(Hedge Fund Wisdom) 13G Analysis Q1 2019

>>> Consensus New Buys
* Walt Disney (DIS) & 21st Century Fox (FOX/FOXA): This is now the third consecutive quarter where there
weren’t many true consensus buys. The majority of the names on this list are due to IPOs or mergers taking
place. The latter is the case for Walt Disney (DIS), as it completed its acquisition of some of the 21st Century
Fox (FOX / FOXA) assets. Many hedge funds that now show a new stake in DIS received it from their
previous stake in FOX/FOXA as a result of the transaction closing. Note that many of these funds also now
show ‘new’ stakes in 21st Century Fox (FOX/FOXA) even though they previously already owned Fox. This is
just to designate that they now own the new standalone Fox entity that houses assets like Fox News. Funds that
show new DIS stakes include Paulson & Co, Baupost Group, Farallon Capital, Hound Partners, and Glenview
Capital.

* Celgene (CELG): This is another risk arbitrage stock that graces the list. Celgene is being acquired by
Bristol-Myers Squibb (BMY) and many funds were playing the deal spread in this merger arb play. Funds that
played the deal include Third Point, Paulson & Co, Baupost Group, and Farallon Capital.

* Centene (CNC): Yet another arbitrage trade finds it way on this list for Q1. Centene is buying WellCare
Health Plans (WCG) in a $15 billion deal. Funds that focused on CNC include: Omega Advisors, Glenview
Capital, and Paulson & Co. You’ll also see a smattering of funds have acquired WCG shares as well.

* Takeda Pharmaceuticals (TAK): This stock is only on the list because Takeda completed its merger with
Shire (SHPG). As a result, former owners of SHPG shares now show ‘new’ positions in TAK shares. They
include Baupost Group, Paulson & Co, and Glenview Capital.

* Floor & Decor (FND): This is the only stock on the list that isn’t a result of a merger, IPO, or some other
transaction during the quarter. And while it was a consensus buy, it had a lower consensus rating than usual
and wasn’t quite as popular as some of the past stocks that have been on this list. Funds that were buying
include Coatue Management, Maverick Capital, and Hound Partners.

>>> Consensus Increased Positions
* Microsoft (MSFT): For the fifth consecutive quarter, MSFT ends up on this list. While tons of investors have
focused on ‘FANG’ stocks (Facebook, Amazon, Netflix, Google), MSFT shares have quietly been a very
strong performer and a favorite among top hedge funds. CEO Satya Nadella really has the company turned in
the right direction. Funds that were adding to their stakes in Q1 include Hound, Glenview, Maverick,
Duquesne Family Office, and Tiger Global.

* Centene (CNC): In addition to being a consensus new buy on the previous page, CNC also lands on the
consensus increase list as well. As detailed previously, the company is buying WellCare Health Plans in a $15
billion deal. Funds that added to pre-existing positions include Bridger Management, Maverick, and Viking
Global.

* Cigna (CI): Staying in the healthcare sector, insurer Cigna was also another consensus increase. Hedge funds
such as Maverick, Omega, and Glenview added to their previous positions. The company recently closed its
merger with pharmacy benefit manager Express Scripts (former ticker ESRX).

* Alphabet (GOOGL): Lastly, shares of the dominant search engine company also grace this list. Firms like
Duquesne, Omega, and Brave Warrior Advisors all boosted their exposure. The company’s YouTube video
platform has been growing and performing well. Not to mention, their Maps platform is considered to be an
undervalued and undermonetized asset. They’re rolling out a ton of features there like augmented reality (AR)
for directions, as well as implementing relevant advertisements based on a user’s location or search terms.

>>> Consensus Sold Positions
* Element Solutions (ESI), Dell Technologies (DELL), and Activision Blizzard (ATVI): It should be noted
that there weren’t many consensus sells this quarter and the few stocks that wound up on this list don’t have the
same degree of consensus as stocks on this list have in the past. This is basically to say that these are the most
consensus sells available. Rather than not listing anything, here are three names that came closest.
During Q1, the entity formerly known as Platform Specialty Products (PAH) and now known as Element
Solutions (ESI) was sold by funds including Pershing Square and Appaloosa Management. After completing a
corporate transaction, Dell Technologies (DELL) was sold by funds including Farallon and Carl Icahn. Lastly,
video game maker Activision Blizzard (ATVI) was dumped by the likes of Lone Pine Capital and Maverick
Capital, among others.

* Shire (SHPG) & 21st Century Fox (FOX / FOXA): These two stocks were both involved in mergers that
closed during the quarter: Shire with Takeda Pharmaceuticals (TAK) and then 21st Century Fox with Walt
Disney (DIS). This entry is more of a footnote than anything. Throughout the issue you’ll see funds ‘selling’
SHPG and showing ‘new’ positions in TAK. Additionally, other funds will show ‘sold’ positions in the old
Fox entity and a ‘new’ position in the new standalone FOX entity as well as a ‘new’ DIS position. All of these
stock transactions are a result of the respective corporate deals closing.

>>> Consensus Decreased Positions
* Facebook (FB): This was by far the most consensus decrease across funds in the newsletter. Funds that
trimmed their exposure to the social media giant include Maverick, Brave Warrior, Hound, Farallon, Viking,
Coatue, Lone Pine, and Tiger Management. Shares have had a bit of an overhang due to the data privacy issues
with the Cambridge Analytica scandal, among other things. However, in the new year the company delivered
solid results all things considered and shares have surged from $130 to current levels of around $185.

* Alibaba (BABA): Shares of China’s leading e-commerce play were reduced by Farallon, Maverick, Coatue,
Lone Pine, and Viking Global. The trade war between the US and China certainly hasn’t helped shares and
worries of a slowdown in China linger, but many funds still retain stakes.

* Adobe Systems (ADBE): This possibly is due to profit-taking more than anything. After switching to a
subscription based revenue model a few years ago, ADBE has been printing money and shares have soared.
Funds that locked in some profits include Tiger, Maverick, Tiger Global, Viking, and Lone Pine.

FT : Mazars: the low-profile auditors who won over Goldman and Trump

Mazars: the low-profile auditors who won over Goldman and Trump
French firm says its structure makes it well-placed to benefit from industry reforms

For a midsized accounting firm founded in the picturesque French cathedral city of Rouen, Mazars has picked up some surprisingly high-profile clients.

This week, Goldman Sachs, the world’s largest investment bank, confirmed it had selected Mazars to audit its European businesses in London and Frankfurt — a huge victory for a firm that ranks eighth in the UK in terms of its revenues.

It was also in the news this week in relation to another major client: Donald Trump. A US judge said he would not block a subpoena issued to Mazars USA seeking access to Mr Trump’s financial records, as part of a long running political inquiry into the president’s business interests.

Industry insiders have observed the firm taking centre stage this week with a sense of bemusement. “A lot of people said they just did not see this coming,” said a senior partner at one of the UK’s largest accounting firms of the Goldman appointment. “Mazars is off a lot of peoples’ radar screens. But good for them — they deserve their day in the sun.”

The firm, which was established by an accountant, Robert Mazars, on the Rue de Buffon in Rouen in 1945, has grown rapidly but is still widely regarded as midsized. The number of partners has gone from 10 in 1985 to just over 1,000 around the world, while revenues have risen from €1bn in 2013 to €1.6bn last year.

Mazars itself acknowledges that it has kept a relatively low profile, despite its growth and a list of audit clients that includes some of the world’s largest companies, from French finance heavyweights Axa and BNP Paribas to automaker Peugeot and advertising giant Publicis.

David Herbinet, a UK partner at Mazars, said: “Some people would say we are much better at doing the work than we are at talking about the work we do — promoting ourselves and selling ourselves.”

Despite its revenue growth, Mazars is still smaller than other “challenger” audit firms — BDO, Grant Thornton and RSM — and is a long way behind the “Big Four” of EY, KPMG, Deloitte and PwC.

Yet significant opportunities beckon in the UK market: after a series of corporate scandals and hotly debated proposals for reform, Britain is poised to begin forcing its 350 largest listed companies to appoint two auditors.

Its rivals readily admit that Mazars is well-placed to benefit from this shift given its extensive experience of the French audit system, where joint audits of major listed companies have been required for decades.

Mazars insiders also say that the firm’s relatively rare structure — as a single global partnership, rather than a grouping of smaller partnerships — is a selling point when pitching for new business. Their belief is that this more unified structure makes it easier for teams from different countries to work together on international contracts, and that the corporate culture is more collegiate. Three Mazars partners interviewed for this piece emphasised how fond they are of the firm, two of them saying it was like a large family.

Its competitors describe it as “decent” and “capable”.

Insiders at Mazars are confident that the Goldman contract is just the beginning in terms of the firm gaining the recognition and prestige it has long sought beyond its country of origin.

Phil Verity, Mazars’ UK managing partner, said: “We are one of the smaller challenger firms with £200m of UK revenues. Our ambition is to be the leading challenger firm in this market and to be seen as the specialist firm to go to for high quality audit and non-audit work.”

Mr Herbinet added: “The ambition is there and the investments are there. What has been missing so far are the opportunities. We know that it is not a level playing field and some kind of regulatory change needs to happen to give us the opportunity to show how good we are.

“We are more than ready to take on at least 50 [FTSE 350 audits]. But we will aim for more. We see ourselves on a par with the Big Four, delivering equally good work, if not better.”

WSJ : David Tepper Is Planning to Return Investors’ Money Appaloosa LP will turn

David Tepper Is Planning to Return Investors’ Money
Appaloosa LP will turn into a family office managing his personal wealth

Famed hedge-fund manager David Tepper plans to turn Appaloosa LP into a family office managing his personal wealth as he spends more time focused on running the Carolina Panthers, his professional football team, said people familiar with the matter.

Executives at the $13 billion hedge fund have discussed several scenarios for when they could return outside clients’ money, some of the people said, including over several years or around the end of this year. One of these people said a period of several years was more likely. Mr. Tepper’s money makes up more than 70% of the firm’s assets under management.

A spokesman for Appaloosa said the firm hasn’t set an exact time table for the return of all outside money. Appaloosa is among a small number of hedge funds that has regularly returned some investor money over the last decade in an effort to manage their size and returns.

Employees have been told Mr. Tepper’s investment business is changing, said people familiar with the matter, and some have been interviewing with other investment firms. Some employees have been told they are welcome to stay and make investments for the family office.

The expected change would mark the next chapter for one of Wall Street’s most widely respected investors.The son of an accountant who grew up in a middle-class Pittsburgh neighborhood, Mr. Tepper founded Appaloosa in 1993 after repeatedly being passed over for partnership at Goldman Sachs Group Inc. Appaloosa’s performance, though volatile, catapulted Mr. Tepper to a rarified level of wealth and prominence. He is known for his big bets and blunt delivery.

He earned billions during the depths of the financial crisis by buying shares in beaten-down banks while others headed for the exits. He has notched annualized returns of more than 25% on average since Appaloosa’s start, said a person familiar with the firm. He has used his wealth to push for the passage of gay marriage in New York, buy into professional sports teams and support education and food banks around the country.

Even as a raft of prominent managers have called it quits in recent years, citing markets that don’t make sense and too much competition, Appaloosa has continued to profit. Mr. Tepper has ignored the fervor for big data and factor-driven investing and continued to make calls based on fundamental analysis of companies and the economy.

Yet he also has proven to be one of the few hedge-fund managers capable of shifting strategies without sacrificing profits. He began Appaloosa as a distressed credit fund and over the years transformed into a macro investor making calls on the direction of the economy and an activist investor pushing for change at companies.

The 61-year-old billionaire has made lifestyle changes in recent years. He moved to Florida in 2016, to the consternation of New Jersey lawmakers concerned about the impact on the state’s tax revenues, and moved his firm’s headquarters there, too.

He has also been spending more time on the Carolina Panthers, which he bought last year for an NFL record of about $2.2 billion; he was previously a part owner of the Pittsburgh Steelers. Mr. Tepper is now focused on turning around the Panthers and increasing revenues associated with it, said people close to him, for example by improving the stadium and striking lucrative partnerships.

He has also expressed interest in bringing a Major League Soccer team to Charlotte, N.C., where the Panthers play their home games.

His planned change to Appaloosa would add him to the list of wealthy investors who are returning client money to focus on managing their own fortunes. Hedge-fund manager Jonathon Jacobson said last year he was making the switch at Highfields Capital Management.

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:

  • WB -11.9%, NTAP -9.2%, SINA -9.1%, HTHT -8.4%, PLUS -6.1%, LPG -5.9%, SQM -2.9%, HRL -2.6%, SBLK -1.6%, SCVL -1.5%, CTRP -1%, VIPS -1%, VIOT -0.9%

Other news:

  • ESV -1.8% (updates dividend policy - will not pay a regular quarterly cash dividend)
  • MRCY -1.8% (upsized offering of 6 mln shares of its common stock at $69.00 per share)
  • GH -0.6% (prices underwritten public offering of 4.5 mln shares of its common stock at a public offering price of $71.00 per share)
  • SWI -0.5% (prices underwritten public offering of 15 mln shares of its common stock by certain selling stockholders at $18.00 per share)

Analyst comments:

  • AKS -8.6% (downgraded to Underperform from Outperform at Credit Suisse; tgt lowered to $1)
  • QCOM -3.3% (downgraded to Neutral from Buy at Mizuho)
  • CMG -2.6% (downgraded to Underperform from Market Perform at BMO Capital Markets)
  • EXPE -2.3% (downgraded to Neutral from Buy at Citigroup)
  • STLD -2.2% (downgraded to Neutral from Outperform at Credit Suisse)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance:

  • LB +12.3%, CPRT +5%, BJ +3.9%, TNK +3.7%, SDRL +3.3%, MDT +2.2%, BBY +1.9%, NPTN +1.5%

M&A news:

  • S +3.7% (Department of Justice Assistant Attorney General Makan Delrahim still open to Sprint (S) / TMUS M&A deal - CNBC)
    • TMUS +1.1%

Other news:

  • AVP +15.2% (Natura and Avon confirm details of transaction)
  • IOVA +6.7% (announces breakthrough therapy designation for LN-145 for treatment of advanced cervical cancer patients who have progressed on or after chemotherapy )
  • HCLP +3.5% (unitholders approve conversion to C-corporation - to be named Hi-Crush Inc and common stock will begin trading on NYSE under ticker HCR on June 3)
  • SCPL +2.9% (light volume; initiated with Overweight at Stephens)
  • EVRI +1.7% (on reports of sale exploration)
  • ATRA +1.5% (initiated with Buy at Stifel)

Analyst comments:

  • APPN +1% (upgraded to Equal-Weight from Underweight at Morgan Stanley)
  • PRO +0.8% (upgraded to Buy from Hold at Stifel)

>>> US Early premarket gappers


Early premarket gappers

Gapping up:

  • AVP +15.5%, LB +12.4%, IOVA +10.6%, CPRT +5%, BJ +3.9%, HCLP +3.5%, BBY +2.4%, SCPL +1.7%, EVRI +1.7%, ATRA +1.5%, NPTN +1.5%, VIPS +0.7%

Gapping down:

  • WB -10.6%, SINA -8.9%, NTAP -8.2%, HTHT -7.3%, PLUS -6.1%, LPG -5.9%, HRL -2.3%, ESV -1.8%, SBLK -1.6%, SCVL -1.5%, VIOT -0.9%