Every year some of the world's biggest congregate in Midtown Manhattan for the Ira Sohn Investment Conference, which benefits the Sohn Foundation, a non-profit that aims to combat pediatric cancer and other childhood diseases. At this conference, hedge fund billionaires from Stanley Druckenmiller to David Einhorn and William Ackman have traditionally opened their books to major trades and this year was no different.
Famed venture investor Chamath Palihapitiya beat everyone at the Sohn conference in 2016 with a very un-hedge fund like investment pick, Amazon, which he characterized as a multi-trillion dollar monopoly hiding in plain sight. From May 2016-to-present, Amazon shares have surged roughly 50%, easily topping the picks offered at the 2016 conference. This year Palihapitiya chose an even more un-hedge fund like pick, Elon Musk's Tesla. If Wall Street hedge funds talk about Tesla it is because they are likely short the company's shares and see Elon Musk as a charlatan.
Palihapitiya says otherwise. Tesla may not be the next Amazon, he told an audience of hundreds of investors and hedge fund big shots, but it is showing signs of being the next Apple. Tesla is becoming a vertically integrated category leader in the electric car, an opportunity Palihapitiya said may be worth in excess of $300 billion. But he did point out risks like over-expansion, a still unclear push into solar energy and the car-maker's low market share.
The way to play Tesla, Palihapitiya said, is to buy the company's 2022 convertible notes. These assets offer downside protection if Musk stumbles, but retain 95% of Tesla's upside. “The 2022 converts are an incredible to make a bet on the right side of history and the right side of change,” Palihapitiya said. “The most important thing is to stand shoulder to shoulder with a guy we believe is our generation’s Thomas Edison."
David Einhorn Shorts Core Laboratories
When it comes to oil frackers, Greenlight Capital's David Einhorn has had a mixed run in recent years, betting against mother-fracker Pioneer Natural Resources and going long natural gas giant Consol Energy. On Monday, he offered his newest trade, a short in reservoir services supplier Core Laboratories, which Einhorn characterized as constantly betting on an oil recovery, but facing secular challenges.
In recent years, Core Labs has told its shareholders higher oil prices were imminent and its business opportunity ranging from oil sands to shale and deepwater drilling were poised to boom, Einhorn said. But he threw cold water on Core Labs's opportunity ahead, stating the company's shares are worth less than $70 apiece due to a poor future revenue mix and a contracting stock multiple.
“Core was in the right place at the right time in the last cycle,” Einhorn said of Core Labs's post-crisis performance. About the looming oil recovery, Einhorn said of Core Labs CEO David Demshur, “if his prediction is right he would have predicted seven of the last one bottom.”
DoubleLine Capital's Jeffrey Gundlach Gets Bullish On Emerging Markets
Jeffrey Gundlach spent fifteen minutes railing on the so-called active management of equity index exchange traded funds, which often have holding periods on stocks of just a handful of days. But with trillions flowing into index ETFs Gundlach isn't fighting the money gush, instead offering a trade based on index ETFs. With passive money pushing the S&P 500 Index to record levels, Gundlach recommended becoming more bullish on emerging markets, which trade at half of the multiple.
Gundlach's trade: Go long the MSCI EM ETF and short a S&P 500 Index ETF. Add one turn of leverage to enhance the value of the trade, Gundlach said. One risk to emerging markets is a strengthening U.S. dollar, particularly as the Federal Reserve increases interest rates. Conventional wisdom is that dollar strength often wipes out EM out-performance, but Gundlach said such risks from a hiking fed are overstated.
Corvex Management Builds Activist Stake In CenturyLink
Corvex Capital Management's Keith Meister pitched a bull case on internet infrastructure giant
At the end of trading, Corvex filed a 13D and will call for for Level 3 leaders like CEO Jeffrey Storey to be given executive roles inside the combined company. While at Level 3, Meister painted Storey's reign as one of dramatic outperformance versus the S&P 500 and industry peers, and he said such managerial excellence could help CenturyLink remove a wide stock market discount. Supporting the trade is CenturyLink's 9.2% dividend yield and its valuation at a wider-than-ever spread to treasuries when compared against
Here are Meister's big numbers: CenturyLink currently trades at a total enterprise value of just 6.5-times its forecast 2017 earnings before interest, taxes, depreciation and amortization. With Level3 now in its coffers, CenturyLink is forecast to generate $10 billion in annual EBITDA and have net debt levels of 3.7-times. The merger will also bolster CenturyLink's combined free cash flow by $1 billion annually, allowing its dividend payout ratio to move from nearly 100% to less than 80%
All told, Meister believes with the right management and execution of its Level 3 acquisition, CenturyLink can see an over 30% bump and trade at $34 a share. The company's mega dividend allows investors to bide their time as management works through integration and fear hanging over the telecom infrastructure industry abates.
Making Money From Teletubbies And Degrassi. No Drake Necessary
Debra Fine of Fine Capital partners made a thorough and humorous pitch for Canadian media company DHX Media, a holding company with rights to childrens programming ranging from Bob The Builder to the Teletubbies and even 90s high school saga Degrassi, which propelled Drake to fame.
Fine said DHX's CDN$5.50 share price wildly undervalued the company's licensing opportunities and the value of its content library, while also underestimating its earnings growth potential. Most important to Fine's bull case is a belief that children's content is evergreen, thus its value does not diminish over time. That means DHX benefits from a near constant refresh of interested viewers, aged 2-to-10.
Presently generating about CDN$125 million in annual EBITDA, Fine believes increased prices paid by streaming content providers for DHX's programming could add $60 million to the company's bottom line. “The value of children’s content does not diminish after the first broadcast,” Fine said, citing a big recent bump
Further down the age spectrum, Fine highlighted DHX's $30 million acquisition of rights to the Teletubbies, a franchise created by the British Broadcasting Corporation that once generated $2 billion in annual revenues at its 1990s peak. If Teletubbies is half as successful as it was during the 1990s, it will more than double DHX's EBITDA.
Though the stock trades at CDN$5.50, Fine believes DHX should trade at CDN$30 a share, with upside of as much as CDN$46 a share, citing the price
Bill Ackman's Real Estate Field Of Dreams
With an undisclosed investment sitting in his portfolio, a continued battle raging with Herbalife and signs of success at recent activist investment Chipotle, Bill Ackman chose to pitch real estate development company Howard Hughes to the investing public, streamed live on CNBC. The company contains development assets once owned by America's second biggest mall operator General Growth Properties, the REIT which Ackman spent $66 million to build a stake that turned into a multi-billion dollar windfall.
Ackman's pitch may have had less fireworks than many had hoped, but he used his pulpit on Monday to explain why he believes the company has never been in better shape. Howard Hughes controls wide swathes of land across the United States, led by a toehold position in Summerlin Las Vegas, land once acquired by the company's namesake Howard Hughes. It also owns land in Hawaii, New York's South Street Seaport, Houston, and the D.C. exurbs, to name a few areas.
With Vegas booming, Ackman highlighted Howard Hughes's remaining thousands of acres of residential lots to sell in Las Vegas and its mixed use real estate development, Downtown Summerlin. New York's Seaport is expected to open in 2018 after a brief delay, which extended the scope of the project. The firm is increasing its land position in Columbia, Maryland and it ably navigated the energy downturn in markets like Houston.
Once a quiet holding in Ackman's portfolio, the famed activist now wants to put a spotlight on Howard Hughes, which will begin hosting quarterly earnings calls and has its investor day later on in May.
Howard Hughes was the subject of a Forbes cover story on Ackman, titled 'Baby Buffett.' Within months of the story's publication, Ackman's hedge fund Pershing Square Capital Management entered a tailspin, weighed by an over $3 billion stake in Valeant Pharmaceuticals, which he likened to Berkshire Hathaway at the 2015 Ira Sohn Conference.
Now as Ackman plots a comeback after losing virtually all of his money on Valeant, he's pointing investors towards Howard Hughes, where he is chairman. The real estate company's shares are about 15% lower than their price when Forbes published its May 2015 story.
This Time Is Different For Airlines
Altimeter Capital's Brad Gerstner has been a bull on airlines for more than two years, spotting value in the single-digit price-to-earnings multiples of UnitedContinental and American Airlines. After a run up in airline stocks, Gerstner believes the outlook for the industry remains better than many investors expect. Like railroads in the 1990s, Gerstner believes the airline industry's post-crisis consolidation has rationalized the industry, allowing carriers to bank on resilient profits.
The recent $10 billion bet Berkshire Hathaway has bet on United, American, Delta and Southwest underscores a changing sentiment on airlines, Gerstner said. After all, before their bet, Warren Buffett and Charlie Munger had been bears on airlines, hesitating to jump into the sector even as rationalization began to take hold. A new catalyst? Gerstner believes millennial's appetite for travel is a secular tailwind, so to speak.
