Hedge-fund titans speak out at Sohn Conference
Mala Gaonkar, Lone Pine Capital
Legacy tech may not be sexy, but it could yield solid returns. That’s the investment thesis pitched by Lone Pine Capital’s Mala Gaonkar.
Gaonkar focused on Microsoft (MSFT), the software giant that’s in the midst of a major turnaround effort. She said while some investors tend to worry about the consumer Windows business, it only represents 5% of the company’s top line.
Gaonkar said the company’s enterprise business is key. For one, Microsoft is already a big player in the cloud software space, supplying software like Office and Skype through the cloud. This has helped bolster Microsoft’s hold in the space, and has also cut software piracy since users need to pay for a license to access the software.
More broadly speaking, Gaonkar said she believes these four factors make Microsoft a compelling buy: New strong management, solid revenue growth, operating cost cuts and capital return.
Microsoft’s shares were down marginally in afternoon trading, and are up 4.1% for the year.
Corvex CIO Keith Meister said Yum Brands (YUM) should spin off its China business to unlock shareholder value in both businesses.
“One type of shareholder is going to not like half the business,” he said of the current arrangement.
Meister said Yum has done a good job recovering from the several food-safety scares in China in recent years. Indeed, according to Corvex research, consumers in China, the world’s second-biggest economy, prefer KFC and Pizza Hut, both Yum units, to rivals McDonald’s (MCD) and Subway.
Corvex has built a massive stake in Yum, leaving the fund as a top-five shareholder in the U.S.-based company.
Meister said a spun off Yum China would benefit from being a fully Chinese company, allowing it to lift the weight of being an American firm operating in China. It would also allow the remaining company to better leverage its assets in the ex-China market.
Meister sees 50%-90% upside in Yum, if it were to make such a move.
Yum shares were up about 1% following Meister’s presentation, and have soared 27% for 2015.
David Einhorn, Greenlight Capital
Einhorn is very bearish on several fracking firms. His investment case is basically that several of these companies are spending in “a desperate effort to grow.”
“Frackers drilled holes. Lots and lots of holes,” he said. “As oil prices rose it seemed like the frackers should be drowning in cash. But none of them (developed) excess cash flow” even at $100 a barrel oil.
He used Pioneer Natural Resources (PDX) as a case study in his presentation. He said Greenlight’s estimates show Pioneer is actually generating negative returns to capital spending. That is to say, if the firm keeps spending on drilling, it will actually worsen its position, according to Einhorn.
In the current environment, Einhorn sees Pioneer losing about $12 per each barrel of oil equivalent. And in fact, Pioneer is “dramatically overvalued” even with rosy assumptions, according to Einhorn’s estimates.
The stock was off 3.2% following Einhorn’s presentation, cutting its year-to-date advance to about 11%.
Einhorn also alluded to these players in his presentation, although he didn’t specifically review his estimates: Continental Resources (CLR), Concho Resources (CXO), Whiting Petroleum (WLL) and EOG Resources (EOG).
A slew of hedge-fund heavyweights are set to offer investment strategies at the Sohn Investment Conference Monday. Among the speakers are Pershing Square’s Bill Ackman, Greenlight Capital’s David Einhorn, Appaloosa Management’s David Tepper and DoubleLine Capital’s Jeffrey Gundlach.
Conference organizers expect attendance of 3,000 people. The organization has raised some $50 million over the years for pediatric cancer research and treatment. The managers that present are also encouraged to donate part of their proceeds from trades to the charity. There’s more on how to donate here.
Yahoo Finance will provide live updates through this blog, and my Twitter handle, @adamsamson.
