market folly

The Invest For Kids Chicago 2018 conference recently took place.  It featured investment managers sharing their latest ideas to benefit underprivileged children in the Chicago area.  Here's notes/summary of the event:


Notes From Invest For Kids Chicago 2018

Ken Griffin (Citadel Investment Group):  Took down risk in August.  Hasn't felt comfortable with lots of risk in about a decade.  Says there's lots to worry about and October has obviously thus far been volatile, but this is where portfolio managers can shine.  Sees lots of opportunity for Citadel in commodities.  Says to hire great people then delegate.


Sam Zell (Equity Group Investments):  Macro commentary, lots of uncertainty about next month's elections.  Long cash, maybe gold?  He thought we were in the 8th inning a few years ago, elections have since taken us into extra innings.


Christopher James (Partner Fund Management):  Long Intuit (INTU).  Known for its TurboTax and QuickBooks products, proprietary datasets are where the real value is.  Big Data + Workfroce 2.0.  New "One Intuit" ecosystem driving value as well.  People trust the company, are opting into data sharing.  INTU has underappreciated upside and is partnering well with a range of other fintech companies.


Mark Lampert (BVF Partners):  Long Idorsia (IDIA-CH), spin-off from Actelion done in conjunction with Actelion's sale to Johnson & Johnson.  Founders/owners of co are exemplary scientists and business operators.  Invested $525 million into Idorsia, more open market purchases recently.  Insider purchases stand out as among biggest in industry.  Thesis is to co-invest with the Clozels, the founders.


Vivian Lau (One Tusk Investment Partners):  Long Bombardier.  Prior management made a ton of mistakes.  Co has a strong backlog and good long-term demand.


Daniel O'Keefe (Artisan Partners):  Long Dentsply (XRAY).  Depressed earnings/multiple.  Co is growing, has good margins and ROIC.  Says dental spending is seeing secular, long-term growth.  180 million Americans are missing at least one tooth.  XRAY historically trades low-to-mid 20's P/E but has recently been mid-to-low teens.  They overpaid for Sirona, failed merger integration, and have had 4 CEO's in 3 years.  Thinks margins should revert, sees FY19 op margin at 17-21%, EPS at $2.30 to $2.80, stock worth $41-71, currently trades $35.


John W. Rogers Jr. (Ariel Investments):  Long Stericycle (SRCL), long Madison Square Garden (MSG), MSG Networks (MSGN).  People will probably still want to watch live sports, they own very valuable sports rights in a world class city.


Vivien Azer (Cowen & Co):  Long Canopy Growth (CGC/Weed).  Says it's a once-in-a-career disruption and only a matter of time.  Consumer packaged goods companies are getting into the sector.  Target price: C$82.00, 30x sales in three years.


Jeremy Schiffman (Palestra Capital):  Long Airbus.  In the good part of the cycle, about to get even better.  Higher margins to follow: op margins going to mid-teens in next three years.  Worth 180 Euros per share in three years.  Stock buyback is possible next year.  40,000 new aircraft deliveries worldwide in the next decade.  FCF heading from under 3bn Euros to 8bn Euros.  Short U.S. Trucking: (Wener, Knight-Swift, Heartland): good part of cycle right now but about to get a lot worse.  60 PMI likely to mean-revert to 50 or lower; if 40, short makes a lot of money.


Philip C. Ordway (Anabatic Investment Partners): Long Alaska Airlines (ALK).  Advantages from cost structure, customer loyalty, and markets/routes.  Attractive margins and returns on capital.  Current valuation = very low expectations. Secret sauce is Alaska's credit cards: loyalty program generated ~$1 billion of CFFO in '17. Operating margins ~40-50% with zero capital required, membership growing 10-12% per year. Bank of America pays Alaska every month based on members' credit card usage.  Co's integration of Virgin America almost complete, sees FCF >$2 bn in next 3 years. ALK 10% FCF yield, 9x P/E.


Constance Freedman (Moderne Ventures):  Long Fujifilm.  Venture capitalist looking to invest in old industries undergoing technological transformation.  3d printing, augmented reality, digital transactions are technologies applicable to many markets.  Document solutions, healthcare, imagine segments all use disruptive technologies.  Undervalued today relative to peers.  Revenue and profit growth from healthcare and imaging.  Sees 15x E 2018 EPS, 6% ROE


For more recent investment conference coverage, head to our summary of the Great Investors Best Ideas (GIBI) Dallas Conference.