Real Money's Carleton English and James Passeri will be keeping readers up to date with the latest news from Wednesday's annual Sohn Investment Conference, with the market outlook of some of Wall Street's most influential investors.
Highlights from the morning's "Next Wave" segment included a presentation by David Rosen, a former investor with SAC Capital, on his firm's long position in Kraton Performance Polymers (KRA). Nick Danaher, founder of Domando Capital, and Precocity Capital's Nick Tiller presented their bull takes on TripAdvisor (TRIP) and Royal Dutch Shell (RDS.A), respectively. Meanwhile, Genevieve Kahr of Ailanthus Capital Management went short on inflight Internet provider Gogo (GOGO), citing mounting competitive headwinds, and characterizing the company as "a minnow swimming with sharks."
The first session of the New York conference kicks off at noon and will include Glenview Capital's Larry Robbins, Muddy Waters Capital's Carson Block, and John Khoury, founder of Long Pond Capital.
The second session, beginning at 1:55 p.m., will include Starboard Value CEO Jeffrey Smith, VR Capital's Richard Deitz, Duquesne Family Office's Stanley Druckenmiller, and DoubleLine Capital CEO Jeffrey Gundlach.
The final round of speakers kicks off at 4 p.m. and includes PointState Capital's Zachary Schreiber, Commonwealth Capital's Adam Fisher, and David Einhorn, founder and president of Greenlight Capital. And the day will wrap up with a presentation by Kynikos Associates' James Chanos.
The Sohn Conference is often a hub of market-moving intelligence, such as last year's presentation by David Einhorn, in which his bearish take on the fracking industry helped send shares of Pioneer Natural Resources (PXD) into a 4% slide on the day.
12:36 p.m. ET
- Robbins: Checking Up on Last Year's Picks
In his opening remarks, Larry Robbins of Glenview Capital Management warned that his presentation, which he entitled "Get a Grip," was not going to include anything actionable or tweetable. Instead, Robbins made the distinction between investors and traders and urged investors to stay the course, despite eight months of bumpy returns throughout the broader market.
Robbins also took a quick swipe at billionaire investor Warren Buffett and others who have been critical of hedge funds saying, "If you're going to criticize hedge funds for being short term, you can't criticize us for our short-term performance."
Despite Robbins' warning that his presentation wasn't going to be actionable, he revisited his choices at last year's Sohn conference: his long cases for AbbVie (ABBV), which is down 5% over the last year, and Brookdale Senior Living (BKD), which is down 48% over the same period. Despite the drops, he still believes there is tremendous opportunity in those plays, given the fundamentals of both companies. In fact, he says that entering at the depressed stock price makes the investment in both companies all the more compelling.
In the case of AbbVie, Robbins points out that the drugmaker was able to grow earnings 29%; the only thing that has gone wrong is the slight drop in the stock price. As for Brookdale, Robbins acknowledged difficulty in the industry and changes to management but says the fundamentals are sound and do not merit the 50% drop in stock price.
Despite a difficult environment, Robbins offers the following advice to investors: "What's the lesson? Just hang on tight."
12:43 p.m. ET
- Block Is Short Bank of the Ozarks (OZRK)
Shares of Bank of the Ozarks are falling in midday trading after Muddy Water's Carson Block stepped up at Sohn and revealed his fund's short position in the company.
"It is cracking right now ... their balance sheet is under severe pressure," Block says, highlighting the bank's difficulties in funding its rapidly expanding loan book. "They are getting pushed into making bigger and bigger acquisitions," he adds. "The other scary part of this model is the loan book itself."
According to Muddy Waters, the Little Rock, Ark., bank has 35% of its loan portfolio in construction loans, which are "really risky," Block says, as developers have a habit of drawing excessive cash and leaving banks with unfinished projects.
This is especially true because the bank's loan-to-value projections on its construction lending are inordinately weighted on finished projects and not "bets," which often do not require personal guarantees from contractors, Block says.
Ozarks may also be running into a headwind with Basel III regulations in how it weights its risk-to-value metrics in estimates to investors, Block says.
"It's getting harder for them to grow earnings," he said. "Funding costs have gone up," forcing the company to pay about 2x the book value of banks that it is acquiring to stave off the balance-sheet pressure of its expanding loan book, he says.
By Muddy Waters' estimates, Bank of the Ozarks has too great a lending concentration in real estate and construction and will be unable to adjust to its "unsustainable" earnings growth.
1:13 p.m. ET
- Khoury Is High on Hyatt Hotels (H)
There's a lot of talk about the decline of the hotel industry as Airbnb continues to take travelers' dollars, but John Khoury of Long Pond Capital sees things differently. While some hotels may be on the decline, there is tremendous value elsewhere, which is why he spoke of the growth potential he sees in Hyatt Hotels. The stock, which currently trades in the $40s, could go as high $79, Khoury says.
Khoury refutes the notion that hotels are out of favor and points out that there is tremendous variability in the hotel space -- yet they all trade the same. Hyatt, Khoury says, has high-quality assets and represents the higher end of leisure of business travel, which should be well-insulated from threats from Airbnb. (Lower-quality hotels will not fare as well.) Also not hurting Hyatt It is significantly less levered -- by more than 60% -- than its low-end peers. (Khoury declined to name names on stage but said he'd be happy to talk about the weaker competition offstage.)
Looking to the fundamentals, Khoury points out that the company has grown EBITDA by 66% over the last six years. The company owns several trophy properties but it also gets revenue from third parties to be part of the Hyatt system. On this last point, Khoury invokes Warren Buffett, saying the ideal business is one that takes no capital and grows.
And if investors needed any other reason to invest in the hotel operator, Khoury points to the famed Pritzker family, which founded the hotel chain. Under their leadership, the company does not give guidance, which means that it is managed for the long term. Khoury also notes that the family has been buying back stock and that the public float of the company has decreased by 40%.
1:17 p.m. ET
- Palihapitiya Gushes About Amazon (AMZN)
Venture capitalist Chamath Palihapitiya presents his bullish take on Amazon (AMZN), suggesting the ecommerce giant has formed somewhat of a monopolistic position in Silicon Valley as startups gravitate toward its many services.
Based largely on Amazon's proprietary cloud technology, Amazon Web Services, Palihapitiya says a "multi-trillion monopoly could be being overlooked" in CEO Jeff Bezos' sprawling empire.
The founder and CEO of Social Capital projects 17% a year in growth of units sold over next 10 years.
Meanwhile, Amazon Web Services, or AWS, essentially represents "a tax on the Internet," says Palihapitiya, because tech companies are becoming increasingly forced to use the cloud to compete with rivals.
"He is going to invent things," he says of Bezos' grasp on two so-called "monopoly customers": Amazon's retail shoppers and AWS clients. Bezos "has been telling us in as many ways possible that he is building the most durable company in the world," he says, emphasizing the CEO's revamping process is "just beginning."
"If you believe in the Internet, you have to believe in Amazon," he says in closing.
- The conference went into intermission until the next session, which is scheduled to resume at 1:55 p.m. ET.