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Tuesday, January 28, 2014

Leon Cooperman on CNBC

Leon Cooperman was on CNBC today talking about how he thinks the EM issue is overblown and the sell off in stocks is overall a good thing.

Monday, January 27, 2014

Corsair Capital Thesis on Alere

Corsair Capital is out with an appendix to their annual letter describing their thesis in one of their positions - Alere (ALR).  They think its worth $70 to $80 versus a recent close of $39.



Sunday, January 26, 2014

Meryl Whitmer's Thesis on Wyndham Worldwide

Meryl Whitmer chose Wyndham Worldwide for her pick at the Barron's Roundtable this year.  She thinks its worth around $100 per share versus a recent close of around $72.


Friday, January 24, 2014

Joel Greenblatt on CNBC

Joel Greenblatt of Gotham Capital Partners was recently on CNBC sharing his thoughts on the market.  As usual he touts the power of the magic formula (somewhat of a broken record but needs to be said).


Daniel Arbess on CNBC

Daniel Arbess of  Perella Weinberg Partners was recently on CNBC sharing his thoughts on the markets.  He likes airlines and Google.  And - like every other HF in the world thinks we are in a stock pickers market.


Wednesday, January 22, 2014

Greenlight Capital Q4 Letter to Investors

Greenlight Capital is out with their Q4 2013 letter to investors.  For the year they were up 19.1% which is inline with their performance since inception of 19.5%.  In the letter they give the bull case for Micron Technology and BP. Enjoy:  

Dear Partner:

The Greenlight Capital funds (the “Partnerships”) returned 6.5%,1 net of fees and expenses, in the fourth quarter of 2013, bringing the full year net return to 19.1%. Since inception in May 1996, Greenlight Capital, L.P. has returned 2,211% cumulatively or 19.5% annualized, both net of fees and expenses.

The long, short and macro portfolios contributed 10.4%, 4.0% and 0.7% of alpha respectively to the gross annual return of the Partnerships; market beta added an additional 10.4%. We do not expect to keep pace with a straight up market, and we didn’t – the S&P 500 index soared another 10% in the fourth quarter to end the year up 32.4%.

The parabolic rise of a growing number of market-leading story stocks created a challenging environment for value investors. Speculators have momentarily accepted the ruse that, for these visionary companies, profitability would be a mistake. Eventually, the market will remember that having a disruptive product that customers will happily buy if sold near cost is not the same as having a valuable business. Philosophically, since we would not expect to be long these highfliers, the best we can hope to do is not be short them at the wrong time. For the most part, we weren’t.
For the quarter, our longs modestly outperformed the S&P 500, our shorts went up less than the index, and macro (led by the yen) was a slight contributor. The big winners (alphabetically) were Apple, General Motors, Marvell, Micron and the yen. The big losers were Chipotle and U.S. Steel.

Technology (MU) and medium-sized positions in BP plc (BP) and Anadarko Petroleum (APC). MU is a manufacturer of semiconductor memory chips (DRAM and NAND flash). This isn’t our first go-round with MU; it was a large short position from January 2001 to February 2005. Back then, DRAM was a lousy industry with too many competitors selling an undifferentiated product, often below cost. In the first quarter of 2001 when the shares were trading in the low $40s we wrote:
MU is valued at 6.5x current run-rate revenues and, today, generates no profits. In its best year ever (fiscal 2000), MU recorded $2.52 per share of earnings, making the current price 17x the peak earnings of a cyclical, commodity manufacturer. In the previous two years, MU lost money.

At the time, the valuation was kept aloft by the hopes and dreams of sell-side analysts. In our next letter we shared the following anecdote:

In an exchange of e-mails with a leading sell-side analyst who recommends purchase of MU with a $70 per share target, we solicited his justification for the current $24 billion market capitalization (let alone the $40 billion suggested by his target.)

Our analyst friend explained he tried to use cyclical valuation methodologies to come up with a rationale for buying the stock but failed because such an approach suggests “the stock should trade in the teens.” However, he maintains, should we have a good pricing environment next year, “people will treat the stock the same way [as they have] and take it much higher than they should.” Lest we be unclear about his raison d’ĂȘtre, he added he “could just perennially stamp an underperform on MU because he can’t justify the $24 billion, but that would be boring.” He need not worry; we are fans of boring.

This sort of unchecked cheerleading among sell-side analysts is by no means gone. Today, they spin different fables to justify otherwise inexplicable valuations for the latest flavor-of-the-month stocks. As for MU, a decade of poor results exposed every flaw in the business and killed any love for the stock. The sell-side groupthink has reversed: the mostly bearish analysts now contort themselves to justify earnings estimates that are too low, price targets that are too pessimistic, and stock ratings that are too negative.

We established a position in MU at an average price of $16.49, marking the first time we have taken a long position in a company in which we once had a material short position. The industry has changed and so has MU. Its purchase of Elpida Memory out of bankruptcy in August 2013 marks the end of a decade of consolidation from roughly a dozen major DRAM players down to just three. Technological advances and locked-up intellectual property have made it unlikely that any new players will enter the industry in the intermediate term.

MU and its competitors have signaled that they will refrain from adding capacity and will instead prioritize economic value-add. For the first time in memory, MU intends to use its excess cash flow to shrink the outstanding share count rather than build new factories. We believe the company will approach $4 per share of earnings and free cash flow in calendar 2014, and should enjoy a better multiple as investors begin to appreciate the new dynamic. The shares ended the quarter at $21.75.

We established a position in BP at an average price of $47.39. The Deepwater Horizon oil spill was nearly four years ago. Since then, investors have focused on the ensuing legal cases regarding clean-up and restitution efforts, while overlooking BP’s improved return on capital in its core businesses. Allowing for more negative legal outcomes than BP has currently provisioned, we believe the company’s net asset value (NAV) is nearly $70 per share. It can therefore create substantial value by selling assets at or above NAV and using the income to repurchase stock at a significant discount. This is exactly what BP has been doing. Further, BP has restricted capital expenditures and increased dividends – all evidence of a more shareholderfriendly approach. As the legal issues subside, we expect the market to appreciate BP’s portfolio value and its improved capital allocation. In the meantime, we own an industry leader at 9x earnings with a 5% dividend yield. BP shares ended the quarter at $48.61.

APC is a global exploration and production company with a high-quality upstream portfolio comprised of U.S. onshore resources, deep-water Gulf of Mexico assets, and interests in other high-potential oil and gas basins around the world. The company also owns 91% of Western Gas Equity Partners (WGP), a publicly traded master limited partnership created in 2012 to hold APC’s limited and general partner interests in Western Gas Partners (WES).

In mid-December the company suffered a legal setback stemming from its 2006 acquisition of oil and gas assets from Kerr-McGee, whose titanium dioxide unit went bankrupt. With APC facing potential damages of $14 billion or $5 billion, investors dumped the shares, which we then acquired at an average cost of $78.55. Assuming a worst-case legal outcome, APC’s core valuation net of its stake in WGP and its interest in an undeveloped, but valuable prospect in Mozambique, is less than 4x EBITDA. This is cheap compared to peers that lack APC’s valuable upstream assets and exciting exploration prospects, but nonetheless trade at higher valuations. Our legal analysis suggests that the ultimate payment is likely to be the lesser of the two amounts and will be partly tax deductible. APC shares ended the quarter at $79.32.
We closed out positions in Airbus Group, formerly known as the European Aeronautic Defence Space Company (France: EADS), and ThyssenKrupp (Germany: TKA).

We bought the shares in EADS during a sell-off in response to the company’s unpopular proposal to buy BAE Systems in 2012. EADS ultimately abandoned the merger and instead repurchased a lot of stock while also reorganizing its corporate structure to reduce the influence of several government shareholders. The shares rallied and we sold for a nice gain. We also bought TKA shares in 2012. Though management made significant progress in restructuring the company, a difficult external environment meant that asset sales and cash flow generation fell short of their hopes and ours. We exited with a very small loss.

On the organizational front, we added Amanda Armstrong as an executive assistant. Amanda joins us from the fashion industry and has a bachelor’s degree from the University of Vermont.

We believe that in addition to her office management experience, Amanda’s sartorial expertise will raise the caliber of our Annual Partner Dinner Tie Selection Committee. Welcome Amanda!

Jaime Lester joins Greenlight as a research analyst. Jaime spent the past nine years managing Soundpost Partners. He has an MBA from Columbia and an AB in Applied Mathematics and Economics from Harvard. Though his official start date wasn’t until January, Jaime opted to begin his tenure early and join us at our annual getaway in December where he was gracious enough not to steal anyone’s thunder on the basketball court. Welcome Jaime! Most of our operations staff has relocated from the north side of our office on the 24th floor to our new space on the 23rd floor. When you come for a visit, Justin would be happy to give you a tour.

The new digs are so nice that the staff upstairs wants their floor updated to match. Henry ‘Hank the Tank’ Lepone was born October 20, 2013 to Justin and Erin. Henry’s arrival added 1% to the global population of people with the last name Lepone. Justin proudly points out that the 0-6 New York Giants went 7-3 after Henry entered the world. We expect you will find it more interesting that the Partnerships made a third of the annual return since then.

Finally, Alexis returned from her winter getaway married. That’s the first surprise wedding at Greenlight … ever. Congratulations to Alexis and Rob!

At quarter-end, the largest disclosed long positions in the Partnerships were Apple, General Motors, Marvell
Technology Group, Micron Technology and Vodafone Group. The Partnerships had an average exposure of 125% long and 70% short.

“I did three things yesterday! Now I’m supposed to keep doing things? It’s like the things never end!”
— Allie Brosh

Best Regards,

Greenlight Capital, Inc.

Tuesday, January 21, 2014

Third Point Capital Q4 2013 Letter to Investors

Third Point Capital is out with their Q4 2013 letter to investors. For 2013 they were up 25.2% bringing their return since inception up to 18%.  Talk about lots of positions: DOW, Ally Financial, Interxon, T-Mobile, Sony, and Softbank.  Enjoy:


Third Point initiates $1.3B position in DOW Chemical

Dan Loeb's Third Point Capital is out with a letter today announcing they have recently initiated a $1.3B position in Dow Chemical (DOW).  They argue for a spin off of DOW's petrochemical business and point out how mediocre returns have been in the past couple of years.  DOW is now the largest position in their fund.  Enjoy:

Monday, January 20, 2014

Ed Hyman and Bill Miller on Wealth Track

Ed Hyman and Bill Miller were on Wealth Track talking about what they like in the markets going forward.  They talk about how to avoid the performance trap (don't chase performance, invest in a style you believe in and understand, and diversify by purchasing overtime).  Enjoy:

Part 1:

Part 2:

GMO International Active Q4 2013 Letter

GMO International Active Fund is out with their Q4 2013 letter to investors.  For the year they returned 24.1% (bringing their 32 year record since inception to 12.3%) versus 22.8% for the MSCI EAFE (9.3% since inception).  They talk about the year ahead as a stock picker's market.  Enjoy:

Friday, January 17, 2014

Greenwood Investors Thesis on Fiat

Greenwood Investors came out with a video thesis on why they are long Fiat.  This is the first time (other than a Bill Ackman webcast) that I have seen video really used as a medium to get an investing thesis out.  Enjoy:

Howard Marks Latest Memo - Getting Lucky

Howard Marks of Oaktree Capital Management is out with his latest memo on the inefficiencies in the market and the role that luck plays. Enjoy:

Wednesday, January 15, 2014

Prescience Point - LKQ Corp Short

Prescience Point is out with a lengthy piece on why they think LKQ Corp is a short.  They have a $10 - $15 price target which represents 50% - 70% downside.  Since publishing the stock is down about 8% this morning.


Tuesday, January 14, 2014

Jeff Gundlach Presentation on the Markets - Year of the Horse

Jeff Gundlach gave a presentation today on his thoughts on the market and what we can expect in the coming year.  As usual it is full of nice charts and good macro data.  Enjoy:

Larry Robbins of Glenview Capital Managment on Bloomberg

Larry Robbins, the founder and head of Glenview Capital Management, was on Bloomberg TV recently for a rare interview.  He was talking about what led to his stellar 2013 - one of his funds returned in excess of 100% in 2013.  He also talks about his suggestivism investing style.


Monday, January 13, 2014

NYU Stern investment newsletter: Evaluation

NYU Stern has produced their own version of Columbia's now famous Graham and Doddsville newsletter.  In the inaugural issue they interview: James Rosenwald III, Professor Aswath Damodaran, Chris Dixon, and Roderick Wong.  There are also two student ideas: one on Charter (CHTR) and the other Peugeot S.A. (UG).  Enjoy.    

Thursday, January 9, 2014

Dinakar Singh of TPG-Axon on CNBC

Dinakar Singh was on CNBC talking about his opinion on the markets.  He thinks Japan is now looking rich.  He thinks in the US people hate department stores and JCP and SHLD are the bad stores but Macy's and Dillard's are trading lower than they should given their retailing power.  Trades at 11x vs. 18x-20x versus most retailers.  He thinks Macy's will buy back lots of stock and could see it up 40% over the next year.

He thinks Hospitals are the biggest winner from Obama Care.


Tortus Capital out with a 64 page slide deck on shorting Portuguese Bonds

Tortus Capital is out today with a long argument on why you should be wary of Portuguese Bonds.  They make the argument that the status quo is not sustainable and that exports can't save them.  Enjoy: