Invest For Kids Notes: Cooperman, Eisman, Gundlach, Lasry, KuhnVW Staff
This is a summary of the investment ideas presented at the 2013 Invest For Kids (IFK) 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 conference notes part I below: Cooperman, Eisman, Gundlach, Kingdon, Lasry, Kuhn
Leon Cooperman – Omega Advisors
Cooperman has a neutral to slightly positive view of the market at current levels. He says that the market is in a zone of fair valuation. Bonds are overvalued, so they're currently no competition to equities. Bull markets in the stock market end with exuberant pricing or with recession. We are not at either of these points right now.
Cooperman has four long investment ideas:
- Atlas Energy LP (NYSE:ATLS). Atlas is a publicly-traded MLP with a dividend yield twice the S&P. A ‘sum of the pieces' valuation of the company is greater than the current price.
- Monitise Plc (LON:MONI). This is a mobile wallet company traded in London. Visa Europe has options for 20% ownership of the company and has indicated the company is central to Visa’s mobile wallet strategy. The company is growing at a very high rate is constantly adding new partners, including International Business Machines Corp. (NYSE:IBM) and Cognizant Technology Solutions Corp (NASDAQ:CTSH).
- SandRidge Energy Inc (NYSE:SD). Cheap relative to E&P group. Management was poor and was rightly replaced. Valuation will expand as the new team gets settled in.
- Sprint Corporation (NYSE:S). Sprint is cheap relative to its peer group (T-Mobile, AT&T, Verizon), and margins are better than its peers. Softbank has executed on mobile successfully in Japan and Cooperman is willing to bet they can do it again in the U.S. He thinks the stock is a double from here.
Steve Eisman – Emrys Partners
Eisman thinks the structure of the mortgage market will look different in the future than it does today. The main change he sees playing out is the shift in servicing of credit-impaired mortgages away from the banks themselves and towards specialists. Performing mortgage credits can be serviced by technology; credit impaired mortgages must be serviced by people. He has two investment ideas related to this secular trend:
- Ocwen Financial Corp (NYSE:OCN). Ocwen enjoys a 70% cost savings in servicing credit impaired mortgages relative to anyone else in the industry. Much of this work is done via labor in India. The company is growing at 50% a year and has a 2014E FCF yield of 16%. The Company will be using cash to buy servicing rights and buy back stock. Ocwen currently trades at about 10x earnings. The stock has about a 50% upside over the next year or so without any multiple expansion.
- Altisource Portfolio Solutions S.A. (NASDAQ:ASPS). Altisource is a spin-off of Ocwen. 3Q2013 saw 57% Y/Y growth in EPS. The company is going to grow at least a 50% per year. Currently trades at a 15x multiple of earnings. The company runs a website, Hubzu.com, with much growth potential. Hubzu.com is one of only two websites where you can actually buy a house over the internet. In the past, only distressed listings that were being serviced by Altisource were available. This is changing and now 30% of listings are non-distressed. This is a very unknown company, with only one sell-side analyst covering it.
Jeffrey E. Gundlach – DoubleLine Capital LP
Gundlach thinks there are a lot of parallels between our current time and the 1930’s during the FDR Presidency. We are in a period of historically high corporate profit margins and historically low wages as a percentage of GDP. Message: higher corporate taxes and higher income taxes on high earners are in store. Gundlach went on to warn of the effects of quantitative easing. QE has created a lot of risk in equities at current prices. He warned investors to avoid Amazon.com, Inc. (NASDAQ:AMZN), Netflix, Inc. (NASDAQ:NFLX), Tesla Motors Inc (NASDAQ:TSLA) and other tech stocks with high valuations.
Mark Kingdon – Kingdon Capital Management, LLC
Kingdon has a positive view on equities and on the global economy. There has been a recovery in Europe and structural reforms in Japan and China. Two long ideas:
- The Boeing Company (NYSE:BA). The 787 is the first major airplane built from the ground up since the ‘60’s. The economics forecast for carriers is excellent. The 787 is 20% more fuel efficient than the 767. The payback period is 24 months on fuel savings alone. Additionally, the plane has 30% lower operating costs. There is record backlog in the airline industry right now, driven by demand for new airplanes in China and emerging growth in Asia. FCF for Boeing will trend up as deliveries accelerate, learning curve lowers costs, shares are repurchased, and cost savings are realized.
- Aegerion Pharmaceuticals, Inc. (NASDAQ:AEGR). Aegerion has developed a one-a-day pill for a rare orphan disease called HLFH that causes extremely high cholesterol. This is the first treatment developed for this disease and the first side effect free treatment. The price of the drug is $295,000 per year per patient. Current market size estimate is 15,000 global patients (up from Kingdon’s original estimate of only 900).
Steve Kuhn – Pine River Capital Management, LLC
Idea: American Capital Ltd. (NASDAQ:ACAS). ACAS is a misunderstood and under-loved company. It is a BDC, but has pursued a unique strategy that allows it to not pay dividends (BDC’s, like REITs, are required to pay out 90% of income as dividends). BDC’s avoid double taxation and typically pay a meaningful dividend. Competitors like Ares Capital Corporation (NASDAQ:ARCC), Prospect Capital Corporation (NASDAQ:PSEC), and Apollo Investment Corp. (NASDAQ:AINV) trade at slightly above book value. However, ACAS trades at .73 because it has not paid a dividend. In 2008, ACAS suffered large losses and, and in the process, large tax loss carry-forwards. They now use this loss carry-forward to offset income and avoid dividend distributions. They are accruing earnings on a tax-free basis as a result and using cash to buy back stock. However, ACAS is being punished in the market for not producing a current return. It trades at a discount to book while its BDC peer group members trade at premiums to book. ACAS has bought back 27% of the company at 66% of book value. Kuhn estimates ACAS has about three years of tax shield left. At that time, the dividend will turn back on and the multiple on the stock will expand to match its peer group. The stock should double to $28 a share in three years. Kuhn notes that the structure of management’s option pool aligns it very well to pursue this strategy, an extra plus.
Marc Lasry – Avenue Capital Group
Two long corporate bond ideas:
- J.C. Penney Company, Inc. (NYSE:JCP). Lasry recommends buying JCP bonds, which are currently trading at about 60 to 65 cents on the dollar. Everyone today thinks JCP is not going to survive and is headed towards bankruptcy. However, this is incorrect. The company has $2 billion in cash on its balance sheet today. Total debt = $5.5 billion, which equates to roughly a $250 million annual interest cost. Prior to Ron Johnson taking over and taking wild risks with strategy (no cash registers, store within store concepts, a move away from JCP’s historically strong sizes 8-20 for women and Large to XL for men), the company was earning $1.4 billion annually in EBITDA. LTM EBITDA = -$1.016 EBITDA. 2014 will produce break even EBITDA as the company returns to its pre-Ron Johnson operating strategy. 2015 will produce $785 million in EBITDA. With $2 billion in cash, the bonds are fairly safe. Two years from now, once the market figures this out, the bond will be trading at par, for an annualized return of around 25%. This is a great risk/return profile.
- Connacher Oil and Gas Ltd (TSE:CLL). Buy bonds at 70 cents on the dollar. Connacher has figured out how to ship crude more efficiently out of the Canadian oil sands areas of Alberta and now earns operating margins of $32 a barrel from $16. Lasry thing they even have the ability to push this margin over $50 a barrel. The market doesn’t understand what the company is currently doing. Bond should be trading at par within a year or so.