News over the past few months has been surprisingly good, says Whitney Tilson, hedge fund manager. “We’re cautiously optimistic that things are going to get better,” he adds.
Welcome to our latest issue of ValueWalk’s hedge fund update. Below subscribers can find an excerpt in text and the full issue in PDF format. Please send us your feedback! Featuring Point72 Asset Management losing about 10% in January, Millennium Management on a hiring spree, and hedge fund industry's assets under management swell to nearly Read More
one of the biggest misses of his investment career? welcome to the fast money halftime report. whitney, great to have back.we’ll talk about all the positions that we mentioned, but let’s get your big picture thought as we sit at the highs of the day. a lot of people saying the market looks very toppy. how do you feel?well, it’s certainly had a big run so far this year. we do follow generally what’s going on big picture around the world. really the news over the past few months has been surprisinglygood. we’re still suffering the aftermath of the great recession.but we’re cause issuesly optimistic that things are slowly getting better and take any macro shocks, particularly europe, going off a cliff. the likelihood of that has receded. joe taranova with us today. what are you buying? you’re correct there weresigns in the marketplace definitely troubling. potentially this was a reversal. but what you’re seeing today is once again the euro gets the bottom that’s where you want to buy. a well defined point of reference. going short treasuries. housing data looks good. initial jobless claims, seems like the ecb is say beingkumbaya. so i think you also take a look at some of the lower dollar trades. bought some yum today. add to mcdonald’s. bk, you definitely see the correlation. the euro moves higher and our stock market at the highs while the euro versus the dollar atthe highs, as well. and i was fairly bearishes as early as 5:00 a.m. when i came in thinking that we saw copper low, we saw some relatively bearish news out of china where they’re saying it’s only going to grow at 7% which is bearish for china. but the u.s. data, you can’t deny. australia overnight had fantastic job creation and it was all in the western part of the country which is all the mining, which is everything that’s off of china. so now you have this idea that some kind of greek resolution is on the table and things look a lot better and bought spiders right before i got on the air. you’ve been shifty lately. i called myself cautious. i wasn’t saying i was bearish, but certainly cautious becauseyou’ve had these economic surprises and how much moreaccount market go up. but now it appears that we’ve got all this bad news out there. do you agree, dr. j? i do agree with bk that the market isn’t focused on some of the bad things and is invitefocused on things internal rather than external drivers. a little lift today coming from greece and a little bit of a selloff yesterday of course coming there greece. but you get the philly fednumbers, good solid numbers. and you see some of the earnings that are here, some of the stock whitney tilson carries in fact, you you look at how heavily weighted in financials andtechnology he is, and how those have performed just outperformed like crazy, those are positive signs. i agree with the guys. on the other hand, going into next week, we’re start to see some of the big retailers report numbers. i’m really cautious going into some of those specifically. target, walmart.i’m not sure we’ll like what we see. and we have a long weekend with greece make lots of rumblings and wi won’t have an answer ecb on funding until monday. i would be cautiously optimistic here, but i would not be buying with both hands. and i want to call everybody’s attention to what we were running on the above the the screen. we still are. coca-cola has increased its quarterly dividend 8.5% to 51 cents per share. you can see the move higher. highs of the day two-thirds of 1%. let me get your thought on dividend payers in general. is that a place where you are doing buying? it’s interesting. one of the most attractive areas we think in the marketplace globally today is big cap blue chips. they’re not getting a lot of respect these days.people are looking for action, what’s going to double this year.so companies like berkshire hathaway, which is one of ourlargest positions, but could you put coke, mcdonald’s, nestle,incredible companies earning profits in every currency all over the word and trading at 10 to 12 times earnings and returning cash to shareholders. if you have a five to ten year horizon, i think blue chip global franchises like that are the way to go. let’s get right to the stock. you’ve had a long relationship with, baby throueen through ups with netflix. what class and i thinked in dwhat class and i thinked inhas netfl netflix? as we did more work on the company, our view on it changed. and we’ll probably discuss this in a little bit with someone who is pretty bearish on the stock i understand. netflix is a much better company with a much more open ended up side that be we had given it credit for when we were short it. we thought it was just a commodity business, customers could easily switch and take would soon be reflected this declining subscriber numbers. so we gained a real appreciation for the business which is why we covered the short and then when the sock felltock fell 75 res%, prepared to buy this immediately. took a couple months, but it’s really rallied and i think we’re thousand back to about break even after the whole saga. the money we lost on the short side, we made aboutback on the side. you’re still as optimistic as when you went long. i like the stock in the company — i like the companyeven better since we went long a few months ago. they’ve launched in the uk and international markets, they’ve reported pretty decent quarter. so there’s been good news. the thing is though their stock price is 75% 80% higher. so it’s hard to say i love the stock as much because it’s no longer distressed like it was then. so basically this is one where we have to carefully manage the position size. as it’s run up dramatically, we’ve been trimming into that rally. still loving the company, butthere’s not as much margin of safety on the stock as a higherprice. and i got to ask you, on the way up, you’re playing it inessence from the short side and now you’re picking the bottomand it’s a good bottom that has been. there has to be some sort of fair value model that you put together on both sides of thosetrades. on the way up, where was it and where it is it now? it’s almost embarrassing to say i don’t have hard number. netflix is the way i think about it is more different scenarios, and what is it the sock price look like on the scenarios. on the down side, there’s zero. if subscriber growth goes off the cliff and they havestreaming content that they’re committed to pay, about if thesubscriber growth falls off a cliff, the equity is probably a a zero.on the other hand, if subscriber growth grows very rap lid, thiswould be a $500 or $1,000 stock. so give me worst case a ghscenario. we were comfortable buying at $77. we’re now well above that down side, it’s $7 billion market cap. there’s knotsnot as much down s. but the up side is still there if the company can execute and get back to quarterly subscribers growing million and a half to 2 million subs a quarter going forward and that’s what her coming before they shot themselves in the foot last year. this company goes from 24 million subs to 35, 40 million subs by the end of 2013 and i think the stock’s a lot higher in that scenario.