market folly

Next up in our notes from Invest For Kids Chicago 2013 is Steve Eisman of Emrys Partners.  He pitched two ideas: Ocwen Financial (OCN) and Altisource Portfolio Solutions (ASPS).


Steve Eisman's Presentation at Invest For Kids Chicago 2013

•    His big trade is detailed in Michael Lewis' book, The Big Short
•    “Time to up meds” after Gundlach’s presentation
•    Been analyzing financial companies for over 20 years
•    This cycle is different
•    Discussion of regional banks
•    Past cycles when you come out of recession, the loan book gets better, then loan books expand
•    Credit quality has gotten better and there is no loan growth and the Fed is not going to raise rates anytime soon
•    Assumes US growth to be 2%
•    Looking for secular growth stories bc he doesn’t want to trust US growth
•    Looking specifically at mortgage sector


•    Idea #1: Ocwen Financial (OCN): Best story in financial services
o    Servicing of current mortgages and everything else
o    Servicing of everything else requires a human
o    Banks lose money servicing mortgages and so the shift is going away from banks and towards mortgage servicing companies such as Ocwen
o    Key is that it enjoys a 70% cost advantage over anyone else due to moving servicing to India
o    Earnings have gone up 7x since 2010 and still in middle innings
o    Another trillion of mortgage servicing rights to be transferred in the next few years (Ocwen has $400 billion pip by themselves)
o    Cash generation is huge: 16% 2014E Free Cash Flow Yield (not to mention 50% growth)
o    50% upside in the next year or two assuming no multiple expansion
o    And multiple expansion is definitely possible

Eisman pitched Ocwen at the Sohn Conference in New York as well earlier this year.


•    Idea #2: Altisource Portfolio Solutions (ASPS) 
o    Stock price of $144.8
o    Spun out of Ocwen and now have three businesses
o    Key to story is massive diversification
o    Growth is 42% year over year for Q3 2013
o    Hubzu is a part of mortgage solutions biz – until recently
o    Can buy a house online and is 15% of earnings of company
o    Zillow doesn’t own MLS system
o    70% ROE and PEG ratio of 0.34x
o    Covered by one sell side analyst
o    3 questions were asked on recent call and one sell side guy asked 2 questions
o    Hubzu has revenue of 35% of Zillow and Zillow is a $3 billion company 

We've posted an in-depth analysis of Altisource Portfolio Solutions for those interested


Check out the rest of the hedge fund presentations from Invest For Kids Chicago here.