Hedge Funder Whitney Tilson’s Three Short and One Long Picks

Berkshire Hathaway Inc. (NYSE:BRK.A) is a stock that Whitney Tilson has become bullish due to the acquisitions of Precision Castparts Corp (NYSE:PCP) and Duracell which have increased the conglomerates earnings by 12%. He is bullish on Warren Buffett’s holding company because it provides more certainty in a world that is turning more turbulent. Berkshire Hathaway Inc. (NYSE:BRK.A) is Whitney Tilson’s second largest position with a portfolio weightage of 5.2%. He estimates that the intrinsic value is $292.5 which is almost 20% higher than the current market price of the stock.

Another short idea presented during the conference was Direxion Daily 20+ Year Treasury Bull 3x ETF (NYSEARCA:TMF). This is an ideal short for someone who believes that the interest rates on USA government bonds are going to increase. This is Tilson’s 3^rd largest short position at 2.6%. There are 2 reasons for shorting this security. The biggest reason is that this positioning will make money when interest rates increase resulting in a decline in bond prices. 20 year Treasuries have fallen by 40% over the last few months. The second reason is the benefit from the decay associated with levered ETFs. The only risk is that borrowing costs are quite high at 12% per year.

Whitney Tilson is bearish on Wingstop Inc (NASDAQ:WING) which is a chicken restaurant franchise business. Wingstop Inc (NASDAQ:WING) has a high margins and low capex business model which is typical to a franchise business. It has 949 Wingstop Inc (NASDAQ:WING) restaurants in 40 states (93% of units) and 6 countries, of which 98% are franchised. Though the company has shown strong revenue growth (15% CAGR) over the past 5 years, the stock price has essentially remained flat since its IPO in July 2015. Whitney Tilson is short on this stock because he thinks that it is highly overvalued at 62x trailing EPS and 12x trailing revenues. He thinks that the company’s business has low entry barriers and it faces strong competition from other chicken wing restaurants and fast food chains.

He seriously doubts whether the management can achieve its goal of developing 2500 restaurants given that the market is becoming saturated. He also red flags the fact that its prior owner Roark Capital dumped its entire stake extremely quickly (in 6 years) despite having a reputation of holding franchise businesses for an average period of at least 10 years. Whitney Tilson also highlights the fact that the company’s same store sales growth has been declining and its business is primarily centred on just two USA states. It is the second largest short position in his portfolio given that the stock is priced to perfection.

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