Interview with Crispin Odey on Market Outlook, Strategy & Delta Airlines (DAL)

Crispin Odey of Odey Asset Management was recently interviewed by Killik & Co and talked about his general view of markets, his strategy in his funds, and one of his favorite stock picks: Delta Airlines (DAL).


Odey's Strategy

On his strategy: "The whole idea was to protect people's capital, but to take advantage of any opportunities that were coming along."

Odey likes to look for new trends.  While it's a global fund, it has a high European bias due to the fact that that's where their expertise lies.


Odey's US Market Outlook

His medium-term outlook has been more optimistic than most about the US and he mentions he's worried about the recent mention of tapering, saying it would be "difficult for equities and the stock market."  So he's not quite as optimistic as he was.


Delta Airlines (DAL)

One of the ideas Odey likes is Delta Airlines (DAL) "because it's making a 6% return on sales and valued at 60% of sales."  The airline industry hasn't made money in the States but things have changed now due to all of the industry consolidation.  He likes that there's full capacity on the planes these days and fancies the stock over the next 2-3 years.

Embedded below is the interview with Crispin Odey:



For more on this manager, we've posted up some of Odey's portfolio activity here.

What We're Reading ~ Analytical Links 8/7/13

Most valuable lesson in investing: get rid of your ego [Financial Sense]

Notes from Mohnish Pabrai's lecture at Columbia University [BaseHitInvesting]

Looking at investing during periods of rising interest rates [Marketwatch]

Lauren Templeton shares investing lessons from Sir John Templeton [Finance Trends Matter]

Fear gauge shows complacency has taken hold [FT]

18 insights from the new Market Wizards book [ST50]

S&P 500's most shorted stocks [CNBC]

On the future of television [Barrons]

Who should try to beat the market? [Fool]

The impact of rising interest rates on housing affordability [Eye on Housing]

Why breakup of Russian potash cartel is such a threat [Globe & Mail]

On a blip in the economy [NYMag]

Did Goldman overstep in charging its ex-programmer? [Michael Lewis]

Howard Marks Says We're in 'Middle Ground,' Advises Caution Ahead: Latest Memo

Oaktree Capital's Chairman Howard Marks is out with his latest memo entitled, "The Role of Confidence."  In it, he tackles how if people are confident that an economy's future is good, then they'll go out and essentially make the economy good by spending and investing... it becomes self-fulfilling.


On Extremes in Confidence

As an investor, he looks for extremes in confidence between 'too much' and 'too little.'  Investors often become overconfident after things have been good for a while, and they become extremely negative when it seems there's no hope in sight.  Investors, he says, should do the opposite:

"When most investors are driven to drop their prudence by an excess of confidence, we should be terrified.  In the same way, when most investors become devoid of confidence and flee the market, we should turn aggressive."

Why should you care what Marks has to say?  Well for one, he always offers insightful tidbits and words of wisdom in his letters.  And secondly, Warren Buffett himself has said he loves to read Marks' missives.  And what Marks is saying is really just another version of Buffett's famous: "be greedy when others are fearful."


Marks Says We're in 'Middle Ground'

This is perhaps the most noteworthy quote from his commentary relevant to the current markets:

"As I wrote in my book, when there's nothing clever to do, the mistake lies in trying to be clever.  Today it seems the best we can do is invest prudently in the coming months, avoiding aggressiveness and remembering to apply caution."


Embedded below is Howard Marks' latest memo for Oaktree Capital:




You can download a .pdf copy here.

For more from this investor, we previously highlighted Marks at the London Value Conference.

Oaktree Capital Files 13D on Star Bulk Carriers (SBLK)

Howard Marks' hedge fund firm Oaktree Capital has filed a 13D with the SEC regarding Star Bulk Carriers (SBLK).  Oaktree disclosed an 18.6% ownership stake in SBLK with 3,865,888 shares.

On May 1st, Oaktree and other purchasers entered into a purchase agreement and agreed to backstop an equity rights offering up to $75 million with a subscription price of $5.35. 

Oaktree also agreed that it would not acquire more than 40% of common shares without approval of the board.  On July 25th, the company announced successful completion of the rights offering.

The 13D also notes that the company has agreed to increase the size of the board by 2 directors.  The filing was required due to portfolio activity on July 25th.

Per Google Finance, Star Bulk Carriers is "an international company providing worldwide transportation of drybulk commodities through its vessel-owning subsidiaries for a broad range of customers of major and minor bulk cargoes including iron ore, coal, grain, cement and fertilizer."

We also just posted up Howard Marks' latest memo if you're interested in hearing his market thoughts.

Glenview Capital Discloses KV Pharmaceutical Stake

Larry Robbins' hedge fund Glenview Capital has disclosed a position in KV Pharmaceutical (KVPHQ).  The firm filed Forms 3, 4, and 13D with the SEC regarding shares.  Per the filings, Glenview has disclosed a 13.6% ownership stake in KVPHQ with 6,661,983 shares.

The filings show that they acquired shares between July 24th and August 2nd at prices ranging between $.2943 and $.5899.  In August 2012, the company filed petitions for relief under Chapter 11 of the US Bankruptcy Code.

Per Google Finance, KV Pharmaceutical is "an integrated specialty pharmaceutical company that develops, manufactures, acquires and markets branded and generic/non-branded prescription pharmaceutical products. The Company focuses on women’s health care products. It markets Evamist, a transdermal estrogen therapy delivering a low dose of estradiol in a once-daily spray indicated for the treatment of moderate-to-severe vasomotor symptoms due to menopause. Through Particle Dynamics, Inc. (PDI), which the Company has approved for divestiture, the Company has developed, manufactured and marketed technologically advanced, value-added raw material products for the pharmaceutical industry and other markets."

For more on this manager, we recently highlighted Larry Robbins' appearance at the Delivering Alpha conference.

SAC Capital Boosts Stakes in Children's Place, Blue Nile & Foster Wheeler

Steve Cohen's hedge fund SAC Capital continues to disclose positions via SEC filings despite the charges they face. 


Children's Place (PLCE)

Per the latest 13G filing, SAC has revealed a 5.1% ownership stake in Childrens Place Retail (PLCE) with 1,139,775 shares.

This is a sizable increase from the end of the first quarter when they only owned 18,512 PLCE shares.  The 13G was required due to portfolio activity on August 2nd.

Per Google Finance, Children's Place "operates as a specialty retailer of apparel and accessories for children. The Company designs, sources and markets its products under its proprietary The Children's Place brand name for sale exclusively in its stores and on its Website. The Company's merchandising strategy is built on offering a collection of interchangeable outfits and accessories to create a coordinated look distinctive to The Children's Place. It offers a focused assortment of styles in a variety of colors and patterns. The Company divides the year into quarterly merchandising seasons: Spring, Summer, Back-to-School and Holiday. Within each season, the Company also introduces a new merchandise line each month."


Foster Wheeler (FWLT)

Due to portfolio activity on August 1st, SAC has also disclosed a position in Foster Wheeler (FWLT) with 5,167,407 shares.  This is an increase of 1.5 million shares since the end of the first quarter.

Per Google Finance, Foster Wheeler is "a supplier of engineering, construction and project management contractor and power equipment. The Company operates through two business groups: Global Engineering and Construction Group (Global E&C Group), and Global Power Group. Its Global E&C Group, which operates worldwide, designs, engineers and constructs onshore and offshore upstream oil and gas processing facilities, natural gas liquefaction facilities and receiving terminals, gas-to-liquids facilities, oil refining, chemical and petrochemical, pharmaceutical and biotechnology facilities and related infrastructure. Its Global Power Group designs, manufactures and erects steam generators and auxiliary equipment for electric power generating stations, district heating and power plants and industrial facilities worldwide."


Blue Nile (NILE)

Due to portfolio activity on August 1st, SAC also disclosed a position in Blue Nile (NILE) with 669,414 shares.  This marks an increase of 342,114 shares since the end of the first quarter.

Per Google Finance, Blue Nile is an " online retailer of diamonds and jewelry. The Company offers its products for sale through the bluenile.com Website in over 40 countries and territories throughout the world. The Company's online business model allows the Company to avoid many of the costs that are typically incurred by physical retail stores."


You can view other recent portfolio activity from SAC Capital here.

ValueAct Capital Files Form 3 on Willis Group Holdings (WSH)

Jeff Ubben's activist hedge fund firm ValueAct Capital recently filed a Form 3 with the SEC regarding shares of Willis Group Holdings (WSH).  Per the filing, ValueAct has disclosed that they own 18,214,700 shares of WSH as of July 23rd.

This marks a 10% increase in the number of shares they own since the end of the first quarter when they disclosed a 16,500,000 share position in WSH.

Jeff Ubben will be speaking at the Value Investing Congress next month in New York City and Market Folly readers can receive a discount to the event here with code N13MF4

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

Market Strategist Jeff Saut: Raising Cash In Anticipation of Decline in Stocks

Market strategist Jeff Saut is out with his latest investment strategy for the week entitled "The One Chip Rule."  In it, he compares the markets to playing poker, a comparison numerous others have drawn as there are various similarities.

Saut opines,

"In the stock market’s case, while the human natures of fear, hope, and greed still play a large role, I tended  to substitute card players with the personalities of stocks, the market makers, the Fed, Washington, and politicians. Using  such strategies I found that if you do your homework, and manage the risk, the odds of success in the markets are much  better than a card game. When you lose in the markets at least you get most of your money back and the government shares  in a portion of your losses via the capital gains/capital losses tax system. In a card game it tends to be basically all or nothing  with each hand."

The '1 chip rule' basically says that for every 10 chips you accumulate, you pocket 1 to pay yourself.  In investing, the corollary is to take some profits as your investments run up higher.

Saut uses this analogy because he's been raising some cash recently in anticipation of a decline in stock prices.  While he admits this strategy has been wrong in the near-term, he points to various indicators and seasonality that has caused him to be more cautious.

Embedded below is Jeff Saut's weekly market commentary:




You can download the .pdf here.

For more of the indicators that have led to Saut's cautious approach, head to his commentary from last month.

Investment Thesis on Exor SpA (EXO IM) & Fiat (F IM): The Italians Are Coming

Late last year, we noted that Children's Investment Fund was short Fiat and Jim Chanos' Kynikos Associates has been short as well.  Today, we present somewhat of an opposing view via a bull case on the holding company that owns Fiat and Fiat Industrial: Exor SpA (EXO IM).

The following is a guest post from Steven Wood, CFA of Greenwood Investors entitled "The Italians Are Coming" that was originally published on his site here.


Investment Thesis on Exor SpA / Fiat (F IM)

Simply put, Greenwood's case is based on undervaluation relative to peers, industry-leading growth trajectories, and numerous catalysts ahead.  They like that Exor has been buying back shares at a 33-44% discount to NAV.

Their favorite investment of Exor's is Fiat SpA (F IM).  They think Fiat is a double as cost savings are realized.  Fiat has the Fiat brand, as well as Maserati and Alfa Romeo.  They also own a 90% stake in Ferrari as well as a 58.5% stake in Chrysler.  Greenwood posted an update on Fiat individually back in May here.

Fiat Industrial is the other main asset of Exor SpA and is comprised of 3 major businesses: Case New Holland, Iveco Trucks, and Fiat Powertrain.

Greenwood likes the portfolio of Exor's assets that you can acquire at a discount with upside via improvements in operations at both key companies.  Read on for the full in-depth breakdown of their thesis.

Embedded below is Greenwood Investors' pitch on Exor SpA:




You can download a .pdf copy here.

What We're Reading ~ Hedge Fund Links 8/2/13

Soros said to have taken stake in Herbalife (HLF) [Bloomberg]

9 insights from George Soros [StockTwits50]

Tiger Global preps long-only launch [II Alpha]

Jim Chanos and the commodities supercycle [Institutional Investor]

Profile of Glenview's Larry Robbins [Barrons]

Pershing Square tax lien offers peek into strategy [Reuters]

The new hot hedge fund trade: Detroit bonds [Hartford Business]

A hedge fund aptitude test [HF]

Hating on hedge fund fees is bad for your retirement [HF Intelligence]

Why Loeb's Yahoo stock sale means nothing to shareholders [Forbes]

Pershing Square raises questions regarding Herbalife's earnings [PRNewswire]

Fidelity Contrafund sours on Apple, bolsters Tesla bet [Reuters]

George Clooney lashes out at Dan Loeb over Sony [Deadline]

CEO of Overstock.com took out a full page ad mocking Steve Cohen [BusinessInsider]

Scout Capital Slightly Reduces DineEquity Stake

Adam Weiss and James Crichton's hedge fund firm Scout Capital have filed an amended 13D with the SEC regarding shares of DineEquity (DIN). Per the filing, Scout has reported a 5.4% ownership stake in DIN with 1,034,762 shares.

This marks a small reduction of 6.5% in the number of shares they own since the end of the first quarter.    This latest filing was required due to portfolio activity on July 30th, but they were selling shares throughout the month of July.  They sold at prices ranging from $65.6473 up to $71.9411.

Previously, we highlighted how Scout went activist on DineEquity back in May of this year.  Another activist hedge fund, Mick McGuire's Marcato Capital, had also been involved but sold around 38% of their position at the end of June.

Per Google Finance, DineEquity "owns franchise and operate two restaurant concepts: Applebee's Neighborhood Grill & Bar, (Applebee's), in the bar and grill segment of the casual dining category of the restaurant industry, and International House of Pancakes (IHOP), in the family dining category of the restaurant industry." 

We've also posted other portfolio activity from Scout Capital here.

Omega Advisors' Thesis on Sprint Nextel (S): Q2 Letter

Lee Cooperman's hedge fund firm Omega Advisors is out with their Q2 letter and in it they detail their thoughts on Sprint Nextel (S), their largest position at the end of the second quarter:


Omega's Thesis on Sprint Nextel

They knew that a lot of their position would be tendered to Softbank, but they still thought shares in the 'New Sprint' were attractive so they bought shares even after the quarter.

Omega writes, "We continue to like Sprint for three reasons. First, we continue to see the same meaningful margin expansion  opportunity that attracted us to the company for our initial investment, with the added benefit that the Softbank  merger should accelerate the pace of margin expansion and likely results in a higher terminal margin. Second,  during the course of the bidding process we had the opportunity to engage with Softbank CEO Masayoshi Son.  His track record speaks for itself. We found Mr. Son to be engaging and forthright, and believe that the  opportunity to be his partner as he creates value for Softbank through Sprint is highly attractive. Third, with  the acquisition of Clearwire, Sprint possesses unique spectrum assets which completely change the economics  of the business. Old Sprint operated on 35 Mhz of spectrum versus AT&T and Verizon at approximately 110  Mhz. Spectrum is the raw material for wireless, and a spectrum deficit resulted in structurally lower margins and lower returns on capital. However, Sprint has now shut the Nextel network and will repurpose approximately 14 Mhz of low frequency spectrum for the Sprint network.  Additionally, Clearwire is able to  operate on a single bandwidth in excess of 130 Mhz on average, including approximately 160 Mhz in the top  100 markets where capacity constraints are most likely to emerge. By virtue of having a significantly fatter  pipe than its competitors, Sprint should achieve both better network performance and much higher returns on  incremental capital going forward. It is true that the capital expenditures will be large over the next 24 months  but with dramatically higher returns on incremental capital, we think Sprint will emerge as a share gainer with  an attractive financial profile."

They feel that if their thesis is wrong, it's due to the US wireless industry itself not being able to support 4 major carriers.  In such a case where T-Mobile and Sprint can't produce solid returns, then the likelihood of a merger between the 3rd and 4th largest players wouldn't be frowned upon (which provides downside protection).


Cooperman Likes Thermo Fisher Too

It's also worth highlighting that Omega also really likes Thermo Fisher Scientific (TMO) as they see end markets likely to accelerate.  They see mid-to-high teens EPS growth for the company due to a combination of margin expansion, accretion from the Life Technologies (LIFE) deal, and deleveraging.

Shares of TMO have seen a lot of interest from other major hedge funds as well.  As we pointed out from Viking Global's Q2 letter, they started a stake in TMO in Q2.  And then Larry Robbins' Glenview Capital also holds TMO as its largest position.


For more on Lee Cooperman's firm, head to Omega's thesis on Covidien & Sirius XM Radio.

Joel Ramin's 12 West Capital Updates Ari Network Services (ARIS) Stake

Joel Ramin's hedge fund firm 12 West Capital recently filed Forms 3, 4 and an amended 13G with the SEC regarding shares of Ari Network Services (ARIS).  Per the filing, 12 West has disclosed a 11.2% ownership stake in ARIS with 1,451,290.

It appears as though they exercised March 2018 warrants with an exercise price of $1.8 which yielded 300,000 shares of common stock.   The filings were required due to portfolio activity on July 29th.


About 12 West Capital

This is the first time we've covered this hedge fund.  Before founding 12 West, Joel Ramin was previously an analyst at Roberto Mignone's Bridger Capital and before that worked at Blackstone Group.  He founded 12 West in 2011.


About Ari Network Services

Per Google Finance, Ari Network Services "provides technology-enabled services that help dealers, distributors and manufacturers worldwide. The Company delivers its services to sectors, such as outdoor power, power sports, marine, RV and appliance sectors. It develops and offers electronic catalog content for approximately 125 manufacturers. It offers products in three categories: electronic catalogs for publishing, viewing and interacting with technical reference information about equipment; lead management services, designed to help dealers, and Websites with e-commerce capabilities designed to generate sales through the sites and provide information to consumers in the dealers’ local areas."

What We're Reading ~ Analytical Links 7/31/13

Inflationistas and the global supply shock [FT Alphaville]

Equity long short funds: do they provide return-free risk? [Reformed Broker]

Is Caterpillar (CAT) nothing but the Dow's most overpriced dog? [ZeroHedge]

Interview with the 2013 Ira Sohn Contest winner [Santangels Review]

Thoughts from the Valuex Vail Conference [Institutional Investor]

A dozen things I've learned from Seth Klarman [25iq]

You don't know as much about bonds as you think you do [Term Sheet]

The hardware revolution is upon us and why it matters [True Ventures]

A pitch on Cedar Fair (FUN) [Broyhill]

The irrelevance of Microsoft (MSFT) [Benedict Evans]

Why online consumers love Zillow and Trulia [Realtynex]

The cult of home ownership is dangerous [FT]

Goodbye mail carrier, hello cluster mailboxes [CNN]

Bill Ackman Starts New Air Products & Chemicals (APD) Position: 13D Filing

Bill Ackman's hedge fund firm Pershing Square Capital today filed a 13D with the SEC regarding shares of Air Products & Chemicals (APD).  Per the filing, Pershing Square owns a 9.8% of the company with 20,545,284 shares.

This is a brand new position for the hedge fund and the 13D contains the standard boilerplate that Pershing sees the company as an attractive investment and may engage in disucssions with management.

The filing was required due to portfolio activity on July 22nd.

Per Google Finance, Air Products & Chemicals "has a portfolio of products, services, and solutions that include atmospheric gases, process and specialty gases, performance materials, equipment, and services. It is a supplier of hydrogen and helium and operates in markets, such as semiconductor materials, refinery hydrogen and natural gas liquefaction. Its segments include Merchant Gases, Tonnage Gases, Electronics and Performance Materials, and Equipment and Energy."

For more from this hedge fund, we've also posted up Pershing Square's presentation on Procter & Gamble.

SAC Capital Increases Compuware Stake

The charges surrounding SAC Capital haven't stopped them from their daily activities.  Steve Cohen's hedge fund firm has filed a 13G with the SEC regarding shares of Compuware (CPWR).  Per the filing, SAC has disclosed a 5.1% ownership stake in CPWR with 10,793,571 shares.

This is around a 125% increase in the number of shares owned since the end of the first quarter.  The filing was required due to portfolio activity on July 29th.

Per Google Finance, Compuware "provides software solutions (both on-premises and Software-as-a-Service (SaaS) models), professional services and application services. It delivers solutions through software, which is installed and run on its customers’ owned hardware and applications (on-premises) and through a SaaS model accessed through its hosted networks. It also offers professional technical services in areas, such as mobile application development, performance engineering and system modernization. The Company operates in six business segments: Application Performance Management (APM), Mainframe, Changepoint, Uniface, Professional Services and Covisint Application Services (Covisint)."

Cohen was one of the top 10 highest paid hedge fund managers in 2012.

Citadel Boosts Pinnacle Entertainment Position

Ken Griffin's hedge fund firm Citadel Investment Group recently filed a 13G with the SEC regarding shares of Pinnacle Entertainment (PNK).  Per the filing, Citadel now owns 4.8% of PNK with 2,795,753 shares.

This marks around a 107% increase in the number of shares owned since the end of the first quarter.  The 13G filing was required due to portfolio activity on July 23rd.

Per Google Finance, Pinnacle Entertainment is "an owner, operator and developer of casinos and related hospitality and entertainment facilities. The Company operates casinos located in Lake Charles, New Orleans and Bossier City, Louisiana (L’Auberge Lake Charles), St. Louis, Missouri (River City Casino and Lumiere Place Casino and Hotels), and southeastern Indiana (Belterra Casino Resort). In addition, it owns and operates a racetrack facility in Cincinnati, Ohio (River Downs). It also owns a 26% stake in Asian Coast Development (Canada), Ltd (ACDL). In January 2011, it completed the purchase of River Downs Racetrack, located in southeast Cincinnati, Ohio."

Early Bird Discount to the Value Investing Congress Expires Tonight

Just a head's up:  Market Folly readers receive a discount to the Value Investing Congress that takes place September 16th & 17th in New York City.  But that early bird discount to the event expires tonight, so this is your last chance to lock in substantial savings.  Click here to register and use discount code: N13MF4


Event Speakers

Jeff Ubben, ValueAct Capital
Jeffrey Smith, Starboard Value 
Mick McGuire, Marcato Capital Management
Alex Roepers, Atlantic Investment Management
Tyler & Cameron Winklevoss, Winklevoss Capital
Chris Mittleman, Mittleman Brothers
Charles de Valux, International Value Advisers
Daniel Miller, Gabelli Focus Five Fund
Chris Mayer, Capital & Crisis
Guy Gottfried, Rational Investment Group
Mark Boyar, Boyar Value Group
John Mirshekari, Fidelity
Michael Castor, Sio Capital
Evan Vanderveer & David Shapiro, Vanshap Capital
Rahul Saraogi, Atyant Capital
Carl Chen & Tom Lu, Temple Honor Asia
Joe Altman & Chris Kyriopoulos, COMPOUND Capital
Clifton Robbins, Blue Harbour Group
Harvey Sawikin, Firebird Management
Whitney Tilson, Kase Capital


Event Details

When: September 16th & 17th

Where: New York City, Jazz at Lincoln Center

Why:  Hear the latest investment ideas and network with other investors/managers. 


Discount Code For MarketFolly Readers

Remember, the early bird discount to the event expires TONIGHT.  Take advantage by using discount code: N13MF4 and register now to save.

Marcato Capital Management Discloses Sotheby's Stake

Mick McGuire's hedge fund firm Marcato Capital Management today revealed a 6.61% ownership stake in Sotheby's (BID) with 4,511,719 shares, per a 13D filed with the SEC.  This is a brand new position for the hedge fund.

While they own common stock, the filing also highlights that the figures above are inclusive of stock options to purchase shares that are exercisable within the next 60 days.

The fine print of their filing contains the standard boilerplate, noting that they think the company is undervalued and may enter into discussions with the company.

The filing was required due to portfolio activity on July 23rd.

Per Google Finance, Sotheby's is "a global auctioneer of authenticated fine art, decorative art, and jewelry. The Company operates in three segments: Auction, Finance, and Dealer. The Company's Auction segment functions as an agent by offering works of art for sale at auction and by brokering private sales of artwork. Sotheby’s also purchases and resells works of art through its Dealer segment, conducts art-related financing activities through its Finance segment and is engaged, to a lesser extent, in brand licensing activities. The Sotheby’s name is also licensed for use in connection with the art auction business in Australia, art education services in the United States and the United Kingdom and print management services."

Mick McGuire will also be speaking at the Value Investing Congress in a few months if you want to hear his latest investment ideas.  Market Folly readers receive a discount to the event by clicking here.

Third Point Reveals CF Industries Position: Q2 Letter

Dan Loeb's hedge fund firm Third Point is out with their Q2 letter to investors.  In it, they reveal a brand new position in CF Industries (CF):


Third Point's CF Industries Thesis

Third Point writes,

"CF Industries is North America’s largest nitrogen fertilizer manufacturer and one of the  lowest-cost producers globally. CF currently trades at an unwarranted discount to  fertilizer and commodity chemical peers. We believe its structural cash flow generation  strength is misunderstood and that management should deliver a much larger dividend to  its shareholders. Such a dividend would highlight the sustainability of its cash flow  generation and lead to a substantial re-rating."

They see CF's ability to tap lower-cost natural gas in North America as an advantage and the spread between CF's production cost and higher cost producers is a nice benefit:

"On today’s  equity value, that would mean CF is currently trading at an 11% free cash flow yield using  these onerous assumptions. Given the low-risk profile of this portion of CF’s cash flow, it  should receive a bond-like multiple (e.g. 7 - 8% yield), which alone implies significant  upside to the current share price."


Sells Gold Position

It's also worth highlighting that Third Point exited its gold position at the beginning of the 2nd quarter at around $1450.  They see it as an asset that will be hurt as real yields rise.

The letter also touches on Third Point's activist stakes in Sony (SNE) and Yahoo (YHOO).  The hedge fund recently sold a chunk of its YHOO stock to the company.

Embedded below is Third Point's Q2 letter to investors




For more recent hedge fund letters, we also posted up excerpts from Viking Global's Q2 letter.