Frank Li

Timber Companies Present Strong Buying Opportunity

Notes from the Ira Sohn dinner in May on MWV. The notes were taken in real time, and may contain transcription errors:

<blockquote>
<b>Larry Robbins- Glenview Capital Management</b>

Robbins is a long investor but he was sure to highlight the contrasts between 2002 and 2007. Referred to an event driven mania and joked he wanted to bring his kids to se Mark Messier, but they had been IPO’d, LBO’d and 20% of one was sold to Morgan Stanley.

<b>Market Overview</b>

Dichotomy of capital structure- Public company’s not enough debt, Private company’s too much.
Real growth is scarce.
Equities cheap relative to bonds.
Non cyclical names best longs for the current environment.

<b>Long -MWV-Meadwestvaco</...

Land biz is only 4% of EBITDA but Glenview believes is 21% of the value. Should be monetized.
1.1 million acres worth $2.4 billion.
Specialty chemicals should be sold.
Office business should be merged.
Valuation could potentially be $47

Base $30
Monetize Land $13
Fix the Consumer Solutions business $3
Sell or Combine Office solutions business $1
<blockquote>

UnitedHealth Group CEO Updates Analysts On Long-Term Goals

Notes from the Ira Sohn dinner in May on EK. The notes were taken in real time, and may contain transcription errors:

<blockquote>
<b>Bill Miller- Legg Mason Capital Management</b>

<b>Long -UNH-United Health</b>

Miller’s believes the stock could go to $75.
Revenues grown 21%
Earnings grown excess of 30%
9% Free Cash Flow Yield
ROE 23%
15% earnings growth

<blockquote>

Goldman: United Airlines, JetBlue Should Outperform Peers

Notes from the Ira Sohn dinner in May on EK. The notes were taken in real time, and may contain transcription errors:

<blockquote>
<b>Bill Miller- Legg Mason Capital Management</b>

<b>Long UAUA- United Airlines</b>

13% Free cash flow
No need for new aircraft for 8 years.
Equates to Wilbur Ross steel turnaround.
UAUA network should garner a 60% premium to top competitor AMR and 2 to 3 times other competitors.
Management is a proponent of consolidation
Miller believes a consolidation makes company even more valuable UAUA +DAL =3 (1+1=3).
If fuel continues to go up it will prompt faster consolidation. If fuel costs decline airlines benefit even more, and consolidation still an option.
UAUA should generate its entire market cap in free cash flow in the next 3 yrs.
No pension or health care liabilities

<blockquote>

Eye on Energy: Specialized Technology Stock Picks

Notes from the Ira Sohn dinner in May on HLX. The notes were taken in real time, and may contain transcription errors:

<blockquote><... Einhorn- Greenlight Capital</strong>

Long- HLX-Helix Energy Solutions.

He believes HLX has suffered from investor disappointment following its acquisition of Remington Oil &amp; Gas. The company’s original investor base gave up. The acquisition originally appeared to be a bust after the first to Remington holes drilled were dry. Since then they have hit 14 successful holes in 2006-2007.

Prospects:

40% additional proved reserves to 600bcf.
Estimated $1Billion in EBITDA-for 2007, approximately$3.50 per share.
Estimated $1.4Billion in EBITDA-for 2008, approximately $5.00 per share.
Estimated $7.00 per share earnings for 2009.
While high the company’s $1billion in capex is leading to a solid IRR.
Possible but not necessary share repurchase.
No commodity hedging.
</blockquote>

Cadbury: A Deliciously Undervalued Stock

Notes from the Ira Sohn dinner in May on CSG. The notes were taken in real time, and may contain transcription errors:

<blockquote>
<b>Larry Robbins- Glenview Capital Management</b>

Robbins is a long investor but he was sure to highlight the contrasts between 2002 and 2007. Referred to an event driven mania and joked he wanted to bring his kids to se Mark Messier, but they had been IPO’d, LBO’d and 20% of one was sold to Morgan Stanley.

<b>Market Overview</b>

Dichotomy of capital structure- Public company’s not enough debt, Private company’s too much.
Real growth is scarce.
Equities cheap relative to bonds.
Non cyclical names best longs for the current environment.

<b>Long-CSG-Cadb... Schweppes</b>

Market leader in confections.
Chocolate, sugar, gum.
June 19th analyst meeting will address drink unit split off.
Beverage is believed to potentially be worth $8 billion
Improve the confectionary business
Cadbury could be a take over target with Kraft as a potential suitor
<blockquote>

Are The Ratings Agencies Really Taking a 'Tough Stance' on Subprime Mortgage Debt?

William Ackman of Pershing Square Capital Management talked about exactly this at the Ira Sohn dinner in May. Here's an excerpt from notes on what he said. The notes were taken in real time, and may contain transcription errors:

<blockquote>
<strong>William Ackman - Pershing Square Capital Management</strong&...

...Ackman highlighted the current liquidity environment while going into detail about the creation of liquidity using the ABS &amp; CDO markets. He highlights the moral hazard created by the fact that all parties are paid upfront, whether it is a mortgage origination on the smallest scale or credit securitization on a large scale.

<ol>
<li>Lesser securitized paper is given higher ratings then the underlying, because of the way ratings agency’s under measure correlation. The have recently made some statements to the effect that they have under measured correlation.</li>...

<li>Highlights the $800 Billion of subprime mortgages due to reset, the 2H of 2007 will be the most active part of this process.</li>

<li>Ackman makes the analogy that the same financial engineering in the subprime market is being used in the LBO market.</li>

<li>Ackman’s assessment of the market is that in recent weeks the liquidity in the CMBS market is drying up. He point to the weakness of REIT equities.</li>

<li>Ratings agencies responsible for theoretically “overseeing” the s structured finance market get near ½ there revenues from structured finance.</li>

<li>Portfolios are marked to model and not to market.</li>

</ol>



<em>Ackman offers a way to play this theory:</em>

<strong>Short-AB... Ambac Financial</strong&g...

<ol>
<li>$18.7 Billion in Subprime exposure is equal to 284.4% of statutory capital.</li>

<li>Leverage is 80.8 to 1 (Face Value Bonds/Statutory Capital)</li>

</ol>




<strong>Short-MB... MBIA</strong>

<ul>
<li>Structured finance has grown from 14% of guarantees in 1996 to 32% of guarantees in 2006</li>

<li>Leverage is 94 to 1 (Face Value Bonds/Statutory Capital)- Makes this comparison to Citigroup which is leveraged at 12 to 1 (Risk Adj. Assets/ Tier 1 Capital)</li>

<li>MBI’s Credit exposure is $635 Billion based upon $6.8 Billion in capital in comparison to Citigroup where Credit exposure is $1,107 Billion based upon$127 Billion of capital.</li>

<li>MBI’s Reserves/ Credit exposure equals 3 basis points in comparison to 96 basis points for Citigroup.</li>

<li>Potential catalyst- FASB is in a comment period about a rule clarification which will force insurers to book revenues as risk exposure mitigates. Currently MBI books approximately 45% of revenue at time of sale.</li>

<li>Significant senior management turnover in the past year. CFO, Chairman of the Board, President of MBIA Insurance, Head of Global Structured Products.</li>

</ul>
</blockquote>

Newspapers Confront The Digital Media Revolution

From AP:

<blockquote>
Newspaper publishers reported sharply lower advertising revenues for the second quarter on Thursday, and two of them laid part of the blame on a drop-off in real estate advertising in key markets.

McClatchy Co. and Media General Inc. both reported steep advertising declines and lower profits, while Dow Jones &amp; Co., publisher of The Wall Street Journal and the target of an acquisition bid by Rupert Murdoch's News Corp., had lower profit because of a charge but higher revenue and operating income.

McClatchy, which owns The Miami Herald and several newspapers in California, including The Sacramento Bee and The Fresno Bee, had a 9.8 percent decline in advertising revenue across its 31 newspapers, with the biggest drops coming in Florida and California. McClatchy is the country's third-largest newspaper company, behind Gannett Co. and Tribune Co.

McClatchy attributed much of the weakness in those markets to economic factors including the slowdown in the formerly hot housing sector. With real estate playing a key part of the local economies, other ad categories such as autos and employment also sagged, McClatchy Chief Executive Gary Pruitt said.

Media General Inc., a regional publisher based in Richmond, Va., had an 11 percent decline in advertising, including sharply lower results at The Tampa Tribune newspaper, which reported a 36.7 percent drop-off in classified advertising.

</blockquote>

First Half ETF Performance: Steel's The Strongest, Housing Funds Weakest

Are the regional banks down because of their exposure to mortgages?

Interactive Q&A: Paul Sylvester, CEO of Manatron Inc. (MANA)

Hi Paul,

We're seeing a lot of consolidation in the enterprise software space, as software providers try to assemble complete solutions for their customers.

Could that happen in the government market as well, and if so what kinds of applications would your products complement?

Many thanks for your detailed and informative answers.

The Dollar's Impact On Sectors And The Overall Market

Fascinating article -- thank you Eddy. (I immediately went to your blog to check it out.)

I understand why consumer discretionary should be so leveraged to the ER -- a falling dollar implies a need for higher rates, which hits consumer discretionary spending particularly hard.

But why tech? An increasing proportion of tech is exported, and the interest rate leverage on tech investment can't be THAT great.

CAT, GOOG, AAPL Sporting Consecutive Day Gains Heading Into Earnings

Sentiment on AAPL is so strong now, it's hard to see how this stock can trade up significantly after earnings.

Yahoo! Q2 2007 Earnings Call Transcript

Jerry Yang said:
<blockquote>Firs... we will accelerate Yahoo!'s transformation to drive greater growth and profitability. Our intention is to invest heavily in those areas that we believe are most critical to our success. At the same time, we will also be identifying – and in many cases, de-emphasizing -- parts of our business that are underperforming or don't fit our vision. Make no mistakes though, we are in investment mode.</blockquote&g...

Doesn't sound as though YHOO will beat numbers for the forseeable future. This is probably a dead stock for a while.

Yahoo: New CEO To Make Earnings Debut Tuesday Amid Low Expectations

Low expectations -- yes.
Low enough -- no.

Look what happened to the stock tonight after earnings were announced.

Why is Google Missing From Most Internet ETFs?

The problem with Merrill Lynch HOLDRs is that they're not funds that are based on indexes that get updated. Rather, they're static baskets of stocks that go out of date. The Internet HOLDRs were launched before Google went public, and that's why it's excluded.

Bottom line: HOLDRs have a lousy structure.

Your positive comments about IAH might be misleading in this respect, because IAH is also a static basket of stocks that will also become unrepresentative of its sector in time.

Using ETFs to Hedge Against Widening "Credit Spreads"

If you use ETFs from different families, you can also arbitrage the expense ratios.