Invest For Kids Conference Notes: Peltz, Rieder, Singh, Zell, WhiteVW Staff
This is a summary of the investment ideas presented at the 2013 Invest For Kids conference, taking place on October 29th at the Harris Theater in Chicago, started by Ron Levin and Ben Kovler. The event features an elite group of investment managers sharing their best investible ideas. Speakers this year include Jeff Gundlach, Marc Lasry, Sam Zell, Steve Kuhn, Steve Eisman, Mark Kingdon, Nelson Peltz, Rick Rieder, Dinakar Singh, Peter Zaldivar. 100% of money raised from the event goes directly benefiting local children. If you want to check out other great sources of notes check out MarketFolly, and David Benoit of WSJ.
Invest For Kids Notes: Peltz, Rieder, Singh, Zell, White, Zaldivar below
Nelson Peltz – Trian Fund Management LP
Idea: Mondelez International Inc (NASDAQ:MDLZ). Peltz’s target price for the stock is approximately $48-$65 a share by year-end 2015, from a current price of $33. Mondelez has some of the best brands in the markets in some of the most attractive segments, including biscuits, gum and candy, coffee, chocolate, and powdered beverages. It would be nearly impossible to replicate the business at this point in the game. The company also enjoys 39% exposure to emerging markets, offering higher growth than peers. Despite this, the company is only earning EBIT margins of 12.2% versus a peer average of 15.7%. Peltz thinks EBIT margins can easily expand from 12% to 18%, making the company 50% more profitable. It is also cheap relative to peers on a multiple of earnings basis.
Rick Rieder – BlackRock, Inc. (NYSE:BLK)
Rieder said that the upside value to fixed income is muted, to say the least. He thinks that convertibles offer an attractive alternative to traditional fixed income. Rieder believes that there remains major slack in the labor market and the implications of this will be an extended period of quantitative easing, creating a low-rate framework for a long time. Rates must stay low to keep mortgage rates down and keep the housing market recovery going. A side effect of this extended period of low rates, though, is that businesses, now largely delivered, are levering up again and permanently financing themselves at incredibly cheap levels. The debt markets, in effect, are subsiding the equity markets. Earnings will continue to grow from leverage, not from revenue growth or margin expansion. He thinks convertible bonds are a way to get current income while also capturing convexity to the upside in the form of options on the equity. He also notes that these options are not priced right because the Fed has taken volatility out of the equation, making the value of the options that much more attractive.
Dinakar Singh – TPG-Axon Capital Management
Globally multiples are at normal levels. Stocks are neither cheap nor expensive. The U.S. and Japan are now priced at growth multiples as a very small percentage of the market index trades at single digit multiples. Hong Kong, conversely, is now trading at a value multiple as a large percentage of the index is available for purchase at single digit multiples. Two ideas:
- Hitachi, Ltd. (TYO:6501):(OTCMKTS:HTHIY). Hitachi is cheap relative to peers Emerson Electric and Phillips NA. Htachi is now an industrial equipment manufacturer as it has divested its consumer businesses. The company has not fully realized the bang for its buck, though, because of a series of exogenous shocks, including the tsunami and Thai floods. Hitachi is well-positioned relative to its competitors.
- Daqin Railway Co., Ltd. (SHA:601006). Daqin is now trading at 8x earnings versus 16x for Union Pacific. Daqin is the biggest and best railroad in China. It currently has a 6.7% dividend yield, a strong balance sheet, and good management. The Chinese government is a half owner of the company and will likely be letting railroads raise tariffs to produce extra dividend income.
Sam Zell – Equity Group Investments LLC
Zell gave his summary take on real estate markets. He does not understand the current portfolio trend of buying single family homes because they are hard to manage and difficult to reinvest capital after selling. He calls this model more of a trade than a business. Zell thinks multi-family is more attractive in the long term because of the secular trend away from the suburbs and back into cities as there is a societal trend toward deferment of marriage. The retail market is becoming more and more dominated by the large retail REITs. These firms have the scale and ability to incorporate e-commerce into their mall stores by adding such services as pickup points. This is a differentiator. In the office sector he sees a trend toward less average square feet of space per employee. He says new supply is non-existent. In the hospitality sector, supply is constrained because it does not make economic sense to build. As a result there is some conversion of existing buildings into hospitality. This favors those with existing hospitality infrastructure. Overall, Zell notes that real estate markets are healthy, which he primarily measures by liquidity.
Stephen White – Castle Union LLC
Idea: Avid Technology, Inc. (NASDAQ:AVID). Company makes professional audio/visual editing software. Operating margins are much worse than peers. He thinks that if the company can just get to 8-11% operating margins, versus some peers that are as high as 25%, the stock will perform well. There were many bad events last year that have caused a depressed stock price, including the firing of the company’s CEO. White does not think these are structural problems. 20% of the market cap is in cash. Stock could be worth $15-$25 dollars if turnaround takes hold. Company needs to perform “less badly” for the stock to do well.
Peter Zaldivar – Kabouter Management LLC
Idea: Hotel Shilla Co Ltd. (KRX:008770) Operates duty free stores in Korea. In Korea, this is a duopoly market, with Lotte, a competitor, owning 50% market share, and Hotel Shilla owning 35%. Barriers to entry include scale and government licenses. The company is growing at 15% annually and accelerating. Korean tourism is being driven by the Chinese, mainly. Korean pop culture is hot in Asia and is contributing to growth in Korean tourism. Luxury brands are 40% in Korean duty-free stores than in mainland China. The company is cheap relative to comps in Europe: World Duty Free (Italian company) and Dufry (Swiss company). Hotel Shilla has a 22% upside from here in multiple expansion alone.