Sahm Adrangi Short Bank of Internet Presentation: Value Investing Congress Las Vegas

We've posted up notes from the Value Investing Congress in Las Vegas and next up in the series is Sahm Adrangi of Kerrisdale Capital who pitched a short of Bank of Internet (BOFI).


Sahm Adrangi's Value Investing Congress Presentation

• Posting a short – originally long this company. One point the largest stock position. Stock is up 15x since when they originally bought it. 6x P/E less than 1x TBv and no   sell-side coverage when they first bought it. Went from $100MM to 1.2B, 26 PE 4x   TBV. Largest short. Bank of Internet is that short (BOFI).

• Owns a wide variety of internet banks, one branch in San Diego. Offers one of the highest savings rate (not the highest). Sources loans through branded websites and through the wholesale correspondent channel. LTM NI is $47MM versus 1.2B market cap.
• Key part to the thesis – BOFI is over-earning. Why will there be pressure? On the asset side and liability side. Yield on the assets inflated by MBS purchased three to four years ago (bought distress RMBS) – particularly high securities yield. As they roll off NIM declines. Loan book focused on jumbo mortgages – increasing competition. Either yields will decline or adverse credit quality. Loan provisions are thin. Long duration – Deposits will re-price upwards, won’t be able to raise NIM   without taking interest rate and other risks. Increasing competition among online banking as well will hurt NIM.
• (1) BOFI’s asset yields not sustainable - made attractive RMBS investments. Yields have started to decline, believe it will continue to decline. Loan yields and securities are in-line with other banks ex. RMBS purchased in the downturn. Asset yield versus   its peers 4.4% for BOFI versus 2.2% for their peers. 
• (2) Jumbo loans are a material driver for BOFI – competition is increasing. More and more banks are competing – either yields decline or BOFI takes on greater credit risk.
• (3) Another risk – BOFI is/may be taking on longer duration assets. Banks generally have a mismatch, but as interest rates drive up, deposits re-price, but you have to wait for the loan to mature before you can re-deploy capital. Mentioned that BOFI looks like it has made bet on declining interest rates.
• (4) Liability side – Deposits are less sticky – plus BOFI can’t offer the relationship/cross-sell services. Plus, it’s much easier to set up an online bank account versus physical account.
• (5) New Competition is weakening BOFI’s position. Large lenders like GE Cap, Ally Bank, CIT, etc. are going after the online banking space. U.S. regional banks are launching online divisions as well. Believes GE or Ally/other providers will capture new deposits as well. BOFI isn’t in the top 10 for a lot of segments.
• (6) Organic growth has stalled 
• Putting it all together, NIMs will fall.
• Outside of NIM – a quarter of operating income came from mortgage gains on sale. Problem with this, is that mortgage origination has been declining due to Fed tapering and rising rates – will be a headwind.
• May be under-reserving on NPLs. Only 55 bps allowance for loan losses versus gross loans, competitors are higher. 
• Valuation multiples – 4x TBV is higher than even its peers – twice as high. Think there is a lot of retail investors in BOFI and Motley Fool talk.
• NPV of loan book is ~$400MM 
• 7% short interest
• Risk: good management team – thinks 2.5x TBV reasonable valuation. Stock has ran up largely over the past couple months. Think there may be some more short term volatility. Think they can pull levers to grow perhaps, but at 4x TBV – not justified. Further, NIM pressure will probably offset growth. 


Be sure to check out the rest of the Value Investing Congress presentations.

Whitney Tilson's SodaStream Presentation: Value Investing Congress Las Vegas

We've posted up notes from the Value Investing Congress in Las Vegas and next up in the series is Whitney Tilson of Kase Capital who pitched long SodaStream (SODA).


Whitney Tilson's Value Investing Congress Presentation

•    SodaStream (SODA): Home beverage carbonation system – makes money off the machine, the bottle, the carbonation and the syrup. The carbonation and syrup lead to repeat sales. Razor/blades model.
•    70% cheaper once you purchase the machine. 25 cents per carbonated liter. 30% cheaper if you add flavor versus other products. Convenience – you don’t need to carry around bottles, etc.
•    A lot of choices flavor wise. Environmentally friendly.
•    Target market? People who like to drink sparkling water. Households with multiple people – flavoring or the soda drinker in the household. 
•    It is NOT competing against coke and pepsi – they do sell coca-cola variants, but in Whitney’s experience, not the best taste – however the other flavors taste good and are popular.
•    SODA looks like Decker’s to Whitney.
•    Beaten down stock – has fallen tremendously, with a high short interest.
•    Mistaken view that it is a fad – United States don’t realize the business has a strong share overseas, only 1-2% share in the USA. 393 people surveyed for SodaStream – people love their SodaStream machines and use / recommend them frequently.
•    Are the problems fixable?  USA sales growth is decelerating – believes it is temporary, due to the worst holiday selling season and 16% growth isn’t bad! In the second half of FY13, brought on with Wal-Mart. Plus, marketing and ad spend didn’t deliver. Europe as a matter of point grew 38% YoY. Secondly, SODA did not deliver on gross margins. Missed margins on machine sales as they wanted to get machines out to consumers – drive unit growth for the consumable business (syrups/carbonation). Whitney believes this was worth the cost. 
•    Enormous Global Market: a lot of white space for future growth and market penetration.
•    Position of Market Leadership : SODA owns the market, no real competitors. Large active user base.
•    Attractive economic characteristics : 50% gross margins, not capital intensive, decent profit margins. Healthy balance sheet. Further, attractive growth opportunities, YoY growth story for the past years. Flavor is the highest margined business (margins are not broken out). In Switzerland a mature market, 80% of sales or more are CONSUMABLES – 25%+ operating margins. USA generates 5% operating margins give or take, due to machines as a mix of sales.
•    Moat? Co2 cartridges require expertise and reverse logistics as many countries consider these items dangerous, large installed base, industry know how and the brand name.
•    Samsung one example of a company that is partnering with SODA stream to install in their refrigerators.
•    Valuation – doesn’t look cheap, trading at 22x trailing earnings guidance is for 3% growth, EBITDA growth ~15%. Looks exp. On a PE basis, fairly valued on EBITDA basis. Why is this cheap? Brings up the GoodCo / BadCo example. You should look at the businesses separately.
•    Western European business – 31% growth last year, 33% previous – their cash cow mature market. Thinks they earn 2.34 a share out of Western Europe (versus 1.82 total business).  15x multiple on that business ~$35 or roughly the entire share price today. You get the USA biz for free. •    Another way is to look at the refill business – 7mm installed base, trading around ~8x refill business.
•    Doesn’t think the Coke/Keurig Cold competition – no product out yet. Chemical carbonation isn’t on par with the later, plus costs are expected to be higher.
•    If you want a cup of coffee you have to make a pot – a waste, so Keurig makes sense. If you want just a coke, you can purchase a can or go to a vending machine, what is the value add from Keurig Coke? Doesn’t make sense to Whitney.
•    What could go wrong- poor earnings next quarter and inventory levels. Q1 earnings will be bad, perhaps it will offer a better entry point. 


Be sure to check out the rest of the Value Investing Congress presentations.

Tim Eriksen Awilco Drilling Presentation: Value Investing Congress Las Vegas

We've posted up notes from the Value Investing Congress in Las Vegas and next up in the series is Tim Eriksen from Eriksen Capital Management who pitched a long of Awilco Drilling.


Tim Eriksen's Value Investing Congress Presentation

• Eriksen looks for FCF, high margins, strong management, and a near term catalyst –  adopted from Mario Gabelli

• Other interesting situations such as forced sales, spin offs, unlisted stocks – where   big investors don’t invest in.

• Briefly spoke to how Warren invested in smaller cap companies in the early days.


Awilco Drilling Pitch:

• Owner operator, trades at a 20% dividend yield and ~5x earnings.
• UK Owner and operator of two semi-submersible drilling units.
• Owners were originally got out in the peak during 08 and returned to the business got in FY10 when they bought two rigs from Transocean, whom was a forced seller. 
• Awilco trades OTC and OSLO. 
• Transocean tried to sell the two rigs in 08, but the deal fell through. In FY10, Awilco got the rigs for under $300MM. The original purchase price was materially higher. 
• Transocean in FY07 carried the rigs at ~$600MM, Awilco paid a third of the price!!
• One rig was upgraded, and spent $94MM to pay for the upgrades financed from a private placement. In FY13 the Company started trading OTC. 
• In May paid first dividend of $1 per share. Just issued bonds $125MM for ~7%.
• Are they paying out all cash? No, there are some non-cash expenses so they are paying under actual cash flow.
• Went from ST contracts in 2012 – wasn’t great. Able to get longer term deals and higher contract rates. Rates went from 250k a day to 350k per day. $60MM in rev,   $20MM op profit per quarter. 
• Willphoenix -3rd gen rig. Willhunter – built in 1983, upgraded twice. 3rd gen rigs primarily mid-water semisubmersibles.
• Today only deep-water and ultra-deepwater rigs are being produced – only 10 mid water made in the past 10 years (could be 20).
• Rigs were built in the 1980s. All mid-water rigs built in the 70s and 80s. So not   unusual – and have been upgraded. 
• Need to go under special surveys every 5-6 years, so there is some downtime. 
• Think it is a 15 year rig life, but with technology and upgrades who knows.
• UK market has 17 rigs. Not easy to move from one location to another – significant costs. Higher restrictions to enter UK market. Some sources say $100MM to move rig   from gulf to UK.
• UK market near 100% utilization. In 08-09 bottom rates got down in $250k - $350k.   At $250k – still make 50 cents earnings per quarter.
• Astute management sold at the peak, bought at the bottom. A dip would be good would allow them to possibly buy rigs for cheap again.
• Transocean idles rigs to keep market pricing strong – creates some stability for the market. 
• Most rigs in the UK market are 2nd and 3rd gen -Rates are lower for 2nd gen vs. 3rd gen – great way to get a feel of what could happen 15 to 20 years out.
• Clear picture of revenue- Awilco has contracts high quality clients and a $700mm backlog
• 30mm shares outstanding management owns ~ 48%.
• Risks – contracts terminated? Not easy to do/low likelyhood
• Commodity risk.
• Supply and demand could change – low 2nd gen would probably fall off first. 
• Material risk- if one rig breaks down would hurt revenues. Then of course, operating   breakdown, regulatory risks. Carry insurance 
• Diamond offshore (DO), Ensco (ESV) comps, all are different no apples to apples comp.
• $21.7 price, $600mm market cap, and a 20% yield locked in for three years, 60%   of capital will be returned to shareholders. Confident that the stock won’t be down   over 3 years. Not a cigar butt but a cigar. 20 year life at least.
• Big part of thesis is current yield –partially due to no taxes – where they are domiciled.


Be sure to check out the rest of the Value Investing Congress presentations.

Carlo Cannell Cavco Industries & Build-A-Bear Presentation: Value Investing Congress Las Vegas

We've posted up notes from the Value Investing Congress in Las Vegas and next up in the series is Carlo Cannell of Cannell Capital who pitched Cavco Industries and Build-A-Bear long.


Carlo Canell's Value Investing Congress Presentation

• Pitch: Maker of the coveted Iron Ranch! (Cavco Industries). 
• Tortoise do win- boring is sexy!  
• 1994 and 1999 were the last peak for the industry. Perhaps could attain or exceed.
• #2 participant before Berkshire, only 45% capacity utilized!
• Lots of operating leverage with min. CapEx. 
• CJS securities think $10.5 EPS assuming the company gets back to half of historic run-rate. Think they can earn $16 with capital employed and MFH marketing rebounds – not much sell-side coverage
• Now onto Plug Power – exciting company. Peak $1.1B market cap, $63MM losses, accumulated deficits are huge! It’s all about the future. Mentions the company –   didn’t say short it per se but a high valuation. (did not pitch this as a short but as a comparison for an exciting company).
• With a dull company you are not subject to built in belief like plug power.


• Pitch: Build-A-Bear workshop is the next idea. New CEO in June 2013.
• What is attractive – strong brand easy to wholesale or license. 
• In the worst year FY 09 – company generated $24MM cash flow from ops. Mini- Disney experience – affordable. Turnaround is all about pruning stores – expect   EBITDA growth.
• Recaptured 20% of traffic from closed stores.
• BBW was neglected at $10.25.
• Objective at Cannell is to create wealth not transfer wealth (like the tech companies above mentioned).


• Q&A – comment on Tesla since you have a disdain for high-tech. believes it is a   remarkable company (no position), innovator CEO, but once it starts producing   earnings, it will be valued as a remarkable auto company. Don’t think its 20MM person market.
• Why don’t you short it – risk appetite for VMEM, TSLA, or plug powers is very high.   Preference is to shoot them in the back! One strategy –investment arrogance to presume high flyers are necessarily proven shorts. Doesn’t know they will be falling.
• Coldwater creek is an example of a company which lost its way- filing or has filed   ch.11. 
• TSLA has a free call on capital can just issue shares.
• Any of the companies you talked about are shorts? Since you mentioned shoot them in the back. Some shorts – a few companies doesn’t mention which one he is specifically short– a transformation from print companies (like Dex Media, standard register) massive amounts of debt – equity is razor thin. Digital sales are not coming through. Legacy companies clearly wounded. 
• Thought that equity would be wounded by the debt. 
• Carlo believes all retailers will come to an end – evolution. Track 1993 restaurant IPOs shocked by the mortality rate. Blimpie is an example.
• Brutal time for short sellers, Whitney Tilson says Carlo is one of the best – do you wait till  they fall for 50%/80% and then jump in? Successful short selling – look at things through the eyes of a fledgling stock market manipulator. (staff office with unethical  brokers) reach out to organized crime to order stocks! Dealing with disreputable  people. 
• Thin float, lock up the stock, a lot of buyers, very little sellers. 
• Short sellers should follow the filings and comments – who are the sellers and when are they declared effective. The short manipulators are first out. As shorts you want   to short at the same time. Stocks implode when the manipulators exit – this isn’t  new. In Canada the occupation of a stock market promoter is “noble”.
• Manufactured home lending – question about credit access for buyers. Only to play for the manufactured home lending is through Berkshire or Cavco. Manufacturing housing lending hasn’t come back.
• How does Carlo size shorts? When you wake up and see the ticker of the short –  reduce by 25%! Not a scientific process. Ideally many shorts at 45 bps, hard to  maintain however – very volatile. 
• Talk about Crumbs Bakery – is a retailer of 60 cupcake stores - $3 per cupcake.  Very potent following among the 17 to 10 female and 45 and up suburban mom.   High gross profits. Troubled company, but the valuation is virtually nonexistent.  Interest is taking the brand of Crumbs and could this be franchised? If so what are the charactertistics of the stores. Better stores can produce 30 – 35% EBITDA margins.   Some stores in California are hurting due to poor leases.
• Binary outcome. Think they can do 400 stores – who knows what the exact store potential. Quick version of the thesis.
• Summary – long presentation – really pitches on Build a Bear and Cavco.
• Point is that it's ok to buy boring companies! Have a discipline to contain the toxic speculative juices or at least take advantage of the speculative juices of others.


Be sure to check out the rest of the Value Investing Congress presentations.

Chris Mayer CherryHill Mortgage Presentation: Value Investing Congress Las Vegas

We've posted up notes from the Value Investing Congress in Las Vegas and next up in the series is Chris Mayer of Agora Financial who pitched long CherryHill Mortgage Corp (CHMI) and Kennedy Wilson Europe.


Chris Mayer's Value Investing Congress Presentation

His presentation: "Investing by the C.O.D.E."

• 17% annualized if you bought all of his capital and crisis names since 2002.
• 13% - 14% annualized off his special situations names.
• Two ideas. C.O.D.E – four points of what he looks for in an investment. C = cheap,   O = owner operators, D = disclosure;  E = excellent financial position (i.e. no troubled balance sheets.)
• Mortgage Servicing Rights (MSRs):  Chris is not recommending a specific servicer like specialty servicers – Ocwen,  Nationstar and Walter.  Likes the excess servicing rights – when interest rates go up, value of excess MSR increases. 


• CherryHill Mortgage Inv. Corp (CHMI) is a mortgage REIT. Partners with Freedom Mortgage Corp (private mortgage originator) – invested $20MM in the business and own 13.5% of the company. Freedom paid the listing fees for the IPO. 
• IPO priced $20, BV $19ish. Freedom was started in 1990.
• CHMI has a 10.5% yield. $21.5 BV, stock trades at $19.
• It was a way for Freedom to have a cheaper cost of capital set-up.
• Cherryhill is purely an investor. Cherryhill does not have to do the bidding, they have a steady flow from freedom – have an agreement with freedom in regards to excess MSR sales – valued by a third party. 
• Chris believes incentives are aligned.
• Picked up two pools of excess MSRs since the IPO.
• What should it be worth? No-pure play comps, best comp may be HLSS. Thinks upside should be in line with HLSS and other competitors – around 1.3x TBV. Low risk with decent upside.


• Second idea – macro idea, very interesting. Investing in non-performing loans in the EU. EU banks have $1 trillion in NPLs and pressure to get rid of them. 
• For example, Lloyds is exiting Ireland. Last year only $90B sold. UK, Spain and  Ireland are the most interesting. Over $180B in NPLs in each country, most likely  higher. 
• Specific recommendation for the investment through Kennedy Wilson Europe – KWE.   Raised $1.7B in February, should benefit from this trend. 
• Acquired a portfolio already. Kennedy Wilson invested over $200MM in the platform (is the manager). NAV is 9.77 pounds, sells for 10.40 pounds, a small premium above NAV for a compelling idea and strong management team.
• Kennedy Wilson background – 1% mgmt. fee and a performance fee. One criteria they look for is growing foreign investment. Ireland is benefiting from Companies such as Google/LinkedIn moving to the Country. Have a lot of people on the ground.
• Although KW rose in price (the asset manager) since he first recommended it in 2012, he still likes it.

• Summary – Cherryhill low risk –low downside decent upside. KWE – should benefit from NPLs in Europe, aligned incentives and trades at a small premium to NAV.


Be sure to check out the rest of the Value Investing Congress presentations.

What We're Reading ~ Hedge Fund Links 4/4/14

Summary of Glenview Capital's recent letter [ValueWalk]

March tech losses burn major hedge funds [CNBC]

The long and the short of the George Soros strategy [Business Spectator]

A look at Tudor's closure of its Tensor Fund [HedgeWorld]

Coatue and Third Point invest in Lyft [Dealbook]

On Ackman's Fannie/Freddie stakes [NYPost]

Howard Marks: in the end, the devil always wins [Zero Hedge]

What We're Reading ~ Analytical Links 4/2/14

Michael Lewis' new book Flash Boys: A Wall Street Revolt [Amazon]

NYSE Margin Debt hits another new high [Advisor Perspectives]

Jeremy Grantham: the Fed is killing the recovery [Fortune]

Why value investing is so hard (Russian edition) [Meb Faber]

Danger ahead for tax loopholes [Barrons]

Some notes on the future of television [Ben Evans]

Rural America struggling as young people chase city jobs [WSJ]

A recap of the macro situation [Macro Man]

How to find big stocks for the next decade [Barrons]

The best real estate plays in 25 years [CNBC]

Why banks hedge funds and Silicon Valley all want their own stock exchanges [Quartz]

No the stock market isn't rigged; a primer on speed trading [Yahoo]

Discounted Tickets Available to the London Value Investor Conference

Market Folly has secured a discounted rate for the London Value Conference on Thursday 22nd May at the Queen Elizabeth II Conference Centre in Westminster.  There are only 10 weeks to go until this conference and for a short time our readers can get £100 off the opportunity to listen to investment ideas and perspectives from the following speakers:


Mason Hawkins, Southeastern Asset Management
Donald Yacktman, Yacktman Asset Management
Mason Morfit, ValueAct Capital
Jon Moulton, Better Capital
Tim Hartch, Brown Brothers Harriman
David Samra, Artisan Partners
Aled Smith, M&G
Richard Rooney, Burgundy Asset Management
Charles Heenan, Kennox Asset Management
Jonathan Mills, Metropolis Capital
Philip Best, Argos Investment Managers
Marc Saint John Webb, Argos Investment Managers
Andrew Hollingworth, Holland Advisors


The conference will be moderated by Richard Oldfield of Oldfield Partners and David Shapiro from Towers Watson.  At this conference there is also 10-15 minutes dedicated to audience Q&A.


 *** Please use the discount code MARKETFOLLY123 when booking here (the discount code expires on April 18th) ***


This will be a unique networking opportunity as this conference is the largest gathering of value investors in Europe.  We expect there will be 400 value investors present this year.  There is also a fantastic video of Michael Price's presentation from last year at this conference, available on the website, which is 42 minutes long and details Michael's prior investments in Hess and Hospira - as well as his investment in Songbird Estates Plc last year.

Passport Capital Reduces 58.com (WUBA) Position

John Burbank's hedge fund firm Passport Capital has filed an amended 13G with the SEC regarding their stake in 58com (WUBA).  Per the filing, Passport now owns 5.1% of the company with 2 million shares (held via 1 million ADR shares).

This means they've reduced their position from 1.6 million ADR shares at the end of December.  The filing was made due to activity on March 28th.

Chinese internet companies have been a big portfolio theme for Passport as of late.  We originally disclosed Passport's WUBA stake in November.

WUBA has sold off from a high of $58.89 down to as low as $36.86 over the past month.  Shares have since rebounded back to $45.26.

Per Google Finance, 58.com is "a holding company. The Company is an online marketplace serving local merchants and consumers in China through its Website www.58.com and mobile applications. Its online marketplace enables local merchants and consumers to connect, share information and conduct business. The Company’s online marketplace contains a range of information in approximately 380 cities, across diverse content categories, including housing, jobs, used goods, automotive, pets, tickets, yellow pages and other local services. Its online marketing services include listing services, such as real-time bidding and priority listing, and marketing services through collaboration with third-party Internet companies in China. The listings on its online marketplace cover a range of content categories, such as housing, jobs, used goods, automotive, tickets, homecare and relocation, renovation, wedding, business services, travel, education, food, beauty, entertainment, franchise, and other local services."

Nelson Peltz's Trian Partners Boosts Ingersoll Rand Stake

Nelson Peltz's activist investment firm Trian Partners has filed an amended 13D with the SEC regarding its position in Ingersoll Rand (IR).  Per the filing, Trian now owns 6.2% of the company with over 17.9 million shares.

This marks an increase of over 5.9 million shares since the end of 2013.  The filing notes that Peltz is not seeking re-election to IR's board due to his recent appointment to Mondelez's (MDLZ) board.

Late last year, Ingersoll Rand spun-off Allegion (ALLE), a commercial and residential security business and Trian also owns shares in this business.  After this spin-off, IR is now focused on transport refrigeration and heating, ventilation and air conditioning.

Trian's fourth quarter 2013 letter to investors notes that, "We believe innovation-led market share gains and a recovery in commercial and residential construction markets will help grow the top-line while continued productivity improvements should drive more margin expansion at IR."

Omega Advisors Acquires Pennymac Financial Services Shares

Lee Cooperman's investment firm Omega Advisors has filed a Form 4 with the SEC disclosing transactions in shares of Pennymac Financial Services (PFSI).

Per the filing, Omega acquired 632,000 shares of PFSI class A common stock in total on March 27th at a price of $15.99.  The purchases were made for their investment entities and managed accounts.

After these transactions, Omega's investment entities owned just over 2 million shares while their managed accounts owned over 1.27 million PFSI shares.

We've also detailed some other recent portfolio activity from Omega Advisors here.

Per Google Finance, Pennymac Financial Services is "a specialty financial services firm with a mortgage platform and integrated business focused on the production and servicing of United States residential mortgage loans and the management of investments related to the United States residential mortgage market. The Company operates in two segments: mortgage banking and investment management. Its principal mortgage banking subsidiary, PennyMac Loan Services, LLC (PLS), is a non-bank producer and servicer of mortgage loans in the United States. PLS is a seller/servicer for the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac), each of which is a government-sponsored entity (GSE). The Company’s principal investment management subsidiary, PNMAC Capital Management, LLC (PCM), is an investment adviser. It manages PennyMac Mortgage Investment Trust (PMT), a mortgage real estate investment trust (REIT)."

Bill Ackman Raises Fannie & Freddie Stakes

Bill Ackman's hedge fund firm Pershing Square Capital has filed amended 13D's regarding Federal National Mortgage Association, or Fannie Mae (FNMA) as well as Federal Home Loan Mortgage Corp, or Freddie Mac (FMCC).

Per the filings, Ackman's hedge fund now owns around 9.98% of FNMA with 115,569,796 shares.  But they also have additional aggregate exposure via cash settled total return swaps.  This exposure amounts to around 15.4 million notional shares.  So in total, Pershing's aggregate ownership is around 11.31%.  UBS is the counterparty for the swaps.

Additionally, Pershing's new swap exposure to FMCC equates to over 8.4 million notional shares.

Other prominent investors are involved as well.  Bruce Berkowitz's Fairholme Capital owns preferred securities on both names.

Greenlight Capital Increases BioFuel Stake, Submits Proposal

David Einhorn's hedge fund Greenlight Capital has filed an amended 13D on shares of BioFuel Energy (BIOF).  Per the filing, Greenlight discloses a 35.5% ownership stake with over 2.2 million shares.  This is an increase of 784,205 shares since their last disclosure.  The filing was made due to activity on March 28th.

Einhorn and real estate investor Jim Brickman submitted a non-binding proposal to BioFuel's board to acquire the company for $275 million in cash and stock.  The proposal basically involves one (or more) newly created subsidiaries acquiring equity interests in JBGL, a real estate developer (JBGL is owned by Brickman & Greenlight).

You can read the entire proposal via the SEC here.  Shares of BIOF rocketed higher on the news.

Per Google Finance, BioFuel Energy is "a holding company. The Company produces and sells ethanol and its co-products (primarily distillers grain and corn oil), through its two ethanol production facilities located in Wood River, Nebraska and Fairmont, Minnesota. The Company’s ethanol plants are owned and operated by the Operating Subsidiaries of the LLC."

What We're Reading ~ Hedge Fund Links 3/28/14

American hedge fund assets hit all-time peak [HF Intelligence]

Tiger Global leads Wall Street pack turning to Silicon Valley [Reuters]

Ben Bernanke dines with hedge fund managers in New York [Forbes]

Hedge funds say it's a stock pickers' market [CNBC]

Apparently there is a 'goldilocks' hedge fund size [Business Insider]

John Paulson is back in the mortgage business [CNBC]

For a new breed of activist investors, tipping others is part of the playbook [WSJ]

Institutional investors lose chasing high hedge fund returns [Financial Standard]

US hedge funds bet on European recovery [The Australian]

UK's largest hedge funds get bigger with 82% of assets [Bloomberg]

Barington Capital asks Darden to consider replacing CEO [HedgeWorld]

Blackstone to reduce stake in SeaWorld [Dealbook]

Lampert stops accepting IOUs from Sears as cash burns [Bloomberg]

Hurt in crisis, TPG pursues smaller deals [Dealbook]

What We're Reading ~ Analytical Links 3/26/14

You need an investing system [Oddball Stocks]

On DirecTV and the future of TV/cable/internet and discussion in comments [BrooklynInvestor]

Margin by any other name [Abnormal Returns]

In investing, know the why [Micro Fundy]

New investing strategy: talk your book [Bloomberg View]

Going beyond fundamentals to make fundamental investing work [Institutional Investor]

Google's Larry Page interviewed by Charlie Rose [AVC]

On the cost of cash [Tufts]

On Tencent vs Alibaba [Tech in Asia]

On Masayoshi Son's Sprint turnaround [WSJ]

Debt crisis nears tipping point [Salon]

Can the Bloomberg terminal be toppled? [Term Sheet]

Slumping fertility rates in developing countries spark labor worries [WSJ]

The search for the next platform [AVC]

Echoes of 2000? Companies rush to list shares while the market is hot [WSJ]

12 West Capital Starts Euroseas Stake

Joel Ramin's hedge fund firm 12 West Capital has filed a 13G with the SEC regarding shares of Euroseas (ESEA).  Per the filing, 12 West now owns 19.6% of ESEA with over 11.1 million shares.

This is a newly disclosed equity position as they didn't hold any shares at the end of 2013.  The filing was made due to activity on March 14th. 

You can view other recent portfolio activity from 12 West Capital here.

Per Google Finance, Euroseas is "a provider of worldwide ocean-going transportation services. The Company owns and operates drybulk carriers that transport major bulks, such as iron ore, coal and grains, and minor bulks, such as bauxite, phosphate and fertilizers. The Company also owns and operates containerships and multipurpose vessels that transport dry and refrigerated containerized cargoes, including manufactured products and perishables."

Berkshire Hathaway to Convert USG Notes into Common Stock

Warren Buffett's Berkshire Hathaway filed an amended 13D with the SEC recently on USG (USG).  Per the filing, they note that the company has issued a notice of redemption on the outstanding aggregate principal amount of notes on April 17th, 2014.

Berkshire's notes are convertible into 87.7193 shares of common stock per $1,000 principal amount of notes owned (based on a conversion price of $11.40 per share).  Berkshire will elect to convert all of the outstanding notes held by them into over 4.9 million shares of USG common stock (the aggregate principal amount of just over $56.1 million).

After this conversion, Berkshire will own over 39 million shares of USG, up from their holdings of 34.8 million at the end of 2013.

You can view additional recent portfolio activity by Berkshire Hathaway here.

Per Google Finance, USG is "a manufacturer and distributor of building materials. The Company produces a range of products for use in new residential, new nonresidential, and residential and nonresidential repair and remodel construction, as well as products used in certain industrial processes. The Company operates in three segments: North American Gypsum, Building Products Distribution and Worldwide Ceilings. The Company’s North American Gypsum manufactures and markets gypsum and related products in the United States, Canada and Mexico. The Building Products Distribution segment consists of L&W Supply. The Worldwide Ceilings segment manufactures and markets interior systems products worldwide."

Maverick Capital Discloses Castlight Health Position

Lee Ainslie's hedge fund firm Maverick Capital has filed a Form 3 and Form 4 with the SEC disclosing a new position in Castlight Health (CSLT). 

Castlight just recently completed its initial public offering (IPO) and shares surged from the IPO price of $16 up to $40 on its first day of trading. 

The Form 4 indicates Maverick acquired 450,000 shares of class B stock at a price of $16 on March 19th.  The Form 3 they filed indicates that each share of class A common stock (which Maverick owns) is convertible into one share of class B common stock at any time after the IPO. 

And after the IPO was complete, each share of Series A preferred stock, Series B preferred stock, Series A-1 preferred stock, Series C preferred stock and Series D preferred stock convert automatically into class A common stock.

Maverick owned stakes in all of those share classes according to the Form 3.  So after all is said and done after the IPO, the main takeaway is that Maverick owns a stake in the newly public Castlight Health.

Per Yahoo Finance, Castlight Health is a company that "offers health information via the internet to inform medical choices and reduce insurance costs."

For more on this manager, be sure to check out Lee Ainslie's interview with Columbia Business School.

John Scully's SPO Advisory Increases Equinix Position

John Scully's investment firm SPO Advisory has filed an amended 13G with the SEC regarding its position in Equinix (EQIX).  Per the filing, SPO now owns 10.4% of EQIX with over 5.1 million shares.

This marks an increase of over 1.18 million shares since the end of 2013.  The filing was made due to activity on March 19th.

Shares of EQIX have seen a ton of hedge fund activity over the past few months.  Some examples include: longtime owner Coatue Management sold its Equinix position, but then Barry Rosenstein's JANA Partners outlined their thesis on EQIX in their Q4 letter.  


About SPO Advisory

John Scully, William Patterson, and William Oberndorf founded SPO Advisory in 1989.  SPO runs a concentrated portfolio of public equities pursuing a value investing strategy.  Some of their other top holdings at the end of 2013 included Charles Schwab (SCHW), Liberty Global (LBTYK), and Pioneer Natural Resources (PXD).

About Equinix

Per Google Finance, Equinix is "connects businesses with partners and customers worldwide through a global platform of data centers. The Company connects approximately 4000 customers, across the Americas, Europe, Middle East and Africa (EMEA) and Asia-Pacific. Platform Equinix combines international business exchange (IBX) data centers, a global footprint and ecosystems. The Company offers each customer a choice of business partners and solutions based on their colocation, interconnection and managed IT service needs. Equinix offers customers direct interconnection to an aggregation of bandwidth providers, including the Internet Service Providers (ISPs), broadband access networks and international carriers. Its customers include carriers and other bandwidth providers, cloud and information technology services providers, content providers, financial companies and global enterprises."

Elliott Management Boosts F&C Asset Management Stake

Paul Singer’s hedge fund firm Elliott Management has increased its stake in F&C Asset Management (LON: FCAM). At the end of February, we noted that Elliott held the equivalent of 11% of FCAM’s voting rights.

But now due to trading on March 19th, Elliott has increased the position to 17.5%, with the whole position again held via contract for difference (CFDs/ derivatives).

Per Google Finance – “F&C Asset Management plc (F&C) is an asset management company.  The Company operates in three segments: F&C, F&C REIT and Thames River Capital (TRC). The  Company’s clients are insurance companies, institutional, retail and wholesale investors. The  Company manages portfolios across multiple asset classes on behalf of a range of clients including  insurance funds, pension schemes, public authorities and charities as well as private individuals through savings schemes, investment trusts and mutual funds. The Company’s subsidiaries include  FP Asset Management Holdings Limited, F&C Asset Management Services Limited, ISIS Investment Manager plc, F&C Managed Pension Funds Limited and F&C Treasury Limited.”

Last Chance: $500 Discount to the Value Investing Congress Expires Tomorrow

Just a reminder that this is your last chance to take advantage of Market Folly's discount to the Value Investing Congress in Las Vegas. The discount expires tomorrow!

Our readers can save $500 by using this discount code: FOLLY2

You can register by clicking this link


Hedge Fund Managers Speaking in Vegas

- Eric Sprott, Sprott Asset Management
- Lisa Rapuano, Lane Five Capital
- Carlo Cannell, Cannell Capital
- Tom Russo, Gardner Russo & Gardner 
- Sahm Adrangi, Kerrisdale Capital
- Whitney Tilson, Kase Capital
- Daniel Miller, Gabelli Funds 
- Zeke Ashton, Centaur Capital Partners
- Isaac Schwartz, Robotti & Co
- David Hurwitz, SC Fundamental
- Michael Kao, Akanthos Capital
- Albert Yong & Chan Lee, Petra Capital
- John Lewis, Osmium Partners 
- Tim Eriksen, Eriksen Capital
- Dan Ferris, Extreme Value 
- Chris Mayer, Agora Financial
- David Neuhauser, Livermore Partners 
- Richard Lashley, PL Capital
- Arnaud Ajdler, Engine Capital  - Eric Andersen, Western Standard 
- Mystery short-seller: "The Sleuth of Wall Street"


Event Details

Where:  Encore at Wynn, Las Vegas

When:  April 3rd & 4th

Why:  The press isn't allowed at this event, so get to Vegas to hear the latest investment ideas from various hedgies.  Ask the managers questions about their pitch, network with other investors and since it's Vegas, stay the weekend and extend the fun.


Last Chance To Use The $500 Discount

The discount for our readers expires tomorrow.  If you're thinking about attending (especially if you're on the West Coast), take advantage before the discount disappears.

Click here to save $500 and use discount code: FOLLY2

What We're Reading ~ Hedge Fund Links 3/21/14

Jack Schwager's new book: The Little Book of Market Wizards [Amazon]

Klarman warns of impending asset price bubble [CNBC]

Credit Suisse: Hedge fund AUM to hit $3 trillion in 2014 [ValueWalk]

Carl Icahn proposes eBay IPO 20% of PayPal [Shareholders Square Table]

Hedge funds poised to gain from Alibaba IPO [II Alpha]

Ex-IMF chief Strauss-Kahn aims for $2 billion hedge fund [Hedgeworld]

The do's and don'ts of raising institutional capital [Absolute Return]

Team portfolio management outperforms [Morningstar]

Imagining a future of lower hedge fund fees [Dealbook]

What We're Reading ~ Analytical Links 3/19/14

Meb Faber's new book: Global Value [Amazon]

Why we're awful at assessing risk [Morgan Housel]

Short sellers' new favorite platform: Twitter [Buzzfeed]

The most important economic chart [House of Debt]

America's weird enduring love affair with cars and houses [Atlantic]

Addressing growing student debt [Econbrowser]

One little watched indicator for rising rates is flashing red [Investment News]

Saving, lending and tapering combine in perfect storm [Scott Grannis]

Hertz is in the driver's seat [Barrons]

American Express to spin off business travel unit [Bloomberg]

On CBS' IPO of its Americas Outdoor unit [Hollywood Reporter]

Assessing risk in China's shadow banking system [Triple Crisis]

What if all of Africa was as digital as Kenya? [Financial Access]

Russian richest face margin calls with billions at stake [Bloomberg]

Uh, warning sign? 3 reasons to tap home equity to buy stocks [MSN Money]

An interview with Bill Gates [Rolling Stone]

Interview with Apple's Jonathan Ive [Time]

Join Market Folly's 5th Annual Free March Madness Bracket Contest

March madness is here again and for the 5th year in a row, Market Folly will be hosting its annual bracket contest for fellow college basketball fans.  Entry is completely free!


Join Market Folly Madness

To join the free contest, please click this link:  http://marketfolly.mayhem.cbssports.com/e?ttag=BPM14_paste_cbsinv
(If you don't have a CBS Sports account, simply register for free)

The password to join the contest group is: folly


Prizes

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To be entered into the contest, you MUST fill out your bracket before the main games start this Thursday!  Only 1 entry per person is allowed.  Good luck!

Soros Fund Ups Penn Virginia Stake, Files 13D

George Soros' family office Soros Fund Management has filed a 13D with the SEC regarding shares of Penn Virginia (PVA).  Per the filing, Soros has disclosed a 9.18% ownership stake in PVA with just over 6 million shares.

This means they've upped their position by 173,664 shares since the end of 2013.  The filing was required due to activity on March 12th.

The activist 13D filing indicates that they've met with management from time to time regarding "the business, assets, prospects and strategic alternatives and direction."  Soros Fund says the company has been very well managed and think the company should enhance management's financial incentives.  At the same time, the family office believes Penn Virginia should explore strategic alternatives.

You can view additional recent Soros Fund portfolio activity here.

Per Google Finance, Penn Virginia is "an independent oil and gas company engaged primarily in the exploration, development and production of oil, natural gas liquids (NGL) and natural gas in various domestic onshore regions of the United States, including Texas, the Mid-Continent and Mississippi."

JANA Partners Trims URS Position, Nominates Board Members

Barry Rosenstein's hedge fund firm JANA Partners has filed an amended 13D with the SEC regarding their position in URS (URS).  Per the filing, JANA now owns 9.4% of URS with over 6.74 million shares.

This marks a slight decrease in their stake as they sold 437,740 shares since their last disclosure.  The filing was made due to activity on March 13th but the fine print highlights that they were selling in early March at prices around $47.xx.

JANA and the company have entered into a cooperation agreement where the company will increase the size of its board to 14 and will recommend that shareholders vote to elect JANA's nominees.  URS' board will also establish a Value Creation Committee to evaluate all options for enhancing shareholder value.  This committee will engage an investment bank to conduct a strategic review, engage a cost consultant to review things, and review management's compensation structure.

Of the agreement, Rosenstein says,

“We have appreciated our constructive dialogue with Martin Koffel and his team. We share their view that the Company is significantly undervalued, particularly given its strong cash flows and the valuable work Martin and his team have done over many years to ensure that URS is well-positioned to meet the needs of its clients. I am confident that the addition of four highly-qualified directors and the formation of the Value Creation Committee will help unlock this value for all shareholders.”

We highlighted JANA's previous URS activity where they requested the company to delay the deadline to nominate board members.

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

Per Google Finance, URS is "a provider of engineering, construction and technical services. The Company offers a range of program management, planning, design, engineering, construction and construction management, operations and maintenance, and decommissioning and closure services to public agencies and private sector clients worldwide. It provides its services through four reporting segments: Infrastructure & Environment, Federal Services, Energy & Construction, and Oil & Gas Divisions. URS also is a United States federal government contractor in the areas of systems engineering and technical assistance, operations and maintenance, and information technology (IT) services. It provides services for federal, oil and gas, infrastructure, power, and industrial projects and programs."

Value Investing Congress Discount Expires in One Week

If you missed it, MarketFolly readers receive a $500 discount to the upcoming Value Investing Congress in Las Vegas on April 3rd and 4th.  This is a reminder to take advantage of these savings because the discount expires in one week.


Discount Code

Registration Link: http://www.valueinvestingcongress.com/vegas/register/
Discount Code: FOLLY2


Conference Details

The event takes place at Encore at Wynn in Las Vegas on April 3rd and 4th, only a few weeks away.  Hear the latest hedge fund investment ideas and network with other investors.  And since the event ends on Friday, stay the weekend in Vegas and have some more fun.


Hedge Fund Presentations From

- Eric Sprott, Sprott Asset Management
- Lisa Rapuano, Lane Five Capital
- Carlo Cannell, Cannell Capital
- Tom Russo, Gardner Russo & Gardner 
- Sahm Adrangi, Kerrisdale Capital
- Whitney Tilson, Kase Capital
- Daniel Miller, Gabelli Funds 
- Zeke Ashton, Centaur Capital Partners
- Isaac Schwartz, Robotti & Co
- David Hurwitz, SC Fundamental
- Michael Kao, Akanthos Capital
- Albert Yong & Chan Lee, Petra Capital
- John Lewis, Osmium Partners 
- Tim Eriksen, Eriksen Capital
- Dan Ferris, Extreme Value 
- Chris Mayer, Agora Financial
- David Neuhauser, Livermore Partners 
- Richard Lashley, PL Capital
- Arnaud Ajdler, Engine Capital 
- Eric Andersen, Western Standard 
- Mystery short-seller: "The Sleuth of Wall Street"


Discount Expires in One Week

Take advantage of the discount before it expires:  Click here to register and use discount code: FOLLY2

Enjoy!

Hoplite Capital Reveals SunEdison Stake

John Lykouretzos' hedge fund firm Hoplite Capital has filed a 13G with the SEC and revealed a new equity position in SunEdison (SUNE).  Per the filing, the hedge fund now owns 5.99% of SUNE with over 16 million shares.

The filing was made due to activity on February 26th.  Omega Advisors' Lee Cooperman highlighted his fondness for SUNE a few months back as well, as the company is spinning off its money-losing semiconductor business.

Per Google Finance, SunEdison is "formerly MEMC Electronic Materials, Inc is engaged in the development, manufacture and sale of silicon wafers. The Company is a developer and seller of photovoltaic energy solutions. Through Solar Materials and Solar Energy (SunEdison), it is a developer of solar energy projects. The Company operates in two segments: semiconductor materials and solar energy. The Company’s Solar Energy segment includes the operations of its old Solar Materials segment, as well as its SunEdison business. In the Semiconductor Materials, the Company offers wafers with a variety of features. The Company’s wafers vary in size, surface features, composition, purity levels, crystal properties and electrical properties

You can view some past portfolio activity from Hoplite here.

Luxor Capital Acquires Convertible Preferred Stock in Altisource Asset Management

Hedge fund firm Luxor Capital has acquired 250,000 shares of convertible preferred stock in Altisource Asset Management (AAMC), the company announced today.

AAMC announced a $300 million buyback and raised $250 million from the private placement of these shares to Luxor.  The hedge fund won't receive dividends and the conversion price is $1,250 per share.


Mortgage Servicers Under Scrutiny

Altisource Asset Management is one of the companies in Bill Erbey's empire (along with Ocwen Financial (OCN), Altisource Portfolio Solutions (ASPS) and Altisource Residential (RESI)).  Shares of numerous of these companies have been under fire this year as regulatory scrutiny on mortgage servicers has picked up.  In the past, we've highlighted the investment thesis on ASPS.


Hedge Funds Involved in MSR-Related Plays

At the end of the fourth quarter (and before the scrutiny intensified), numerous hedge funds were involved in these companies.  Given the volatility in shares, it's hard to say who is still involved besides Luxor.  But here's a list of top holders as of Q4 2013:


AAMC: SAB Capital Management, Neuberger Berman, Tiger Eye Capital, Luxor Capital, Long Pond Capital, Capital Research Global Investors, White Elm Capital, Tyrian Investments

OCN: Capital Research Global Investors, Neuberger Berman, Egerton Capital, Pennant Capital, Pine River Capital, White Elm Capital,Tyrian Investments

ASPS: Neuberger Berman, Luxor Capital, Renaissance Technologies, Omega Advisors, SAB Capital, White Elm Capital, Tiger Eye Capital,Tyrian Investments

RESI: Capital Research Global Investors, SAB Capital, BlackRock, Bloom Tree Partners, Neuberger Berman, Hayman Capital


Last week, Kyle Bass' hedge fund Hayman Capital boosted its stake in Nationstar Mortgage Holdings as well.

Hayman Capital Ramps Up Nationstar Mortgage Holdings Stake

Kyle Bass' hedge fund firm Hayman Capital has filed a 13G with the SEC regarding its stake in Nationstar Mortgage Holdings (NSM).  Per the filing, Hayman has disclosed they own 5.3% of the company with over 4.75 million shares.

This is an increase of over 3.67 million shares since the end of 2013.  The filing was required due to activity on March 13th.

Shares of NSM and other mortgage servicers like Ocwen Financial (OCN) have dropped this year as non-bank servicers have started to come under scrutiny from regulators.

Per Google Finance, Nationstar Mortgage Holdings is "a non-bank residential mortgage servicer with a range of services across the residential mortgage product spectrum. The Company’s clients include national and regional banks, government organizations, securitization trusts, private investment funds and other owners of residential mortgage loans and securities. It is a partner of financial organizations, including government-sponsored enterprises (GSEs) and other regulated institutions."

For more on this manager, head to an interview with Kyle Bass from House of Money.

Warren Buffett Does Asset Swap With Graham Holdings

Warren Buffett's Berkshire Hathaway has announced a deal with Graham Holdings (formerly the Washington Post) to swap the vast majority of Berkshire's 28% stake in the company for a television station in Miami (WPLG), some of the Berkshire shares Graham possesses, and a few hundred million in cash.

The total deal is valued around $1.1 billion.  The Washington Post sold its namesake newspaper to Amazon.com's Jeff Bezos and left a company of various other businesses behind.  The Post had been a longstanding position in Buffett's portfolio as he originally took a stake in 1973.

What We're Reading ~ Hedge Fund Links 3/14/14

Market comments from Jamie Dinan, Rich Pzena & Doug Silverman [CNBC]

Seth Klarman on 'The Truman Show' market [Zero Hedge]

Steve Mandel's investment checklist [First Adopter]

When hedge funds lobby [Reuters]

Soros warns EU 'may not survive' financial crisis [HuffingtonPost]

Prem Watsa on why there's a monstrous real estate bubble in China [Zero Hedge]

Ackman says investigation finds Herbalife violates Chinese laws [Bloomberg]

A new name for SAC Capital: Point72 [Dealbook]

Interview with Grandmaster Capital's Patrick Wolff [Barrons]

Crispin Odey: US turnaround will spark emerging market recession [Citywire]

The value fund manager with the $57 million paycheck [Bloomberg]

10 tips for young Wall Street [CNBC]

What We're Reading ~ Analytical Links 3/12/14

On UnionPay, China and smuggling money in Macau [Thomson Reuters]

Google's Eric Schmidt on the future of internet freedom [NYTimes]

IPOs: when stability creates instability [Pragmatic Capitalism]

Fannie Mae/Freddie Mac would be eliminated in Senate Bill [BusinessWeek]

The 'easy money' myth [Reformed Broker]

Media industry lists things that worry them about TWC/Comcast merger [WSJ]

Are malls over? [The New Yorker]

The future of TV is coming into focus and looks pretty great [Quartz]

Barely keeping up in TV's new golden age [NYTimes]

Mexico seeks telco and TV competition [Advanced Television]

Big batteries threaten big power stations and utilities' profits [Economist]

Kate Spade (KATE) faces uphill fight to be next Ralph Lauren [Bloomberg]

Smartphone payment system to be unveiled in UK [FT]

The gaming console market is in crisis [TechCrunch]

Google looking to keep its search engine relevant in age of apps [WSJ]

The future of wearable technology [SlideShare]

Alibaba to buy control of ChinaVision [Reuters]

Pershing Square Exercises Warrants on Platform Specialty Products

Bill Ackman's hedge fund firm Pershing Square Capital has updated its stake in Platform Specialty Products (PAH).  Per a Form 4 filed with the SEC, Pershing Square has revealed that they exercised their warrants on the name.

They owned 12,500,0001 warrants and each 3 warrants entitles the holder on exercise to buy 1 share of common stock for $11.50.  As such, Pershing received 4,166,665 shares of PAH.  The transaction took place on March 7th, 2014.

After this, Pershing Square owns 33.3 million shares of Platform Specialty Products.  Pershing disclosed their PAH stake in January once shares listed on the NYSE.  However, keep in mind that Pershing owned a stake prior to this listing.

We've also highlighted how fellow hedge fund Blue Ridge Capital also owns a PAH stake as well. 

And then of course Martin Franklin of Jarden and Nicolas Berggruen of Berggruen Holdings are involved too.  Platform was formed with the intent to acquire companies and their first deal was MacDermid, a specialty chemicals manufacturer for $1.8 billion.

This isn't the first time Ackman has worked with Berggruen either.  They teamed up on Justice Holdings, which then bought Burger King.

JANA Partners Trims Outerwall Position

Barry Rosenstein's activist hedge fund JANA Partners has filed an amended 13D on their position in Outerwall (OUTR).  Per the filing, JANA has disclosed a 8.4% ownerships take in OUTR with over 1.7 million shares.

JANA sold 2 million OUTR shares at $68 on March 6th.  Regarding this transaction, JANA says that,

"The Reporting Person has reduced the size of its investment in the Shares of the Issuer through regular portfolio management activities. The Reporting Person is highly supportive of the recent steps taken by the Issuer’s board and management, including the Issuer’s improved focus on capital allocation and managing costs and its enhanced commitment to returning capital to shareholders."

We highlighted when JANA originally disclosed their activist OUTR stake in October of 2013.

Per Google Finance, Outerwall is "formerly Coinstar, Inc., is a provider of automated retail solutions, which offers convenient products and services. the Company's offerings in automated retail include its Redbox business, where consumers can rent or purchase movies and video games from self-service kiosks (Redbox segment), and its Coin business, where consumers can convert their coin to cash or stored value products at self-service coin counting kiosks (Coin segment). Its New Ventures business (New Ventures segment) is focused on identifying, evaluating, building, and developing self-service concepts in the marketplace."

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

York Capital Discloses Elbit Imaging Stake

Jamie Dinan's hedge fund firm York Capital has disclosed a position in Elbit Imaging (EMITF).  Per a 13G filed with the SEC, York now owns 19.7% of Elbit Imaging with over 108.9 million shares.

The filing was required due to portfolio activity on February 28th and this is a newly disclosed equity stake.

The company recently announced a debt restructuring where its unsecured financial creditors received ordinary shares 

Dinan gave his rules of investing in a rare interview recently and shared his market thoughts if you missed it.

Per Google Finance, Elbit Imaging is "an Israel-based holding company. It operates in the fields of Commercial and Entertainment Centers, engaged in the initiation, construction and sale of shopping and entertainment centers and other mixed-use real property projects, predominantly in the retail sector; United States Real Property, investing in commercial real property in the United States; Hotels, engaged in the management and operation of hotels; Medical Industries, engaged in research and development, production and marketing of magnetic resonance imaging guided focused ultrasound treatment equipment and development of stem cell population expansion technologies and stem cell therapy products for transplantation and regenerative medicine; Residential Projects, engaged in the initiation, construction and sale of residential projects and other mixed-use real property projects, predominately residential, and Fashion Apparel, engaged in the Distribution and marketing of fashion apparel and accessories."

Viking Global Boosts Illumina Holdings

Andreas Halvorsen's hedge fund firm Viking Global filed a 13G with the SEC regarding their stake in Illumina (ILMN).  Per the filing, Viking has disclosed a 5.5% ownership stake in Illumina with over 7.1 million shares.

This marks an increase of over 5.4 million shares since the end of 2013.  The filing was made due to activity on February 28th.  Since the beginning of 2014, ILMN shares have spiked higher from $110 to $167 currently.

For more on this manager, check out a rare interview with Andreas Halvorsen on investment process.

Per Google Finance, Illumina is "a developer and manufacturer of life science tools and integrated systems for the analysis of genetic variation and function. The Company provides a line of genetic analysis solutions, with products and services that serve a range of interconnected markets, including sequencing, genotyping, gene expression, and molecular diagnostics. The Company is organized in two business segments: Life Sciences and Diagnostics. Its Life Sciences business unit includes all products and services related to the research market, namely the product lines based on its sequencing, BeadArray, VeraCode, and real-time PCR technologies. Its Diagnostics business unit focuses on molecular diagnostics. In February 2014, Illumina, Inc. announced that Novogene purchased one HiSeq X Ten. In March 2014, WuXi Genome Center has purchased Illumina HiSeq X Ten sequencing system."

Senator Investment Group Exits API Technologies Position

Alex Klabin and Doug Silverman's hedge fund firm Senator Investment Group has filed a Form 4 and 13G with the SEC regarding shares of API Technologies (ATNY).  Per the filings, Senator has sold over 5.9 million shares of ATNY at a price of $2.41 on March 7th.

After this transaction, this means Senator has completely exited their stake in API Technologies and no longer own any shares.

You can view other recent portfolio activity from Senator here.

Per Google Finance, API Technologies "designs, develops and manufactures systems, subsystems, radio frequency (RF) and secure communications products, as well as provides electronics manufacturing and engineering services. Its product lines include engineered products (including unmanned aerial vehicles (UAVs), aiming systems and synthesizers), secure communications products (including TEMPEST and emanation security, encryption and secure networking products), subsystems and components (including custom hybrids, terminals, transistors and magnetics), RF and microwave products (including custom filters, amplifiers, connectors and antennas), sensors, and power systems. It operates in two segments: Systems & Subsystems, and Secure Systems & Information Assurance."

Paulson & Co Boosts Enzymotec Stake

John Paulson's hedge fund firm Paulson & Co has filed an amended 13G with the SEC and updated their stake in Enzymotec (ENZY).  Per the filing, Paulson now owns 19.24% of the company with over 4.1 million shares.

This marks an increase of over 2.4 million shares since the end of 2013.  The filing was made due to activity on February 28th.

Per Google Finance, Enzymotec is "engaged in manufacturing of ingredients and medical foods company. Its technologies, research, and clinical validation process enables the Company to develop differentiated solutions across a variety of products. The Company markets its product portfolio primarily to established global consumer companies and target large and growing consumer health and wellness markets. Its clinically validated products include bio-functional lipid-based compounds designed to address dietary needs, medical disorders and common diseases. The Company operates in two segments: Nutrition and VAYA Pharma. In addition to its existing products, the Company has several other products to address additional indications in the development phase. enzyme processes; lipid modification; lipid analysis; and process technology and development.."

Discount to the Value Investing Congress in Las Vegas For Our Readers

MarketFolly has secured a big discount for our readers to the upcoming Value Investing Congress in Las Vegas on April 3rd and 4th, 2014.  The press is not being allowed at this event, so get to Vegas if you want to hear what hedge funds are buying and shorting lately (especially if you're on the west coast).

You can save $500 via this link by using the discount code: FOLLY2


VIC Las Vegas Speakers List

- Eric Sprott, Sprott Asset Management
- Lisa Rapuano, Lane Five Capital
- Carlo Cannell, Cannell Capital
- Tom Russo, Gardner Russo & Gardner
- Sahm Adrangi, Kerrisdale Capital
- Whitney Tilson, Kase Capital
- Daniel Miller, Gabelli Funds
- Zeke Ashton, Centaur Capital Partners
- Isaac Schwartz, Robotti & Co
- David Hurwitz, SC Fundamental
- Michael Kao, Akanthos Capital
- Albert Yong & Chan Lee, Petra Capital
- John Lewis, Osmium Partners
- Tim Eriksen, Eriksen Capital
- Dan Ferris, Extreme Value
- Chris Mayer, Agora Financial
- David Neuhauser, Livermore Partners
- Richard Lashley, PL Capital
- Arnaud Ajdler, Engine Capital
- Eric Andersen, Western Standard
- Mystery short-seller: "The Sleuth of Wall Street"


Conference Details

Where:  Encore at Wynn, Las Vegas

When:  April 3rd and 4th, 2014

Why:  Hear unique investment ideas, ask the managers questions about their pitch, and network with other investors.  And since the conference ends on Friday, stay the weekend in Vegas and turn it into a mini-vacation.  


Discount For Market Folly Readers

Click here to take advantage of our special discount

To save $500 off registration, you MUST use the discount code: FOLLY2

What We're Reading ~ Hedge Fund Links 3/7/14

A look at Paul Tudor Jones [Dealbook]

Some hedge fund best ideas for 2014 [WSJ]

David Einhorn will speak at this upcoming conference [Make a Difference Wisconsin]

Einhorn: many stocks have completely disconnected from valuations [ValueWalk]

Loeb sees more volatility this year [Bloomberg]

Blackstone buys stake in Versace [FINalternatives]

Soros, Paulson in Spanish property REIT investments [FT]

TigerGlobal leads investment in OnDeck [HedgeWorld]

PepsiCo rejects Peltz's proposal to split up company [HedgeWorld]

Soros Fund Updates Digital River Position

George Soros' family office Soros Fund Management has updated its stake in Digital River (DRIV).  Per an amended 13G filed with the SEC, Soros Fund has disclosed they own 6.97% of Digital River (DRIV) with over 2.47 million shares. 

This is broken down by 16,050 shares and over 2.46 million shares issuable upon the conversion of 2.00% convertible bonds due November 1, 2030.

At the end of 2013, Soros Fund reported aggregate exposure to over 5.5 million shares, so this appears to be a decrease in aggregate exposure by around 3 million shares.  The filing was required due to activity on March 4th.

Soros Fund also filed a Form 4 with the SEC on DRIV and it indicates they received $153,750,000 plus accrued and unpaid interest on the 2.00% convertible bonds they disposed of.

In other activity, Soros Fund also started a Polycom stake recently.

Per Google Finance, Digital River "provides end-to-end global cloud-commerce, payments and marketing solutions to a wide variety of companies in software, consumer electronics, computer games, video games and other markets. The Company offers its clients a broad range of services that enable them to quickly and cost effectively establish an online sales channel capability and to subsequently manage and grow online sales on a global basis while mitigating risks. The Company is engaged in providing outsourced commerce solutions globally to a variety of companies, primarily in the software and consumer electronics product markets. The Company's services include design, development and hosting of online stores and shopping carts, store merchandising and optimization, order management, denied parties screening, export controls and management, tax compliance and management, fraud management, digital product delivery via download, physical product fulfillment and subscription management."

Tiger Global Raises dELiA*s Stake

Chase Coleman and Feroz Dewan's hedge fund Tiger Global has updated its position in dELiA*s (DLIA).  Per a 13G filed with the SEC, they now own 6.3% of the company with over 4.4 million shares.

This marks an increase of over 1 million shares since the end of 2013.  The filing was made due to activity on February 18th.

They aren't the only hedge fund that's been active in this stock lately, either.  David Gallo's Valinor Management started a DLIA stake recently and Lee Cooperman has owned DLIA as well.

Per Google Finance, dELiA*s is "a retail company comprised of two lifestyle brands primarily targeting teenage girls and young women. The Company generates revenue by selling predominantly to teenage consumers through direct mail catalogs, Websites and retail stores. It operates in dELiA*s brand. Through its e-commerce Webpages, catalogs and retail stores, dELiA*s (the brand) offers a variety of product categories to teenage girls to cater to an entire lifestyle. Through its catalogs and the e-commerce Webpages, it sells many name brand products along with its own brand products in key teenage spending categories. These products include apparel and accessories. Its mall-based dELiA*s specialty retail stores derive revenue primarily from the sale of apparel and accessories and, to a lesser extent, branded apparel to teenage girls. It operates in two segments: direct marketing and retail stores."

Jamie Dinan's Rules of Investing & Current Market Thoughts (York Capital)

Jamie Dinan of hedge fund York Capital made a rare appearance on CNBC today and talked about his current market outlook, his rules of investing, and some of his stock picks these days.


Current market thoughts:  Instead of likening last year's positive market return to that of a beta move, he called it "an engagement move," as both investors and companies re-engaged.  Dinan says it's definitely a stock picker's market right now as corporate activity has picked up.


Latest exposures:  While his largest exposure is the US, he says York is increasingly moving to Europe for opportunities.  "We think European equities are apples to apples less expensive than their North American counterparts."  He also thinks the dealflow in Europe is about 6-12 months behind the US and he anticipates it picking up.


Dinan's rules of investing: He says the best thing to do in investing is learn from your mistakes.  His rules are:  focus on liquidity (so you can get out if you're wrong), be diversified, always be diversified (you never know where the dangers are gonna hit).

He says managing position sizes is also key (they run 50-60 positions at 1-4% position sizes).  Dinan argues to size positions not by how much you can make, but by how much you can lose.  The last important thing is leverage (or lack thereof).   He also noted that, "I find the trick in investing is to try not to give too much back" (after you're up a good amount).


York's stock picks:  They continue to like American Airlines (AAL) as the merger has completed and the industry is starting to act a lot more rational and margins are improving.  He thinks AAL can earn $6+ next year and applies a 10x multiple to that number.  And when looking at stocks they own that are up a lot, they ask themselves: "If we didn't own it, would we buy it today?"  He says AAL falls in this category and they'd still buy it.  As noted in our newly released Hedge Fund Wisdom issue, AAL was a consensus buy among the hedge funds tracked in Q4.

York also likes a potential consolidation play between Men's Wearhouse (MW) and Jos A. Bank (JOSB) as he highlights the potential cost savings that could come from a merger here.  He feels you can double the profitability if the companies combine. 

Dinan also touched on his stake in Hertz (HTZ) as he likes how the industry has consolidated and the fleet has rationalized.  He also highlights their equipment rental business that they think could be spun-off and the company could take advantage of its balance sheet and buyback stock.

Embedded below are the videos of Dinan's interview:

Video 1

Video 2

Video 3

Video 4


For more on York Capital's leading man, check out Dinan's other recent interview.

Jim Chanos Talks Short Positions at Reuters Summit

At the Reuters Investment Summit, Kynikos Associates founder Jim Chanos talked about his short positions and market outlook.

The hedge fund manager and prominent short seller noted he's betting against coal miners as a proxy for his bet against China.  He thinks we're at the end of a commodities supercycle.  This is not a new view as we've highlighted Chanos' negative view on China before.

Chanos is also short Exxon Mobil (XOM), which he labels a value trap.  He believes the business of integrated oil companies has deteriorated over time.  Chanos also points out that return on capital has dropped from 30% down to 20% at the company.

Turning to technology, the Kynikos founder says that a lot of these companies are in slow decline but are masking it via financial engineering and buybacks.  Last year, Chanos highlighted he was short Hewlett Packard (HPQ).

In general, he feels now is a time for investors to be more cautious as the market's have become more "ebullient."

In terms of best new ideas, Chanos said that in the US he's shorting "conceptual companies, companies playing accounting games." He also said to focus on how the internet's changing business models from payment processors to retailers.


Embedded below is the video of Chanos' interview: