Sohn Conference 2014: Picks from Ackman, Einhorn, Robbins and more

By Simone Foxman

Wed May 7, 2014

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Managers make the case for Brazil, Gazprom, and Fannie Mae.

  Zach Schreiber, CIO of PointState Capital
   Zach Schreiber, CIO of PointState Capital (Photo: Bloomberg)

Fifteen hedge fund managers and three other investment pros put their street cred on the line at yesterday at the 19th Annual Sohn Conference in New York City. 

The Sohn Conference Foundation raises money to benefit medical research into pediatric cancer in honor of Ira Sohn, a Wall Street professional who died of cancer at the age of 29.

Packed crowd aside—the event was expected to draw more than 3,000 attendees—investors would do well to take these ideas with a grain of salt; according to a Wall Street Journal report, research firm Birinyi Associates concluded that a person who had invested an equal amount of money in each of last year’s ideas would have lost 3.8% of their money, even as the S&P 500 rose 15.2% the ensuing 12 months.

See a complete list of their ideas below (in order of presentation):

Manager Idea
Michael Novogratz, principal of Fortress Investment Group Go long Brazil if President Dilma Rousseff loses her reelection bid later this year. His slidedeck was titled "Brazil: It's so bad, it's good." All bets are off if Rousseff wins, however.
Chris Shumway, founder of Shumway Capital Short CNH, a "deliverable forward version of China's currency." Shumway believes China will grow at about 6%, versus the 7-7.5% that the Chinese government predicts.

Long Moody's Corporation (MCO). Moody's benefits from a strong business model in an industry with high barriers to new entrants. Unlike Standard & Poor's, it hasn’t faced legal challenges from the U.S. Department of Justice. It is undervalued based on long-term growth estimates.
Jeffrey Gundlach, CEO and CIO of DoubleLine Capital Short XHB, the SPDR S&P Homebuilders ETF. "Single family housing is overbelieved and overrated," Gundlach said. Housing optimists point to measures that mask the reality: homeownership rates won't go higher, affordability isn't rising, and new home sales are flat. "In the rest of my career, we will never see a year of 1.5 million housing starts again," he predicted.
Dan Ariely, Professor of Psychology and Behavioral Economics at Duke University Ariely believes humans make three fundamental mistakes with money: 1) "We think about money in relative terms and not in absolute terms," 2) "The method of payment actually influences the way we think about money," and 3) Because we have difficulty assigning a monetary value to work, we create false comparisons. "If we see people sweat, we feel okay about paying them," Ariely said, whereas we might feel less satisfaction in paying more efficient workers.
Philippe Laffont, founder and portfolio manager of Coatue Management Long telecommunications company Liberty Global (LBTYA). Liberty benefits from tailwinds in European telecommunications, a strong business model, and a management team that cares about its stock price.
Larry Robbins, founder and portfolio manager of Glenview Capital Management Long Humana (HUM) and Wellpoint (WLP). HMOs are on the up-and-up, and will benefit from an increased customer base of old people.

Long Monsanto (MON). "We simply cannot solve world hunger on an organic basis," Robbins asserted. "Of the options that are not utopian, we think GMOs [genetically modified organisms] are here to stay." As a pioneer in genetically modified crops, Monsanto is poised to benefit, particularly if it increases its leverage and invests more in its business.
Zach Schreiber, CIO of PointState Capital Short WTI/Long US refiners, particularly Valero (VLO) and Marathon Petroleum (MPC). An oversupply in U.S. crude oil in the middle of the U.S. will scuttle the cost of WTI crude contracts, which deliver in Cushing, Oklahoma. That supply gets sent to Gulf Coast refiners and has been forcing them to run at capacity. The U.S. government isn't likely to ease the buildup via policy changes anytime soon.
James Grant, founder and editor of Grant's Interest Rate Observer Long Gazprom (OGZD). After calling the company "the polar opposite investment of Tesla" and "Herbalife without Carl Icahn," Grant argued that Gazprom was undervalued. "Gazprom may or may not be a bad company. At 2.5 times earnings, its imperfections would seem to be priced in," Grant said.
Bill Ackman, founder of Pershing Square Capital Management Long Fannie Mae (FNMA) and Freddie Mac (FMCC), entities he called "more important today in the mortgage market than they've ever been." Ackman proposed a plan to recapitalize the companies and make them more stable. He also argued that the U.S. government will not be able to raise sufficient capital for an alternate system.
Paul Tudor Jones II, co-chairman and CIO of Tudor Investment Corporation "Wait until you see the whites of their eyes before you sell fixed income," Jones told the audience. He noted that fixed income typically hasn't sold off until about three months before an interest rate hike.
Michael Guichon, student at Columbia Business School and winner of the Sohn Investment Idea Contest Long Fiat. Guichon argued that the company's share price doesn't factor in its businesses from Europe, South America, and Asia, as well as its planned expansion in those markets.
Mariko Gordon, founder and CIO of Daruma Capital Management Long Electronics for Imaging (EFII), a digital printing company. Gordon believes the company stands to benefit from the increasing importance of inkjet printing on all surfaces, including ceramic tiles.

Long HB Fuller (FUL), a specialty adhesives company. Management changes have made the company more efficient, and internal investment will finally deliver economies of scale, Gordon believes.

Long Pacira Pharmaceuticals (PCRX). The start-up drugmaker has developed a long-lasting pain-treatment drug called Exparel, which reduces the need for opiates after surgery. Gordon believes this drug is bound for greatness.
David Einhorn, president of Greenlight Capital Short athenahealth (ATHN), a healthcare software company. Einhorn believes the company has been overhyped by analysts and management and is part of a "Bubble Basket" of overvalued stocks. He also believes the company is likely to be overshadowed by Epic, another healthcare software developer that is better positioned in the market.

Held for the first time in conjunction with Bloomberg LINK, this year’s lineup included five emerging managers who offered ideas at its inaugural New Wave Sohn morning mini-event. Ideas from those five managers were compiled based on reporting that appears here, here, here, and here:

New Wave Sohn presenters Ideas
John Khoury, managing partner and portfolio manager of Long Pond Capital Long American Homes for Rent (AMH), a real estate investment trust that buys, renovates, and rents single-family homes.
Jason Karp, the CEO and CIO of Tourbillon Capital Partners Long (CTRP), a web-based travel service provider in China that Karp compared to Priceline. He believes that Chinese consumers will spend more on travel, and will benefit.
Ethan Devine, partner and portfolio manager at Indus Capital Partners Long Goldcrest (8871.JP), a condominium developer focusing on the Tokyo metropolitan area, which he believes is undervalued.
Nitin Saigal, founder and CIO of Kora Management Long Bharti Infratel (BHIN.IN). Saigal believes the telecom infrastructure provider is undervalued compared to its peers and will benefit from an impending surge in Indian smartphone use.
Will Snellings, founder of Marianas Fund Long Jet Blue (JBLU). Snellings believes the company will impose more charges on customers (such as a fee for a passenger's first checked bag) that will generate returns for shareholders.

ISSN: 2151-1845 / CDC10004H

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