GIBI Notes: Price, Hoisington, Gayner, Akre, Gabelli



Below are some brief notes from Great Investors’ Best Ideas (GIBI) Investment Symposium in Dallas, held on 10/29/2013. The annual event began in 2007 when friends, and neighbors, John Neill and Frederick “Shad” Rowe came together to create an investment event to benefit two causes that they are passionate about: The Michael J. Fox Foundation for Parkinson’s research and the Vicerkery Meadow Youth Development Foundation. The conference also featured some great speakers including Michael Price among others. Check out our notes below (also see our notes from The Invest For Kids Conference).


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John Train: Author of several books including Money Masters of Our Time. He said most of the successful investors invented a new approach to investing. Examples provided were T. Rowe Price Group, Inc. (NASDAQ:TROW)– Growth stocks, Templeton – Global investing, Phil Carret – OTC stocks, Jim Rogers, Tweedy Browne, Buffett to name a few

He said growth investors have to be dreamers who can see 5 years ahead while value investors have to be like accountants. Warren Buffett sees companies as financial structures.  To be a good value investor, you have to have the mind of an accountant.  To be a good growth investor, you have to be some sort of a dreamer. He told a story of how he went to go see Warren Buffett for the first time.  Someone offered WB a glass of wine, he said he’d rather have the $$$.  Money mind = Mathematical Mind.  Doesn’t make the most attractive person.  WB found the float of insurance companies.   1st words of Albert Einstein when he was 4 years old:  he said this soup is too hot.  They asked him why he had not spoken until now.  Einstein said, “Until now everything has been alright.”

Boone Pickens: BP Capital.  Last year pitched National-Oilwell Varco, Inc. (NYSE:NOV) and Pioneer Natural Resources (NYSE:PXD). He recommends holding on to both.

First idea today: Diamondback Energy Inc (NASDAQ:FANG).  Market cap $2.5b,  Net cash $82m, no Debt. EBITDA $353m. EV/EBITDA is 6.8x. It has 100% production growth and should be worth a lot more.

Second idea: Basic Energy Services, Inc (NYSE:BAS). It’s an energy service company at 5.4x EV/EBITDA. Permian activity is increasing. Rig counts will increase and excess capacity has bottomed.

Karen Finerman: Author, on CNBC show Fast Money and runs a value oriented hedge fund, Metropolitan Capital Advisors. Idea is drilling company North Atlantic Drilling. Spun off from Sea Drill, who is the largest shareholder. 5 semis, 3 Jackups, 1 drill ship. 1 more under construction. Market cap $2.2b, Debt $2.5b. $3b backlog. Customers include Exxon Mobil Corporation (NYSE:XOM), Total SA (NYSE:TOT), Statoil ASA (NYSE:STO), Royal Dutch Shell plc (NYSE:RDS.A) (NYSE:RDS.B), ConocoPhillips (NYSE:COP). Has a 10% yield. One of the cheapest companies in the industry. Catalysts include U.S. listing, dividend increases. Projects a 40% one year return.

North Atlantic Drilling, spin-out of Seadrill Ltd (NYSE:SDRL) in early 2011.  $2.2B market cap.  Fleet is certified to operate.  Many of these ships are built with contracts in hand.  Rate spread of Norway vs Non-Norway is huge.  Locked in cash flow.  $3B backlogs without options.  Counterparties:  Exxon Mobil Corporation (NYSE:XOM), Statoil ASA (NYSE:STO).  John Fredriken’s SDRL is the largest shareholder.  Know who you are in bed with.  Simply best steward, P/E cash flow.  Says it’s cheap, cheap, cheap to EBITDA.  Likes the dividend yield, sizeable dividend likely to grow, has vessels under construction getting into the water soon.  Mentions Vantage Drilling Company (NYSEMKT:VTG) & Ocean Rig UDW Inc (NASDAQ:ORIG).  Know who you are in bed with.  Google George Economou, Self Dealing.  CEO of ORIG.  NADL doesn’t have a US listing.  I believe post IPO, NADL will trade close to a SDRL yield.  40% return over 1 yr.  NADL 8% yield by yr, end.  NADL.NS (OTC Norway),  unique niche play, very attractive valuation, catalyst IPO, limited downside from sizeable backlog with highest quality.  IPO won’t be that much dilution.  File in Nov. and you will start to see the co. appreciate.

Chuck Akre: Talks about their approach to investing and the 3-legged stool.  He talks about 6 traits of a good investor as per Buffett.

Animated and controlled greed, patience, independence, self-confidence and rational, accept what you don’t know and be flexible but don’t overpay.

Characteristics of business Buffett likes: Above-average ROC without use of leverage, understandable business, cash generating, franchise business, don’t need a genius to run it, good management, “royalty on growth of others”.

3-legged stool:

1)      Business model: High ROIC, Why does the business produce that?

2)      Management: Operation and highly ethical. Thinks at per share level.

3)      Reinvestment: past uses of FCF.

Finally, don’t overpay.

Ideas: Moody’s Corporation (NYSE:MCO) 26% ROE. P/FCF is 19x but will be more like 11x in few years. Pricing power. Oligopoly.

Second idea: O’Reilly Automotive Inc (NASDAQ:ORLY) Auto parts. Was regional. Bought CSK. Now buying back shares at 6% per year. Took on some debt to do so.

Michael Price: Why buy an index fund when you can pick stocks? Mocked DFA who has a Nobel winner – basic premise is that markets are efficient. He says they are anything but efficient. He said that smart investors have sold some stocks and then they have been taken private. Example: H.J. Heinz Company (NYSE:HNZ) sold by Peltz at $60 and then taken private in the $70s. Why? Maybe because large U.S. companies are not run very efficiently and someone else can run them better. Maybe that is the next thing that can move stocks up. Mentioned PepsiCo, Inc. (NYSE:PEP), E I Du Pont De Nemours And Co (NYSE:DD), Mondelez International Inc (NASDAQ:MDLZ) in passing.

Idea 1: Hospira, Inc. (NYSE:HSP). He pitched this at London Value Investing conference earlier in the year.  Stock went from $10b in market cap to $5b. FDA shut down its largest plant. Growth investors sold to value investors. He always looks for litigation or government action. Stock has recovered over the year to $40 now. On $3 in EPS. He thinks EPS can go back to $4 and 15x multiple gets you back to $60.

Second idea: Songbird Estates plc (LON:SBD). Stock is at 1.5 pounds. NAV is 2.2 pounds. Debt free. Owns real estate. In 1-2 years minority investors could be taken out.

Last idea: Dolby Laboratories, Inc. (NYSE:DLB). $800m in Cash or $5 cash/share. Stock earns royalty stream. $3 in cash eps. Stock at $35. Basically 10x. Royalty income streams get higher valuation. Mr. Doly passed away last month and is survived by 2 sons. Stock pays no dividend. Family could sell out. Getty Images was taken private at a higher multiple. PCs are not dead and Dolby will participate with both PCs and tablets.

Caroline A. Cooley: Idea was Macquarie Infrastructure Company LLC (NYSE:MIC). High yield. Revenue for infrastructure is correlated with economy. Dividend could be increased giving 6.3% yield. She used a dividend valuation model to arrive at a $75 price target, 45% return.

In 2009, 65% Americans invested in stocks.  Today, 52% of Americans invest in stocks.  US Treasuries:  negative real rates.  GIBI Idea #2:  Buy Forever Stamps.  Grow more than treasuries in your vanguard account.  GIBI Idea #3:  Tobacco bonds.  Muni market vs. corps. Liquidity in muni markets.  Yield of Golden State (CA) tobacco bonds.  1) Market drivers, 2) settlement/arbitrational reform/Fund flows, 3) Consumption Trends.  GIBI Idea #4:  Event Driven and activist investing changes in valuation.  241 activists campaigns in 2012.  187 activist campaigns in 2009.  Staggered boards have declined.  GIBI Idea #5:  Macquarie Infrastructure Company LLC (NYSE:MIC):  $3B market cap, owns and invests in infrastructure building, downside protection.  Revs. of infrastructure companies are correlated with inflation.  High yield dividend, catalyst for yield appreciation.  40% Atlantic Aviation, 40% International-Matex Tank Terminals, 16% Hawai’i Gas, 3% district energy, 1% MIC Solar.  MIC:  why is it undervalued?:  penalty box:  2009 dividend cut, limited sell-side coverage.  The company has diverse operations.  Stock price valuation based on dividend and yield.  Expanding # of FBO’s they own.  Not 1st inning, maybe 5th inning.  Event Driven strategies are her focus.

Tom Gayner: Pitched GE. He pitched this in the first GIBI conference in 2007. It was a mistake but General Electric Company (NYSE:GE) survived. Markel was able to average down and reduce cost basis. Now GE business is good and at 14x P/E and 3% yield. Play on growth of emerging economies population and wealth creation. Markel still owns GE.  $23/shr. Avg. cost basis now.  We live by:  Don’t take on too much debt & always live within your means.  He’s going to continue to learn, but he will also continue to make mistakes.

Van R. Hoisington: Bond manager from Austin. Pitched 30 year treasuries. He says interest rates and inflation are not going up in 3 years.

Tom Russo: He invests in compounders that have secure cash flow and long time horizon. Only added 2 stocks in 2010 – BUD and MA. He looks for capacity to reinvest and capacity to suffer. Idea is Nestle SA (VTX:NESN) at mid teen multiples where profits are understated due to investments. I like to look for businesses like See’s Candy.  Musings of global value equity investor.  Value investing, 50 cent dollar bills.  Find your own path and stick to it.  Last Portfolio Adds:  June 2010 BUD & MA.  Reinvest & grow for a long time.  70% of his customers are families.  Focus is compounding over time.  Capacity to reinvest, 2008 market collapse.  Capacity to suffer.  Invest for the long-term.  Market volatility is long-term investor friend.  Owns a lot of European companies.  Activism shortens time horizon.  Capacity to suffer.  Berkshire Hathaway Inc. (NYSE:BRK.B):  Owns Geico, equity index put options, extraordinary cautious, short-term deposits.  Nestle has the capacity to re-invest.  Higher incomes lead to higher added-value.  $800MM manufacturing value-added in food consumption.  A lot of brands and businesses underreporting income & already spent building out the brands.

Mario Gabelli: Idea is Cablevision Systems Corporation (NYSE:CVC). Industry consolidation. Malone invested in Charter and may make a move. Pricing power is what it’s all about.  That’s why you buy General Electric Company (NYSE:GE), right?  He talked about the price of 5 carat diamond from 1977 to today.  $64,550 in 1977.  $7.2MM today.  Campbell Soup Company (NYSE:CPB):  $64,550 in 1977 is $5.43MM today (13.1% compounded return).  Berkshire Hathaway Inc. (NYSE:BRK.B) $64,550 invested in 1977 would be $107MM today (22.4% compounded return). Says Yellen will be Bernanke on steroids.  Cablevision Systems Corporation (NYSE:CVC) is his stock pick.  He says private market value is $23/shr. vs stock price less than $16.  Likes it because of PMV & catalyst.  John Malone.  The whole name of the game is scale.  Will the Dolans sell?

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