At Ira Sohn Conference in London, some of the world’s leading hedge fund managers lay out their picks for the best and worst stocks in the current marketplace. We also covered the 2013 Invest For Kids Conference with notes from Leon Cooperman, Steve Eisman, Jeff Gundlach, Marc Lasry, Steven Kuhn Nelson Peltz, Rick Rieder, Dinakar Singh, Sam Zell, and Stephan White. ValueWalk also notes from the Great Investors’ Best Ideas (GIBI) Investment Symposium in Dallas.
Ira Sohn Conference: Chris Hohn
Chris Hohn of The Children’s Investment Fund, picked two newly privatized companies, EADS NV (EPA:EAD) and Aurizon Mines Ltd.(USA) (NYSEMKT:AZK). The Children’s Investment Fund was allocated a large portion of Aurizon stock when it came to market, on the condition that the fund help improve company performance.
Aurizon went public with zero debt, impressive for a railroad company with approximately $8 billion of assets, so naturally the Fund has been pressuring Aurizon to increase leverage. Furthermore, Aurizon is driving through margin growth by renegotiating contracts with suppliers. All in all, Chris Hohn forecasts that the company’s EPS will expand 300% through 2017.
Chris Hohn’s other pick was aerospace contractor EADS. EADS has been poorly managed for years but the company’s aggressive attack on Boeing’s market share has paid off. EADS now holds 50% of the market for commercial aircraft production. What’s more, the company has plenty of space to cut costs and drive profitability as market barriers to entry are about as high as they come. Indeed, EADS is already planning an aggressive cost cutting strategy within its defense division and has committed to buy back around 10% of its shares outstanding over the next 18 months. There is also a substantial upside on offer here as EADS currently trades at a significant discount to Boeing, despite the fact that the two have a duopoly over the commercial aerospace sector.
Ira Sohn Conference: Eashwar Viswanathan Krishnan
Eashwar Viswanathan Krishnan, Managing Partner of Tybourne Capital Management put forward a good case on media companies within Asia, Indonesia and India in particular. According to Eashwar, advertising spend within developed nations is around 1% of domestic GDP per year. However, within India and Indonesia advertising spend still only accounts for 0.3% of domestic GDP per year. This gives a lot of room to catch up and Tybourne Capital Management is seeking to capitalize on this trend. The funds strategy has been to seek out owner operated companies with management ownership and overly depressed valuations.
Eashwar highlighted two main companies for this play, firstly, PT Media Nusantara Citra TBK (OTCMKTS:PTMEY), which captures 42% of Indonesia prime-time television audience and owns the country’s number one television channel. Secondly, Indian Zee Entertainment Enterprises Limited (NSE:ZEEL), a key player in the Indian media market, owning the largest Hindi language content library.
Ira Sohn Conference: Masroor Siddiqui
Masroor Siddiqui, Managing Partner, Naya Management LLP had two tips, both a long and a short play. For the bulls, Masroor recommended Salvatore Ferragamo Italia SpA (BIT:SFER), a luxury Italian goods producer, which trades at a discount to other luxury goods sector peers. Ferragamo has plenty of scope to cut costs and improve profitability, so Naya believes that the stock can rise 40% from current levels.
Naya is also short Essilor International Cmpgn Gnl d’Opq SA (OTCMKTS:ESLOY) (EPA:EI), an ophthalmic lens producer, which has seen its valuation rise rapidly and disconnect with underlying earnings and revenue growth during the last year or so. What’s more, the company is facing increasing competition from peers and margins are collapsing.
Ira Sohn Conference: Julian Sinclair
Julian Sinclair, Chief Investment Officer Talisman Global Asset Management Limited put together a great case for Tata Motors, owner of Jaguar Land Rover. Talisman believes that 80% of Tata’s sales are now Jaguar Rand Rover and Tata Motors Limited (ADR) (NYSE:TTM)’s low valuation places almost no value on the Jaguar Range Rover brand. According to the numbers Julian Sinclair produced, the Jaguar Land Rover brand is worth around $17 billion alone, similar to Tata’s current market capitalization. In addition, based on these numbers, the luxury car maker trades at only six time forward earnings. Jaguar car sales are expected to expand 20% during the next five years and CAPEX has reached inflection point, so EBITDA margins should expand 300-400 bps through 2015.
Ira Sohn Conference: Mala Gaonkar
Mala Gaonkar, Managing Director of Lone Pine Capital LLC picked QUALCOMM, Inc. (NASDAQ:QCOM) as her play. She liked the company’s strong position within the semiconductor market and believes that the company is well placed to ride the worlds growing demand for smart phones. Qualcomm’s royalty revenues are also attractive.
Ira Sohn Conference: Ross Turner
Ross Turner, founder of Pelham Capital argued the case for DCC a UK based supply and distribution company. The company’s main pull is its oil distribution business, which makes up about 50% of revenues but is growing rapidly. Indeed, the company is growing through bolt-on acquisitions as the market for oil distribution is still highly fragmented. DCC is able to buy up smaller firms, which are usually family owned and almost immediately realize cost synergies. DCC is achieving around a 18% return on capital by using this method of growth and the company is currently trading at a free cash flow yield of 8%. As DCC only has a 18% market share within the UK there is plenty of room for growth. Going forward, 15% annual earnings growth is expected and Ross thinks the stock can nearly double from here.
Ira Sohn Conference: John Armitage
John Armitage, Chief Investment Officer of Egerton Capital had two financial plays. Firstly, Nordea Bank AB (STO:NDA-SEK), a boring Scandinavian back, which does not take risks and is targeting slow growth, a steady return on equity and capital return to investors.
Mortgage service company Ocwen Financial Corp (NYSE:OCN) was also recommended thanks to the company’s strong free cash flow, sector leading performance and room for growth through acquisitions. An improving US housing market was cited as the company’s key catalyst going forward.
Ira Sohn Conference: Andrew Weiss
Andrew Weiss, President and CIO of Weiss Asset Management, took a more top-down approach to his tips and recommended South Korea. South Korea has a well developed infrastructure and high quality of graduates entering the work force. Weiss also commented on the opportunities that North Korea could offer the South, these came in the form of cheap labor and more than nine trillion dollars of natural resources. Thanks to mismanagement and poor corporate governance, South Korean companies are trading at low valuations but there are now huge changes going on within the country, making managers more accountable for their actions. This should drive a re-rating of the country’s market in the medium to near term. The preferred way to play this trend is via South Korean preference shares, which currently trade at a significant discount to their ordinary peers.
Ira Sohn Conference: Nicolai Tangen
And finally, Nicolai Tangen, founder and CEO AKO Capital tipped Experian. Experian plc (LON:EXPN)’s services have been in demand during the past