No big insights at "best ideas" hedge-fund event

Date: Thursday, May 17, 2012
Author: Svea Herbst-Bayliss, Reuters

A highly anticipated hedge-fund conference on Wednesday where managers are invited to share their "best ideas" with investors fell flat on that score.

Bill Ackman, founder of Pershing Square Capital Management, came talking about a stock he has held for a long time, retailer JCPenney Co Inc, one day after the company reported disappointing earnings and its share price sank.

Lone Pine's Stephen Mandel said his hedge fund opened a new position in retailer Kohl's Corp, whose shares are down more than 15 percent over the last 12 months.

David Einhorn, who runs hedge fund Greenlight Capital, did not unveil any big investment idea at the annual Sohn Investment Conference as he did in 2008 with his critical and prescient take on Lehman Brothers.

It was that call that catapulted the conference, a charitable event that raises money for pediatric cancer research, into a must-attend event for wealthy investors.

This time around, Einhorn threw darts at Martin Marietta Materials Inc, calling the shares over valued.

The stock immediately plummeted as much as 14.5 percent on the noted short-seller's comments, but it came back somewhat, closing down 8.2 percent.

Meanwhile, Einhorn said favorable things about Apple Inc , already a market darling.

"Apple is still penetrating markets and gaining share ... tablets still a young immature market," he said.

Einhorn said he has hard time understanding "how anyone ranks Apple as below average."

The Ira Sohn conference, held this year at Avery Fisher Hall at Lincoln Center, features some of the $2 trillion hedge fund industry's best-known managers, including John Paulson, Bill Ackman, Jeffrey Gundlach and Philippe Laffont.

Laffont, founder of Coatue Management, said he is bullish on data center Equinix Inc, which he called the "Internet backbone" sitting on "beach front property."

Larry Robbins, founder of Glenview Capital Management, said he is bullish on Tenet Healthcare Corp and Jonathan Kolatch, founder of Redwood Capital Management, recommended buying Argentine government debt.

The event features 14 hedge fund managers and market commentaries who share their best investment views and picks, with no more than 15 minutes on each presentation. The conference honors the memory of Ira Sohn, a trader who died of cancer. The first conference was held in 1996.

In recent years, the conference has become a closely watched event by traders on Wall Street and hedge funds who often jump on the shares of stocks that get selected as "best ideas." Last year, Twitter was on fire with live tweets from investors and traders attending the conference.

But investors should be mindful that sometimes a manager's "best idea" is nothing more than a one-day trade.

A recent analysis by the hedge fund industry publication AR found that roughly half of the 62 stock picks mentioned as "best ideas" at last year's conference are trading lower over the past 12 months.

And Einhorn, who called for the ouster of Microsoft Corp Chief Executive Steve Ballmer at last year's conference, is backing away from the software company. From the end of last year to the end of the first quarter, Einhorn's Greenlight Capital slashed its stake in Microsoft by roughly half.

Here are summaries of the "best ideas" offered by some of this year's featured speakers:

PAULSON

Paulson said he is long Caesars Entertainment Corp, AngloGold Ashanti Ltd and CVR Energy Inc. He said AngloGold trades at a significant discount to spot gold.

"It's an extremely attractive opportunity," he added.

Earnings have been exploding at AngloGold, Paulson said, noting that the trend is continuing.

"From an operating standpoint, this company is firing on all cylinders," he said.

CVR Energy is a merger arbitrage play that Paulson said "is a gift from Carl," adding he means Carl Icahn, the famous corporate raider.

Some of Paulson's portfolios suffered heavy losses last year and he has been working hard to calm jittery investors who might be on the verge of bolting.

EINHORN

Einhorn raised red flags on Amazon.com Inc even though the company has taken billions away from other retailers. He questioned whether it was strong enough to replace them and called its future "a riddle" while showing a slide of Jim Carrey as "The Riddler" from "Batman."

He was more explicit about Dick's Sporting Goods Inc , which he said "could soon be left in the dust."

Einhorn also said Martin Marietta Materials shares are over valued, benefiting from a one-time stimulus.

Einhorn was also down on Chinese banks.

"China's exports have been slowing, trade surplus is shrinking ... banks are becoming illiquid," he said.

GUNDLACH

While most other managers threw up slides of graphs, Gundlach preferred art work, advertising posters and credit card phrases. Painting a gloomy picture of how to solve the current economic crisis, he said the ideas and action plans by governments and central banks reminded him of a firm he used to work at.

He reiterated that his firm, DoubleLine, is long natural gas and advised the crowd to short shares in Apple and retailer Nordstrom Inc.

LAFFONT

He also said Equinix spent $2 billion creating data centers over past few years and has good free cash flow.

Laffont is also long Virgin Media Inc. He said Virgin has a high return on capital, with broadband as its most profitable segment.

KOLATCH

The Redwood Capital founder likes Argentine debt because the South American nation "has even less leverage than meets the eye." He is buying euro-dominated Argentine bonds that come due in 2033 with a yield to maturity of 15 percent.

He added that Argentina's balance sheet has improved significantly through "rapid growth and a market-imposed fiscal discipline."

ROBBINS

The Glenview Capital founder likes some hospital stocks such as Tenet. But at the same time he is shorting utilities, specifically mentioning ITC Holdings Corp.

DWIGHT ANDERSON

The Osparie Management founder said he is long Westlake Chemical Corp because he is betting palladium prices will rise more than platinum.