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Zvi Bar

 
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  • Merger Arbitrage Carnage May Continue Due To AbbVie/Shire Inversion Fallout
    Fri, Oct. 17 ABBV, AGN, COV Comment!

    Summary

    • AbbVie is now suggesting its shareholders vote against the deal to acquire Shire that AbbVie negotiated.
    • AbbVie's basis for changing its mind is due to new U.S. changes to treatment of certain types of tax-inversion deals.
    • This decision may be indicative of further problems for pending M&A deals with similar inversion characteristics.
  • Keryx Falls Victim To A Self-Fulfilling Prophecy, Creates Opportunity
    Mon, Sep. 8 KERX 33 Comments

    Summary

    • On Friday, September 5, Keryx received FDA approval for a kidney drug. That morning, Keryx declined, along with most biotechs, before being halted pending the approval announcement.
    • While still halted, AP attributed that the morning decline was due to information from the subsequent approval, and repeatedly reported and disseminated this misinformation.
    • The drug is better than existing phosphate binders, and this warning is actually an explanation of a possible benefit that could prevent a patient's regular need for intravenous iron.
  • John Paulson's Big Q2 Buys
    Tue, Aug. 26 ABBV, AGN, CIE Comment!

    Summary

    • John Paulson is one of the most well respected and largest hedge fund investors.
    • Paulson & Co.'s recent 13F indicates that in the second quarter, the hedge fund mostly stuck to a merger arbitrage strategy.
    • This indicates Paulson is sticking to a lower risk strategy and does not see much value available in the market other than through merger arbitrage.
  • Berkshire's Probable Q3 Strategy For Chicago Bridge & Iron
    Fri, Aug. 22 CBI 33 Comments

    Summary

    • Chicago Bridge & Iron performed poorly between mid-June and mid-August, following a short thesis publication and the absence of the company's CFO on the Q2 conference call.
    • On August 14, Berkshire Hathaway, the company's largest shareholder, reported increasing its stake to 9.89% in Q2. Other funds, such as Appaloosa, Gotham & Point72 also bought shares last quarter.
    • If Berkshire acquired more shares on the early-August pre-13F lows, its stake will likely increase over 10% and a filing stating such will come in the next few weeks.
  • Carl Icahn's Q2 Changes And Recent Filings
    Fri, Aug. 22 IEP 5 Comments

    Summary

    • Activist Investor Carl Icahn recently reported his holdings as of the end of June.
    • The filing indicates most holdings were unchanged, though Icahn did initiate, liquidate, increase and reduce some holdings.
    • Icahn has also filed some 13Ds so far in Q3, indicating the selling of some positions and the buying of others. These recent 13Ds are also discussed here.
  • Warren Buffett's Q2 Changes
    Tue, Aug. 19 BRK.A, BRK.B 8 Comments

    Summary

    • Berkshire Hathaway released its 13F last week.
    • The filing reports that Berkshire added no new equities and sold out of no new equities, but it did increase and reduce multiple already existing positions.
    • This is a review of the position increases and decreases listed on the 13F, for use in determining Berkshire's future actions.
  • Annaly's Book Value Likely To Continue Increasing In The Third Quarter
    Mon, Aug. 11 NLY 4 Comments

    Summary

    • Annaly just reported Q2 results, and it increased its book value by about 7.5% due to gains in agency-backed RMBSs.
    • Annaly reduced its hedging and slightly increased leverage in anticipation of strong agency-backed RMBS performance. The strength continues into Q3, which means the strategy should continue to benefit Annaly.
    • Annaly's valuation has underperformed government debt ETFs so far in Q3, despite being leveraged to the rates moving those ETFs up, indicating Annaly's equity needs to catch up.
  • DISH Should Soon Move To Merge With Sprint Or T-Mobile
    Mon, Aug. 11 DISH 10 Comments

    Summary

    • Sprint has been attempting to acquire T-Mobile, but just gave up on that endeavor.
    • DISH wanted to buy Sprint or its spectrum and such a deal now makes more sense, given AT&T's move to acquire DirecTV.
    • Since DISH last attempted to acquire Sprint, DISH's mart valuation has increased by about 65%, indicating it is far more capable of buying Sprint now.
    • If DISH cannot work with Sprint, it could move to buy T-Mobile, but a Sprint merger now appears a cheaper and more viable option than ever before for DISH.
  • Bank Of America Improves Its Prospects By Eliminating Regulatory Headwinds
    Thu, Aug. 7 BAC 8 Comments

    Summary

    • Bank of America has underperformed its peer big banks in 2014 because of a problematic stress test submission that the Federal Reserve required it to resubmit and the related fallout from it.
    • The bank's resubmission was approved, allowing the bank to increase its dividend from $0.01 to $0.05. A forthcoming repurchase plan is also reasonably likely.
    • The bank is expected to soon settle its mortgage-backed liability with the Department of Justice, which will remove yet another anchor to share valuation.
  • Chinese Restricting Of Apple, Microsoft And Symantec Are Harbingers Of Reduced Growth
    Wed, Aug. 6 AAPL, GOOG, MSFT 11 Comments

    Summary

    • This week, China restricted government purchasing of Symantec and Kaspersky software and Apple's iPads and MacBooks. In May, China similarly restricted Windows 8.
    • Chinese technology competition has been formidable within China, with domestic servers eating into U.S. companies' market share and new smartphone manufacturers quickly becoming market leaders.
    • Growing Chinese competition and continued government restrictions should reduce many growth estimates for hardware and software makers, and especially those that have become more reliant on China for growth.
  • Keryx Should Move Substantially In The Next 2 Months
    Wed, Jul. 30 KERX 57 Comments

    Summary

    • Keryx is a small biotech company with the license to a novel treatment for chronic kidney disease that the FDA is reviewing, with a goal date of September 7th.
    • The drug, Zerenex, received Japanese approval earlier this year, and the phase 3 results were very positive, and even published in the Journal of the American Society of Nephrology.
    • Baupost, a highly respected value investing hedge fund, owns about 10 percent of Keryx equity, all of which it acquired within 2014, indicating it sees value here.
  • Herbalife Is Too Risky Right Now
    Tue, Jul. 29 HLF 23 Comments

    Summary

    • Herbalife just reported earnings that disappointed expectations.
    • The company repurchased about $1.3 billion in shares in the first half of 2014, and appears unable to continue repurchasing shares at even half that rate going forward.
    • Even if the company is eventually vindicated of Ackman's allegations, the next piece of news to affect Herbalife will likely be negative, making the company a questionable investment now.
  • ViaSat's Network And Technology Make It A Likely Communications Partner
    Mon, Jul. 28 VSAT 3 Comments

    Summary

    • ViaSat is a mid-cap broadband satellite provider that offers reasonably fast data speeds to rural customers and commercial transporters, such as airlines.
    • Data network providers have been consolidating, making ViaSat a possible acquisition target and/or partner.
    • ViaSat has significant institutional ownership and a sizable short position, indicating the equity may be volatile upon any forthcoming news.
  • Chicago Bridge & Iron Suffers From Uncertainty Due To Short Thesis And Sick CFO
    Mon, Jul. 28 CBI 70 Comments

    Summary

    • Chicago Bridge & Iron fell 10% on Friday, July 25, due to concern over accounting methods and cash flow projections.
    • This weakness appears due to a June 17 short report and the absence of the company's CFO on the conference call.
    • Chicago Bridge & Iron appears likely to have significant business in the coming years, making any near-term weakness a probable buying opportunity.
  • Cliffs' Board Still Likely To Be Ousted Next Week, And Q2 Results Don't Help
    Thu, Jul. 24 CLF 47 Comments

    Summary

    • Cliffs is in the middle of a proxy contest for its board that it should lose, because the board has done a poor job and requires change.
    • Cliffs reported a Q2 loss of $2 million, and it spent $4 million on proxy costs, without which it would have had a $2 million profit.
    • The annual meeting is next week and Casablanca Capital appears likely to take control of the board.
  • Iron Mountain Dividend Increase Likely To Follow Q2 Earnings Report
    Wed, Jul. 16 IRM Comment!

    Summary

    • After receiving IRS approval, Iron Mountain recently converted to a REIT.
    • As a REIT, it will pay out around double its prior corporate dividend, if not more, plus a large special dividend in 2014 of mostly stock.
    • The company is now scheduled to report Q2 earnings on July 31, at which point, or soon after, it should provide greater clarity on the actual dividend increase.
    • IRM is likely to appreciate after formally announcing its new dividend policy and the timing of receipt for the special dividend shares.
  • Bank Of America's Earnings Are Insufficient To Counter Regulatory And Litigation Uncertainty
    Wed, Jul. 16 BAC 15 Comments

    Summary

    • Bank of America reported mixed results that included declining revenues and mortgage originations, while fixed income revenue was superior to its peers.
    • The bank's probable Department of Justice settlement in the second half of 2014 adds uncertainty, with a likely valuation between $12-17 billion.
    • The bank may also suffer from the $4 billion error that forced it to suspend a planned dividend increase and share repurchase plan, which it resubmitted to the Federal Reserve.
  • Weyerhaeuser Will Likely Increase Its Dividend In 2014
    Thu, Jul. 10 WY 20 Comments

    Summary

    • Weyerhaeuser just split off its homebuilder, WRECO, in a transaction that reduced the share count by about 10% and added $700 million in cash.
    • The remaining company is more focused of forestland, which is an attractive long-term investment with reduced labor costs compared to the now removed homebuilder component.
    • The reduction to shares is similar to a instant share buyback, which should make it easy for Weyerhaeuser to increase its dividend. The $700 million will also help.
  • TRI Pointe Appears Compelling After Absorbing Weyerhaeuser's Homebuilder
    Thu, Jul. 10 TPH 60 Comments

    Summary

    • TRI Pointe just absorbed Weyerhaeuser's homebuilder, WRECO, and became a substantially larger homebuilder through the transaction.
    • TRI Pointe has a heavy short position at least partially due to the transaction, and it is likely that many shorts will cover now that the deal is completed.
    • TRI Pointe moved from being a small-cap to a mid-cap, and the larger entity should attract greater interest from index funds and industry-based investments.
  • MannKind Likely To Appreciate On A Post FDA Approval Short Squeeze
    Mon, Jun. 30 MNKD 13 Comments

    Summary

    • The FDA approved MannKind's inhaled insulin, Afrezza, late last week.
    • Afrezza is the only inhaled insulin available and it is likely to get some market share, and especially from those who want to minimize self-administered injections.
    • A significant short position and relative under-ownership by institutions could cause a dramatic short squeeze.
  • Iron Mountain's Growing Dividend And REIT Status Should Attract Investors
    Mon, Jun. 30 IRM 10 Comments

    Summary

    • Iron Mountain recently received approval to convert to a REIT, which it is immediately doing.
    • The company reported that as a REIT it will be able to pay out around double its prior annual dividend.
    • IRM also reported that a large special dividend will occur in the second half of 2014.
    • These factors should force shorts to exit and REIT/income investors to buy IRM.
  • Cliffs' Shareholders Likely To Begin Ousting Its Board Next Month
    Wed, Jun. 11 CLF 53 Comments

    Summary

    • Cliffs Natural Resources has declined 85% in three years after buying Bloom Lake when iron ore prices peaked, spending over double the company's current market value.
    • Activist Casablanca has pushed for change and Cliffs' board of directors has fought it at every step, but the tide is turning.
    • Casablanca will likely get two or more board seats at the annual meeting in July. Other activists and shareholders may soon join Casablanca in instigating needed changes at Cliffs.
  • Should Weyerhaeuser Shareholders Tender For The WRECO/TRI Pointe Spin-Off?
    Wed, May. 28 WY 41 Comments

    Summary

    • Since Weyerhaeuser became a timber REIT, it has shed itself of non-core assets and is currently shedding its homebuilder, WRECO, in a Reverse Morris Trust with TRI Pointe Homes.
    • Weyerhaeuser shareholders can choose to tender shares for the homebuilder or remain invested in WY. Both entities have interesting attributes, making the decision difficult.
    • This spin-off is the start of more similar activity by such timber REITs, including the forthcoming spin-off of Rayonier's performance fiber business. M&A activity could bring some parts together.
  • Hillshire's Pinnacle Buyout Should Pressure Shares And Credit Ratings
    Tue, May. 20 HSH, PF 5 Comments

    Summary

    • Hillshire Brands recently announced plans to buy Pinnacle Foods for $6.6 billion, merging two mid-cap food companies into one larger entity.
    • The deal is expected to have significant synergies, but also comes with significant debt. This debt and the overall price may be too much for what Hillshire will get.
    • After Hillshire completes the needed financing and issues probable equity, credit ratings agencies will likely downgrade HSH debt, possibly into junk status.
  • Seth Klarman's Baupost: Investment Changes During The First Quarter
    Mon, May. 19 BP, FNF, IDIX 2 Comments

    Summary

    • Seth Klarman is one of the most respected long-term value investors. His hedge fund, Baupost Group, is hugely successful, but not heavily followed by media.
    • Klarman continues to accumulate targeted energy, technology and biotech positions in companies where Baupost already holds sizable stakes.
    • Baupost's overall equity holdings are sizable compared to the fund's historic allocation, indicating the hedge fund may soon reduce its exposure to U.S. equities.
  • Mohnish Pabrai's Position Changes During The First Quarter
    Mon, May. 19 BAC, BRK.A, BRK.B 2 Comments

    Summary

    • Mohnish Pabrai is a respected value investor that has a record of outperforming the market.
    • Pabrai's investment fund generally holds very few positions, and often holds stakes for a long period of time, making any changes worth noting.
    • Pabrai reduced exposure to large financials, while increasing more defensive positions during Q1 of 2014.
  • Playing The Puerto Rican Lottery With Doral Financial Shares
    Fri, May. 16 DRL 61 Comments

    Summary

    • Doral Financial is facing a liquidity crisis due to FDIC requirements that it improve Tier 1 capital.
    • Puerto Rico is refusing to honor its promise to pay Doral tax overpayments that it previously agreed to, which further impair the banks capital position.
    • Doral is priced for bankruptcy, but has about four months to sell some of its assets. If it can find buyers and get deals approved, shares will dramatically appreciate.
  • Bill Ackman's Pershing Square - Acquisitions In The First Quarter
    Fri, May. 16 AGN, AIV, HME 2 Comments

    Summary

    • Bill Ackman's Pershing Square continued to keep the hedge fund's portfolio small and focused.
    • Other than the well-publicized Allergan acquisition, Pershing primarily acquired apartment REITs, but also made a large acquisition of a specialty chemical company, Platform Specialty Products.
    • Pershing exited two positions: GGP, which it had previously negotiated with Brookfield to exit, and PG.
  • IBM's Rocky Road Should Keep Investors Wary Of The Company
    Mon, May. 12 IBM 15 Comments

    Summary

    • IBM's CEO, Virginia “Ginni” Rometty, recently stated that the company is in a rocky time, which is an understatement.
    • IBM's business is in trouble due to strong competition in cloud computing and services from companies like Google and Amazon, among others, as well as its declining Chinese business.
    • The formidable and well capitalized competition will likely either reduce IBM's market share or its margins, if not both, and neither is good for business.
  • Apple Buying Beats May Have A Strong Risk/Reward Profile
    Mon, May. 12 AAPL 34 Comments

    Summary

    • It was recently announced that Apple is in discussion with Beats about acquiring the audio component maker for $3.2 billion.
    • Such a deal would be the largest ever for Apple, and possibly indicate the start of a buying spree.
    • While a buying spree would probably be a bad thing, Beats adds high margin audio components and music content that both complement Apple's business model.
  • Apple Still Likely To Outperform The Market Going Forward
    Fri, May. 2 AAPL 47 Comments

    Summary

    • Apple underperformed the S&P 500 in 2012 and 2013, as well as Q1 of 2014, but this trend just reversed.
    • Apple's sizable cash position, stock buybacks and dividend growth policies will be increasingly attractive characteristics if the market declines and investors seek out more conservative allocations.
    • Apple may be added to the Dow Jones Industrial Average after its 7-1 stock split. The average needs a new large tech company after the removal of Hewlett-Packard.
  • Why Everyone Wants To Buy Some Of Alstom
    Tue, Apr. 29 ALSMY 2 Comments

    Summary

    • General Electric is interested in buying the power production and distribution segments of Alstom.
    • Siemens is also interested, and has some European high-speed rail assets that could be combined with Alstom's rail segment. Other entities may also want parts of Alstom.
    • Though up 50% over the last month, there is about an 8% discount to the believed GE acquisition price, which may now increase due to competing offers.