Bill Ackman introduced the speaker and noted how hard it is to run a mutual fund with large assets under management and having to deal with daily redemptions.
Will Danoff, Portfolio Manager of Fidelity’s Contra-fund. Will likes to invest in simple companies. He mentioned that Bruce Berkowitz pitched AIG when he was at a Columbia conference last year, while Danoff pitched Apple.
This mining-focused hedge fund returned more than 100 percent in 2020
Delbrook Capital was up 14.1% for December, bringing its full-year return to 129.3% for 2020. For comparison, the S&P 500 was up 18%, while the SPDR S&P Metals and Mining ETF gained 16% in 2020. Q4 2020 hedge fund letters, conferences and more In his fourth-quarter letter to investors, which was reviewed by ValueWalk, Delbrook Read More
Danoff mentioned Noble energy is an attractive independent E&P. The CEO, Chuck Davidson has done a great job at finding oil and gas at a very attractive price. Danoff likes investing in companies where he has faith in the management.
Davidson recently found the Leviathan field off the coast of Israel. Noble found more gas off the coast of Cyprus. Cyprus should be able to sell gas into Israel and Europe at very cheap prices.
For Noble to be attractive, Danoff stated that one has to be bullish on oil. Danoff thinks oil will increase in price as more people enter middle class in India and China price will increase. Finding oil is becoming increasingly expensive and demand will outstrip supply. OPEC oil production is going down currently. Even though Saudi Arabia talked about raising capacity they were unable to do it. Additionally, The Saudis will need oil prices at higher prices to keep their populations happy.
Chuck Davidson was a friend of Danoff before Chuck became CEO of Noble Energy. He was running a company called Vastar. Davidson was able to grow cash flow for many years and BP eventually acquired AMACO and Vastar.
Danoff stated that Chuck really understands the business, as someone who grew up in the oil industry in Alaska. He is looking around in Nicaragua, where no one else is looking. He is also searching offshore of France for oil.
The company is still small with a $20B market cap. Companies that can grow 17% as Danoff predicts, can increase share price. The company needs to add more debt, but will be able to keep their balance sheet healthy as cash flows outpace debt increases.
It is not as complicated as Italian banks, which Weinstein pitched.
Noble has grown very quickly at very efficient rate. The cash flow growth story is getting even better. Noble operates 80% of his wells, and owns oil, gas and LNG.
Thoughts on Facebook? It is an amazing American success. 500million people use it every day. He has not seen the prospectus, so Danoff cannot comment. He met Mark Zuckerberg and the COO, Sheryl Sandberg and was impressed with both of them. He also thinks highly of the CFO. Danoff mentioned that the valuations are odd, since the the company is mature and growth cannot justify the valuation. However Danoff does not think the story is over. However he does own the company and paid $60billion, and he would say he is bullish.
Will he buy more Facebook? Danoff does not know. Danoff says since he does not know he will not do it. The market does not force anyone to buy the stock.
No one talks about valuation of business of Facebook? It is a good point that no one discusses. However internet is taking over media but companies are not advertising as much. This is why Danoff likes companies like Google and Facebook. Danoff is not sure but urges people who do not have strong conviction not to play.
With Salesforce, the IPO did not do well, but then did phenomenal a few years later. That could be the same as Facebook. There are a lot of opportunities to monetize their base. McDonalds and Starbucks are happy to be on peoples’ feeds. The advertisers like the appeal of Facebook.
Asked about Apple his top holding, is it over-owned? Apple is over-owned if one talks to a growth investor. Steve Jobs’ passing has changed the story. Danoff has met the management team and thinks they are outstanding. Danoff mentioned looking at the Apple store at Grand Central and seeing the amazing growth. The company is only trading at 10x earnings, and 25% of its market share is cash. The FCF yield is also approximately 10%. There are rumors of Iphone 5, IPAD 3. Danoff thinks the stock will go off, and thinks that the story is not over but is cautious in the post Steve Jobs era. The growth guys think Apple over owned, but value guys are finding a bargain in the stock.
Asked about thoughts on McDonalds: Danoff joked that his overlapped with Ackman’s in the company, although Ackman missed a lot of the move up.
McDonalds has massive opportunities overseas. The company has gained a ton of market share. People overseas have a different view of McDonalds than Americans do. McDonalds could bounce around, but Danoff thinks that over 10 years it will be a great holding.
Asked about Pepsi and why Coke is in Danoff’s portfolio and not Pepsi: Danoff replied likes the brand of Coke better than Pepsi, which is more about Frito-Lay. Danoff mentioned that Coca-Cola has a great distribution network and has pushed innovation. The CEO, Muhtar Kent has looked what has worked in local markets.
A lot of Danoff’s style is betting on the CEO. He is willing to bet on Zuckerberg, Kent, Tim Cook etc.
Asked about whether he liked management of Wells Fargo? Danoff stated that he is betting on both the team and culture. The Wachovia transaction was a smart one. He bought in before the big turn down in housing. However the company is now in a position to profit. Wells Fargo is buying some of the debt which European banks are selling. He thinks that the company is going to do well as the economy
Asked about Ron Johnson, and if he met him at Apple? Danoff stated that is still great company and has room to grow. It is the type of turnaround that Danoff likes. Johnson performed great in retail at Apple and Target. Danoff joked that he liked the board members including Bill Ackman.