WWII 071: 13 New Buys from 3 Value Guys, Investing in MLPs, Elliott Associates Influences AthenaHealth ($ATHN)

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Main Topic: 13 New Buys from 3 Value Guys

In this episode I introduce you to three value investors and let my fingers do the walking through their most recent 13F filings to discover their new positions.

David Einhorn of Greenlight Capital Capital, a "long-short value-oriented hedge fund."[1]

Born in New Jersey, Einhorn graduated from Cornell University in 1991 and moved to Westchester, New York to start his fund. He started his fund in 1996 with $900,000 and has generated 16.5% annualized return for investors from 1996 to 2016. As of 2017, Greenlight Capital has US$9.27 billion in assets under management. He has received extensive coverage in the financial press for his fund's performance, his investing strategy and his positions.

Einhorn was ranked 44th in the Time 100 most influential list of people in the world in 2013.According to Forbes Magazine, Einhorn has a net worth of US$1.54 billion (as of February 2017), making him the 44th youngest billionaire on the Forbes 400 and the 18th highest-earning hedge fund manager in the world.

– 33 stocks in his portfolio. New buys are SYT, MON, AA, FRED, X, GEO, CPN

Syngenta AG is involved in the discovery, development, manufacturing and marketing of products designed to improve crop yields and food quality. The Company is also engaged in the lawn and garden business.

Monsanto Co along with its subsidiaries provides agricultural products for farmers. Its seeds, biotechnology traits, herbicides and precision agriculture products provide farmers with solutions that improve productivity.

Originally a chemical company, Monsanto has morphed into an agricultural giant, focusing on seeds and crop-protection products. In a major breakthrough, Monsanto introduced the first genetically modified crop seeds in 1996 and has remained the industry leader. The St. Louis-based company generated more than $15 billion in sales during fiscal 2015 and is focused on bringing new biotechnology traits to market to improve farmer yields and productivity. Bayer is buying MON for $128 per share.

Alcoa is a vertically integrated aluminum company involved in every phase of aluminum production, from bauxite mining to the manufacturing of finished aluminum goods. The firm is the world's largest bauxite miner and alumina refiner by production volume, and its profits are closely tied to prevailing commodity prices along the aluminum supply chain. Its rolling and casting operations manufacture finished aluminum goods that serve a wide variety of industrial end markets.

Fred’s is a U.S.-based company that is principally engaged in operating retail stores. Most of the company's stores are self-owned stores, with a few franchised stores. The company's sales mix consists of pharmaceuticals, consumables, household goods and softlines, and franchise, with pharmaceuticals contributing a material portion of total revenue. The company owns 100% of the equity stake in Reeves-Sain Drug Store. The company generates revenue from merchandise sales and franchise fee from franchisees. It also sells gift cards. The company conducts operation primarily in the southeast of the United States. Fred’s is buying the RiteAid/Walgreens stores as part of their attempt to get that merger approved.

United States Steel Corp is an integrated steel producer of flat-rolled and tubular products with production operations in North America and Europe. Its products serves automotive, construction and energy sector related industries.

Calpine Corp is a power generation company engaged in the ownership and operation of natural gas-fired and geothermal power plants in North America. It sells power, steam, capacity & ancillary services to utilities & independent electric system operators.

Joel Greenblatt – Gotham CapitalJoel Greenblatt (born December 13, 1957) is an American academic, hedge fund manager (Gotham Capital), investor, and writer. He is a value investor, and adjunct professor at the Columbia University Graduate School of Business. He is the former chairman of the board of Alliant Techsystems and founder of the New York Securities Auction Corporation. He is also a director at Pzena Investment Management, a high-end value firm.[PM HPQ ABT

Philip Morris International Inc is a holding company. The Company through its subsidiaries manufactures and sells cigarettes and other tobacco products in markets outside the United States of America.

HP Inc provides products, technologies, software, solutions & services to individual consumers, small- and medium-sized businesses including customers in the government, health and education sectors.

Abbott Laboratories discovers, develops, manufactures and sells health care products. Its products include branded generic pharmaceuticals manufactured internationally, marketed and sold outside the United States.

Many people connect Warren Buffett with his right-hand man, Charlie Munger. Fewer know, however, that up until a few years ago, a third mastermind made investing decisions at Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B), Lou Simpson. Now that Simpson has founded his own firm, SQ Advisors LLC, GuruFocus today began to track the investor as its latest Guru.

Who Is Lou Simpson?

Buffett met Simpson in 1996 when he was CEO of Geico’s capital operations and Buffett was completing his purchase of Geico. Impressed with his track record, Buffett kept Simpson on as chief investment officer.

At his retirement from Berkshire subsidiary Geico in 2010, Simpson managed more than $4 billion worth of stocks. Throughout his time with Berkshire, Simpson and Buffett’s stock picks overlapped sometimes due to similarities in their thinking, but both men clearly had independent processes and disagreed with each other sometimes as well.

Several things the two men had in common were that they were both dedicated value investors, both maintained a concentrated portfolio, and both had big positions in three stocks: Wells Fargo (NYSE:WFC), Johnson 7 Johnson (NYSE:JNJ) and ConocoPhillips (NYSE:COP). Read a more detailed comparison of their investing approaches in Geoff Gannon’s article, “How Does Lou Simpson’s Stock Portfolio Compare to Warren Buffett’s Stock Portfolio?”

Before joining GEICO in 1979 as senior vice president and chief investment officer, Simpson was president and CEO of Western Asset Management, a partner at Stein Roe and Farnham, and an economics instructor at Princeton University.

Apple Inc (AAPL) designs, manufactures, & markets mobile communication & media devices, personal computers, & portable digital music players, & sells a variety of related software, services, accessories, networking solutions, & third-party digital content.

Tyler Technologies Inc (TYL) is a provider of integrated information management solutions and services to address the information technology needs in areas of operations for cities, counties, schools and other local government entities.

Hexcel Corp (HXL) develops, manufactures, and markets lightweight, high-performance structural materials, including carbon fibers, adhesives, engineered honeycomb and composite structures for use in Commercial Aerospace, Space & Defense and Industrial markets.

Ask JB: Are Master Limited Partnerships investable? What if they are held in Closed End Funds?

From listener Yoakais through the Ask JB button:

Hi JB,

I remember in one of the episodes you mentioned that MLPs are not suitable vehicles for individual investors due to the tax complication. I wonder if using CEFs to access the MLP is viable.
Could you give your thoughts? Specifically I am curious about the tax implications of going through CEFs, how much we should worry about the fact that many of them are somewhat leveraged, and in your opinion does the discount to NAV and the fact that they enable easy tax reporting justify their high fees and the potentially higher risk caused by leverage?


JB Says: An MLP, like any security, may become under-valued enough to become a rational investment. I believe I have previously said that an investor should understand the tax implications, additional costs of tax preparation, and be sure to hold MLPs in taxable accounts, not IRAs. You won’t receive the full potential tax benefit if holding them if they are in an IRA.

CEFs have four sources of distributions:

  1. Interest payments on fixed-income portfolio holdings
  2. Dividends from equity holdings
  3. Realized capital gains
  4. Return of capital:

· pass-through (from master limited partnership investments, primarily)

· constructive (from unrealized capital gains)

· destructive (investors are literally receiving their own capital, minus expenses)

Shareholders receive a Form 1099-DIV with the actual distribution breakdown for the prior year for tax purposes. This makes the CEF easier to deal with at tax time, compared to direct holding of the MLP.

In terms of fees, you will be charged fees and expenses by the CEF manager, which is usually expressed as an expense ratio, and includes levered assets. So a management fee expressed as .5% can end up being .75% on net assets.

Buying the CEF at a discount will help put you in a better position to realize value, but there are many other considerations and you should analyze the underlying assets as if you were buying them directly.

Do you have a burning question on investing you would like answered? Click the button below to send it to me and I will answer it on the podcast!

Activist Investor Action Alert: Elliott Associates Influences AthenaHealth ($ATHN)


Thoughts on this podcast? Disagree with me on some point? Something I missed? Leave a comment!

About the Author

Jeremy Scott Bailey is an investor, author, entrepreneur and host of the "What Works In Investing?" podcast now available on iTunes. He is founder and Chief Investment Officer of Burgeón Group, Inc. an investment advisory firm that provides portfolio management services to families and individuals.

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