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The annual Sohn Investment Conference took place last week, with some of the biggest names in the hedge fund world gathering to offer their best investment ideas.
Now, we’ve covered the Sohn Conference for the last couple years. In 2014, we brought you ideas such as to short oil and long Health Maintenance Organizations (HMOs). In particular, we highlighted Larry Robbins and his Glenview Capital’s long Humana (NYSE: HUM) pitch. Since then, Humana shares are up 60%.
Last year we once again profiled Larry Robbins, and he didn’t disappoint. His Alphabet (NASDAQ: GOOGL) bet is up 30% in just a year.
However, last year also had its fair share of busts. Bill Ackman of Pershing Square picked Valeant Pharmaceuticals International (NYSE: VRX), but the stock has fallen 85% since then. As well, Barry Rosenstein of Jana Partners highlighted Qualcomm (NASDAQ: QCOM), which has fallen 27% since the 2015 Sohn Conference.
It’s more important than ever to do your own due diligence. The overall tone at the 2016 Sohn Conference was somewhat bearish, with Stan Druckenmiller telling investors to sell all of their stocks and buy gold.
Druckenmiller made an ominous presentation at the conference, appropriately titled “The Endgame.” In his short 10-page presentation, he noted that corporate profits have peaked, while debt is back up near decade highs – a deadly combination.
Source: Stan Druckenmiller‘s “The Endgame” Sohn Presentation
Meanwhile, Larry Robbins led the conference off by saying he’d found no new actionable ideas.
Still, I’m not quite as ominous as these guys, taking solace in Robbins’ comments that investors should not get caught up in the fearmongering and worries about oil prices, drug pricing and slowing growth in China.
With that, we’ve narrowed down the more than a dozen stock pitches from the 2016 Sohn Investment Conference to the top three picks:
Top Sohn Investment Conference Pick No. 1: David Einhorn of Greenlight Capital
David Einhorn has gotten serious about turning around his Greenlight Capital portfolio. Last year, his fund lost 20% in the worst year since its inception. Since then, Einhorn has been making significant moves to realign his portfolio.
One of his latest bets is to short-sell heavy equipment makers. We profiled Einhorn’s short thesis on equipment makers earlier this year. At Sohn, Einhorn offered some insight on the particular companies he’s betting against – namely, Caterpillar (NYSE: CAT). He said that Caterpillar won’t have a turnaround in the mining business anytime soon and that earnings for the company won’t bottom until 2018.
Einhorn also offered a long idea, reiterating his love of General Motors (NYSE: GM), which trades at just 6 times earnings. Einhorn likes GM’s efforts to turn around the money-losing segments of Mexico and Europe. As well, he believes growth in China should continue, while ride-sharing companies won’t have a material impact on GM’s new car sales.
Top Sohn Investment Conference Pick No. 2: Jeff Smith of Starboard Value
Activist investor Jeff Smith pitched Depomed (NASDAQ: DEPO) as a long pick. He’s trying to replace the Depomed board and wants the company to sell itself.
Unlike other pharma and biotech companies that have been beaten up this year, Depomed has drugs on the market and is generating revenues. A buyout would be an easy way to unlock value relatively quickly.
Depomed, a maker of pain medication, attracted a buyout offer from Horizon Pharma (NASDAQ: HZNP) last year, but the transaction never materialized. Smith and Starboard have already put up nominees for the board and they seem to be willing to wage a proxy battle to get Depomed to take a serious look at selling itself.
Top Sohn Investment Conference Pick No. 3: John Khoury of Long Pond Capital
The top underrated pick at the Sohn Conference came from a little-known hedge fund manager. John Khoury of Long Pond Capital pitched going long Hyatt Hotels (NYSE: H). Long Pond has had quite a run, generating a 16% average annual return since inception in 2010.
Long Pond Capital’s long Hyatt thesis is based on the fact that it’s a high-end hotelier, which won’t be as impacted from home-sharing services like Airbnb. The fund doesn’t like the entire hotel industry, just Hyatt. It admires the low-debt, corporate-heavy customer base, and sees 65% upside to Hyatt.
The interesting thing about this year’s Sohn Conference is that not many “new” ideas were found. Hedge fund managers were regurgitating old ideas, while others took an ominous tone. While it might be a bit early to say that Druckenmiller is spot on with his thesis to dump all stocks, it’s worth being prudent and making sure your potential investments – like General Motors and Depomed – aren’t just cheap but also have growth opportunities.
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