Good Ideas Are Scarce, Even for Pros

 | May 11, 2013 | 4:00 PM EDT
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The highly regarded Ira Sohn Investment Conference took place this week and, as usual, titans in the hedge fund world were there using their allotted 15 minutes to stake claim to an investment idea. The Ira Sohn conference was where, in 2008, David Einhorn made his case to short Lehman Brothers. We now know what a shrewd call that was.

This time around, the ideas seemed a bit scarce, in my humble opinion. There was a pitch to continue betting against the Australian dollar, and yet another one to keep shorting the Japanese yen. Both ideas are backed by valid reasons: Australia continues to lower interest rates, while Japan recently announced a multi-trillion-yen stimulus program that can do nothing but weaken the value of the currency. Yet these ideas are nothing new to investors.

Bill Ackman pitched the long case for Procter and Gamble (PG), a name he has held for a while now. The stock currently trading at $78, yet Ackman pegs intrinsic value at $128. Google (GOOG) was also pitched as a long by another participant, given the company's prodigious ability to generate cash flow. Google shares have been on a tear for the past year, and are currently trading near an all-time high of $900.

Another investor pitched Clear Channel Outdoor (CCO), acknowledging that it is a complex leveraged business that nonetheless remains valued at depressed multiples.

Perhaps one of the more intriguing ideas was small-cap pick Dex Media (DEX) from Kyle Bass. Dex Media is a $220 million publisher of the Yellow Pages directories. It's a declining business, to say the least, being on the print side of things. What Bass likes is the digital business, which is growing rapidly with little competition. (Anyone want to enter to phone book business lately?)

Given the growth rate of digital, it should eclipse the print business in two to three years. Debt is the big anchor, some $3.2 billion worth against $200 million or so in cash. Yet Dex generates nearly $300 million a year in annual operating cash flow, and pays the interest and then some. With $1.3 billion in annual revenue and nearly $700 million in earnings before interest, taxes, depreciation and amortization, Bass thinks Dex can be a 2-to-3 bagger in a couple of years if the debt can be managed.

I think the big takeaway here is that good ideas are becoming more and more rare. One either has to stick with large blue-chips for safety or really start digging into complex debt-laden companies or other types of securities in order to find attractive returns. There's nothing wrong with sitting still in cash until something more comfortable comes along.

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