We're posting up notes from the 2013 Value Investing Congress in New York. Next up is Alex Roepers of Atlantic Investment Management and his presentation was called: "Insights from 25 Years of Constructive Shareholder Activism." He also pitched 5 new ideas.
Alex Roepers' Value Investing Congress Presentation
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19.2% compounded net of
fees return over last 25 years.
Tips: Define your universe. Stay
in your area of competence. Build conviction by doing your homework. Wait for
opportunity to arise, stalk stock until then. Don't be greedy: scale out as you
reach your valuation. Don't use leverage. Concentrate funds on your highest
conviction ideas. (They do best 6 or 7 ideas). Be honest and transparent with
your investors.
Last year’s ideas:
Energizer (ENR): Sold with 29% profit
Rockwood (ROC): Still own up 39%
Clariant (CLN.VX): Still own, sold
some, up 42%
FL Smidth (FLS.DC): Sold. Lost 5%
Joy Global (JOY): Sold. Only up 8%
Roepers' Five New Ideas
Baker Hughes (BHI): 43%
upside. Third largest energy services. BJ services acquisition with zero
margins. Activist to improve margins. $71 PT on 12x 2014 EBIT.
Faurecia (EO.FP): Auto parts. Trading at 20c on the dollar. Deleveraging story. 50%
owned by troubled Fiat. 41% upside to pt.
Itochu
Techno Solutions (4739.JP): IT services. Domestic company benefiting from
Japanese financial firms recovery.
Lanxess (LXS.GY)
German polymer company. Rubber used in tires. Benefits from replacement cycle
that has been delayed.
Harman (HAR): Speakers. Mainly in cars. Jbl. Professional segment is arenas, concerts, etc. Infotainment 9 of top 15 car companies in the world.
We're posting up notes from the 2013 Value Investing Congress in New York. Next up is John Mirshekari of Fidelity Investments. His presentation was entitled "Inflections in Incentives" and he also pitched Aecom (ACM) and URS (URS).
John Mirshekari's Value Investing Congress Presentation
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Key is CEOs need skin in
the game. Beneficial interest as % of annual cash compensation. Pinnacle Air was 2x
and Sky West was 39x.
Insider ownership is one
thing he looks at. Capital allocation is one
of the few inefficiencies left in the market. Management incentives
affect capital allocations.
1. Watch the cannibals.
(Share repurchases) Should pay more for a business in hands of a manager with
pro shareholder leanings.
2. Incentives drive
decisions. Why don't managements buy back stock? Because their compensation
schemes encourage size, not stock return. Revenue, EBITDA, income are the
usual, not ROIC, three year relative stock return.
Example: AutoZone (AZO).
Perfectly aligned with shareholders. Share count down 75% over last ten years. AZO
compounds at 21% vs. SPX 3%. Inflections in incentives. Huge opportunities to
make money.
Bullish on Aecom (ACM)
Engineering company that has had this happen. Say on pay is pressuring CEOs
compensation plans. They were hit by this in 2011. So they tried to change.
They replaced EBITDA growth with EPS, CFO per share, FCF per share. Key is
"per share" so no incentive to grow without actual performance.
Include goodwill impairments in comp calculation. Focus on share count means
better use of capital.
They stopped M&A and
shifted to share repurchases. They bought back 1/3 of the shares 18 months
after the say on pay change in compensation. Stock still attractive and up 42%
even in bear case. Bull case is 90%.
URS (URS)
Comp with ACM. Civil
engineering company. Bridges, roads on a cost plus basis. $7 EPS by 2015 could
lead to 100% upside.
Could begin repurchasing
stock over next two years. FCF is $5.38 per share
last four years. Adjusted for a non-recurring WC charge, we get $7.16 per year.
In the past they have done 11 years, at $6B in cash, more than the value of the
company today.
Worst ROE in the industry. But could double it.
In the past compensation
plan was only net income. This year they added relative total share return. They had low say on pay this year.
Amended proxy says they may
use ROE, EPS, and including a future goodwill impairment charge. Management says they will
not do any acquisitions this year.
Could actually do FCF of
$16 on $7 EPS. 14x gets $98 stock price
which is 100% upside.
Says there is no shortcut,
you have to read proxies.
We're posting up notes from the 2013 Value Investing Congress in New York. Next up is Michael Castor of Sio Capital. He gave a presentation called "The Accounting Game" and touched on a number of stocks and then recommended shares of Genomma Labs (LABB) traded in Mexico.
Michael Castor's Value Investing Congress Presentation
We're posting up notes from the 2013 Value Investing Congress in New York. Next up is Guy Gottfried of Rational Investment Group. He gave a presentation called "Needles in a Haystack: More Small Cap Values" that focused on Glentel and Supremex.
Guy Gottfried's Value Investing Congress Presentation
His picks at this event on average are up
60% & he pitched 2 Canadian stocks:
Glentel (GLN)
3.4% yield. Wireless retailer. Canada, US, Australia. Second
largest Verizon retailer in US. Carriers pay them a
bounty/commission. Profits from commissions,
not phone hardware.
7.5x FCF, Management aligned with
shareholders. Good capital allocation
record. Dividend while you wait.
Why cheap? Made a big acquisition.
Wireless Zone. Confusing accounting. Some divisions making no money. Lots of non-recurring
items. Arcane accounting; put
obligation recorded on balance sheets, marked to market. To make it look cheap, you
have to do a lot of adjustments.
Family owns 46% of
company. Good record of
acquisitions. Deals with Costco, kiosks
inside. Some divisions with no cash
flow but still valuable. So many adjustments to
income to get the valuation.
He gets $1.66 per share FCF,
7.5x when he adjusts share price for the amt segment. Lots of accounting tricks
needed to make it look cheap.
Supremex (SXP)
Illiquid stock. Canada's largest envelope
maker. Declining industry. 60% market share. FCF up
due to cost cutting.
3.1x FCF. 7.5% dividend
yield, 23% payout ratio. Cheap because no coverage,
conference calls. Cut dividend by 90% a few years ago.
Activist owns 45%. Cut debt with FCF by 69%.
1.5x debt.
Catalysts: Likely big dividend hike.
Insiders won't waste cash on bad acquisitions. Could double it to 15% and
still be paying less than 50% of FCF. In the past, this would
lead to 30-50% stock move.
Even in FCF decline of
double digits, can sustain 15% yield for 5 years. Still cuts debt.
Q&A: How do you know
it doesn't decline faster than you expect? A: Believes his double digit decline
assumptions are realistic.
Embedded below is Gottfried's PDF slideshow presentation on Supremex & Glentel:
Chase Coleman and Feroz Dewan's investment firm Tiger Global Management has increased its stake in London listed BBA Aviation (LON: BBA). Due to trading on September 9th, Tiger Global now own 5.11% of BBA Aviation’s voting rights and this represents around a 21% increase in their position size.
Per Google Finance – “BBA Aviation plc is a provider of aviation services and aftermarket support to operators of business and general aviation, military and commercial aircraft. The Company delivers its services at over 220 locations on five continents. The Company operates through two segments: Flight Support segment and Aftermarket Services segment. The Company’s Flight Support segment provides refuelling, ground handling and other services to the business, general and commercial aviation markets. Its Aftermarket Services segment maintain, manufacture and support engines and aerospace components, sub-systems and systems. The Flight Support segment consists of Signature Flight Support and ASIG, and Aftermarket Services and Systems segment consists of Engine Repair and Overhaul, Legacy Support and APPH. Its Flight Support has approximately 200 locations worldwide, and its Aftermarket Services has approximately 23 locations worldwide.”
We wanted to let our readers across the pond know that the Sohn
London Investment Conference is now open for registration and will take
place on October 31st. They're offering early registration tickets with a 25% discount until October 1st, so you've got 2 weeks to save. You can register for the Sohn London Conference here.
As
many of you are already aware, the Sohn conferences are some of the
best in the industry. And most importantly, they benefit great causes
by supporting pediatric cancer research and treatment.
Also,
the events are known for great presentations from well-known hedge fund
managers. Check out the speaker line-up below and you'll see why:
Confirmed Speakers List
John Armitage, Egerton Capital Chris Hohn, Children's Investment Fund Rob Citrone, Discovery Capital Tony Chedraoui, Tyrus Capital Mala Gaonkar, Lone Pine Capital Eashwar Krishnan, Tybourne Capital (ex-Lone Pine) Bruno Rocha, Dynamo Capital Julian Sinclair, Talisman Global Asset Management Masroor Siddiqui, Naya Management (ex-TCI) Nicolai Tangen, AKO Capital Professor David Cunningham, Royal Marsden Hospital Peter Harf, Delete Blood Cancer UK
Event Details
When: Thursday, October 31st, 2013
Time: 12:00 to 5:30 PM
Where: London Marriott Hotel Grosvenor Square
Now in its third year, the FINforums Annual Hedge Fund Summit is a must attend for anyone involved in the hedge fund industry, including fund managers, high-net-worth investors, institutional investors, lawyers, accountants, technology providers, private bankers, advisors and consultants.
Keynote Address:
• Barbara Novick, Vice Chairman, BlackRock
Topics Covered Include:
• The Global Macro Outlook
• The Business of Running a Hedge Fund
• Tips on Marketing and Capital Raising
• An Investment Consultants Roundtable
Registration:
Buy-Side / Fund Managers / Investors: $395.00
Service Providers / Other: $695.00
Friends of MarketFolly receive a 15% discount. Use code: MF15
We've highlighted before that Berkowitz is seeking dividends on these securities. The fund manager notes that you can buy the securities at such discounts with the potential for them to trade at par again if they start paying dividends.
Fairholme likes to buy stakes in systemically important institutions and Berkowitz says Fannie & Freddie are just that.
Berkowitz Talks AIG
He also touched on his stake in AIG (AIG). He said: "Investing is all about comparing what you give versus what you get. Now when you look at today's stock price with AIG, it still sells significantly below liquidation value. So at some point the stock market price will meet the book value of AIG."
He says book value is around $60 per share currently and he expects liquidation value will double in a few years.
So when will he sell? He said he'll have to consider the idea of selling in the event that shares eventually trade at book value & higher.
He also addressed his large position size, noting that Benjamin Graham once distributed shares of GEICO rather than selling when the position size became too large for his fund. So it sounds like Berkowitz is considering this option as well for the future.
Talks Sears (SHLD)
Berkowitz thinks Eddie Lampert has been doing a good job and he notes he's in the minority in that opinion. He compares Sears to Simon Properties (SPG) and it's clear Berkowitz views as SHLD as a real estate play.
Embedded below is the video of Berkowitz's interview:
We know you'd love to stop hearing about J.C. Penney (JCP), but when this many major hedge funds are trading shares, it's worth highlighting over and over again. This latest activity: Larry Robbins' Glenview Capital has boosted its holdings in the retailer.
Per a 13G filed with the SEC, Glenview has disclosed a 9.10% ownership stake in JCP with 20,060,830 shares. This marks almost a 138% increase in their position size since the end of the second quarter. The filing was required due to activity on August 22nd.
We'll continue to monitor the SEC filings for further activity to see which funds are taking advantage of a large seller's exit or are wagering on a company turnaround, or at the very least, stability.
It's been a while since we checked in with market strategist Jeff Saut, so below is his latest weekly commentary entitled, "Money and Savings?" In it, he talks about the difficulty in timing the market and how he's tried to manage risk the past few months while expecting a decline.
While things haven't quite played out as he's thought recently, he still pulls some interesting data out:
"September is truly the worst month historically. Indeed, September has seen the worst average returns for the D-J Industrials over the past 50 and 100 years."
Andreas Halvorsen's hedge fund firm Viking Global has filed a 13G with the SEC regarding shares of Triumph Group (TGI). Per the filing, Viking now owns 5.4% of the company with 2,834,161 shares.
This marks an increase of over 37% in the number of shares they own since the end of the second quarter. The 13G was required due to portfolio activity on August 20th.
Per Google Finance, Triumph Group "designs, engineers, manufactures, repairs, overhauls and distributes a portfolio of aerostructures, aircraft components, accessories, subassemblies and systems. It offers a range of products and services to the aerospace industry through three groups of operating segments: Triumph Aerostructures Group, whose companies' revenues are derived from the design, manufacture, of metallic and composite aerostructures and structural components; Triumph Aerospace Systems Group, and Triumph Aftermarket Services Group, whose companies serve aircraft fleets. In March 2013, United Technologies Corp sold the former Goodrich Corporation pump and engine control systems business to the Company. In May 2013, the Company announced the acquisition of Primus Composites from Precision Castparts Corp."
If you aren't tired of hearing about J.C. Penney yet (JCP), here's even more hedge fund activity in the name:
Kyle Bass Starts J.C. Penney Stake
First, a 13G filed with the SEC has revealed that Kyle Bass' Hayman Capital owns a 5.2% stake in J.C. Penney (JCP) with over 11.4 million shares. This is a brand new position for the hedge fund as they did not own any JCP at the end of the second quarter.
Perry Buys Ackman JCP Shares
Recently, we highlighted how Richard Perry's hedge fund Perry Capital had taken a position in JCP. Well, they've since added to that position. We also flagged how Bill Ackman was exiting his JCP stake and as it turns out, Perry was one of the buyers, purchasing 3 million shares at $12.90. They now own around 8.62% of the company
This whole JCP saga will make for a very interesting investing/business school case study one day.
The Value Investing Congress is only a few weeks away and will take place on September 16th & 17th in New York. MarketFolly readers can receive discounted admission by clicking here and using code: N13MF7 This code expires tonight so be sure to take advantage.
Performance of Last Year's Picks From Speakers
We thought we'd check in on the performance of the stock picks from last year's Value Investing Congress. These picks are from speakers who presented last year that will also be presenting again this year.
Here's the performance breakdown from October 3rd, 2012 until August 29th, 2013:
- 17 out of 21 picks outperformed the S&P 500
- Average performance of picks: +49%
- Performance of S&P 500 over same time frame: +13.3%
Jeff Ubben's Picks
Long Valeant Pharmaceuticals (VRX) +77.1%
Long Moody's (MCO): +44.2%
Long CBRE (CBG): +14.3%
Long Motorola Solutions (MSI): +11.7%
He also mentioned these names: Halliburton (HAL): +42.5%, Adobe (ADBE) +41%, & C.R. Bard (BCR): +9.8%
Mick McGuire's Picks
Long Gencorp (GY): +50.5%
Long Brookfield Residential Properties (BRP): +39.6%
Long Alexander & Baldwin (ALEX): +28.7%
Alex Roepers' Picks
Long Rockwood Holdings (ROC): +34.9%
Long Energizer (ENR): +34%
Long Clariant (CLN VX): +33.9%
Long FLSmidth (FLS DC): -5.7%
Long Joy Global (JOY): -45.1%
Whitney Tilson's Picks
Long Netflix (NFLX): +409.8%
Long Howard Hughes (HHC): +46%
Long Berkshire Hathaway (BRK.A): +26.1%
Guy Gottfried's Picks
Long Canam Group (TSE:CAM): +81.2%
Long ClubLink Enterprises (TSE:CLK): +19.1%
Bob Robotti's Picks
Long Calfrac Well Services (TSE:CFW): +34.8%
As you can see, these managers' picks performed quite well on average. And don't forget: each one of them will be presenting their new picks at this year's event in a few weeks along with plenty of other new speakers (full list of speakers here).
Hear Ubben, McGuire, Roepers & More Pitch Their Latest Ideas
Find out what stock picks these hedge fund managers will pitch at this year's Value Investing Congress in September. Market Folly readers can save $800 off admission by registering here and using code: N13MF7 Remember, the code expires tonight!
Ruane Cunniff Goldfarb's Sequoia Fund had its investor day earlier this summer and they finally released a transcript of the event.
In it, they talk about their big position in Valeant Pharmaceuticals (VRX) numerous times. Just keep in mind that since their investor day, Valeant has acquired Bausch & Lomb.
Sequoia Fund managers also talked about their investment thesis on World Fuel Services (INT), Ritchie Brothers (RBA), Sirona Dental Systems (SIRO), Google (GOOG), Rolls-Royce, Advance Auto Parts (AAP), O'Reilly (ORLY) and many other stocks.
Additionally, the portfolio managers talked about their investment process and how they value companies.
Embedded below is Sequoia Fund's annual investor day transcript. It's an in-depth read that we highly recommend:
If you missed it, Bill Ackman's hedge fund Pershing Square Capital Management has dumped its stake in retailer J.C. Penney (JCP) according to an amended 13D filed with the SEC.
Ackman offloaded the shares to Citigroup, who in turn will sell them to other investors. Dow Jones reported that Citi offered the shares between $12.50 and $12.90.
Pershing had previously owned 18% of the company and it looks like they'll lose ~$400 million on the trade. To walk through Ackman's thinking on his JCP decision, you can check out Pershing Square's Q2 letter which gave hints that he was leaning toward selling.
Some investors have called Ackman's sale a 'capitulation' of sorts and a potential contrarian signal for the stock to head higher, but then you also have to consider that it would still be a bet on the company's fundamentals.
Steve Mandel's hedge fund firm Lone Pine Capital has filed 3 separate 13G's with the SEC. Here's the breakdown:
B/E Aerospace (BEAV)
First, Lone Pine has disclosed a 5% ownership stake in B/E Aerospace (BEAV) with 5,285,850 shares. The 13G filed with the SEC was required due to portfolio activity on August 16th and represents a 22% increase in their position size since the end of Q2.
BEAV was analyzed in our premium Hedge Fund Wisdom newsletter last November and is up over 58% since then. Lone Pine originally started their BEAV position back in the first quarter of 2012.
Per Google Finance, B/E Aerospace is "a manufacturer of cabin interior products for commercial aircraft and business jets and distributor of aerospace fasteners and consumables. The Company sells its products directly to the airlines and aerospace manufacturers. It also designs, engineers and manufactures customized fully integrated thermal and power management solutions for participants in the defense industry, aerospace original equipment manufacturers (OEMs) and the airlines. In addition, it provides aircraft cabin interior reconfiguration, program management and certification services. The Company operates in three segments: commercial aircraft, consumables management and business jet."
Dollar General (DG)
Second, Mandel's hedge fund also revealed a 5.4% ownership stake in Dollar General (DG) with 17,684,604 shares. The 13G was filed with the SEC due to trading activity on August 14th. Their position size has increased almost 30% since the end of Q2.
Per Google Finance, Dollar General is "a discount retailer in the United States primarily in the southern, southwestern, midwestern and eastern United States. The Company offers a selection of merchandise, including consumables, seasonal, home products and apparel. The Company's merchandise includes national brands from manufacturers, as well as private brand selections with prices at substantial discounts to national brands. It offers its merchandise at everyday low prices through its convenient small-box (approximately 7,200 square feet) locations"
DSW (DSW)
Lastly, Lone Pine has disclosed a 5.6% ownership stake in DSW (DSW) with 2,045,064 shares. This means they've over doubled their exposure to this name since the end of the second quarter.
The 13G Lone Pine filed with the SEC signifies portfolio activity on August 16th.
Per Google Finance, DSW is "a United States branded footwear and accessories specialty retailer. DSW has two segments: the DSW segment, which includes the DSW stores and dsw.com sales channels, and the leased business division segment"
Dan Loeb's hedge fund firm Third Point has filed a 13D with the SEC regarding shares of Sotheby's (BID). In it, they reveal a 5.7% ownership stake in BID with 3,925,000 shares.
This marks a 57% increase in their position size since the end of the second quarter. Third Point initially started their BID stake in Q1 of this year, ramped it up in Q2, and have now added to it further. The 13D filing was required due to portfolio activity on August 15th.
Other Activist Investors Involved
Third Point's 13D contains the standard boilerplate saying that they intend to engage the board of management. It's also worth highlighting that another activist investor is involved in shares as well: Mick McGuire's Marcato Capital Management. They disclosed a stake in BID at the end of July. Additionally, Nelson Peltz's Trian Fund Management just started a new position in Sotheby's in Q2 as well.
Per Google Finance, Sotheby's is "a global auctioneer of authenticated fine art, decorative art, and jewelry. The Company operates in three segments: Auction, Finance, and Dealer. The Company's Auction segment functions as an agent by offering works of art for sale at auction and by brokering private sales of artwork. Sotheby’s also purchases and resells works of art through its Dealer segment, conducts art-related financing activities through its Finance segment and is engaged, to a lesser extent, in brand licensing activities. The Sotheby’s name is also licensed for use in connection with the art auction business in Australia, art education services in the United States and the United Kingdom and print management services."
Bill Ackman of hedge fund Pershing Square Capital Management recently appeared on Charlie Rose for an interview.
While Ackman has been in the media a lot regarding his short position in Herbalife (HLF) and long position in J.C. Penney (JCP), this is the first appearance Ackman himself has made in quite some time. As such, we wanted to highlight his latest thoughts on the various situations he's involved in.
Embedded below is the video of Ackman's interview:
Bloomberg recently highlighted a poker tournament featuring hedge fund managers David Einhorn and Jim Chanos. In it, they asked the hedgies to compare poker to investing.
Einhorn said that, "Over time, as you invest in lots and lots of stocks over a long period of time, skill I think dominates. And the same is true in poker. If you play lots and lots of hands and lots and lots of tournaments, eventually the better players are going to come out on top."
Chanos added that, "Like in investing, poker you deal with incomplete information."
This comparison is by no means new. A few years ago, we highlighted the link between hedge fund managers and poker as many hedgies have played the game and commented on the similarities.
The New York Post has shared Bill Ackman's Q2 letter and it's quite in-depth and worth highlighting. The Pershing Square manager provides updates on many of his positions, including his new position in Air Products & Chemicals (APD), his controversial Herbalife (HLF) short, as well as their troubled stake in J.C. Penney (JCP) and more.
Paul Ruddock's hedge fund firm Lansdowne Partners has disclosed a new position in London listed Tower Resources (LON: TRP). According to a disclosure made on August 2nd, Lansdowne hold the equivalent of 10.56% of Tower Resources voting rights. We say ‘equivalent’ because the position is held completely via Contracts for Difference (CFDs) and these derivatives don’t actually confer the right to vote.
It is uncharacteristic for Lansdowne to hold a large percentage of a company’s stock via CFDs. They surely have a reason for doing so, but it is difficult to know why they have chosen this route in this particular case.
Per Google finance – “Tower Resources Plc is an independent oil and gas exploration company. The Company has targeted exploration licenses, focused on Africa. The Company holds a 30% working interest in a license which consists of three blocks offshore Namibia through its operating subsidiary, Neptune Petroleum (Namibia) Ltd., and a 50% interest in three contiguous licenses, onshore and offshore, in the Sahawari Democratic Republic through its subsidiary Comet Petroleum Ltd. The Company's primary focus is its 30% working interest in the 0010 License offshore Namibia. “
Anglo Swedish activist hedge fund, Cevian Capital, has disclosed a new stake in London listed G4S (LON:GFS). According to the filing on August 12th, Cevian, own 5.11% of G4S's voting rights.
G4S, one of the world's largest security firms, has been struggling since it failed to fulfill its staffing obligations at the London Olympics in 2012. G4S lost its CEO in the storm that followed and is now facing an additional investigation into alleged over-billing of the government for the tagging of offenders.
Cevian joins some other notable names on the long side of G4S including: Invesco's Neil Woodford, Bill and Melinda Gates' Foundation / Cascade and Tweedy Brown.
Many Hedge Funds Short G4S As Well
However, G4S seems to have attracted a lot of hedge funds on the short side as well. AKO Capital have a 0.54% short, Adelphi Capital -0.71%, BlackRock -0.59%, Egerton Capital -0.7%, Lansdowne partners -0.66%, and Odey Asset Management -0.66%.
About Cevian Capital
Cevian was founded in 2002 by Christer Gardell and Lars Forberg. Cevian has 6 billion euros under management and specializes in running concentrated, activist positions.
About G4S
Per Google Finance - “G4S Plc, along with its subsidiaries, is engaged in provision of secure solutions, including manned security services, care and justice services and security systems, and cash solutions, including the management and transportation of cash and valuables, as well as undertaking of other outsourced business processes in sectors where security and safety risks are considered a threat. The Company operates in two segments: secure solutions and cash solutions. Secure solutions are the integrated security solutions for commercial organizations in areas such as risk consulting, manned security and security systems and a range of services including protection of critical national infrastructure, care and justice services, integrated facilities services and border protection for governments. Cash solutions are the outsourcing of cash cycle management for central banks, financial institutions and retailers.”
The brand new Q2 2013 issue of our premium newsletter, Hedge Fund Wisdom, is now available! Subscribers please login at www.hedgefundwisdom.com to access it.
- New consensus buy/sell section: Top 5 new buys, top 5 sells, top 5 additions, top 5 reductions. See what stocks hedge funds were trading the most and why.
- Equity analysis section: Check out an in-depth look at 2 stocks hedgies have been buying. If you missed it, we recently highlighted performance of stocks featured in past issues and the numbers speak for themselves. Find out what stocks are analyzed in the new issue by subscribing below.
- Updated portfolios of 25 top hedge funds: See the latest holdings of David Tepper, Seth Klarman, Warren Buffett, Steve Mandel, David Einhorn and many more big names (full list at the bottom of the page here).
- Expert commentary on each fund's moves: We've been tracking these funds for 6+ years and add historical context.
Find Out What Stocks Hedge Funds Have Been Buying & Selling
All the latest hedge fund activity is aggregated into one convenient document, saving you a ton of time. Easily find the latest picks from your favorite manager or search the .pdf by company name and immediately find out who was buying or selling the stocks you're interested in. Subscribe below:
MarketFolly's premium newsletter, Hedge Fund Wisdom, just released a brand new issue and you can subscribe below. If you missed it, here's an update on the performance of the stocks analyzed in the past few issues.
Performance of Stocks Analyzed in Recent Issues
Here's the key stats (as of August 13th):
- 7 out of the 8 stocks analyzed in the last 3 issues have widely outperformed the market
- The average return is +38.08%
- Average outperformance over the S&P 500: +27.35%
Q1 2013 Issue Performance
A few months ago on May 21st, we released the Q1 issue that analyzed 3 stocks. Here's the performance of those stocks thus far (through August 13th):
Sealed Air (SEE): +26.44%
MGIC Investment (MTG): +17.69%
Oil States International (OIS): -10.08%
Compared to the S&P 500 over the same timeframe: +1.71%.
Q4 2012 Issue Performance
On February 21st, 2013, we released the Q4 issue and here's how those stocks have performed since then:
Free Sample of an Old Issue: If you haven't seen the newsletter before, you can view a free sample here (.pdf)
Subscribe to See What Stocks Are Analyzed Next Week
The brand new Q2 2013 issue of the newsletter is available now! Subscribe below to see which new stocks are featured.
Additionally, the newsletter reveals the portfolios of 25 top hedge funds, provides historical context & commentary on their moves, and also includes a consensus buy/sell section listing the stocks hedge funds were trading the most.
1 Year Subscription (4 issues): $299.99 per year (save 20% with this option)
Disclaimer (as noted at the bottom of this website and in the newsletters): This information is for educational and/or entertainment purposes only. Use this information at your own risk. Market Folly and Hedge Fund Wisdom are not investment advisors of any kind, so do not consider anything on this page to be legal, tax, or investment advice.
Carl Icahn of Icahn Enterprises announced yesterday that he has taken a stake in Apple (AAPL). Additionally, he noted that he has talked with CEO Tim Cook about expanding the company's buyback now and that they plan to speak again in the future. Icahn says AAPL shares are extremely undervalued.
What's interesting about all this is that Icahn actually announced this via Twitter, becoming the first major investor to unveil a new stake via that medium. If you don't already, you can follow @Carl_C_Icahn here. And while you're at it, make sure to follow @marketfolly too.
After revealing the position, he talked to various media outlets where his numbers and expectations for the company varied a bit. He told the Dow Jones that he sees AAPL trading around $625 with a boosted buyback. Later, he told Reuters he sees a $700 price target with 10% earnings growth.
Icahn's not alone in his desire for a sizable buyback from Apple. Greenlight Capital's David Einhorn also pushed the company to return cash to shareholders. Apple announced a plan, but it's clear some investors still want more given AAPL's large cash pile.
Ed Bosek's hedge fund firm Beacon Light Capital yesterday sent a letter to Jos A. Bank (JOSB) asking for change at the company. Beacon Light owns around 1% of the company, but it is a highly concentrated position for them now and they've owned shares for 3 years.
Beacon Light Looks For Buyback
Basically, Bosek is pushing for the company to do a buyback now as the JOSB has over 30% of their market cap in cash and has never done a buyback or paid a dividend. Even more frustrating, they highlight management's lack of communication with shareholders and see a lot of trapped value at the company. They see normalized earnings are close to 4 and should grow.
While Jos A Bank shares trade around $44 currently, he sees them heading as high as $70 after a buyback, earnings close to $6, and a multiple of 14-15x earnings.
Prior to founding Beacon Light, Bosek worked at Atticus Capital.
Bosek also appeared on CNBC to talk about what needs to change at JOSB. The video is embedded below:
Beacon Light's Letter to Jos A Bank
Here's the full text of their letter:
"August 13, 2013
Board of Directors
Jos. A. Bank Clothiers, Inc.
500 Hanover Pike
Hampstead, MD 21074-2095
Dear Board of Directors,
We are writing to you on behalf of BeaconLight Capital LLC and its affiliates (together, "BeaconLight" or "we"), collectively the beneficial owners of more than 1% of the common stock of Jos. A. Bank Clothiers, Inc. ("Jos. A. Bank" or the "Company"), having been shareholders for three years. After extensive study and analysis, we are convinced that tremendous value is trapped inside the Company due to the absence of a credible capital allocation policy, an insular insider Board of Directors (the "Board"), poorly aligned management incentives, and the Company's refusal to communicate with shareholders. After several unsuccessful attempts to privately engage in constructive dialogue with the Company and the Board, we believe it is necessary to publicly voice our concerns about the Company's direction. We urge the Board to meet with shareholders with the goal of reconstituting the Board to add true shareholder representation, and strongly encourage other shareholders to reach out to the Company to demand change. With the simple changes outlined in this letter, we believe that the stock should be worth $70 per share even at a discounted multiple to its peers. Jos. A. Bank Has Underperformed Its Peers and Is the Cheapest US-Listed Retailer
While we appreciate the role that current leadership played in building the Company from a sleepy 100-store regional retailer to a national 600-store company with over $1 billion in sales, they have delivered increasingly dismal total shareholder returns over the last five years. The Company's stock has underperformed the S&P Retail Index by 5%, 116%, and 40%, in the last five, three and one year periods, respectively.
Although the Company has suffered weak operating results in the past eighteen months, the vast majority of the stock's underperformance is attributable to multiple contraction. The market is heavily penalizing the Company for its inefficient use of cash and exceptionally poor corporate governance. As a result the Company currently trades at depressed multiples on depressed earnings. In fact, at 6x enterprise value to consensus EBIT expectations for the year ending January 2014, the company trades at nearly a 30% discount to its peer group. Additionally, 6x EBIT is the lowest multiple of any retailer publicly listed in the United States with a market capitalization over $250 million.
The Board's Actions Make Clear Its Total Disregard for Shareholders
The Jos. A. Bank Board has no truly independent directors, has one of the longest average board member tenures of any US-listed company, and has a combined ownership of only 1.5% of the Company's outstanding stock. These factors have resulted in a Board that defers to the Chairman, Robert Wildrick, and seems to ignore other stakeholders. While we acknowledge Mr. Wildrick's contributions to the growth of the Company during his time as CEO, his past success does not entitle him to run the Company as a personal fiefdom.
Though the Board technically has four independent directors, the reality is that every member of the Board has relationships or connections to the Company or Mr. Wildrick. The Lead Independent Director, Andrew Giordano, was the former Chairman of the Board who hired Mr. Wildrick to run the Company in 1999. Neal Black, the Company's current CEO, was hired by Mr. Wildrick after previously working with him at Belk. James Ferstl also worked with Mr. Wildrick at Belk and at their ill-fated attempt to turn around Venture stores in the 1990s. The remaining two directors, Sidney Ritman and William Herron, are both friends of Mr. Wildrick and Mr. Giordano from Palm Beach. This cohort allows the Chairman to collect $825,000 per year for consulting the Company on acquisitions that none of the shareholders seem to want. Notably, the entire Board combined only owns a measly 1.5% of the Company's stock. In fact, in 2006 when he was the CEO, Mr. Wildrick sold nearly his entire 5% stake in Jos. A. Bank at an average share price of $28 and has not purchased another share since.
In 2010, the Board installed a "share compensation" plan for management, providing a cash and stock bonus based exclusively on the annual performance of the Company's net income relative to targets set by the Board. There is no compensation based on any shareholder-aligned metrics, such as earnings per share, return on capital, or total shareholder return. Further, each year, the stock portion of the bonus is for a fixed amount of dollars rather than a fixed number of shares. This actually creates a perverse incentive for management to minimize the share price and thereby, accumulate a larger stake in the Company over time.
The current composition of the Board opens the door for shareholder abuse, and unfortunately, every recent governance action by the Jos. A. Bank Board has only served to tighten the Board's grip on the Company at the expense of the shareholders. The Company continues to have a poison pill and a staggered board even though less than 25% of public companies have a staggered board and less than 10% have a poison pill.
In addition, while most public companies have taken steps to become more shareholder-friendly, Jos. A. Bank has become increasingly unfriendly towards its owners. In August of 2012, the Board increased the ownership threshold required to call a special meeting from 35% to 50% of all shareholders. Typically, only 10% of shareholders are required to call a meeting, and proxy advisory firms are generally critical of a threshold above 15%. More recently, in July of 2013, the Board once again amended the Bylaws, this time to make Delaware the exclusive venue for shareholder actions against the Company's Board of Directors.
Limited and Misleading Communication with Shareholders
Shockingly, in the summer of 2012, the Company decided that it would only communicate via "public disclosures to ensure that all Shareholders have equal access to the information." This was a stark change as the Company's CFO had previously held routine investor calls and communicated with sell-side analysts. Further, the Company does not follow the protocol of hosting live public conference calls with investors and analysts, and instead reads a script and only answers prepared and curated questions.
This policy of no shareholder or analyst contact is misguided in any environment, but is particularly egregious for a business that has faced the most tumultuous period in its history and has seen gross margins plummet over 600 basis points. Rather than help shareholders understand the issues, the Company provided grossly inadequate discussions of its results in the 10-Qs filed with the SEC. Originally, the filings made it appear that most of the margin pressure was due to pricing and competition, with cost inflation of cotton and wool playing only a minor role. It was only after the SEC initiated a correspondence asking for more detail on the gross margin fluctuations during the year that the Company explained that "substantially all of the decline for the first nine months were due to these higher sourcing costs." This practice of disseminating minimal and ambiguous disclosures has undoubtedly caused the stock to underperform by increasing uncertainty and making it extremely difficult for potential new investors to understand the business.
Shareholders Have Spoken Loudly that Hoarding of Cash for Acquisitions is the Last Straw
In addition to poor operational performance and inadequate communications with investors, the Company's hoarding of cash stands as the last straw for most investors. The Company has never paid a dividend or re-purchased any shares. As a result, the Company has a growing cash pile that reached a staggering $377 million at the end of the fiscal year ended January 2013. This equates to $13.50 per share or 32% of the Company's market capitalization. Remarkably, the Company's cash reserve is more than double the value of its property, plant and equipment, more than its total inventory, and even more than 1.5x the Company's total liabilities. We see no conceivable business justification for holding this much cash. By year end the cash pile could approach $16 per share or nearly 40% of the Company's market capitalization, all while Mr. Wildrick is being paid a substantial sum to supposedly search for acquisitions that shareholders do not want or agree with.
All of these actions reflect an insular Board focused on maintaining the status quo, combined with the audacious belief that shareholders will sit idly as they embark on a path of value destruction.
Fortunately, at the shareholder meeting in June, shareholders sent a clear message to the Board that the current path is unsustainable. Over 31% of shareholders voted against incumbent directors James Ferstl and Sidney Ritman despite their running unopposed. Additionally, for the first time in the Company's history, the Say on Pay proposal was voted down. It is obvious from these results that shareholders are losing their patience and that the Board's grip on the Company is becoming tenuous.
The Way to Unlock Substantial Value
While the above-mentioned issues are concerning, we believe that Jos. A. Bank has a solid long-term foundation, a talented operational management team, and exciting growth prospects. With the right capital allocation, strong corporate governance, better aligned management incentives, and more appropriate investor communication, we believe that the Company and its shareholders will thrive in the years to come.
First, while the business has performed poorly recently, we believe that these issues are largely temporary. Most of the problems stem from the fact that the Company's raw material purchases take longer to feed through for the Company than its competitors. The timing difference is generally minor, but from 2010 to 2011, cotton and wool experienced a 10-sigma price move. The price of cotton, specifically, nearly quadrupled in 18 months before falling by over two-thirds in the following six months. As costs were spiking for its competitors, Jos. A. Bank took advantage of their lower input costs and promoted aggressively. This produced banner years in fiscal years 2010 and 2011, growing revenue over 27% combined. In 2012, as competitors' costs were normalizing, the Company faced rising input costs at a time when unfavorable weather conditions also left it long in inventory. The Company tried to become even more promotional to clear its inventory at the expense of margins, but struggled. Ultimately, it decided to reset its promotions at the end of 2012 and early this year. Most observers have noticed that the Company's television advertising has been considerably less frequent and sensational.
The change in promotional intensity, combined with much lower and less volatile cotton and wool costs, is great for the future of Jos. A. Bank's business. Though sales growth has suffered from the reduction in promotions and likely will continue to suffer through the rest of the year, there will be a solid base from which to grow once the business laps the changes, and gross margins should benefit from the powerful dual tailwinds of less promotions and lower raw material costs. The few analysts who cover the stock expect earnings per share of close to $2.75, but we see no reason why margins do not return to historical averages in the low-60% range, which would yield normalized earnings closer to $4 per share. At today's share price near $40, excluding the cash pile, the Company trades at approximately 6x normalized earnings. This is simply too low for a retailer with real growth from box increases, a new factory store concept, and optionality around tuxedo rentals. Longer term, at maturity, we believe that Jos. A. Bank should be able to earn $175 million in free cash flow, or a 25% yield on the current enterprise value.
Unfortunately, the Company has chosen not to explain any of this to the investment community, and instead is focused on finding acquisitions for "long-term growth." The best investment that the Company can make today for its long-term shareholders is to repurchase shares at today's stock price, which is incredibly depressed as a result of a ballooning corporate governance discount in an information vacuum. Repurchasing shares with all of the cash on the balance sheet should increase normalized earnings close to $6 per share.
In our view, the paths to restoring the Board's relationship with shareholders as well as the market's confidence in the Company are straightforward.
- Immediately take action to de-stagger the Board and add a significant number of truly independent directors who have no prior connections to the current Board members or management.
- The Company should immediately return all of its cash to shareholders, preferably through buy-backs, as long as the stock continues to suffer from its severe discount. Further, the Company should outline a policy for returning all future cash flows to investors.
- The Board should rework its compensation practices to align management incentives more closely with the creation of long-term shareholder value. While business has struggled for the past 18 months, the executive team has done an admirable job operating the business over the long term. We believe that most shareholders would gladly reward the CEO, Neal Black, and other executives with cash and stock bonuses worth substantially more than current levels if they succeed in creating real value.
- The Company should terminate Mr. Wildrick's consulting arrangement and use the cash savings to build a legitimate investor relations department. The Company's current communication strategy is designed to impede, rather than encourage, investors from becoming shareholders. The Company also has no corporate presentation, does not attend investor conferences, does not communicate with sell-side analysts, and will not interact with current or prospective investors. As a result, prospective investors are at an information disadvantage compared to shareholders who completed their initial diligence prior to the Board's change in communication policy. This severely limits the pool of possible investors and negatively impacts the stock price. A professional investor relations team would quickly correct this problem and help to restore transparency to the business.
We strongly believe that with these actions, the Company's stock could be worth more than $70 per share today, which better reflects the solid business that has been built over the last two decades.
We remind you that as directors, you owe a fiduciary duty to the shareholders, the true owners of the Company. Your recent actions and general approach towards shareholders indicate that you have been neglecting your duties as a Board. We urge you to immediately act to restore shareholder confidence by following the suggestions outlined in this letter. Otherwise, we believe it is likely that shareholders will hold the Board accountable and seek change by replacing the Chairman at the 2014 annual meeting. Once again, we encourage our fellow shareholders to voice their displeasure with the Board and let it be known that change is needed immediately.
Per two 13G's filed with the SEC, Steve Mandel's hedge fund firm Lone Pine Capital has revealed two updated portfolio positions.
New SolarWinds (SWI) Position
First, Lone Pine has disclosed a brand new position in SolarWinds (SWI). Per the filing, the hedge fund owns 7.3% of the company with 5,479,465 shares. The disclosure was made due to portfolio activity on July 31st.
Per Google Finance, SolarWinds is "designs, develops, markets, sells and supports enterprise information technology (IT), infrastructure management software to IT professionals in organizations of all sizes. The Company’s product offerings range from individual software tools to more comprehensive software products that solve problems encountered by IT professionals. Its products are designed to help management of their infrastructure, including networks, applications, storage and physical and virtual servers, as well as products for log and event management. It offers a portfolio of products for IT infrastructure management. Its products operate in three categories: Free Tools, Transactional Products and Core Products. In May 2013, the Company completed N-able acquisition."
Boosts Michael Kors (KORS) Stake
Second, Mandel's firm has boosted its holdings in Michael Kors (KORS). Per the filing, Lone Pine now owns 5.2% of KORS with 10,498,164 shares. This marks a 30% increase in the number of shares they own since the end of the first quarter. This filing was required due to portfolio activity on August 2nd.
Per Google Finance, Michael Kors is "a designer, marketer, distributor and retailer of branded women’s apparel and accessories and men’s apparel bearing the Michael Kors name and MICHAEL KORS, MICHAEL MICHAEL KORS, KORS MICHAEL KORS and various other related logos. The Company operates its business in three segments: retail, wholesale and licensing. Retail operations consist of collection stores, lifestyle stores, including concessions and outlet stores located primarily in the United States, Canada, Europe and Japan. Wholesale revenues are principally derived from department and specialty stores located throughout the United States, Canada and Europe. The Company licenses its trademarks on products, such as fragrances, cosmetics, eyewear, leather goods, jewelry, watches, coats, footwear, men’s suits, swimwear, furs and ties."
Steve Cohen's hedge fund firm SAC Capital filed 2 separate 13G's with the SEC regarding two positions.
Sinclair Broadcast Group (SBGI)
Per a 13G, SAC has boosted its stake in Sinclair Broadcast Group (SBGI) by 159% since the end of the first quarter. They now own 5.2% of the company with 3,850,741 shares. The filing was required due to portfolio activity on August 9th.
Per Google Finance, Sinclair Broadcast Group is a "diversified television broadcasting company. The Company owns or provides certain programming, operating or sales services to more television stations."
You will see a bit of a theme with SAC's recent portfolio activity with their other purchase below:
LIN Media (LIN)
SAC has disclosed a 5.1% ownership stake in LIN Media with 1,701,054 shares. The filing was made due to portfolio activity on August 9th.
LIN Media recently completed its merger with LIN TV Corp.
According to the company, LIN Media is "a local multimedia company that operates or services 43 television stations and seven digital channels in 23 U.S. markets, and a diverse portfolio of websites, apps and mobile products that make it more convenient to access its unique and relevant content on multiple screens."
