Next up in our series of notes from the Alpha Hedge West Conference is the best ideas panel featuring Kurt Billick (Bocage Capital, Peter Lupoff (Grayco Alternative Investments, Worth Gibson (Forest Hill Capital), and Paul Twitchell (Whitebox Advisors).
Best Ideas Panel at the Alpha Hedge West Conference
Kurt Billick: Best idea is companies owning US Refining assets. Advantage over peers. US growing production significantly. By Mid 2014 more gas at gulf than refining capacity. Input cost will go down. Also, natgas used to refine oil provides another cost advantage. Finally, refiners can use MLP's to reduce cost. Likes Marathon, Holly, Tesoro and Northern Tier.
Peter Lupoff: Seismic Shift Towards A New Social Contract, Quantitative Strategy. Div paying stocks outperform in down market. Divs add fixed income component to equities. Social contract is trend now. Social contract looks at ROIC and FCF. Shareholder friendly behaviors and events, dividends and increases, special dividends, buybacks, spinoffs, etc. Social contract not altruistic. Done for survival. Div rate not good enough. Key is sustainability of div vs debt financed divs. Governance is key.
Worth Gibson: Long/Short Equity. Over $700M in AUM. Based in Little Rock, Arkansas. Focused on community and regional banks. Best idea is CenterState Banks (CSFL). Like good geographic economies, seasoned management, strong capital, strong shareholder value enhancement strategy, expanding market share profits and tangible BV, heavily discounted valuation. Center State Banks: Assets up 125% vs 4.1% for index from 12/31/08 to present. Will grow earnings. Sees stock up 90% over next 2 years with 20% growth in BV each year and BV multiple growing to 2 to 1.
Paul Twitchell: View biggest risk to investors is rapid increase in rates. Originally was just short on rates. Now with some rise in rates, they've found complicated sub prime investment with positive carry of 7% to 9% with no rate change. With shock from higher rates investment still does well. Investment basically has coupon payment but no return of principle.
How concerned is everyone about the interest rate environment?
WG> When they've run sensitivity analysis to rates, their banks perform favorably.
PL> Companies that have opposite of social contract are good potential shorts.
KB> Lots of companies will get hurt by taking advantage of low rates... i.e. unsustained large dividends.
Be sure to check out the rest of our summary of the Alpha Hedge West Conference.
