MarketFolly's premium newsletter, Hedge Fund Wisdom, just released a brand new issue and you can subscribe below. If you missed it, here's an update on the performance of the stocks analyzed in the past few issues.
Performance of Stocks Analyzed in Recent Issues
Here's the key stats (as of August 13th):
- 7 out of the 8 stocks analyzed in the last 3 issues have widely outperformed the market
- The average return is +38.08%
- Average outperformance over the S&P 500: +27.35%
Q1 2013 Issue Performance
A few months ago on May 21st, we released the Q1 issue that analyzed 3 stocks. Here's the performance of those stocks thus far (through August 13th):
Sealed Air (SEE): +26.44%
MGIC Investment (MTG): +17.69%
Oil States International (OIS): -10.08%
Compared to the S&P 500 over the same timeframe: +1.71%.
Q4 2012 Issue Performance
On February 21st, 2013, we released the Q4 issue and here's how those stocks have performed since then:
Free Sample of an Old Issue: If you haven't seen the newsletter before, you can view a free sample here (.pdf)
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Disclaimer (as noted at the bottom of this website and in the newsletters): This information is for educational and/or entertainment purposes only. Use this information at your own risk. Market Folly and Hedge Fund Wisdom are not investment advisors of any kind, so do not consider anything on this page to be legal, tax, or investment advice.
Carl Icahn of Icahn Enterprises announced yesterday that he has taken a stake in Apple (AAPL). Additionally, he noted that he has talked with CEO Tim Cook about expanding the company's buyback now and that they plan to speak again in the future. Icahn says AAPL shares are extremely undervalued.
What's interesting about all this is that Icahn actually announced this via Twitter, becoming the first major investor to unveil a new stake via that medium. If you don't already, you can follow @Carl_C_Icahn here. And while you're at it, make sure to follow @marketfolly too.
After revealing the position, he talked to various media outlets where his numbers and expectations for the company varied a bit. He told the Dow Jones that he sees AAPL trading around $625 with a boosted buyback. Later, he told Reuters he sees a $700 price target with 10% earnings growth.
Icahn's not alone in his desire for a sizable buyback from Apple. Greenlight Capital's David Einhorn also pushed the company to return cash to shareholders. Apple announced a plan, but it's clear some investors still want more given AAPL's large cash pile.
Ed Bosek's hedge fund firm Beacon Light Capital yesterday sent a letter to Jos A. Bank (JOSB) asking for change at the company. Beacon Light owns around 1% of the company, but it is a highly concentrated position for them now and they've owned shares for 3 years.
Beacon Light Looks For Buyback
Basically, Bosek is pushing for the company to do a buyback now as the JOSB has over 30% of their market cap in cash and has never done a buyback or paid a dividend. Even more frustrating, they highlight management's lack of communication with shareholders and see a lot of trapped value at the company. They see normalized earnings are close to 4 and should grow.
While Jos A Bank shares trade around $44 currently, he sees them heading as high as $70 after a buyback, earnings close to $6, and a multiple of 14-15x earnings.
Prior to founding Beacon Light, Bosek worked at Atticus Capital.
Bosek also appeared on CNBC to talk about what needs to change at JOSB. The video is embedded below:
Beacon Light's Letter to Jos A Bank
Here's the full text of their letter:
"August 13, 2013
Board of Directors
Jos. A. Bank Clothiers, Inc.
500 Hanover Pike
Hampstead, MD 21074-2095
Dear Board of Directors,
We are writing to you on behalf of BeaconLight Capital LLC and its affiliates (together, "BeaconLight" or "we"), collectively the beneficial owners of more than 1% of the common stock of Jos. A. Bank Clothiers, Inc. ("Jos. A. Bank" or the "Company"), having been shareholders for three years. After extensive study and analysis, we are convinced that tremendous value is trapped inside the Company due to the absence of a credible capital allocation policy, an insular insider Board of Directors (the "Board"), poorly aligned management incentives, and the Company's refusal to communicate with shareholders. After several unsuccessful attempts to privately engage in constructive dialogue with the Company and the Board, we believe it is necessary to publicly voice our concerns about the Company's direction. We urge the Board to meet with shareholders with the goal of reconstituting the Board to add true shareholder representation, and strongly encourage other shareholders to reach out to the Company to demand change. With the simple changes outlined in this letter, we believe that the stock should be worth $70 per share even at a discounted multiple to its peers. Jos. A. Bank Has Underperformed Its Peers and Is the Cheapest US-Listed Retailer
While we appreciate the role that current leadership played in building the Company from a sleepy 100-store regional retailer to a national 600-store company with over $1 billion in sales, they have delivered increasingly dismal total shareholder returns over the last five years. The Company's stock has underperformed the S&P Retail Index by 5%, 116%, and 40%, in the last five, three and one year periods, respectively.
Although the Company has suffered weak operating results in the past eighteen months, the vast majority of the stock's underperformance is attributable to multiple contraction. The market is heavily penalizing the Company for its inefficient use of cash and exceptionally poor corporate governance. As a result the Company currently trades at depressed multiples on depressed earnings. In fact, at 6x enterprise value to consensus EBIT expectations for the year ending January 2014, the company trades at nearly a 30% discount to its peer group. Additionally, 6x EBIT is the lowest multiple of any retailer publicly listed in the United States with a market capitalization over $250 million.
The Board's Actions Make Clear Its Total Disregard for Shareholders
The Jos. A. Bank Board has no truly independent directors, has one of the longest average board member tenures of any US-listed company, and has a combined ownership of only 1.5% of the Company's outstanding stock. These factors have resulted in a Board that defers to the Chairman, Robert Wildrick, and seems to ignore other stakeholders. While we acknowledge Mr. Wildrick's contributions to the growth of the Company during his time as CEO, his past success does not entitle him to run the Company as a personal fiefdom.
Though the Board technically has four independent directors, the reality is that every member of the Board has relationships or connections to the Company or Mr. Wildrick. The Lead Independent Director, Andrew Giordano, was the former Chairman of the Board who hired Mr. Wildrick to run the Company in 1999. Neal Black, the Company's current CEO, was hired by Mr. Wildrick after previously working with him at Belk. James Ferstl also worked with Mr. Wildrick at Belk and at their ill-fated attempt to turn around Venture stores in the 1990s. The remaining two directors, Sidney Ritman and William Herron, are both friends of Mr. Wildrick and Mr. Giordano from Palm Beach. This cohort allows the Chairman to collect $825,000 per year for consulting the Company on acquisitions that none of the shareholders seem to want. Notably, the entire Board combined only owns a measly 1.5% of the Company's stock. In fact, in 2006 when he was the CEO, Mr. Wildrick sold nearly his entire 5% stake in Jos. A. Bank at an average share price of $28 and has not purchased another share since.
In 2010, the Board installed a "share compensation" plan for management, providing a cash and stock bonus based exclusively on the annual performance of the Company's net income relative to targets set by the Board. There is no compensation based on any shareholder-aligned metrics, such as earnings per share, return on capital, or total shareholder return. Further, each year, the stock portion of the bonus is for a fixed amount of dollars rather than a fixed number of shares. This actually creates a perverse incentive for management to minimize the share price and thereby, accumulate a larger stake in the Company over time.
The current composition of the Board opens the door for shareholder abuse, and unfortunately, every recent governance action by the Jos. A. Bank Board has only served to tighten the Board's grip on the Company at the expense of the shareholders. The Company continues to have a poison pill and a staggered board even though less than 25% of public companies have a staggered board and less than 10% have a poison pill.
In addition, while most public companies have taken steps to become more shareholder-friendly, Jos. A. Bank has become increasingly unfriendly towards its owners. In August of 2012, the Board increased the ownership threshold required to call a special meeting from 35% to 50% of all shareholders. Typically, only 10% of shareholders are required to call a meeting, and proxy advisory firms are generally critical of a threshold above 15%. More recently, in July of 2013, the Board once again amended the Bylaws, this time to make Delaware the exclusive venue for shareholder actions against the Company's Board of Directors.
Limited and Misleading Communication with Shareholders
Shockingly, in the summer of 2012, the Company decided that it would only communicate via "public disclosures to ensure that all Shareholders have equal access to the information." This was a stark change as the Company's CFO had previously held routine investor calls and communicated with sell-side analysts. Further, the Company does not follow the protocol of hosting live public conference calls with investors and analysts, and instead reads a script and only answers prepared and curated questions.
This policy of no shareholder or analyst contact is misguided in any environment, but is particularly egregious for a business that has faced the most tumultuous period in its history and has seen gross margins plummet over 600 basis points. Rather than help shareholders understand the issues, the Company provided grossly inadequate discussions of its results in the 10-Qs filed with the SEC. Originally, the filings made it appear that most of the margin pressure was due to pricing and competition, with cost inflation of cotton and wool playing only a minor role. It was only after the SEC initiated a correspondence asking for more detail on the gross margin fluctuations during the year that the Company explained that "substantially all of the decline for the first nine months were due to these higher sourcing costs." This practice of disseminating minimal and ambiguous disclosures has undoubtedly caused the stock to underperform by increasing uncertainty and making it extremely difficult for potential new investors to understand the business.
Shareholders Have Spoken Loudly that Hoarding of Cash for Acquisitions is the Last Straw
In addition to poor operational performance and inadequate communications with investors, the Company's hoarding of cash stands as the last straw for most investors. The Company has never paid a dividend or re-purchased any shares. As a result, the Company has a growing cash pile that reached a staggering $377 million at the end of the fiscal year ended January 2013. This equates to $13.50 per share or 32% of the Company's market capitalization. Remarkably, the Company's cash reserve is more than double the value of its property, plant and equipment, more than its total inventory, and even more than 1.5x the Company's total liabilities. We see no conceivable business justification for holding this much cash. By year end the cash pile could approach $16 per share or nearly 40% of the Company's market capitalization, all while Mr. Wildrick is being paid a substantial sum to supposedly search for acquisitions that shareholders do not want or agree with.
All of these actions reflect an insular Board focused on maintaining the status quo, combined with the audacious belief that shareholders will sit idly as they embark on a path of value destruction.
Fortunately, at the shareholder meeting in June, shareholders sent a clear message to the Board that the current path is unsustainable. Over 31% of shareholders voted against incumbent directors James Ferstl and Sidney Ritman despite their running unopposed. Additionally, for the first time in the Company's history, the Say on Pay proposal was voted down. It is obvious from these results that shareholders are losing their patience and that the Board's grip on the Company is becoming tenuous.
The Way to Unlock Substantial Value
While the above-mentioned issues are concerning, we believe that Jos. A. Bank has a solid long-term foundation, a talented operational management team, and exciting growth prospects. With the right capital allocation, strong corporate governance, better aligned management incentives, and more appropriate investor communication, we believe that the Company and its shareholders will thrive in the years to come.
First, while the business has performed poorly recently, we believe that these issues are largely temporary. Most of the problems stem from the fact that the Company's raw material purchases take longer to feed through for the Company than its competitors. The timing difference is generally minor, but from 2010 to 2011, cotton and wool experienced a 10-sigma price move. The price of cotton, specifically, nearly quadrupled in 18 months before falling by over two-thirds in the following six months. As costs were spiking for its competitors, Jos. A. Bank took advantage of their lower input costs and promoted aggressively. This produced banner years in fiscal years 2010 and 2011, growing revenue over 27% combined. In 2012, as competitors' costs were normalizing, the Company faced rising input costs at a time when unfavorable weather conditions also left it long in inventory. The Company tried to become even more promotional to clear its inventory at the expense of margins, but struggled. Ultimately, it decided to reset its promotions at the end of 2012 and early this year. Most observers have noticed that the Company's television advertising has been considerably less frequent and sensational.
The change in promotional intensity, combined with much lower and less volatile cotton and wool costs, is great for the future of Jos. A. Bank's business. Though sales growth has suffered from the reduction in promotions and likely will continue to suffer through the rest of the year, there will be a solid base from which to grow once the business laps the changes, and gross margins should benefit from the powerful dual tailwinds of less promotions and lower raw material costs. The few analysts who cover the stock expect earnings per share of close to $2.75, but we see no reason why margins do not return to historical averages in the low-60% range, which would yield normalized earnings closer to $4 per share. At today's share price near $40, excluding the cash pile, the Company trades at approximately 6x normalized earnings. This is simply too low for a retailer with real growth from box increases, a new factory store concept, and optionality around tuxedo rentals. Longer term, at maturity, we believe that Jos. A. Bank should be able to earn $175 million in free cash flow, or a 25% yield on the current enterprise value.
Unfortunately, the Company has chosen not to explain any of this to the investment community, and instead is focused on finding acquisitions for "long-term growth." The best investment that the Company can make today for its long-term shareholders is to repurchase shares at today's stock price, which is incredibly depressed as a result of a ballooning corporate governance discount in an information vacuum. Repurchasing shares with all of the cash on the balance sheet should increase normalized earnings close to $6 per share.
In our view, the paths to restoring the Board's relationship with shareholders as well as the market's confidence in the Company are straightforward.
- Immediately take action to de-stagger the Board and add a significant number of truly independent directors who have no prior connections to the current Board members or management.
- The Company should immediately return all of its cash to shareholders, preferably through buy-backs, as long as the stock continues to suffer from its severe discount. Further, the Company should outline a policy for returning all future cash flows to investors.
- The Board should rework its compensation practices to align management incentives more closely with the creation of long-term shareholder value. While business has struggled for the past 18 months, the executive team has done an admirable job operating the business over the long term. We believe that most shareholders would gladly reward the CEO, Neal Black, and other executives with cash and stock bonuses worth substantially more than current levels if they succeed in creating real value.
- The Company should terminate Mr. Wildrick's consulting arrangement and use the cash savings to build a legitimate investor relations department. The Company's current communication strategy is designed to impede, rather than encourage, investors from becoming shareholders. The Company also has no corporate presentation, does not attend investor conferences, does not communicate with sell-side analysts, and will not interact with current or prospective investors. As a result, prospective investors are at an information disadvantage compared to shareholders who completed their initial diligence prior to the Board's change in communication policy. This severely limits the pool of possible investors and negatively impacts the stock price. A professional investor relations team would quickly correct this problem and help to restore transparency to the business.
We strongly believe that with these actions, the Company's stock could be worth more than $70 per share today, which better reflects the solid business that has been built over the last two decades.
We remind you that as directors, you owe a fiduciary duty to the shareholders, the true owners of the Company. Your recent actions and general approach towards shareholders indicate that you have been neglecting your duties as a Board. We urge you to immediately act to restore shareholder confidence by following the suggestions outlined in this letter. Otherwise, we believe it is likely that shareholders will hold the Board accountable and seek change by replacing the Chairman at the 2014 annual meeting. Once again, we encourage our fellow shareholders to voice their displeasure with the Board and let it be known that change is needed immediately.
Per two 13G's filed with the SEC, Steve Mandel's hedge fund firm Lone Pine Capital has revealed two updated portfolio positions.
New SolarWinds (SWI) Position
First, Lone Pine has disclosed a brand new position in SolarWinds (SWI). Per the filing, the hedge fund owns 7.3% of the company with 5,479,465 shares. The disclosure was made due to portfolio activity on July 31st.
Per Google Finance, SolarWinds is "designs, develops, markets, sells and supports enterprise information technology (IT), infrastructure management software to IT professionals in organizations of all sizes. The Company’s product offerings range from individual software tools to more comprehensive software products that solve problems encountered by IT professionals. Its products are designed to help management of their infrastructure, including networks, applications, storage and physical and virtual servers, as well as products for log and event management. It offers a portfolio of products for IT infrastructure management. Its products operate in three categories: Free Tools, Transactional Products and Core Products. In May 2013, the Company completed N-able acquisition."
Boosts Michael Kors (KORS) Stake
Second, Mandel's firm has boosted its holdings in Michael Kors (KORS). Per the filing, Lone Pine now owns 5.2% of KORS with 10,498,164 shares. This marks a 30% increase in the number of shares they own since the end of the first quarter. This filing was required due to portfolio activity on August 2nd.
Per Google Finance, Michael Kors is "a designer, marketer, distributor and retailer of branded women’s apparel and accessories and men’s apparel bearing the Michael Kors name and MICHAEL KORS, MICHAEL MICHAEL KORS, KORS MICHAEL KORS and various other related logos. The Company operates its business in three segments: retail, wholesale and licensing. Retail operations consist of collection stores, lifestyle stores, including concessions and outlet stores located primarily in the United States, Canada, Europe and Japan. Wholesale revenues are principally derived from department and specialty stores located throughout the United States, Canada and Europe. The Company licenses its trademarks on products, such as fragrances, cosmetics, eyewear, leather goods, jewelry, watches, coats, footwear, men’s suits, swimwear, furs and ties."
Steve Cohen's hedge fund firm SAC Capital filed 2 separate 13G's with the SEC regarding two positions.
Sinclair Broadcast Group (SBGI)
Per a 13G, SAC has boosted its stake in Sinclair Broadcast Group (SBGI) by 159% since the end of the first quarter. They now own 5.2% of the company with 3,850,741 shares. The filing was required due to portfolio activity on August 9th.
Per Google Finance, Sinclair Broadcast Group is a "diversified television broadcasting company. The Company owns or provides certain programming, operating or sales services to more television stations."
You will see a bit of a theme with SAC's recent portfolio activity with their other purchase below:
LIN Media (LIN)
SAC has disclosed a 5.1% ownership stake in LIN Media with 1,701,054 shares. The filing was made due to portfolio activity on August 9th.
LIN Media recently completed its merger with LIN TV Corp.
According to the company, LIN Media is "a local multimedia company that operates or services 43 television stations and seven digital channels in 23 U.S. markets, and a diverse portfolio of websites, apps and mobile products that make it more convenient to access its unique and relevant content on multiple screens."
Richard Gerson's hedge fund firm Falcon Edge Capital has just filed a 13G with the SEC regarding shares of E-Commerce China Dangdang (DANG). Per the filing, Falcon Edge has disclosed an 8.2% ownership stake with 4,392,000 shares. This is a newly disclosed position and the filing was required due to activity on July 29th.
About Falcon Edge
Gerson founded Falcon Edge after previously working with John Griffin at Blue Ridge Capital for many years. He co-founded the Blue Ridge China, PE unit. Falcon Edge launched with Navroz Udwadia (formerly of Eton Park) and James Minshull as COO (also from Eton Park).
About DangDang
Per Google Finance, E-Commerce China Dangdang Inc. (Dangdang) is "a holding company. It is a business-to-consumer (B2C), e-commerce Company in the People’s Republic of China."
Richard Perry's hedge fund firm Perry Capital has just filed a 13D with the SEC regarding shares of J.C. Penney (JCP). Per the filing, Perry now owns 7.26% of JCP with 16,000,000 shares. This is a brand new position for the hedge fund.
The filing was required due to activity on August 9th. However, Perry started buying JCP shares as early as June 12th at $17.77 and throughout July and into August. Their most recent disclosed purchases come on August 1st at around $14.86.
Perry owned 12 million JCP shares as of June 30th, and then has purchased an additional 4 million shares since then. With the slide in JCP shares down to current levels of $12.81, Perry is already down on this position.
Perry's Letter to JCP's Board
Below is the letter Richard Perry sent to the Board of Directors today:
"August 9, 2013
Dear Mr. Engibous and the J. C. Penney Company Board of Directors,
Perry Capital currently owns shares representing beneficial ownership of 7.26% of J. C. Penney Company. Shareholders and creditors have increasingly lost confidence in the company, as evidenced by the recent significant decline in the company’s stock and bond prices. This market reaction is particularly alarming given the company’s meaningful improvement in liquidity following its $2.25 billion term loan financing. We strongly urge the Board to take immediate and proactive steps to improve the financial and operational management of the company.
Assuming recent press reports are accurate, Perry Capital would be very supportive of a return to the company by Allen Questrom and Ken Hicks. While we appreciate Mike Ullman’s willingness to assume the interim CEO role at a critical juncture, we believe it is imperative that the Board promptly establish a Board and management structure that provides the company the greatest chance for success. We believe that immediately appointing Allen Questrom Chairman of the Board and Ken Hicks CEO is imperative at this juncture, and we anticipate that the company’s various constituents would be highly supportive of such a change. In the words of Citigroup retail analyst Deborah Weinswig in a publicly available research note: “Questrom + Hicks = Dream Team” (Dear Board of Directors, Time is of the Essence! August 9, 2013).
Given the urgent nature of the situation, I am releasing this letter publicly so that other shareholders who feel the same way can express their opinions directly to the Board.
Roberto Mignone's hedge fund firm Bridger Capital filed a 13G and Form 3 with the SEC regarding shares of TrovaGene (TROV). Per the filing, Bridger has disclosed an 11.9% ownership stake in TROV with 2,142,857 shares.
This is a brand new position for the hedge fund and the filing was required due to portfolio activity on July 30th.
The company recently closed a registered direct offering of $15 million in common stock at $7 per share to an 'unnamed institutional investor.' Doing the math on Bridger's share count above, it appears as though Bridger is that investor.
Per Google Finance, TrovaGene is "a development-stage molecular diagnostic company that focuses on the development and marketing of urine-based nucleic acid tests for patient/disease screening and monitoring. The Company's novel tests predominantly use transrenal DNA (Tr-DNA) and transrenal RNA (Tr-RNA). The Company's technology is used to all transrenal nucleic acids (Tr-NA). The Company’s urine-based test addresses market needs, such as women’s healthcare-fetal medicine-down syndrome, infectious diseases, cancer testing, transplantation, drug development and monitoring of therapeutic outcomes, ultra-sensitive analytical and detection system, technologies for the collection, shipment and storage of urine specimens, and transrenal nucleic acid extraction, and instrumentation/system platform."
David Einhorn's hedge fund firm Greenlight Capital just filed an amended 13D with the SEC regarding shares of Einstein Noah Restaurant Group (BAGL). In it, they disclose a 53.1% ownership stake with 9,233,469 shares.
According to the Form 4 filed with the SEC, Greenlight sold 1,500,000 shares of Einstein Noah Restaurant Group (BAGL) at a price of $15.52 on August 6th.
Per Google Finance, Einstein Noah Restaurant Group is "an owner/operator, franchisor and licensor of bagel specialty restaurants in the United States. ENRGI operates under the Einstein Bros. Bagels (Einstein Bros.), Noah’s New York Bagels (Noah’s) and Manhattan Bagel Company (Manhattan Bagel) brands. ENRGI operates in three business segments: the Company-owned restaurants segment, the manufacturing and commissary segment, and the franchise and license segment. The Company-owned restaurants segment includes the restaurants that it owns. The manufacturing and commissary segment produces and distributes bagel dough and other products to its Company-owned restaurants, licensees and franchisees and other third parties. The franchise and license segment earns royalties and other fees from the use of trademarks and operating systems developed for the Einstein Bros., Noah’s and Manhattan Bagel brands."
MarketFolly.com
exists primarily to track hedge funds, examine why they're
buying/selling certain stocks, and to learn from great managers. After
all, investing is a continual education.
While learning
from your own mistakes is one way to improve your investment process,
it can also save you a lot of aggravation and money to take the time to
learn from others who are willing to share what they've learned as well,
and that's exactly what this book does.
The Art of Value Investing
makes you feel as if you're sitting at a giant table full of some of
the best investors today. A topic of investment process is opened for
discussion and everyone chimes in with their thoughts, all while you sit
there rapidly absorbing all that you can.
Chapters of the book include wisdom from managers on topics
such as: circle of competence, generating ideas, portfolio construction,
guarding against risk, and more.
Hedge Fund Managers Quoted in the Book
The list is quite extensive, but here's some of the bright minds that are quoted repeatedly in the book:
Seth Klarman (Baupost Group) Howard Marks (Oaktree Capital) David Einhorn (Greenlight Capital) Jon Jacobson (Highfields Capital) Lee Ainslie (Maverick Capital) Julian Robertson (Tiger Management) John Burbank (Passport Capital) Mitch Julis (Canyon Capital) Joel Greenblatt (Gotham Capital) Jeff Ubben (ValueAct Capital) James Crichton & Adam Weiss (Scout Capital) Larry Robbins (Glenview Capital) Ricky Sandler (Eminence Capital) Bruce Berkowitz (Fairholme Capital) Thomas Gayner (Markel Corp) Prem Watsa (Fairfax Financial)
And that's just a few of the big names. Tons more established and up and coming managers divulge their experiences in The Art of Value Investing.
Quote from the Book
We asked the authors for some of their favorite quotes from the book, and they sent one from David Einhorn on page 107:
"We
take the traditional value investor’s process and just flip it around a
little bit. If you’re looking for something that’s cheap, you’ll
probably do a variety of screens—on price‐to‐sales, price‐toearnings,
price‐to‐book, whatever—to identify stocks that appear to be
inexpensive. Once you have that list, then you start to research if
there are good reasons the stocks deserve to be cheap, or if maybe
there’s an investment opportunity because they’re cheap without a good
reason. We think that’s the way most value investors approach it.
We
never do screens like that. We start by identifying situations in which
there is a reason why something might be misunderstood, where it’s
likely investors will not have correctly figured out what’s going on.
Then we do the more traditional work to confirm whether, in fact,
there’s an attractive investment to make. That’s as opposed to starting
with something that’s just cheap and then trying to figure out why. We
think our way is more efficient."
High Praise From Other Hedge Fund Managers
This
is a fantastic book for any investor, whether you're a beginner or a
professional. Don't take our word for it, though. Here's what Omega
Advisors' Lee Cooperman had to say about The Art of Value Investing:
"They
have provided in one publication invaluable insights from some of the
most accomplished professionals in the investment business. I would
call this publication a must-read for any serious investor."
Pershing Square's Bill Ackman also praised the book:
"(The
book) is a thoughtfully organized compilation of some of the best
investment insights I have ever read. Read this book with care. It
will be one of the highest-return investments you will ever make."
Highfields'
Jon Jacobson called it a "must-read" and ValueAct Capital's Jeff Ubben
said that, "The lessons are like scars and they are revealed here
firsthand."
Nelson Peltz's investment firm Trian Partners recently released its second quarter letter. In it, they detail that they sold out of their investment in Danone (DANOY) as well as State Street (STT). Additionally, the firm mentions that it has recently trimmed its positions in Ingersoll Rand (IR) and Family Dollar (FDO).
New Mystery Investment
Peltz has built a new mystery position which he did not reveal in the letter. He said that some of the above stakes were sold in order to partially fund their new mystery purchase.
Here's all they had to say about this new position: It's "a company
comprised of world class businesses where we see a path to superior
value creation."
Andrew Ross Sorkin said that sources are pointing to Peltz acquiring a stake in DuPont (DD) back at the Delivering Alpha Conference last month, but Peltz didn't really confirm it when asked about it.
At any rate, here's their long portfolio composition by sector: 30% consumer staples, 28.1% consumer discretionary, 17.6% industrials, 13.9% financials, 10.4% basic materials, 0% other.
According to the letter, Trian also retains its positions in Lazard (LAZ), Legg Mason (LM), and Wendy's (WEN). Their thesis on Legg Mason remains unchanged: "Better fund flows, strong free cash flow, and improving margins should allow the shares to be valued closer to peer averages."
In the second quarter, Trian's total firm assets hit an all-time peak of approximately $6.3 billion. Net exposure finished the month at 100% net long (136.4% long and -36.4% short).
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:
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:
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.
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."
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."
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.
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."
