Jed Nussdorf, founder of Soapstone Capital, recently finished his presentation at the Value Investing Congress. The following are our notes of the presentation, entitled In Search of Pricing Power.
Area of Investment Opportunity: Reinsurance
- Jed sees opportunity (pricing power) in certain lines of reinsurance.
- Equity market participants have not recognized the pricing dynamic and reinsurance equities are trading at historical low valuations relative to earnings and book value, excluding distressed carriers.
- Reinsurers that are most interesting include RenaissanceRe Holdings (RNR), Validus Holdings (VR) and Lancashire Holdings (OTCPK:LCSHF).
Economic Context and Investment Approach
- Global recession has pressured demand for most goods and services, while supply/capacity for those goods has yet to respond, pressuring pricing across the economy.
- Excess capacity exists in most areas of transportation, power and energy, real estate, and consumer services given declining demand for goods, electricity, space, and discretionary expenditures.
- Jed looks for industries with more inelastic demand functions, preferably with static or decreasing supply, enabling pricing to hold, if not rise. He looks for evidence of pricing power, which is typically accompanied by accelerating revenue growth and operating margin expansion.
About Soapstone Capital
- Backed by Joel Greenblatt (founded Soapstone Capital four years ago). In sourcing ideas, he looks for companies with pricing power.
About Jed Nussdorf
Jed Nussdorf is the Managing Member of Soapstone Capital. Prior to founding Soapstone in 2005, Mr. Nussdorf was a managing director at Force Capital Management from 2003-2005. He earned an M.B.A. from Wharton.
Disclosure: No positions.