market folly

Continuing our series of notes from the Sohn London Investment Conference, next up is Chris Cooper-Hohn of Children's Investment Fund.

He advocated buying unloved stocks at the moment as companies that are perceived to be great businesses are expensive.  He quoted Warren Buffett by saying, "you pay a high price for a cheery consensus."

Cooper-Hohn presented 2 longs: News Corp (NWSA / NWS) and Porsche (GER:PAH3) and 1 short: Fiat SpA (MIL: F).


Long News Corp 

- News corp is misunderstood.  It should not be seen as a newspaper business as 73% of operating profit comes from TV content
- The price is low due to the phone hacking scandal
- It's not a cyclical business dependent on advertising revenue
- The US network has massive pricing power
- He expects EBIT to grow from $6bn to $9bn by 2015
- Share buybacks will be large
- It's cheap trading on PE 2013 10x
- The new COO Chase Carey is more shareholder friendly than the Murdoch family

News Corp announced this year that it will be splitting up its business into two segments: entertainment and publishing.


Long Porsche

- Concerns about the impact of the litigation surrounding Porsche's Volkswagen (VW) short in 2008 have depressed the price
- Hohn thinks the market has overreacted and Porsche will settle for less than is expected
- Porsche trades at a 40% discount to NAV
- It's stock has traded sideways for many years
- Porsche owns 32% of VW
- VW is also cheap so there is a double discount
- VW is perceived as a budget brand but a substantial amount of its earnings come from the premium market where there is more pricing power: Audi and Porsche
- VW and Porsche have good emerging market exposure
- VW grew its volume even during the financial crisis
- It is steadily destroying other European carmakers

Hohn belives there's 4 big ways to win by investing in Porsche:

1. VW appreciates
2. The discount to NAV narrows as the litigation is resolved
3. The discount narrows due to a higher dividend
4. A merger of Porsche and VW

We've also posted up an excerpt from Children's Q3 letter on Porsche as well.


Short Fiat SpA

- Hohn argued that Fiat was a poor company, saying it will need a capital injection soon
- Chrysler (which has been bankrupt twice) is burning cash
- If the current economic conditions continue, the burn rate will increase


For the rest of the hedge fund presentations from this event, head to notes from Sohn London Investment Conference.