MM(mistermib)
Forumer storico
Ihra Son è una "charity" che organizza per beneficenza un convegno con i piu' grandi investitori del mondo , "tirando" poi le conclusioni e l'outlook sui migliori investimenti e trades da portare avanti....
Buona lettura, molto interessante!!!!!!
Ira Sohn 2011
First, I apologize in advance for not staying the entire time, I missed the Rich Brazilian Dude and Carl Icahn, but took copious notes on the presenters that we did stay for. 9 pages this year which was 2 more than last year’s more macro focused conference.
It was a PACKED house, every seat was taken and they had spill over rooms for people to watch a telecast. It is obvious (and in fact was obvious last year) that the venue has to change. We were all jammed up together for 5+ hours of investor ideas and presentations about the good work that the foundation does. It is a massively worthy cause, and anyone connected to it realizes that they are truly making a change and helping very sick kids. This is year 16 of the event.
Anyway, the tone this year was much different from 2010, and more like the IS conferences I have been going to for the last 6 years. Namely, though there was a few presenters who spoke esoterically on the macro threats in the market (certainly Dr. Doom, Jeffrey Gundlach, and I think the most interesting macro bent from Mark Hart of Corriente.. no not that Corriente), this year’s conference was very focused on single name ideas in the context of a market that may not be cheap, but with some stocks/bonds/mortgages/etc that certainly are, in their view.
Something that should be pointed out is that the presentations this year were much shorter than in the past because of the volume of presenters. So presenters didn’t get as deep as they used to.
My disclaimer follows: sorry in advance for lack of grammar, spelling, and bad words and possibly not making sense. Also, I usually don’t mind if anyone wants to send it out, but please just drop me a line first if you are going to.
Erez Kalir (Sabretooth)
By the way, this guy has the best resume you have ever seen. Degrees from Stanford, Oxford, Yale Law School, worked for Julian, was in the administration in some capacity and runs Sabretooth. He presented 3 ideas, all with the overarching theme of “Economic Death as a Special Situation”. Believe it or not, all ideas were long recommendations. I think his point was that you can make a lot of money in things where the market believes death to the company/model/business is imminent.
1. MBIA: long stock, long risk through shorts of 5yr AA and 2 yr AAA:
a. the bad assets are walled off
b. thinks there is no one incented to push them in (and trigger default)
c. The legacy portfolio has mostly been written down to appropriate levels which discount current levels on CDS.
d. The market is not giving them enough credit for the massive commutation of risk (ending liability tails by settling with counterparties) to the tune of 49bln
e. Litigation against the bulge bracket firms will mitigate credit losses on the bad asset side.
f. Trades at less than 1/3 Book. 100-200% upside, with risk of entire capital impairment
2. Argentinean E&P sector: bullish on CDS of the sovereign, should trade back to Latam index (ex venny) for contest, 5 yr argie trades at 600, with brazil, Columbia, panama, peru 80-100. Vennie is like 20 pts upfront but who the heck knows what’s going on there.
a. Their economy is turning, and for the first time they can no longer get by on existing oil supply internally
b. The existing infrastructure has been neglected because of this, but that needs to change, which necessitates investment in the E&P sector
c. A couple of names he dropped on a slide deck with no color other than the tickers were: Americas Petrogas (BOE CN: Argentinean E&P in Canada: 355 CAD mkt cap) Madalena (MVN CE: South America and Tunisia E&P: 177mm CAD mkt cap)Arpetrol LTD (TINY argie E&P trades at .11 cents 65mm CAD mkt cap
3. US Fiscal situation: what is the best hedge?
a. Not market participants, not the markets, not the fed, not my mother, no one can predict what will happen to interest rates and belief of stability in the US in the future.
b. Treasuries can be manipulated (like QE2, so shorting not a great idea) gold can be confiscated (apparently it has happened twice right here in the US, but I think that is when we were back on the gold standard).
c. Simply, the invisible hand can smack you in the face even if you think you have hedged out your risk via gold longs and treasury shorts
d. So buy farm land outside of the United states. A replenishing asset, earn return, finite, etc. he showed a picture of a villa in Tuscany. Damn that place is nice
Dinakar Singh
Highly respected, he was one of my favorite guys this year, and is in fact one of my faves every year. This guy lives and breathes it. He had a slide deck and notes but didn’t need either. Authoritative command of his positions.
Started by pointed out that the stimulus and momentum led trade in ALL things risk is coming to an end, and that it’s a great time for stock picking. Approach right now is to invest in companies that have pockets of growth COMBINED with the ability to restructure their operations into something better, bigger, leaner, meaner.
1. Orkla ASA (ORK NO): the consumer staple company of record in Norway, which, as we have discussed on the desk, is one of the richest and best positioned sovereigns in the entire world (maybe even the universe)
a. Overburdened with a bunch of different assets like an aluminum business, consumer goods, renewable energy and financial investments (why not). 50bln NOK company (10bln USD)
b. Big changes coming, potential split up of the business
c. Trade inside of 10x 2012 estimates with value in the SOTP. The good ol SOTP conglomerate story.
2. Zhongpin, inc (HOGS): starts by pointing out that since the whole EM/DM risk on/risk off trade momentum BS started, Asia multiples have been decimated. We have come full circle and now asian multiples are cheap to the US. In his view, inflation is a problem, but it’s not unique to china, points to GPS, Kellogg others who have underperformed due to commodity inflation.
a. Trades at 7-8 next year
b. Will be a net beneficiary of the (forced?) consolidation of the Chinese food processing space.
c. Thinks that Chinese farmers are the group that the powers that be don’t want to piss off, so companies like this could be outsized beneficiaries.
3. Sprint: this is his best big cap restructuring idea.
a. Near disastrous purchase of Nextel, was a great idea at the time but the onset of smart phones caught them off guard (I’m thinking they mistimed adaptation?)
b. T-Mo purchase helps remove another player in the space
c. Churn declining, ARPU declining, operational improvement starting to show up in the numbers
d. Trades at 18% FCF, potential take out target 40-70% upside
Jeff Aronson
First time presenter with a clean slide deck and a concise pitch on just one name: CIT stock. Pointed out that most of the time, a firm like his usually creates equity in a company through the bonds in pre-reorg and become sellers on the restructuring. But is buying this stock right now.
1. “intrinsic” BV (post fresh start accounting) is $59 a share (vs 41.64 close) so .7x book
2. Assets on their book held at 89 cents on the dollar. Bringing these assets to par is worth $7 a share
3. NOL is worth another $7 a share
4. Asset Yields of 8% vs big bank at 4.6%. BUT cost of funds is 7.2% vs 1.0% at the banks. Huge opportunity to increase NIM with better financing
5. Street is all over the place with their estimates.
6. Could be a buyer of a company
a. Used Valley national as an example (VLY: 2.2bln mkt cap) combination of deposits at VLY and their business would make a ton of sense. Access to cheaper capital could move stock into 60s
7. Could be an acquisition target from the likes of HSBC, WFC, US Bancorp, TD.
a. Lending synergies across the platform, reduction in cost of funds, opex synergies
8. Mid 60s price target, which includes all of the locked up value (like NOL, potential NIM pick up on reduced cost of funds) and ZERO premium.
9. This equity is safe and cheap to its true value, with a motivated management team.
Bob Howard: KKR equity strategy
I’m still trying to figure out what part of KKR Bob works for, because this looked much more like something a hedge fund investor would recommend, or even a sell side special situations guy, but he did present two compelling ideas after getting over some (slight) initial nerves. His thesis was presenting on “misunderstood companies” that had locked up value
1. Wabco (WBC 4.5bln): auto parts (mostly commercial truck) business focused on braking, stability, suspension, and transmission control systems
a. Benefits greatly from exposure to EM market, where they command huge share (85% india, 65% china I think, im sure about india, the Chinese slide went so fast)
b. Adaptation of antilock braking systems (of which they invented) is still in its VERY early stages in EM.
c. Huge exposure to Western Europe (60% of total) but Germany is half of that exposure.
d. Trades inline with peers but deserves much higher multiple, say of the BWA ilk, which provides 40% upside on no earnings growth
2. HSN, inc (HSNI): the home shopping network. Yes the home shopping network.
a. HSN represents 71% of their sales, cornerstone (catalogues) the balance
b. Online shopping on HSN.com is a game changer, a very satisfying experience
c. 6% CAGR for sales vs 3% in comparable businesses: since 1994
d. Trades at 5.7x next year, cheaper than comps in the 7x (or higher) range
e. A 7x multiple is 20% upside. To current price of 32.71
f. Largest holder is Liberty Media which is the majority owner of QVC. Synergies could push this company up 60-90%
Phil Falcone: Harbinger
The first presenter that no one applauded when he walked out. He told a really terrible joke (I actually forgot what it was, but it was so bad I should have written it down). He started with a brief (and tough to understand) intro to lightsquared, for what, I don’t know, because it’s private and I think he owns all of it. I managed to keep count of every time he said “I” or “me” and in 6 minutes he said I 5 times and said me 3 times. I think he was attempting to separate this investment (by using the possessive) from his MLP/Nat Gas pipeline play, which was actually pretty interesting. Anyway he did have some technical difficulties that showed up on everyone elses presentations from that point on (looks like power point got stuck or something)
1. Crosstex Energy, Inc. (XTXI): midstream pipeline biz with 480mm mkt cap (harbinger owns 9.7%)
2. XTEX (also publicly traded) is the MLP.
3. The gathering lines (gas processing pipes) are hard to replicate
4. The spread between oil and gas is the key to upside. I think (though he was dealing with his slide deck issues here and unsuccessfully riffing) he was saying that it benefits by a widening of nat gas to oil (which doesn’t seem like a great bet right now)
5. This is not about drilling, but processing
6. Organic growth expected to be in the 10-15% context. 240mm of ebitda (200 last year) and a reasonable multiple makes this company a double.
Jim Chanos: Kynikos Associates
Everyone in the room though that he was going to tool on China (his article in the journal today was pretty detailed, said he would be short more if he could secure the borrow) but instead he threw the room a curve ball with a presentation entitled Does Solar + Wind = Hot Air?
1. Short Vestas (VWS DC 6ish bln mkt cap)
a. Simply put, believes that green companies are not green, not financially sound, and are headed for a dramatic fall of value.
b. They can never be baseload assets: it would take a windfarm the size of Texas and Louisiana to provide solely wind power to the US. Of course it would never be 100% wind, but whatever. The point is, for wind and solar to actually make a difference would require environmental destruction.
c. Windpower is 50% more expensive than heating with nat gas, solar is 400% more expensive
d. The “green jobs” created are mostly in construction, as the high tech (and high paying) jobs are not abundant
e. Demand in Europe for this subsidized form of energy is waning as fast as the price of the greek 20 year (I made that analogy up). Italy and Spain certainly don’t have the dough to spend on subsidized energy.
f. Some accounting shenanigans beginning to show up
2. Short First Solar (FSLR 10bln mkt cap)
a. BIG negative cash flow, balance sheet is deteriorating
b. Insider selling, insiders leaving, new management no real industry experience.
Michael Price
Kind of a guest announcer, and one of my favorite presenters over the last few years. Very simply, he knows his stuff, his niche is financials, and if you will recall he was supremely bearish at the 2008 sohn conference, especially citi. He was here to present the best Ira Sohn investment idea, and dropped some quick knowledge on Goldman
1. GS SOTP gets him to 240 a share (closed at 136 today. Wow. GS is at 136?) this is where we traded to when the investigation began last year. (AKA the tape bomb of spring 2010)
2. Thinks that you need to throw out the “bad data” of mid 2009 (nationalization fears etc) because it was such an outlier as well as the heady times. And comes back to (you guessed it, book value).
3. Said that GS are not crooks, they are just trying to transact in the business just like you or I.
Went on to introduce the winner of the contest, a young guy from Indiana who presented a for profit ed name right in Steve Eisenman’s face (and even included a picture of him). Incidentally the finalists included GM, Gamestop, and Cadence.
The winner presented Bridgepoint education (BPI 1.2bln mkt cap)
1. For profit education: key demographic is a 35 y/o minority who works full time. The noble
2. Trades at 2.6x this year and 4.3 p/e
3. Compare their demographic to apollos student (he showed a teenager smoking weed)
4. 34% graduation rate seems low but compares to 45% for 4 yr college.
5. 130% upside to comps, with a HUGE amount of short interest (56% of float is short)
Steve Feinberg: Cerberus
Bullish on RMBS securities. Was noticeably nervous, was introduced as a guy who “didn’t like speaking in public forums” . the details were not there, it was not the best presentation, that’s for sure
1. The US housing conference is far from over
2. Many mortgage holders with high FICO scores are choosing to walk away from their payments because their equity is under water. This is new.
3. Security analysis in this space has changed dramatically, credit is the most important factor now (as opposed to prepayment rates, yields, aka normal analysis of mortgages as in the past)
4. Did not present for too long
Peter May: Trian Group
Very interesting perspective on Tiffany, he is a board member so had to do a lot of disclosure about this not having MNPI and that everyone understood his thesis was Trian’s alone with no help from the company. This is a 420mm position for them (TIF has a 9bln mkt cap). Started by saying that the low end and super high end consumer has been very active and strong
1. Misunderstood brand, with huge cache that should trade at much higher multiple
2. Sells both middle market ($200-$15,000) jewelry and super high end jewelry (showed a picture of anne hatthaway at the oscars with some serious tiffany bling)
3. This is international growth story, 2010 was the first time they actually did more in sales internationally than in US. The trend will continue
4. Covered by inappropriate analysts (soft line/hard line retailers) as opposed to luxury goods analysts as in Europe (LVMH, Bulgari, etc)
5. Chinese store count up to 30 from 13 some time ago (I don’t remember what the comp was)
6. Vertically integrated, owns mines, shares of mines, JVs in mines. Controls the product, which is predominately diamonds.
7. Caritier model of watch sales should be emulated. Need to open up sales of watches to not just the store, like cartier.
8. The concept of “self purchase” (ie not buying a gift but something for yourself) is being imbedded, so they now have bags, etc.
9. SSS growth improves with maturity, which is a large distinction between TIF and say a restaurant company where initial openings flicker and fade. Usually TIF stores improve with time.
10. Upside to 100 based on multiple expansion to the European luxury goods makers.
11. Trades at 21x, Bulgari was just sold for 30x. that implies 44% ups.
Steve Eisenman
Of course Eisenman probably made the biggest wave last year with his presentation on shorting the for-profit ed space (titled “subprime goes to college”) and this year the expectation was another evisceration of a sector but instead he was bullish on the P&C space. Unfortunately did not provide many names, just kind of presented on the sector in total.
1. At first, was very positive on the financials, with capital at historical highs. Loans to deposits strong, etc.
2. Big but is regulatory overhang. Nothing earth shattering here.
3. What is less expensive than this really cheap portion of the market? Property casualty insurance.
4. This has been a terrible year, 85bln in insurable losses so far with japan, Australia, new Zealand and the US tornado season.
5. Cautioned investors that it requires nerve to invest in these companies ahead of hurricane season
6. Insurance brokers (like March, AON, willis etc) were the safest way to mitigate these risks.
7. Points out that while banks have been diluting their shareholders, the P&C guys have been reducing their share counts with share buybacks in huge amounts. (26% across the space)
Jeff Gundlach: Doubleline
I think that this was one of the most entertaining of presentations, you can easily see why people feel he is a genius (and yes, he has a better investing record than Bill Gross in fixed income). The title of his speech was “investment cubism” and he gave an art history lesson while introducing picasso’s les demoiselles d’avignon. Apparently (learn something new every day right?) there are multiple perspectives which is how you have to set up your portfolio. He then recommended a portfolio of assets for about 30 seconds with a bunch of duration measures and prepayment risks and other myriad inputs.
1. Also included in his portfolio was US Dollars (yes, he is bullish on the dollar), Gold, Nat Gas.
2. Showed a very interesting chart of the ABX and BoA stock. They plot almost exactly. And the ABX is down 20% this year so far.
3. Thinks it goes much lower as severities increase, the standstill is merely making the severity worse. This was in direct opposition to the Feinberg “presentation”
Marc Faber
As always a tremendously depressing presentation about how we are all going to blow up and die in a bloody and inflationary treasury massacre. He presents like your favorite economics professor from college, was completely at home up there. I know it’s his profession, but if I could be as comfortable on stage as he is, that would be pretty cool.
1. The Fed is going to print print print print because that’s the easiest solution to an intractable solution
2. Thinks the next war will be between china and the US re: Oil (apparently the US is colonizing the Middle East) and commodities will go through the roof
3. I am not sure I heard of an investment idea here. But damn was it entertaining.
Bill Ackman: Pershing Square
He was told to keep it to 15 minutes ONLY because he is notoriously verbose and goes over. He spoke really quickly and succinctly. One of the best presenters every year. I thought he was going to go for the trifecta and speak about GGP for the 3rd year in a row, he actually showed a chart of GGP as a joke but rolled into his investment idea: Family Dollar.
1. FDO: 6.5bln market cap, trades at a 14 p/e.
2. One of the few companies in the low income/lower income market that actually SERVES it’s customers as opposed to ripping them off.
3. Competes (sort of ) with Walmart but is much more convenient. Average store visit is 8 minutes
4. Takes share in recessions. Should perform well if we roll over again. Sells “stuff you need”
5. Arch rival is Dollar Gen, gave a big shout out to KKR for the improvement of that brand when it was private.
6. Riding Trian’s coattails, who tried to take the company out recently
7. If this biz can close the gap on margin, operations, blocking/tackling with DG, there’s a ton of upside. (did he say 70%?)
8. He joked that his position size was x “as of yesterday, but we were buying a lot of this stock today”
Joel Greenblatt
I went to the bathroom during his presentation, and when I came back he was speaking about the relative cheapness of the market, frankly it hurt my head. His book was the parting gift (“the big secret for the small investor”)I’ll try to read it and pass along the details. Did point out that the shrinking time horizon for investors (need quarterly, monthly, weekly, daily updates on p&l) creates an opportunity for long term minded investors.
Mark Hart: Corriente Investors
This guy presented what I think is the most unique idea at the conference, which was a bearish Chinese bet. This is VERY off market. I started to fade a little here when he talked about repatriation of cash but perked up when he described the massive asymmetric bet in 1yr forward puts on the renminbi. By the way, this guy combined with Kyle Bass to make gobs of dough on the subprime short.
1. The risks in China are huge, misconceptions are everywhere.
a. Myth 1: China is an economic miracle, when in fact it is a credit fueled bubble.
b. Bank lending is up 70% (to 125% of GDP) the M2 supply in China is more than the United State’s
c. Fixed asset investment is 65% of GDP. Comparing this to the asian meltdown, it’s much higher for much longer in china.
d. The state run enterprise does not want to allow the market to correct in normal fashion, so it keeps on pumping up the market.
e. Lending is increasing as NPLs decline. How is this possible?
f. Inflation is the key input that will bring Chinese boom to an end. The government controlled inputs are keeping a lid on the “real” inflation data.
g. Flight of capital out of China is the path of least resistance. This is where I faded out. Hopefully someone else’s recap can describe this.
h. Long ATM puts at a 3.8% vol. vol went to 18% in the very bad times of late 2008, 2009.
i. 1 yr 7.5 put costs 25 bps. So you can buy 100mm of protection for 250,000. If the renminbi goes to 10 (which would be a very slight devaluation in his view) this makes 25mm.
David Einhorn
I’ve typed too much. This is the last presenter that I stuck around for. He had two ideas, all centered around the theme of “two different types of overhangs”. He’s the star of this conference every year, but this wasn’t as impactful as say his recommendation of shorting Lehman in 2008.
1. Delta Lloyd: quipped here that this isn’t the ‘delta of Lloyd’ which is the difference between what Lloyd blankfien gets paid and what the government would like to see him get paid. Yuk yuk
a. DL NA 2.6 bln euro mkt cap. P&C in Europe, .7x book, pays 6% dividend. P/e sub 5x.
b. Aviva is the holder with a lot of stock for sale, the overhang has kept on led on the stock.
2. Microsoft: this is an idea he presented 5 years ago. We all know what Microsoft has done (down from $30 bucks).
a. Still very bullish on the stock, windows has dominant share
b. the “open source” threat has passed (remember when people were scared about windows office dominance was going away?)
c. Remarkable discount to the market, trades at 7x his 2011 numbers (incidentally the street has it trading at 8.7x 2012) what has happened to the valuation?
d. Steve Ballmer has happened. This is the overhang affecting Microsoft.
e. He has stifled growth, he’s stuck in the past, he’s not an innovator, he’s a moron
f. Really, einhorn made him look like a fool with his own words (iphone will never get share, he killed an internal tablet)
g. Talent is fleeing. It’s time for the board to fire Ballmer. Nasty stuff. Done in that wonderfully soft spoken einhorn way. He’s great.
Conclusion
Phew. That was a lot of typing. I didn’t really give the most succinct overview after all. Anyway, this year I think was better than 2010 because they definitely stuck with stock picking over the macro risks that were top on everyones mind last year. maybe that’s a bad thing? I don’t know.
4300 words this year. last year was 2800 words. Man. Sorry. Until next year.
Buona lettura, molto interessante!!!!!!
Ira Sohn 2011
First, I apologize in advance for not staying the entire time, I missed the Rich Brazilian Dude and Carl Icahn, but took copious notes on the presenters that we did stay for. 9 pages this year which was 2 more than last year’s more macro focused conference.
It was a PACKED house, every seat was taken and they had spill over rooms for people to watch a telecast. It is obvious (and in fact was obvious last year) that the venue has to change. We were all jammed up together for 5+ hours of investor ideas and presentations about the good work that the foundation does. It is a massively worthy cause, and anyone connected to it realizes that they are truly making a change and helping very sick kids. This is year 16 of the event.
Anyway, the tone this year was much different from 2010, and more like the IS conferences I have been going to for the last 6 years. Namely, though there was a few presenters who spoke esoterically on the macro threats in the market (certainly Dr. Doom, Jeffrey Gundlach, and I think the most interesting macro bent from Mark Hart of Corriente.. no not that Corriente), this year’s conference was very focused on single name ideas in the context of a market that may not be cheap, but with some stocks/bonds/mortgages/etc that certainly are, in their view.
Something that should be pointed out is that the presentations this year were much shorter than in the past because of the volume of presenters. So presenters didn’t get as deep as they used to.
My disclaimer follows: sorry in advance for lack of grammar, spelling, and bad words and possibly not making sense. Also, I usually don’t mind if anyone wants to send it out, but please just drop me a line first if you are going to.
Erez Kalir (Sabretooth)
By the way, this guy has the best resume you have ever seen. Degrees from Stanford, Oxford, Yale Law School, worked for Julian, was in the administration in some capacity and runs Sabretooth. He presented 3 ideas, all with the overarching theme of “Economic Death as a Special Situation”. Believe it or not, all ideas were long recommendations. I think his point was that you can make a lot of money in things where the market believes death to the company/model/business is imminent.
1. MBIA: long stock, long risk through shorts of 5yr AA and 2 yr AAA:
a. the bad assets are walled off
b. thinks there is no one incented to push them in (and trigger default)
c. The legacy portfolio has mostly been written down to appropriate levels which discount current levels on CDS.
d. The market is not giving them enough credit for the massive commutation of risk (ending liability tails by settling with counterparties) to the tune of 49bln
e. Litigation against the bulge bracket firms will mitigate credit losses on the bad asset side.
f. Trades at less than 1/3 Book. 100-200% upside, with risk of entire capital impairment
2. Argentinean E&P sector: bullish on CDS of the sovereign, should trade back to Latam index (ex venny) for contest, 5 yr argie trades at 600, with brazil, Columbia, panama, peru 80-100. Vennie is like 20 pts upfront but who the heck knows what’s going on there.
a. Their economy is turning, and for the first time they can no longer get by on existing oil supply internally
b. The existing infrastructure has been neglected because of this, but that needs to change, which necessitates investment in the E&P sector
c. A couple of names he dropped on a slide deck with no color other than the tickers were: Americas Petrogas (BOE CN: Argentinean E&P in Canada: 355 CAD mkt cap) Madalena (MVN CE: South America and Tunisia E&P: 177mm CAD mkt cap)Arpetrol LTD (TINY argie E&P trades at .11 cents 65mm CAD mkt cap
3. US Fiscal situation: what is the best hedge?
a. Not market participants, not the markets, not the fed, not my mother, no one can predict what will happen to interest rates and belief of stability in the US in the future.
b. Treasuries can be manipulated (like QE2, so shorting not a great idea) gold can be confiscated (apparently it has happened twice right here in the US, but I think that is when we were back on the gold standard).
c. Simply, the invisible hand can smack you in the face even if you think you have hedged out your risk via gold longs and treasury shorts
d. So buy farm land outside of the United states. A replenishing asset, earn return, finite, etc. he showed a picture of a villa in Tuscany. Damn that place is nice
Dinakar Singh
Highly respected, he was one of my favorite guys this year, and is in fact one of my faves every year. This guy lives and breathes it. He had a slide deck and notes but didn’t need either. Authoritative command of his positions.
Started by pointed out that the stimulus and momentum led trade in ALL things risk is coming to an end, and that it’s a great time for stock picking. Approach right now is to invest in companies that have pockets of growth COMBINED with the ability to restructure their operations into something better, bigger, leaner, meaner.
1. Orkla ASA (ORK NO): the consumer staple company of record in Norway, which, as we have discussed on the desk, is one of the richest and best positioned sovereigns in the entire world (maybe even the universe)
a. Overburdened with a bunch of different assets like an aluminum business, consumer goods, renewable energy and financial investments (why not). 50bln NOK company (10bln USD)
b. Big changes coming, potential split up of the business
c. Trade inside of 10x 2012 estimates with value in the SOTP. The good ol SOTP conglomerate story.
2. Zhongpin, inc (HOGS): starts by pointing out that since the whole EM/DM risk on/risk off trade momentum BS started, Asia multiples have been decimated. We have come full circle and now asian multiples are cheap to the US. In his view, inflation is a problem, but it’s not unique to china, points to GPS, Kellogg others who have underperformed due to commodity inflation.
a. Trades at 7-8 next year
b. Will be a net beneficiary of the (forced?) consolidation of the Chinese food processing space.
c. Thinks that Chinese farmers are the group that the powers that be don’t want to piss off, so companies like this could be outsized beneficiaries.
3. Sprint: this is his best big cap restructuring idea.
a. Near disastrous purchase of Nextel, was a great idea at the time but the onset of smart phones caught them off guard (I’m thinking they mistimed adaptation?)
b. T-Mo purchase helps remove another player in the space
c. Churn declining, ARPU declining, operational improvement starting to show up in the numbers
d. Trades at 18% FCF, potential take out target 40-70% upside
Jeff Aronson
First time presenter with a clean slide deck and a concise pitch on just one name: CIT stock. Pointed out that most of the time, a firm like his usually creates equity in a company through the bonds in pre-reorg and become sellers on the restructuring. But is buying this stock right now.
1. “intrinsic” BV (post fresh start accounting) is $59 a share (vs 41.64 close) so .7x book
2. Assets on their book held at 89 cents on the dollar. Bringing these assets to par is worth $7 a share
3. NOL is worth another $7 a share
4. Asset Yields of 8% vs big bank at 4.6%. BUT cost of funds is 7.2% vs 1.0% at the banks. Huge opportunity to increase NIM with better financing
5. Street is all over the place with their estimates.
6. Could be a buyer of a company
a. Used Valley national as an example (VLY: 2.2bln mkt cap) combination of deposits at VLY and their business would make a ton of sense. Access to cheaper capital could move stock into 60s
7. Could be an acquisition target from the likes of HSBC, WFC, US Bancorp, TD.
a. Lending synergies across the platform, reduction in cost of funds, opex synergies
8. Mid 60s price target, which includes all of the locked up value (like NOL, potential NIM pick up on reduced cost of funds) and ZERO premium.
9. This equity is safe and cheap to its true value, with a motivated management team.
Bob Howard: KKR equity strategy
I’m still trying to figure out what part of KKR Bob works for, because this looked much more like something a hedge fund investor would recommend, or even a sell side special situations guy, but he did present two compelling ideas after getting over some (slight) initial nerves. His thesis was presenting on “misunderstood companies” that had locked up value
1. Wabco (WBC 4.5bln): auto parts (mostly commercial truck) business focused on braking, stability, suspension, and transmission control systems
a. Benefits greatly from exposure to EM market, where they command huge share (85% india, 65% china I think, im sure about india, the Chinese slide went so fast)
b. Adaptation of antilock braking systems (of which they invented) is still in its VERY early stages in EM.
c. Huge exposure to Western Europe (60% of total) but Germany is half of that exposure.
d. Trades inline with peers but deserves much higher multiple, say of the BWA ilk, which provides 40% upside on no earnings growth
2. HSN, inc (HSNI): the home shopping network. Yes the home shopping network.
a. HSN represents 71% of their sales, cornerstone (catalogues) the balance
b. Online shopping on HSN.com is a game changer, a very satisfying experience
c. 6% CAGR for sales vs 3% in comparable businesses: since 1994
d. Trades at 5.7x next year, cheaper than comps in the 7x (or higher) range
e. A 7x multiple is 20% upside. To current price of 32.71
f. Largest holder is Liberty Media which is the majority owner of QVC. Synergies could push this company up 60-90%
Phil Falcone: Harbinger
The first presenter that no one applauded when he walked out. He told a really terrible joke (I actually forgot what it was, but it was so bad I should have written it down). He started with a brief (and tough to understand) intro to lightsquared, for what, I don’t know, because it’s private and I think he owns all of it. I managed to keep count of every time he said “I” or “me” and in 6 minutes he said I 5 times and said me 3 times. I think he was attempting to separate this investment (by using the possessive) from his MLP/Nat Gas pipeline play, which was actually pretty interesting. Anyway he did have some technical difficulties that showed up on everyone elses presentations from that point on (looks like power point got stuck or something)
1. Crosstex Energy, Inc. (XTXI): midstream pipeline biz with 480mm mkt cap (harbinger owns 9.7%)
2. XTEX (also publicly traded) is the MLP.
3. The gathering lines (gas processing pipes) are hard to replicate
4. The spread between oil and gas is the key to upside. I think (though he was dealing with his slide deck issues here and unsuccessfully riffing) he was saying that it benefits by a widening of nat gas to oil (which doesn’t seem like a great bet right now)
5. This is not about drilling, but processing
6. Organic growth expected to be in the 10-15% context. 240mm of ebitda (200 last year) and a reasonable multiple makes this company a double.
Jim Chanos: Kynikos Associates
Everyone in the room though that he was going to tool on China (his article in the journal today was pretty detailed, said he would be short more if he could secure the borrow) but instead he threw the room a curve ball with a presentation entitled Does Solar + Wind = Hot Air?
1. Short Vestas (VWS DC 6ish bln mkt cap)
a. Simply put, believes that green companies are not green, not financially sound, and are headed for a dramatic fall of value.
b. They can never be baseload assets: it would take a windfarm the size of Texas and Louisiana to provide solely wind power to the US. Of course it would never be 100% wind, but whatever. The point is, for wind and solar to actually make a difference would require environmental destruction.
c. Windpower is 50% more expensive than heating with nat gas, solar is 400% more expensive
d. The “green jobs” created are mostly in construction, as the high tech (and high paying) jobs are not abundant
e. Demand in Europe for this subsidized form of energy is waning as fast as the price of the greek 20 year (I made that analogy up). Italy and Spain certainly don’t have the dough to spend on subsidized energy.
f. Some accounting shenanigans beginning to show up
2. Short First Solar (FSLR 10bln mkt cap)
a. BIG negative cash flow, balance sheet is deteriorating
b. Insider selling, insiders leaving, new management no real industry experience.
Michael Price
Kind of a guest announcer, and one of my favorite presenters over the last few years. Very simply, he knows his stuff, his niche is financials, and if you will recall he was supremely bearish at the 2008 sohn conference, especially citi. He was here to present the best Ira Sohn investment idea, and dropped some quick knowledge on Goldman
1. GS SOTP gets him to 240 a share (closed at 136 today. Wow. GS is at 136?) this is where we traded to when the investigation began last year. (AKA the tape bomb of spring 2010)
2. Thinks that you need to throw out the “bad data” of mid 2009 (nationalization fears etc) because it was such an outlier as well as the heady times. And comes back to (you guessed it, book value).
3. Said that GS are not crooks, they are just trying to transact in the business just like you or I.
Went on to introduce the winner of the contest, a young guy from Indiana who presented a for profit ed name right in Steve Eisenman’s face (and even included a picture of him). Incidentally the finalists included GM, Gamestop, and Cadence.
The winner presented Bridgepoint education (BPI 1.2bln mkt cap)
1. For profit education: key demographic is a 35 y/o minority who works full time. The noble
2. Trades at 2.6x this year and 4.3 p/e
3. Compare their demographic to apollos student (he showed a teenager smoking weed)
4. 34% graduation rate seems low but compares to 45% for 4 yr college.
5. 130% upside to comps, with a HUGE amount of short interest (56% of float is short)
Steve Feinberg: Cerberus
Bullish on RMBS securities. Was noticeably nervous, was introduced as a guy who “didn’t like speaking in public forums” . the details were not there, it was not the best presentation, that’s for sure
1. The US housing conference is far from over
2. Many mortgage holders with high FICO scores are choosing to walk away from their payments because their equity is under water. This is new.
3. Security analysis in this space has changed dramatically, credit is the most important factor now (as opposed to prepayment rates, yields, aka normal analysis of mortgages as in the past)
4. Did not present for too long
Peter May: Trian Group
Very interesting perspective on Tiffany, he is a board member so had to do a lot of disclosure about this not having MNPI and that everyone understood his thesis was Trian’s alone with no help from the company. This is a 420mm position for them (TIF has a 9bln mkt cap). Started by saying that the low end and super high end consumer has been very active and strong
1. Misunderstood brand, with huge cache that should trade at much higher multiple
2. Sells both middle market ($200-$15,000) jewelry and super high end jewelry (showed a picture of anne hatthaway at the oscars with some serious tiffany bling)
3. This is international growth story, 2010 was the first time they actually did more in sales internationally than in US. The trend will continue
4. Covered by inappropriate analysts (soft line/hard line retailers) as opposed to luxury goods analysts as in Europe (LVMH, Bulgari, etc)
5. Chinese store count up to 30 from 13 some time ago (I don’t remember what the comp was)
6. Vertically integrated, owns mines, shares of mines, JVs in mines. Controls the product, which is predominately diamonds.
7. Caritier model of watch sales should be emulated. Need to open up sales of watches to not just the store, like cartier.
8. The concept of “self purchase” (ie not buying a gift but something for yourself) is being imbedded, so they now have bags, etc.
9. SSS growth improves with maturity, which is a large distinction between TIF and say a restaurant company where initial openings flicker and fade. Usually TIF stores improve with time.
10. Upside to 100 based on multiple expansion to the European luxury goods makers.
11. Trades at 21x, Bulgari was just sold for 30x. that implies 44% ups.
Steve Eisenman
Of course Eisenman probably made the biggest wave last year with his presentation on shorting the for-profit ed space (titled “subprime goes to college”) and this year the expectation was another evisceration of a sector but instead he was bullish on the P&C space. Unfortunately did not provide many names, just kind of presented on the sector in total.
1. At first, was very positive on the financials, with capital at historical highs. Loans to deposits strong, etc.
2. Big but is regulatory overhang. Nothing earth shattering here.
3. What is less expensive than this really cheap portion of the market? Property casualty insurance.
4. This has been a terrible year, 85bln in insurable losses so far with japan, Australia, new Zealand and the US tornado season.
5. Cautioned investors that it requires nerve to invest in these companies ahead of hurricane season
6. Insurance brokers (like March, AON, willis etc) were the safest way to mitigate these risks.
7. Points out that while banks have been diluting their shareholders, the P&C guys have been reducing their share counts with share buybacks in huge amounts. (26% across the space)
Jeff Gundlach: Doubleline
I think that this was one of the most entertaining of presentations, you can easily see why people feel he is a genius (and yes, he has a better investing record than Bill Gross in fixed income). The title of his speech was “investment cubism” and he gave an art history lesson while introducing picasso’s les demoiselles d’avignon. Apparently (learn something new every day right?) there are multiple perspectives which is how you have to set up your portfolio. He then recommended a portfolio of assets for about 30 seconds with a bunch of duration measures and prepayment risks and other myriad inputs.
1. Also included in his portfolio was US Dollars (yes, he is bullish on the dollar), Gold, Nat Gas.
2. Showed a very interesting chart of the ABX and BoA stock. They plot almost exactly. And the ABX is down 20% this year so far.
3. Thinks it goes much lower as severities increase, the standstill is merely making the severity worse. This was in direct opposition to the Feinberg “presentation”
Marc Faber
As always a tremendously depressing presentation about how we are all going to blow up and die in a bloody and inflationary treasury massacre. He presents like your favorite economics professor from college, was completely at home up there. I know it’s his profession, but if I could be as comfortable on stage as he is, that would be pretty cool.
1. The Fed is going to print print print print because that’s the easiest solution to an intractable solution
2. Thinks the next war will be between china and the US re: Oil (apparently the US is colonizing the Middle East) and commodities will go through the roof
3. I am not sure I heard of an investment idea here. But damn was it entertaining.
Bill Ackman: Pershing Square
He was told to keep it to 15 minutes ONLY because he is notoriously verbose and goes over. He spoke really quickly and succinctly. One of the best presenters every year. I thought he was going to go for the trifecta and speak about GGP for the 3rd year in a row, he actually showed a chart of GGP as a joke but rolled into his investment idea: Family Dollar.
1. FDO: 6.5bln market cap, trades at a 14 p/e.
2. One of the few companies in the low income/lower income market that actually SERVES it’s customers as opposed to ripping them off.
3. Competes (sort of ) with Walmart but is much more convenient. Average store visit is 8 minutes
4. Takes share in recessions. Should perform well if we roll over again. Sells “stuff you need”
5. Arch rival is Dollar Gen, gave a big shout out to KKR for the improvement of that brand when it was private.
6. Riding Trian’s coattails, who tried to take the company out recently
7. If this biz can close the gap on margin, operations, blocking/tackling with DG, there’s a ton of upside. (did he say 70%?)
8. He joked that his position size was x “as of yesterday, but we were buying a lot of this stock today”
Joel Greenblatt
I went to the bathroom during his presentation, and when I came back he was speaking about the relative cheapness of the market, frankly it hurt my head. His book was the parting gift (“the big secret for the small investor”)I’ll try to read it and pass along the details. Did point out that the shrinking time horizon for investors (need quarterly, monthly, weekly, daily updates on p&l) creates an opportunity for long term minded investors.
Mark Hart: Corriente Investors
This guy presented what I think is the most unique idea at the conference, which was a bearish Chinese bet. This is VERY off market. I started to fade a little here when he talked about repatriation of cash but perked up when he described the massive asymmetric bet in 1yr forward puts on the renminbi. By the way, this guy combined with Kyle Bass to make gobs of dough on the subprime short.
1. The risks in China are huge, misconceptions are everywhere.
a. Myth 1: China is an economic miracle, when in fact it is a credit fueled bubble.
b. Bank lending is up 70% (to 125% of GDP) the M2 supply in China is more than the United State’s
c. Fixed asset investment is 65% of GDP. Comparing this to the asian meltdown, it’s much higher for much longer in china.
d. The state run enterprise does not want to allow the market to correct in normal fashion, so it keeps on pumping up the market.
e. Lending is increasing as NPLs decline. How is this possible?
f. Inflation is the key input that will bring Chinese boom to an end. The government controlled inputs are keeping a lid on the “real” inflation data.
g. Flight of capital out of China is the path of least resistance. This is where I faded out. Hopefully someone else’s recap can describe this.
h. Long ATM puts at a 3.8% vol. vol went to 18% in the very bad times of late 2008, 2009.
i. 1 yr 7.5 put costs 25 bps. So you can buy 100mm of protection for 250,000. If the renminbi goes to 10 (which would be a very slight devaluation in his view) this makes 25mm.
David Einhorn
I’ve typed too much. This is the last presenter that I stuck around for. He had two ideas, all centered around the theme of “two different types of overhangs”. He’s the star of this conference every year, but this wasn’t as impactful as say his recommendation of shorting Lehman in 2008.
1. Delta Lloyd: quipped here that this isn’t the ‘delta of Lloyd’ which is the difference between what Lloyd blankfien gets paid and what the government would like to see him get paid. Yuk yuk
a. DL NA 2.6 bln euro mkt cap. P&C in Europe, .7x book, pays 6% dividend. P/e sub 5x.
b. Aviva is the holder with a lot of stock for sale, the overhang has kept on led on the stock.
2. Microsoft: this is an idea he presented 5 years ago. We all know what Microsoft has done (down from $30 bucks).
a. Still very bullish on the stock, windows has dominant share
b. the “open source” threat has passed (remember when people were scared about windows office dominance was going away?)
c. Remarkable discount to the market, trades at 7x his 2011 numbers (incidentally the street has it trading at 8.7x 2012) what has happened to the valuation?
d. Steve Ballmer has happened. This is the overhang affecting Microsoft.
e. He has stifled growth, he’s stuck in the past, he’s not an innovator, he’s a moron
f. Really, einhorn made him look like a fool with his own words (iphone will never get share, he killed an internal tablet)
g. Talent is fleeing. It’s time for the board to fire Ballmer. Nasty stuff. Done in that wonderfully soft spoken einhorn way. He’s great.
Conclusion
Phew. That was a lot of typing. I didn’t really give the most succinct overview after all. Anyway, this year I think was better than 2010 because they definitely stuck with stock picking over the macro risks that were top on everyones mind last year. maybe that’s a bad thing? I don’t know.
4300 words this year. last year was 2800 words. Man. Sorry. Until next year.