Andrew Left's Value Investing Congress Presentation: Short Zillow/Trulia

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Andrew Left of Citron Research who presented a short of "Zulia", or the combined Zillow / Trulia entity.


Andrew Left's Value Investing Congress Presentation

Shortselling in general: "I keep Xanax in business"
Shortselling in general: two types, when you need something to change vs. when you need things to stay the same (time on your side). Z is in the latter camp. 

Big disconnect between the reality of the residential real estate market (people driven; agents don't differentiate b/n various listing services) vs. the Wall Street hype. 

Business model is providing commodity information (listings) that they do not own and selling the advertising space next to it to agents. Paying agents also block other agents from being displayed on the side of the paying agent's listing. 65% of revenue is agents paying, 25% is display ads, 10% mortgage-related. Agents don't like the business model at all. 

The fundamental problem with Zulia is that the total addressable market ("TAM") is considerably smaller than commonly believed. 

Based on Citron research and certain disclosures, about 40% of the inventory is unavailable for sale. 

Zillow's low-value  "deals" with Douglas Elliman and ReMax are known but they also appear to have special terms with larger regional firms and Keller Williams.  Deals indicative that Z provide little to no value to its customers. 

These corporate deals make the full-price clients very upset; also Z has been reducing the number of protected listings a paying agent might have. 

Price target $22.50 based on comps, $42 based on a stable leadgen EBITDA business. 


Q&A: Compared to the Australian counterparts, Z has no real IP.

Q&A: Long idea BBRY. Internet of things play/secure mobile data transmission. CEO superstar. Handsets no longer a deciding factor. IBM/Apple partnership to enter space validates BBRY's business.


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

Jeff Smith's Value Investing Congress Presentation: 4 Case Studies

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Jeff Smith of Starboard Value who presented four case studies.


Jeff Smith's Value Investing Congress Presentation

Starboard Value:  80% "success" rate across its history; research shows 26.4% average (median?) returns vs. 9.7% market from when 13-D is filed.  Has placed over 100 people on various boards over 10 years.  18-24 month hold

Selection criteria to get involved:
(1) Plan to unlock value
(2) Clear path to execute (either cooperative management or ability win proxy)
(3) Company is undervalued on absolute basis 


Case study: Tessera 

Good IP licensing business for semi-conductors, good margin, some reinvestment in R&D needed
Tried licensing cell phone camera focus IP but failed bc the buyers did not want to buy without seeing it work in real life
So they build a test case but that wasn't enough
So they double-down and try to find someone to mass-produce their IP, and fail
So they double-down again, and bought a facility for $500 mm and started losing $150 mm per year 

Starboard comes with a plan to refocus the company, dump the camera business and do an overall cost reduction

Replaced the majority of the board, new CEO, sold non-core assets, reduced headcount

Interestingly, the board chairman who led the defense stayed on, and is now friendly with Starboard and can serve on other boards for them in campaigns 


Case study: Office Depot (ODP) 

Second largest office supply company; declining sales, growing overhead, lowest margins in the industry

Starboard plan: cut expenses, reduce SKUs, rationalize distribution, sell Mexico JV, change customer mix (biz vs. retail), merge with Office Max

ODP so far: new superstar CEO, new CFO, merger with OMX, sold JV, 3 new board members.


Case study: Darden 

(On-going situation which appears to have limited the details he put out: ie he did not discuss Red Lobster sale in his deck)

World's largest full service restaurant. Also a big real estate owner unlike it's peers which is an inefficient use of capital. Company runs several brands, two legacy Olive Garden and Longhorn, and smaller growth names. 

Opportunity: real estate value, operational underperformance (even worse when adjusted for non-payment of rent)

Current plan: running a board slate, implement performance plan, separate mature vs. newer concepts, explore franchising 


Case study: MWV 

Packaging conglomerate (various uses); non-core specialty chemicals and real estate businesses; run by the same family for many years (but with low current ownership %)

Very weak operating performance: both gross margins and SG&A spend are substantially worse vs. industry comps

Starboard plan: sell/spin non-core assets, reduce overhead, increase margins to comp, use of pension overfunded status in a merger  


Q&A: Good board memebers: independed, successful people who don't accept mediocrity, secure in who they are, don't "need" the board seat for income, true representatives of the shareholders, "statesmen", be willing to dissent, be willing to criticize CEO based on own industry experience

Q&A: Wilcox update: nothing to share  QnA: WPP update: has been a struggle, replaced CEO

Q&A: MWV transaction leakage: yes, a lot of tax planning will be involved; the overfunding can be used to merge with an underfunded industry competitor and receive some of the value there; reverse morris trusts or other structures in play


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

Adam Crocker's Value Investing Congress Presentation: Groupe FNAC and Molina Healthcare

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Adam Crocker of Metropolitan Capital Advisors who presented long Groupe FNAC and Molina Healthcare.


Adam Crocker's Value Investing Congress Presentation

Long: Groupe FNAC (FNAC.PA)  

• “It’s the Best Buy and Barnes and Noble of France, Spain and Portugal... what's not to love??”
• Retailer of books and electronics with stores in France, Iberian Peninsula, Brazil, other Europe. Spun out of Kering Group in 2013 with an underappreciated ticketing asset similar to Ticketmaster
• Retailer is an ok business facing challenges but incorrectly priced as if disaster were right around the   corner
• Strong and growing net cash balance provides downside protection
• Trading at under 6x EV/EBIT, but the retail business trades at more like 1.0-1.5x EBIT if you back out   value of cash and ticketing
• Thinks opportunity exists because people put in the “too hard” pile (recent spinoff, €550 market   cap, contrarian, challenging, and uncomfortable)
• Metropolitan asks themselves: Would anyone care if this business no longer existed? Their research  suggests yes, customers and suppliers would care

• Retail business:
o Leading brand in its markets, particularly France. #1 retailer of books, music, videos,   computers, photography products
o 56% of revenues were from FNAC loyalty members (similar to Amazon prime)
o 3rd most visited website after amazon and Cdiscount  
o Brick and mortar stores are actually well maintained, rare for this kind of secular decliner
o Similar to BKS, management is transitioning from books / DVDs to mobile phones, toys, and stationery.  These new products were over 10% of revenue in most recent quarter and grew 17% from Q1 to Q2 2014
o Cost rationalization by reducing headcount, rent negotiations, and consolidating back office.  Have eliminated 10% of SG&A since 2011

• Ticket company:
o 50% market share in a market characterized by high network economies of scale. Comps are CTS (Germany), Ticketmaster (US) and these companies tend to trade at high EBIT multiples.  Metropolitan thinks this business is worth 15xEBIT
o Assuming 15x EBIT at FNAC implies 225mm euro ticketing value
o Ticketing is a good business because of a low cost/benefit ratio for event promoters, secular tailwind for more live performances, and IT infrastructure is more complex than many assume (especially for larger venues)
 o Also have a retail network that gives them advantages vs competitors by driving retail traffic and cross-selling opportunities
o Positive catalysts: improved product cycle (i.e. Apple iPhone 6) or any macro improvement 

• Valuation: 
o Assuming €225mm ticket value, €250mm cash, €25mm Brazil asset gets to €500mm. Entire company trades at €550 market cap, so retail is implied €50mm value
o Retail did €50mm operating profit in 2013
o Best Buy has similar problems, trades at 8x EBIT. This would imply a €54 price target
o Major disconnect vs. peers BBY, BKS, DRTY, DXNS. These trade at an average 5.5x EBITDA while FNAC is 2.9x
o Management plan is to stabilize revenue, gross margins, and reduce inventories 3% annually to achieve 3% EBIT margins in the long term.  They have achieved the first 3 goals and are working on the 4th now.  If they achieve 3% EBIT margins, could get to €79/share (+126%)



Long: Molina Healthcare (MOH)

• Complex industry but simple story. Medicaid and Medicare have unsustainable cost trends related   to the Affordable Care Act and Molina offers a solution, particularly for those who fall under both   Medicare and Medicaid (referred to as “dual eligible care”). These “duals” are the most expensive group of beneficiaries and the government is extremely interested in seeing its programs succeed

• Medicaid trends:
o Medicaid is #1 line item in most states' P&L 
o Medicaid projected to grow 8% long term due to ACA. Managed care is taking a bigger piece of this because they have demonstrated an ability to drive equal or better outcomes at lower cost than the government-run alternative
o What is Medicaid managed care? Insurers manage health benefit of low income patients on behalf of state payors in exchange for per member per month (PMPM) fee.  Save the system money by standard blocking and tackling (incentives for healthy pregnancies, encouraging the use of primary care physicians, the use of generic drugs)
o 75% of Medicaid members in managed care, but most expensive patients are typically fee- for service. This is the opportunity for Molina
o “Actuarial soundness” concept - by law, rates must be adequate relative to Molina's risk

• Question is when, not if, Molina earns a reasonable profit on new membership, particularly for  the “dual eligibles”. Unless you think the government is already maximizing efficiency of those under dual  eligible care, there should be opportunity for Molina

• Why the opportunity? Perceived risks - difficult to predict short term cost trends, political risk /   government seen as unreliable customer, dual population never managed before, costs uncertain

• Big uncertainty is “What will the cost be of managing dual eligible members?” Molina hasn't   discussed their expectations but comps have

• Management thinks they can double revenue from FY13 to FY15 from $6.6bn to $12.5bn

• Sees takeout option for a commercial insurer (when Wellpoint bought Amerigroup, the merger   proxy discussed opportunities for insurers to serve dual eligible beneficiaries)


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

Alex Roepers' Value Investing Congress Presentation: 5 Long Ideas

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Alex Roepers of Atlantic Investment Management who presented long Triumph Group, Sulzer, Owens-Illinois, Technip, and Koito Manufacturing.


Alex Roepers' Value Investing Congress Presentation

Takes minority positions for 1-2 year hold period. Longs represent 2-7% equity stake in the company  to become actively engaged shareholder. 95% batting average with their core longs. 

Because so concentrated, tend to trade around positions over time. Found that ~20% of returns come from trading around the positions and 40% of outperformance over benchmark is due to trading around positions.  

Sticks to his knitting: sustainable competitive advantage, predictable cash flows, low cyclicality,   strong balance sheet, low insider control, solid trading liquidity

Since they try to effect change, they see high insider control as an impediment so they avoid those types of names.  Avoids >$30bn mkt cap and <$1bn. Atlantic doesn’t believe they provide differentiated view on mega cap blue chips.  Also avoids areas of idiosyncratic risks (tech obsolescence, product liability, government intervention (utilities, cable TV), and lack of transparency (banks, brokerages, insurance).  Target scale-in price of 7-8x EV/EBIT. 12-24 month hold. Scale out at least +50% upside at 10-12x EBIT.  Mentioned that they are constructive on Japanese equities in next 3-8 years


Recap of ideas presented last year:

• Baker Hughes: Up 37%, still a buy at $65 with a $90 target. Atlantic is still holding

• Faurecia: Auto supply company. Peugot owns 51% but only represents 11% of sales. Fast growing   Asia component. Up 22%, is an “absolute buy” at €27 w/ €40 target. Atlantic is still holding

• Itochu Techno: Up 31%. Atlantic is still holding

• Lanxess: Specialty polymer company. Sold it a few months after recommended at no gain. Timing   wasn’t right, but they continue to watch

• Harman International: Largest maker of infotainment systems or the “integrated brain” of cars. Has   >4,500 patents, sees as takeout candidate. Trading at 10x EV/EBIT on FY2016. Thinks it is worth   $200-250/share (KKR got approved for $150/share takeover before crisis and company is worth   “multiples of that” today). Up 70% and still holding


5 New Ideas:

• 1) Triumph Group: Aerospace supplier of wing assemblies, actuators, etc. Basically a rollup of niche suppliers to major companies including Boeing, Embraer, etc. 

o Thesis: Earnings stabilization and a return to growth. Management is focused on new business opportunities.  Doing well with small bolt-on acquisitions and has a strong barrier to entry due to FAA / etc regulation.  Also a takeout candidate  
o $3.6bn mkt cap, 10x P/E, 8.4x EV/EBIT. Price target based on 11x FY2016 EBIT (+43%) 
o Bought in low $60s


• 2) Sulzer: Pump business similar to Flowserve in the US. Also have chemtech and rotating equipment  services. These are “mission critical systems” and 44% of the business is after-market products

o Thesis: Management vacuum created a buying opportunity. New chairman was Chairman & CEO of Siemens.  Roepers expects company to set new targets in 2 months, thinks we will see margin improvement and the company has a strong balance sheet while you wait  
o €4bn mkt cap, 9.2x EV/EBIT. Price target of CHF 165 (+35%)
o Peers trade in mid-teens EBIT multiples. LT upside CHF>200


• 3) Owens-Illinois: Glass maker, sounds boring but has a huge moat and balanced sales in US, Europe,  LATAM, & APAC


o Thesis: Monopoly or duopoly in all of their markets. Noise created when Chavez appropriated 2 plants and they had some logistical challenges in US.
o Legacy asbestos liabilities also create noise but are actually an opportunity (to be successful as an asbestos claimant, need to have been working in 1958 and there aren't many of those left).  Annual asbestos payments of $150mm/yr, going down 5-10% per year. This is a positive catalyst and a finite issue. $350mm of FCF is after $150mm, so this reduction   represents a built-in FCF growth of 3-4% per year
o $7.2bn mkt cap, 10x P/E and 9x EV/EBIT
o Price target of $50/share (+62%) based on 15x 2015 P/E multiple on $2.80-$4.00 of 2015 EPS 
o At $31/share today great risk/reward


• 4) Technip: Oil services company (64% subsea, 36% onshore/offshore). 54% market share in subsea.   Subsea involves gigantic reels of flexible pipe. They sell these pipe services by the foot and charge   exponentially more as you go deeper for their installation services. 

o Thesis: As low-hanging fruit of subsea oil plays have been plucked, E&P companies have to go deeper.  2015 profits will be higher than market realizes.
o High barriers to entry and high-quality management team
o Petrobras has also caused noise, but interestingly Petrobras stock has since recovered while Technip hasn't
o €15bn sales, trades at €9.9bn EV and 6.9x EV/EBIT
o Price target of €105 (+49%) based on 11x 2015 EBIT 


• 5) Koito Manufacturing: Largest maker of car lamps including LED headlamps. Toyota owns 20% of the  company and represents 30% of sales. Japan and China are its biggest markets

o Thesis: Ride wave of adoption of LED headlamps. In Japan LED headlamps went from 0% to 15%, still just 1% in Europe / US.  Also potential spinoff of KI holdings (maker of airline seats).
o Also a huge beneficiary of Abenomics. Has a history of poor capital allocation (20% of market cap is cash)
o $7.1bn sales, $3.1bn EV priced at 5.4x EV/EBIT
o Price target ¥4,200 PT (+48%) based on trading at 6x EV/EBIT. Thinks it can get to 9x 2017.
 

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

Whitney Tilson's Value Investing Congress Presentation: Short Exact Sciences (EXAS)

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Whitney Tilson of Kase Capital who presented various short ideas.


Whitney Tilson's Value Investing Congress Presentation

Presentation has 4 parts: lessons from a dozen years of short-selling, update on 2 short ideas (LRN and LL), and a new short idea (EXAS)

Why short-sell?
Insurance (but made for painful 2013-14): pays when you need money to buy cheap good companies in big declines
Plentiful opportunities now (shortsellers run out of town: shops closing, long only launches)
Can make money
Can provide funds to buy more longs
Keeps him from messing up the longs
Big rush from winning/intellectually satisfying
Most HFs are expected to short

Finding ideas:
- Other short sellers
- Conferences
- VI Insight, VI Club, Seeking Alpha,  SumZero, Activist Shorts, Citron, Screens
- Media (look for hype)

Right now seeing incredible shorting opportunities
Be very diversified: has 50 shorts now
Offset longs and shorts (match cap/industry and the way they trade: tough to run long PG BRK and short volatile small names)

Lesson: stock follows earnings = reported results have to start showing cracks (example MBIA took a while)

Lesson: avoid "beat and raise" names = runaway trains (examples PCLN TRIP FB LNKD)

Lesson: be patient, wait for a break (example shorting CROX too early)

Lesson: look for Titanics, mortal damage but taking a while to sink (LRN, NSR, HLF, WRLD) 

Lesson: look for obvious bubbles (3D names, PLUG, Ballard, SaaS, biotechs) 


Update on K12 (LRN) Short
Losing their largest EBITDA contributor in PA (downgrade this morning)
Likely- per his contacts- to lose several other contracts in the next 1-1.5 yrs
Doing bad things, like enrolling no-shows and billing
Still overvalued


Update on Lumber Liquidators (LL) Short
Still many ways to win
Business performance is poor (dropping SSS)
There might be news on the formaldehyde end (not in deck)


New Short Idea: Exact Sciences (EXAS)
New colon cancer test: essential to detect early
Company has long history of failure, the new test is FDA approved
The "superior" results were rigged
Essentially a binary outcome based on reimbursement rate decision
Even if high price approved, it will fail in the market = requires filling up a cup with excrement vs. just swipe
New technologies coming (ie pill cameras) 


Q&A: Why short at all? Munger quote from a private meeting "every guy has to learn for himself [not to short]"

Q&A: Are you still in CALL? Yes but two Qs of bad prints so less enthusiastic now.

Q&A Options? "Options are heroin. They feel so good and they kill you." Now only two positions, LT ITM call on CP, defacto a stock position. Puts in IOC.

Q&A: VIPS? Got in at 80, covered at 120. Analyst called him after a visit in China: it is a real business and it grows at the rate chinese internet cos are growing, nothing suspect.

Q&A: IOC: not a great short now because of the Total partnership. Will take a while to see if the gas is extractable, Tilson does not think so.


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

David Hurwitz's Value Investing Congress Presentation on Korea

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is David Hurwitz of SC Fundamental who presented "activist investing in Korea".


David Hurwitz's Value Investing Congress Presentation

• Has been investing in Korea 7 years. Sees compelling valuations (0.5x P/BV, low single-digit P/E,   discounts to net cash and profitable with good ROEs)
• Numerous Korean stocks present extremely compelling value opportunities. Valuations and   environment remind him of US in the late ‘70s / early ‘80s. Korean shareholders are beginning to   vote against management when economically beneficial. Potential to unlock shareholder value with   activism

• Korea is misunderstood:
o 15th largest GDP in the world. $1.35tn market cap is the same as Germany and bigger than Hong Kong.  Country has had a budget surplus in 9 out of the last 10 years and public debt/GDP is among the lowest in developed economies.  Also has a strong rule of law
o KOSPI trades at 30% discount to S&P on P/E basis, 54% discount on P/B. Lots of these companies are overcapitalized
o In 2006, Buffett said that if he had to start his partnership again he would start by being 100% in Korea
o Korea is NOT Japan. It has made a concerted effort not to follow Japan’s economic plan.  In Japan, you can buy "30 cent dollars" but you have terrible ROEs while you wait for something to happen.  In korea, ROEs of double digits are the norm
o In last few years, crazy announcements from North Korea presented great buying opportunities but not really anymore

• Interesting minority protections:
o Some great minority shareholder protections have developed in Korea but they go relatively unused
o A small amount of money can go a long way. For example, you can get a shareholder proposal with 1% of shares.  With 3% of shares, you can get a seat at the table at the Board of Directors by pushing for a statutory auditor.  Statutory auditors are supposed to make sure that a Board of Directors is doing its duties properly
o Insiders own 15-40% of companies. Controlling families often have their entire livelihood tied to these companies doing well
o Shareholder returns are not high on the list of management priorities but ROEs are still quite good

• Korean government is thinking a lot about what to do with excess cash on corporate balance sheets.   Considering lowering taxes on dividends and taxing excess cash at corporations, though Hurwitz   doubts the latter happens 

• Issues: All but largest companies don't report in English. Also need a trading ID. Low volumes,   opaque holdcos. Accounting change from Korean GAAP to IFRS is challenging to make comparisons over time.  Bloomberg numbers tend to be wrong, particularly for cash, preferred stock, treasury stock, minority interest.  Drew Kim of Samsug Securities is good source for ideas if you don't speak Korean


Long: Samho Development (010960)  

• Primarily government work constructing sewers, highways, etc. with the gov't representing 90% of   revenue. 15+ consecutive years of profitability
• Pullback on capital projects has depressed earnings. In the same time frame, the market has lost   dozens of competitors
• Cash and equivalents 106% of market cap. 50% price to book. 5 year avg ROE is 12%
• Valuation at purchase (September 2013): 6.3x P/E on depressed earnings. shares peaked at   ₩12,000 now ₩3,000
• Issues: large cash pile, invested some in biotech stocks / VC and even started a money-losing asset   management business
• Progress: passed board resolution to repurchase shares. Exited biotech investments. Reviewing   dividend policy, and sold asset management business. Earnings likely close to bottom of cycle 


Long: KTcs Corp (058850)  

• Call center services, 411 directory services, and ad-based revenues. also resell services by Korea   Telecom
• Valuation at purchase (September 2013): net cash 76% of market cap
• Issues: large cash pile, bloated cost structure. 411 business secular decline, controlled by Korea   telecom 18% owner)
• Progress: local shareholder asked for higher dividends, board seat, statutory auditor. CEO purchased   shares, promised more transparency and accountability
• Hurwitz thinks Korea Telecom should decide what it wants to do with this. Would be a good buy for PE investor


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

SumZero Contest Winner at Value Investing Congress: Long Samsung

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is the winner of the SumZero International Ex-US stock competition who presented long Samsung.


SumZero Contest Winner: Value Investing Congress Presentation

Employer focus on: cheap, honest/good managers, dominant market position, global brands, strong balance sheet

The pitch is basically sum of the parts (SOTP)
(1) Misunderstood: a lot more than handsets
(2) Just the semiconductor business is worth more than what the entire co trades for//discount for whole biz is 50%
(3) Global leader in  a number of products
(4) Several catalysts: asset sales, succession plan, restructuring and buybacks
(5) Solid management

Downside thesis is very short term
(1) No growth in smart phones
(2) Chinese competition
(3) Copy-cat products
(4) Not shareholder friendly

SOTP: cash + semi + display + home appliance + IT/mobile = 149% upside 

Solidly run business: vertical integration, low cost, R&D and ad spend

Catalysts: unit IPOs, 2015 expiration of tax incentives to simplify structures

Recommends reading The Samsung Way

Can buy in Korea (have paperwork to fill out = barrier), likes the preferred there


Q&A Other Korean preferreds are irrationally cheap (Tilson likes them too, has several; also has Samsung common and preferred)

Q&A Family incentive to keep the prices low? Should end soon.

Q&A: Also owns POSCO, reads Korea Times

Q&A: Not afraid of Chinese competition


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

John Lewis' Value Investing Congress Presentation: Long ePlus & Rosetta Stone

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is John Lewis of Osmium Capital who presented 2 ideas: E-plus and Rosetta Stone (RST).


John Lewis' Value Investing Congress Presentation

Osmium: concentrated (85% top 10), $100 mm - $1 bn market cap, 2-4 year hold

In the office has Wall of Fame and Wall of Shame

The Osmium 8 of how to create value, assess the quality of the business and understand incentives/cap structure
(1) Low valuation: low to MSD OCF multiple
(2) Can it continue to produce cash flow
(3) Double barrel deployment: reinvest in the business and buy back shares to create value
(4) Porters 5 forces
(5) User experience/LT client relationships
(6) Quality attributes 10%+ pre-tax margins, decent ROIC
(7) BS strength
(8) Management ownership

One-pager case studies VITC Vitacost- sold to Kroger for 50% gain
ZIPR Zip realty sold to Realogy for 90% gain
LOV Spark Networks- on-going engagement


First Idea: ePlus (PLUS)

A long term compounder in the IT space
High margin revenues, very sticky, low valuation 40% discount to peers 
Debt has to be adjusted for non-recourse piece
Have been repurchasing shares
Diverse customer base
Will grow revenues with existing and new clients as they sign up new partners 


Second Idea: Rosetta Stone (RST)

Two activists now involved
Very seasonal, high margins
Lots of capital to reinvest
Really nice educational institution products suite
New acquisitions in EU  Stock is very cheap, one of the cheapest software stocks
Problems: no strategy to create value (sounded like too much R&D), no urgency, no segment reporting (consumer vs. education), seasonal (consumer is all Q4, education Q3)
SOTP is $20-$35 based on Osmium, CEO's own estimates and Private Equity buys in the space.
Cheap even with Consumer at zero.  

Q&A: Free apps? They made a freemium product acquisition so they are in that. Berlitz is still making good money (language instruction is not dead).


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

Cliff Remily's Value Investing Congress Presentation: Subsea 7

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Cliff Remily of Northwest Priority Capital who presented Subsea 7.


Cliff Remily's Value Investing Congress Presentation

Nice bio: was at PIMCO equities. Traveled a lot "hospitalized on 3 continents", once detained in China.

Think of value as a continuum: must have some of each in the portfolio
Absolute value = the uglies, very deep value, hard to find
Basic value = cyclicals, out of favor but beware of value traps
Value compounders = great businesses but not cheap most of the time
Emerging leader = businesses that might have a lot of optionality that is not recognized by the market, volatile, expensive 


Idea in Basic Value: Subsea 7  

Largest pureplay engineering and construction company in offshore oil and gas: big barriers to entry, big long-term shareholder  Trades cheap to industry

Market segments: deepwater design/build the things under the platforms; maintenance, shallow water pipelines, remote subs

The industry is OK: secular growth, barriers to entry, 2-3 large players, strong balance sheet, mispriced (everyone hates the North Sea; had write-offs in Brazil)

Profitability in line with industry, valuation way under. 

Range $10-$13-$22-$28-$37. Worst case estimate is at $75 brent oil


Q&A: oil estimates Brent at $100 for base case to estimate willingness to spend on capex
Q&A: Transocean business %? Does not know.


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

Bridger Capital Boosts Accuray Position

Robert Mignone's hedge fund firm Bridger Capital has filed a 13G with the SEC regarding its position in Accuray (ARAY).  Per the filing, Bridger now owns 5% of the company with over 3.88 million shares.

This marks an increase of 884,853 shares in their position size.  The filing was made due to activity on August 28th.

In other portfolio activity, Bridger also recently added to another holding.

Per Google Finance, Accuray "manufactures image-guided radiosurgery devices. The Company is based in the United States and its core product, the CyberKnife Stereotactic Radiosurgery System, combines image-guidance with robotics to offer unparalleled flexibility and accuracy. Accuray's focus is to revolutionize the treatment of solid cancers throughout the body by the precise delivery of high doses of radiation using the CyberKnife Stereotactic Radiosurgery System."

JANA Partners Trims QEP Resources Stake

Barry Rosenstein's activist hedge fund firm JANA Partners filed an amended 13D with the SEC regarding their position in QEP Resources (QEP).  Per the filing, JANA now owns 7.2% of the company with just over 12.9 million shares.

This means they've reduced their stake by around 2.3 million shares since the end of the second quarter.  The filing was made due to portfolio activity on September 3rd.

JANA's filing notes that they "reduced the size of its investment ... through regular portfolio management activities."  They also say they're "highly supportive of the recent steps taken by (QEP's) board and management, including (QEP's) announcement of the separation of its midstream business and the addition of a board member with midstream energy expertise to assist with the separation."

You can check out more recent portfolio activity from JANA Partners here.

Per Google Finance, QEP Resources "operates in three lines of business: gas and oil exploration and production, midstream field services, and energy marketing. It conducted through three principal subsidiaries: QEP Energy Company (QEP Energy) acquires, explores for, develops and produces natural gas, oil, and natural gas liquids (NGL); QEP Field Services Company (QEP Field Services) provides midstream field services, including natural gas gathering, processing, compression and treating services for affiliates and third parties; andQEP Marketing Company (QEP Marketing) markets affiliate and third-party natural gas and oil, provides risk-management services, and owns and operates an underground gas-storage reservoir."

Marcato Capital Sends Letter to Life Time Fitness, Proposes Separation of Real Estate Assets

Mick McGuire's activist hedge fund firm Marcato Capital recently filed an amended 13D with the SEC regarding their position in Life Time Fitness (LTM).  Per the filing, Marcato continues to own 8% of the company with approximately 3.1 million shares.

Marcato's filing includes a letter to Life Time's Chairman commending the company for exploring a potential REIT conversion.

McGuire writes, "In our opinion, many investors and analysts do not fully appreciate the transformational nature of the Company's announcement.  Based on Marcato's analysis, at the mid-point of our valuation range, we believe the shares of LTM could reach $70 per share upon separation of the Company's real estate assets."

We had previously highlighted how Marcato increased its Life Time Fitness stake this summer and now they're taking things a step further.

Embedded below is the full letter to the board as well as Marcato's presentation on valuation:

David Tepper: Beginning of the End of the Bond Market Bubble

Bloomberg today featured an interesting comment from Appaloosa Management's David Tepper.  The hedge fund manager basically said that the ECB decision means the "beginning of the end" of the bond market bubble.

And while he didn't specifically reveal his positioning, host Stephanie Ruhle says that Tepper expressed that's he's pretty adamant about his statement and so it's pretty easy to guess his positioning based upon that (short bonds).

Embedded below is the video of Tepper's full quote via Bloomberg:

Howard Marks' New Memo: Risk Revisited

Oaktree Capital's Chairman Howard Marks is out with his latest memo entitled 'Risk Revisited.'  Warren Buffett has said he always looks forward to reading Marks' memos and if that's not enough of an endorsement, we don't know what is.

In his latest piece, Marks draws attention to a few key points he wants to make:

1.  "The future should be viewed not as a fixed outcome that's destined to happen and capable of being predicted, but as a range of possibilities and, hopefully on the basis of insight into their respective likelihoods, as a probability of distributions."

2. "Risk means more things can happen than will happen."

3.  "Knowing the probabilities doesn't mean you know what's going to happen."

4.  "Even though many things can happen, only one will."

His memo then goes on to outline all the various types of risks and we recommend you read it in its entirety as it is quite thorough.

He ends his latest missive by noting that investing can be like playing offense and defense and that today he's paying more attention to loss prevention than the pursuit of gain.


Embedded below is Howard Marks' latest memo, 'Risk Revisited':



You can download a .pdf here.

For more investing wisdom from this manager, be sure to check out Marks' book, The Most Important Thing: Uncommon Sense for the Thoughtful Investor.

JAT Capital Increases Madison Square Garden Stake

In an amended 13D filed with the SEC, John Thaler's hedge fund firm JAT Capital has revealed they now own 7.75% of Madison Square Garden (MSG) with over 4.93 million shares.

This is up from their previous stake of 4.28 million shares when we previously highlighted JAT's activist MSG stake.  The filing was due to activity on August 29th and they used proceeds from outstanding swaps to purchase 3.45 million shares and call options to purchase 1.47 million shares.

Per Google Finance, Madison Square Garden is "a holding company conducting its operations through direct and indirect subsidiaries. The Company is an integrated sports, entertainment and media business company. The Company operates in three segments: MSG Sports, MSG Media and MSG Entertainment. In March 2014, the Company purchased a 50% interest in Tribeca Enterprises.."

Eminence Capital Boosts Zynga Position

Ricky Sandler's hedge fund firm Eminence Capital has filed a 13G with the SEC regarding their position in Zynga (ZNGA).  Per the filing, Eminence now owns 5.1% of the company with over 38 million shares.

This means they've boosted their share count by over 11.5 million since the end of the second quarter.  The filing was required due to activity on August 21st.

In other activity from this fund, we recently highlighted how Eminence started a World Wrestling Entertainment stake as well.

Per Google Finance, Zynga is "the provider of social game services. The Company develops , market and operates online social games as live services played over the Internet and on social networking sites and mobile platforms. The Company's games are accessible on Facebook and other social networks, mobile platforms and Zynga.com."

What We're Reading ~ Hedge Fund Links 8/29/14

Hedge funds hunt for clues in Treasury tax inversion limit [Bloomberg]

The best short seller you've never heard of [HFIntelligence]

Why you should avoid the hottest hedge fund hands [CNBC]

Investor satisfaction with hedge funds falls [FINalternatives]

Big funds continue to bring in the big money [Bloomberg]

Dan Loeb's comments on ThirdPointRe's call [Seeking Alpha]

David Einhorn's comments on GreenlightCapitalRe's call [Seeking Alpha]

Morgan Creek's Mark Yusko sees opportunity in Saudi Arabia [FINalternatives]

The hedge fund and the despot [Business Week]

What We're Reading ~ Analytical Links 8/27/14

Profile of Alibaba's Joseph Tsai [Bloomberg]

Carol Loomis' latest on BlackRock: the $4.3 trillion force [Fortune]

Profile of 108 year old investor Irving Kahn [Telegraph]

Lessons learned in 30 years of investing [What Works on Wall Street]

Share sleuth's investment checklist [Interactive Investor]

A look at Post Holdings [View From the Blue Ridge]

A look at WL Ross Holding Corp [Brooklyn Investor]

What makes Warren Buffett a great investor? [Farnam Street]

Amazon: not an e-commerce company [Stratechery]

The inside story of how Netflix came to pay Comcast for traffic [Quartz]

Morningstar: a force to be reckoned with [FT]

Nonprofit hospitals' earnings fall as costs outrun revenue [WSJ]

Interview with Burger King's CEO [Financial Post]

The company speeding a genetic revolution [Forbes]

Google's valuation: much cheaper now than 10 years ago [WSJ]

Family Dollar bidding war suggests 'peak dollar store' is here [Yahoo]

Match.com might not light IAC's fire [WSJ]

Peculiar habits of incredibly successful people [Morgan Housel]

Interview with venture capitalist Bill Gurley [Forbes]

Glenview Capital Boosts VCA (WOOF) Stake

Larry Robbins' hedge fund firm Glenview Capital has filed an amended 13G with the SEC regarding their stake in Vca (WOOF).  Per the filing, Glenview now owns 14.85% of the company with over 12.8 million shares.

This means they've boosted their position size by over 4 million shares since the end of the second quarter.  The filing was made due to activity on August 21st and it notes that their ownership includes 4,114,200 shares that are obtainable upon exercise of options.

To see the rest of Glenview's portfolio, head to the brand new edition of Hedge Fund Wisdom.

Per Google Finance, VCA is "a national animal healthcare company operating in the United States and Canada. The Company provides veterinary services and diagnostic testing to support veterinary cares. The Company operates in two segments: animal hospital and laboratory. Its all other category includes Vetstreet and Medical Technology operating segments. The Company sells diagnostic imaging equipment and other medical technology products and related services to the veterinary markets. The Company's animal hospitals offer a range of general medical and surgical services for companion animals, as well as specialized treatments, including advanced diagnostic services, internal medicine, oncology, ophthalmology, dermatology and cardiology. In August 2014, VCA, Inc acquired Camp Bow Wow."

Bridger Capital Raises Tornier Stake

Roberto Mignone's hedge fund firm Bridger Capital has filed a 13G with the SEC regarding their position in Tornier N.V. (TRNX).  Bridger has disclosed they now own 5.5% of the company with almost 2.7 million shares.

This means they've added to their share count by 707,960 shares since the end of Q2.  The filing was made due to activity on August 6th.

To see what else Bridger has invested in, check out the new issue of our newsletter.

Per Google Finance, Tornier is "a global medical device company focused on surgeons that treat musculoskeletal injuries and disorders of the shoulder, elbow, wrist, hand, ankle and foot. Tornier refers to these surgeons as extremity specialists. The Company sells to this extremity specialist customer base a broad line of joint replacement, trauma, sports medicine and biologic products to treat extremity joints. In certain international markets, it also offers joint replacement products for the hip and knee. The Company sells over approximately 100 product lines in approximately 40 countries. The Company’s principal products are organized in four categories: upper extremity joints and trauma, lower extremity joints and trauma, sports medicine and biologics, and large joints and other. The Company’s geographic regions consist of the United States, France and other areas."

Maverick Capital Discloses Pets at Home Group Position

Lee Ainslie's hedge fund Maverick Capital has disclosed a new holding in London listed Pets at Home Group (LON:PETS).  Due to trading on July 29th, Maverick now own the equivalent of 3.14% of voting rights, all via a total return swap.

Pets at Home was floated in March at 245p per share.  It looks as though Maverick might have bought their shares somewhere around 175p.

To see what else Maverick has been buying, check out our just released Hedge Fund Wisdom newsletter.

Per Google Finance, Pets at Home is "a specialist retailer of pet food, pet-related products and pet accessories. The Company also operates a small animal veterinary business by combined number of surgeries both in its stores and at standalone sites and is a joint venture operator in the market. The Company is an operator by number of salons of pet grooming services offered through Pets at Home’s in store salons. The Company’s product range consists of two product groups: pet food and pet accessories, which are complemented by services, including veterinary services (both in stores and on a standalone basis) and in store Groom Room grooming services. In addition, the Company also offers pet insurance, advanced nutrition food consultation, acquaria water testing, microchipping services and dental checks, which complement the services offered by its veterinary surgeries and Groom Room grooming salons."

JAT Capital Files 13D on Madison Square Garden (MSG)

John Thaler's hedge fund firm JAT Capital has filed a 13D with the SEC regarding shares of Madison Square Garden (MSG).  Per the filing, JAT has disclosed a 6.73% ownership stake in MSG with over 4.2 million shares.

This marks an increase of 2.6 million shares in their position size since the end of the second quarter.  The filing was made due to activity on August 12th.

The 13D filing contains the standard boilerplate that JAT may seek to engage with the board of directors.  It also notes that JAT entered into cash-settled swaps with respect to 2.9 million notional shares and call options referencing 300,000 shares.

JAT was out buying MSG stock throughout mid-August at prices ranging from $60 to $64.84.

Per Google Finance, Madison Square Garden is "a holding company conducting its operations through direct and indirect subsidiaries. The Company is an integrated sports, entertainment and media business company. The Company operates in three segments: MSG Sports, MSG Media and MSG Entertainment. In March 2014, the Company purchased a 50% interest in Tribeca Enterprises."

Third Point Trims Enphase Energy Stake

Dan Loeb's hedge fund firm Third Point has filed an amended 13D and Form 4 with the SEC regarding Enphase Energy (ENPH).  Per the filing, Third Point has disclosed a 15.7% ownership in ENPH with over 6.75 million shares.

This marks a decrease of over 1.28 million shares.  The filing notes they sold shares on August 19th at $10.269 to the underwriters in connection with the public offering of ENPH stock.  This price represents the public offering of $10.50 net of the underwriting discount of $0.4731 per share.

Check out the rest of Third Point's portfolio in the brand new issue of our Hedge Fund Wisdom publication.


Per Google Finance, Enphase Energy "designs, develops and sells microinverter systems for the solar photovoltaic industry. The Company’s microinverter system consists of three components: Enphase microinverter, Envoy communications gateway and Enlighten Web-based software. The Company’s Enphase microinverter delivers power conversion at the individual solar module level by introducing a digital architecture that incorporates custom application specific integrated circuits (ASICs) power electronics devices and an embedded software subsystem. The Company’s Envoy communications gateway is installed in the system owner’s home or business and serves as a networking hub that collects data from the microinverter array and sends the information to its hosted data center. The Company’s Enlighten Web-based software collects and analyzes this information to enable system owners to monitor and realize the performance of their solar photovoltaics."

Carl Icahn Goes Activist on Hertz

Activist investor Carl Icahn has filed a 13D on shares of Hertz Global Holdings (HTZ).  Per the filing, Icahn now owns 8.48% of the company with 38.8 million shares. 

This is a newly disclosed position for Icahn .  The filing was made due to activity on August 12th and it notes that Icahn intends to have discussions with management relating to "shareholder value, accounting issues, operational failures, underperformance relative to its peers and (their) lack of confidence in management."

Icahn was out buying HTZ shares in late June and sporadically throughout July.  He really ramped up his purchases in mid-August though and did a lot of buying on August 20th specifically.  This is the date that shares dropped from $31 to $28 on news of revised guidance.

Icahn primarily purchased call options and sold put options referencing an aggregate of over 35.97 million shares at June 2016 strikes.

HTZ is somewhat of a hedge fund hotel.  As of the end of the second quarter, HTZ's largest shareholders included:  Glenview Capital, SRS Investment Management, Fir Tree, York Capital, Highfields Capital, D.E. Shaw, JANA Partners, Third Point, and many more.  Just recently, Fir Tree urged the board to replace the Hertz CEO.

Per Google Finance, Hertz is "a holding company. The Hertz Corporation (Hertz) is its operating company and a direct wholly owned subsidiary of Hertz Investors, Inc., which is wholly owned by Hertz Holdings. Its business operates in two segments: rental and leasing of cars, crossovers and light trucks (car rental), and rental of industrial, construction and material handling equipment (equipment rental). In its equipment rental business segment, it rents equipment through approximately 340 branches in the United States, Canada, France, Spain, Italy, China and Saudi Arabia, as well as through its international licensees."

Lone Pine Capital Adds to Cognizant Technology Solutions Position

Steve Mandel's hedge fund firm Lone Pine Capital has filed a 13G on shares of Cognizant Technology Solutions (CTSH).  Per the filing, Lone Pine now owns 5.3% of the company with over 32.1 million shares.

This means they've boosted their position size by over 2.6 million shares since the end of the second quarter.  The filing was made due to activity on August 6th.  Shares recently dropped from $50 down to $42 and they took advantage of the decline.  CTSH has been one of Lone Pine's top holdings for quite some time.

You can view the rest of Lone Pine's portfolio in the brand new issue of our Hedge Fund Wisdom newsletter.

Per Google Finance, Cognizant Technology Solutions is "a provider of custom information technology, consulting and business process outsourcing services. The Company is engaged in Business, Process, Operations and Information Technology Consulting, Application Development and Systems Integration, Enterprise Information Management (EIM), Application Testing, Application Maintenance, Information Technology Infrastructure Services, and Business and Knowledge Process Outsourcing, or BPO and KPO. The Company operates in four segments: Financial Services; Healthcare; Manufacturing, Retail and Logistics, and Other, which includes communications, information, media and entertainment, and high technology."

New Q2 Issue of Hedge Fund Wisdom Now Available: Sign Up To Read It

The brand new Q2 2014 issue of our Hedge Fund Wisdom newsletter was just released today!  Subscribers please login at www.hedgefundwisdom.com to download it.


Featured in the New Issue

- Consensus buy/sell lists: Find out which stocks were the most popular among top managers.

- The latest portfolios of 25 top hedge funds:  See the newest buys from David Tepper, Steve Mandel, Seth Klarman, John Paulson, and many more.

- In-depth equity analysis of 2 stocks:  Hedge funds bet big on these 2 stocks recently. Get up to speed fast with company analysis and the bull/bear cases.

- Expert commentary on each fund's moves:  We've been tracking these funds for over 6 years and explain the quick thesis behind some more of their trades.

- 1 convenient .pdf:  All the latest hedge fund data aggregated in one place to save you time. Search the .pdf for your favorite manager or stocks with ease.



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What We're Reading ~ Hedge Fund Links 8/15/14

Update on Miura Global's latest activity [ValueWalk]

Pershing Square's latest letter [Scribd]

Latest post by Carl Icahn [Carl Icahn]

Hedge fund branding continues to drive a majority of asset flows [All About Alpha]

A better tactic for hedge fund analysis [AI CIO]

Soros' secrets: buy bubbles, bet big [Irish Times]

SEC threshold for accredited investor likely to increase [COO Connect]

S&P questions viability of hedge fund reinsurer business model [Artemis]

Searching for yield in all the wrong places [HF Intelligence]

Activism has become a marketing strategy [FT]

ValueAct says Valeant doesn't need to buy Allergan [Reuters]

Investors pay for hedge fund illusions [Bloomberg View]

Viking Global Boosts Salix Pharmaceuticals Stake

Andreas Halvorsen's hedge fund firm Viking Global has filed a 13G with the SEC regarding their stake in Salix Pharmaceuticals (SLXP).  Per the filing, Viking now owns 5% of the company with over 3.19 million shares.

They've increased their holdings by 305,850 shares and the filing was made due to activity on August 8th.

We recently highlighted some other portfolio activity from Viking Global as well.

Per Google Finance, Salix Pharmaceuticals is "a specialty pharmaceutical company dedicated to acquiring, developing and commercializing prescription drugs and medical devices used in the treatment of a variety of gastrointestinal disorders, which are those affecting the digestive tract."

Bridger Capital Adds to ChannelAdvisor Position

Recently, we highlighted Bridger Capital's new stake in ChannelAdvisor (ECOM).  Roberto Mignone's firm has just filed an amended 13G with the SEC regarding their position.

Per the filing, Bridger now owns 8.8% of the company with over 2.17 million shares.  They've increased their position by 970,993 shares and the filing was made due to activity on August 5th.  Shares have fallen from $23 recently down to around $15 and they've utilized the dip to add to their stake.

Per Google Finance, ChannelAdvisor is "a provider of software-as-a-service, or SaaS, solutions that enables retailers and manufacturer customers to integrate, manage and optimize their merchandise sales across hundreds of online channels. Through the Company’s platform, the Company enables its customers to connect with new and existing sources of demand for their products, including e-commerce marketplaces, such as eBay, Amazon and Newegg, search engines and comparison shopping websites, such as Google, Microsoft’s Bing, and Nextag, and emerging channels, such as Facebook and Groupon."

What We're Reading ~ Analytical Links 8/13/14

Zero to One: Notes on Startups, or How to Build the Future [Peter Thiel]

The Buffett formula - how to get smarter [Farnam Street]

A look at Alstom as a potential sum of the parts play [Value and Opportunity]

Value stocks in market corrections [Brooklyn Investor]

What does sentiment suggest for future returns? [Fat Pitch]

What will happen when companies stop buying back so much stock [Business Insider]

Zillow shares could fall by half [Barrons]

Taking AIG from 'sucks' to 'rocks' [Business Week]

Why you should keep an eye on Sequoia Fund [Asset Builder]

Investors move into cash, bracing for market sell off [IFRE]

The power of shareholder yield [What Works on Wall Street]

Unfortunate realities of the investment business [Wealth of Common Sense]

Buy stock pickers, avoid sector pickers [Morningstar]

Eminence Capital Starts World Wrestling Entertainment Stake

Ricky Sandler's hedge fund Eminence Capital has filed a 13G with the SEC revealing a brand new position in World Wrestling Entertainment (WWE).

Per the filing, Eminence now owns 9.6% of the company with over 3.17 million shares.  The filing was made due to activity on July 31st.

WWE shares have been on a rollercoaster thus far this year.  They started the year around $16, skyrocketed up to $31, and have recently settled down just under $14.  A lot of this volatility can be attributed to the hype and results surrounding the launch of the company's new network.

Per Google Finance, World Wrestling Entertainment is "an integrated media and entertainment company. The Company develops content via television, online and at its live events. The Company's operations are centered around four business segments: Live and Televised Entertainment, Consumer Products, Digital Media and WWE Studios. Live and Televised Entertainment segment's revenues consist principally of ticket sales to live events, sales of merchandise at these live events, television rights fees, integrated sponsorships fees, and fees for viewing the Company's pay-per-view and video-on-demand programming."

You can view additional recent portfolio activity from Eminence Capital here.

Glenview Capital Discloses Group 1 Automotive Stake

Larry Robbins' hedge fund firm Glenview Capital has just filed a 13G with the SEC.  They've disclosed that they now own 6.24% of Group 1 Automotive (GPI) with over 1.5 million shares.

This is a newly revealed stake and the filing was made due to activity on July 31st.

For more from this hedge fund, check out Larry Robbins at the Delivering Alpha conference.

Per Google Finance, Group 1 Automotive is "an operator in the automotive retailing industry. Through its operating subsidiaries, it markets and sells a range of automotive products and services, including new and used cars and light trucks; arrange related vehicle financing; service and insurance contracts; provide automotive maintenance and repair services, and sell vehicle part."

Eton Park Capital Starts Armstrong World Industries Position

Eric Mindich's hedge fund firm Eton Park Capital has filed a 13G with the SEC regarding shares of Armstrong World Industries (AWI).  Per the filing, Eton Park now owns 6.69% of the company with over 3.66 million shares.

This is a newly disclosed equity position for the hedge fund and the filing was made due to activity on August 1st.

Eton Park is now the second major hedge fund to recently reveal a stake in the company as Jeff Ubben's ValueAct Capital took an AWI stake as well.

Per Google Finance, Armstrong World Industries is "a global producer of flooring products and ceiling systems for use in the construction and renovation of residential, commercial and institutional buildings. The Company designs, manufactures and sells flooring products (resilient and wood) and ceiling systems (mineral fiber, fiberglass and metal) globally. The Company segments includes: Building Products, Resilient Flooring and Wood Flooring. The Company’s Building Products, Resilient Flooring, Wood Flooring and Cabinets segments sell products for use in the home. Its products are used in new home construction and existing home renovation work. Its products, primarily ceilings and Resilient Flooring, are used in commercial and institutional buildings."

Paulson & Co Boosts NovaCopper & Cobalt International Energy Stakes

John Paulson's hedge fund firm Paulson & Co has filed two 13G's with the SEC.

NovaCopper (NCQ)

First, Paulson's amended 13G on Novacopper (NCQ) indicates that they now own 18.3% of the company with over 11.5 million shares. 

This marks an increase of over 5.59 million shares since the end of the first quarter.  The filing was made due to activity on July 31st.

Per Google Finance, Novacopper is "a base metals exploration company. The Company is engaged in the exploration and development of mineral properties, including the Arctic and Bornite Projects located in Northwest Alaska in the United States of America. Its exploration activities are focused on two deposits in the Ambler district: the Arctic VMS deposit and the Bornite carbonate replacement deposit."


Cobalt International Energy (CIE)

Second, Paulson & Co has filed a 13G regarding shares of Cobalt International Energy (CIE).  Per the filing, the hedge fund firm now owns 10.1% of the company with over 41.8 million shares.

This is an increase of over 14.6 million shares since the end of the first quarter.  The filing was made due to portfolio movement on July 31st.

Per Google Finance, Cobalt International Energy is "oil-focused exploration and production company with a salt prospect inventory in the deepwater of the United States Gulf of Mexico and offshore Angola and Gabon in West Africa. The Company operates its business in two geographic segments: the U.S. Gulf of Mexico and West Africa. The Company’s oil-focused exploration efforts target subsalt Miocene and Inboard Lower Tertiary horizons in the deepwater U.S. Gulf of Mexico."

You can view additional recent portfolio activity from Paulson & Co here.

Larry Robbins Focusing on Companies Deploying Capital

Institutional Investor has released an excerpt of their interview with Glenview Capital's Larry Robbins from the Delivering Alpha Conference.  In it, Robbins talks about how the market will react to the Fed releasing the 'training wheels.'

He says Glenview has been actively focusing on companies actively deploying capital, taking advantage of cheap interest rates, etc.  He likes companies that are "flush with cash, that have significant debt capacity, that are defensive and growing and that are trading at cheap valuations (maybe not as cheap as 2 years ago)."

For more from him, we've posted Robbins' 6 best ideas at the Delivering Alpha conference.

Embedded below is the video of Larry Robbins' interview:



For more from this conference, we've also posted an interview with Maverick Capital's Lee Ainslie.

Lee Ainslie on M&A Boom, Cybersecurity & the VIX

Institutional Investor just released an excerpt from an interview with Maverick Capital's Lee Ainslie from the Delivering Alpha Conference.  In it, Ainslie touches on the M&A boom, cybersecurity, and the low volatility index readings (VIX).

Ainslie says that there could be a bigger level of mergers and acquisitions than in 2007 thanks to large corporate cash balances and the fear that interest rates will increase or the tax inversion loophole will close. 

He also likes to look for secular trends from the top down and then identify specific companies that will benefit from those trends.  One of the biggest trends he's seeing now is network security / cybersecurity, though he doesn't mention any specific names.

Lastly, Ainslie points out that the VIX has seen spikes on a more frequent basis as the years go by.  He argues that the there's a contrast between the threats in the world and the low levels the VIX has been sitting at, which he thinks is not being priced appropriately. 

Embedded below is Institutional Investor's interview with Lee Ainslie:



You can view some of Maverick Capital's portfolio activity here.

Baupost Group Starts Veritiv Position

Seth Klarman's hedge fund firm Baupost Group has filed a 13G with the SEC regarding shares of Veritiv (VRTV).  Per the filing, Baupost now owns 14.06% of the company with 2,249,601 shares.

The filing was made due to activity on July 31st.  Veritiv shares just recently started trading in June.

You can view additional recent portfolio activity from Baupost Group here. 

Per the company's website, Veritiv is "a North American leader in business-to-business distribution solutions."

12 West Capital Discloses Diana Containerships Position

Joel Ramin's hedge fund firm 12 West Capital has filed 13D with the SEC regarding shares of Diana Containerships (DCIX).  Per the filing, the hedge fund now owns 22.4% of the company with over 16.4 million shares.

This is a newly disclosed position for 12 West and the filing was made due to activity on July 29th. 

The 13D breaks down some of 12 West's recent purchases in the open market in late June at around $2.52 per share and then via a private placement purchase at the end of July at $2.51.

12 West also has previously disclosed a stake in Euroseas.  You can view additional portfolio activity from 12 West Capital here.

ValueAct Capital Takes 21st Century Fox Stake

CNBC's David Faber this morning reported that Jeff Ubben's activist firm ValueAct Capital has taken a stake in 21st Century Fox (FOXA).

Faber reports they have a $1 billion stake in the company and built the position while FOX had submitted a bid for Time Warner (TWX).  During that time, FOX shares noticeably declined.

He also reports that Ubben likes the company's standalone plan as they decided to walk away from the deal, though sees the logical advantages of a tie-up should that happen in the future.  Ubben thinks FOX can earn $2.50 per share in 2016.

Embedded below is the video of Faber's report with the details:

Video Embed Size:   530 X 298   640 X 360

For more on this firm, head to some of ValueAct's recent portfolio activity here.

What We're Reading ~ Hedge Fund Links 8/8/14

Marcato adds to pressure on InterContinental Hotels [Dealbook]

Soros no longer holds shares of SodaStream [Bloomberg]

Loeb sees decisive economic data spurring Fed action [Bloomberg]

Miura Global closes to new investors [II Alpha]

Once flashy, hedge funds now seen as staid but consistent [Dealbook]

Summertime loving isn't easy for macro funds [WSJ]

Dan Och's hedge fund is getting really big [Forbes]

Hedge funds amass short positions in private equity-backed IPOs [FT]

Building a sustainable hedge fund model [CSen]

Renaissance drops with Paulson in July [Bloomberg]

Obama versus hedge funds - a real fight or professional wrestling? [Forbes]

Viking Global Reveals Newfield Exploration Position

Andreas Halvorsen's hedge fund firm Viking Global has filed a 13G on shares of Newfield Exploration (NFX).  The hedge fund now owns 5.7% of the company with over 7.78 million shares.

This is a brand new position for Viking and the filing was required due to activity on July 28th.

Per Google Finance, Newfield Exploration is "an independent energy company engaged in the exploration, development and production of crude oil, natural gas and natural gas liquids. The Company’s domestic areas of operation include the Mid-Continent, the Rocky Mountains and onshore Texas. Internationally, it focuses on offshore oil developments in Malaysia and China."

What We're Reading ~ Analytical Links 8/7/14

The World's 99 Greatest Investors: The Secret of Success [Magnus Angenfelt]

Interview with Michael Mauboussin [Bloomberg]

On finding large gaps between price and value [Base Hit Investing]

In search of the world's best investment advice [AFR]

A look at Lancashire Holdings [WertArt Capital]

Is TJ Maxx the best retail store in the land? [Fortune]

Shoppers are fleeing physical stores for the web [WSJ]

Does Valeant's cost cutting go too far? [Pro Publica]

How AMC Networks could benefit from the urge to merge in TV [QZ]

Sprint drops bid to buy T-Mobile after regulatory resistance [Reuters]

Dish chairman says bid for T-Mobile possible now that Sprint backs off [Reuters]

ValueAct Capital Discloses Armstrong World Industries Position

Jeff Ubben's hedge fund firm ValueAct Capital has filed a Form 4 with the SEC regarding shares of Armstrong World Industries (AWI).  Per the filing, ValueAct has revealed they own 9,2000,000 shares of AWI.

The filing indicates that between July 29th and July 31st, ValueAct bought cumulatively 1 million shares at prices ranging from $48.73 to $49.28.  Shares of AWI were not listed on ValueAct's last 13F filing which detailed holdings as of the first quarter of 2014.  As such, it appears this is a newly disclosed position.

ValueAct is now one of the largest holders of AWI shares.  For more from this hedge fund, head to Jeff Ubben on activist investing.

Per Google Finance, Armstrong World Industries is "a global producer of flooring products and ceiling systems for use in the construction and renovation of residential, commercial and institutional buildings. The Company designs, manufactures and sells flooring products (resilient and wood) and ceiling systems (mineral fiber, fiberglass and metal) globally. The Company segments includes: Building Products, Resilient Flooring and Wood Flooring. The Company’s Building Products, Resilient Flooring, Wood Flooring and Cabinets segments sell products for use in the home. Its products are used in new home construction and existing home renovation work. Its products, primarily ceilings and Resilient Flooring, are used in commercial and institutional buildings."

Paulson & Co Boosts Mallinckrodt Stake Again

John Paulson's hedge fund firm Paulson & Co has filed a Form 4 with the SEC regarding their stake in Mallinckrodt (MNK).  Per the filing, Paulson bought 200,000 MNK shares at $69.6507 on July 31st and 75,000 shares at $69.4541 on August 1st.

After these buys, Paulson & Co now owns 6,999,800 shares of Mallinckrodt. As we've detailed previously, Paulson has been buying MNK repeatedly after they received an option to increase their stake to 20% of the company.

Mallinckrodt has announced an agreement to acquire the controversial Questcor Pharma (QCOR), which has been a favorite short play of many hedge funds.  While Barry Rosenstein's JANA Partners has owned MNK as well, David Einhorn's Greenlight Capital recently revealed in their Q2 letter that they would like to be short the combined entity, primarily due to QCOR.

Per Google Finance, Mallinckrodt is "a global specialty pharmaceuticals company. The Company develops, manufactures, markets and distributes both branded and generic specialty pharmaceuticals, active pharmaceutical ingredients (API) and diagnostic imaging agents. The Company uses its API products in the manufacture of its generic pharmaceuticals and also sells them to other pharmaceutical companies. The Company operates through two segments: Specialty Pharmaceuticals and Global Medical Imaging."

Second Curve Capital Raises Regional Management Stake

Tom Brown's hedge fund firm Second Curve Capital has filed an amended 13G with the SEC regarding their position in Regional Management (RM).  Per the filing, Second Curve now owns 10% of the company with 1,273,960 shares.

This marks an increase of 188,000 shares since the end of the first quarter.  The filing was made due to activity on July 7th.

Per Google Finance, Regional Management is "a diversified specialty consumer finance company providing a range of loan products primarily to customers with limited access to consumer credit from banks, thrifts, credit card companies and other traditional lenders. The Company has a branch network throughout the Southeast and Southwestern United States. Each of its loan products is secured, structured on a fixed rate, fixed term basis with fully amortizing equal monthly installment payments and is repayable at any time without penalty. Regional’s loans are sourced through its multiple channel platform, including in its branches, through direct mail campaigns, independent and franchise automobile dealerships, online credit application networks, furniture and appliance retailers and its consumer Website."

Berkshire Hathaway Increases Verisign Position

Warren Buffett's Berkshire Hathaway has filed an amended 13G with the SEC.  Per the filing, Berkshire Hathaway no owns 10.4% of the company with 12,985,000 shares.

This marks an increase of over 1.29 million shares since the end of the first quarter.  The filing was made due to activity on July 31st.

This investment was likely originally made by Buffett's newest portfolio managers: Todd Combs and Ted Weschler.  Since they've joined, Berkshire has accumulated shares.  Thus far this year, VRSN has slipped from $62.95 down to a low of $46.45 before rebounding slightly to current levels of $54.84.

Verisign has been hit with a bit of uncertainty as news came out earlier in the year that the US Department of Commerce will relinquish control of ICANN.

Per Google Finance, Verisign "is a provider of Internet infrastructure services. The Company provides network confidence and availability for mission-critical Internet services, such as domain name registry services and infrastructure assurance services. Its service capabilities enable real-time name resolution for a number of global top level domains (TLDs), enable domain name registration through registrars, and provide security intelligence and cloud-based network availability services to enterprise customers. It has one reportable segment is Naming Services, which consists of Registry Services and Network Intelligence and Availability (NIA) Services. It has operations inside as well as outside the United States (U.S.). Registry Services operates the authoritative directory of all .com, .net, .cc, .tv, and .name domain names and the back-end systems for all .gov, .jobs and .edu domain names."

For more, check out notes from Berkshire Hathaway's annual meeting as well as Warren Buffett's annual letter.

Bridger Capital Discloses ChannelAdvisor Stake

Roberto Mignone's hedge fund Bridger Capital has filed a 13G with the SEC regarding shares of ChannelAdvisor (ECOM). Per the filing, Bridger has disclosed they own 6.8% of the company with 1,670,993 shares.

This is a newly disclosed equity stake and the filing was made due to activity on July 22nd.  You can view other portfolio activity from Bridger this year here.

Per Google Finance, ChannelAdvisor is "a provider of software-as-a-service, or SaaS, solutions that enables retailers and manufacturer customers to integrate, manage and optimize their merchandise sales across hundreds of online channels. Through the Company’s platform, the Company enables its customers to connect with new and existing sources of demand for their products, including e-commerce marketplaces, such as eBay, Amazon and Newegg, search engines and comparison shopping websites, such as Google, Microsoft’s Bing, and Nextag, and emerging channels, such as Facebook and Groupon."

JANA Partners Again Calls For PetSmart To Explore A Sale

Barry Rosenstein's hedge fund JANA Partners has filed an amended 13D with the SEC regarding their activist position in PetSmart (PETM).  Per the filing, JANA has sent an additional letter to the board, urging them to explore a sale of the company.  You can view the first letter JANA sent here. 

Below is the second letter Rosenstein has sent:

"August 4, 2014  
Board of Directors
PetSmart, Inc.
19601 North 27th Avenue
Phoenix, Arizona 85027
Attention: David K. Lenhardt, President and Chief Executive Officer  

Ladies and Gentlemen,  

As you know, JANA Partners LLC (“we” or “us”) and other shareholders have called upon PetSmart, Inc. (“PetSmart” or the “Company”) to conduct a review of all strategic alternatives including a sale of the Company. Given PetSmart’s chronic operational underperformance and failure to generate shareholder value, and given significant interest in an acquisition of the Company, it is very likely that such a sale offers the best risk-adjusted return for shareholders. It is becoming clear, however, that rather than fully exploring all potential opportunities, the board of directors (the “Board”) is attempting to prejudice the ultimate outcome of any such strategic review by steering it away from the most likely path to maximum value creation for shareholders.  

First, it appears that PetSmart has sought to create the patently false impression that there is a shortage of interested acquirers. In fact, we are aware that there are multiple interested potential acquirers, all of whom could pay shareholders a meaningful premium. This interest is not surprising given the highly attractive fundamentals of the pet store industry, the turnaround opportunity for skilled operators, the robust financing market available to acquirers, and the successful acquisition of Petco Animal Supplies Inc., whose private equity owners have already earned back more than 1.5x their original investment through dividend recapitalizations and seen the value of their investment climb as Petco continues to take share from PetSmart.  

Second, we have learned that the Board continues to float new proposals for alternate transactions, despite publicly conceding last week that it has not yet engaged with potential acquirers. As shareholders have made quite clear, given the magnitude and certainty of value creation that a sale likely offers, any standalone path must be measured against a potential sale, which the Board cannot do without first fully engaging with potential buyers. Should the Board need any reminders of the risks for an underperforming company that turns a blind eye to interested buyers, it need only look at the example of Borders Book Group, which was the subject of acquisition interest during current PetSmart Board Chairman Gregory P. Josefowicz’s tenure as its Chairman and CEO, yet pursued an ultimately value-destroying standalone path instead.            

In short, we warn the Board not to compound the damage that has resulted from years of underperformance by now ruling out the path that likely represents its single highest and most certain value maximization opportunity. We can assure you that shareholders will hold each and every director responsible, including supporting significant change at the next annual meeting, should the Board conduct anything less than a fulsome review of all options including a sale. Should you wish to discuss this matter further, you may reach us at (212) 455-0900.  

Sincerely,  

/s/ Barry Rosenstein  
Barry Rosenstein
Managing Partner
JANA Partners LLC"