Tax Reform in This Election Year: It's Not Likely
Walmart's New Health Food Push: Is It Too Hard to Swallow?As I discussed in my "Introduction to Piggyback Investing" post, the focus on these columns will be to analyze positions held in a smart money fund via its 13F-HR filing and other sources. According to the fund's 13F-HR, Atticus Capital's fund has several interesting "core" ideas, as well as an interesting sector bet developing.
One large position in the fund is Eagle Materials (NYSE: EXP), a seller of gypsum wallboard and cement. Eagle Materials is certainly an interesting stock, but it's also very cyclical. With a clean balance sheet and an EV/EBITDA multiple of less than 7, the stock could potentially be undervalued at these levels. However, I'd choose to buy USG (NYSE: USG) over Eagle Materials because SHEETROCK is a very powerful brand and the stock appears cheaper than EXP (cheaper on pretty much every multiple, e.g 5.7 EBITDA vs. 7x EBITDA for EXP). Throw in the Buffett/Tilson/Fairholme/Weitz/Berkowitz/Whitman/Janus Contrarian ownership factor, and I think USG is remarkably attractive.
Atticus also has a position in TD Ameritrade (NASDAQ: AMTD). This stock is a very high quality online broker that will probably see solid upside due to the market conditions. A bull market reaching new highs draws retail trading to become popular again and should help TD Ameritrade. But, as I recently covered, I think Tradestation (NASDAQ: TRAD) is the most interesting online broker with its unique technological offering and new forex trading system.
The firm is also bullish on the global exchange theme play. In addition to taking a pretty sizable position in the Bombay Stock Exchange (4% according to StockPickr), the fund owns a rather large position in NYSE Euronext (NYSE: NYX) common stock and it also owns calls on the stock. While it rallied following its IPO all the way to $110, the stock currently trades for $78 per share. At this price, NYSE Euronext looks rather interesting. The 23 multiple on next year's earnings comes in lower than the CME Group's (NYSE: CME) 31 multiple, and only slightly above the Nasdaq's (NASDAQ: NDAQ) multiple of 20, despite much faster growth expectations for NYSE Euronext.
Atticus also has a big position in Freeport-McMoran Copper & Gold (NYSE: FCX). The copper stocks are very interesting in this market despite their cyclical nature for one primary reason: the analysts are still low in their copper prices for their estimate models. For example, according to a recent Morgan Stanley research report, the market has expectations of Freeport of only $1.40/pound copper priced into the stock. This compares to the current price of $3.70 per pound. While it seems like everyone is expecting this price to turn around at some point, I highly doubt the price of copper will crash due to the incredible demand from China (demand up 143% in first five months of this year). Therefore, even if the price of copper falls, I don't see a quick re-valuation of the commodity. Add in the fact that the company is in the process of deleveraging with its huge cash-generating abilities and I think this stock is most certainly worth further research. The two potential catalysts I identified were 1) positive news from the company's growth projects -- these would serve to likely increase cash flows while improving the company's cost structure; and 2) investors realizing the company's diversified production reduces its exposure to geopolitical risk.
Interestingly, last quarter the firm became very bullish on financials, going long on Goldman Sachs (NYSE: GS) (a stock I covered here), Morgan Stanley (NYSE: MS), and Citigroup (NYSE: C). This whole sector looks very cheap to me, but as I covered in my Goldman post the sector is most likely at an operational high due to great M&A activity and solid trading performance. If you are very bullish on the entire sector's prospects, probably if you remain bullish on M&A activity, you have two primary choices for ETFs: the Vanguard Financials ETF (AMEX: VFH) or the ProShares Ultra Financials (AMEX: UYG). The ProShares fund targets moves 2x the performance of the financials index while the Vanguard is a normal ETF. Clearly, the ProShares is the higher risk/higher reward proposition.
All in all, I think investors can learn a lot from Atticus Capital's portfolio. In my opinion, the fund's most interesting positions are Freeport-McMoran, NYSE Euronext, and the financials play. All of these ideas are understandable and have significant profit potential.
The firm is also bullish on the global exchange theme play. In addition to taking a pretty sizable position in the Bombay Stock Exchange (4% according to StockPickr), the fund owns a rather large position in NYSE Euronext (NYSE: NYX) common stock and it also owns calls on the stock. While it rallied following its IPO all the way to $110, the stock currently trades for $78 per share. At this price, NYSE Euronext looks rather interesting. The 23 multiple on next year's earnings comes in lower than the CME Group's (NYSE: CME) 31 multiple, and only slightly above the Nasdaq's (NASDAQ: NDAQ) multiple of 20, despite much faster growth expectations for NYSE Euronext.
Atticus also has a big position in Freeport-McMoran Copper & Gold (NYSE: FCX). The copper stocks are very interesting in this market despite their cyclical nature for one primary reason: the analysts are still low in their copper prices for their estimate models. For example, according to a recent Morgan Stanley research report, the market has expectations of Freeport of only $1.40/pound copper priced into the stock. This compares to the current price of $3.70 per pound. While it seems like everyone is expecting this price to turn around at some point, I highly doubt the price of copper will crash due to the incredible demand from China (demand up 143% in first five months of this year). Therefore, even if the price of copper falls, I don't see a quick re-valuation of the commodity. Add in the fact that the company is in the process of deleveraging with its huge cash-generating abilities and I think this stock is most certainly worth further research. The two potential catalysts I identified were 1) positive news from the company's growth projects -- these would serve to likely increase cash flows while improving the company's cost structure; and 2) investors realizing the company's diversified production reduces its exposure to geopolitical risk.
Interestingly, last quarter the firm became very bullish on financials, going long on Goldman Sachs (NYSE: GS) (a stock I covered here), Morgan Stanley (NYSE: MS), and Citigroup (NYSE: C). This whole sector looks very cheap to me, but as I covered in my Goldman post the sector is most likely at an operational high due to great M&A activity and solid trading performance. If you are very bullish on the entire sector's prospects, probably if you remain bullish on M&A activity, you have two primary choices for ETFs: the Vanguard Financials ETF (AMEX: VFH) or the ProShares Ultra Financials (AMEX: UYG). The ProShares fund targets moves 2x the performance of the financials index while the Vanguard is a normal ETF. Clearly, the ProShares is the higher risk/higher reward proposition.
All in all, I think investors can learn a lot from Atticus Capital's portfolio. In my opinion, the fund's most interesting positions are Freeport-McMoran, NYSE Euronext, and the financials play. All of these ideas are understandable and have significant profit potential.
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