Value Investing Congress Blog

David Nierenberg, D3 Family Funds

Nierenberg is a long-term investor, with an average holding period of 7 years, in what he described as the microcap GARP space:

• Busted growth companies seen as dead money, up to $1.2 billion market cap
• Takes large stakes, average 12.8%
• Concentrated portfolio of 10 to 12 names
• Seeks multiples, not percentages in terms of returns
• Works constructively with management and boards in order to improve companies
• Believes uncertainty does not equal risk of loss
• Looks out longer than the Street is willing to
• Considers what “could be” in terms of a company’s future not just “what is”

One of Nierenberg’s favorite holdings is Move Inc (MOVE), which operates in the online media space, and owns Realtor.com:

• Leading market share in their niche
• Relationship with NATIONAL Association of Realtors
• Recovering from years of bad management, and a history of losses
• Currently trading at $1.59, EV of $195 million
• Cash/Short term investments $48 million, no LT debt
• Poised to be beneficiary of internet real estate advertising/bottoming housing market
• 3 year Price target $10-$12.80

Mohnish Pabrai- Pabrai Investment Funds

Pabrai highlighted research from Joel Greenblatt that shows the potential opportunities that spinoffs offer investors:

• Outperform indices by about 10% for years after being spun out
• Largest gains typically in the second year
• Can unleash entrepreneurial instincts of management
• Typical spin-offs are well capitalized, have ample liquidity

Pabrai delivered a very detailed and thought provoking analysis of one of his favorite ideas; Portugal based Sonae Capital, which was recently spun-off by Sonae Group.

• Former Sonae Group head, and Portugal’s second richest person Belmiro Mendes de Azevedo is at the helm of the spinoff
• Sonae Capital owns 100+ properties in Portugal, several other businesses and JV’s
• Flagship is Troia Peninsula, with 18km of white sand beaches, finest in Portugal
• Troia has 1100 acres of developable property, best golf course in Portugal, resort
• Pabrai believes Troia alone is worth between 600 million and 1 billion Euros
• Soane Capital as a whole may be worth 950 to 1.5 billion Euros net of debt
• Current market cap is 170 million Euros
• Pabrai sees this a potential “dollar bill” for 12 to 20 cents

Jonathan Heller, CFA

Disclaimer: I have no positions in any of the companies mentioned

Leon Cooperman, Omega Advisors

Cooperman his presentation with a somewhat optimistic (or “realistic” as he called it”) view of the current state of the markets. Cooperman believes that the bulk of the damage has already been done to the markets, and was hopeful for several reasons:

• Evidence that housing is finally bottoming
• Residential investment is at recession lows
• Housing affordability is improving
• Equity valuations are reasonable, if not better
• Price to replacement cost book values are at below average
• ROE for S&P 500 is near historically high levels
• More companies (13% of S&P 500) are yielding more than 10 year Treasury—most in 15 years
• Yield curve is positively sloped
• Corporate America is in good shape from a balance sheet perspective- Debt to capital near 30 year lows
• Liquidity is high (although there is fear to use it)
• Inflation expectations are receding.

Cooperman likes Atlas America (ATLS), which owns three other publicly traded MLP’s (Atlas Energy Resources (ATN), Atlas Pipeline (APL), and Atlas Holdings (AHD). Currently trading at $23, Cooperman believes the entire package could be worth $30-$77.

Aaron Edelheit- Sable Value Management

Edelheit presented at the Value Investing Congress West last May, and his deep passion and conviction for value investing was equally apparent in New York. Edelheit pointed out the outstanding returns from the small cap value area of the market since 1970 (16.2%), but noted the disinterest here from many investors. He cited the following reasons for this situation:

• Small Cap Value can be very boring to investors
• There may be long periods with no news
• Illiquidity associated with SCV companies scares investors
• Too much volatility
• Little or no analyst coverage

One of Edelheit’s favorite ideas is Photo Channel Networks (PNWIF), which provides online digital photography solutions for retailers.

• At $1.50 per share, trades at 9 times eps (7 times 2009)
• Rapidly growing, revenue up 250% last quarter
• New customers Sam’s club, Costco, Kodak China
• Digital printing business growing rapidly (64% last year)
• No analyst coverage

Jonathan Heller, CFA

Disclaimer: I have no positions in any of the companies mentioned

Boykin Curry, Eagle Capital

Curry led off day 2 at the Fourth Annual New York Value Investing Congress, with a presentation on “Time Arbitrage”. Curry believes that investors are still too focused on short-term company performance, which leaves plenty of opportunities on the table for those wiling to do their homework, and look past the next 8 quarters.

Curry sees this prevalent short-term focus as an arbitrage opportunity of sorts, one that unlike most arb scenarios is actually widening. He cited an unbelievable statistic, that being that 81% of questions asked during quarterly earnings calls are focused on the next 12 months, while just 19% are longer-term oriented.

Curry cited American Express as a great example of a company that is currently mispriced due to the shortsightedness of Wall Street and the investment community at large:

• Amex is not a credit card company-just 20% of revenues
• Amex is the world’s largest buying cooperative of affluent buyers
• Analyst haircuts to forward estimates don’t equate to the reduced market cap they place on the company
• Credit crisis/chare off concerns are overdone for Amex

Kian Ghazi, Hawkshaw Capital Management

Ghazi presented “ Investing With Conviction”. Hawkshaw’s Philosophy is centered on intensive, “deep dive” oriented research:

•  Concentrated long/short US equity portfolio
• Proprietary investigative research
• Value focused
• Identifies high quality, “one of a kind” franchises
• Ensures that they are financially strong (ample cash, FCF)
• Asks; “What could go wrong and send stock 30% lower, that would cause us to not want to but more?

Ghazi presented the case for Universal Technical Institute (UTI), which provides in-depth auto technician training.

• Stock has been beaten down in recent years due to excess capacity, falling enrollment, poor marketing strategies, and rising tuition
• Company turning things around: Congress Increased student loan limits
• Currently at $15, Ghazi believes company could earn $2.00 per share in 2009, could be worth at least $30

Jonathan Heller, CFA

Disclaimer: I have no positions in any of the companies mentioned

Carl Icahn visits the Congress

Value Investing Congress attendees got a great surprise today, when Carl Icahn was added to the speaker slate to close out day one. The ever unflappable Icahn was in rare form, utilizing his Congress visit to promote his launch of a national shareholder activism group, the United Shareholders of America.

Icahn was fired up over recent market troubles, and blamed the boards of directors of US corporations, for not holding company executives accountable for their actions. Icahn relayed some of his experiences in boardrooms, unbelievable tales of what really goes on behind closed doors.

Icahn also stated that we, as shareholders are partially responsible for boardroom shenanigans because we have let bad behavior proliferate, something that Icahn hopes to change with the launch of his United Shareholders of America.

Icahn genuinely believes that enough pressure from shareholders can force legislative change. When asked whether there were any countries whose corporate governance procedures were better than those in the US, Icahn quickly cited Canada, the UK, and Australia.

Without a doubt, Icahn’s presence was a great way to end day one of the New York Value investing Congress. Hats off to John Schwartz and Whitney Tilson for booking Icahn for this event.

Jonathan Heller, CFA

Jeffrey Schwarz, Metropolitan Capital Advisors

Schwarz made the case for buying the best company in a given industry, which is not always the biggest, and not always the cheapest. Schwarz challenged investors to remember that they are investing for the long haul, and the importance of making sure you, as an investor will be there (for the long haul), and making sure the company will be as well.

Among the names Schwarz likes is Domtar Corp (UFS):

• Current price $3.35
• #1 producer of uncoated free sheet in North America
• 34% market share
• Low cost provider
• FCF yield: 18%
• FCF $390 million ($.76/shr)

Thomas A Russo, Gardner, Russo and Gardner

Russo gave a compelling presentation on global value investing. Russo follows a long-only philosophy, and wants to hold businesses “forever”, and concentrates on food, beverage, tobacco and other consumer products companies, with good management.

Russo believes that pessimism regarding rising commodity costs as it relates to consumer products companies is overblown, especially outside the US, where consumers are willing to pay up for quality.

Russo cited Nestle as one of the names he currently likes:

• Attractively priced
• Trades at 11 times food-only net income
• Stock Buyback (20% of shares)
• Selling Alcan unit
• Owns 25% of L’Oreal

Alexander Roepers, Atlantic Investment Management

Roepers gave an outstanding presentation on shareholder activism, and gave several examples of his own involvement in activism. Roeper’s investment philosophy and process involves investing in companies with the following attributes:

• Market cap between $1 billion and $20 billion
• Large stakes with ample liquidity so that can be unwound quickly if need be
• Investment grade
• Low levels of insider ownership
• Avoid companies with commodity dependence
• Avoid software, biotech, banks, insurers, companies with product liability concerns

In terms of shareholder activism:

• Attempts to build strong rapport with CEO/CFO
• Craft proposals for management’s review (buybacks, increasing dividends, asset sales, etc)
• Apply public pressure (through press articles, regulatory filings) if management is unwilling

Jonathan Heller, CFA

Disclaimer: I have no positions in any of the companies mentioned