Portfolio Manager Mebane Faber attended this week's Value Investing Congress on behalf of Seeking Alpha. Here are his notes from the first day:
While some of the most famous hedge funds are getting hammered (letters here), there are still some top investors presenting at the Value Investing Congress. If these managers liked their picks last week, they probably like them even more after the down day Monday.
If you like tracking the top hedge funds, keep an eye out for the AlphaClone beta launch in a couple weeks!
Below are their picks:
Whitney Tilson (presentation here)
Fairfax Financial (FFH)
Berkshire Hathaway (BRK.A)
LONGS (Foreign and Farmers):
EFG Hermes (EFGZF.PK)
US Overleveraged (GE)
Bill Ackman (presentation here)
Lance Helfert & Atticus Lowe
West Coast Asset Management
Pernod Ricard (PDRDF.PK)
Atlantic Investment Management
Roepers looks for companies with free cash flow yields of around 10%, P/E ratios of around 9-12, and EV/EBIT of around 8-9. He runs concentrated portfolios, and likes:
Boykin started off talking about time arbitrage - namely, that most analysts and portfolio managers have a short time horizon and focus only on the next 12 months, even though the majority of a firm's DCF valuation lies in the future. He considers this a sustainable competitive advantage for his firm.
American Express (AXP)
Long dated call options:
Kian looks for high quality, one-of-a-kind franchises that are financially strong with positive free cash flows trading at less that intrinsic value.
Universal Technical Institute (UTI)
Described the environment as chilly, with household debt burden reaching a record high. Described the recent climate as the most difficult financial environment he has ever been through. Housing has began to see the end of its decline, stock valuations are reasonable, corporate America is liquid, and the S&P ROE is at high levels. Cash yield on the S&P (dividends and buybacks) is at record records vs. 10-Year T-note yields.
The average bear market decline is around -26%, lasts about a year, and PE ratios decline about 30%. We are near all of those values.
Atlas America (ATLS) currently $25, target $57-$77
Atlas Energy Resources (ATN)
Atlas Pipeline (APL)
Atlas Holdings (AHD)
These three are taxed at partnerships, not corporations.
Sabre Value Management
Has been running Sabre for 10 years with returns near 20%. Uses only 10-15 holdings with no leverage. Sabre's approach is to invest in small cap value that have insider buying, are spin-offs, or are restructuring. His pick is:
Photochannel (PNWIF), $1.9
Trading at 7x earnings with an excellent recurring revenue model. They manage the front and backend of a retailer's website. They get a fixed fee for every picture printed through its system, and clients include Costco, CVS, Sams Club, Kodak China, Tesco, and Wal-Mart Canada. 21,000 transactions a day average in q2, now at 40,000 a day. Retailers represent half of all prints, but only 11.5% of retail prints are uploaded online.
When asked why it is down so much he said that it has no coverage by any large sell side firms, the Small Cap Canadian Index is down over 60%, and some institutions have been forced to sell.
Hemisphere (Toronto: HEM), $2.4
Company develops GPS guidance and auto-steering for the farm. Revenue growing by 50% in 2008 and 25% in 2009. Grain bull markets last on average 10-14 years, and we are only 2 years into the current rally. Trades at 8 times 2009 estimate outside of cash, and 1.2 times sales. Acquisition of competitor values HEM at over $6 per share. Insiders are buying, and company announced a buyback.
Limoneira (LMNR), $165
Largest producer of avocados in the US, and 7,000 acres of prime CA real estate. 500 acres just got entitled for development 10 minutes from the ocean (appraised in 2004 for $1billion). One of only two major projects in Ventura County to be built in the next 10 years. Also owns substantial water rights. Estimates that water alone could be worth near $500million alone without land. Estimates target of $500-$1000.
21st strongest patent portfolio in the IT field in the world. $13million in revenue in 2007, $20million in 2008, and $43 million in cash on the books.
D3 Family Funds
D3 is a long-term investor focusing on microcap GARP stocks where they look to get consturctively engaged. With average market caps of $400 million, they cap their size at $1.2 billion. They impose a 5-year lockup on investors, and target 10-12 positions. They focus on industries and companies that are seen as "dead money", but also focus on companies with strong balance sheets and cash flows that are leaders in their niche. Often their companies have experienced scandals, accounting issues, or simply simmangement.
His three picks are:
Move Inc, (MOVE) $1.73, target of $10
Electro Scientific Industries (ESIO) $12.46, target of $57-$76
Brooks Automation (BRKS) $7.42, target of $43-$58
Pabrai reviewed one of the strategies from Joel Greenblatt's "You Too Can be a Stock Market Genius" that focuses on buying stocks that have been spun-off. Greenblatt found that they experienced outsized returns, expecially in the second year after the spin-off. Pabrai highlighed one such Portugese company, Sonae Capital (SONC.LS), spun out from Sonae SGPS (SON.LS).
He completed a sum of the parts analysis of all of Sonae's properties, and while the stock only trades at 0.69 Euros, his target is 3.82 - 6.20 Euros. The flagship Troia property bought from the Portugese government in bankruptcy comprises a majority of the estimated value.