David Einhorn Buys CBS, General Motors & Marvell Technology: Q3 Letter

David Einhorn's hedge fund Greenlight Capital just sent out its third quarter letter to investors and in it they reveal some of their latest portfolio activity. Einhorn's firm initiated brand new positions in CBS Corp (CBS), General Motors (GM), and Marvell Technology (MRVL) in the third quarter.

CBS Corp (CBS)

Greenlight likes CBS due to its growing retransmission fees, monetization of their content library, as well as the potential for increased advertising spending by clients. The hedge fund bought CBS at $20.79 per share (less than 10x their estimate of 2012 earnings) and it now trades just north of $25.

General Motors (GM)

The hedge fund writes on their new position in the largest automaker in the US that IPO'd last year: "GM is being priced by the market as a cyclical company trading at less than 6x this year's earnings. While some may see it as normal to value cyclicals at low multiples of peak earnings, we believe that 2011 is not a peak and, in fact, is below mid-cycle." They bought shares at $25.78 and GM currently trades around $24.

Marvell Technology (MRVL)

Einhorn's firm believes that hard disk drives won't become extinct anytime soon (the major bear case). They think the company will buy back 12% of its float and Greenlight bought at $14.35 per share (currently trades around $14.40).

The letter also follows up on Einhorn's short case on Green Mountain Coffee Roasters (GMCR) from the Value Investing Congress. Lastly, Greenlight mentions that they've sold out of their long positions in Pfizer (PFE) and BP (BP) during the quarter and covered their short of Amedisys (AMED).

Greenlight's Top Holdings at the end of Q3 in alphabetical order:

Apple (AAPL)
Gold
Market Vectors Gold Miners (GDX)
Microsoft (MSFT)
Vodafone Group (VOD)


Embedded below is Greenlight Capital's Q3 letter:



For more from Greenlight Capital, we detailed last week how Einhorn was buying gold miners.

Dan Loeb's Third Point Q3 Letter 2011

Dan Loeb's hedge fund firm Third Point just sent out their third quarter letter to investors for 2011. In it, they talk about their low net exposures and how they've protected capital through the volatility.

This morning we pointed out how Third Point increased exposure in October. Their letter says that they've "added some beta back to the portfolio, primarily by covering shorts, nibbling at credit, and adding to select long positions." Third Point has had a lot of dry powder and has been waiting to deploy it.

Asset Backed Securities

We've often mentioned Third Point's exposure to asset backed securities, but this past quarter's letter gives us some color as to their positions:

"Our portfolio still consists primarily of dented prime “Re‐Remic” securities, which are priced at a mid‐teens yield, and seasoned subprime securities, which are priced at a high‐ teens yield. We have a small number of CMBS bonds and student loan ABS. The cash carry on our mortgage portfolio is about 60‐70 BPS per month."

Embedded below is Third Point's Q3 letter (email readers click the link to come read it):



For activity from this hedge fund in October, head to our post this morning on Third Point's Lehman Brothers position.

Dan Loeb's Third Point Shows Lehman Brothers as a Top Position

Dan Loeb's hedge fund Third Point updated investors on their latest holdings and exposures for the end of October. Third Point lists Lehman Brothers Holdings as a top position this month, one that previously has not appeared in the upper echelon of their portfolio.

Third Point's Top Positions

1. Yahoo! (YHOO)
2. Gold
3. Delphi Corp
4. Lehman Brothers Holdings
5. Sara Lee (SLE)

Also worth noting is that Sara Lee has taken the place of Technicolor from last month as their fifth largest stake. The company recently sold its North American coffee business, something the hedge fund anticipated when we highlighted Third Point's Sara Lee investment thesis.

Third Point's top three positions remain unchanged from last month. You can view Loeb's bull case for YHOO here.


Increased Equities Exposure

Third Point was up 0.8% in October and 0.9% for the year at that time. Equities rallied furiously in October as the S&P 500 was up 10.9% and last month it seems Loeb's firm was hurt by their low net exposure which we've highlighted previously.

And speaking of exposure, Third Point did increase their net long position in equities to 22.9%, up from 15.6% net long the month prior. They have their largest net long exposure to the technology and energy sectors.

In credit, they are 18.4% net long as they continue to have their largest net long exposure in asset backed securities and continue to be net short government issues. Their overall net long exposure in credit increased 2.8% from last month.

Geographically speaking, Third Point is net long the Americas by 57%, net short EMEA at -5% and net short Asia at -2%.

David Einhorn Buys Gold Miners, Sells Some Physical Gold

David Einhorn of hedge fund Greenlight Capital recently spoke on the conference call for the reinsurance company he's associated with, Greenlight Capital Re (GLRE). Einhorn manages the reinvestment portfolio and gave some comments on his latest portfolio positioning:

Greenlight Buys Gold Miners

The most notable change was a shift in his gold related investments. Back in 2009 we highlighted Einhorn's physical gold position. This time around, Einhorn has been re-allocating some of his physical gold stake into gold miners. He's been buying miners via GDX the exchange traded fund.

The rationale for such an adjustment: "Throughout the course of this year, a substantial disconnect has developed between the price of gold and the mining companies. With gold at today’s price, the mining companies have the potential to generate double-digit free cash flow returns and offer attractive risk adjusted returns even if gold does not advance further. Of course, since we believe gold will continue to rise, we expect gold stocks to do even better."


Greenlight Increases Equity Exposure

Einhorn also mentioned that he boosted net long exposure to 35%. On the markets in general, the hedge fund manager still sees pockets of opportunity, saying, "Many equities, especially in large capitalization companies appear quite attractive. This is balanced by the continuing impact of dangerous macro policies. Most of our portfolio is assembled from the bottom up and we continue to see reasonable opportunities on both sides of the portfolio."


Einhorn Sells Pfizer (PFE), Adds to Other Longs

Another notable move from Greenlight in the past quarter was the sale of their longstanding position in Pfizer (PFE) due to better investment opportunities elsewhere. During the volatility and market dip, Einhorn was covering some shorts, adding to existing long positions, and starting new stakes in the technology and auto sectors.

We also detailed Einhorn's presentation on shorting Green Mountain Coffee Roasters (GMCR) from the Value Investing Congress as he outlined the company's accounting gimmicks.

For all aspiring fund managers out there, be sure to check out David Einhorn's recommended reading list.

Invest For Kids Chicago: Marc Lasry, Richard Perry, Barry Rosenstein & More

We want to let readers know about a great upcoming investment conference in Chicago. Invest For Kids Chicago donates 100% of the money to children's charities and gives you a chance to hear investment ideas from top managers. Last year the event raised over $1 million.

When: November 9th, 1:30 PM to 6PM
Where: Chicago, IL at the Harris Theater
Speakers:

Marc Lasry (Avenue Capital)
Richard Perry (Perry Partners)
Barry Rosenstein (JANA Partners)
Michael Milken (Milken Institute)
Leon Cooperman (Omega Advisors)
Sam Zell (Equity Group Investments)
Thomas Russo (Gardner Russo & Gardner)
Barry Sternlicht (Starwood Capital Group )
Michael Elrad (GEM Realty Capital)
John Keeley Jr (Keeley Asset Management)


You can register for the event by clicking here. We've also embedded the sign-up form below:




So many conferences take place on the east or west coasts, so this is a great event for those of you in the Midwest. We've also embedded the flyer for the event below:






Head to http://www.investforkidschicago.org to register as it's for a great cause and a chance for you to hear the latest ideas from top money managers (some of whom don't speak in public that often).

Bill Ackman Goes Activist on Canadian Pacific Railway (CP)

Bill Ackman's hedge fund Pershing Square Capital Management has disclosed an activist position in Canadian Pacific Railway (CP) via a 13D filed with the SEC.

This is a brand new position for the hedge fund as they now own 12.2% of Canadian Pacific with 20,659,504 shares due to portfolio activity on October 18th.

Just over 2.6 million of those shares are represented by a call option with a strike price of $30.55 and an expiration date of April 27th, 2012. Shares of CP currently trade around $63.

Regarding why Ackman purchased CP shares, the 13D filing simply states that he thought shares are undervalued and an attractive investment.

This comes after Ackman recently pitched another investment idea at the Value Investing Congress (see his full presentation here).

Per Google Finance, Canadian Pacific Railway "has 14,800-mile network extends from the Port Metro Vancouver on Canada’s Pacific Coast to the Port of Montreal in eastern Canada, and to the United industrial centers of Chicago; Detroit, Michigan; Newark, New Jersey; Philadelphia; New York City and Buffalo, New York; Kansas City, Missouri, and Minneapolis, Minnesota. Its network is consisted of four primary corridors: Western, Eastern, Central and the Northeast the United States. Its business includes bulk, which include grain, coal, and sculpture and fertilizer; merchandise, which include forest products, industrial and consumer products, and automotive; and intermodal."

Pershing Square has been actively buying over the past few months as we detailed how the hedge fund bought $600 million worth of investments in August alone.

Jeffrey Altman's Owl Creek Boosts Cigna Position

Jeffrey Altman's hedge fund Owl Creek Asset Management filed a 13G with the SEC on their position in Cigna (CI). Due to portfolio activity on October 27th, Owl Creek has disclosed a 5.14% ownership stake in Cigna with 13,896,771 shares.

This is an increase of almost 66% in their position size. At the close of the second quarter, they only owned 8,396,087 CI shares.

Owl Creek Asset Management also recently disclosed a new position in Lone Pine Resources (LPR). They acquired this position via their stake in Forest Oil (FST) which distributed a special dividend of LPR shares to FST shareholders.

In other portfolio updates from this hedge fund, we've also detailed how Owl Creek has been active in YRC Worldwide (YRCW).

Per Google Finance, Cigna is "a global health service organization with subsidiaries that are providers of medical, dental, disability, life and accident insurance and related products and services. In the United States, these products and services are offered through employers and other groups and in selected international markets, CIGNA offers supplemental health, life and accident insurance products, expatriate benefits and international health care coverage and services to businesses, governmental and non-governmental organizations and individuals."

Soros Fund Management Discloses WebMD Convertible Bond Position

George Soros' firm, Soros Fund Management, filed a 13G with the SEC in regards to shares of WebMD (WBMD). Due to activity on October 13th, Soros disclosed a 5.59% ownership stake in WBMD with 3,471,885 shares.

This is an increase in their exposure to WebMD. However, it must be noted that Soros actually sold common stock from the end of Q2 until present. They boosted their exposure to the name via acquiring convertible bonds (2.25% due March 31, 2016 and 2.50% due January 31, 2018).

You can view other recent portfolio activity from Soros here.

Per Google Finance, WebMD is "a provider of health information services to consumers, physicians and other healthcare professionals, employers and health plans through its public and private online portals, mobile platforms and health-focused publications."

Patrick McCormack's Tiger Consumer Starts Liz Claiborne Stake

Patrick McCormack's hedge fund Tiger Consumer Management recently filed a 13G with the SEC regarding shares of Liz Claiborne (LIZ). They reported a 6.59% ownership stake in LIZ with 6,237,700 shares.

This is a brand new position for the hedge fund as they did not own shares upon close of the second quarter. Tiger Consumer Management passed the 5% ownership stake threshold requiring an SEC filing on October 12th.

Tiger Consumer is one of the many firms seeded by Tiger Management founder, Julian Robertson. And as its fund name implies, Tiger Consumer focuses primarily on the consumer sector.

Per Google Finance, Liz Claiborne "designs and markets a portfolio of retail-based brands, including JUICY COUTURE, KATE SPADE, LUCKY BRAND and MEXX. It also has a group of department store-based brands with consumer franchises, including the LIZ CLAIBORNE and MONET families of brands and the licensed DKNY JEANS and DKNY ACTIVE brands. It operates in three segments: Domestic-Based Direct Brands segment, International-Based Direct Brands segment and Partnered Brands segment."

Alan Fournier's Pennant Capital Buys More Universal Stainless & Alloy Products (USAP)

Alan Fournier's hedge fund Pennant Capital filed an amended 13G with the SEC regarding their position in Universal Stainless & Alloy Products (USAP). In it, they disclose a 10.04% ownership stake in USAP with 685,770 shares.

This marks a 27% increase in their position size since the end of the second quarter when Pennant owned 538,400 shares. We've covered the rest of Pennant's holdings in our Hedge Fund Wisdom newsletter.

About Pennant Capital

Prior to founding Pennant Capital, Alan Fournier was responsible for the global equitiy portfolio for David Tepper's Appaloosa Management. He pursues a long/short equity strategy and graduated from Wentworth Institute of Technology's Mechanical Engineering program.

About Universal Stainless & Alloy Products

Per Google Finance, Universal Stainless & Alloy Products is "manufactures and markets semi-finished and finished specialty steel products, including stainless steel, tool steel and certain other alloyed steels. The Company’s manufacturing process involves melting, remelting, heat treating, hot and cold rolling, machining and cold drawing of semi-finished and finished specialty steels. The Company’s products are sold to rerollers, forgers, service centers, original equipment manufacturers (OEMs) and wire redrawers."

Hedge Fund Scout Capital Acquires Total Return Swaps on Domino's Pizza

James Crichton and Adam Weiss' hedge fund Scout Capital just filed a Form 3 and Form 4 with the SEC regarding their position in Domino's Pizza (DPZ).

On October 18th, Scout acquired various total return swaps with expiration dates of September 6th, 2012 and November 16th, 2012. The conversion/exercise price of these derivatives range from $23.38 to $28.94 and in all these swaps seem to represent over 750,000 shares. DPZ currently trades around $31.40.

The footnotes of the filings also indicate that Scout has now become a 10% owner of Domino's Pizza (DPZ) as a result of the company's buyback program.

For more from this hedge fund, head to Scout's presentation on Williams (WMB) and Sensata Technologies (ST) from the Value Investing Congress.

Per Google Finance, Domino's Pizza is "is a pizza delivery company in the United States. The Company operates its business in three segments: domestic stores, domestic supply chain and international. Its brands include the Domino’s Pizza, Domino’s HeatWave hot bag, Domino’s American Legends pizzas and Domino’s BreadBowl Pasta and Cinna Stix. Domino’s earns its revenue by retail sales at its franchise stores, which generate royalty payments and supply chain revenues to the Company. DPI’s also generates earnings through retail sales at its Company-owned stores."

What We're Reading ~ 10/21/11

Steve Eisman to launch new fund in January [FINalternatives]

The case for Bank of America (BAC) as a 'terminal short' [Zero Hedge]

Why Netflix's Reed Hastings might be getting desperate [Benzinga]

The growing audience for dividends [Abnormal Returns]

Why eBay should spin-off PayPal [Motley Fool]

Is Klarman's Baupost seeking cash from investors? [Institutional Investor]

Fernandez leaves Fairholme Fund [Morningstar]

Uncovering hedge fund skill from holdings they hide [SSRN]

Paulson tells investors 'we made a mistake' [Dealbook]

Thaler's JAT Capital up 31% this year [SF Gate]

Scott Forstall, the sorcerer's apprentice at Apple [BusinessWeek]

Hedge fund guru warns of period of high inflation [Yorkshire Post]

Analyzing info from the Groupon IPO roadshow [Felix Salmon]

Kindger Morgan to buy El Paso for $21.1 billion [Dealbook]

Lee Hobson's Highside Capital Doubles Clearwire (CLWR) Stake

Lee Hobson's hedge fund Highside Capital filed a 13G with the SEC regarding shares of Clearwire (CLWR). In it, Highside reveals a 5.5% ownership stake in CLWR with 16,174,400 shares.

This marks a 129% increase in their position size since the end of the second quarter.

Clearwire Volatile Lately

Highside crossed the 5% threshold that required disclosure to the SEC on October 7th, the day Sprint (S) held their investor day .
This is relevant because that day Sprint signaled that they might cease purchases of CLWR's services after next year. Sprint owns almost 54% of Clearwire equity (but just 49.7% of voting rights).

This news, coupled with a CLWR downgrade from Moody's on October 14th, triggered speculation that Clearwire could possibly miss interest payments and caused the company's bonds to plunge.

This is the second major hedge fund we've seen take a sizable stake in Clearwire (CLWR). We highlighted how Larry Robbins' Glenview Capital bought the stock and you can read their CLWR investment thesis here.


About Highside Capital

Prior to founding Highside, Hobson was at Lee Ainslie's Maverick Capital. Highside employs a long/short equity strategy and invests in public markets. Hobson received his MBA from Harvard Business School and attended undergrad at Princeton University.


About Clearwire

Per Google Finance, Clearwire is "a provider of fourth generation (4G) wireless broadband services. Clearwire builds and operates next generation mobile broadband networks that provide high-speed mobile Internet and residential access services, as well as residential voice services. Its 4G mobile broadband network provides a connection anywhere within its coverage area."

For more hedge fund updates, be sure to check our extensive notes from the Value Investing Congress.

Eric Mindich's Eton Park Capital Adds to 3Legs Resources Position

Eric Mindich's hedge fund Eton Park Capital has added to its position in London listed 3Legs Resources (LON: 3LEG). Due to trading on October 9th, Eton Park now owns 5.58% of 3LEGS' shares.

We originally reported when Eton Park took its initial position in 3Legs when they bought stock via the placing on the AIM market in June 2011. They've since acquired an additional 2.1% of the company.

Per Google Finance, 3Legs Resources is "engaged in the exploration, evaluation and development of oil and gas targets, from unconventional resource plays. The Company has six exploration and prospection licenses covering approximately 4,387 square kilometers (1,084,000 acres) (gross) in the onshore Baltic Basin."

In other activity from this hedge fund, we also detailed Eton Park's position in MSCI.

Odey Asset Management Buys More Lookers

Crispin Odey's UK-based hedge fund, Odey Asset Management, has added to its holdings of car dealer Lookers (LON: LOOK). Due to a filing made on October 13th, Odey now owns 5.19% of Lookers shares.

Odey has fancied UK car dealers for some time. In Crispin Odey's January 2010 letter for his flagship fund, Odey European, he said that he in particular liked London listed car dealers Pendragon and Lookers. Odey wrote,

"I have bought well managed businesses, where management have taken the necessary action to live in a world in which demand remains excessively weak. Where management have demonstrated the ability to take advantage of further dislocation –for instance if interest rates were to rise, they would be able to exploit this as an opportunity to buy their rivals.

In the UK this has put me into the likes of Lookers and Pendragon, both car dealers. Current new car sales are running at 1.8 million cars a year, some thirty percent below the replacement rate of 2.8 million cars. Money is being made in used car sales and servicing, both of which are benefitting from the ageing of the fleet. On a P/E for this year of 5x, I find shares that are on discount to a level of profitability which already discounts the worst. That double discount gives me a great deal of comfort.”


Odey Likes Pendragon Too

Since then, Lookers shares have traded more or less sideways whilst Pendragon shares have lost over half of their value. As Pendragon's shares fell in 2010 and 2011, Odey doubled-down, building a large ownership stake of 21.09% of the company. Odey's last purchase of Pendragon stock was in mid-August 2011.


Other Recent Activity

Odey also recently added to his holdings in London listed business services company RSM Tenon. You can also view Odey's latest market outlook.


About Lookers

Per Google Finance – “Lookers plc is a motor retail company. It is a multi-franchise main dealer group with franchises for many car manufacturers. It operates 122 retail outlets across 32 franchises operating from 73 locations. And was organized into two main business segments: motor division and parts distribution."

Value Investing Congress: Slideshow Presentations & In-Depth Notes

Our Value Investing Congress notes and summaries from day 1 have been completely replaced with the actual slideshow presentations and/or in-depth notes from each speaker. We've also posted up links for day 2's speakers. Click each hedge fund manager's name below to view this brand new material:


Value Investing Congress Slideshow Presentations & In-Depth Notes


Bill Ackman (Pershing Square Capital): Long Fortune Brands Home Security (FBHS)


David Einhorn (Greenlight Capital): Short Green Mountain Coffee Roasters (GMCR)


Leon Cooperman (Omega Advisors): Long Apple (AAPL) & E*Trade Financial (ETFC)


Jim Chanos (Kynikos Associates): Beware the global value-trap


Adam Weiss & James Crichton (Scout Capital): Long Sensata Technologies (ST) & Williams (WMB)


Boykin Curry (Eagle Capital): Long Aon (AON) & Goldman Sachs (GS)


Bernard Horn (Polaris Capital): Traveling the world to uncover value


Joel Greenblatt Gotham Capital: The big secret for value investors


Guy Gottfried (Rational Investment Group): long The Brick (TSE:BRK)


Vladimir Jelisavcic (Longacre Fund): DryShips (DRYS) Convertible Bonds


Timothy Hartch (Brown Brothers Harriman): Dentsply (XRAY) & Energy Solutions (ES)


Alexander Roepers (Atlantic Investment Management): Anticipating more M&A


Whitney Tilson & Glenn Tongue (T2 Partners): Long Berkshire Hathaway (BRK.A) & J.C. Penney (JCP)



Want more hedge fund coverage? Don't miss out: get our free updates via email or via RSS reader.

Bill Ackman: Long Fortune Brands Home Security (Value Investing Congress Presentation)

At day two of the Value Investing Congress, Bill Ackman of hedge fund Pershing Square Capital gave the case for going long Fortune Brands Home Security (FBHS) in a presentation entitled "You'll Want to Hear This."

Be sure to check out all our notes from the Value Investing Congress.


Bill Ackman (Pershing Square Capital)

Embedded below is his full slideshow presentation:



Ackman has spoken every year for the seven years of the conference's existence. He runs $10 billion now and has an 8-person investment team. His analyst (who presented it) generated the idea.

"A Homespun Fortune"

Fortune Brands Home & Security (FBHS): Makes faucets, kitchen/bath cabinets. Was just spun off from Fortune brands 2 weeks ago. Own Moen, #1 faucet brand in NA, security Master Lock, #1 Padlock brand in US. Secular winner: industry leader with scale, strong management team. Cyclical winner: when the housing market normalizes, EBITDA can triple from here due to operating leverage. “Platform business” as it can roll-up small adjacent categories. Key is housing starts need to improve, if it does, stock can go to $22, up 70% from today’s price of $15. Classic spinoff, being sold by Fortune Brand investors who don’t want this type of business.

Segments:

Plumbing. Moen faucets. Has held up throughout downturn- low-ticket items that can really improve look of the bathroom, also high install base for replacement sales.

Cabinets. Excess capacity, most vulnerable to housing. Barely profitable while peers are losing money.

Security. Master Lock business. Stable demand in the core padlock market. Can market more aggressively now that it’s separate from Fortune Brands. Windows & Doors. Very leveraged to new home building market. Barely profitable.


2007 had 14% EBITDA margins, now only 5%. But plumbing & security business has, 50% of Revenue, but 80% of EBIT. Currently the Cabinets and Windows/Doors are underperforming due to housing market. If capacity gets reduced in housing sensitive segments, they could get to a 10% EBIT margin overall. Good balance sheet, can make some acquisitions.

Housing market review: Housing starts are at the lowest level in the last 40 years. This is the fifth year of the housing recession, at 600k housing starts. Excess supply today is 2 – 2.5M units. 1M needed every year, building only 600k, 400k reduction of supply every year implies 5.6 years to remove excess supply.

FBHS upside case: With housing recovery- EBITDA doubles. If no recovery, company will have to cut out costs to get back to 10% EBITDA margins. Trades at 9.7X LTM EBITDA, 23x P/E. Looking forward 6.4x 2012E EBITDA.

Whole story depends on how fast housing recovers. Range of stock price outcomes: No recovery: $14, no upside. Partial recovery: $18, 35% upside. Huge recovery: $27 per share, 110% upside.


Q&A Session:

1. Why is FBHS the right way to play the housing cycle? “Low risk way to play it, if we’re wrong, we don’t lose much money.”

2. Ackman says election could be a potential catalyst to help consumer confidence; renting is more expensive than buying in some markets. Says recovery happens much more quickly than 5 years.

3. Question on C: stock off 30% from when started buying the stock, mistake was not using a higher discount rate for the uncertainty of the stock.

4. Talking up the Hong Kong Dollar options - only 1% of the fund, but if they’re right in a year, make 60x their money.

5. JCP: real estate isn’t core to the story. Idea is for management to improve the business. “Retail, when you get it right, can be close to the best business. Look at the wealthiest people in every country in the world- the richest are often retailers.” If you get retail right, it can be an incredible business. Most relevant thing is this “incredibly smart, charismatic guy” is going to run the business. Perfect training for the job- 15 years at Target, then building Apple stores. “Ron is going to re-invent the department store.” Incentives in line, no liquidity on his options for 6 years, and bought $50M of stock himself. Ackman now has 26% of JCP.

6. Justice Holdings. Trades on LSE. “SPAC.” Cash shell. Ackman put up $450M. Idea is to find a business to buy and effectively take public.

7. Howard Hughes, from $35 to $77, back to the $40s- any comment? Owns Ward in Honolulu, South St Seaport, GGP HQ business in Chicago, book value about $50 on a very conservative estimate, zero net debt. Good board and management. “A collection of assets that will do well over time.”

8. His business model is to take big stakes in companies. He has made a lot of money for co-investors, who he doesn’t even know. When he’s in a stock, it sends a very strong message to boards because they know that there are many other investors behind him. Allows him to have influence on how management operates the company.

In addition, large stakes allows him to get a good CEO, who they can “protect” from Wall Street. They get some control without paying a control premium. Free riders actually help him. Better than LBO firms, because they have to pay a huge premium over public market price for control. They also have a private, illiquid, levered position. Ackman’s is less liquid than typical public stock, but much cheaper entry point.

“People making money off our strategy is part of the business, and healthy.” (This is the second time we’ve heard him say this - it’s really the key to what he does.) Tilson piled on, and said Ackman took the best advantages of both Hedge Funds and Private Equity. Says Ackman made more money faster than anyone did in history.

For more from the Pershing Square manager, be sure to head to Ackman's presentation on the Hong Kong Dollar as well as read about how Pershing bought $600 million worth of investments during the August volatility.



Don't miss the rest of the hedge fund manager presentations in our notes from the Value Investing Congress.

Scout Capital: Long Williams (WMB) & Sensata Technologies (ST) ~ Value Investing Congress Presentation

At day two of the Value Investing Congress, Adam Weiss & James Crichton of hedge fund Scout Capital gave the case for a long of Williams (WMB) and Sensata Technologies (ST) in a presentation entitled "Two Investment Opportunities."

Be sure to check out all our notes from the Value Investing Congress.


Scout Capital

Adam Weiss: long Williams Co (WMB)

Three parts: pipelines, midstream producer of LNG, E&P. Feb new CEO breaking up the company. Stock $24, Base case $37, based on infrastructure business being revalued on break up, reserves is $9 per share for E&P, “hidden asset” worth $3/share. Upside case is total $47-50.

*Note: In the past we saw large hedge fund buying in WMB and analyzed it in a past issue of our Hedge Fund Wisdom newsletter.

Business quality: “good, not great”

Business model: inevitable product/service, benefits of scale, favorable competitive environment as pipelines take time to build, WMB is low cost provider.

Sustainable growth: 7-10% EBITDA CAGR over 5 years. Well-located pipelines, in most cases, coal to gas switching is required by law and Transco (WMB) has the only pipelines there.

Management: New CEO, break-up of company within months of taking over, strong performance record in the past – he ran the WMB midstream business prior to this and it had the highest growth of any division.

Street misunderstanding: spin/break-up of a conglomerate- different types of investors in the stock- E&P and infrastructure are at odds with each other. Sell-side and buy-side coverage issues. New CEO, new culture. Hidden asset- the off-gas processor in the Canadian gas sands. By breaking up the company, shifts focus from EBITDA to multiples to dividend power, yield and NAV.

Valuation: Sum of the parts: Base case $37, bull case $47-50

1. Infrastructure assets. Dividend of $1.14-1.37, 1.2x coverage, gets $25 stock based on 4.5% yield, similar to KMI or OKE comps. Upside case 4% yield is $30.

2. E&P business: $9.00 floor share, based on NAV comps- CHK, et al. $1.24 per proven mcf, 25% below peers.

3. Hidden asset. Canadian Midstream business, oil sands gas processor. Based on 4.5x EBITDA get $3.00 base case, upside based on dividends, 0.40 div, 4.5-5.0% yield, get $6-8 per share in bull case.

4. Balance sheet value/ cap structure optimization. Either M&A or buyback, get $2-3 per share.


Risks: MLP valuation risk, NGL stability (20% of EBITDA from commodity-sensitive margins), regulatory changes - taxation of MLPs are a headline risk.

Path to realization? Spin of business Q1-2012 is catalyst. Dividend raise. Discovery of hidden asset by Street. Excess capital usage.



James Crichton: long Sensata Technologies (ST)

Airbags, jet circuit breakers, HVAC systems. High value add solutions. Low cost, high value nature of products, with high switching costs. The current issue of our Hedge Fund Wisdom newsletter also analyzes ST.

How Scout determines their Circle of Competence: Know the right people? Not quarter-to-quarter news flow, deep industry knowledge. Product? Do we understand the drivers of demand? Mental models: are there any useful predictable models in place? His example, Sensata engineers work at customers’ facilities, so familiarity makes it easy for customers to buy from them. Impact of un-analyzables. Identify risks and things that you can’t know for sure.

Business Quality. Powerful moat, inevitable product- make machines safer and more efficient. High value, low cost value proposition- typical sensor costs $10, in a multi-thousand dollar engine. High switching costs once designed into products. In flat GDP, grows revenue from 4% to as high as 20% in a better economy. FCF grows 12-30%.

Management: grew revenue 6.5% CAGR despite auto industry contraction. Management owns 2.2%, $100M of stock, CEO owns $45M.

Misunderstanding by Street: levered equity stub in a relatively new public company without peers. Change of incentives makes levered equity stubs work. (This was a Bain LBO from TXN in 2006, and then IPO’d). Management is paid more by stock than cash. Scout is higher than Street on estimates. “Sponsor” still owns 51% of stock, is selling, and may become more liquid. (Can be some overhang in these situations though).

Risks: need auto sales to hold up, improve for stock to work. Scout is modeling no growth, but also no further drop. Also, bull case relies on further accretive acquisitions. Valuation multiple may not expand.


Q&A Session: Did KMI/EP deal change their numbers for WMB? Gets you 11-12x EBITDA for pipeline asset, does indeed add to bull case price target.


For more from this hedge fund, head to some of Scout's other new positions.

Don't miss the rest of the hedge fund manager presentations in our notes from the Value Investing Congress.

Leon Cooperman's Value Investing Congress Presentation

At day two of the Value Investing Congress, Leon Cooperman of hedge fund Omega Advisors gave the case for going long Apple (AAPL) and E*Trade (ETFC) in a presentation entitled "The Investment Outlook & Some Attractive Values."

Be sure to check out all of our notes from the Value Investing Congress.


Leon Cooperman (Omega Advisors)

Embedded below is the full slideshow presentation from Cooperman:




"Like it or not, we've entered a world of risk-on risk-off macro world." Four conclusions that require four assumptions:

1. Assume US will avoid recession; remain slow growth at worst: Metrics suggest we are not on a recession track. Bank lending improving, consumer savings rate up to 4% from 1%, debt service ratio good. Not a “feel good” environment, with 9% unemployment, 10% only part-time. “I take very strong exception to the idea that 2011 is another 2008.” Corporate America most cash on balance sheets since 1955. Oil drop from 115 to 80.

2. Assume that Eurozone will effectively ring-fence Greek sovereign debt issues: “We expect sane policies to prevail, since there is no choice.” His view, based on 45 years of experience, is when the problem is so catastrophic, and expected to occur, it doesn’t occur. He thinks they’ll follow the US banking model, raise capital, shed noncore assets, delever.

3. Assumption that failed, Obama would come to the center: He says it’s not happening. Old expression: “When the President is in trouble, the market is in trouble.” He rants against Obama- says he only wants to tax the wealthy, debase the dollar, borrow from the world to create a welfare state.

4. Assume the Middle East settles down, oil prices stay reasonable: At 1100, the SPX had already discounted a mild recession that was not happening. He says stocks are compelling valuations here. Says market dropped 20%, a traditional recession market correction is 25%. Thinks the recent lows of 1100 are the downside for the cycle. Requires two of the top 4 assumptions.

Even if we did have a recession, SPX eps usually only drops 15-20%, so even if they did drop, he says 14 times trough earnings to be very compelling. He still expects SPX eps of $100 or more in 2012. Still in early stages of an economic recovery.

Valuation: Stocks are cheap relative to history, inflation, and interest rates. Last 50 years, SPX ave P/E was 15x. Now multiple is 11.6x, with only 2% interest rates vs. 6.6% average. Highest ERP in 20 years. Average bear market bottom the P/E was 12x, where we are now. Just had one of the worst 10 year return years in history, believes will mean revert. Corporate bonds are nowhere near where they were in 2008/9, down 70% in yield, yet SPX is 2 multiples lower than it was back then. He is starting to buy corporate bonds with 9% yields. 45% of the SPX stocks now pay higher yields than 10-year treasury bonds- same high level as 2009, we haven’t seen this in 50 years.

Avoid treasuries: Says 10-year bonds historically yield same as nominal GDP. Says if you believe we get 2% growth, plus 2-3% inflation, that’s 4-5% yield, and bonds will lose a lot of money. Still predicts low growth for next decade: 2-2.5% GDP, 2-2.5% inflation, 4-5% nominal GDP, stocks make 7-9%, treasuries negative return.

“You don’t have to have a strongly rising stock market to make a lot of money.” 1967 Dow was 1000, 10 years later, 1982, the Dow was 1000. Over time, there is ample opportunity to find things that are mispriced to the market. (They had EP yesterday as a 2% position before the buyout).

He’s 78% net long, says things look very cheap. With a little patience, can make a great deal of money.


Top Ten Long Ideas:

Apple (AAPL): Less than 10x multiple net of cash. Succession clear. Financial policies somewhat destructive, sitting on $80B in cash, but that may change.

Boston Scientific (BSX): 20% FCF yield

Qualcomm (QCOM): 16% grower trading for 12x

Sallie Mae (SLM)

ACE (ACE)

Transocean (RIG): Says deep water drilling cycle is turning. 6.5% yield, well covered dividend, day rate is improving. Says stock is discounting $5-10B, but will settle for $1-2B

Exxon Mobil (XOM)

KKR (KKR): Dividend paying stock, but get K1, getting 9% yield, and expects growth.

Energy XXI (EXXI)

E*Trade Financial (ETFC): Ken Griffin involved, TD Ameritrade (AMTD) could buy them. Mortgage losses over, even with no deal, management is on the right track.


For more from the Omega Advisors manager, head to Cooperman's thoughts from Delivering Alpha.


Don't miss the rest of the hedge fund manager presentations in our notes from the Value Investing Congress.

Boykin Curry's Value Investing Congress Presentation: Aon & Goldman Sachs

At day two of the Value Investing Congress, Boykin Curry of Eagle Capital gave the case for going long Aon (AON) and Goldman Sachs (GS) in a presentation entitled "Time Horizon & Analytical Tools."

Be sure to check out all our notes from the Value Investing Congress.


Boykin Curry (Eagle Capital)

Aon (AON): Should have a 15% compound return for five years. It's a duopoly with a free call option (their new GRIP system) and another call option (multiple expansion). However, the company won't have any organic growth and GAAP measure makes it look less attractive.

He mentioned that the turn in the insurance cycle should be a tailwind. Compound rates are over 100% and some natural disaster/catastrophe will be a catalyst for insurance premiums to increase. We've analyzed AON in a past issue of our Hedge Fund Wisdom newsletter.


Goldman Sachs (GS): Company is facing a lot of short-term headwinds but if you put a 14x multiple on the i-banking division you get $1 billion and you put a 13x multiple on the PE division. He gives a liquidation value of $155 billion and most of their assets are liquid. Curry says GS could buyback 30% of equity over 3 years.


Q&A Session:

1. Goldman's balance sheet? They are borrowing money and sitting in cash to protect against bank run and to take advantage of potential opportunities.

2. Regulatory uncertainty will continue to be a problem for GS but he thinks they should still make a bunch of money.


About Boykin Curry: Eagle Capital has over $10 billion AUM and since inception in 1988 has returned 15.1% annualized.


Don't miss the rest of the hedge fund manager presentations in our notes from the Value Investing Congress.