a while since we've checked in on Whitney Tilson and Glenn Tongue's hedge fund T2 Partners so here is their January letter to investors. While they had a horrible year last year (-24.9%), they were up 12.6% in January.
The letter mentions some of their longs: Pep Boys (PBY), Goldman Sachs (GS), Iridium (IRDM), Resource America (REXI), Dell (DELL), Howard Hughes (HHC), Citigroup (C), and Microsoft (MSFT).
Also, they mention they are long SanDisk (SNDK) and bought more after the company provided weak guidance.
T2 Partners also revealed some more of their shorts: Lululemon (LULU), Interoil (IOC), ReachLocal (RLOC), First Solar (FSLR), Green Mountain Coffee Roasters (GMCR), ITT Educational (ESI), and Salesforce.com (CRM).
Their letter also provides more in-depth updates on their positions in Netflix (NFLX) and J.C. Penney (JCP) which you can read below: T2 Partners January letter
For more from this hedge fund, you can view T2's presentation on Berkshire Hathaway and JCP.
And then for presentations from other funds, we posted up Bill Ackman on Canadian Pacific today too.
Ken Griffin's Citadel Boosts Constant Contact (CTCT) Stake
Ken Griffin's hedge fund firm Citadel recently filed a 13G with the SEC on shares of Constant Contact (CTCT). Citadel now shows a 3.8% ownership stake in CTCT with 1,138,617 shares.
This is an increase in their position size by 1,543% since the end of the third quarter when they only owned 69,271 shares. The regulatory filing was made due to portfolio activity on January 31st, 2012.
Per Google Finance, Constant Contact is "is a provider of on-demand e-mail marketing, social media marketing, event marketing and online survey solutions for small organizations, including small businesses, associations and non-profits. The Company’s e-mail marketing product allows customers to create, send and track e-mail marketing campaigns. Its social media marketing features allow customers to manage and optimize their presence across multiple social media networks."
Balyasny Asset Management Starts Shaw Group (SHAW) Position
Dmitry Balyasny's hedge fund firm Balyasny Asset Management just filed a 13G with the SEC regarding shares of Shaw Group (SHAW). Per the filing, they now own 5.5% of SHAW with 3,583,894 shares.
This is a brand new position for the hedge fund firm as they did not own shares as of the close of the third quarter. Their 13G filing was made due to trading activity that breached the regulatory threshold on January 19th, 2012.
Per Google Finance, Shaw Group is " is a provider of technology, engineering, procurement, construction, maintenance, fabrication, manufacturing, consulting, remediation and facilities management services to a diverse client base that includes multinational and national oil companies and industrial corporations, regulated utilities, independent and merchant power producers, and government agencies."
