Analysts' Best Stock Picks For 2011

Raymond James is out with its Analysts Best Picks for 2011 report. We highlighted their picks from 2010 and those performed pretty well with a 22.3% return. In fact, their annual selections have a 10 year average return of 12.4%.

The report details analysis of the fundamentals, growth prospects and risks associated with each stock. They've selected 13 stocks again this year and in alphabetical order, here are the Analysts' Best Stock Picks for 2011:

- Allscripts Healthcare (MDRX)
- Bank of America (BAC)
- CONSOL Energy (CNX)
- Covidien (COV)
- Digital Realty Trust (DLR)
- Equinix (EQIX)
- Halliburton (HAL)
- HealthSouth (HLS)
- Lincoln National (LNC)
- NVIDIA (NVDA)
- Panera Bread (PNRA)
- Pioneer Natural Resources (PXD)
- Stanley Black & Decker (SWK)

There are some pretty familiar names in that bunch and a few prevalent themes. They've included multiple plays in the health space with MDRX, HLS, and COV. Also, technology is represented with two names in NVDA and EQIX. Also, energy/natural resources are abundant via PXD, CNX and HAL. We wanted to highlight a few of their selections below:

Bank of America (BAC): This name is interesting because it was also on the analysts' best picks list for 2010. However, over the course of last year the stock declined. Raymond James sees the price depreciation as further opportunity and is again a buyer of shares this year. Not to mention, some of the largest hedge funds in the game have sizable stakes in BAC, including John Paulson.

Halliburton (HAL): Arguably, the time to buy this name was during the Gulf oil spill when uncertainty abounded and the stock price was depressed. Yet, RJ feels the company will see near-term earnings momentum and a rebound in international activity. We've talked about how hedge funds are betting on higher oil prices as well.

Equinix (EQIX): This tech name is intriguing because it saw some volatility last year. And as we detailed in our Hedge Fund Wisdom newsletter months ago, a large shareholder (Shumway Capital) was reducing its position size and could be partially responsible for the volatility. Raymond James likes the company's dominant market position in the colocation market and data center industry.


Keep in mind that obviously with the market rally, a lot of these names have been bid up significantly already. Some strategists would obviously advocate waiting to purchase some of these names given that they're extended and knowing that the market doesn't go straight up forever. RJ's Chief Investment Strategist Jeff Saut expects a buyable pullback.

Embedded below is the full research on Analysts' Best Picks for 2011:



You can download a .pdf copy here.

For further research from this shop, head to the previous best stock picks for 2010 as well as Jeff Saut's risk management principles.

What We're Reading ~ 1/14/11

Interview with hedge fund legend Michael Steinhardt [Benzinga]

If you could short Facebook, would you? (read the comments section too) [Reformed Broker]

Eclectica's Hendry bets China will fail [Bloomberg]

We previously covered Hendry's Asian bear portfolio [Market Folly]

Why it's a great time to launch a hedge fund [Fortune]

Signs of a top in the cupcake industry [BarbarianCapital]

Verizon's $100 billion conundrum with Vodafone [WSJ]

Hedge fund manager-diversification versus strategy-diversification [AllAboutAlpha]

Three winning fund managers from 2010 give current investment outlook [WashingtonPost]

Profile of $19 billion Canyon Partners [Bloomberg]

Hedge fund Clarium slumps from peak [Bloomberg]

Massive Discount to the Value Investing Congress in California

Today we're excited to announce that yet again, Market Folly readers can receive a massive discount to the upcoming Value Investing Congress in California. The event will take place May 3rd and 4th in Pasadena, California at The Langham Huntington Hotel & Spa.

Our readers can save over 38% off with code: W11MF4. This discount expires in one week.

This is literally the largest discount you'll be able to receive. The closer we get to the event, the less discount there is. The last Value Investing Congress in October was a huge success as investors received a ton of actionable investment ideas. For example: Greenlight Capital's David Einhorn said to short St. Joe (JOE) and it plunged over 20%. Maverick Capital's Lee Ainslie presented Commscope (CTV), which received a takeover offer soon after, sending shares up 30%.

The event is full of top hedge fund managers presenting their best stock picks and it is a fantastic networking resource. Click here for a massive discount to the Value Investing Congress. Discount code: W11MF4.

Dan Arbess' Xerion Fund: 2011 Investment Strategy & Outlook

Daniel Arbess' Xerion Fund is out with its investment strategy and outlook for 2011. The hedge fund, part of Perella Weinberg Partners, manages $2.3 billion and has annualized returns of 18.97% net since inception in 2003. For 2010, Xerion finished up 12.66% net. Our previous coverage focused on how Xerion likes commodities.

2011 Market Outlook

Taken directly from Xerion's year-end letter to investors, here is a breakdown of their outlook for the new year,

" - Global economy and markets remain unbalanced, dependent on government support and highly vulnerable to policy changes and conflicting national agendas. Government-stimulated market momentum will recede in 2011, in favor of either gradual normalization or renewed crisis.

- Expect continued moderate economic recovery, however frequently punctuated by episodes of macro instability. Key risks include potential over-heating and reversal in China, persistently high domestic unemployment and acceleration of sovereign debt crises in Europe and other developed economies.

- Receding tailwinds from government intervention imply security selection and idiosyncratic opportunity will be most important in 2011. Select U.S. credit opportunities as rising yields signal higher re-financing costs. “Shake Hands With China” with exposure to commodities and equities, industrials and Asian consumer- facing industries. Selective sector opportunities in U.S. Equities. Commodity bias captures both fundamental demand in EM and fiscal crisis hedge in DM."

Portfolio Positioning

Given the above themes, Xerion is positioned cautiously long and they expect U.S. credit opportunities to be limited given the large wave of restructurings over the past two years. In developed markets, they see a few equity opportunities but they still favor emerging market equity plays and continue to play their 'shake hands with China' theme.

Of Xerion's positioning, Arbess writes, "Our portfolio structure and positioning going into 2011 is quite consistent with where it was one year ago - slightly longer and more skewed toward equity strategies versus credit, but also more hedged (which is to be expected given the higher beta and volatility of equities)."

Credit: In this asset class, they're focused on event-driven corporate plays and an opportunistic tilt toward distressed credit. Arbess writes, "we also see M&A as an evolving high yield catalyst for 2011, given that sponsors have cash to use and limited organic growth opportunities, while high yield companies are in the mode of bolstering liquidity and shedding assets to fund creditor friendly actions."

Equities: Xerion is generally cautious on domestic equities and favors high growth plays in emerging markets. Specifically, they are focusing on the rise of China's consumer and how to play that. The hedge fund is concerned with the liquidity of Asian equities in general but is intrigued by the state-owned segment of China's economy. Overall, they continue to favor their 'shake hands with China' portfolio theme.

Commodities: Arbess and his team believe that industrial commodity demand has been in a 'supercycle' since 2004. They like commodities for a couple of reasons, citing that they "benefit from robust and growing fundamental demand from industrializing emerging markets, and also attract financial investors looking for monetary debasement hedge."

In particular, Xerion prefers industrial commodities to even gold, claiming that the latter is less supported by demand and more-so driven by a financial crisis hedge. The hedge fund also likes various equity plays for this theme, specifically the junior resource companies (such as Fortescue Metals Group, Ivanhoe Mines, OGX and HRT).

Concerns In The Coming Year

Xerion rounds out its commentary and outlook by commenting on reasons to be cautious this year:

"For the past two years, markets have rallied in response to government stimulus and the anticipation of an economic recovery. We are cautiously optimistic that strong growth in the developing economies will continue to anchor the global economy in 2011, while improving sentiment in the developed world could potentially unlock cash-laden corporate balance sheets, supporting an investment-led recovery. However, bullish sentiment is already largely priced in. We expect the tailwinds of QE-inspirited rising markets to subside in 2011, further highlighting the importance of security selection, idiosyncratic opportunity and events, and, above all, hedging ever-present macro risks."

In the end, Arbess' hedge fund identifies the following as the key to continued economic recovery:

"The sustainability of global growth in 2011 will be highly dependent on G-20 policy makers’ successfully reining in short-term national interests in favor of longer-term globally coordinated efforts to shore up consumption growth in the EM."

For more on Dan Arbess' hedge fund, head to our past post on Xerion's 'shake hands with China' play.

Tiger Global Invests in SEEK Asia, Continues to Play Emerging Markets

Chase Coleman's hedge fund firm Tiger Global has made another private investment, this time in SEEK Asia (a subsidiary of SEEK Limited). The hedge fund reserves a portion of its portfolio for stakes in non-publicly traded companies and we've detailed how they've been focusing on web companies in emerging markets.

Tiger's investment in SEEK Asia is a co-investment alongside the likes of Consolidated Media Holdings (CMJ) and Macquarie Capital. It appears as though the three have invested around $63 million in total. Upon news of this investment, SEEK Asia also recently announced that it has purchased 60% of JobsDB, an online employment company that focuses on Southeast Asia. The purchase price of this stake is $204 million.

To see what else Tiger Global has invested in, head to our analysis in our newsletter.

St. Joe Receives Inquiry From SEC, BlackRock Increases Stake

Since The St. Joe Company (JOE) is now a battleground stock (Bruce Berkowitz versus David Einhorn), it's only fitting that we continue our coverage of the name. Just yesterday, some interesting developments arose that we wanted to highlight.

First, JOE revealed in an 8-K filed with the SEC that the company is the subject of an SEC "informal inquiry into St. Joe's policies and practices concerning impairment of investment in real estate assets."

SEC Inquiry

Shares of JOE plunged almost 10% in after-hours trading yesterday on this news. Market Folly readers will of course recall that Greenlight Capital's David Einhorn is short JOE. His bearish thesis centers largely around the company needing to take impairments and writedowns, the exact issue the SEC seems to be looking into.

The 8-K went on to say that, "St. Joe intends to cooperate fully with the SEC in connection with the informal inquiry. The notification from the SEC does not indicate any allegations of wrongdoing, and an inquiry is not an indication of any violations of federal securities laws."

Einhorn has garnered a reputation as a successful short-seller and it might not be too much of a stretch to suggest that his involvement has piqued the SEC's interest. After all, Einhorn had correctly identified problems at both Allied Capital and Lehman Brothers in the past and profited from his short positions. You can read about his short-selling battle in his book, Fooling Some of the People All of the Time.

BlackRock Boosts Stake

In a separate development involving St. Joe, we also saw an updated 13G filed with the SEC by BlackRock. The money manager has disclosed a 12.59% ownership stake in JOE with 11,668,299 shares, boosting their collective position. This disclosure was made due to activity on December 31st, 2010.

This development is interesting because it brings another large institutional player into the ring. Previously, the main notable JOE long was Bruce Berkowitz's Fairholme Capital, who owns almost 29% of the company. However, Berkowitz is currently in a standstill agreement and can't purchase more shares. Instead, he has joined the company's board. BlackRock's position increase marks a second vote of confidence on the long side of the trade.

Battleground Stock

So now that Berkowitz has BlackRock for company, the two major shareholders will square off against David Einhorn and a bevy of other short-sellers, including Whitney Tilson's T2 Partners, among many other hedge funds who have undoubtedly not disclosed their position (yet). With word of the SEC's informal inquiry, the short sellers have delivered another potential blow to JOE longs. What comes out of the inquiry, though, remains to be seen.

Hedge Funds Reduce Equity Exposure to 25% Net Long

It's been a while since we last checked in on the latest hedge fund exposure levels so today we present Bank of America Merrill Lynch's Hedge Fund Monitor. To start the new year, they estimate that long/short equity hedge funds have further reduced exposure to now just 25% net long. Historically, average equity exposure has been 35-40% net long equities.

The last time we saw hedge funds reduce risk assets in late October, the market fell around 3.6% about a week later. Maybe it was a bit of luck with market timing, but it seems as though hedge funds in general have been ahead of the curve with their recent maneuvers.

After the market's furious rally over the past few months, it's clear that some managers think the equity market is overbought in the short-term and expect a pullback. However, many strategists like Jeff Saut believe dips should be bought.

Looking through current hedge fund trades across asset classes, there are a few notable plays that stick out. First, hedgies continue to hold crowded long positions in soybeans and corn. Crude oil and Copper are also crowded net long plays in the commodities spectrum. And turning to forex, we see that hedge funds have pressed their shorts against the Euro. Last, in interest rate plays, managers hold a crowded net short in the 10-Year notes.

Long/Short Equity

As mentioned above, the l/s equity strategy has seen a sizable reduction in net long exposure as funds lock-in gains. These hedge funds still favor large cap names (with a preference of growth over value).

Market Neutral

Interestingly enough, market neutral funds not have around 5% net short exposure. This comes after they spent the majority of 2010 with net positive market exposure. These funds have shifted from growth plays to value.

Embedded Below is Bank of America Merrill Lynch's Hedge Fund Monitor:



You can download a .pdf copy here.

So it seems that hedge funds continue to favor commodities here as inflationary plays. A month ago, we detailed that Dan Arbess' Xerion Fund preferred commodities. John Burbank's Passport Capital also favors hard assets.

It's clear hedge funds are protecting some of their gains from the equity rally as exposure has been reduced further. Hedgies reduced risk assets right before the last market decline, so we'll have to see if they've sent another warning sign with their latest reduced exposure.

David Tepper Buys Dean Foods (DF)

David Tepper's hedge fund firm Appaloosa Management has started a brand new position in Dean Foods (DF). Per a 13G filed with the SEC, the hedge fund disclosed a 7.35% ownership stake in DF with 13,396,536 shares due to trading on December 28th, 2010. The majority of shares are held in Appaloosa's Palomino fund. You can view Appaloosa's other investments in our newsletter, Hedge Fund Wisdom.

Shares of Dean Foods spiked over 11% on Friday as Appaloosa disclosed its stake. The company's shares have been on somewhat of a gradual death spiral, down 45% over the past year. In the near-term, it seems as though the company is being squeezed by input costs (namely commodities). Whether Tepper and his team see this as a value play remains to be seen, as no clear thesis has been revealed. Or, maybe this trade simply falls under his 'don't fight the Federal Reserve' trade. After all, in September Tepper said he likes equities here.

Per Google Finance, Dean Foods is "a food and beverage company. The Company operates through two segments: Fresh Dairy Direct and WhiteWave-Morningstar. Fresh Dairy Direct, formerly DSD Dairy, is a processor and distributor of milk and other dairy products in the United States, with products sold under more than 50 local and regional brands and a range of private labels."

To see what Appaloosa and other hedge funds have invested in, read up on their plays in our newsletter.

TPG-Axon Capital Reduces International Paper (IP) Stake

Dinakar Singh's TPG-Axon Capital Management recently filed an amended 13G with the SEC regarding shares of International Paper (IP). Due to portfolio activity on December 31st, TPG-Axon disclosed a 1.4% ownership stake in IP with 6,300,000 shares.

This marks a decrease in their position as Singh's firm owned 14,270,005 shares back in the third quarter. Over the course of three months, they've decreased their position size by almost 56%.

The hedge fund firm also filed a separate 13G on shares of Zhongpin (HOGS). Based on the filing, it appears as though their position remains unchanged with 3,000,000 shares. This total represents an 8.5% ownership stake in HOGS. We covered when TPG-Axon was buying HOGS back in September. Per Google Finance, Zhongpin is "principally engaged in the meat and food processing and distribution business in the People’s Republic of China (the PRC)."

Singh founded TPG-Axon in 2004 in collaboration with private equity firm Texas Pacific Group. Prior to launching his hedge fund, Singh was co-head of Goldman Sachs' principal strategies group.

International Paper is "a global paper and packaging company. It is complemented by the North American merchant distribution system, with primary markets and manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa. The Company operates in six business segments: Industrial Packaging, Printing Papers, Consumer Packaging, Distribution, Forest Products, and Specialty Businesses and Other."

For all other SEC filings, head to our ongoing hedge fund tracking series.

T2 Partners Year-End Letter: Discussing Longs & Shorts

Whitney Tilson and Glenn Tongue's hedge fund firm T2 Partners released their year-end letter to investors. The letter is one of the most thorough we've seen as it is 27 pages long and includes assessment of both their long and short positions. If you want transparency in the hedge fund industry, here's your barometer.

For 2010, T2 finished up 10.3% net compared to an S&P 500 return of 15.1%. So while they trailed the indices last year, T2 has outperformed since inception, returning 9.1% annualized net versus 2.0% for the S&P. This past year, their pain came from various short positions and essentially 'missing' the quantitative easing round 2 rally.

T2 Partners' top 12 long positions at the end of 2010 were:

1. Grupo Prisa (PRIS & PRIS.B)
2. Microsoft (MSFT) ~ see their thoughts on MSFT here
3. Berkshire Hathaway (BRK.A/B)
4. BP (BP) ~ their thoughts on BP here
5. General Growth Properties (GGP)
6. CIT Group (CIT)
7. Kraft (KFT) and warrants
8. Seagate Technology (STX)
9. Iridium (IRDM) and warrants
10. Automatic Data Processing (ADP) ~ see their presentation on ADP
11. Resource America (REXI)
12. Anheuser Busch InBev (BUD)

While we've presented analysis on T2's longs before, we want to single out Seagate Technology (STX) and CIT Group (CIT) as we haven't seen Tilson talk about these before. He likes STX mainly because it is trading at an absurdly cheap valuation and he thinks fears over the hard drive (HDD) market (versus the solid state drive market) are overblown.

Tilson and Tongue fancy CIT due to the company's potential to capture financing-cost savings. Additionally Tilson writes, "Even more intriguing is the possibility that a healthy bank might acquire CIT, attracted by the enormous earnings leverage available in applying the acquiring bank's much lower borrowing costs to CIT's business model."


T2's top 10 short positions (in alphabetical order):

1. AIG (AIG)
2. Homebuilders (various individual companies plus XHB the ETF)
3. InterOil (IOC) ~ analysis of their short position here
4. ITT Educational (ESI), as well as other for-profit education plays
5. Lender Processing Services (LPS)
6. Lululemon Athletica (LULU)
7. MBIA (MBI)
8. Netflix (NFLX)
9. Salesforce.com (CRM)
10. St. Joe (JOE)

Tilson and Tongue highlight that their short book caused them much pain last year. Accordingly, they set aside a portion of their letter to address how they manage short positions that move against them. In short (no pun intended), they re-evaluate their analysis to determine whether to add to the position, do nothing, or trim/exit.

Specifically, they trimmed their position in Netflix (NFLX) and replaced part of it with put positions. (We posted why Tilson is short Netflix here). They've also done this with other short positions in order to better manage risk. After all, remember that these stakes are merely hedges to their long book as T2 is always net long (they are currently 40% net long).

Embedded below is T2 Partners annual letter to investors for 2010:



You can download a .pdf copy here.

It's great to see a manager with such transparency in an otherwise secretive and guarded industry. T2's portfolio overlaps with positions many other hedge fund managers own that we've highlighted as well.

T2 is short JOE and so is Greenlight Capital (see David Einhorn's short thesis on JOE). While T2 is short ESI, hedge fund Blum Capital is long ESI. And while Tilson and Tongue are short AIG, Bruce Berkowitz's Fairholme Capital is long AIG. It's fun to see hedge funds take different stances on various stocks because that's what makes a market.

Eton Park Starts New Vallar (LON:VAA) Position

Eric Mindich's hedge fund firm Eton Park Capital Management has started a brand new position in Vallar (LON: VAA). The London Stock Exchange has revealed that due to trading activity on the 22nd of December, 2010, Eton Park now controls 5.03% of Vallar's voting rights.

In terms of other recent Eton Park activity, we saw that the hedge fund supported Air Products' (APD) latest bid for Airgas (ARG) in one of their arbitrage trades. However, nothing has materialized there. Eton Park's most recent acquisition is a bit of a head-scratcher and you'll see why below in the company description:

Per Google Finance, Vallar is "a holding company formed to acquire a single company, business or asset that has operations in the global metals, mining and resources sector. The Company focuses on the Americas, Russia, Eastern Europe and Australia. It focuses on commodities, including base metals, coking coal, iron ore, thermal coal, gold, silver and uranium."

For other activity out of Eton Park, we also detailed an increase in their Lonrho (LONR) stake.

Odey Shorts JJB Sports While Activists Remain Long

It looks like we might have another potential battleground stock on our hands. European hedge fund giant Odey Asset Management has disclosed a new short position in JJB Sports (LON: JJB), a sporting goods retailer. Due to portfolio activity on the 24th of December, Odey are short -0.61% of JJB's shares outstanding. Just yesterday we posted up that Odey remains optimistic on stock markets. But obviously, as a hedge fund, they will have short positions as well.

Crispin Odey's hedge fund had to declare this position under UK regulations because JJB is currently involved in a rights issue and Odey holds greater than a -0.25% short position. For more on these rules, see our primer on UK disclosures for more information. According to recent reports in the FT, JJB Sports is expected to ask investors for a further £50m cash injection, following £31.5m promised just before Christmas.

A number of activist hedge funds have taken the other side of the trade, though. Crystal Amber, managed by Richard Berstein, owns 15.4% of JJB's shares. Additionally, Bill Gates' Casecade Fund holds a 5.5% ownership stake.

Odey's short position is even more intriguing because back in the summer of 2010, a quarterly letter from Odey disclosed that their funds were long another UK sports retailer, Sports Direct (LON: SPD). Back then, they owned 0.84% of the voting rights. If that position is still open today, then Odey potentially have an interesting pair trade of long SPD, short JJB. You can scroll through our coverage of other hedge fund short positions here.

Per Google Finance, JJB Sports is "a sports retailer supplying branded sports and leisure clothing, footwear and accessories. JJB Sports is a high street sports retailer, with 250 stores in the United Kingdom and Eire. It provides a range of products covering United Kingdom sports."

For more from hedge fund Odey, be sure to see Crispin Odey's latest market commentary.

Second Curve Acquires Mercantile Bank (MBWM) Stake

Tom Brown's hedge fund firm Second Curve Capital have started a brand new position in Mercantile Bank (MBWM). Per a 13G filing with the SEC, the hedge fund reveals that due to trading activity on December 30th, Second Curve now owns 5.1% of MBWM with 442,707 shares.

This is a brand new position because the firm did not disclose owning shares in their previous SEC filings. Prior to founding Second Curve, Tom Brown headed the financial services group at Julian Robertson's Tiger Management. During the financial crisis, Brown was painfully early on his bullish call on the financials and it cost him dearly at the time.

Per Google Finance, Mercantile Bank "wholly owns Mercantile Bank of Michigan (the Bank). The Bank is a state banking company. The Bank’s primary service area is the Kent and Ottawa County areas of West Michigan, which includes the City of Grand Rapids in the State of Michigan. The Bank, through its seven offices, provides commercial banking services primarily to small- to medium-sized businesses and retail banking services in and around the Grand Rapids, Holland and Lansing areas."

For more on Tom Brown's hedge fund, we detailed yesterday that Second Curve acquired more CompuCredit (CCRT) as well.

What We're Reading ~ New Year Edition

If you missed it, Bespoke's 2011 roundtable [Bespoke]

Letter from Citadel's Ken Griffin [Dealbook]

Growth versus value [AbnormalReturns]

In 2010, we learned that... [ReformedBroker]

On an MBA versus CFA [ResearchPuzzle]

Interview with Alexander Roepers of Atlantic Investment Mgmt [Barron's]

Howard Lindzon interviews Mark Cuban [StockTwits]

Warren Buffett speaks about succession planning at Berkshire [Vanity Fair]

How Chipotle (CMG) is winning burrito wars [Bnet]

Six themes for 2011 [Pragmatic Capitalism]

On why Google (GOOG) is undervalued [TwistedValue]

Rising interest rates positive for equities? [ValuePlays]

How to come up with investment ideas [GannonOnInvesting]

Emerging hedge funds the belles of the ball [AllAboutAlpha]

Farallon receives mixed messages [Pensions&Investments]

From analyst to hedge fund founder in six years [Fortune]

On the respective Alcon (ACL) and Dynegy (DYN) deals [Dealbook]

Start the new year with an investment report card [Rational Walk]

The best economics blogs [WSJ]

New Year's hangover for stocks? [Barron's]

Bullish sentiment reaches historical extremes [Bespoke]

Hedge fund managers bullish on US stocks [Pensions&Investments]

Investors flocking to emerging market bonds [InstitutionalInvestor]

Municipal bond buyers on guard [BondBuyer]

Harbor Investment Conference: Ideas From Ackman, Berkowitz & More

Want to hear some investment ideas from top hedge fund managers? The Harbor Investment Conference will take place February 3rd, 2011 in New York City and provides the perfect opportunity. All proceeds from the event goes to the Boys and Girls Harbor, so it's a wonderful cause. At last year's event, the 8 stocks that were recommended were up an average of 39% at the end of 2010. There are only 331 seats available so act quickly!

Here are the speakers at the event:

Bill Ackman – Pershing Square Capital Management
Bruce Berkowitz – Fairholme Capital Management
David Darst – Chief Investment Strategist, Morgan Stanley Smith Barney
Alex Klabin – Senator Investment Group LP
Mick McGuire – Marcato Capital Management, LLC
Craig Nerenberg – Brenner West Capital Advisors, LLC
Todd Sullivan – Rand Strategic Partners

Everyone of course knows Bill Ackman and Bruce Berkowitz. However, some of the other speakers should offer great insight as Mick McGuire previously worked at Pershing Square and Craig Nerenberg runs a similar strategy to Pershing Square with a concentrated portfolio. Also, our good friend Todd Sullivan from ValuePlays.net will be speaking as well.

Embedded below is an information and registration sheet for the conference:



You can download a registration .pdf here.

The event is coming up soon and there are only 331 seats available, so sign-up to hear some hedgie investment ideas and support a great cause at the same time.

Strategist Jeff Saut Cautious On Market, Still A Buyer On Dips

It's been a long time since we last checked in on market strategist Jeff Saut's commentary and figured the new year would be a perfect time to do so. In short, he is currently cautious on the stock market, wary of a repeat of January 2009. So, why is he cautious?

Saut writes, "in the short-term, the odds are not tipped decidedly in investors' favor, at least not by the metrics I use. Indeed, the Volatility Index (VIX/17.75) is down to 'complacency levels' last seen in April right before the 17% correction. Ditto, investors intelligence data shows advisory sentiment approaching the bullish extremes of October 2007."

Simply put, he feels that investors have become complacent and bullish sentiment has skied high, something he is using as a contrarian signal. But while the market strategist feels that stocks are due for a pullback, he is a buyer of those dips.

One thing we've noticed is that Saut has often been correct in his past calls, so kudos to him for utilizing timing signals such as volatility, sentiment levels, and overbought/oversold metrics. At the same time, he is often early with his calls and he freely admits this in his latest market commentary. After all, momentum and bullish sentiment can last much longer than many anticipate. It's a tough train to jump in front of.

For instance, back in late October, Saut called for a pullback (which he also saw as a buyable dip). What happened? The market saw a nice pullback... but not until a few weeks into November. Followers of Saut's prescient call (dip buyers) would have made a pretty penny on that trade.

Saut by no means is recommending a massive short position here, but it does seem as though he advocates taking some profits, raising cash, and preparing for a near-term correction that can eventually be bought as the new year begins. Embedded below is Saut's latest investment strategy piece entitled, 'The White Hurricane':



You can download a .pdf copy here.

For interesting past missives from the market strategist, check out Saut's businessman's risk portfolio, as well as his risk management principles.

Crispin Odey Remains Optimistic On Stock Markets: Latest Commentary & Outlook

Crispin Odey, founder of hedge fund firm Odey Asset Management, is out with his latest market commentary and outlook. Back in September, he noted that equities were attractively priced but unloved. Since then, equities have rallied furiously. So, what's his latest take? See below for his outlook penned on the 30th of November.

"Crispin Odey
Founding Partner | Portfolio Manager
Current Outlook

Easy money takes the pain out of hard knocks. In May, in August and again in November, markets have attempted to dissolve the Euro – to fracture it. Insolvency in Greece came about because their governments could not collect taxes. Insolvency in Spain and Ireland relates to banks lending against mortgages on margins of only 20 basis points over Libor whilst borrowing at 100-200 basis points above Libor.

These issues need addressing. Keynes wrote in the thirties that: “…the absolutists of contracts are the parents of revolution.”

Banks need to be allowed to reset lending margins; they need to be profitable. Who cares if this demands legislation to take effect?

It is odd that Merkel has been the instigator of the Euro wobbles. She is of course worried that German banks will need to be bailed out if these countries go down. She is right to be worried that German bankers might be foolish lenders: look at the history. Recently German banks’ net interest margins should have soared because in Germany there were no tracker mortgages, no teaser rates. Borrowers borrowed for 10-15 years at nominal rates. Two years ago those borrowers were borrowing at 4% and the bank was making nothing, today they are borrowing at 4% and the bank could be making 300 basis points of margin. Instead, by matching the duration risk and having to borrow at 100 basis points over Libor, German banks still make little money out of mortgage lending.

Throughout these crises I have remained bullish and I still remain more optimistic for stock markets than for a long time.

Why? Because the markets are too cautious about the strength of the economic cycle. In previous quarterly calls I have outlined how the USA is now successfully encouraging economic growth and inflationary pressures to grow in the emerging market economies. But what is not understood is that Germany in this regard looks exactly like an emerging market. Thanks to the problems of the Euro, German exporters are not only enjoying a massive boom, they are also enjoying a currency advantage of around 30% over their Japanese competitors. Couple this with a tax rate which, since the last boom in 89-90, has fallen from 52% to 30%, and shareholders – for the first time – will almost certainly enjoy an unheralded boom.

In a country where individuals spend more on cut flowers than equities, these profits will come to us – yes to the foreigners. This is not going to be popular in Germany, and quite quickly I expect profits to be commuted into wage increases, but this will do something which is not expected. It will mean that from next year the boom in consumption in Germany will help to lift all of these bankrupt southern economies out of recession. The Euro will work as it was intended. German inflation will be higher than others, German competitiveness will suffer and yes we will stop having Euro crises. Of course Germany will not enjoy this boom and if it was down to their authorities, interest rates would rise and their currency would strengthen but they are going to find their feet being unable to reach the pedals as Ireland et al found this year.

Bernanke, who I think is much maligned, wrote this recently in ‘Rebalancing the World Economy?’

As currently constituted, the international monetary system has a structural flaw: its lacks a mechanism, market based or otherwise, to induce needed adjustments by surplus countries, which can result in persistent imbalances. This problem is not new. In particular, for large, systemically important countries with persistent current account surpluses, the pursuit of export-led growth cannot ultimately succeed if the implications of that strategy for global growth and stability are not taken into account.’

So like Simeon, are we about to say; ‘today this prophecy is fulfilled’? Could there have been a more perfect Christmas tale than this? Yes, in a way.

Bernanke is wrong. The mechanism is starting to work. It will shower profits upon those fortunate enough to see the opportunity. It may well start the beginning of the bear market in government bonds but it will also lead to a much more balanced global economy – balanced but inflation prone and inflation bound."

The key takeaway here is that he is constructive on the markets and remains bullish and optimistic, flying right in the face of caution and pessimism. Odey thinks there could potentially be a bear market in government bonds and we've highlighted that numerous other hedge fund managers agree with him. Odey sees inflation in the world's future as well and if you concur, here are the best investments during inflation.

It's been a while since we last covered this hedge fund as back in October we noted their new short position in Provident Financial (LON: PFG). You can also read Odey's previous market commentary here.

Dan Loeb & Third Point's Latest Exposure Levels

Dan Loeb's Third Point Offshore Fund finished 2010 up 33.5%, compared to an S&P 500 return of 15.1%. Since inception in December of 1996, Third Point has returned an impressive 18.6% annualized. The hedge fund manager recently released its latest December exposure levels so we wanted to provide readers with an update.

Here are Third Point's top holdings as of year end:

1. Gold
2. Delphi Corp (multiple securities held)
3. Chrysler (multiple securities held)
4. Potash (POT)
5. Lyondell (LYB)

You can learn about more of Third Point's investments in our newsletter. Physical gold continues to be a massive position for Loeb and he potentially could be using the precious metal as some sort of tail risk hedge. Interestingly enough, Third Point continues to own Potash (POT) even after BHP Billiton's bid for the company failed. It appeared as though the hedge fund originally purchased POT as a arbitrage trade but maybe they like the natural resource exposure as an inflation play. Or maybe they still see the company as a viable takeover target, who knows.

Lastly, Lyondell finally shows up as a top holding for Third Point as the company exited bankruptcy. The chemical maker's equity now trades under ticker symbol LYB. Back in the second quarter we noted Loeb's fondness for post re-organization equities, and that portfolio theme continues.

Exposure Levels

Third Point has its highest net long equity exposure in basic materials and financials. In total, they are 60.1% long, -8.4% short, leaving them 51.7% net long equities. One geographic note is that Third Point had previously been net short the Asia region, but are now net long ever so slightly.

In terms of credit exposure, Third Point has its highest net long exposure in mortgage backed securities (MBS) at 19.4%, followed by distressed at 14.2% net long. Third Point is also net short government securities at -10.9%. Overall in credit the hedge fund is 32% net long.

Top Winners

In Loeb's portfolio, big winners include Delphi (multiple securities held), NXP Semiconductor (NXPI), Lyondell (LYB), Chrysler (multiple securities held), and Accuride (ACW). He highlighted NXPI in his recent letter to investors as Third Point participated in the IPO and sees upside in the name. Shares of Accuride also recently started trading in late December after re-listing on the New York Stock Exchange.

Top Losers

Third Point's portfolio saw weak performance from the following plays: three undisclosed short positions (undoubtedly due to the market's large rally), Fortis (multiple securities held), as well as State Bank of India (BOM:500112), a name we have previously not seen disclosed.

That wraps up our summary of Third Point's end of year exposure levels. You can check out more of Third Point's portfolio in our newsletter. And to learn to invest like Dan Loeb, check out his recommended reading list here.

Second Curve Capital Files Form 4 on CompuCredit (CCRT)

Tom Brown's hedge fund firm Second Curve Capital recently filed multiple Form 4's with the SEC regarding transactions in shares of CompuCredit (CCRT). These filings represent indirect ownership and were made by advisory clients of Second Curve. In total, Second Curve reported acquisition of 81,000 shares during the last 10 days of December.

Second Curve acquired their shares through various lots ranging in price from $6.59 to $6.95. Shares of CCRT are currently trading around $6.72. After all purchases were made, they owned 4,260,630 shares of CompuCredit. We noted Second Curve reported transactions in CCRT back in September as well.

Also, in a separately filed Form 4, advisory clients of Second Curve Capital have purchased 29,000 shares of Tennessee Commerce Bancorp (TNCC). The purchases were made in the last three days of December in various lots at prices of $4.84, $4.82, and $4.91. After all was said and done, Second Curve reported owning 1,271,456 shares of TNCC. We detailed Second Curve's recent addition of TNCC shares and this marks a subsequent recent purchase after originally purchasing shares in August.

Per Google Finance, Tennessee Commerce Bancorp is "a bank holding company formed to own the shares of Tennessee Commerce Bank (the Bank). The Bank conducts business from a single location in the Cool Springs commercial area of Franklin. As of December 31, 2009, the Bank had total assets of $1.4 billion. The Bank offers a range of retail and commercial banking services."

CompuCredit is "a provider of various credit and related financial services and products to or associated with the financially underserved consumer credit market."

Scroll through all of our coverage of the latest SEC filings made by prominent hedge funds.

Happy Holidays From Market Folly!

We just wanted to take this opportunity to say thank you to our readers for reading the site and to wish you a relaxing and enjoyable holiday season!



Merry Christmas, Happy Hanukkah, Happy Kwanzaa, Happy Festivus, Happy Holidays (and insert any others we might have left out here)!