GameStop, Adobe and More Pitched by Leading Investors in Toronto

Dan Farb of Highfields Capital advocated buying Franklin Resources Inc. (NYSE:BEN), more famously known as Franklin Templeton Investments, which is a global investment management organization. The company offers investment products such as equity, hybrid, fixed-income, and cash management funds and accounts, including alternative investment products. The $19 billion company is trading near its 52-week-low, as shares have fallen by 18% over the last year. Farb is positive about Franklin because it has two-times as much exposure to commodities and emerging markets as other funds, and is undervalued at 12.7-times earnings when compared to the 14-times earnings at which other fund managers trade at. Farb expects the $700 billion in assets under management held by Franklin to stabilize, allowing it to grow its earnings. Franklin Resources Inc. (NYSE:BEN) also has cash of $18 per share, which provides downside cushion. The Johnson family owns 37% of the total equity, which aligns well with shareholder interests. 32 hedge funds in our system owned shares of Franklin Resources Inc. (NYSE:BEN) at the end of June.

GameStop Corp. (NYSE:GME) is one of the world’s largest distributors of video games. Michael Gentile of Formula Growth is positive about GameStop because he thinks that virtual reality is a game changer and is not priced into the stock. He believes that the biggest competitive advantage of the company is its used games business, which GameStop does better than any other game retailer. Furthermore, he believes that physical sales still have an advantage over digital sales due to the fact that the games cost about the same price (in the case of new games), but gamers can sell their physical copies, meaning the cost to the gamer ends up being lower. However, Gentile’s slide did not seem to account for the fact that physical copies have taxes charged on them, while digital sales do not, and could also be subject to delivery charges, depending on how the gamer purchases their physical copy. And while used copies lower the price even further, digital sales tend to greatly outdo the prices of used games, which are generally only dropped by $10 at GameStop Corp. (NYSE:GME).

However, GameStop Corp. (NYSE:GME) also have a strong loyalty program, with 46 million members. GameStop’s stock has not done much over the last seven years and trades cheaply at 5.9-times earnings, and 3.5-times EV/EBITDA, while having a 19% FCF yield and 5.9% dividend yield. He thinks that the market is too fixated on its hardware and video game sales, which will account for just 19% of its gross profit by 2019, while its other divisions such as used game sales, its 1600 AT&T Inc. (NYSE:T) stores, and its collectibles business are being ignored by the market even though they are highly profitable. He has a price target of $50 for the stock which implies nearly 150% upside. However, it should be noted that shares fell by 11% yesterday after GameStop announced disappointing preliminary third-quarter results. The value of hedge funds’ holdings in this stock among the funds in our database declined by 12% during the second quarter to $344 million as of June 30.

WD-40 Co (NASDAQ:WDFC) is a global consumer products company with a market value of $1.42 billion which Gentile is bearish on, as he believes that WD-40 Co (NASDAQ:WDFC) is priced to perfection at a 29-times P/E, an 18.7 EV/EBITDA, and with a 2.4% FCF yield. Gentile pointed out that WD-40 was trading at around 19-times earnings between 2006 and 2012, which has now shot up 50%. He thinks that low interest rates and low oil prices have been the main drivers behind its increased valuation, and those tailwinds could be coming to an end. He is shorting the stock and will look to cover it at $75, which would imply a decline of about 27% from its current price. Hedge funds that we track were losing enthusiasm for WD-40 Co (NASDAQ:WDFC) in the second quarter as well, as just six remained shareholders of it on June 30, down from 11 a quarter earlier.

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