Invest for Kids Conference: Recap

On Wednesday of this week, I attended the Invest for Kids conference, a fundraiser for numerous charity organizations that operate for the benefit of local youths.  The event raised over $1 million for these local charities.  In addition to supporting some good causes, the conference provided the opportunity to hear investment ideas from some of the top names in investment management.  I was especially pleased with the program because it seemed that each speaker intentionally sought out an out-of-favor or contrarian investment idea to present.  Some of them were quite bold.  What follows is a brief summary of each speaker's idea(s):

•    William Browder of Hermitage Capital Management started his talk by paying respect to his late Russian lawyer, Sergei Magnitsky, who died less than a year as a direct result of his efforts to assist William in his business dealings in Russia.  Mr. Browder is currently blacklisted by the Russian government as a threat to national security.  He continued his talked with a brief overview of his macro thoughts.  In summary, he pointed out that the most recent financial crisis resulted in an unprecedented government bailout, which amounts to 23 times the size of the previous eight financial crises combined.  He is also not optimistic about QE and commented that "there is no good outcome to printing money."  He sees inflation on the horizon and because of this pitched two stocks with positive inflationary implications:  Koza Gold and Renhe.  Koza Gold is a Turkish gold mining company with a $1.5 billion market cap.  The company has no debt, a low P/E of 9x compared to other mining companies, and produces at the lowest cost in the industry.  Renhe is an operator of underground shopping malls in China that he feels is in a misunderstood business.  William went on to explain that each city in China is required to have an underground bomb shelter for wartimes.  Renhe has successfully persuaded the Chinese government to transform these existing structures into useful shopping malls with the understanding that in the event of a war, they will be converted back to bomb shelters.  Because they don't have to purchase property, Renhe's initial capital outlay is very low and they are very profitable.  Additionally, they currently pay an 8% dividend and trade at a 5.8x P/E, which makes them the cheapest real estate company in China.
• Brian Feltzin, of Sheffield Asset Management, pitched C&C Group PLC (GCC.ID).  C&C Group is an alcoholic beverage producer based in Ireland.  They are best-known for their ciders:  Bulmers and Magners.  Both are excellent in my opinion.  Brian argued that cider is an attractive growth category for a number of reasons, including the fact that it's one of the few unisex alcoholic beverages.  He also pointed to the fact that C&C is being turned around by a strong management team, has divested a large non-core business, is debt-free, and is a potential takeover target as further reasons for being bullish on the company.
• Bill Ackman, of Pershing Square Capital Management, presented a bullish case for perhaps the most out-of-favor asset class currently:  the market for single-family homes.  I first heard Bill's name as I was performing a valuation on Target (TGT) for Financial Statement Analysis class and have come to know him over the last few years as a tremendous shareholder activist and a guy who's able to create positive change in stagnant companies, so I was especially interested in hearing him speak.  His thesis centered around a few ideas:
• Home affordability is near an all-time high today
• Purchasing is cheap compared to renting
• Mortgage rates are extremely low
• Home purchases are the most emotional investment one can make, and are impacted to a great extent by human behavioral biases, even moreso than other investments.
• Bill half-joked that he was thinking about putting together a REIT for single family homes, since one currently does not exist.  I checked REITwatch and this is true.  It seems that the only close residential comparables are manufactured homes and apartment REITs, which are not that close.  Bill certainly made me think a little harder about purchasing my first home.
•  Josh Friedman, of Canyon Partners, made a very complicated argument for the securitized assets of Lehman Brothers.  He started by giving a history of bankruptcy reform in the U.S. and bankruptcy and distressed investing more generally.  He went on to discuss how the Lehman bankruptcy has been the largest and most complicated bankruptcy in history and because of this presents opportunities to pick and choose certain attractive assets for purchase.
• John Rogers, of Ariel Investments, pitched three ideas from the media space:  CBS (CBS), Viacom (VIA.B), and Gannett (GCI).  He feels that all three companies own great brands/franchises and have room for more upside growth.  He focused most of the presentation on GCI since it is currently out-of-favor in the market and down 16% year to date.  He went on to note that while GCI is mainly hated because it's main line of business is print media, print isn't as 'dead' as many think.  Local content still matters in the print space.  GCI also has a strong management team, with a solid balance sheet and the ability to generate positive cash flows.
• Meredith Whitney, of Meredith Whitney Advisory Group, presented a bearish case for state and municipal government finances.  I don't think this was a new idea to anyone in the room, but she reminded us of the dire straights of local governments across the nation.  Her talk also seemed to be a plug for her firm, who recently started a state ratings service.  She pointed to budgetary and pension issues looming large, with the potential for municipal defaults around the corner.
• David Herro, of Harris Associates, presented a bullish case for Japan generally.  He is of the opinion that, while Japan has experienced -6.2% annual growth over the last 20 years, they are bound to make a comeback at some point.  There has been a recent pickup in ROE generation among Japanese firms. Specifically, David likes Daiwa Securities, a company that is benefitting from the deregulation of the financial system and is currently trading below book value.  He thinks that Daiwa will continue to benefit from the movement of lazy savings in money market accounts to mutual fund products that Daiwa offers.
• Doug Silverman, of Senator Investment Group, presented a humorous case for the car rental industry.  The car rental industry, which currently has four major players, has seen a great deal of consolidation in recent years and has the potential for even further M&A activity in the near term.  Doug likes Avis Budget in particular going forward.

Richard Driehaus, Larry Robbins, and Sam Zell also presented at the event, but my notes didn't cover those speakers.  All in all it was a great event for a great cause.  Many thanks to Ron Levin and Ben Kovler for organizing.  I will be back next year!