Bloomberg Brief‘s September 30th edition of Hedge Funds featured an interview with Impala Asset Management CEO Robert Bishop. In the interview, Bishop noted Impala focuses on basic industries including industrials, materials and energy. He also noted that the firm’s purview also included the consumer discretionary sector such as homebuilding, home-improvement retail and automobiles.
Bishop describes Impala Asset Management’s stock-picking style as trying to “identify the right companies that are going to be models for the rest of their sector. We tend to be early.” Bishop who currently manages $3.2 billion, was an analyst at Maverick Capital, Soros Fund Management, Tiger Management and other top funds before launching Impala.
He also noted, “We like the 10 percent down and 70 percent up opportunities. We’re willing to suffer through the 10 percent down if we think there’s a good long-term story there.”
Recent investment themes for Impala Asset Management: Airlines
Bishop said that Impala Asset Management invested in the airline sector more than two years ago. He notes: “We suffered through the first eight to nine months of that investment and then it finally started to work. For years, even Warren Buffett said his worst mistake ever was investing in airlines and that seemed to be very true up until 2012. But then the U.S. airline industry consolidated from six players to three players. The airlines had a good citizen like Delta Air Lines, Inc. (NYSE:DAL) to demonstrate that performance is dependent upon free cash flow generation and getting the airline to function well so that customers like it. That became the model for the industry. It’s an area we still like.”
He finishes his thoughts by saying: “If some of the others can start to show more of the positive effects of merger synergies and of managing their operations, well, there are probably opportunities there.”
Impala Asset Management: Oil and Gas Infrastructure
Here Bishop focuses not just on the fracking revolution and O&G companies doing well again, but says that firms providing the infrastructure for al the big projects on the drawing board are the place to be.
Bishop notes: “…you have to look for all the industries that pop up around this cheap energy source. For example, you’ll see pipelines being built and an increase in railcar demand as you try to move all this energy. There is between $100 and $150 billion in planned U.S. petrochemical investments over the next three to four years. We’re at the phase where everyone has completed the planning for these projects…and some of the companies that manufacture the pumps and valves, etc. are going to make more money. The engineering and construction companies that win these projects are going to have a nice bump to their longer term outlook.”
Impala Asset Management: Homebuilders
Last but not least Bishop focuses on homebuilders. He says :”We like homebuilders. Part of the reason they are underappreciated right now is because they have much more land inventory than they really need. It’s like a commodity. Other builders focus on hoarding that commodity and hoping that the value goes up. Some of these builders have enough land inventory for the next six to seven years, when they should really only have inventory for four or five.”
Bishop argues the worm is turning in that well-managed firms such as Lennar Corporation (NYSE:LEN) are going to reduce their land-to-sales ratios soon. He notes: “…we expect they will be generating free cash flow yields of 15 to 20% per year, which should start to change the way investors view the industry.”