Highlights From The Sohn Conference in San Francisco

None of the Sohn Conferences is as exciting as the New York Conference but Sohn’s San Francisco Conference comes close. The 9th annual Sohn San Francisco Investment Conference was held a few days ago and we are going to summarize the stock pitches made at the Conference. It is my perception that usually it is a better idea to wait a few weeks to initiate a position in these stocks at much better prices that the prevailing prices after the stock pitches were made.

Gil Simon’s SoMa Equity Partners: Long New York Times (NYT)

The best way to understand Gil Simon’s New York Times thesis is by watching the video below:

Gil Simon basically saying that newspapers are dead but news isn’t. New York Times’ online subscription model is similar to software publishers’ or music sellers’ subscription model (i.e. all recurring revenue with very small distribution costs). SoMa Capital started buying NYT shares at the end of 2017. Gil Simon expects NYT to epxand margins and reach $40-$50 within a couple of years.

Glen Kacher’s Light Street Capital: Farfetch Limited (FTCH)

You can watch the following video for the details of Kacher’s investment thesis in FTCH.

Light Street Capital returned 38.6% in 2017, so it is among the best performing large hedge funds last year. Kacher believes Amazon doesn’t pose a serious threat for Farfetch, a marketplace stocks for luxury good retailers. FTCH will dominate this niche market and expand revenues and earnings in the coming years.

Kevin Oram’s Praesidium Investment Management: Cornerstone OnDemand (CSOD)

Kevin Oram also talked to CNBC and explained his investment thesis:

Kevin Oram believes Cornerstone OnDemand is a turnaround play that is likely to nearly double in a few years. Oram expects CSOD to be acquired by any of Microsoft Corp, Oracle Corp., or Salesforce.com after the business is transformed. He has a $90 price target.

Mark Desio’s Lucha Capital: Talend S.A. (TLND)

Desio pitched Talend (TLND) as a growth and acquisition play with a target price of $105. Here is how CNBC summarized Desio’s investment thesis:

“Lucha Capital recommended investors buy Talend for its role as an enterprise data company. With data growth set to scale five times over the next five years, Desio said companies like Talend will be essential to help companies and governments manage data volume, sources and models.

The manager said Talend has a disruptive pricing model — priced per user, no data volume tax, scalable and predictable. Desio also highlighted what he views as a great board of directors: “You rarely see this kind of quality of board members” for such a small company, he said.”

We will continue sharing stock pitches from the Sohn Conference on the next page.

Mick McGuire’s Marcato Capital: CorePoint Lodging Inc. (CPLG) and Extended Stay America, Inc. (STAY)

The lodging REIT CorePoint Lodging Inc. (CPLG) was recently spun off from La Quinta. McGuire is expecting CPLG to turn things around and improve its hotel level profitability. He believes this, in turn, will expand its EBITDA and EBITDA multiple. McGuire also believes that there is limited downside if the REIT fails to improve profitability as it is likely to be sold. Mick McGuire believes the stock has about 55% upside potential based on 11x EV/EBITDA margin and $232 million in 2019 EBITDA.

Extended Stay America (STAY) is another turnaround play that is trading at a discount to its peers. According to McGuire the company has strong free cash flow and knows what it needs to be doing: investing its cash flow into new hotels and share repurchases as well as refranchising underperforming hotels. McGuire thinks the stock can deliver triple digit returns in 4 years. He has a target price of $38 using 15x multiple on a 2022 free cash flow per share estimate of $2.29.

Highland Capital’s Michael McLochlin: Marvell Technology Group Ltd. (MRVL)

Marvell Technology Group shares are down more than 30% from its 52-week high. Michael McLochlin believes investors are too pessimistic about the stock and expects it beat the consensus sales and earnings estimates. McLochlin sees Marvell to benefit from the increasing penetration of 5G technology in networking and adoption of solid state drives (SSDs) in storage. Since the involvement of Starboard Value, Marvell was able to raise its margins above its peers and reversed the decline in revenue to a small increase. Despite this, the stock still trades at a discount to peers. McLochlin expects earnings growth contribute to 30% and multiple expansion a 60% increase in MRVL’s stock price.

TPG Public Equity Partners Founder Alex Gleser: Royal Phillips NV (PHG)

This is another stock that hedgies expect to deliver strong returns as profit margins expand and the market starts to value the stock in line with its peers. Alex Gleser expects to stock increase 85% in the next 24 months.

Daniel Kozlowski’s Plaisance Capital: Pure Cycle Corporation (PCYO)

Daniel Kozlowski thinks Pure Cycle Corporation can be a 10-bagger in the next 10-15 years. PCYO currently has a market cap of $240 million. Kozlowski values the company’s current water business at $1.6 billion and its residential land at around $400 million. Kozlowski also believes PCYO may start selling water to oil and gas exploration companies which would further boost earnings and the stock price.

Shashin Shah’s Think Investments: Radico Khaitan

This is an Indian alcohol and alcoholic beverages manufacturer. Per Yahoo Finance “the company provides Indian made foreign liquor, country liquor, etc. It offers whisky under the 8PM, Royal Whytehall, and After Dark brands; rum under the Contessa and 8 PM Bermuda brands; brandy under the Old Admiral, 8 PM Excellency, and Morpheus brands; and vodka under the Magic Moments, Magic Moments Remix, and Verve brands, as well as ready to drink under the Electra brand”.

Shashin Shah says Radico has a 7% market share in the branded Indian liquor market and is expected to increase revenue and margins in the coming years. The stock trades at a forward PE of only 20 and Shah finds it very cheap given its 20% revenue growth and 40% EBITDA growth rates. Shah expects the company to be debt free next year.

Vineer Bhansali’s Longtail Alpha: Short FAANG

Vineer Bhansali is nervous about market volatility, urging investors to stay away from FAANG stocks. The main theme in his presentation is rising interest rates. Bhansali believes financial stocks and small-cap companies with low leverage will outperform whereas tech stocks, bonds or bond-like securities, and low quality stocks with high leverage will underperform.

Jeff Osher’s No Street Capital: Short Trupanion, Inc. (TRUP) 

Jeff Osher recommended shorting pet insurance company Trupanion Inc. (TRUP). Osher believes TRUP isn’t a SaaS company even though it pretends to be one and is covered by some software analysts. The proof for this assessment is its measly 17% gross margin. Osher believes the company’s marketing policy of “rewarding” veterinarians and hospitals for referrals or sales is going to create an adverse selection problem for TRUP because they are more likely to underwrite insurance for sicker pets. That’s why Osher thinks TRUP is in the early stages of a “rate spiral”. Trupanion trades at 9x P/B whereas Jeff Osher thinks it deserves the same multiple as Progressive (which is 3.6) and values the stock at $7.05 to $10.60. TRUP shares currently trade around $25.