Jeff Saut & Scott Brown: Characteristics of Market Breakouts From Big Bases

Raymond James' market strategist Jeff Saut and chief economist Scott Brown have just released their 'Gleanings' report highlighting various charts that pull together economics, fundamentals, and quantitative analysis regarding the market.

The biggest point they've highlighted is that the market has a history of making 'big bases' and then ramping higher.  Saut points out that there have been four big bases that have exceeded 12 years since 1900:

- 1906 to 1924, 18 years
- 1929 to 1955, 26 years
- 1966 to 1982, 16 years
- 2000 to 2013, 13 years

Saut notes that, "Investor behavior reflects an underlying distrust or disinterest and is characterized by underinvestment in equities.  This results in a rebound that is relentless, providing little opportunity to buy on pullbacks."

With these long built up bases and the breakouts that often follow them, Saut highlights some common fundamental characteristcis:

- Rebound from high unemployment
- High government interest payments on debt
- Low investor allocation to equities
- Extremely high/low interest rates (alternates)


Embedded below is the Raymond James slideshow presentation, 'Gleanings: June 2013':




You can download a .pdf copy here.

For more from these gentlemen, head to Jeff Saut on the odds of a new secular bull market.

Michael Price's Presentation From The London Value Investor Conference 2013 (Video)

Last month, we posted up notes from the London Value Investor Conference 2013.  The event was a big success raising money for the charity Place2Be.  The conference has released video of the presentation from MFP Investors' Michael Price and we've embedded the video below:



For more from the event, be sure to check out notes from the London Value Investor Conference.

What We're Reading ~ Hedge Fund Links 6/14/13

No wind in sails of long/short equity [AllAboutAlpha]

Paulson gold fund down 54% this year [FINalternatives]

Why George Soros likes Japan [WealhDaily]

Hedge fund liquidations slow, fees weaken in Q1 [Boston Biz Journal]

Hedge fund marketing: 3 must know rules [ValueWalk]

Rival hedge funds hope to feast on SAC Capital redemptions [Reuters]

Goldman Sachs tops prime brokerage ranking [HFIntelligence]

Demand for alternative assets grows among investors [FT]

Risk, returns & regulation big topics at the EuroHedge summit [HFIntelligence]

Little reason for lack of transparency in hedge funds [FTAdviser]

Charting hedge funds' long term gains [WSJ]

Sony holdings blurred by Third Point swaps [Bloomberg]

Analyzing Dan Loeb's stock picks [Old School Value]

Institutions take divergent paths in revamping hedge fund portfolios [P&I]

Fund of hedge funds fight for survival [FT]

TiVo bump shows how hedge fund lawyers gain edge in court [Bloomberg]

What We're Reading ~ Analytical Links 6/12/13

Buffett, Robertson, Cooperman & more: words of wisdom from 18 wealth wizards [Forbes]

Why value investing works [ValueWalk]

Interest rates are rising [NYTimes]

Confidence kills predictions [Index Universe]

Tempted by for-profit education stocks? Read this [Forbes]

Look for insider buying from women [Economist]

Pricing a house is easier than pricing a home [WSJ]

Why 3% mortgage rates are a thing of the past [CNN]

The importance of expectations [Oddball Stocks]

Short sales dropped in the second half of May [WSJ]

A rising star emerges at Berkshire Hathaway [WSJ]

Why Pandora (P) bought an FM radio station [The Hill]

AstraZeneca (AZN): the long slog [FT]

A look at Crimson Wine Group (CWGL) [Barrons]

Bill to legalize internet poker introduced in Congress [Fox News]

Paying for performance [P&I]

Glenview Capital Seeks Removal of Health Management Associates "Poison Pill"

Larry Robbins' hedge fund Glenview Capital yesterday filed an amended 13D with the SEC on shares of Health Management Associates (HMA).  Their position size remains unchanged.  However, we recently highlighted how Glenview sought Hart-Scott-Rodino clearance to buy more HMA.

Glenview's latest amended 13D asks for the company to remove its poison pill.  Glenview writes,

"As previously disclosed by the Issuer, the Issuer adopted a “poison pill” rights plan that limits any shareholder and its affiliates and associates from acquiring beneficial ownership of more than 15% of the Shares of the Issuer.  The Reporting Persons urge the Issuer to redeem the poison pill, or at a minimum, amend the poison pill to increase the percentage of stock a person would be permitted to own without triggering the poison pill to a 25% threshold."

Robbins' fund is also evaluating potentially planning or proposing changes to the company's Board of Directors.  They intend to meet with potential nominees and other interested parties (HMA management, other shareholders, etc) regarding this matter.

The saga plays on.

A Tale of Two Gas Stations: Long Susser Holdings, Short CST Brands

The following is a guest post from Tsachy Mishal of TAM Capital Management, who presents a look at a gas station pair trade, if you will.  Tsachy also runs the blog Capital Observer.

Market Folly readers will recall that hedge fund Scout Capital recently disclosed a position in CST Brands and this write-up presents a different viewpoint.


A Tale of Two Gas Stations: Susser Holdings & CST Brands


Susser Holdings (SUSS) and CST Brands (CST) both operate gas stations with convenience stores attached. Susser Holdings came public in 2006 with private equity backing, while CST Brands is a recent spin-off from Valero (VLO). On the surface a spin-off would seem far more attractive than a private equity backed IPO, but looks can be deceiving.


Business

Over 80% of Susser’s gas stations are located in Texas, the second fastest growing state in the US. CST’s gas stations are located across the southern US and Canada, with about a third being in Texas. CST mentions Texas numerous times in their Form-10 as a stand out economy and a driver of growth From the CST Form 10:

"The economy in Texas has fared better than many other parts of the U.S., partly supported by a solid economy, a relatively stable housing market and strong population growth and job creation. We have also benefited from the significant increase in economic activity in Texas that has resulted from the increased oil and gas drilling activity in Texas. We have a large number of convenience stores in Texas, and these operations have benefited from the increase in population resulting from employees of the oil and gas industry who have moved to Texas to support that industry."

On the basis of location, Susser has a clear advantage over CST with a much greater percentage of its gas stations being in Texas.

Susser earns the majority of its profits from convenience store sales while CST Brands is more heavily dependent on fuel sales. In 2012 59.7% of Susser’s gross profits came from merchandise sales, while 40% of CST Brands’ gross profits came from merchandise. The reason for this is that Susser’s average convenience store footprint is 3,600 square feet, while CST’s average footprint is 2,200 square feet.

Susser’s larger footprint allows it to sell fresh food and earn more from its convenience stores. CST Brands realizes that it is preferable to have a larger convenience store footprint and is planning larger footprints for its new stores but that doesn’t help its existing store base.

CST’s heavy dependence on fuel sales is a negative for a number of reasons. As Americans have been driving less and driving more fuel efficient cars, fuel usage in the US has been declining. By contrast, convenience store sales have been steadily increasing. Additionally, 2012 was an abnormally profitable year for fuel sales that is unlikely to be repeated.

As oil prices decline, gas stations are slow to lower prices. The $35 oil price decline in the second quarter of 2012 was a bonanza for gas station owners. In 2012 fuel gross margin for CST brands increased by 2 cents a gallon or $40 million, primarily as a result of this extreme downside volatility in fuel prices.

It is very unlikely that we see such an extreme move in oil prices this year. As a result, year over year fuel gross margin should decrease by close to 2 cents a gallon resulting in lower year over year earnings and EBITDA for all gas stations with a disproportionate effect on CST Brands due to its reliance on fuel sales.


Operation Performance

In 2012, Susser had same store merchandise sales growth of 6.6% and per store fuel gallon growth of 5.8%. CST does not provide historical same store sales numbers but does provide “per store” figures. In 2012 “per store” merchandise sales actually showed a slight decrease while per store fuel gallon sales showed a less than 1% increase.

In the first quarter of 2013 CST provided SSS figures for the first time and showed US SSS down 1.6% compared to Susser growing 4.2%. This is likely attributable to CST’s older stores and larger dependence on cigarette sales, which have been in secular decline. Cigarettes make up 40% of merchandise sales for CST compared to 19% for Susser. Dollar stores have recently moved into this category, which will increase pressure. Susser has clearly enjoyed superior operating performance to CST Brands.


Management

The Susser family has been in the gas station business since the 1930’s. Sam L. Susser, the CEO, joined the company in 1988, when Susser operated five stores and had revenues of $8.4 million. Sam Susser grew up in the gas station business, has 25 years of experience and a proven track record.

Kimberly S. Bowlers is the CEO of CST Brands. Below is her bio from the CST Form 10:

"Ms. Bowers was elected Chief Executive Officer and President of CST effective January 1, 2013. Ms. Bowers served as Executive Vice President and General Counsel of Valero from October 2008, and previously served as Senior Vice President and General Counsel of Valero since April 2006. Before that, she was Valero’s Vice President–Legal Services from 2003 to 2006. Ms. Bowers joined Valero’s legal department in 1997. Ms. Bowers was elected to the board of directors of WPX Energy, Inc. on December 30, 2011."

In other words Ms. Bowers, the CEO of CST Brands, has been a lawyer her entire career and has little operating experience. I’m certain she was a very capable lawyer but that does not make her a capable CEO. If experience counts for anything, then Susser has the superior management.


Valuation

Considering that Susser has the superior store locations, a superior business mix, superior performance and superior management one might conclude that Susser should trade at a premium to CST Brands. One would be wrong. Susser Holdings trades for less than 6.3 times EV/LTM EBITDA, adjusting for their ownership in SUSP (slide 21).

CST Trades for roughly 8 times EV/LTM EBITDA. Instead of trading at a premium Susser trades at a greater than 20% discount to CST Brands. This does not take into account that had CST been a public company they would have incurred additional expenses. Additionally, on a forward basis I believe Susser trades at a greater than 30% discount to CST Brands.


Conclusion

CST Brands is a case of “You Can Be A Stock Market Genius” gone awry. In investors haste to buy a “spin- off” they have valued a poorly performing company at an undeserved premium to one if its closest, better performing peers. There are too many geniuses out there right now.


Catalyst

CST Brands has not given any forward guidance so investors have had to create their own earnings models. Many investors seem to have simply extrapolated forward an increase in earnings and EBITDA from 2012 to 2013 for CST. This ignores the one time bonanza in fuel margins in 2012 ($40 million) and the increased costs of being a public company ($20 million). When CST reports second quarter earnings it should become clear that estimates are pie in the sky.


Full disclosure: TAM Capital Management is long Susser Holdings (SUSS) and short CST Brands (CST).

Embedded below is a .pdf copy of TAM Capital's thesis:




We've posted some other investment theses from TAM Capital here.

Soros Fund Discloses New Position in 1Spatial

George Soros' family office Soros Fund Management has disclosed a new stake in London listed 1Spatial (LON: SPA).  Due to trading on June 10th,  Soros Fund owns 7.78% of 1Spatial’s voting rights.  This is a brand new position for the firm.     

Per Google Finance – “1Spatial Plc, formerly Avisen plc, is a holding company. The principal activity of the Company is the development and sale of information technology (IT) software along with     related consultancy and support. The Company operates in four segments: Head Office, Avisen,     Storage Fusion and 1Spatial. 1Spatial Holdings plc (1Spatial Business) is a software development     company, which provides location based software and related services. Avisen, the Company’s     management consultancy business, focuses on providing global companies. Storage Fusion is     the author of Storage Resource Analysis (SRA), which provides analytics for enterprise storage     environments through a SaaS service. The Company’s operations are located in the United Kingdom,  Ireland, Australia and Europe. On November 28, 2011, the Company acquired the entire interest of     1Spatial Business. On April 1, 2011, the Company sold its wholly owned subsidiary Inca Software     Limited.”

We've also highlighted other recent portfolio activity from Soros here.

Attention Market Folly RSS Subscribers: Google Reader Is Shutting Down, Here's How To Still Receive Our Posts

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Jeff Ubben's ValueAct Adds to Willis Group Holdings (WSH) Position

Jeff Ubben's activist hedge fund ValueAct Capital recently filed Forms 3 and 4 with the SEC regarding their position in Willis Group Holdings (WSH).  Per the filings, ValueAct now shows an ownership stake of 17.9 million shares.

ValueAct acquired 568,400 additional WSH shares on June 6th at prices ranging from $38.90 to $39.04.  We've also recently posted about a new stock ValueAct has bought.

Per Google Finance, Willis Group Holdings "provides a range of insurance brokerage, reinsurance and risk management consulting services to its clients worldwide. It has market positions in the United States, in the United Kingdom and, directly and through its associates, in many other countries. It is recognized in providing specialized risk management advisory and other services on a global basis to clients in various industries including aerospace, marine, construction and energy."

Bruce Berkowitz Cuts MBIA Stake, Exits Orchard Supply Hardware Position

Bruce Berkowitz's firm Fairholme Capital recently filed two 13G's with the SEC.  Here's a breakdown of his latest portfolio activity:


Cuts MBIA Stake Again (MBI)

Fairholme filed a 13G with the SEC on MBIA (MBI), disclosing a second round of share sales.  Two months ago, we highlighted when Fairholme initially sold MBIA shares. 

Back then, they sold 11 million shares.  Today, we see that they sold even more shares.  Fairholme now shows a 1.2% ownership stake in the company with only 2.25 million shares.  The 13G was filed due to activity on May 31st. 

This means they've reduced their position by almost 93% since the end of the first quarter.  As our premium Hedge Fund Wisdom newsletter pointed out, shares of MBI skyrocketed in May from $10 to $16 on news of a $1.6 billion cash settlement with Bank of America to settle a dispute over faulty mortgage securities.

Shares have since slid down to $13.75, but this has been another big winner for Berkowitz as he started his MBIA position back in 2010.  We also posted up Berkowitz's thesis on MBIA for those interested.

Per Google Finance, MBIA "together with its consolidated subsidiaries, operates the financial guarantee insurance businesses in the industry and is a provider of asset management advisory services. These activities are managed through three business segments: United States public finance insurance, structured finance and international insurance, and advisory services. The Company’s United States public finance insurance business is operated through National Public Finance Guarantee Corporation and its subsidiaries (National), its structured finance and international insurance business is primarily operated through MBIA Insurance Corporation and its subsidiaries."


Exits Orchard Supply Hardware Stores Position (OSH)

Berkowitz also filed a 13G on shares of Orchard Supply Hardware Stores (OSH), revealing that he has sold completely out of the position.  The filing was required due to activity on May 31st. 

This was only a tiny position for Fairholme to begin with.  Berkowitz owns Sears Holdings (SHLD), and Sears spun-off Orchard Supply in December 2011 so that's how he initially got the shares.

Per Google Finance, OSH is "a specialty retailer primarily focused on homeowners with repair, maintenance and improvement needs. The Company operates in one segment and provides a merchandise mix, which consists of various product categories, including repair and maintenance, lawn and garden and in-home products. The Company's repair and maintenance category consists of plumbing, electrical, paint, tools, hardware, and industrial products. Its lawn and garden category consists of nursery, garden, outdoor power and seasonal products."


For more from this great investor, head to Bruce Berkowitz's checklist for investing.

Byron Wien's 20 Lessons Learned Throughout His Investing Career

Byron Wien is Vice Chairman at Blackstone and prior to that worked at hedge fund Pequot Capital and Morgan Stanley.  Earlier this year, he released an addendum to his usual commentary about lessons he's learned in 80 year investing career.  His words of wisdom are below:


Byron Wien's 20 Lessons Learned


1.  Concentrate on finding a big idea that will make an impact on the people you want to influence.  The Ten Surprises, which I started doing in 1986, has been a defining product.  People all over the world are aware of it and identify me with it.  What they seem to like about it is that I put myself at risk by going on record with these events which I believe are probable and hold myself accountable at year-end.  If you want to be successful and live a long, stimulating life, keep yourself at risk intellectually all the time.

2.  Network intensely.  Luck plays a big role in life and there is no better way to increase your luck than by knowing as many people as possible.  Nurture your network by sending articles, books and emails to people to show you’re thinking about them.  Write op-eds and thought pieces for major publications.  Organize discussion groups to bring your thoughtful friends together.

3.  When you meet someone new, treat that person as a friend.  Assume he or she is a winner and will become a positive force in your life.  Most people wait for others to prove their value.  Give them the benefit of the doubt from the start.  Occasionally you will be disappointed, but your network will broaden rapidly if you follow this path.

4.  Read all the time.  Don’t just do it because you’re curious about something, read actively.  Have a point of view before you start a book or article and see if what you think is confirmed or refuted by the author.  If you do that, you will read faster and comprehend more.

5.  Get enough sleep.  Seven hours will do until you’re sixty, eight from sixty to seventy, nine thereafter, which might include eight hours at night and a one-hour afternoon nap.

6.  Evolve.  Try to think of your life in phases so you can avoid a burn-out.  Do the numbers crunching in the early phase of your career.  Try developing concepts later on.  Stay at risk throughout the process.

7.  Travel extensively.  Try to get everywhere before you wear out.  Attempt to meet local interesting people where you travel and keep in contact with them throughout your life.  See them when you return to a place.

8.  When meeting someone new, try to find out what formative experience occurred in their lives before they were seventeen.  It is my belief that some important event in everyone’s youth has an influence on everything that occurs afterwards.

9.  On philanthropy my approach is to try to relieve pain rather than spread joy.  Music, theatre and art museums have many affluent supporters, give the best parties and can add to your social luster in a community.  They don’t need you.  Social service, hospitals and educational institutions can make the world a better place and help the disadvantaged make their way toward the American dream.

10.  Younger people are naturally insecure and tend to overplay their accomplishments.  Most people don’t become comfortable with who they are until they’re in their 40’s.  By that time they can underplay their achievements and become a nicer, more likeable person.  Try to get to that point as soon as you can.

11.  Take the time to give those who work for you a pat on the back when they do good work.  Most people are so focused on the next challenge that they fail to thank the people who support them.  It is important to do this.  It motivates and inspires people and encourages them to perform at a higher level.

12.  When someone extends a kindness to you write them a handwritten note, not an e-mail.  Handwritten notes make an impact and are not quickly forgotten.

13.  At the beginning of every year think of ways you can do your job better than you have ever done it before.  Write them down and look at what you have set out for yourself when the year is over.

14.  The hard way is always the right way. Never take shortcuts, except when driving home from the Hamptons.  Short-cuts can be construed as sloppiness, a career killer. 

15.  Don’t try to be better than your competitors, try to be different.  There is always going to be someone smarter than you, but there may not be someone who is more imaginative. 

16.  When seeking a career as you come out of school or making a job change, always take the job that looks like it will be the most enjoyable.  If it pays the most, you’re lucky.  If it doesn’t, take it anyway, I took a severe pay cut to take each of the two best jobs I’ve ever had, and they both turned out to be exceptionally rewarding financially. 

17.  There is a perfect job out there for everyone.  Most people never find it.  Keep looking.  The goal of life is to be a happy person and the right job is essential to that. 

18.  When your children are grown or if you have no children, always find someone younger to mentor.  It is very satisfying to help someone steer through life’s obstacles, and you’ll be surprised at how much you will learn in the process. 

19.  Every year try doing something you have never done before that is totally out of your comfort zone.  It could be running a marathon, attending a conference that interests you on an off-beat subject that will be populated by people very different from your usual circle of associates and friends or traveling to an obscure destination alone.  This will add to the essential process of self-discovery.

20.  Never retire.  If you work forever, you can live forever.  I know there is an abundance of biological evidence against this theory, but I’m going with it anyway.


For more perspective from great investors, head to:

- Warren Buffett & Charlie Munger's secrets to investing success

- Lessons from Stanley Druckenmiller

- Andreas Halvorsen on investment process

- Mohnish Pabrai on checklist investing

- Jeremy Grantham's 10 investment lessons

Market Strategist Jeff Saut on the Odds of a New Secular Bull Market

Market strategist Jeff Saut is out with his weekly commentary and in it he features some prudent commentary on being 'early' in investing and how the crowd tends to move long after the optimum time.  Saut also talked about the odds of a new secular bull market taking place:


"Last December I pegged the odds of a new secular bull market at 20%-25%.  I have increased those odds over the past six months to where I now believe those odds are at 45%-50%, yet few investors believe it.  To be sure, most participants think there has to be a 'feel good' environment for a secular bull market to exist.  The reality is that when that 'feel good' environment occurs, you are typically in the late innings of a secular bull market.  Ladies and gentlemen, the equity markets do not care about the absolutes of good and bad, but rather if things are getting better or worse; and, things are definitely getting better!"


His point about 'few investors believing it' is certainly worth considering.  Longtime readers may recall our investor psychology illustrated post that shows how bull markets are often born with dire sentiment, rally with disbelief, and then peak with euphoria. 

If Saut is correct, then one could potentially compare the 2013 market to the 'skeptic' portion of a rally.  After all, many investors have spent 2013 wondering when the major pullback will come.

Regardless, Saut's full commentary this week is worth reading and it is embedded below:




You can download a .pdf here.

For more from this strategist, head to Jeff Saut on the market buying stampede as well as his thoughts on investor sentiment.

Ricky Sandler's Eminence Capital Raises VCA Antech Position

Ricky Sandler's hedge fund firm Eminence Capital has filed a 13G on shares of VCA Antech (WOOF).  Per the filing, Eminence has revealed a 5.4% ownership stake in with 4,805,516 shares.

This marks a 40% increase in the number of shares they own since the end of the first quarter.  The filing was required due to portfolio activity on May 28th.

Per Google Finance, VCA Antech is "a national animal healthcare company operating in the United States and Canada. The Company provides veterinary services and diagnostic testing to support veterinary cares. The Company operates in two segments: animal hospital and laboratory. Its all other category includes Vetstreet and Medical Technology operating segments. The Company's animal hospitals offer a range of general medical and surgical services for companion animals, as well as specialized treatments, including advanced diagnostic services, internal medicine, oncology, ophthalmology, dermatology and cardiology."

We also highlighted how Eminence started a new position in another stock recently as well.

What We're Reading ~ Hedge Fund Links 6/7/13

Hedge Hogs: The Cowboy Traders Behind Wall Street's Largest Hedge Fund Disaster [Dreyfuss]

A look at Karsch Capital's positioning [ValueWalk]

Managers warned on giving early investors too generous terms [COO Connect]

Introducing the new hedge fund: the family office [CNBC]

Significant impact on buyside portfolio returns due to post Dodd-Frank costs [HedgeWeek]

An interview with Jim Chanos [Alternet]

Interview with Gotham Capital's Joel Greenblatt [Outlook India]

Tiger Global raises stake in Eventbrite [Hedgeworld]

SAC Capital case tests a classic dilemma [NYTimes]

Hedge fund's wild side: the man who lost $8 billion [Salon]

Fewest hedge funds invest in gold since 2010 [Bloomberg]

Quant hedge funds hit by US bonds sell-off [FT]

A week in the life of a Wall Street intern [Dealbook]

A hedge fund for you and me? The best move is to take a pass [Washington Post]

How Mangrove built a successful hedge fund [Barrons]

What We're Reading ~ Analytical Links 6/5/13

The new R&D: Repurchases and dividends [Reformed Broker]

A macro update [Micro Fundy]

The long case on Altisource Portfolio Solutions (ASPS) [Seeking Alpha]

A look at Charter Communications (CHTR) [Brooklyn Investor]

Jeff Gundlach: short Chipotle and avoid everything Apple [Covestor]

Beware the hidden costs in tech [Barrons]

A bastardization of the process [Research Puzzle]

Buffett's Berkshire buys small Virginia newspaper [CNBC]

Harvard's Kaplan says to succeed know what you want [Bloomberg]

Mavericks lecture: Liberty Media's (LMCA) John Malone [Youtube]

The power of habit investments [Zen Habits]

Ben Graham's "foolproof method of systematic investment" [Greenbackd]

It's time for objectors of Bank of America's MBS deal to make their case [Reuters]

Prince Alwaleed and the curious case of Kingdom Holding Stock [Forbes]

An 18-minute plan for managing your day [Harvard Business Review]

On money and happiness [Harvard Gazette]

Lee Cooperman's Thesis on Covidien & Sirius XM Radio: Omega Advisors Q1 Letter

Lee Cooperman's hedge fund Omega Advisors' Overseas Partners returned 10.9% in the first quarter of 2013 and has seen annualized returns of 16.6% since inception.  We wanted to post an excerpt from Omega's Q1 letter highlighting Cooperman's thesis on Covidien (COV) and Sirius XM Radio (SIRI).


Covidien (COV): A Spin-Off Play

Cooperman likes Covidien because the company is spinning off a lower margin, lower growth business, Mallinckrodt (MNK).  He fancies the standalone COV business afterwards and writes about the spinoff:

"First, it will enable MNK to invest more appropriately in maximizing a number of underappreciated  opportunities in its pharma pipeline, while pruning assets with sub-optimal growth characteristics. Second, by  divesting itself of the lower margin and lower growth MNK businesses, stand-alone COV, which operates in  attractive medical device and supply segments with favorable competitive dynamics and end-market growth,  will drive margin expansion that should translate into a higher multiple in-line with its comparables. We further  expect COV to pursue actions, including cost reductions and capital deployment (noting the recently  announced $3-billion share-repurchase authorization on top of the $425m outstanding on its previous  authorization) to offset the transitory transaction-related tax and other dis-synergies from the spin, thus driving  upside to consensus pro forma estimates. We estimate new COV will generate EPS of $4.58 in FY14 and $5.13  in FY15, while MNK will generate $0.41 in FY14 and $0.48 in FY15, above pro-forma street estimates. Using  conservative target P/E multiples, our sum-of-the-parts valuation implies 25% upside over the next 12 months  against limited downside given the current discount multiple to peers, creating an attractive risk/reward in the  stock approaching the mid-year spin-off of MNK that is likely to act as a catalyst for the shares."

COV has been largely favored by 'vanilla' managers such as mutual funds and index funds.  Looking at the top holders, there weren't many hedge funds involved as of the end of Q1 but that could have changed since then due to the impending spin-off.


Omega's Thesis on Sirius XM (SIRI)

Cooperman's fund has held a SIRI position for a while, but continues to like the name because the company has a ton of subscribers and has negotiating leverage when acquiring exclusive content.  Omega has identified four growth drivers for Sirius XM:

"First, SIRI can be more proactive in  addressing the used-car market and converting people who have the hardware in the car into paying subscribers  at little to no cost. Second, a rising SAAR lends itself to higher additions from new-car sales. Third, current  estimates of almost 100-million cars with SIRI preinstalled by 2017 points to massive potential over the next  few years compared with the current installed base. And fourth, the price hike announced in 2011 and  implemented over the last year demonstrates significant pricing power embedded in this model. We believe  that the best way to value SIRI is on a free-cash-flow per share metric as the company has over $7 billion in  gross NOLs, is buying back shares aggressively, and at these levels the amount of NOL per share increases via  the buyback. Therefore, the more aggressive SIRI is, the longer the NOL lasts per share...to the point where, in  our models, if the stock stays at $3.00 per share, it is possible to buy back the entire company before the NOL  runs out. We think downside is limited and see significant potential in the years ahead for SIRI, with a price  objective of $5 using a low-teen multiple of 2015 cash flow."

SIRI has been a favorite play among many hedge funds.  While Omega Advisors is one of the top institutional holders of SIRI, other hedge funds involved as of the end of Q1 include: Blue Ridge Capital, Coatue Management, Slate Path Capital, and Hound Partners.

Not to mention, John Malone's Liberty Media (LMCA) has amassed quite a sizable stake in SIRI


Omega Looking At Infrastructure Plays Too

Cooperman and his colleague Steve Einhorn point out in their Q1 letter that infrastructure-related investments should do well going forward and they've been searching for potential investments as they see a quest for energy independence and a manufacturing renaissance as catalysts.

For more from this hedge fund manager, we recently highlighted Omega's new position in PennyMac Financial Services and also flagged  Cooperman's market thoughts from the SALT Conference.  

Bill Ackman's Slideshow Presentation From Sohn Conference: A Rising Tide is a Good Gamble

Hat tip to ValueWalk for posting up Bill Ackman's slideshow presentation from the Sohn Conference, entitled: "A Rising Tide is a Good Gamble". 

We previously posted up notes from Ackman's presentation on Procter & Gamble from the event last month.  You can also see notes from all other speakers here.

Embedded below is Ackman's slideshow on PG:



In other activity from this hedge fund, we just detailed how Pershing Square plans to trim its Canadian Pacific stake.

Third Point Increases Asian Exposure (Via Sony): May Exposure Report

Dan Loeb's Third Point Offshore Fund just released its May exposure report.  In it, we see that Third Point was up 3.6% in May and is up 14.7% year-to-date.


Net Long Exposures

In terms of exposure in equities, Third Point was 70% long, -22.5% short, leaving them 47.5% net long equities at the end of May.  This is only a slight increase from April when they were 45.4% net long.

In credit, Third Point was 32.3% net long at the end of May.


Increased Asian Exposure

Geographically speaking, they're 60% net long the Americas region, 8% net long EMEA, and 15% net long Asia.

This marks a sizable difference in their net long positioning in Asia as they are now 15% net long, compared to only 6% net long the month prior. 

This is mostly attributable to their new Sony (SNE) long position.  Loeb is trying to engineer an activist campaign at the company and is pushing for Sony to spin off their entertainment group.  Though it should also be mentioned that Third Point slightly reduced short exposure in the region as well.

Embedded below is Third Point's May exposure report:





Third Point Revealing Less Information

Unfortunately, Third Point has made a change to their monthly exposure report, and they are no longer disclosing their top positions, top winners, or top losers for the month. 

As such, we'll have to rely solely on SEC filings, investor letters, and conference appearances going forward.  If you want to see what US stocks Third Point is investing in, head to our Hedge Fund Wisdom newsletter as we cover it there.

To see the April version of their exposure report that revealed much more portfolio information, head to our post here.   You can also view Third Point's Q1 letter.

Andreas Halvorsen's Viking Global Boosts Cemex Stake

Andreas Halvorsen's hedge fund firm Viking Global filed a 13G with the SEC on shares of Cemex (CX) recently.  Per the filing, Viking has revealed a 5.3% ownership stake in CX with 57,375,728 shares.

This marks a 29% increase in the amount of shares they own.  They owned just over 44.4 million Cemex shares at the end of the first quarter.  The latest SEC filing was required due to portfolio activity on May 21st.

In other portfolio activity from this hedge fund, we recently highlighted that Viking Global increased its Intuitive Surgical position.

Per Google Finance, Cemex is "a Mexico-based company principally engaged, through its subsidiaries, in the cement manufacturing. The Company produces, distributes and sells cement, clinker, ready-mix concrete, aggregates and related building materials in more than 50 countries worldwide. The Company’s main production facilities are located in Mexico, the United States, Spain, Egypt, Germany, Colombia, the Philippines, the Dominican Republic, the United Kingdom, Croatia, Panama, Latvia, Puerto Rico, Thailand, Costa Rica and Nicaragua."

For more on this manager, we posted up a rare interview with Andreas Halvorsen on investment process.

Odey Discloses Ocado Group Position: Hedge Fund Battleground Stock

Crispin Odey’s Odey Asset Management has disclosed a 5.04% holding in London listed Ocado Group (LON: OCDO).  Whilst it was known from their letters that Odey were long Ocado, the size of the stake was unknown until now. 

Fellow UK-based hedge fund Lansdowne Partners also hold a large portion of Ocado stock, with a 5.72% holding that they disclosed in November 2012.   


Ocado: Hedge Fund Battleground Stock

Ocado has been somewhat of a battlefield for large hedge funds.  While the UK funds listed above are long, numerous big US-based funds are short, including Jim Chanos' Kynikos Associates at -3.44% and John Griffin's Blue Ridge Capital at -1.17%.   

The longs have had the best of it in recent months.  A short covering rally since December has seen     the net short position in Ocado shares decline from 17% to 11% and the stock rise by over 3 times from 80p to 260p.   

Late last year, we highlighted hedge fund short positions in the UK for those interested.


About Ocado Group

Per Google Finance – “Ocado Group plc is a United Kingdom-based holding company. The Company is an online grocery retailer. The principal activity of the Company, along with its subsidiaries, is retailing and distribution of grocery and consumer goods within the United Kingdom. The Company owns Ocado Holdings Limited, which holds the entire interest in Ocado Limited. The principal activity of Ocado Limited includes retailing and distribution of grocery and consumer goods. On February 9, 2010, the Company acquired Ocado Limited. The Company's wholly owned subsidiaries include Ocado Holdings Limited, which is an holding company; Ocado Limited, which is engaged in retail and distribution; Ocado Information Technology Limited, which is engaged in intellectual property, and Ocado Cell in Atlas Insurance PCC Limited, which is an insurance company. Ocado Holdings Limited is a 100%-owned subsidiary of Ocado Group plc.”

Bill Ackman's Pershing Square to Trim Canadian Pacific (CP) Stake

Bill Ackman's hedge fund firm Pershing Square Capital Management filed an amended 13D with the SEC regarding their activist position in Canadian Pacific (CP).  Per the filing, Pershing has reported a 13.8% ownership stake in CP with 24,159,888 shares.  They also included a press release that indicated they plan to sell up to 7 million shares of CP.


Here's the full press release below:

"NEW YORK, June 3, 2013 — Pershing Square Capital Management, L.P. announced today that it plans to sell up to seven million common shares of Canadian Pacific Railway Limited (TSX: CP; NYSE: CP). Pershing Square plans to limit these sales to unsolicited brokers’ transactions on the NYSE and the TSX in amounts that will not exceed 10% of the combined NYSE and TSX volume for the CP common shares on any day of trading. The sales will begin on or after June 10, 2013 and will likely be completed over the next six to twelve months.

Pershing Square CEO Bill Ackman said: “Thanks to Hunter Harrison’s and the CP team’s performance over the last nearly one year, Canadian Pacific’s share price has more than tripled since we first invested in CP. As a result, our stake in CP has grown to approximately 26% of the combined assets of our funds. Given that increased concentration, portfolio management considerations have driven our decision to trim our holdings. Even after these sales, we expect to remain CP’s largest shareholder and for CP to remain one of our largest investments.”

Pershing Square’s representatives, Bill Ackman and Paul Hilal, will continue to serve on the company’s board of directors. They were elected to the board in May 2012 after successfully nominating a slate of directors as part of a proxy contest. Shortly thereafter, the company appointed rail industry veteran Hunter Harrison as its CEO.

“We can’t overstate our appreciation for Canadian Pacific’s employees and the important contributions of our fellow board members,” said Paul Hilal.

Under Canadian rules, Pershing Square will make filings within three days following sale transactions, disclosing the price and number of shares sold.

Pershing Square reserves the right to change the plans described above at any time, but if it changes these plans it intends to promptly announce the change.

This press release does not constitute an offer to sell or the solicitation of an offer to buy CP common shares."


CP has been a big winner for Pershing as shares have rallied over 137% from the time Pershing initially disclosed their stake.  We highlighted Pershing's CP activist position in October 2011.

Bruce Berkowitz's Fairholme Discloses $2.4 billion Par Value Stake in Fannie Mae & Freddie Mac Preferred

On Sunday, Bruce Berkowitz's firm Fairholme Capital released a statement indicating that they own $2.4 billion par value of Fannie Mae and Freddie Mac Preferred stock.

This isn't the first time we've seen a prominent investor involved in this type of play.  Back in 2011, Richard Perry of Perry Capital gave a presentation on going long GSE Junior Preferred securities.

Here's the full statement from Fairholme:


"FOR IMMEDIATE RELEASE

FAIRHOLME CAPITAL MANAGEMENT, L.L.C.

June 2, 2013

FAIRHOLME ISSUES STATEMENT ON FANNIE MAE AND FREDDIE MAC PREFERRED STOCK

Fairholme Capital Management announced that its clients, including mutual fund shareholders of The Fairholme  Fund (NASDAQ: FAIRX) and The Fairholme Allocation Fund (NASDAQ: FAAFX), own approximately $2.4  billion par value of Fannie Mae and Freddie Mac Preferred Stock and are ready to help with a restructuring that  accelerates the return of meaningful investment to the secondary mortgage market.

Privately-owned Fannie Mae and Freddie Mac are critical to our nation’s economic security, lowering the cost and  increasing the availability of homeownership.

There are no substitutes. Fannie and Freddie currently purchase or insure 6 out of every 10 home mortgages in  America. Today, they are stronger than ever – enabling the United States Treasury to rapidly recoup its temporary  emergency investments in both entities.

Taxpayer dollars expended by the government during a time of national crisis will be fully repaid. And equitable  treatment of taxpaying shareholders, including community banks, insurance companies, and mutual funds holding  Preferred Stock, must be restored with dividends reinstated. Repaying taxpayer investments, restructuring  government guarantees, and restoring shareholder property are not mutually exclusive. This is the American way.

The time to restructure Fannie and Freddie is upon us. Sustaining our nation’s economic recovery requires it.

On behalf of the hundreds of thousands of Fairholme Funds shareholders who helped to rebuild American  International Group, Bank of America, CIT Group, General Growth Properties, MBIA Inc., and others after the  Great Recession – we stand ready to do our part."

On an absolute dollar basis, this would mean that the combined preferred position would be Fairholme's second largest holding, only behind AIG (AIG), if these preferreds were trading at par value (they're not).  As noted in our Hedge Fund Wisdom newsletter two weeks ago, Bank of America (BAC) is Fairholme's second largest stake at just over $1.2 billion.

And embedded below is the press release PDF document:




You can download the .pdf here.

Fairholme has been active recently and we also highlighted when Berkowitz reduced his MBIA stake.

Notes From Virginia Investment Symposium 2013: Julian Robertson, Paul Tudor Jones & John Griffin

The University of Virginia's McIntire School of Commerce recently held its 2013 Spring Symposium entitled "Investing in Markets, Society, and Ourselves: Views from Investment Masters."  The panelists included hedge fund legends Julian Robertson of Tiger Management, Paul Tudor Jones of Tudor Investment Corp and John Griffin of Blue Ridge Capital.

Market Folly obtained access to a recording of the event through a Freedom of Information Act request and we wanted to highlight some brief notes and pearls of wisdom from these great investors.


Notes From UVa's Spring Investment Symposium 2013


Julian Robertson (Tiger Management)

On starting his fund:  He founded the firm with $8 million and at its peak managed $22 billion.  He noted how there wasn't as much short selling going on when he started.  He also said shorting is much harder today and back then you essentially had interest rate arbitrage on your shorts because interest rates were so much higher than dividends.  

Julian says he learned from Bob Wilson, who he labeled as one of the first hedge fund managers out there.

On traits he looked for in making hires at Tiger:  "We found out subsequently some real personality traits: competitiveness is right up there with brains and honesty."

As our Hedge Fund Wisdom newsletter drew attention to, Robertson recently sold out of Apple (AAPL) and he mentioned that at the event.  He says it's because he went back and re-read the book on Steve Jobs and realized his importance to the company as an innovator.

On the other hand, Robertson continues to like Google (GOOG) and thinks it's a great company.  He joked he can't wait to get some Google Glasses.  He also mentioned he still owns Daiwa Securities (TYO:8601) and has for a long time.

He says he feels you have to be playing Japan now given the policies there and notes that someone he knows is starting an all-Japan hedge fund.

Robertson called the hedge fund business 'a lifesaver' after losing his wife as he's been re-energized seeding managers and looking at businesses/investment ideas.


Paul Tudor Jones (Tudor Investment Corp)

He emphasized his focus on technical analysis as that's the method he learned for trading commodities originally.  He said, "I have one strong rule and that is when it comes to a stock if it's above the 200 day moving average, I'm gonna be long it, and if it's below it, I'm either not gonna own it or I'm gonna be short it, period end of story and I just let that govern every single thing that I do."

On crashes/financial crises:

"The crash of 1987 was a 100% derivatives inspired event.  So someone from my background, that came from trading futures, it was very easy for me to see what was about to transpire, because I understood that at that point in time, the tail was going to wag the dog.  If you look at the biggest financial crises of the past three decades, generally speaking they've been derivatives inspired.  Because that's the easiest way to bring knowingly and unknowingly a huge amount of leverage into any kind of particular instrument and it's the leverage that brings the volatility."

On Japan: Jones says to watch late next year for verification if Japan has been able to reduce their debt-to-GDP.   He said, "If it doesn't work, and all of a sudden they have a debt crisis, I would think you could just take 35% off all equity markets, including this one, by the time that one unwinds."

He also thinks Europe is pretty interesting with all the central bank action over there.

On when he might retire: He originally planned to potentially retire when his last child graduated from college, but he really enjoys the business and sees it as the biggest game in the world.  He wants to hang around to see how the Japan situation plays out. He said, "I think the next few years are gonna be, I think some of the most exciting times for macro in the last couple of decades."

On long/short strategies:  "When I think of long/short business, to me there's 5 ways to make money: 2 of those are you either play mean reversion, which is what a lot of long/short strategies do, or you can play momentum/trend, and that's typically what I do.  We've seen cheap companies get cheaper many, many times.  If something's going down, I want to be short it, and if something's going up, I want to be long it.  The sweet spot is when you find something with a compelling valuation that is also just beginning to move up.  That's every investor's dream."

Tudor Jones also noted that it's hard for a macro trader to not be perpetually long the US dollar against the South African Rand.

On short selling:  "I spent 20 years doing it, it's not the right way to make a living trading.  It's simply not.  And I've done really well on the short side.  There's nothing more exciting than a bear market.  But it's not a wonderful way for long-term health and happiness."


John Griffin (Blue Ridge Capital)

Griffin moderated the panel, though he also added some anecdotes of his own.

On Tiger's hiring practices: "Julian was always willing to take a risk on people who knew nothing if he felt they had characteristics of integrity, competitiveness, smart, and would be interested in the business.  And I think in someways that was a breakthrough back then."

Griffin impersonating Robertson after he initially met Andreas Halvorsen (who worked at Tiger and eventually founded Viking Global):  "Well, I mean, he may be one of the smartest people I've ever met, that's number one.  Number two, he's one of the most aggressive person I've ever met."

Griffin cited mentoring and having the open office layout at Tiger as some of the biggest reason for its success and the success of people who left to start their own funds.

Adding on to Jones' comments about Europe, Griffin said that if Draghi follows actions of other banks then "Europe stocks would fly because they're half the valuations."

Griffin also basically confirmed what everyone largely knew already: that Tiger alums often talk and share ideas.  He said Julian would call him and ask him for his favorite short idea then joked that after he told him the idea Julian would take off before Griffin could get Julian's best idea.

On investing: "In stock investing, the way I do it, because I'm not an activist, you're completely helpless.  You buy the stock, and if you don't like what the company's doing, you can sell the stock ... In investing, the only way to be really good at it, you have to accept the fact that everything is greater than yourself.  If it ever becomes anything to do with your action, unless you're an activist, you're smoked.  You're a taker.  The markets are like the ocean... you can't be in a boat and say 'bring it on' to the ocean."  


Investment Pitches

Two current students and one former student pitched investment ideas to the panel:

1. Long ADT (ADT): They highlight ADT's position as the market leader in a fragmented industry and cited their dealer network as compelling.  The main part of the thesis centers around the company's new Pulse product where people can turn off lights and control other household functions in addition to home security from their smartphones.

While the street is seeing 30% adoption rate of this system, dealers they spoke to are seeing 80% installation rates.  They think concerns from competition from cable companies like Verizon (VZ) and AT&T (T) is overblown as they've tried to enter the business in the past and haven't been as successful.


2. Short Canon (CAJ): Melting ice cube short as the company faces lower unit sales & average selling prices, as well as increased competition.  They think that smartphones are replacing 'point and shoot' cameras and that mirrorless cameras will be favored over DSLR cameras.

They also cite the company's weak printer market and think the conservative management team is a drag on the stock.  Julian Robertson said he thinks it's a very good idea.


3.  Short Truworths:  Additionally, a former UVa student and former analyst at John Griffin's Blue Ridge Capital, Hoda Alibair, came up and presented a negative view on South Africa's lenient consumer credit policies.

She highlighted that 66% of the GDP is from household expenditure and there's been a significant growth in unsecured lending and 76% of households are running at a 76% household debt to income ratio.  So what's the best way to play this?

She noted how the tendency would be to short the banks exposed to this (and we highlighted how Conatus Capital's David Stemerman said to short African Bank at the Ira Sohn Investment Conference).

She instead looked for other plays on this in the consumer sector and she laid out the case to short TruWorks.  She says the company has peak margins that just aren't sustainable.  Zara, a big retail competitor, is just now moving in to the country as well.  Over 60% of Truworths' growth came from a brand called Identity, and these consumers are truly low-income consumers.

What We're Reading ~ Hedge Fund Links 5/31/13

Proposal of new hedge fund fee structure: 1% and 33% of alpha [Economonitor]

Cohen mulls plans to shutter SAC, open family office [Fox Business]

Is anyone any good at picking hedge fund managers? [The Big Picture]

Vanguard opposes petition to shorten deadline for 13F filings [ValueWalk]

How hedge funds transfer wealth from investors to managers [Forbes]

Asset managers yield to pressure on fees [Institutional Investor]

What's hurting hedge funds' performance? Their hedges (duh) [II Alpha]

Tiger Global invests $50 million in WordPress [Reuters]

Dan Loeb says Japan rally in early stages [WSJ]

Loeb's letter to Sony, arguing for a breakup [Dealbook]

Mortgages are investment du jour for hedge funds [Term Sheet]

Beware of that hedge fund in the window [Term Sheet]

Hedge funds to turn cold shoulder on advertising [Buzzfeed]

How Elliott and Hess settled a bitter proxy battle [Dealbook]

How New York hedge funds lost their shirts on Tesla [TheStreet]

Kerrisdale's Adrangi makes a killing by raiding the dodgy dealers [AFR]

Paul Tudor Jones: in macro trading, babies hurt a woman's focus [Washington Post]

Hedge fund and poker pros go heads up in Vegas [Hedge Fund Intelligence]

Maverick Capital Exits Bluefly Stake; Clearlake Capital Buys 90% of Company

Lee Ainslie's hedge fund firm Maverick Capital filed an amended 13D and a Form 4 with the SEC regarding shares of Bluefly (BFLY).  Per the filings, Maverick has sold out of its BFLY position and no longer owns any shares.  On May 23rd, Maverick sold its 3,704,101 shares.

Bluefly just announced that Clearlake Capital Partners has purchased 90% of outstanding shares from the company's principal stockholders and also entered into an agreement with the company where they bought additional shares from the company.  Clearlake is looking to re-energize the business.

Per Google Finance, Bluefly is "an online retailer of designer apparel brands and accessories at discount prices."

To see what US stocks Maverick has been buying, head to the just released issue of our premium newsletter.

Glenview Capital Sought Hart-Scott-Rodino Clearance To Buy More Health Management; Issues Press Release

Earlier this month, we highlighted how Larry Robbins' hedge fund firm Glenview Capital added to its Health Management Associates (HMA) stake and filed a 13D with the SEC.  Yesterday, Glenview filed an amended 13D and included a press release seeking to clarify its holdings in HMA given that they sought Hart-Scott-Rodino clearance to buy more shares.  The full press release is below:


"Statement of Clarification by Glenview Capital, 14.6% Shareholder of Health Management Associates, Inc. 

NEW YORK, NY (May 28, 2013) – Glenview Capital Management LLC, issued the following statement of clarification regarding its holdings in Health Management Associates, Inc. (NYSE: HMA):                

“Investment funds advised by our firm, Glenview Capital Management, LLC (“Glenview”), presently hold approximately 37.8 million shares of Health Management Associates, Inc. (“HMA”), or approximately 14.6% of the Company. In our thirteenth year of operation as an investment partnership, we at Glenview are proud of not only our investment track record but of our track record of dealing directly, respectfully and privately with senior management and, as appropriate, members of the Board of Directors. We have never filed a public letter to a company or its shareholders and our strong preference is to avoid doing so in the future.  

However, we feel the 8-K issued by HMA in conjunction with the Board’s decision to enact a shareholder rights plan, commonly referred to as a poison pill, may cause confusion regarding our intentions and may lead to undue volatility in the stock price. As such, we offer the following points of clarification so that fellow shareholders may have a more complete understanding of the situation prior to the resumption of trading in HMA shares:  

i) As a result of developments regarding HMA, Glenview converted its Schedule   13G filing to a 13D on May 6, 2013.  

ii) Consistent with our 13D filing, we sought clearance, under the Hart-Scott-Rodino Antitrust Improvements Act (“HSR”), as required by law in order to be in a position to acquire even one additional share of HMA.  

iii) Under HSR requirements, each investment fund within our fund family is required to make its own HSR filing.  Each fund may file to acquire up to a maximum of $141.8 million, $709.1 million or a greater amount in HMA voting shares.  Due to the size of our funds, and the proximity of their present ownership stake to the thresholds, three funds filed for the higher authorization size of up to $709.1 million and one filed for authorization of up to $141.8 million, thus adding up to $2.2 billion of stock. 

iv) Notwithstanding the simple math of adding up these maximum threshold amounts, such an investment size is both beyond our present intention and beyond our present resources available for any single position.  Such a filing was required to facilitate even a modest increase in our present holdings.  In plain English, we have no present intention or future plan to buy either $2.2 billion of stock or 75% of HMA.  

v) Finally, in HMA’s description of the adoption of the poison pill, they indicate that such a rights plan will “help promote the fair and equal treatment of all stockholders of the Corporation (not just Glenview)…”  As perhaps this statement could lead to misinterpretation, we wish to clarify that Glenview has made no proposals, either to HMA or to any of its holdings over a thirteen year period, which are to the exclusive benefit of Glenview.  On the contrary, every discussion we have engaged in, including any recommendations we have made, represent suggestions that we believe materially improve value creation for all long-term shareholders.   

It is out of respect for our fellow HMA shareholders that we have made an exception to our long-standing practice of avoiding such open written communications, and we hope that this insight helps all market participants make intelligent decisions about their own investment positions in the Company.  We look forward to continuing our discussions with HMA in private and will use the governance tools available (which for us always starts with respectful and constructive dialogue) to pursue our common objectives of long-term value creation.”


For more recent activity from this hedge fund, we also detailed how Glenview trimmed their Tenet Healthcare stake.

Scout Capital Discloses CST Brands (CST) Stake

Adam Weiss and James Crichton's hedge fund firm Scout Capital filed a 13G with the SEC regarding shares of CST Brands (CST).  Per the filing, Scout has disclosed a 5.9% ownership stake in CST with 4,485,000 shares.

This is a brand new position for the hedge fund and Scout crossed the threshold requiring an SEC filing on May 15th. 

This month CST was spun-off from Valero (VLO).  Scout did not report ownership of VLO at the end of Q1, so it's hard to say if they bought VLO shares more recently and received shares via the spin, or if they simply built a position once CST started trading.

Shareholders of Valero on the books as of mid-April received 1 CST share for every 9 VLO shares owned.

Per Google Finance, CST Brands is "a retailer of transportation fuels and convenience goods in North America. As of April 30, 2013, the Company operated 1,032 Corner Stores throughout the United States, including Texas, Louisiana, Arkansas, Oklahoma, New Mexico, Colorado, Wyoming, Arizona and California. Its stores also provide prepared foods. The Company offers a range of products, such as snack foods, tobacco products, beverages and fresh foods, including its own brands: Fresh Choices sandwiches, salads and packaged goods; U Force energy drinks; Cibolo Mountain coffees (the United States); Transit Cafe coffee and bakery (Canada); FC bottled sodas, and Flavors 2 Go fountain sodas."

For more portfolio activity from this hedge fund, we recently posted about another stock Scout has been buying.

Lone Pine Capital Starts FleetCor Technologies (FLT) Position

Steve Mandel's hedge fund Lone Pine Capital filed a 13G with the SEC regarding shares of FleetCor Technologies (FLT).  Per the filing, Lone Pine has revealed a 5.3% ownership stake in the company with 4,336,936 shares.

This is a brand new position for the hedge fund and the filing was required due to portfolio activity on May 15th.  Just yesterday, we flagged another stock Lone Pine has been buying.


Other Hedge Funds Involved in FLT

FleetCor Technologies has garnered increased interest from tons of hedge funds, many of whom have ties to Julian Robertson's old Tiger Management in some form or another.  Chase Coleman's Tiger Global was one of the largest FLT shareholders at the end of Q1.

Other top 10 institutional holders at the end of Q1 include Lee Ainslie's Maverick Capital and Robertson-seeded Hound Partners, managed by Jonathan Auerbach.  While Tiger Global and Maverick own more shares, Hound has a much more concentrated position in FLT as it represents around 9% of their portfolio.

Lone Pine's recent activity, however, trumps all of these funds on an absolute share basis.  Their 4.3 million FLT shares means they own even more than Tiger Global.


About FleetCor Technologies

Per Google Finance, FleetCor Technologies is "an independent global provider of fuel cards and workforce payment products and services to businesses, commercial fleets, major oil companies, petroleum marketers and government entities in countries throughout North America, Latin America and Europe. It provides its payment products and services in a variety of combinations to create customized payment solutions for its customers and partners. The Company operates in two segments: North American and International. The Company provides its customers with various card products that typically function like a charge card to purchase fuel, lodging, food and related products and services at participating locations."

To view the rest of Lone Pine's portfolio, head to the brand new issue of our Hedge Fund Wisdom newsletter that was just released.

What We're Reading ~ Analytical Links 5/29/13

Is the U.S. the next hot 'emerging market'? [WSJ]

Margin debt hits a record [WSJ]

The bull case on Hertz Global (HTZ) [Barron's]

TripAdvisor's (TRIP) margins could expand after years of slimming [Trefis]

On cutting your losses [The Atlantic]

Goldman Sachs says AIG shares still most loved by hedge funds [Marketwatch]

On share repurchase fever [Capital Observer]

What happens when QE ends [AllStarCharts]

Searching for yield [Mebane Faber]

If you only know 5 things about investing, make it these [Motley Fool]

Bid on lunch with Warren Buffett [eBay]

Activist investors: let's do it my way [The Economist]

Atlas of public stocks: mapping all publicly listed companies [Simoleon Sense]

Embrace the business model that threatens you [Harvard Business Review]

Behavioral investing principles are more relevant than ever [Institutional Investor]

PepsiCo (PEP) resistance against activists looks futile [Reuters]

A rush to recruit young analysts only months on the job [Dealbook]

Studying the dark art of leaking deal talks [Dealbook]

House flipping back in style [WSJ]

Strategist Jeff Saut on the Stock Market Buying Stampede

Checking in with market strategist Jeff Saut we see that his latest weekly market commentary is entitled 'Buying Stampede' due to all the questions he's received lately about the market.

Saut writes, "I continue to believe the SPX is going to trade north of 1700 into the end of 2Q13 before becoming vulnerable to a more significant decline beginning in the July/August timeframe.  Obviously I have never seen a buying stampede like this one, which has lifted the senior index above a basing formation in the charts that was 13 years in the making."

He then notes that there have been four previous 'bases' that have launched secular bull markets that have lasted 12 years or longer (1906-1924, 1929-1955, 1966-1982, and then 2000-2013).

Saut cites a slidedeck of this data that says "The characteristics of the market when it breaks out of a base that exceeds 12 years in length is different. Investor behavior reflects an underlying distrust or disinterest and is characterized by underinvestment in equities.  This results in a rebound that is relentless, providing little opportunity to buy on pullbacks."  Sound familiar?


Embedded below are Saut's full analysis and comments:



You can download a .pdf copy here.


For more thoughts from this strategist, head to Jeff Saut on investor sentiment and you can also see his best stock ideas for the next 3-5 years that he outlined early this year.

Lone Pine Capital Raises Realogy Holdings (RLGY) Position

Steve Mandel's hedge fund firm Lone Pine Capital filed a 13G with the SEC regarding shares of Realogy Holdings (RLGY).  Per the filing, Lone Pine has revealed a 5.1% ownership stake in Realogy with 7,457,505 shares.

This marks a 207% increase in Lone Pine's position size since the end of the first quarter.  The 13G filing was required due to portfolio activity on May 14th. 


Other Hedge Funds Involved in Realogy

Our premium newsletter last week highlighted how Blue Ridge Capital and Paulson & Co are also involved in this stock.

Hedgies seem to like Realogy as a play on the recovering US housing market and find the company's high margin (and low capital intensity) business model attractive as RLGY benefits from increased sale volumes and rising prices.

Per Google Finance, Realogy Holdings "through its subsidiaries, provides real estate and relocation services. The Company operates in four segments: Real Estate Franchise Services, Company Owned Real Estate Brokerage Services, Relocation Services and Title and Settlement Services. Through its Real Estate Franchise Services segment (RFG), is a franchisor of some of the most recognized brands in the real estate industry. Through its subsidiary, NRT LLC (NRT), it owns and operates a full-service real estate brokerage business in more than 35 of the metropolitan areas of the United States. Through its subsidiary, Cartus Corporation (Cartus), it is a provider of outsourced employee relocation services and the provider in the United States."

This hedge fund has been active lately as we detailed some of Lone Pine's other portfolio activity.

Nantahala Capital Boosts Stake in The Dolan Company (DM)

Wilmot Harkey's hedge fund firm Nantahala Capital Management has filed a 13G with the SEC regarding shares of The Dolan Company (DM).  Per the filing, Nantahala has revealed a 11.52% ownership stake in Dolan with 3,562,282 shares.

This means their equity stake has roughly doubled.  They previously owned just over 1.7 million shares at the end of March. The SEC filing was required due to portfolio activity on May 22nd.

Nantahala initiated a position in DM shares in the fourth quarter of 2012.  Then they added to their position in the first quarter and have continued to buy as shares have fallen further.


About Nantahala

Nantahala focuses on small cap stocks and have a market-neutral discipline.  Wil Harkey founded Nantahala in 2004.  Prior to that, he worked at Sagamore Hill Capital.


About The Dolan Company

Per Google Finance, Dolan is "a provider of necessary professional services and business information to legal, financial and real estate sectors in the United States. The Company operates through two operating divisions: its Professional Services Division and its Business Information Division. Its Professional Services Division consists of two segments: mortgage default processing services and litigation support services. Its Business Information Division produces legal publications, business journals, court and commercial media, other online information products and services, and operates Websites and produces events for targeted professional audiences in 21 geographic markets across the United States. Its information is delivered through a variety of methods, including approximately 60 print publications and 80 Websites."