Looking back at AR Symposium investing ideas

By Lawrence Delevingne

Tue Nov 13, 2012

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Absolute Return also revisits Paulson's 2007 subprime MBS trade.

One year ago

Hedge fund managers gave their picks at the AR Symposium in New York. Many of those stocks could have been sold at a gain sometime between then and now, but if held until today the majority of them would have lost money.

Name & Firm

Recommendation (Nov. 3, 2011)

Nov 3, 2011 - Nov 13, 2012

Josh Fink

Enso Capital Management

Go long natural gas and related companies, such as BNK Petroleum (BKX, Toronto), San Leon Energy (SLE, London) and 3 Legs Resources (3LEG, London). Opportunities are particularly ripe in Poland, where shale gas sites go for a fraction per acre compared to the U.S. "The governments want it. The people want it. It will happen," Fink said.

BKX.TO: -77.91%

SLE:L: -33.68% (12.67% possible gain, selection to peak)

3LEG:L: -69.34

See AR's May 2012 feature, Josh Fink's wild ride

Ross Margolies

Stelliam Investment Management

Go long Microsoft (MSFT). Contrary to what its low stock price implies, the company is poised to profit from transitions in the tech industry with a variety of new products, strong financial position and conservative acquisition strategy. Morgolies said that better than expected performance by even one or two units will drive the stock price up. Those include mobile phone software (offering an opportunity to displace Android), entertainment (Kinect for Xbox could change home entertainment) and computers (Windows 8 will drive sales). "The risk reward is very attractive," said Margolies. He acknowledged the stock would rise in the short term if CEO Steve Ballmer left, but said he had positioned the company well and that the price would reflect those changes within the next two years.

MSFT: +2.11% (+23.82% possible gain, selection to peak)

Alex Roepers

Atlantic Investment Management

Go long mining machinery producer Joy Global (JOYG) because of the resilience of demand for coal. The price could double in the next 12 to 18 months to $140/share. "Coal is absolutely necessary to turn your lights on both here and in China," Roepers said.

JOY: -35.96% (6.36% possible gain, selection to peak)

Wes Swank

Hayman Capital Management

Go long natural gas company McMoRan Exploration (MMR). "The commodity isnt for the faint of heart," said Swank, noting the "development play," but McMoRans technologically advanced extraction operations off the coast of Louisiana could yield huge reserves and drive the stock price as high as $50 a share. "If they are even fractionally correct about how much gas exists in [its exploration areas] and how much they can access, the stock is worth multiples of what it is today."

MMR: -1.70% (27.48% possible gain, selection to peak)

Jamie Zimmerman

Litespeed Management

Go long Tronox (TRXAQ) as a targeted play on the future of titanium dioxide. "As emerging economies expand, the demand is just going to go up," Zimmerman said of the ingredient, which is used in an array of products, from white paint to cream cheese and toothpaste. Tronox trades on the pink sheets and announced a merger with Exxaro of South Africa in late September, making it a good bet to retain its value even if global demand for titanium dioxide ebbs.

Tronox was listed on the NYSE in June as TROX with a starting price of $145 per share. Since then it has fallen following a five-for-one stock spilt in July (from $24.79 to $15.18).

A new crop of managers presented their best ideas at the Absolute Return Symposium this year, including managers from Boardman Bay, Contrarian, Hildene, and Stelliam. See their picks here.

See also: Coverage of the 2012 Absolute Return Symposium

Five years ago

Absolute Returned wondered if John Paulson's Paulson & Co. could sustain its hugely profitable subprime mortgage backed security trade.

The Paulson Credit Opportunities Fund did gain over the last three months of 2007, rising 21.62% in October, 5.70% in November and 0.38% in December to finish with an astounding 589.62% gain for the year. The same fund also gained 18.27% in 2008, 34.99% in 2009 and 19.64% in 2010. The fund lost 18.20% last year and is up 2.04% this year through September.

Today, Paulson remains invested in the mortgage market, but it's not clear how much and through which types of securities. Generally, the MBS trade has been the most profitable in the industry this year, with the average fund in the space gaining 12.80% through October, according to the Absolute Return MBS Index, compared to an average gain of 4.99% for all hedge fund strategies.

See also: ABS East: Is the RMBS trade over? | Hedge funds build on mortgage gains

ISSN: 2151-1845 / CDC10004H

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