Hedge Fund Consensus Buy List
* JPMorgan Chase (JPM): This quarter’s 13F portfolio snapshot coincides perfectly with the pandemic market sell-off, offering interesting insights as to what stocks have been on managers’ watchlists for some time. That said, they didn’t all necessarily agree on what stocks to buy. While the following stocks grace the consensus buy list, the degree of consensus is not high by any means compared to these lists on a historical basis. Funds that acquired shares of JPMorgan Chase included Maverick Capital, Omega Advisors, and Viking Global.
* Facebook (FB): This stock would be the one exception where there was a high degree of agreement because it graces both the ‘consensus new buy’ list as well as the ‘consensus add’ list on the next page. The type of investor that was attracted to the social media giant was also quite wide-ranging. As shares sold off, the usual growth / GARP (growth at a reasonable price) / compounder investors were attracted to the name. But this time around value investors were also dipping their toes in. Baupost Group, Brave Warrior Advisors, and Omega Advisors all established new positions. The company has recently put a lot of money to work, spending $5.7 billion to acquire a 9.99% stake in Jio Platforms in India to deepen its position in a country that’s very important to them. Jio houses the company’s popular and inexpensive wireless carrier Reliance Jio as well as JioMart, the company’s e-commerce platform. Some analysts have postulated that the tie-up will lead to the creation of a ‘super-app’ akin to WeChat in China. FB also is buying Giphy, an animated gif’s tool for $400 million. Lastly, FB just announced Facebook Shops, a partnership with Shopify (SHOP) that will allow merchants to customize shops on its Facebook and Instagram platforms, as it starts to move beyond advertising.
* Blackstone Group (BX): While shares of this private equity giant were scooped up by the likes of Farallon Capital, Maverick Capital, and Pershing Square, it’s worth pointing out they did so only with very small position sizes. Interest rates are low and there is a wide range of business outcomes for many industries right now, leading many to believe private equity could be quite active this year.
* Wells Fargo (WFC): This is another big moneycenter bank that was bought by some hedge funds in the first quarter. Maverick, Tiger Management, and Appaloosa all show new positions. Some investors feel that banks could be in for a rought near-term ride given that interest rates have fallen and there are potential loan losses lurking from a cascade of carnage in the business world due to the coronavirus.
Hedge Fund Consensus Increased Positions
*Facebook (FB): As mentioned on the previous page, this stock graces both the ‘consensus new buy’ and ‘consensus increase’ lists. This is also the second consecutive quarter FB has been on this particular list. Funds that boosted position sizes include Maverick, Farallon, Duquesne Family Office, Lone Pine Capital, and Tiger Global
* Amazon (AMZN): Shares of the e-commerce and cloud computing giant were purchased by Pennant
Investors, Duquesne, Third Point, Coatue Management, and Lone Pine. Duquesne in particular really ramped
up their exposure to the name and it’s now their top holding. Obviously, AMZN has benefited from the
pandemic as consumers turn to its main website for online orders but also to its Whole Foods grocery platform
for online ordering, delivery, and pick-up as people adapted to the new world of social distancing and stay-athome orders.
* Fidelity National Information (FIS): For the second quarter in a row, FIS lands on this list. Funds that sized up their positions this time around include Maverick, Duquesne, Viking, and Farallon. FIS is a financial services technology company where a good chunk of its business sees recurring revenue. The company merged with Worldpay last year.
* UnitedHealth Group (UNH): Shares of the largest health insurer in the US were accumulated by Maverick, Brave Warrior, Sequoia Fund, and Lone Pine.
Hedge Fund Consensus Sold List
* Caesars Entertainment (CZR): Funds that exited this casino name include Appaloosa, Coatue, Maverick,
and Paulson. The company has an agreement in place to be acquired by Eldorado Resorts (ERI). The deal has
already been delayed due to regulatory review and Caesars is owed millions of dollars in ‘ticking fees’ for each
day that goes by without a deal. ERI and CZR recently both sold some casinos in order to help with any
potential objections to their tie-up. Given the coronavirus’ impact on casinos, this situation is still very fluid.
* XP (XP): After appearing on the ‘consensus new buy’ list last time around, XP quickly finds itself on the ‘consensus sold’ list just one quarter later. The main reason it was on the buy list to begin with was due to the completion of its initial public offering (IPO). The company is a provider of brokerage, investment advisory, and asset management services in Brazil. It IPO’d at $27 per share in the fourth quarter. Last quarter’s issue cautioned that hedge funds will often flip IPO shares for a quick trade and that’s exactly what happened here, as half those funds already exited their small positions (Hound, Lone Pine, and Third Point).
* Middleby Corp (MIDD): Hedge funds that exited their MIDD stakes entirely include Coatue Management, Maverick Capital, and Viking Global.
* The Medicines Co (MDCO): This stock only lands on this list due to merger activity. Due to its deal with Novartis closing, shares no longer trade. As such, Bridger Management, Duquesne, Farallon, Greenlight Capital, and Maverick no longer show positions.
Hedge Fund Consensus Decreased Positions
* Microsoft (MSFT): This is now the fourth consecutive quarter that MSFT lands on this list. In the past, the most likely explanation for the sales has been position sizing, given that MSFT shares have performed so well and swelled positions. Given the volatility in Q1 however, it’s a little harder to pinpoint the rationale, as different funds probably trimmed stakes for different reasons due to their volatility and risk management playbooks. For instance, some funds might simply cut exposure across the board. Others might reduce winners to funnel funds into really beaten down opportunities. And some managers might have sold for company specific reasons. The last one seems unlikely given that many of MSFT’s businesses are actually benefiting from the pandemic. But the point remains that there are simply too many variables to know the ‘why’ for certain. Funds that sold some MSFT shares this time around include Tiger, Glenview Capital, Hound, Duquesne, Farallon, Coatue, and Tiger Global.
* Alphabet (GOOGL): Pennant, Tiger Global, Glenview, Omega, Brave Warrior, and Sequoia all reduced exposure to this share class of Google’s parent company. Again, given the volatility, there could be a myriad of reasons for why funds reduced positions. But one company specific reason could be the impact from coronavirus. As businesses start to struggle, advertising budgets are often one of the first things to get cut. And while Google is somewhat more insulated than other ad industry players given its dominant position in online/mobile ads, it also has large exposure to certain verticals that have been severely impacted, like travel. Booking.com for instance, has been one of Google’s top advertisers for years, spending billions on the platform.
* Adobe (ADBE): This company has benefited from a shift from software licenses to subscription revenue as it is essentially a ‘toll’ on digital creativity via its suite of products like Photoshop, Lightroom, and more. In a normal, trending market the rationale for trimming this position would likely be position size related due to share outperformance. But given the situation, each manager is going to have their own playbook for how they react to volatility. Funds that trimmed exposure to ADBE include Coatue, Tiger, Appaloosa, Third Point, and Lone Pine.
Mavericks behind Carlos Ghosn’s escape
Colourful past of private security operatives involved
A decade ago, the football team at Lawrence Academy, a private school outside Boston, had become so fearsome that it drew national attention when a rival school forfeited a match for fear of its players’ safety.
The volunteer coach, Michael Taylor, shrugged off suspicions that Lawrence had done anything underhanded to suddenly field a team in the genteel Independent School League that featured a trio of footballers weighing 300 pounds each.
“That’s the nature of our society,” Mr Taylor told the Boston Globe, bemoaning the scrutiny his team had faced.
Three months later Mr Taylor resigned — just before the school’s football team was forced to give up the two titles it had won under him. Soon after, Lawrence’s headmaster and athletics director also resigned.
Mr Taylor, a former member of the US Army’s elite Green Berets, this week returned to the headlines as one of the private security contractors who helped smuggle Carlos Ghosn, the embattled former Nissan executive, out of Japan in an operation that featured private jets, a bullet train and a black case typically used to store audio equipment.
The escape showed daring and ingenuity. It also required a willingness to break rules, something Mr Taylor has demonstrated repeatedly since leaving the army in the 1980s to launch a career in the murky world of private security.
Most notably, he served 14 months in prison for bribery and kickbacks connected to $54m in defence department contracts in Afghanistan. But prior to that, Mr Taylor was also a player in the notoriously corrupt Boston of the 1990s, an era dominated by two brothers, William Bulger, one of the city’s most powerful politicians, and Whitey Bulger, its most feared gangster. Mr Taylor consorted with local criminals, including the disgraced FBI agent, John Connolly, now imprisoned in Florida for second degree murder for assisting Whitey Bulger.
“Most people who do this don’t want to touch anything like this,” a US security consultant said of the Ghosn assignment. “I certainly wouldn’t take the job.”
Reputable US contractors are loath to apply for jobs that might violate US or foreign laws, potentially jeopardising security clearance needed for the most lucrative work. “This guy is an outlier,” the consultant said. A British counterpart agreed, saying: “It’s not a job that many people would have taken. They must have been very well paid.”
Mr Taylor, 59 — a former football star who joined the army out of high school and was dispatched to Mr Ghosn’s native Lebanon in 1983 with the special forces — did not respond to requests for comment.
He is not the only character with a colourful past who has cropped up in the Ghosn escapade. Another member of the crew was George Zayek, whose brother Elias — a leading figure in the Lebanese Forces, a Christian militia — was murdered in 1990 during the fratricidal power struggles of the Lebanese civil war. Mr Zayek’s code name in the militia was “Bimbo”.
According to online job listings, Mr Zayek has worked extensively in Iraq and has experience in “war . . . weapons” and “hostile environment[s]”. He is listed as having worked for Mr Taylor’s company, American International Security Corp.
Mike Douglas, a former member of the British army, has been caught up in a public dispute with a large Turkish company in relation to the private jet that whisked Mr Ghosn out of Japan.
MNG Group, a Turkish conglomerate that says its private jet operator inadvertently leased two aircraft used in the getaway, claims that Al Nitaq Al Akhdhar for General Trade Limited, a company linked to the Dubai-based businessman, paid for the Bombardier Global Express that took Mr Ghosn from Osaka to Istanbul. Mr Douglas denies that, saying that it has only ever paid MNG for cargo services.
Some of Mr Douglas’s former business associates are less glowing. For more than a decade, he has been locked in an acrimonious dispute over the ownership of his firm, SKA International. Mr Douglas was taken to court in Canada and Dubai but the claimants were unsuccessful.
Mr Taylor also has strong links to the Middle East, where, according to his lawyers, he assisted the Drug Enforcement Agency and FBI after leaving the military. In Boston, he traded on that experience to ingratiate himself with local law enforcement authorities. “That was his modus operandi,” a person who knew him said. Police officers and federal agents would moonlight at Mr Taylor’s security firm, including — according to the Boston Herald and a person familiar with the matter — Mr Connolly, before he was indicted.
One of Mr Taylor’s specialities included securing picket lines for companies. In 1999, according to a federal indictment, Mr Taylor met in a Boston hotel room with a boss for the local Teamsters union, then suing Cardinal Healthcare for $1m after a labour dispute. According to the indictment, they cut a deal to settle for $400,000 — in addition to a $100,000 kickback to the union boss. Of that sum, $20,000 was paid to Mr Taylor. Mr Taylor agreed to testify against the union boss, who later pleaded guilty and went to prison. Mr Taylor was not charged with any offence.
“You look at him and you think you’re talking to an altar boy. He has the face of an angel, he’s very composed, he’s very sharp. Very, very sharp. I think the guy could talk a dog off a meatwagon,” James McMahan told the Boston Phoenix newspaper in 1996. Six years earlier, Mr McMahan had rejected Mr Taylor’s application for a private investigator’s licence due to character concerns.
In 1998, Mr Taylor was accused by authorities of planting marijuana in the car of a woman locked in a custody battle with one of his clients. The alleged scheme came to light because the arresting police officer could not find the drugs and ended up calling Mr Taylor for assistance — within earshot of the woman. Mr Taylor ended up pleading guilty to two misdemeanours.
“Oh, boy,” a Massachusetts official sighed when asked about Mr Taylor. “He’s a piece of work.”
Group fitness class responsible for more than 100 coronavirus cases, study warns
Group fitness classes can be a hotbed for the spread of coronavirus, the Centers for Disease Control and Prevention has warned in a new report.
The study, coming as states begin to reopen, highlights how a single workshop among 27 dance fitness instructors in South Korea was responsible for more than 100 coronavirus cases spread across 12 fitness facilities in the city of Cheonan.
Eight instructors at the Feb. 15 meeting had the coronavirus but they hadn’t known yet — they were asymptomatic.
Over the course of the next 24 days, by March 9, the virus spread to across fitness classes to 112 participants, according to the research team at Dankook University Hospital.
High-octane workouts in confined spaces can be ripe environments for the spread of the virus, the researchers said.
“Characteristics that might have led to transmission from the instructors in Cheonan include large class sizes, small spaces, and intensity of the workouts,” wrote the scientists in their research letter published by the CDC late last week. “The moist, warm atmosphere in a sports facility coupled with turbulent air flow generated by intense physical exercise can cause more dense transmission of isolated droplets.”
Each dance class linked to transmission had between five and 22 students. About half of the 112 cases were transmitted from instructors to students, the contact tracers found.
In all, 54 students out of the 217 attending the classes who were exposed to the virus came ended up tested positive, an infection rate of 26 percent.
The rest of the cases stemmed from the sick students who then passed the virus to family, friends and coworkers.The infected students didn’t start displaying symptoms until about 3.5 days after attending the class on average, the researchers found.
The study found that several lower-intensity workouts weren’t as effective in transferring the virus.
One of the instructors from the initial workshop also taught yoga and pilates classes for groups of seven to eight people. But researchers found that none of the students in those classes ended up catching the bug.
“We hypothesize that the lower intensity of Pilates and yoga did not cause the same transmission effects as those of the more intense fitness dance classes,” the researchers wrote.
Gapping down
In reaction to disappointing earnings/guidance:
- MCK -3.9%, URBN -3.8%, SQM -3.6%, TARO -2.6%
Other news:
- LK -34.4% (resumption of trading following halt)
- VNRX -11.1% (stock offering)
- ALRM -5.7% (launches offering of 5.62 mln shares by selling stockholders)
- CYRX -4.3% (prices offering of $100.0 mln of convertible senior notes due 2025)
- FND -4.1% (announces pricing of secondary offering of common stock by selling stockholders)
- CABO -3.6% (prices offering of 250,000 shares of its common stock at $1,700.00 per share)
- FCAU -2% (may seek to delay of Fiat special dividend)
- RP -1.8% (prices offerings of common stock and convertible senior notes)
- OCUL -1.2% (prices 8,181,819 shares of its common stock at $5.50/share)
Analyst comments:
- NOVA -1% (downgraded to Neutral from Buy at BofA/Merrill)
Gapping up
In reaction to earnings/guidance:
- KRNT +16.1%, CSV +9.6%, LOW +6.1%, RDY +5.5%, ADI +4.4%, FRO +4.2%, QIWI +3.7%, VER +2.6%, TGT +0.8%
Other news:
- SURF +30.1% (entered into a clinical trial collaboration with Merck to evaluate the safety and efficacy of combining its SRF617 w/ Keytruda; co also announced ~$30 mln at-the market facility)
- ALDX +26.3% (announced the planned advancement of the investigational new HSP90 inhibitor ADX-1612 to clinical testing for COVID-19)
- INO +23.1% (publication of the preclinical study data for IN0-4800, its COVID-19 DNA vaccine, demonstrating robust neutralizing antibody and T cell immune responses against coronavirus SARS-CoV-2)
- PAE +13.2% (wins 10-year contract to provide aircraft maintenance to US Customs and Border Protection Agency)
- ARR +8.5% (announces resumption of monthly dividends)
- EIGR +8.2% (announces FDA acceptance of NDA for filing with priority review for Zokinvy)
- MYGN +5.6% (FDA approved the BRACAnalysis CDx test for use as a companion diagnostic to identify men with metastatic castration-resistant prostate cancer who are eligible for treatment with Lynparza)
- MODN +3.7% (prices offering of $150.0 mln of convertible senior notes due 2025)
- HAL +3.1% (lowers Q2 dividend of $0.045 a share, prior $0.18 per share)
- NAT +2.9% (to declare Q2 dividend of $0.20 per share, prior $0.14 per share)
- KWR +1.3% (files for 23,000 share common stock offering by selling shareholder)
- LMT +1.2% (to slow pace of production of F-35 jets, according to Reuters; adjusts workforce schedules)
- MRK +0.9% (LYNPARZA (olaparib) was approved by FDA)
Analyst comments:
- CODX +5% (upgraded to Buy from Hold at Maxim Group)
- LNG +4.3% (upgraded to Overweight from Equal-Weight at Morgan Stanley)
- CREE +2.8% (upgraded to Neutral from Underweight at JP Morgan)
- FMS +2.7% (upgraded to Equal-Weight from Underweight at Morgan Stanley)
- JPM +1.9% (upgraded to Buy from Hold at Odeon)
- LOGI +1.7% (upgraded to Neutral from Sell at UBS)
- CSX +1.5% (upgraded to Buy from Neutral at UBS)
- BUD +1.2% (upgraded to Neutral from Underweight at JP Morgan)