Larry Robbins' hedge fund Glenview Capital Management has had a successful decade. Robbins started the fund after leaving Omega Advisors. As previously written about Glenview Capital, one of the hedge fund's favorite holdings is Expedia Inc. (EXPE):
The stock is exceedingly cheap, trading at 8x forward recurring free cash flow and 6x [when] backing out the TripAdvisor stake. We believe that shareholders, management and the board are likely highly aligned to capitalize on opportunities to create value at Expedia.
Expedia's recent announcement of plans to spin-off TripAdvisor support Glenview Capital's investment thesis. The spin-off will likely be a major catalyst for shareholder value.
As such, investors would be wise to consider Glenview Capital's other major holdings. Below are a list of Glenview's favorite holdings with some excerpts from the recent shareholder letter and shares held data from the most recent SEC 13F filing.
The blue chip drugmaker is one of Glenview Capital's newer holdings and as a result, was not listed in the company's most recent SEC 13-F filing, but Robbins did include a lengthy discussion of Pfizer in the most recent shareholder letter. The fund is bullish on Pfizer because of its earnings power and Glenview thinks that upcoming catalysts will help to unlock the value.
The size of the prize is meaningful: We believe the sum of Pfizer’s component parts is worth $27 per share today, a 50% premium to our $18 entry point a few months ago.
American International Group (AIG)
Shares held: 1.18 million
AIG has been one of the most notorious firms from the financial crisis of 2008. However, more recently the company has developed a growing following among reputable investors such as Bruce Berkowitz of Fairholme Funds and Larry Robbins of Glenview. We have written about AIG in the past, including "Investors Need to Be Cautious of 'Cheap' AIG," where we discussed the hidden risks in this undervalued stock. For investors interested in AIG, they should give strong consideration to AIG's long dated warrants that were issued to shareholders as part of the reorganization. As we discuss in, "AIG Warrants Still Trade Cheap vs. Peers," we compare the AIG warrants to the implied valuations of JP Morgan (JPM) and Bank of America (BAC) TARP warrants and find that AIG's warrants trade at a below average implied volatility. We think that part of the valuation discrepency is attributed to the hard-to-borrow status of AIG shares. Once shares are more easily shortable, arbitragers will be able to force a higher valuation by buying the warrants and shorting the stock.
Shares held: 22.2 million
Cisco Systems (CSCO)
Shares held: 3.56 million
Hewlett-Packard Company (HPQ)
Shares held: 4.12 million
The well known computer, technology and software provider trades at very cheap valuations. The forward P/E is 7.21 and the PEG ratio is 0.81. Based on the valuations and brand name alone, it is not hard to see why Glenview is drawn to this stock. But as we wrote in "Merger Mania: The Hiddden Risks in Cheap Blue Chip Technology Stocks," companies like Hewlett-Packard may not be good investments for value investors since these companies will continue to pay high valuations for acquisitions. In Hewlett Packard's case, this was most recently illustrated by their bidding war with Dell Inc. (DELL) for 3Par.
McKesson (MCK), Cardinal Health (CAH), AmeriSourceBergen (ABC)
Robbins thinks that the industry could benefit from the latest healthcare legislation in the same way that it did in 2006 with passage of Medicare Part D.
In the coming three years, the industry will benefit both from a second wave of generics, as shown in the following chart, as well as a volume uplift driven by federal healthcare policy, this time in 2014, driven by the universal healthcare coverage aspects of the recent healthcare reform legislation.
These positive investment dynamics are shared across the other "Big 3" pharmaceutical distribution players with minor nuances, and as such we have broadened our holdings to include both Cardinal Health (CAH: $40) and AmerisourceBergen (ABC: $37) as well.
Tyco International (TYC)
Shares held: 5.44 million
At 11x our 2012 earnings estimate, we believe Tyco shares will appreciate meaningfully over the medium term, driven by continued earnings growth and modest multiple expansion.
Using an average earnings growth of 15% over the period and a restoration of 12-13x P/E multiples by 2014, we expect the group to generate compound investment returns of approximately 33% annually over the coming three years.