Pershing Square's Q1 Letter

Bill Ackman is out with Pershing Square's first quarter 2017 letter.  Pershing returned -2.6% net in the first quarter of the year.

We've already highlighted how Ackman pitched Howard Hughes at the recent Sohn conference. 

His Q1 letter provides updates on other stocks such as Mondelez (MDLZ), Air Products (APD), Restaurant Brands (QSR), Chipotle (CMG), Fannie Mae/Freddie Mac, as well as Platform Specialty Products (PAH), Nomad Foods (NOMD), and their short of Herbalife (HLF).



Embedded below is Pershing Square's Q1 letter:



You can download a .pdf copy here.

Graham & Doddsville Spring 2017 Issue: Begg, Sosin, Krishna

Columbia Business School is out with its spring 2017 issue of Graham and Doddsville.  It features:

- Interview with A. Rama Krishna of ARGA Investment Management who talked about investing in international markets and in particular, Russia.

- Interview with Cliff Sosin of CAS Investment Partners talking Herbalife (HLF) and World Acceptance (WRLD).

- Interview with Chris Begg of East Coast Asset Management, who we've featured on the site numerous times in the past.  He shares his thesis on TransDigm Group (TDG) and thoughts on Sherwin Williams (SHW).

The new issue also includes student investment pitches such as long Yum China (YUMC), long Alaska Airlines (ALK), long Corning (GLW), and long Dollarama (DOL).


Embedded below is the spring 2017 issue of Graham & Doddsville:



You can download a .pdf copy here.

For more of their past issues, we've also posted up their interview with Kingstown Capital as well as their interview with Meritage Group and MSD Capital.

Hedge Fund Links ~ 5/12/17

Latest thoughts from Bridgewater's Ray Dalio [LinkedIn]

Carl Icahn scrutinized for shaping policy that helped him profit [NYTimes]

Carl Icahn loses $179 million on Hertz double down [Bloomberg]

Singer's flagship fund said to raise $5 billion in commitments in 24 hours [Bloomberg]

Warren Buffett, Charlie Munger & Bill Gates Interview

Becky Quick on CNBC recently sat down with Berkshire Hathaway's Warren Buffett for a one-on-one interview and then was later joined by Charlie Munger and Bill Gates for a discussion on a myriad of topics.  Here are some highlights:

Warren Buffett's Interview

-  Talked about technology stocks a lot at Berkshire's annual meeting.  Munger said they missed Google (GOOGL) and Buffett thought they should have had some insight into it because GEICO was a heavy user of it for advertising and paying per click.  He wasn't sure if there was a first mover advantage or if increased competition was going to come along (Bing, etc) or if there were going to be technological advances he couldn't understand.  "If I were forced to buy it or short it, I'd buy it.  Same with Amazon."

-  Apple (AAPL) shares were much more reasonable compared to future earnings so that's why he bought that tech stock.  Likens the consumer nature of the product as a way for him to easily tell what's going on with customer preference.  "You can't move people by price in the smartphone market remotely like you can in appliances ... the loyalty is huge."  Notes that most items are price sensitive (TVs, etc) but AAPL's products don't seem to be.

-  Recently highlighted how Buffett sold some IBM and he said that they've experimented with IBM's Watson at GEICO.  In that space you have to worry about somebody coming in and jumping ahead with the utility.  "The biggest value will come when it replaces human labor." 

-  Doesn't make trades on the basis of political election outcomes, doesn't look much at quarterly GDP numbers.

-  Railroad figures show the economy is doing 'OK', 2% rate or so.  Natural gas has gone up in price so that dictates the use of goal a lot of places, so coal shipments are up the most % wise. 

- Housing market is getting better, but not 'booming.'   Berkshire owns Clayton homes (manufactured homes), Acme brick, Berkshire Hathaway realty, Shaw flooring, Benjamin Moore paints. 

-  "Credit card volume will tell you a lot about the consumer., what their attitude is."

-  "Packaged goods has generally been a very profitable business."

-  Largest investor in four major airlines (UAL, DAL, AAL, LUV): Airlines have found a very high percentage of customers are price conscious.  Yet most consumers are captive to whatever airline flies the route they need to take.  Thinks consolidation of the industry has helped and it's no longer a 'suicidal business.'

-  "I have no idea what the market will do in the short-term."  They've got $95 billion sitting around and it doesn't make him happy that he's not earning anything on it.  Says it's getting tougher to buy businesses these days, "Once you buy a business, the business doesn't know what you paid for it."  "It's a very tough period to allocate capital."

- Says he's still cheap but not as cheap as he used to be. "You can afford to overpay a bit for a really fine business depending on your degree of certainty that it's a really fine business."

- Buffett says one thing he mentioned at the annual meeting no one really appreciated: that the five largest businesses today by market value ($2.5 trillion or more) you could run those businesses with no equity capital.  That's a completely different world than the past when industrial giants needed a lot of capital.

-  Didn't buy Amazon (AMZN) because of "stupidity."  Says he was impressed by Bezos long ago but didn't think he could pull off what he has.  On shares currently: "It's a big valuation ... I'm not buying any.  These are powerful ideas with big potential and he's executed."

-  One essential factor that determines what he thinks about market valuations: "The most important item over time in valuation is obviously interest rates."  "Anybody that prefers bonds to stocks today is making a big mistake.  It's ridiculous for somebody to buy a 30 year bond at these rates."

-  "Every smart guy is tempted by leverage, and some of them are broken by it."



Then at the end of Buffett's 1-on-1 interview, Charlie Munger and Bill Gates also joined Buffett to talk about healthcare, tax reform, mistakes they've made, and other topics.


Embedded below is the video of Warren Buffett, Charlie Munger, and Bill Gates's interview on CNBC:



For more from these investors, be sure to check out Warren Buffett's recommended reading list as well as Charlie Munger's favorite books.

David Einhorn's Sohn Presentation: Short Core Labs

We've posted up notes from the Sohn Conference New York and today are also posting the slideshow presentation from David Einhorn of Greenlight Capital.  He pitched a short of Core Labs (CLB) with the thesis that it's a cyclical company disguised as a secular grower.

He thinks fair value is $62, or around 40% lower as the company has exposure to international oil field capex budgets that won't recover.

Embedded below is David Einhorn's Sohn conference presentation on Core Labs:



You can download a .pdf copy here.

For more from this conference, we've also posted up Bill Ackman's presentation on HHC.

Baupost Group Sells Vast Majority of Innoviva Shares

Seth Klarman's investment firm Baupost Group has filed an amended 13G with the SEC regarding its position in Innoviva (INVA).  Per the filing, Baupost now owns 0.92% of INVA with just over 1 million shares.

This is a sizable decrease from the previous 14.93 million shares they owned at the end of 2016 per their most recent 13F filing.  This latest filing was made due to portfolio activity on April 30th.

For more from this manager be sure to check out Seth Klarman's recommended reading list.

Per Google Finance, Innoviva "formerly Theravance, Inc., is engaged in the development, commercialization and financial management of bio-pharmaceuticals. It focuses on the respiratory assets partnered with Glaxo Group Limited (GSK), including RELVAR/BREO ELLIPTA (fluticasone furoate (FF)/vilanterol (VI)) and ANORO ELLIPTA (umeclidinium bromide/vilanterol (UMEC/VI)). Under the Long-Acting Beta2 Agonist (LABA) Collaboration Agreement and the Strategic Alliance Agreement with GSK, the Company is eligible to receive the annual royalties from GSK on sales of RELVAR/BREO ELLIPTA. For other products combined with a LABA from the LABA collaboration, such as ANORO ELLIPTA, royalties are upward tiering and range from 6.5% to 10%. RELVAR/BREO is a once-a-day combination inhaled respiratory medicine consisting of a LABA (VI) and an inhaled corticosteroid (ICS), FF. ANORO ELLIPTA a once-daily medicine combining a long-acting muscarinic antagonist (LAMA), umeclidinium bromide (UMEC), with a LABA."

Sohn Conference New York Notes 2017: Ackman, Einhorn, Meister & More

Below we're posting up notes from the Sohn Conference New York 2017.  It featured top hedge fund managers sharing their latest investment ideas all to benefit pediatric cancer research.  We've also posted up the emerging manager presentations from Next Wave Sohn.


Notes From Sohn Conference New York 2017

Bill Ackman (Pershing Square): Long Howard Hughes (HHC)

He argued strong management and solid real estate locations as the main reasons to own the company.  Note that Ackman is the Chairman of the co.  We've posted up Ackman's slideshow presentation from Sohn here.



David Einhorn (Greenlight Capital): Short Core Labs (CLB)

Cyclical stock, expects earnings to disappoint.  Oil prices won't have a 'v' shaped recovery.  Company's annual report shows 65% decrease in oil prices over two years and then a 100% increase in price, a literal 'v' chart.  Says stock is pricey and that they're exposed to the least desirable parts of the market.  Exposure to international oilfield capex budgets which won't recover.  Fair value could be around $62, or over 40% lower.  Recall that Einhorn has also been short Pioneer Natural Resources (PDX) in pitch at previous conferences.



Larry Robbins (Glenview Capital): Long DXC Technology (DXC), FMC (FMC), Quintiles IMS (Q)

DXC has already doubled over the past two years but he thinks it can double again given the huge increase in earnings power.  FMC purchased businesses that Dow and DuPont dumped as part of their merger.  Thinks FMC benefits as the others had to divest this in order to get their big deal done.



Keith Meister (Corvex Management): Long CenturyLink (CTL)

Thinks the company's merger with Level 3 is a game changer.  Filing a 13D with the SEC today disclosing a 5.5% stake.  Says consolidation in telecom will continue due to more data.  If economy is doing well = more data growth which is good for CTL.  If economy doing bad = a 9% dividend yield versus a 10-year Treasury potentially falling back to 2%.  Would never have invested if it weren't for the merger.  Stock priced as if things are in decline permanently.  Sees 40% upside with dividends in base case, but potential return as high as 50-70% if there's corporate tax reform.



Clifton Robbins (Blue Harbour Group): Long Investors Bancorp (ISBC)

Has seen deposit and asset growth continue, should benefit from less regulations and tax reform as well.  They own around 9.9% of the company and one of their partners just joined the board.  Stock could be worth between $17 and $19.  Fortress balance sheet.  Have grown loans 22% CAGR.  Co has $1 billion in excess cash to allocate.  Could potentially be an acquisition target since it's a strong regional bank.  Has previously pitched this name at another conference a few years ago.  Also noted his firm is focusing more now on the importance of environmental, social and governance (ESG) in investing.



Chamath Palihapitiya (Social Capital): Long Tesla 2022 Convertible Bonds

He called Elon Musk this generation's "Thomas Edison."  Thinks playing the bonds means no money lost as long as the company is worth at least $15 billion.  Argues company will have 5% of car market in the next decade.  They don't spend on advertising or a dealer network, don't have unions, etc.  Very capital intensive.  Called TSLA "unmodelable."



Josh Resnick (Jericho Capital):  Short Frontier Communications (FTR)

Massive debtload and deteriorating EBITDA which is a bad combination.  Has been short for five years, from $4 down to $1.50, longest short of his career.  Thinks company goes bankrupt.  32% of revenue comes from voice (phones) and thinks it declines sharply.  Losing market share to cable as well.



Jeff Gundlach (DoubleLine Capital): Emerging market outperformance (EEM) vs S&P 500

Not very bearish on the US dollar, but also not a bull.  American stock market seems to be overvalued. Questioned the herd mentality around index funds.  Go long EEM short SPY and leverage it up 1x.  Also said he's now on Twitter: @TruthGundlach to fight back fallacious media reports.



Debra Fine (Fine Capital): Long DHX Media (DHX/B on TSE)

Creator, buyer and distributor of children's TV content in Canada.  Thinks fair value is C$20-C$30.  The change in how video is consumed has increased need for children's content.  Says new content buyers like Netflix, Amazon and YouTube are driving up prices.  Notes that children's content drives merchandise and licensing dollars.  Children's content ages well and is usually cheaper to produce.



Davide Serra (Algebris Investments): Short U.K. gilts (bonds), Long UniCredit (UCG:BIT)

Brexit doesn't really help the UK economy, thinks it costs U.K. around 7% of GDP (~$200 billion).  Thinks European stocks are at an inflection point.  Big gap versus S&P 500 over past eight years and that's about to change.  Also talked long UniCredit, thinks Europe is overdue for consolidation efforts.  Italian banks been penalized for high share of nonperforming loans which creates opportunity as the company is fixing this and then added tailwinds of interest rates normalizing.  We previously highlighted Dan Loeb & Third Point's thesis on UniCredit.



Brad Gerstner (Altimeter Capital): Long United Airlines (UAL)

Thinks skepticism of the airline industry that's been pervasive for years is too negative.  Led to lower multiples despite margins that were uptrending.  Sentiment shouldn't be that low.  Millennials are traveling more than their parents did so airlines can be a secular grower.  Altimeter settled proxy contest with UAL last year.  Sees 18% increase in EPS to around $16.75.  More conservative base case is $13 a share by 2020.  Consolidation of the industry cannot be overstated and has basically resulted in an oligopoly.  Planes are full and price wars are long gone so there's pricing power now.  We've also highlighted how Warren Buffett likes airlines now too. Shares could double.



Kevin Warsh (Former Fed Governor):

Thinks a lot about tail risks and tail outcomes.  Feels most assets aren't ready for downside surprise.  Says to watch capex going forward.  If companies are spending, the economy still has further legs.  If there's a cut, not so sure the economy can keep it in high gear to go forward.  Biggest question for him is if lower inflation continues with slow growth.  Thinks institutional credibility rather than the printing press will be biggest asset going forward.



Tal Ben-Shahar (Potentialife): General advice: Do less

If you want to be happier, do less as quantity affects quality.  Reduce multi-tasking and find time for play, for friends, for family.



Sohn Contest Winner Dylan Adelman: Long eBay


Be sure to also check out notes from Next Wave Sohn which featured emerging managers pitching their investment ideas.

Next Wave Sohn New York Notes 2017

Below we're posting up notes from the Next Wave Sohn New York Conference 2017.  This is the lead-in event to the main Sohn Conference and features emerging managers pitching their latest investment ideas to benefit cancer research.  We've also posted up notes from the main Sohn Conference here.


Next Wave Sohn New York 2017 Notes


Neal Nathani (Totem Point): Long Xilinx (XLNX)

Sees 70% return in shares.  Secular tailwinds in data center and automotive/industrial markets.  AI and machine learning the next big opportunity in tech.  Strong balance sheet and returns on capital, strategic asset.  Thinks they take share from Altera and grow 11% versus FPGA market growth rate of 7%.  Also notes if the company levers up it could repurchase over $6 billion in stock over the next few years, around 37% of market cap.  70% upside is achieved via 17.5x CY20 EPS of $5.39 plus net cash.



David Copley (Trafalgar Copley): Short JBH and NZD

Said that if China has a credit problem, then Australia and New Zealand definitely have a big problem.  Thinks there's a residential housing supply bubble in Australia



Li Ran (Half Sky Capital):  Long Fever-Tree (FEVR:LN)

Expansion to mass market retail has boosted volume. Attractive due to solid consumer messaging and long runway for growth opportunity.  Prior to founding Half Sky, worked at Lone Pine Capital.



Jack Franke (Blockhouse Capital): Long MPLX (MPLX)

Thinks volume growth will accelerate due to pipeline additions.  Argued stock could return 40% over next two years.  Dividend could grow to $3 per share by 2019 and could close valuation gap to peers.



Dave Thomas (Atalan Capital): Long Gigamon (GIMO)

GIMO has 90% customer retention, dominant player in network visibility software.  Says the total addressable market for GIMO is multiples higher than sell-side estimates.  Thinks it is more of a software company than hardware.  Price target $45 or 4x 2018 sales.



Mark Moore (ThornTree Capital): Long Formula 1 (FWONA)

Sport is growing revenue around 4-5% annually.  The injection of Chase Carey into the team has helped rebuild the company/brand and invest in the fans.


Be sure to also check out the notes from the main Sohn Conference New York 2017.

Bill Ackman's Sohn Presentation on Howard Hughes: SimCities

We've posted up notes from the Sohn New York Investment Conference and at the event Pershing Square's Bill Ackman pitched a long of Howard Hughes (HHC).

He's actually the Chairman of the company and has been a longtime shareholder.  His pitch is included here in its entirety.

Embedded below is Bill Ackman's Sohn Conference presentation on Howard Hughes entitled 'SimCities':



You can download a .pdf copy here.

Be sure to also check out notes from the Sohn Conference New York as well as Next Wave Sohn.