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Hedge fund managers name long, short bets

Date: Friday, May 29, 2009
Author: Reuters.com

Some of the country's biggest and best-known hedge fund managers on Wednesday shared their best investment and short-selling ideas with an audience of some 1,200 hedge fund executives.

The annual Ira Sohn Investment Research Conference raises millions of dollars for pediatric cancer research, but its high wattage speaker list also moves stocks. Last year Greenlight Capital's David Einhorn predicted that Lehman Brothers had more troubles than they had let on, four months before the investment bank filed for bankruptcy

Event speakers this year included William Ackman of Pershing Square Capital Management; Kynikos Associates' James Chanos; Paul Singer of Elliott Management; Lee Hobson of Highside Capital; Mark Kingdon of Kingdon Capital Management; and Stephen Mandel, chief executive of Lone Pine Capital.


Idea: SHORT Moody's Corp (MCO.N)

Einhorn, who manages $5 billion, said the parent of Moody's Investors Service undercut the value of its primary business -- assigning grades to bonds -- after giving perfect AAA ratings to fallen giants like insurer AIG (AIG.N), mortgage banker Fannie Mae (FNM.N) and bond insurer MBIA Inc (MBI.N).

"If your product is a stamp of approval where your highest rating is a curse to those that receive it, and is shunned by those who are supposed to use it, you have problems," Einhorn told some 1,200 hedge fund executives at the annual Ira Sohn Investment Research Conference.

Moody's shares fell as much as 8 percent Thursday to its lowest in more than a month.


Idea: BUY Strayer Education (STRA.O)

Steve Mandel's Lone Pine Capital, one of the largest U.S. hedge fund firms, expects Strayer Education Inc, a for-profit company operating colleges for working adults, to expand its business eight-fold over the next decade.

"Strayer will be a far larger business 10 years from now, with cash flows a multiple of today's levels," Mandel said at the annual Ira Sohn Investment Research Conference, where 1,200 hedge fund executives heard presentations on investment and short-selling ideas.


Idea: BUY General Growth Properties Inc (GGWPQ.PK)

Ackman, the biggest shareholder in bankrupt mall operator General Growth, said he could gain 13 times his investment after the company reorganizes.

General Growth has more assets than liabilities, a key to other reorganizations in which equity holders retained some or all of their investment, Ackman said.

Extending most of the company's $27.3 billion in debt for seven years would be enough to resolve its problems, he said.


Idea: BUY Bank of America Corp (BAC.N)

Kingdon said the extraordinary decline in Bank of America's share price has left it at below 5 times normalized earnings, and at about 1 times pro-forma tangible book.

Assuming Bank of America gets to what Kingdon calculates will be normalized earnings in two years, the hedge fund believes the stock will be trading above $20 a share in 12 months.


Idea: Limit use of leverage by funds, banks

Idea: Less aggressive government intervention

Government regulators should clamp down on leverage among banks and investors to prevent another credit crisis, said Singer, one of the most successful hedge fund managers for the past 32 years.

Singer observed it was highly regulated banks that fueled last year's market implosion because they ramped up their use of leverage, or borrowed money, for trading and investments.

"There is one kind of regulation that will be useful and necessary and that is a global scheme of limitations on leverage," Singer said. "The stark truth is it was not hedge funds that blew up the world, it was regulated entities or their affiliates," he said.

He also said government must resist the temptation to use its power in ways that could hurt the economy in the long term.


Idea: US housing woes far from over

Sokol, chairman of Berkshire Hathaway Inc's (BRKa.N) MidAmerican Energy Holdings and a contender to succeed Warren Buffett, warned the U.S. housing market still has a ways to go before bottoming out. His utility and pipelines company owns the No. 2 U.S. real estate brokerage, title and mortgage lending firm.

"As we look at the economy, I have to be honest: we're not seeing the green shoots," Sokol said.

If anything, the glut of housing supply could grow larger as a new wave of foreclosures and pending sales breaks on the market. Backlogs of unsold houses is probably twice as large as reported by government agencies and could get worse as more foreclosures hit. As a result, existing housing markets may not be balanced until the middle of 2011.


Ideas: BUY Valeant Pharmaceuticals (VRX.N)

BUY Hologic (HOLX.O)

BUY Life Technologies (LIFE.O)

Healey, whose $3 billion firm is the largest investor in health care, drug and biotech, said these stocks would take off as investor worries about potentially harmful new regulation under Obama eventually fade -- much as they did during the Clinton Administration. He sees health care growing to represent 20 percent of U.S. GDP by 2018.

In terms of specific stocks, Healey said Valeant has a promising epilepsy drug, retigabine, that is significantly undervalued by Wall Street. Healey sees the stock doubling to $40 to $50 a share in the next 12 to 18 months

Hologic is a medical technology company that produces items used in medical research. He sees the shares doubling from current levels.

Life Technologies, created by the merger of Invitrogen and Applied Biosystems, has 60 percent upside thanks to merger synergies and higher government spending on health care research.

(Reporting by Joseph A. Giannone and Herbert Lash; Editing by Tim Dobbyn)