GIBI

GIBI Conference: Einhorn, Ackman, Perry, Russo, Pickens, Miller Favorite Ideas


We recently posted some notes from the Great Investors Conference (GIBI) on the site and on twitter. Below readers can find more extensive (albeit informal) coverage on the event – the line up included – Michael Price, David Einhorn, Bill Ackman, Richard Perry, Bill Miller, T Boone Pickens and other famous investors.

See notes from GIBI 2013 here – Price, Einhorn, Ackman, Berkowitz, Pickens and others: Notes from GIBI Conference Also sign up for our free newsletter to get this coverage delivered straight to your inbox.

GIBI 2014 coverage below

Boone Pickens:  Founder & CEO, BP Capital: Bullish on MRO & CLNE

Talked a little  bit about activism, says that “Carl Icahn is about as smooth as a stucco bathtub.”  Pickens credits his success to good direction and questionable timing.  Last year’s picks: FANG up 40%, BAS up 40%, CLNE down 39%.  CLNE has struggled.  They have grown their stations.  They have covered the interstates.  Picking CLNE.  I own over 20mm shares so there might be something here…maybe pride of ownership.

Is the drop in the price of oil now about supply?  T Boone Pickens don’t think so though we drill too much.  From 2005-2013 US Natural Gas Production increased by 35% & U.S. natural gas prices are 50% cheaper than international peers.  While U.S. production has gone up, while the rest of the world’s production has remained flat.  US is the only place that is growing oil production.  Hats off to the industry.  It has done a tremendous job finding oil.  Pickens believes that natural gas prices will be flat and oil could come in a little.

Marathon Oil Corporation (NYSE:MRO) is his latest pick.

Comparables:

Stock:                          Est. 2015 EV/EBITDA    Est. 2015 YoY L48 Production Growth

MRO                             4.59x                                        28%

XOM                             5.59x                                        -2%

OXY                             5.31x                                        4%

MRO has come home to the US and he likes that.

Clean Energy Fuels Corp (NASDAQ:CLNE):  Pickens am a director of the company.  Direction is right.  This is another timing deal.  BNSF is now testing their tenders.  Now they can go across the country without refueling.  They have to refuel twice with diesel.

We may see oil under $80, nat gas has so much to grow on the upside. Pickens believes that we will never see $10 nat gas in his lifetime and we might not see $8 either.

Bill Ackman, CEO, Pershing Square Capital Management:  bullish on Federal National Mortgage Assctn Fnni Me (NYSE:FNMA) and Federal Home Loan Mortgage Corp (NYSE:FMCC)

Overview:

Post-depression:  50% of all houses were in foreclosure.  At the time the longest you could get was a 10 year mortgage.  30 year mortgage market made it more affordable for the working class.  They had leveraged fixed income arbitrage issuing debt & buying business.  40 to 1.  It proved to be the downfall.  Lowest credit quality ever & forced into conservatorship.  Gov’t had to inject capital  $185B in capital.  10% coupon & 80% of the profits.  Fannie & Freddie made mistakes.  ’08-’11 they lost $ & housing started to stabilize & recover.  $240B in reserves.  2012-2013 reporting huge gains.  Richard Perry, Bruce Berkowitz and others sued the gov’t.

Bill Ackman says he owns 10% of FNMA & 10% of FMCC and is still very bullish.  Ackman says that Pershing Square has been buying both up to the last 5 minutes.  Private property cannot be taken by the government. Ackman says that the gov’t had inappropriately changed conservatorship.  The gov’t took the assets.  Read the gov’t ruling by the judge:  the last paragraph.  Fannie & Freddie is not a regulatory taking when the shareholders continue to profit.  This is a taking of our constitution.  71 year old judge.  We’ve bought 20% of the volume.  We own the common vs. the preferred.  The preferred is the residual claim.  The common is just as good an investment.  I believe we will ultimately win.  There is an opportunity for settlement.  We own 10%.  80% is owned by individual investors.  Many want to join the lawsuit.  Gov’t 80% + taxing power.   There is no scenario that the entities are shot down.  It’s good for America.

Pershing Square declined to comment to ValueWalk

Michael Price, Managing Member, MFP Investors:  Two ideas (one old, and one new idea):  New idea: bullish on FMC.  Old idea:  still bullish on  Dolby Laboratories, Inc. (NYSE:DLB)

One comment on activism.  Lee Cooperman was bullish on SD.  Got rid of CEO, changed up the board.  You have to be a little careful when following activists.  There must be value there.

Old one:  DLB:  + on Dolby Labs.  Kids of co. own 55% of the co.  Co. earns $2/shr. + has $11/shr. in cash.  85% of their business is collection checks.  Stock went from $60 to $30 when the CEO died.  PC sales were going down.  PC sales have recovered.  They have new growth in Indian & China.  $2.25/shr. in earnings.  $11/shr. in cash.  Spending $2/shr. on research.  55% of the business owned by sons.  They are selling stock.  $4B in market cap, $1B in cash.  You could buy the company for $50/shr.  DLB is a very undervalued stock.  It’s attractive to private equity and Apple.

New Idea:  FMC Corp.  The co. spun out John Bean Technologies (JBT) & FTI.  It morphed into a chemical business.  Transitioning the co. top executive from Rohm and Haas.  Very smart.  Stock high $60s to $83.  Co. announced a $1.8B acquisition & cancels splitting the co.  Went from $83 to $56.  133MM shares.  Announcing the $1.8B acquisition caused the stock to sell off $3.5B.  So they decided to sell down some assets & pay down some of this debt.  2/3 of the business is food.  20% margins, revs. growing mid-teens.  Health & nutrition business is in the right sweet spot.  Street has overreacted to the company not splitting into two parts.  Smart mgmt.  Stock could earn $9-10/shr. in 3 years.  Could trade $120-$130 range in 2-3 years.

Owns Fannie & Freddie prefs.  Agrees with Bill Ackman’s argument.

Argentina should have a nice rally after the election.

Bill Miller, Chairman & CIO, LLM, LLC:  Buy the homebuilders:  likes the sector in general:  mentions:  KB Home (NYSE:KBH), Lennar Corporation (NYSE:LEN) & PulteGroup, Inc.(NYSE:PHM)  Also really likes Intrexon Corp(NYSE:XON)

Look out long term and not focus on the short term.

3 ideas:  1st idea:  stop trying to forecast the economy & forecasting the stock market.  Most of your money should be in stocks.  Index funds are fine.  Stop market timing!!

2nd idea:  Housing:  “Housing is the business cycle”  read it.  Stock market is at all-time highs, yet the homebuilders are not.  Buy the homebuilders:  likes the sector in general:  mentions:  KBH, LEN & PHM.  People say in general people are scared of owning homes (risk), restrictions are too high, Also likes William Lyon (WLH) trades at 5-6x earnings, homebuilders have a clear path to earnings growth.

3rd idea:  Also really likes XON:  Interexon.  Co. has licensing deals, cash coming into cover all expenses.  They are working on bacteria that eats methane.  Isobutanall:  $11/barrel.  No one has any idea if it will work.  The bet is on the CEO.  He owns 2/3 of XON.  Worst is lose ½ your $$$.  $2B company.  Co. has big upside.

Many, many others are not buying homebuilder stocks.  I’m like Boone, I’m not too good on timing.  Housing starts are getting better.  Employment is key.

Ray Nixon, Executive Director, Large Cap Value Equity Portfolio Manager, Barrow Hanley:  Bullish on 4Q tax loss candidates:  Mattel, Inc. (NASDAQ:MAT)

Investment Guidelines/Disciplines:

1)      Investors must have a disciplined approach.  Value or Growth.

2)     Change moves stock prices.

3)     Valuation does not make a stock go up or down.

4)     Use time to your advantage.

5)     Most Investors sell winners too early.

6)     Investment Opportunities.

What creates a 4Q tax loss candidate.  Month of Oct. 5 or 6 worst month drops historically.  Most mutual funds fiscal years end in October.  Technical pressure that happens this time of year.

Rules for 4Q tax loss candidate investing:

1)      Stock must be down on an absolute basis.

2)     Buy in Oct., Nov. & Dec.  Spread it out.

2011:  Tax loss candidate:  MDT

2012:  LUV

2013:  TEVA

You can buy a basket of tax loss candidates:  6-10 names.

4Q tax loss candidate down 15% YoY:  RIG, NE, COH, WFM, MAT, MUR, AVP, OI, SPLS, FMC, COG, FCX, RRC, CA, BBBY, FLR, ETN, HOG.

MAT:  tax loss candidate.  Why stock is down 34% YTD?  1) 3 consecutive quarterly EPS misses. 2)  Loss of Disney license in 2016 (10% of sale, 15% of EPS), 3)  Loss of market shelf space, 4)  Retail environment change, 5) expect EPS to continue to go lower.  You can’t find a buy rating on the stock.

Why buy MAT?  1)  Valuation 14.5X ’14 earns., 13.2X ’15 earns., 9.5 EV/EBITDA.  2)  Dividend yield 5%:  top 2% of S&P500 stocks.  3)  Toy industry growing 5% worldwide (emerging markets growing 8%).  4)  $1B in cash on balance sheet.

We have started buying MAT.  He spoke for a while about Texas and Dallas specifically.  Spoke + on the city and state for about 20 minutes.

Paul Isaac, CEO & Founder, Arbiter Partners:  + on Credit Agricole Regional Banks & Japanese General Trading Companies.

On Credit Agricole Regional Banks:  CCI Symbols:  CMO, CRTO, CAF, CRSU, CRAP, CCN, CIV, CAT31, CNF, CRLA, CRLO, CRAV, CRBP2.  5 year avg. ROE 6.4%, 5 yr. avg. ROA 0.74%, TCE/TA 12.6%, 5 year avg. efficiency ratio:  55%, NPAs/Assets:  2.1%, Reserves/NPAs:  107%.  40% price to tangible book value.  They short the French 10 yr. gov’t bonds to hedge euro risk.  Credit Agricole CCIs are well capitalized & inexpensive on relative & absolute statistical basis.  You do have Euro risk.  There could be some cuts in the French regional banks.

#2 Idea:  Japanese General Trading Companies.  There are concerns about Japanese economy.  These companies are largely international.  They are extremely cheap.

Likes:  8001 JP, 8002 JP, 8053 JP, 8031 JP, 8058 JP, they trade at 70-100% of tangible book, 6-7x P/E.  Japanese only allocate 9% to the stock market.  Mitsubishi has an ADR.  Another way to play them.

Tom Russo, Managing Member, Gardner Russo & Gardner Bullish on Cie Financiere Richemont SA

Global Value Equity Investing Core Principles:

1)      50 cent dollar bills

2)     Capacity to reinvest

3)     Capacity to suffer

Buffett always talked about value of brands.  I have built my business on global consumer stocks.  Nestle avg. employee speaks 4 languages.  Kraft avg. employee speaks 1 language, give or take a little bit.

We favor family controlled companies:  they are less wall street like companies and more like companies that Buffett buys.  We celebrate family controlled publicly traded equities.

Pick is:  Cie. Financiere Richemont SA

Richard Perry, Managing Member & CEO, Perry Capital:  likes the idea of containerboard sponsored MLPs,  + on tax loss candidates:  American International Group Inc (NYSE:AIG) & Ally Financial Inc (NYSE:ALLY)

Companies retain full control of assets in the MLP.  Enhance shareholder returns.

Tax Loss Candidates:  Likes AIG & ALLY.  ALLY:  They botched their last gov’t sale.  Now and year end we believe gov’t will be done selling.  It should trade 1x-2x book value.  Currently trading below book value.  Last gov’t sale was $25, Gov’t still owns 15-17%.  Stock trading @ $22.50.

Rich Kinder made a lot of money in MLPs.  We are now working with sell side, talking about our idea to make the containerboard companies MLPs.

Commented on Fannie Mae and Freddie Mac ruling.  Appealing the DC Circuit Court.  This judge has been overturned a lot.  50% in some situations.  30-35% on gov’t cases.  Hopefully better outcome in Circuit Court than in District Court.

David Einhorn, President & Founder, Greenlight Capital, Inc.:  Bullish on MU & AAPL, also really likes the Greek banks

Best Winners:  Apple Inc. (NASDAQ:AAPL) & Micron Technology, Inc. (NASDAQ:MU).  Two largest long positions.  Having a challenging time in the short book.  There have been some buyouts that surprised us.

MU Thesis:  DRAM has been a horrible business for a very, very long time.  Only 3 players in DRAM now.  Should be able to make $4/shr., trading at 8x earns.

France not in good shape.  French bonds yield a ridiculous 1 percent or so, and Marine Le Pen, a rising French politician, wants to leave the Euro.  When people perceive that central banks lose control, that is not good.

He owns the Greek Banks.  They trade at or below book.  Ratios could get better once Greek banks can foreclose on homeowners again.  Gov’t stopped that which meant people just stopped paying their mortgages.  Likes buying Greek banks and is shorting French Gov’t bonds….that could be a good trade.

Greenlight Capital declined to comment to ValueWalk

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