- This year's Delivering Alpha conference proved entertaining as usual.
- With a couple heavy hitters delivering their top ideas, some great opportunities might have been overlooked.
- All three stocks below are interesting plays across a variety of industries.
This year's Delivering Alpha conference, put on by CNBC and Institutional Investor, proved entertaining as usual. Wall Street heavyweights shared their thoughts and shed light on some of the market's best investments. Even Carl Icahn and Bill Ackman "hugged" and made up. This comes just over a year after their public spat on CNBC and despite the fact that they are still on opposite sides of the trade in Herbalife's stock.
And with the likes of billionaire Leon Cooperman, New Jersey Governor Chris Christie, and Treasury Secretary Jack Lew speaking, investors might have missed some of the most interesting stock picks from the conference. Here are three picks you might have missed that are worth a closer look.
Paulson's M&A pick
Billionaire John Paulson of Paulson & Co. was there to give some insight on merger and arbitrage investing. He notes that one of the most profitable forms of M&A investing is anticipating transactions. That's exactly what he did before Whiting Petroleum (NYSE:WLL) and Kodiak Oil & Gas (NYSE:KOG) merged.
And with Whiting and Kodiak merging, all eyes are on the other major Bakken shale operator, Oasis Petroleum (NYSE:OAS). Paulson is the largest shareholder of all three stocks. Shares of Oasis are right near their 52-week highs, but the company still looks to be a compelling investment. The stock trades at a P/E ratio right at 13, based on next year's earnings estimates. Factoring in Wall Street's earnings growth expectations for the next five years, its P/E-to-growth [PEG] ratio is a low 0.8.
One of the draws of Oasis is that over 85% of its reserves are from oil. Assuming oil prices remain strong, this is a big positive for the company. Oasis is also the only remaining pure play on the Bakken. It has a much larger presence than Kodiak: Oasis has over 500,000 net acres and 3,600 gross drilling locations in the shale, while Kodiak only has 171,000 acres and 1,300 locations in the Bakken.
Peltz goes bank activist
Nelson Peltz and his activist firm, Trian Partners, are currently in a fight to get PepsiCo (NYSE:PEP) to break itself into two companies: a food company and a beverage company. But he recently took an activist position in the banking space by buying 2.5% of Bank of New York Mellon (NYSE:BK). He's no stranger to shaking up banks and financial institutions, with previously successful campaigns at State Street (NYSE:STT) and Lazard. By the time he sold his State Street stock, the shares had doubled in price.
Unlike Bill Ackman and Carl Icahn, Peltz prefers to meet with management before publicly announcing a position. Thus, Peltz has met with Bank of New York Mellon management, and his presence in the bank stock has been well-received.
Seventy percent of the bank's revenues are generated from investment services, which includes broker-dealer and alternative investment services. There's a big opportunity to offer its services in international markets. But the bank is also strengthening its presence in investment management, having taken a 65% stake in hedge fund HedgeMark International earlier this year.
It's also a solid income play, having received the green light for its capital plan from the Fed earlier this year. It now has a $1.7 billion buyback plan in place (to be completed by Q2 2015). It also boosted its dividend payment by 13%, and offers a dividend yield of 1.8%.
Underrated idea from an underrated manager
Jeffrey Smith of Starboard Value has been an effective but quiet activist. His latest target is packaging company MeadWestvaco (NYSE:MWV). Its food and beverage segment accounts for nearly 60% of sales, and the business is stable. MeadWestvaco also has specialty chemicals unit.
Smith had laid out a number of things the company should do to unlock shareholder value. First is spinning off its specialty chemical business, which is non-core and could bring in as much $3 billion (around half the company's market cap).
In early 2013, MeadWestvaco put in place a headcount reduction plan that's expected to generate annual cost savings of $75 million by 2014-end. It then put in a place another plan earlier this year to simplify operations, which will save some $100 million by 2015.
But Smith wants more than the current cost-cutting plans. He believes that selling, general and admin expenses as a percent of revenue should be closer to 8% (in line with peers), versus the company's 13.4%. Overall, Smith thinks that fair value is over 30% above the stock's current trading levels, with a sum-of-the-parts valuation that puts fair value at $59 a share.
The major players in the market are still finding interesting investments. Paulson is an M&A specialist and believes there's more M&A to come in the oil and gas space. Peltz takes a different activist approach than, say, Carl Icahn, but that doesn't mean he's any less effective. Meanwhile, the lesser-known Jeffrey Smith has done a great job of finding value in companies that need breaking up; MeadWestvaco is the latest in his crosshairs. All three are worthy of a closer look.