market folly

Mick McGuire of hedge fund Marcato Capital Management recently made a presentation on both Sotheby's (BID) and Dillard's (DDS) at the Active Passive Investor Summit.

They are activist investors in Sotheby's and their thesis is summed up by: significant levels of unproductive capital, inappropriate mix of debt & equity, and desire for more shareholder friendly capital allocation.  Daniel Loeb's Third Point is also a BID activist here.

Marcato also presented a passive investment example in Dillard's where activists got involved in the stock a few years ago, the stock continued to drop and the activists eventually bailed on their position. 

Dillard's went on to turn itself around and Marcato thinks it's an attractive passive investment opportunity today as it trades at a 12% free cash flow yield and is using FCF to buy back shares.  The hedge fund thinks DDS could head as high as $155 per share (currently trades around $95).

Embedded below is Marcato's slideshow presentation:




You can view other activity from Marcato here.