market folly

We're posting up notes from the Sohn Investment Conference in New York, produced in partnership with Bloomberg LINK.  Next up is Larry Robbins of Glenview Capital who pitched HMO's long like Humana (HUM) and WellPoint (WLP) and also agriculture play Monsanto (MON).


Larry Robbins' Sohn Conference Presentation

They recapped his amazing calls at the conference, including shorting GM, and long the hospitals, which was a blockbuster trade.

Long ideas: Humana (HUM, WellPoint (WLP), Monsanto (MON).

He says "resist the temptation to think 2014 is different from 2013, just because the calendar has changed." Over last 2 years, high yield bonds yield dropped by 200 bps.

Drivers:   
1. Cheap valuations on stocks, says SPX 16.1, 14.4x 2015.   
2. Lower systemic risk   
3. Corporate deployment- management and owners must "lift up."

Concept of "Convertible equity"  - an investment in a defensive secular growth business, that also carries call options on value-enhancing events.    Need to be more contrarian now. HMOs, and Monsanto, GMO provider are both out of favor.

Managed care. Myth 1: HMO profits are reason healthcare costs are too high. Fact: their profits were only 0.4% of al healthcare spending.  HMOs are the only sector of healthcare that haven't recovered. Pain is in the rear view mirror.  All headwinds turn neutral or to tailwinds over next 5 years. Greater exposure to Medicare and Medicaid- 22% from 9% in 2007.  New management in 4 of 5 biggest HMOs. (HUM, WLP, AET)

HUM: medicare advantage company. Baby boomers are aging, 4x the growth of overall population.  HUM taking share. Seniors like medicare advantage. HUM top-line growth 10-15% range. "Options:"   
1. PBM: outsource to another scale provider to reduce costs   
2. Cash use/returns on cash. 22% D/C ratio, could take on more debt to buy back shares or a small HMO.   
3. Retiree private exchanges.   
4. New markets.    
5. Long-term consolidation.

Base case PT: $143-152 Bull case: $194-207


WellPoint (WLP): traditional managed care. PBM sale ends in 2019.  Could unlock more PBM value as early as 2017.  PT $125-134 base case.

Monsanto (MON).  "In the real world, we cannot solve world hunger on an organic basis."  GMO seeds are best option for environment, and for feeding the world. Looks expensive at 19x this year, but it has new products that could $1.50-2.00 per share earnings. Near-monopoly position with multiple upside levers, Monsanto is suboptimally hoarding capital and value is trapped. 

Be sure to check out the rest of the presentations from the 2014 Sohn Investment Conference.