>>> Sohn Conférence 2016 - day 1

The 2016 Sohn Conference New York just concluded and featured top hedge fund managers sharing investment ideas in order to benefit the Sohn Conference Foundation which is dedicated to the treatment and cure of pediatric cancer and childhood diseases. Here's the takeaways:


Notes From Sohn Conference New York 2016


Larry Robbins (Glenview Capital): “Get a Grip.” Theme was stocks can be a bumpy ride for investors, and hedge funds have taken a lot of hits in the press, but if you expect them to not be short-term traders, then don’t judge them by their short-term records. He talked his book; claiming that fundamental investing is not dead. He is long: VCA (WOOF) – Veternarian hospital, multiple has compressed as earnings have grown and “There is no Obamacare for Veternarian hospitals.” Also pitched his longstanding holding of Thermo Fisher Scientific (TMO). Yes, it has FX issues, but it has EPS growth. Pitched Lab Corp (LH) as well: hit by fears of new technology, but Theranos story shows that it’s not that easy to come up with new technology. On CBS (CBS): the viewing model is changing, with over-the-top (OTT), but content still has value. Flextronics (FLEX): they got out of the low value business, but still grew revenue 3% and EPS 15% yet their P/E is only 8.5x. The stock fell in February 19% and nobody knows why. Abbvie (ABBV): has a pipeline, Humira has IP protection, and biosimilars will take time to develop. Brookdale Senior Living (BKD): earning less, but still, oversold. Talked about Anthem (ANTM): 1. Managed care is still a good business 2. Cigna (CI) merger could lead to 20% accretion 3. ANTM vs ESRX contract repricing spat could lead to more earnings 4. Market pricing says deal breaks, he doesn’t think it will.


Carson Block (Muddy Waters): Famed short seller says, “No such thing as alchemy in banking” and touts Bank of the Ozarks (OZRK) as a short because they’ve done a lot of aggressive construction loans and acquisitions. Best case stock re-rates due to unsustainable EPS growth rate, worst case, balance sheet pressure.


John Khoury (Long Pond Capital): Value oriented, private equity approach. Hyatt (H) long. Says 65% upside, and low leverage gives a floor to valuation. Admits Pritzker family controls company but says they make good capital allocation decisions. Low end, leisure hotels most vulnerable to AirBnB threat. Hyatt has more corporate, higher end, which is relatively insulated. Not making a bullish call on all hotel stocks. Saying Hyatt since 2010 IPO, EBITDA is up 66%, shares up only 14% while they have bought back 20% of shares outstanding. Uses SOTP to get $79 PT, 65% upside.


Chamath Palihapitiya (Social Capital): Silicon Valley investor. Says Amazon (AMZN) is a multi-trillion monopoly in plain sight. Walked through e-Commerce, Amazon Web Services (AWS), says this is just the beginning, that Jeff Bezos will make good investment decisions. Says AWS is not understood by the Street and could be worth a lot more. (Seems like the AWS bull case is already widely touted by AMZN bulls?) Lots of potential losers as AWS scales.


Jeff Smith (Starboard Value): Activists. In 12 years they have replaced 162 board members at 50 companies. Likes Depomed (DEPO) long, pain medication, like Oxycontin, less abuse potential. Not taking price increases. Horizon Pharma (HZNP) tried to buy them, they refused to deal. Starboard has nominated a new board- sounds like a proxy battle is brewing. Also like Westrock (WRK), merger of Mead WestVaco and Rock Tenn. Sounds like a commodity business, but he says it is not, and it’s still cheap, at 4.9x 2017E EBITDA. Has $71 PT, almost a double from here.


Richard Deitz (VR Capital): They do a lot of emerging markets stuff. He says long Greek banks and Greek treasury bonds. Went through the sordid history of bailouts, and says now things are better, the banks are finally strong, may need one more round of recapitalizations. 141% upside, 34% IRR over next 3 years.


Stanley Druckenmiller (Duquesne Family Office): In a sentence: we have low rates, high multiples on stocks, high leverage, sell stocks and everything, buy gold. Fed is out of control, encouraging borrowing, reckless behavior. China is out of control, just buy gold.


Jeff Gundlach (DoubleLine Capital): Comedy show, with art talk in the beginning. In other words, his usual type of presentation. Says short XLU (utilities) long REM (mortgage REITs.) REITS are priced at 0.88x p/book, with 11% dividend, Utilities are 1.9x p/book with 3% dividend, you earn 8% net and you can lever it up 100% and earn 15%, plus the two should converge. He mocked the “low volatility” equities and showed that even utilities have had 56% drawdowns in the past. His most incendiary statement was that Donald Trump would be President, and “he’s comfortable with debt.”


Zach Schreiber (PointState Capital): He is the man that pitched oil short 2 years ago, when it was $100 per barrel. Long USD, short the Saudi currency, he says. He made a compelling case for why Saudi is in an “unsustainable equilibria” with lavish unfunded entitlements, unsustainable debt, and not enough currency reserves to protect their peg. Other oil producers’ currencies are down 25- 45% vs the dollar- Mexico, Norway, Russia, for example, yet the Saudi currency is unchanged. Only costs 1.5% to put this trade on and very asymmetric pay off.


Sohn Investment Contest Winner (Columbia Business School student): DXCM, Dexcom short was the pitch. Insulin device maker which is facing impending competition and is unable to increase price as revenue per user declines. Says stock can drop in half.


Adam Fisher (Commonwealth Opportunity Capital): Real estate background, now a Macro guy. Says short Japanese rates, long European rates. Very compelling case for how long JGBs that yield only 30 bps have nowhere to go but up. Even a move to 40 bps yield wipes out 10 years of return. Says maximum return for bondholders is 9% return over 30 years - that is not a CAGR of 9%, that is a TOTAL of 9%! Huge convexity in the trade.


David Einhorn (Greenlight Capital): He pitched Caterpillar (CAT) short, says company is NOT at trough earnings yet and the mining sector will never recover to the heights of the China boom. No catalyst on the short, other than EPS growth expected to take longer than expected. Then he pitched General Motors (GM) as a long, admitting that US business would drop off almost 20% but the currently money losing segments in Europe and Mexico could make up for the shortfall. Long deck with lots of charts and cartoons as usual. GM pitch rested on low P/E of 5.6x to increase despite US EBITDA to decline.


Jim Chanos (Kynikos Associates): Got a dig in on Tesla (TSLA), which he had said he was short earlier that day on TV. He said Elon Musk had not enough production, not enough batteries, and now not enough executives, but he pulls production forward 2 years. “What a showman,” he said. His pitch was a complicated one, talking about weakness in South Africa, and Nigeria, which led to a short of MTN group, a wireless carrier which is also struggling with subscriber growth and declining average revenue per user (ARPU). At $20B EV, this is a big company that he says is not cheap.

>>> US After Hours Summary: WTW +13%, TSLA +2%, GDDY -3% following ear


After Hours Summary: WTW +13%, TSLA +2%, GDDY -3% following earnings/guidance

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: LGCY +22.4%, EPE +15.4%, ZNGA +13.9%, WTW +13.3%, ARRS +9.4%, QRVO +7.3%, SZYM +5.9%, KHC +5.1%, MTW +4.3%, WBMD +3.8%, TASR +3.7%, AUY +2.8%, TSLA +2.2%

Companies trading higher in after hours in reaction to news: SYNC +118.4% (wins AT&T (T) contract; expects revenues from the contract are ~$100 mln per year, after full product deployment in 2017), CNAT +16.5% ('positive' top-line results from the three-month, open-label second stage ofits multicenter Phase 2 clinical trial of emricasan in patients with liver cirrhosis), BMI +2.2% (confirms it is exploring on a preliminary basis various options to enhance shareholder value), GM +1.2% (Greenlight's Einhorn reiterates positive stance on GM at Ira Sohn)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: RRTS -17.3%, TCAP -14%, FIT -12.6%, SQNM -11.1%, KTOS -6.9%, EXEL -6.5%, CTL -4.7%, HRTG -4.2%, PAA -4.1%, SGY -3.8%, GDDY -3.4%, TRIP -3.8%, LITE -2.6%, WMB -2.5%, FOXA -1.4%

Companies trading lower in after hours in reaction to news: KTOS -6.9% (receives $3.87 mln award from Defense Advanced Research Projects Agency), ADC -2.9% (commences 2.25 mln underwritten public offering of common stock), STI -1.6% (receives subpoena in relation to embezzlement by an employee of a SunTrust business client), CAT -1.2% (Greenlight's David Einhorn announces at Ira Sohn that he is Short CAT)

>>> US Close Dow-0.56% S&P-0.59% Nasdaq-0.77% Russell-0.79%


Closing Market Summary: Indices End Lower as Industrials and Energy Weigh

The stock market spent the Wednesday session under pressure as vacillating oil prices fueled a retreat in the broader market. Meanwhile, mixed economic data clouded the economic picture while a rebound in the dollar contributed to a risk-off posture. Furthermore, relative weakness from the heavily-weighted industrial (-1.3%), health care (-1.0%), and financials (-0.8%) spaces contributed to selling pressure. The Nasdaq Composite (-0.8%) finished behind both the S&P 500 (-0.6%) and the Dow Jones Industrial Average (-0.6%).

The trading day began on a lower note as investors weighed a slew of economic reports from overseas and the United States. Lackluster readings of Services PMIs from Germany, France, and the eurozone weighed on global equities while a below-consensus reading of the U.S. ADP National Employment Report for April (156,000; consensus 196,000) pushed equity futures back towards their lows.

The cash market found little relief despite an above-consensus reading of the ISM Non-Manufacturing Index for April (55.7; consensus 54.5). The datapoint was masked by a recent string of weaker than expected economic data, which mars prospects of a sharp pick-up in economic growth heading into the second half of the year. Furthermore, renewed pressured from the greenback weighed on dollar-denominated commodities and on the possibility of increased earnings prospects.

The major averages ended off their lows despite seven sectors finishing beneath their flat lines. The commodity-sensitive energy (-1.3%) space traded in-line with industrials (-1.3%) and behind materials (-1.0%), health care (-1.0%), and financials (-0.8%). Conversely, countercyclical utilities (+1.1%), consumer staples (+0.3%), and telecom services (+0.2%) finished with the only gains.

The energy space (-1.3%) sank to the bottom of the leaderboard after investors ruminated over larger than expected builds in crude oil (2.78 million barrels; consensus: 1.69 million barrels) and gasoline (0.53 million barrels; consensus: -0.14 million barrels) stockpiles. WTI crude ended its day higher by 0.3% ($43.78/bbl), but well off its opening level ($44.84/bbl). In the group, Marathon Petroleum (MPC 36.22, -1.77) ended lower by 4.7% as refining names underperformed. On the flipside, Noble Energy (NBL 35.59, +0.38) ended higher by 1.1% after beating bottom-line results for the first quarter.

In the industrial space (-1.3%), airlines continued their recent losing streak as Delta Air Lines (DAL 41.43, -1.49) and American Airlines (AAL 33.21, -1.37) finished with respective losses of 3.5% and 4.0%. Elsewhere, Cummins (CMI 114.44, -4.16) fell 3.5% after a report indicated that class-8 truck orders declined 39.0% year-over-year in April.

Biotechnology underperformed in the health care space (-1.0%), evidenced by the 2.9% decline in the iShares Nasdaq Biotechnology ETF (IBB 258.03, -7.72). The sub-group was led lower by Biogen (BIIB 263.12, -10.59), which extended its May loss to 4.3%. Elsewhere, Anthem (ANTM 138.73, -2.69) fell 1.9% after announcing that CFO Wayne DeVeydt will step down.

The U.S. Dollar Index (93.22, +0.28) finished off its session high, as the greenback gained against the euro, yen, and Canadian dollar. The euro/dollar pair finished lower by 0.1% at 1.1492 while the dollar gained 0.3% against the yen (106.91). Separately, the dollar jumped of 1.2% against the Canadian dollar (1.2873).

The Treasury complex finished on its high as the yield on the 10-yr note fell three basis points to 1.77%. This represents a six basis point move since last Friday's settlement at 1.83%.

Today's participation was above the recent average as more than 992 million shares changed hands on the NYSE floor.

Today's economic data included the weekly MBA Mortgage Index, April ADP Employment Change, preliminary Q1 Productivity, Unit Labor Cost, March Trade Balance, March Factory Orders, and April ISM Services:

  • The weekly MBA Mortgage Index showed a seasonally adjusted decrease of 3.4%. This compares to last week's -4.1% reading. 
  • The ADP Employment Change report was a disappointment, showing an estimated 156,000 positions were added to private sector payrolls in April (consensus 196,000)
  • Briefly, the decline in productivity in the first quarter followed on the heels of an upwardly revised decline of 1.7% (from -2.2%) in the fourth quarter.
    • First quarter productivity declined 1.0% (consensus -1.4%)
  • Unit labor costs jumped 4.1% (consensus +2.6%), reflecting a 3.0% increase in hourly compensation and a 1.0% decrease in productivity.
    • On a year-over-year basis, productivity is up just 0.6% while unit labor costs are up 2.3%. That's a relationship with stagflation written on it.
  • The trade deficit for March narrowed sharply to $40.4 billion (consensus -$41.4 bln) from $47.0 billion in February.
  • That was a function of imports falling more than exports. Specifically, imports were $217.1 billion, $8.1 billion less than February imports, while exports were $176.6 billion, $1.5 billion less than February exports.
    • The import weakness was concentrated in consumer goods, which decreased by $5.1 billion on less demand for just about every category of consumer goods, and in capital goods, ex automotive, which decreased by $1.6 billion.
    • The export weakness also can be traced to consumer goods, which fell by $1.6 billion, yet almost all of that decline was related to lower exports of pharmaceutical preparations (-$0.8 bln) and gem diamonds (-$0.7 bln).
    • On a year-over-year basis, imports are down 9.2% while exports are down 5.4%.
    • The month of March marked the 14th straight month that exports have declined year-over-year.
  • New orders for manufactured durable goods increased 1.1% in March (consensus +0.5%) following a downwardly revised 1.9% decline (from -1.7%) in February.
    • Excluding transportation, factory orders rose 0.8% after declining 0.9% in February. Shipments increased 0.5% in March, breaking a streak of eight consecutive monthly decreases.
    • Shipments of nondefense capital goods excluding aircraft -- a metric used in the GDP computation -- also increased 0.5% after declining 1.8% in February and 1.4% in January.
    • Orders for durable goods increased 0.8% in March while orders for nondurable goods increased 1.5%.
    • Notwithstanding the overall increase in orders for manufactured goods, new orders for nondefense capital goods excluding aircraft -- a proxy for business spending -- were up just 0.1% after declining 2.7% in February.
    • Total inventories for all manufacturing industries increased 0.2%, which was the first increase after eight straight monthly decreases. The inventories-to-shipments ratio held steady at 1.37.
  • The ISM Non-Manufacturing Index for April was better than expected at 55.7 (consensus 54.5) and up from the March reading of 54.5.
    • It followed on the heels of the ISM Manufacturing Index report for April, which not only fell shy of economists' median estimate but also checked in below the prior month's reading.
    • The dividing line between expansion and contraction for the ISM Non-Manufacturing Index is 50.0. April marked the 75th consecutive month that it has been above 50.0.
    • The most important takeaway from the April report is that it reflected faster growth from March. That's important because the non-manufacturing side of the economy is significantly larger than the manufacturing side of the economy, and it's important because this is a second quarter number. Market participants are anxious to see faster growth after real GDP increased at a seasonally adjusted annual rate of just 0.5% in the first quarter.
    • The improvement in the ISM Non-Manufacturing Index in April was fueled by an uptick in the New Orders Index to 59.9 from 56.7.
    • In turn, the Employment Index rose to 53.0 from 50.3, marking the second straight month it has been above 50.0.
    • The Prices Index increased to 53.4 from 49.1, which is an indication that prices increased for the first time in three months.
    • The biggest drag for the month was the New Export Orders Index, which slipped to 56.5 from 58.5.

Tomorrow's economic data will be limited to Challenger Job Cuts for April and weekly initial claims (consensus 259k), which will be released at 7:30 ET and 8:30 ET, respectively. 

  • Nasdaq Composite -5.6% YTD
  • Russell 2000 -2.0% YTD
  • S&P 500 +0.4% YTD
  • Dow Jones +1.3% YTD