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]