Ainslie, Paulson, Robbins offer insights at Delivering Alpha 2014

By Simone Foxman

Fri Jul 18, 2014


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Not to mention the hug felt around the world.


Some of the highest profile money managers in the world converged on The Pierre in midtown New York City this week to offer their thoughts on markets, the hedge fund industry, and life in general at this year's Delivering Alpha conference, sponsored by CNBC and Institutional Investor. A summary of their trade ideas and views:

Manager Idea
Lee Ainslie, CEO of Maverick Capital
  • Long cybersecurity companies. "Every business in the U.S.--every small business in the U.S.--will have to make sure it's protected," Ainslie explained. He said he's long three cybersecurity companies that are "on a free cash flow-yield basis, very attractive." While Ainslie wouldn't disclose those investments, Maverick had positions in Citrix Systems (CTXS), Fortinet (FTNT), and Palo Alto Networks (PANW) at the end of the first quarter, according to a May regulatory filing.
  • Long volatility. Ainslie pointed out out that the time between market panics is decreasing. "There's this pattern of ever shorter time frames for these volatility shocks," Ainslie said. "Because risk is priced so cheaply we can buy insurance…at prices that are very, very cheap."
  • Short social media and biotech companies. "There are stocks where there are valuations based on multiples of what they'll earn someday," Ainslie pointed out. "There's no empirical evidence they'll ever earn these kind of metrics." He said he's short select companies in the social media and biotechnology sectors, but declined to provide specific names.
Josh Birnbaum, CIO of Tilden Park Capital Management
  • Mortgage putback trade. Birnbaum says that banks still need to settle lawsuits brought by investors holding $30 billion in mortgage bonds issued before the financial crisis. He has been purchasing mortgage debt that is involved in claims that the banks will have to settle (or purchase back the bonds at or near par value). Bank of America, by threatening to let Countrywide default, got to pay a "lowball" settlement for mortgage debt it issued; other banks can't make the same threat.
Mary Callahan Erdoes, CEO of J.P. Morgan Asset Management
  • Long emerging markets. "We're worried about great things happening," Erdoes said, explaining that she's most concerned about how to handle economic surprises to the upside. Given U.S. economic strategy, she thinks smart investors are looking at emerging markets like Mexico, which is undergoing generational energy reform. "We're seeing a lot of assets go [to emerging markets] and I think that's a very, very wise decision."
Leon Cooperman, Chairman of Omega Advisors
  • Companies with "growth and reasonable prices": Citigroup (C), pharmaceutical company Actavis (ACT), and biotechnology company Thermo Fisher Scientific (TMO), a repeat suggestion.
  • Companies with "income and growth potential": Natural gas and oil processing company Atlas Energy (ATLS), private equity firm KKR & Co. (KKR), rig supply company Nordic American Offshore (NAO), and Gaming and Leisure Properties (GLPI), a real estate investment trust specializing in casino properties.
  • Stocks offering an "asset restructuring play": Natural gas and oil exploration and production company QEP Resources (QEP) and grocery chain Supervalu (SVU).
  • "High risk/high reward" plays: Asian hospitality, entertainment, and construction group Louis XIII Holdings (0577.HK); U.K mobile payments company Monitise (MONI.L); and oil and natural gas exploration company Sandridge Energy (SD).
Stanley Druckenmiller, Founder of Duquesne Capital Management
  • Beware the Fed. The Federal Reserve "is making a bad bet, a bad/risk reward" gamble by continuing quantitative easing, Druckenmiller argued. Their policies have encouraged companies to lever up; he called out IBM as an example of a company that had tripled its debt to buy back stock. "If the Fed starts tightening in the first quarter we're going to have a bear market.," he predicted.
Ken Griffin, CEO of Citadel
  • On a possible merger between Time Warner Inc. and 21st Century Fox. "I think we'll get to yes," said Griffin, although he's skeptical that the media industry will see dramatic consolidation. "You have to get to the fundamental question of which assets are going to be bought, going back to the number of companies which are controlled by a single shareholder or a small group," he explained. Companies with such concentrated ownership could resist an acquisition successfully.
Deepak Gulati, CIO of Argentière Capital
  • Play volatility. Asset managers are looking for a way to hedge their volatility risk, and a skilled trader can sell them volatility protection but arbitrage the risk out of his portfolio with other products.
Paul Marshall, CIO of Marshall Wace
  • Short opportunities in retail and finance. "I think that wherever you see disruption to existing business models there are short opportunities," Marshall said. Companies in these sectors, he said, "are all going to be systematically arbed and picked off...Banks are going to be picked off segment by segment," by competitors that can offer cheaper services.
Mike Novogratz, Principal of Fortress Investment Group
  • Long Japan (TPX). "I certainly feel like this is the year Japanese investors are finally starting to buy their stock market," Novogratz said. He recommends purchasing the Tokyo Stock Exchange Price Index (Topix), which he says is a better indicator than the Nikkei of the stocks the Japanese are buying.
  • Long Indian equities and long Indian rupee. "I think the India story is a multi-year story," he predicted.
  • Long Brazilian equities and Brazilian interest rates. Novogratz reiterated the prediction he first made at May's Ira Sohn Conference that Brazilian president Dilma Rousseff will lose reelection this fall. Specifically, he thinks Petrobras (PBR) and Vale (VALE) "could move straight up" if Rousseff loses.
  • Long Argentinian stocks, Argentinian bonds, and the Argentine peso. Novogratz thinks Argentina's a buy whether or not the country and the hedge fund holdouts from its 2002 default can negotiate a deal by the end of the month (when it could default on its renegotiated debt). "If something happens, then Argentina's going to take off like fire. If not, and they default, then there's going to be a sell-off. That sell-off is going to be met with capital," Novogratz predicted.
John Paulson, Founder of Paulson & Co.
  • Long Allergan (AGN). Healthcare company Allergan will either have to resign itself to being taken over by Valeant Pharmaceuticals, which is trying to buy it, or it will need to purchase other companies to stay solo. Either way, Allergan stock should move higher. 
  • Play Bakken shale. Paulson said he already has stakes in Whiting Petroleum (WLL) and Kodiak Oil & Gas (KOG), oil companies that are in the process of merging. Paulson also owns a stake in Oasis Petroleum (OAS).
  • Owner-occupied homes. The best investment idea for the common man.
Nelson Peltz, Founding partner of Trian Fund Management
  • The M&A boom "will continue for a while." Peltz says he still wants to break up PepsiCo (PEP), and he still thinks Family Dollar (FDO) can close the margin gap on its competitors. He has been speaking with management at BNY Mellon (BK) and chemical company DuPont (DD) to make changes he thinks will improve their businesses and offer shareholder value.
Larry Robbins, Founder of Glenview Capital Management
  • Long companies that can deploy cash to repurchase stock or make acquisitions. Long agricultural company Monsanto (MON), life sciences company Thermo Fisher Scientific (TMO), technology company Flextronics International (FLEX), hospital company HCA Holdings (HCA), equipment and car rental company Hertz Global Holdings (HTZ), and oil services company National Oilwell Varco (NOV).
Jeffrey Smith, CIO of Starboard Value
  • Long MeadWestvaco (MWV). Smith is advocating for change at packaging conglomerate MeadWestvaco, which he thinks could spin off its chemical business, reduce corporate overhead, make money from its real estate assets, and extract value from an overfunded pension plan. "A sum of the parts analysis conservatively values the company at $59 per share," though Smith thinks it can go much higher. The company currently trades near $44 per share.
Carl Icahn, Chairman of Icahn Enterprises; and Bill Ackman, Founder of Pershing Square Capital Management
  • Neither Icahn nor Ackman gave any specific recommendations (though Icahn complimented Apple's Tim Cook), but they did make a big breakthrough in their budding hedge fund bromance.

ISSN: 2151-1845 / CDC10004H