Yesterday was the Ira Sohn Investment Conference held annually in NYC. This is the premier “Ideas” conference with the top hedge fund managers explaining their best longs and shorts.
Normura took notes and here they are:
Ken Rogoff – This Time is Different
Stunning amount of debt around the globe – private, external, personal, ect …
Debt is a fringe field in finance – a lot of the models don’t deal with it well
Severe financial crisis – what to expect
Houses -36% lasts 5yrs
Equity prices -56% lasted 3.4%
Unemployment 7% lasts 4.8yrs
Read GDP per capital -9.3% lasts 1.7yrs
Expecting to see several countries default
Greece situation is not that surprising – its been in a state of default for most years
Greece is not that different – its right where it should be given where it is in its state of development
Political union between France and German is the “only way out”
Larry Robbins – Glenview
4 legs to investing - economy, Liquidity, DC, Legal
Idea: Long Hospitals (THC, HMA, HCA, LPNT) and Life Sciences Short Utilities (ITC) and Defense
Hospital EBITDA has been growing very steadily
Affodable Care = good for bad debt expense & Increases coverage and promotes utilization
They can buy back 57% – 108% of their stock
Not for profit economics protect for profit hospitals
THC – Long
Stable eps
accelerating fundamentals
Competitive halo
Overcapitalized
2012 eps power is 60c … walks to $1.49 by `14
ITC – Short
Capital structure is over-equitized and it means the customers are overpaying
MA and CT AGs went to FERC and got ROEs down in their regions
True leverage is much higher – Equity is more like 6%
Sign-up for our FREE 60 page Hedge Fund 13-F Report Out on Monday:
Jonathan Kolatch – Redwood Capital
Argentina sov debt
Low debt to GDP at 44.5% – private creditors are 15% of GDP
Good GDP growth
Surplus is fine
15% yld
Defaulted in 2001 – debt/GDP has been declining steady, and GDP has been growing
The economy is supported by agriculture (50% of exports) – good demographic trends
.08% paid to non government holders – if they DID default, they would save very little
60% of debt is denominated in FX, 40% in pesos
Recent YPF (National Oil Co) nationalized
Argentine “Sin”
They are still in default
Nationalized the private pension system
Nationalization of YPF
Understating its inflation rate
Price caps
Bonds they own – EUR 7.82% due 12/31/2033 – they trade at 57c w/ a YTM of 15%
The EUR and US trade 10 points wide – no good explanation of why
Catalysts
Bring in foreign investment JVs with YPF
Depreciate the peso
Settlement of debt owned to the Paris clubs
Congressional elections in 2013
Presidential election in 2015
Dwight Aderson – Osprey
Westlake Chemical – Long
Cost curve downshift in nat gas is good for Ethylene
Competitors are using NAPTHA (oil based) while WLK uses nat gas
US Ethane costs remain high given processing and fractionation capacity constraints
expecting a 25c/lb fall in price
$75 a share of replacement costs of assets
Expanding capacity
Lots of FCF
assume $4.50 gas and $90 crude with 0% Ethylene prices leaves $700m in CF
Target is $95
Palladium – bullish vs Platinum
Far too complex for me …
most supply is produced as a by product of mining for other metals
Auto is 65%
Meryl Witmer – Eagle Capital
Look for:
Excellent management team
great capital allocation
Free cash flow machines
Strong balance sheet
Gildan (GIL) – long
Vertically integrated apparel manufacturer
70% market share
lowest cost producer
Temp depressed earnings given cotton price spike
10.3x after tax FCF
Shirts have gone from $2.50 to $1.50 in 10 yrs
recently added 40% to overall capacity, temp depressing ROIC
Acquisition of Anvil allows them to go after “National Accounts” such as RBK and NKE
Hains is exiting the business
Stock worth 36.50 – 43 by `13, 50 – 53 by `14/`15
VIAB – long
Nielsen numbers of -20% are off from the companies flat to -5%
Ratings challenges are nothing new and can be fixed
returning $20b of cash to shareholders via shr repo and divy vs 25b in equity cap
stock is 43% to 100% undervalued on `15 numbers
Philippe Laffont – Coatue
Equinix (EQIX) – long
Data center play
Massive market share in key cities
Awesome business economics
data centers cost $2b and generate 600m in annual FCF
Stock could triple
Vigin Media (VMED) – long
We are about to hit the S curve in high speed net adds
20% un-levered ROIC
The broadband economics are still very good because the internet is free
4% rev growth
6% EBITDA growth
10% FCF growth
25% FCF per share growth (given buyback)
expects 4.5b in `13-`16 FCF
3x net debt / EBITDA
2B in new debt
capacity to buyback the whole company
John Wilder – Bluescape
Natural Gas Outlook
`11 was the largest y/y increase in gas supply – 20% over the last best year – driven by 4 major shale gas plays
Nat gas demand does not change much at all
Nat gas does not correlate to GDP
275 gw buildout of gas fired power gen capacity was built
Gas was priced off oil first, then coal, now cash costs – we are unlikely to return to the oil/gas ratio
Forward market suggest we return to pricing gas off the coal price
Use it or loose keeps rigs going that may not otherwise be working
Productivity – measured by F&D costs – are down dramatically
700-800 rigs needed to match depletion
10 years of gas supply at cash costs of $2 or less
Not enough liquids production to impact the supply balance
Likes the WLK idea
Jeff Gundlach – DoubleLine
Lots of Karl Marx quotes leading to a description of tail risk
Thinks Eurozone bond yields are going higher
Thinks social unrest is possible given high youth unemployment
Growth w/ austerity is nonsense
Long: IBEX, 1yr Libor 10x, Nat Gas, US$
Short: SPX, JWN, AAPL, 2yr swaps 50x
Last year’s recommended portfolio was up 30%
David Einhorn – Greenlight
MLM – Short
CEO asked for a 20% premium if he had to wait to 3yrs to be CEO
French default is possible – likes 5yr sov CDS
Short Inditex
Likes Norway – not insolvent; not debasing the currency
Long GJF NO
Long Cairn Energy
Negative China
Negative Japan
Negative on US REITs as japanese trusts are forced to liquidate
Negative Facebook
Negative AMZN – thinks margins are questionable
Negative X
Positive AAPL – not crowded – hedgefunds remain underweight – its not a hardware company – its a software company
GOUP – Greenlight Opportunistic Use of Preferred – said all the details will go up on the website
Michael Price
Last year pitched MS, GS, C, BAC … Big Banks – now thinks maybe the big banks are dying a slow death
Would not touch European stocks
Bought JCP today – look at the holders, the management and their track record
Winner of the stock picking competition – XRX
SOTP story - Very detailed numbers based presentation – bet this guy gets a job offer inside the next 48 hrs
Dan Ariely – Duke University
The problem of self control
short term regularly wins over long term
In the future we are wonderful people – box of chocolates half a box … wait 1 week vs wait a year and 1 week
reward substitution – tie good long term goals with short term rewards
To fight elf control re-create your environment so you are tempted less and create rewards
Stephen Mandel – Lonepine
Bearish fixed income because the ylds are so low and inflation will come
Pockets of value in:
20% Tech leaders – Mobile, Search, Travel, Outsourced Services
20% Share count shrinkers – solid market positions, models growth, plowing back FCF into shr repo by 8-10%
KSS – buying back a lot of stock, less than 10x EPS, 5x EBITDA; see 5.50 in next yr EPS
John Paulson – Paulson
CZR long – cheap call option
Equity is only 7% of the capital structure
Holdco structure also gives you access to the cash and the online gaming assets
No maturities to `15
Thinks the stock can be a 10 bagger
Anglo Gold
Severe under performance vs gold
earnings have been doing very well – growing faster than the rise in the price of gold
10yr low in valuation
EV/Reserve is a much better way to get gold exposure
74% discount to peers based on a EV/LTM EBITDA to production growth regression
CVR Energy – A gift from Icahn
Get the upside (CCP) if the company can be sold for more than $30
Get a CCP for 35c
Thinks the CCP can pay $6.15
John Lykouretzos – Hoplite
SBUX
coffee market is large, growing, and moving more premium
Coffee is compounding at 8% – Single serve is growing fasted
SWITZ – single serve is 60% … vs 8% in the US
SBUX has less that 4% share of the at home market
Stores are 70% of OP
looking for store growth re-acceleration in `13
volume is driven by choice! New brewing system is SBUX product exclusive
China is growing fast – and it has the best margins
$90 3 yr target
Bill Ackman – Pershing Square
JCP
Best management team in the retail industry
Average cost is $26
Problem: commodity product; no price integrity
49% of RE is owned
Great Scale
Ron Johnson – TGT; AAPL; JCP
Ron owns $50m in restricted stock and paid $50m for warrants
Really Really strong management team
Extreme makeover
New concept is a mall within a mall with stores within JCP
JCP gives space at $2 a sq ft vs $40 cost to a specialty store
By Aug 50% of the product wil be new or revamped
Cost reduction opportunity is larger than last year’s profit
Stock is worth 77 – 125
Why can’t the store in store concept do a similar amount of sales per sq ft that they do as stand alones?
Bull case is a 10 bagger