market folly

What We're Reading ~ Analytical Links 6/19/13

marketfolly@gmail.com (Market Folly) — Wed, 19 Jun 2013 17:29:00 +0000

Timeless investing wisdom from great hedge fund managers [The Art of Value Investing]

Oakmark's Bill Nygren on Google (GOOG) [Reformed Broker]

Are higher mortgage rates bad for the economy? [ValuePlays]

Overcoming your negativity bias [Dealbook]

James Montier: doing nothing not a bad idea in this market [InvestmentNews]

Pairs trading: performance of a relative-value arbitrage rule [Turnkey Analyst]

A framework to analyze utility stocks [Graham Disciple]

3 things Bill Gates has learned from Warren Buffett [Bill Gates]

Time Warner (TWX) looks fully priced now [Barrons]

On a potential Kabel Deutschland/Liberty Global connection [FT]

On behavioral portfolio management [CFA]

Why Netflix (NFLX) is producing original content [Felix Salmon]

As interest rates rise, banks face new stress tests [Fortune]

US regulator says Deutsche Bank (DB) horribly undercapitalized [Reuters]

Barnes & Noble (BKS) keeps slashing Nook tablet prices [CNNMoney]

Google (GOOG) takes home half of worldwide mobile internet ad revenues [eMarketer]

The Physics of Wall Street: A brief history of predicting the unpredictable [Seeking Alpha]

Lee Cooperman Says Market Fairly Valued, Talks Stocks He's Been Buying (Interview)

marketfolly@gmail.com (Market Folly) — Wed, 19 Jun 2013 17:25:00 +0000

Lee Cooperman of hedge fund firm Omega Advisors made an appearance on CNBC today to talk about what he's been buying and what his portfolio looks like.

Cooperman thinks the market is fairly valued right now and that the "Fed will have to remain friendly." He thinks the rest of the year will be determined by which valuation camp wins out.

He thinks a radical change in Fed policy or a recession would cause a drop in the market, but he's not terribly worried about either of those scenarios.

At the same time, he points out how many investors have de-risked drastically and are underinvested. He says, "what the wise man does in the beginning, the fool does in the end."

Stocks Cooperman Likes

Cooperman mentioned Thomas H Lee Credit (TCRD), a mezzanine lender that yields over 9% and he thinks the dividend goes higher.

We recently posted up excerpts from Omega's Q1 letter if you missed it where he talks about some of his other stock picks.

He likes to buy MLP's when they're trading below net asset value and especially if he can get a decent yield. He thinks Linn Energy (LINE) has assets worth "in the area of 40."

Cooperman has also sued Tetragon Financial and he believes management should be barred from the industry due to 6 years of bad governance in his opinion and possibly unlawful acts. He still thinks the stock is undervalued (he owns 14 million shares of it and he started buying in 2009 back during the financial crisis). In sum, he feels it's solely a management problem.

The Omega Advisors man also talked about Sprint (S), saying he bought it at $2 and then again at $7 and likes that there were 2 interested parties in the company (Softbank and Dish Network), but it looks like. He said he'll tender 80% of his position, but if it trades at the right price, he'll get back into that chunk of his position.

Cooperman has owned Dish (DISH) for six years and he said it's a mature business and he thinks it'd be worth more with Sprint than without it. He likes management there.

The hedge fund manager noted that he's "very bottom-up" and some things Omega has been buying recently include Express Scripts (ESRX), Halliburton (HAL), Transocean (RIG), Qualcomm (QCOM), Motorola Solutions (MSI). Sandridge (SD), and Chimera (CIM).

Embedded below is the video of Cooperman's 18-minute interview:

For more on this manager, check out Lee Cooperman's thesis on Covidien (COV) and Sirius XM Radio (SIRI).

Soros Fund Discloses New Position in SDL Plc

marketfolly@gmail.com (Market Folly) — Wed, 19 Jun 2013 17:22:00 +0000

George Soros' family office Soros Fund Management has disclosed a new position in London listed SDL plc (LON:SDL). Due to trading on June 18th, Soros Fund now own the equivalent of 3.62% of SDL's voting rights. Approximately 35% of the stake is held via contracts for difference (CFDs).

Per Google Finance, SDL plc is "is engaged in providing global information management solutions and related software applications to a variety of multinational businesses. The Company operates in three segments: the language services segment, which is engaged in the provision of a translation service to customer’s multilingual content; the language technologies segment, which is into the sale of enterprise, desktop and statistical machine technology developed to help automate and manage multilingual assets together with associated consultancy and other services, and the content management technologies segment, which is into the sale of content management technologies."

This is the second new position that Soros Fund has disclosed via the London Stock Exchange recently. We highlighted Soros' new 1Spatial stake last week.

Nantahala Capital Raises Stake in Motorcar Parts of America (MPAA)

marketfolly@gmail.com (Market Folly) — Wed, 19 Jun 2013 17:20:00 +0000

Wilmot Harkey's hedge fund firm Nantahala Capital filed an amended 13G with the SEC regarding shares of Motorcar Parts of America (MPAA). Per the filing, Nantahal has revealed a 9.45% ownership stake in MPAA with 1,366,613 shares.

This marks around a 12% increase in their position size since the end of the first quarter. The amended 13G was required due to portfolio activity on June 7th.

Per Google Finance, Motorcar Parts of America is "manufactures , remanufactures and distributes new and remanufactured steering components, brake calipers, master cylinders, hub assembly and bearings, and clutches and clutch hydraulics for virtually all passenger and truck vehicles. It remanufactures alternators and starters for import and domestic cars, light trucks, heavy duty, agricultural and industrial applications. These products are distributed to both the do-it-yourself (DIY) and do-it-for-me (DIFM) markets. Its products are distributed predominantly throughout North America. The Company sells its products to the auto parts retail chains and traditional warehouses chains and to automobile manufacturers for both their aftermarket programs and their warranty replacement programs (OES).The Company operates in two segments: the rotating electrical segment and the under-the-car product line segment."

For more on this hedge fund, we posted up about another stock Nantahala has been buying.

Jeff Ubben, Mick McGuire to Speak at Value Investing Congress: Special Offer Below

marketfolly@gmail.com (Market Folly) — Tue, 18 Jun 2013 17:48:00 +0000

It's been announced that ValueAct Capital's Jeff Ubben and Marcato Capital Management's Mick McGuire will both be speaking at the Value Investing Congress in New York City on September 16th. These are two highly successful activist investors and they'll be presenting their latest investment ideas at the event.

Special Offer For Market Folly Readers

Market Folly readers receive a 36% discount to the event by clicking here and using discount code: N13MF2

Take advantage of this special offer because it expires in just over one week (June 27th).

Full Speakers List

There will be a ton of hedge fund managers presenting investment ideas at this year's New York event. Here's the full list:

Jeff Ubben, ValueAct Capital
Mick McGuire, Marcato Capital Management
Alexander Roepers, Atlantic Investment Management
Guy Gottfried, Rational Investment Group
Evan Vanderveer & David Shapiro, Vanshap Capital
Mark Boyar, Boyar Value Group
Rahul Saraogi, Atyant Capital India
Chris Mittleman, Mittleman Brothers
Carl Chen & Tom Lu, Temple Honor Asia (Taiwan)
Chris Mayer, Capital & Crisis
Joe Altman & Chris Kyriopoulos, COMPOUND Capital
Whitney Tilson, Kase Capital

Even more speakers will be announced in the coming weeks as well.

Why Attend?

- Hear the latest investment ideas from top hedge fund managers
- One successful pick will easily more than cover your cost of admission
- Huge networking opportunity with other investors/managers
- Discounted registration prices for being a Market Folly reader

Save $1700 off the normal admission price by registering here with our special offer code: N13MF2

Dan Loeb's 2nd Letter to Sony, Pushing For Spin-Off Again

marketfolly@gmail.com (Market Folly) — Tue, 18 Jun 2013 17:34:00 +0000

Dan Loeb's hedge fund firm Third Point has been pushing for a partial spin-off of Sony's (SNE) entertainment division. Loeb initially hand-delivered a letter to Sony's management team, outlining his plan for the company.

Loeb has since increased his position in Sony to around 7% of the company and sent another letter to Sony's CEO which we've posted below via WSJ:

"Mr. Kazuo Hirai
President and CEO
Sony Corporation
7-1, Konan 1-Chome, Minato-ku,
Tokyo 108-0075 Japan

Dear Mr. Hirai:

Sony Corporation (“Sony” or “the Company”) appears to be regaining its competitive edge. Recent highlights include the debut of PlayStation 4 with its consumer-friendly approach to next-generation gaming and Xperia, which recently overtook Apple as the #1 smartphone in Japan. We expect the upcoming Xperia Z Ultra to generate similar success in Europe and were pleased to see Vodafone VOD.LN +0.90%’s CEO using an Xperia Z in a recent meeting.

As a sign of our increased confidence in the Company’s direction under your leadership, funds managed by Third Point LLC (“Third Point”) have increased their stake in Sony to 70 million shares valued at ¥136.5 billion ($1.4 billion), held via 46 million shares of ordinary stock valued at ¥89.7 billion ($944 million) and economic exposure to 24 million shares valued at ¥46.8 billion ($492 million) through cash-settled swaps. Given our large stake, we reiterate our offer to serve on Sony’s Board of Directors.

Another sign of progress is the news that the Company has retained financial advisors to help evaluate our proposal to publicly list a minority stake in Sony Entertainment (“Entertainment”) through a rights offering backstopped by Third Point. We remain convinced that the proposed transaction will strengthen the Company as a whole. The newly-listed entity will thrive with a governance structure which focuses on increasing profitability, competitiveness and accountability. We expect that this transaction will strengthen rather than diminish Sony’s ability to exploit meaningful synergies between the Entertainment and Electronics divisions, a goal we share.

Our proposal is a simple one: it contemplates a semi-independent governance structure. We believe that you, Mr. Hirai, should serve as Chairman of both Boards, to promote synergies between Entertainment and Sony Corporation. Entertainment’s dedicated Board should be composed of diverse individuals with deep knowledge of media, entertainment and digital technology, who value creative talent and can institute best practices of governance. Today, Entertainment is a sleeping giant — a multi-platform content business with a global footprint, encompassing leading film and television production, cable networks and music interests. An incredible opportunity exists to integrate Entertainment’s components to create a dominant creative platform for today’s artist-entrepreneurs – but the right leadership at the Board level is imperative.

An independent Entertainment Board will go a step further: holding management accountable by establishing goals for growth while setting compensation tied to value creation using stock and options. It can also help determine important capital allocation decisions, ensuring that Entertainment’s robust cash flow is used efficiently. A capital shortfall has prevented Sony from taking advantage of attractive acquisition opportunities; instead, the Company has resorted to joint ventures and costly loans to engage in strategic transactions like those in music publishing (i.e. EMI). Our research has confirmed media reports depicting Entertainment as lacking the discipline and accountability that exist at many of its competitors. In light of this track record, it seems difficult to argue that Entertainment would not be strengthened by the transparency that comes with public reporting, an active media analyst community evaluating financial performance regularly, and an expert Board with strongly aligned incentives.

We understand past Sony management teams have considered a complete spin-off of Entertainment, but concluded that the potential for synergies outweighed the obvious value that would result. We respectfully disagree with any suggestion that listing a minority stake in the Entertainment division would curtail opportunities for cooperation. While we trust management’s judgment that this theoretical opportunity is ripe, it remains an unfulfilled aspiration twenty-four years after the acquisition of Columbia Pictures. Shareholders should not have to wait any longer. We support efforts to create an integrated Sony ecosystem but must not forget that today the Company’s most valuable untapped synergies lie within Entertainment itself.

While the transaction we have proposed is not a panacea, it will provide a necessary organizational apparatus to streamline an overly cumbersome corporate structure and allow each company to focus on its strengths without sacrificing potential alliances. We encourage management and the newly-appointed Board members to maintain the brisk pace of change you have recommended. Indeed, Sony has an opportunity to serve as a shining example of how structural reforms, the “Third Arrow” of Prime Minister Abe’s economic plan, can be implemented successfully through constructive shareholder engagement.

Although we have not yet been asked to discuss our ideas with the Company’s investment bankers or Board, we would like to do so promptly. We hope that after seriously considering the merits of our proposal, Sony’s Board will share the enthusiasm that other shareholders have resoundingly expressed for it. We can think of no better opportunity for you and the Board to demonstrate real commitment to your declaration that “Sony Must Change.”

Sincerely,

Daniel S. Loeb
Chief Executive Officer"

For more on this hedge fund, we posted up Third Point's latest exposure report.

Scout Capital Goes Activist on Tim Hortons, Boosts Position

marketfolly@gmail.com (Market Folly) — Tue, 18 Jun 2013 17:25:00 +0000

Adam Weiss and James Crichton's hedge fund firm Scout Capital has filed a 13D with the SEC regarding shares of Tim Hortons (THI). Per the filing, Scout has revealed a 5.5% ownership stake in with 8.4 million shares.

This marks a 271% increase in their position size since the end of the first quarter as they only owned 2.26 million shares then. The 13D was filed due to portfolio activity on June 6th.

The fine print of the filing also outlines what Scout is trying to accomplish with their new activist position:

Scout has "engaged and expect to continue to engage in discussions with senior management of the Issuer with respect to the Issuer’s optimal capital structure, capital expenditures, timing and magnitude of share repurchases, management compensation metrics, and technology investments, among other matters."

Per Google Finance, Tim Hortons is "a quick service restaurant in North America. The Company’s menu includes premium coffee, espresso-based hot and cold specialty drinks, including lattes, cappuccinos and espresso shots, specialty teas, fruit smoothies, home-style soups, grilled Panini and classic sandwiches, wraps, hot breakfast sandwiches and fresh baked goods, including donuts."

For more on this hedge fund, we highlighted a new stock Scout has been buying recently.

The Wolf of Wall Street Movie Trailer: Martin Scorsese, Leonardo DiCaprio, Matthew McConaughey

marketfolly@gmail.com (Market Folly) — Mon, 17 Jun 2013 18:03:00 +0000

The Wolf of Wall Street movie trailer was just released. The movie is directed by Martin Scorsese and the screenplay is by Terence Winter (of Sopranos and Boardwalk Empire fame). It features Leonardo DiCaprio, Matthew McConaughey, and Jonah Hill as the main actors.

We often like to highlight finance related movie trailers, but most of those films are dramas and serious in nature. The Wolf on Wall Street looks to be comedic to a degree and full of antics, as it is based on Jordan Belfort's book, The Wolf of Wall Street. In it, he writes about manipulating stocks in the 1990's at a brokerage firm.

If you like Lamborghini Countaches, Ferrari Testarossas, a new song from Kanye West, and suits from the 90's, then this trailer is for you. In essence, this film is somewhat like the movie Boiler Room and should certainly enhance the great reputation Wall Street has with the rest of America /sarcasm.

The Wolf on Wall Street movie trailer is embedded below:

No release date yet, it just says "coming soon."

Jeff Saut & Scott Brown: Characteristics of Market Breakouts From Big Bases

marketfolly@gmail.com (Market Folly) — Fri, 14 Jun 2013 17:14:00 +0000

Raymond James' market strategist Jeff Saut and chief economist Scott Brown have just released their 'Gleanings' report highlighting various charts that pull together economics, fundamentals, and quantitative analysis regarding the market.

The biggest point they've highlighted is that the market has a history of making 'big bases' and then ramping higher. Saut points out that there have been four big bases that have exceeded 12 years since 1900:

- 1906 to 1924, 18 years
- 1929 to 1955, 26 years
- 1966 to 1982, 16 years
- 2000 to 2013, 13 years

Saut notes that, "Investor behavior reflects an underlying distrust or disinterest and is characterized by underinvestment in equities. This results in a rebound that is relentless, providing little opportunity to buy on pullbacks."

With these long built up bases and the breakouts that often follow them, Saut highlights some common fundamental characteristcis:

- Rebound from high unemployment
- High government interest payments on debt
- Low investor allocation to equities
- Extremely high/low interest rates (alternates)

Embedded below is the Raymond James slideshow presentation, 'Gleanings: June 2013':

You can download a .pdf copy here.

For more from these gentlemen, head to Jeff Saut on the odds of a new secular bull market.

Michael Price's Presentation From The London Value Investor Conference 2013 (Video)

marketfolly@gmail.com (Market Folly) — Fri, 14 Jun 2013 17:02:00 +0000

Last month, we posted up notes from the London Value Investor Conference 2013. The event was a big success raising money for the charity Place2Be. The conference has released video of the presentation from MFP Investors' Michael Price and we've embedded the video below:

For more from the event, be sure to check out notes from the London Value Investor Conference.

What We're Reading ~ Hedge Fund Links 6/14/13

marketfolly@gmail.com (Market Folly) — Fri, 14 Jun 2013 16:56:00 +0000

No wind in sails of long/short equity [AllAboutAlpha]

Paulson gold fund down 54% this year [FINalternatives]

Why George Soros likes Japan [WealhDaily]

Hedge fund liquidations slow, fees weaken in Q1 [Boston Biz Journal]

Hedge fund marketing: 3 must know rules [ValueWalk]

Rival hedge funds hope to feast on SAC Capital redemptions [Reuters]

Goldman Sachs tops prime brokerage ranking [HFIntelligence]

Demand for alternative assets grows among investors [FT]

Risk, returns & regulation big topics at the EuroHedge summit [HFIntelligence]

Little reason for lack of transparency in hedge funds [FTAdviser]

Charting hedge funds' long term gains [WSJ]

Sony holdings blurred by Third Point swaps [Bloomberg]

Analyzing Dan Loeb's stock picks [Old School Value]

Institutions take divergent paths in revamping hedge fund portfolios [P&I]

Fund of hedge funds fight for survival [FT]

TiVo bump shows how hedge fund lawyers gain edge in court [Bloomberg]

What We're Reading ~ Analytical Links 6/12/13

marketfolly@gmail.com (Market Folly) — Wed, 12 Jun 2013 16:52:00 +0000

Buffett, Robertson, Cooperman & more: words of wisdom from 18 wealth wizards [Forbes]

Why value investing works [ValueWalk]

Interest rates are rising [NYTimes]

Confidence kills predictions [Index Universe]

Tempted by for-profit education stocks? Read this [Forbes]

Look for insider buying from women [Economist]

Pricing a house is easier than pricing a home [WSJ]

Why 3% mortgage rates are a thing of the past [CNN]

The importance of expectations [Oddball Stocks]

Short sales dropped in the second half of May [WSJ]

A rising star emerges at Berkshire Hathaway [WSJ]

Why Pandora (P) bought an FM radio station [The Hill]

AstraZeneca (AZN): the long slog [FT]

A look at Crimson Wine Group (CWGL) [Barrons]

Bill to legalize internet poker introduced in Congress [Fox News]

Paying for performance [P&I]

Glenview Capital Seeks Removal of Health Management Associates "Poison Pill"

marketfolly@gmail.com (Market Folly) — Wed, 12 Jun 2013 16:38:00 +0000

Larry Robbins' hedge fund Glenview Capital yesterday filed an amended 13D with the SEC on shares of Health Management Associates (HMA). Their position size remains unchanged. However, we recently highlighted how Glenview sought Hart-Scott-Rodino clearance to buy more HMA.

Glenview's latest amended 13D asks for the company to remove its poison pill. Glenview writes,

"As previously disclosed by the Issuer, the Issuer adopted a “poison pill” rights plan that limits any shareholder and its affiliates and associates from acquiring beneficial ownership of more than 15% of the Shares of the Issuer. The Reporting Persons urge the Issuer to redeem the poison pill, or at a minimum, amend the poison pill to increase the percentage of stock a person would be permitted to own without triggering the poison pill to a 25% threshold."

Robbins' fund is also evaluating potentially planning or proposing changes to the company's Board of Directors. They intend to meet with potential nominees and other interested parties (HMA management, other shareholders, etc) regarding this matter.

The saga plays on.

A Tale of Two Gas Stations: Long Susser Holdings, Short CST Brands

marketfolly@gmail.com (Market Folly) — Wed, 12 Jun 2013 16:30:00 +0000

The following is a guest post from Tsachy Mishal of TAM Capital Management, who presents a look at a gas station pair trade, if you will. Tsachy also runs the blog Capital Observer.

Market Folly readers will recall that hedge fund Scout Capital recently disclosed a position in CST Brands and this write-up presents a different viewpoint.

A Tale of Two Gas Stations: Susser Holdings & CST Brands

Susser Holdings (SUSS) and CST Brands (CST) both operate gas stations with convenience stores attached. Susser Holdings came public in 2006 with private equity backing, while CST Brands is a recent spin-off from Valero (VLO). On the surface a spin-off would seem far more attractive than a private equity backed IPO, but looks can be deceiving.

Business

Over 80% of Susser’s gas stations are located in Texas, the second fastest growing state in the US. CST’s gas stations are located across the southern US and Canada, with about a third being in Texas. CST mentions Texas numerous times in their Form-10 as a stand out economy and a driver of growth From the CST Form 10:

"The economy in Texas has fared better than many other parts of the U.S., partly supported by a solid economy, a relatively stable housing market and strong population growth and job creation. We have also benefited from the significant increase in economic activity in Texas that has resulted from the increased oil and gas drilling activity in Texas. We have a large number of convenience stores in Texas, and these operations have benefited from the increase in population resulting from employees of the oil and gas industry who have moved to Texas to support that industry."

On the basis of location, Susser has a clear advantage over CST with a much greater percentage of its gas stations being in Texas.

Susser earns the majority of its profits from convenience store sales while CST Brands is more heavily dependent on fuel sales. In 2012 59.7% of Susser’s gross profits came from merchandise sales, while 40% of CST Brands’ gross profits came from merchandise. The reason for this is that Susser’s average convenience store footprint is 3,600 square feet, while CST’s average footprint is 2,200 square feet.

Susser’s larger footprint allows it to sell fresh food and earn more from its convenience stores. CST Brands realizes that it is preferable to have a larger convenience store footprint and is planning larger footprints for its new stores but that doesn’t help its existing store base.

CST’s heavy dependence on fuel sales is a negative for a number of reasons. As Americans have been driving less and driving more fuel efficient cars, fuel usage in the US has been declining. By contrast, convenience store sales have been steadily increasing. Additionally, 2012 was an abnormally profitable year for fuel sales that is unlikely to be repeated.

As oil prices decline, gas stations are slow to lower prices. The $35 oil price decline in the second quarter of 2012 was a bonanza for gas station owners. In 2012 fuel gross margin for CST brands increased by 2 cents a gallon or $40 million, primarily as a result of this extreme downside volatility in fuel prices.

It is very unlikely that we see such an extreme move in oil prices this year. As a result, year over year fuel gross margin should decrease by close to 2 cents a gallon resulting in lower year over year earnings and EBITDA for all gas stations with a disproportionate effect on CST Brands due to its reliance on fuel sales.

Operation Performance

In 2012, Susser had same store merchandise sales growth of 6.6% and per store fuel gallon growth of 5.8%. CST does not provide historical same store sales numbers but does provide “per store” figures. In 2012 “per store” merchandise sales actually showed a slight decrease while per store fuel gallon sales showed a less than 1% increase.

In the first quarter of 2013 CST provided SSS figures for the first time and showed US SSS down 1.6% compared to Susser growing 4.2%. This is likely attributable to CST’s older stores and larger dependence on cigarette sales, which have been in secular decline. Cigarettes make up 40% of merchandise sales for CST compared to 19% for Susser. Dollar stores have recently moved into this category, which will increase pressure. Susser has clearly enjoyed superior operating performance to CST Brands.

Management

The Susser family has been in the gas station business since the 1930’s. Sam L. Susser, the CEO, joined the company in 1988, when Susser operated five stores and had revenues of $8.4 million. Sam Susser grew up in the gas station business, has 25 years of experience and a proven track record.

Kimberly S. Bowlers is the CEO of CST Brands. Below is her bio from the CST Form 10:

"Ms. Bowers was elected Chief Executive Officer and President of CST effective January 1, 2013. Ms. Bowers served as Executive Vice President and General Counsel of Valero from October 2008, and previously served as Senior Vice President and General Counsel of Valero since April 2006. Before that, she was Valero’s Vice President–Legal Services from 2003 to 2006. Ms. Bowers joined Valero’s legal department in 1997. Ms. Bowers was elected to the board of directors of WPX Energy, Inc. on December 30, 2011."

In other words Ms. Bowers, the CEO of CST Brands, has been a lawyer her entire career and has little operating experience. I’m certain she was a very capable lawyer but that does not make her a capable CEO. If experience counts for anything, then Susser has the superior management.

Valuation

Considering that Susser has the superior store locations, a superior business mix, superior performance and superior management one might conclude that Susser should trade at a premium to CST Brands. One would be wrong. Susser Holdings trades for less than 6.3 times EV/LTM EBITDA, adjusting for their ownership in SUSP (slide 21).

CST Trades for roughly 8 times EV/LTM EBITDA. Instead of trading at a premium Susser trades at a greater than 20% discount to CST Brands. This does not take into account that had CST been a public company they would have incurred additional expenses. Additionally, on a forward basis I believe Susser trades at a greater than 30% discount to CST Brands.

Conclusion

CST Brands is a case of “You Can Be A Stock Market Genius” gone awry. In investors haste to buy a “spin- off” they have valued a poorly performing company at an undeserved premium to one if its closest, better performing peers. There are too many geniuses out there right now.

Catalyst

CST Brands has not given any forward guidance so investors have had to create their own earnings models. Many investors seem to have simply extrapolated forward an increase in earnings and EBITDA from 2012 to 2013 for CST. This ignores the one time bonanza in fuel margins in 2012 ($40 million) and the increased costs of being a public company ($20 million). When CST reports second quarter earnings it should become clear that estimates are pie in the sky.

Full disclosure: TAM Capital Management is long Susser Holdings (SUSS) and short CST Brands (CST).

Embedded below is a .pdf copy of TAM Capital's thesis:

We've posted some other investment theses from TAM Capital here.

Soros Fund Discloses New Position in 1Spatial

marketfolly@gmail.com (Market Folly) — Wed, 12 Jun 2013 16:08:00 +0000

George Soros' family office Soros Fund Management has disclosed a new stake in London listed 1Spatial (LON: SPA). Due to trading on June 10th, Soros Fund owns 7.78% of 1Spatial’s voting rights. This is a brand new position for the firm.

Per Google Finance – “1Spatial Plc, formerly Avisen plc, is a holding company. The principal activity of the Company is the development and sale of information technology (IT) software along with related consultancy and support. The Company operates in four segments: Head Office, Avisen, Storage Fusion and 1Spatial. 1Spatial Holdings plc (1Spatial Business) is a software development company, which provides location based software and related services. Avisen, the Company’s management consultancy business, focuses on providing global companies. Storage Fusion is the author of Storage Resource Analysis (SRA), which provides analytics for enterprise storage environments through a SaaS service. The Company’s operations are located in the United Kingdom, Ireland, Australia and Europe. On November 28, 2011, the Company acquired the entire interest of 1Spatial Business. On April 1, 2011, the Company sold its wholly owned subsidiary Inca Software Limited.”

We've also highlighted other recent portfolio activity from Soros here.

Attention Market Folly RSS Subscribers: Google Reader Is Shutting Down, Here's How To Still Receive Our Posts

marketfolly@gmail.com (Market Folly) — Tue, 11 Jun 2013 18:50:00 +0000

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Jeff Ubben's ValueAct Adds to Willis Group Holdings (WSH) Position

marketfolly@gmail.com (Market Folly) — Tue, 11 Jun 2013 18:22:00 +0000

Jeff Ubben's activist hedge fund ValueAct Capital recently filed Forms 3 and 4 with the SEC regarding their position in Willis Group Holdings (WSH). Per the filings, ValueAct now shows an ownership stake of 17.9 million shares.

ValueAct acquired 568,400 additional WSH shares on June 6th at prices ranging from $38.90 to $39.04. We've also recently posted about a new stock ValueAct has bought.

Per Google Finance, Willis Group Holdings "provides a range of insurance brokerage, reinsurance and risk management consulting services to its clients worldwide. It has market positions in the United States, in the United Kingdom and, directly and through its associates, in many other countries. It is recognized in providing specialized risk management advisory and other services on a global basis to clients in various industries including aerospace, marine, construction and energy."

Bruce Berkowitz Cuts MBIA Stake, Exits Orchard Supply Hardware Position

marketfolly@gmail.com (Market Folly) — Tue, 11 Jun 2013 18:18:00 +0000

Bruce Berkowitz's firm Fairholme Capital recently filed two 13G's with the SEC. Here's a breakdown of his latest portfolio activity:

Cuts MBIA Stake Again (MBI)

Fairholme filed a 13G with the SEC on MBIA (MBI), disclosing a second round of share sales. Two months ago, we highlighted when Fairholme initially sold MBIA shares.

Back then, they sold 11 million shares. Today, we see that they sold even more shares. Fairholme now shows a 1.2% ownership stake in the company with only 2.25 million shares. The 13G was filed due to activity on May 31st.

This means they've reduced their position by almost 93% since the end of the first quarter. As our premium Hedge Fund Wisdom newsletter pointed out, shares of MBI skyrocketed in May from $10 to $16 on news of a $1.6 billion cash settlement with Bank of America to settle a dispute over faulty mortgage securities.

Shares have since slid down to $13.75, but this has been another big winner for Berkowitz as he started his MBIA position back in 2010. We also posted up Berkowitz's thesis on MBIA for those interested.

Per Google Finance, MBIA "together with its consolidated subsidiaries, operates the financial guarantee insurance businesses in the industry and is a provider of asset management advisory services. These activities are managed through three business segments: United States public finance insurance, structured finance and international insurance, and advisory services. The Company’s United States public finance insurance business is operated through National Public Finance Guarantee Corporation and its subsidiaries (National), its structured finance and international insurance business is primarily operated through MBIA Insurance Corporation and its subsidiaries."

Exits Orchard Supply Hardware Stores Position (OSH)

Berkowitz also filed a 13G on shares of Orchard Supply Hardware Stores (OSH), revealing that he has sold completely out of the position. The filing was required due to activity on May 31st.

This was only a tiny position for Fairholme to begin with. Berkowitz owns Sears Holdings (SHLD), and Sears spun-off Orchard Supply in December 2011 so that's how he initially got the shares.

Per Google Finance, OSH is "a specialty retailer primarily focused on homeowners with repair, maintenance and improvement needs. The Company operates in one segment and provides a merchandise mix, which consists of various product categories, including repair and maintenance, lawn and garden and in-home products. The Company's repair and maintenance category consists of plumbing, electrical, paint, tools, hardware, and industrial products. Its lawn and garden category consists of nursery, garden, outdoor power and seasonal products."

For more from this great investor, head to Bruce Berkowitz's checklist for investing.

Byron Wien's 20 Lessons Learned Throughout His Investing Career

marketfolly@gmail.com (Market Folly) — Mon, 10 Jun 2013 18:20:00 +0000

Byron Wien is Vice Chairman at Blackstone and prior to that worked at hedge fund Pequot Capital and Morgan Stanley. Earlier this year, he released an addendum to his usual commentary about lessons he's learned in 80 year investing career. His words of wisdom are below:

Byron Wien's 20 Lessons Learned

1. Concentrate on finding a big idea that will make an impact on the people you want to influence. The Ten Surprises, which I started doing in 1986, has been a defining product. People all over the world are aware of it and identify me with it. What they seem to like about it is that I put myself at risk by going on record with these events which I believe are probable and hold myself accountable at year-end. If you want to be successful and live a long, stimulating life, keep yourself at risk intellectually all the time.

2. Network intensely. Luck plays a big role in life and there is no better way to increase your luck than by knowing as many people as possible. Nurture your network by sending articles, books and emails to people to show you’re thinking about them. Write op-eds and thought pieces for major publications. Organize discussion groups to bring your thoughtful friends together.

3. When you meet someone new, treat that person as a friend. Assume he or she is a winner and will become a positive force in your life. Most people wait for others to prove their value. Give them the benefit of the doubt from the start. Occasionally you will be disappointed, but your network will broaden rapidly if you follow this path.

4. Read all the time. Don’t just do it because you’re curious about something, read actively. Have a point of view before you start a book or article and see if what you think is confirmed or refuted by the author. If you do that, you will read faster and comprehend more.

5. Get enough sleep. Seven hours will do until you’re sixty, eight from sixty to seventy, nine thereafter, which might include eight hours at night and a one-hour afternoon nap.

6. Evolve. Try to think of your life in phases so you can avoid a burn-out. Do the numbers crunching in the early phase of your career. Try developing concepts later on. Stay at risk throughout the process.

7. Travel extensively. Try to get everywhere before you wear out. Attempt to meet local interesting people where you travel and keep in contact with them throughout your life. See them when you return to a place.

8. When meeting someone new, try to find out what formative experience occurred in their lives before they were seventeen. It is my belief that some important event in everyone’s youth has an influence on everything that occurs afterwards.

9. On philanthropy my approach is to try to relieve pain rather than spread joy. Music, theatre and art museums have many affluent supporters, give the best parties and can add to your social luster in a community. They don’t need you. Social service, hospitals and educational institutions can make the world a better place and help the disadvantaged make their way toward the American dream.

10. Younger people are naturally insecure and tend to overplay their accomplishments. Most people don’t become comfortable with who they are until they’re in their 40’s. By that time they can underplay their achievements and become a nicer, more likeable person. Try to get to that point as soon as you can.

11. Take the time to give those who work for you a pat on the back when they do good work. Most people are so focused on the next challenge that they fail to thank the people who support them. It is important to do this. It motivates and inspires people and encourages them to perform at a higher level.

12. When someone extends a kindness to you write them a handwritten note, not an e-mail. Handwritten notes make an impact and are not quickly forgotten.

13. At the beginning of every year think of ways you can do your job better than you have ever done it before. Write them down and look at what you have set out for yourself when the year is over.

14. The hard way is always the right way. Never take shortcuts, except when driving home from the Hamptons. Short-cuts can be construed as sloppiness, a career killer.

15. Don’t try to be better than your competitors, try to be different. There is always going to be someone smarter than you, but there may not be someone who is more imaginative.

16. When seeking a career as you come out of school or making a job change, always take the job that looks like it will be the most enjoyable. If it pays the most, you’re lucky. If it doesn’t, take it anyway, I took a severe pay cut to take each of the two best jobs I’ve ever had, and they both turned out to be exceptionally rewarding financially.

17. There is a perfect job out there for everyone. Most people never find it. Keep looking. The goal of life is to be a happy person and the right job is essential to that.

18. When your children are grown or if you have no children, always find someone younger to mentor. It is very satisfying to help someone steer through life’s obstacles, and you’ll be surprised at how much you will learn in the process.

19. Every year try doing something you have never done before that is totally out of your comfort zone. It could be running a marathon, attending a conference that interests you on an off-beat subject that will be populated by people very different from your usual circle of associates and friends or traveling to an obscure destination alone. This will add to the essential process of self-discovery.

20. Never retire. If you work forever, you can live forever. I know there is an abundance of biological evidence against this theory, but I’m going with it anyway.

For more perspective from great investors, head to:

- Warren Buffett & Charlie Munger's secrets to investing success

- Lessons from Stanley Druckenmiller

- Andreas Halvorsen on investment process

- Mohnish Pabrai on checklist investing

- Jeremy Grantham's 10 investment lessons

Market Strategist Jeff Saut on the Odds of a New Secular Bull Market

marketfolly@gmail.com (Market Folly) — Mon, 10 Jun 2013 14:58:00 +0000

Market strategist Jeff Saut is out with his weekly commentary and in it he features some prudent commentary on being 'early' in investing and how the crowd tends to move long after the optimum time. Saut also talked about the odds of a new secular bull market taking place:

"Last December I pegged the odds of a new secular bull market at 20%-25%. I have increased those odds over the past six months to where I now believe those odds are at 45%-50%, yet few investors believe it. To be sure, most participants think there has to be a 'feel good' environment for a secular bull market to exist. The reality is that when that 'feel good' environment occurs, you are typically in the late innings of a secular bull market. Ladies and gentlemen, the equity markets do not care about the absolutes of good and bad, but rather if things are getting better or worse; and, things are definitely getting better!"

His point about 'few investors believing it' is certainly worth considering. Longtime readers may recall our investor psychology illustrated post that shows how bull markets are often born with dire sentiment, rally with disbelief, and then peak with euphoria.

If Saut is correct, then one could potentially compare the 2013 market to the 'skeptic' portion of a rally. After all, many investors have spent 2013 wondering when the major pullback will come.

Regardless, Saut's full commentary this week is worth reading and it is embedded below:

You can download a .pdf here.

For more from this strategist, head to Jeff Saut on the market buying stampede as well as his thoughts on investor sentiment.

Ricky Sandler's Eminence Capital Raises VCA Antech Position

marketfolly@gmail.com (Market Folly) — Mon, 10 Jun 2013 14:31:00 +0000

Ricky Sandler's hedge fund firm Eminence Capital has filed a 13G on shares of VCA Antech (WOOF). Per the filing, Eminence has revealed a 5.4% ownership stake in with 4,805,516 shares.

This marks a 40% increase in the number of shares they own since the end of the first quarter. The filing was required due to portfolio activity on May 28th.

Per Google Finance, VCA Antech is "a national animal healthcare company operating in the United States and Canada. The Company provides veterinary services and diagnostic testing to support veterinary cares. The Company operates in two segments: animal hospital and laboratory. Its all other category includes Vetstreet and Medical Technology operating segments. The Company's animal hospitals offer a range of general medical and surgical services for companion animals, as well as specialized treatments, including advanced diagnostic services, internal medicine, oncology, ophthalmology, dermatology and cardiology."

We also highlighted how Eminence started a new position in another stock recently as well.

What We're Reading ~ Hedge Fund Links 6/7/13

marketfolly@gmail.com (Market Folly) — Fri, 07 Jun 2013 18:03:00 +0000

Hedge Hogs: The Cowboy Traders Behind Wall Street's Largest Hedge Fund Disaster [Dreyfuss]

A look at Karsch Capital's positioning [ValueWalk]

Managers warned on giving early investors too generous terms [COO Connect]

Introducing the new hedge fund: the family office [CNBC]

Significant impact on buyside portfolio returns due to post Dodd-Frank costs [HedgeWeek]

An interview with Jim Chanos [Alternet]

Interview with Gotham Capital's Joel Greenblatt [Outlook India]

Tiger Global raises stake in Eventbrite [Hedgeworld]

SAC Capital case tests a classic dilemma [NYTimes]

Hedge fund's wild side: the man who lost $8 billion [Salon]

Fewest hedge funds invest in gold since 2010 [Bloomberg]

Quant hedge funds hit by US bonds sell-off [FT]

A week in the life of a Wall Street intern [Dealbook]

A hedge fund for you and me? The best move is to take a pass [Washington Post]

How Mangrove built a successful hedge fund [Barrons]

What We're Reading ~ Analytical Links 6/5/13

marketfolly@gmail.com (Market Folly) — Wed, 05 Jun 2013 17:52:00 +0000

The new R&D: Repurchases and dividends [Reformed Broker]

A macro update [Micro Fundy]

The long case on Altisource Portfolio Solutions (ASPS) [Seeking Alpha]

A look at Charter Communications (CHTR) [Brooklyn Investor]

Jeff Gundlach: short Chipotle and avoid everything Apple [Covestor]

Beware the hidden costs in tech [Barrons]

A bastardization of the process [Research Puzzle]

Buffett's Berkshire buys small Virginia newspaper [CNBC]

Harvard's Kaplan says to succeed know what you want [Bloomberg]

Mavericks lecture: Liberty Media's (LMCA) John Malone [Youtube]

The power of habit investments [Zen Habits]

Ben Graham's "foolproof method of systematic investment" [Greenbackd]

It's time for objectors of Bank of America's MBS deal to make their case [Reuters]

Prince Alwaleed and the curious case of Kingdom Holding Stock [Forbes]

An 18-minute plan for managing your day [Harvard Business Review]

On money and happiness [Harvard Gazette]

Lee Cooperman's Thesis on Covidien & Sirius XM Radio: Omega Advisors Q1 Letter

marketfolly@gmail.com (Market Folly) — Wed, 05 Jun 2013 17:35:00 +0000

Lee Cooperman's hedge fund Omega Advisors' Overseas Partners returned 10.9% in the first quarter of 2013 and has seen annualized returns of 16.6% since inception. We wanted to post an excerpt from Omega's Q1 letter highlighting Cooperman's thesis on Covidien (COV) and Sirius XM Radio (SIRI).

Covidien (COV): A Spin-Off Play

Cooperman likes Covidien because the company is spinning off a lower margin, lower growth business, Mallinckrodt (MNK). He fancies the standalone COV business afterwards and writes about the spinoff:

"First, it will enable MNK to invest more appropriately in maximizing a number of underappreciated opportunities in its pharma pipeline, while pruning assets with sub-optimal growth characteristics. Second, by divesting itself of the lower margin and lower growth MNK businesses, stand-alone COV, which operates in attractive medical device and supply segments with favorable competitive dynamics and end-market growth, will drive margin expansion that should translate into a higher multiple in-line with its comparables. We further expect COV to pursue actions, including cost reductions and capital deployment (noting the recently announced $3-billion share-repurchase authorization on top of the $425m outstanding on its previous authorization) to offset the transitory transaction-related tax and other dis-synergies from the spin, thus driving upside to consensus pro forma estimates. We estimate new COV will generate EPS of $4.58 in FY14 and $5.13 in FY15, while MNK will generate $0.41 in FY14 and $0.48 in FY15, above pro-forma street estimates. Using conservative target P/E multiples, our sum-of-the-parts valuation implies 25% upside over the next 12 months against limited downside given the current discount multiple to peers, creating an attractive risk/reward in the stock approaching the mid-year spin-off of MNK that is likely to act as a catalyst for the shares."

COV has been largely favored by 'vanilla' managers such as mutual funds and index funds. Looking at the top holders, there weren't many hedge funds involved as of the end of Q1 but that could have changed since then due to the impending spin-off.

Omega's Thesis on Sirius XM (SIRI)

Cooperman's fund has held a SIRI position for a while, but continues to like the name because the company has a ton of subscribers and has negotiating leverage when acquiring exclusive content. Omega has identified four growth drivers for Sirius XM:

"First, SIRI can be more proactive in addressing the used-car market and converting people who have the hardware in the car into paying subscribers at little to no cost. Second, a rising SAAR lends itself to higher additions from new-car sales. Third, current estimates of almost 100-million cars with SIRI preinstalled by 2017 points to massive potential over the next few years compared with the current installed base. And fourth, the price hike announced in 2011 and implemented over the last year demonstrates significant pricing power embedded in this model. We believe that the best way to value SIRI is on a free-cash-flow per share metric as the company has over $7 billion in gross NOLs, is buying back shares aggressively, and at these levels the amount of NOL per share increases via the buyback. Therefore, the more aggressive SIRI is, the longer the NOL lasts per share...to the point where, in our models, if the stock stays at $3.00 per share, it is possible to buy back the entire company before the NOL runs out. We think downside is limited and see significant potential in the years ahead for SIRI, with a price objective of $5 using a low-teen multiple of 2015 cash flow."

SIRI has been a favorite play among many hedge funds. While Omega Advisors is one of the top institutional holders of SIRI, other hedge funds involved as of the end of Q1 include: Blue Ridge Capital, Coatue Management, Slate Path Capital, and Hound Partners.

Not to mention, John Malone's Liberty Media (LMCA) has amassed quite a sizable stake in SIRI

Omega Looking At Infrastructure Plays Too

Cooperman and his colleague Steve Einhorn point out in their Q1 letter that infrastructure-related investments should do well going forward and they've been searching for potential investments as they see a quest for energy independence and a manufacturing renaissance as catalysts.

For more from this hedge fund manager, we recently highlighted Omega's new position in PennyMac Financial Services and also flagged Cooperman's market thoughts from the SALT Conference.

Bill Ackman's Slideshow Presentation From Sohn Conference: A Rising Tide is a Good Gamble

marketfolly@gmail.com (Market Folly) — Wed, 05 Jun 2013 17:30:00 +0000

Hat tip to ValueWalk for posting up Bill Ackman's slideshow presentation from the Sohn Conference, entitled: "A Rising Tide is a Good Gamble".

We previously posted up notes from Ackman's presentation on Procter & Gamble from the event last month. You can also see notes from all other speakers here.

Embedded below is Ackman's slideshow on PG:

In other activity from this hedge fund, we just detailed how Pershing Square plans to trim its Canadian Pacific stake.