The Sohn Investment Conference brings together the who’s who of hedge fund managers. Top managers, such Bill Ackman, David Einhorn, and Paul Tudor Jones, gathered earlier this week to outline some of their best investment ideas. This, in an effort to raise money for pediatric cancer research.
There were a lot of great ideas pitched at this year’s Sohn Investment Conference. But a few stood out to us as investments that might be worthwhile in this turbulent market. The top 3 investment ideas form the Sohn Investment Conference cover broad areas of the market, including being short housing, being short oil and being long healthcare.
Here are the top 3 investment ideas from the Sohn Investment Conference:
Glenview Capital says go long HMOs
Larry Robbins was one of the highlight presenters at the Sohn Investment Conference. He founded and runs the Glenview Capital Management hedge fund. Glenview’s key focus in 2013 was hospital stocks. This part of the market was a big winner last year, and as a result, his fund returned 43% (net of fees) in 2013.
Robbins said that his Glenview Capital fund would be sticking with the healthcare theme in 2014. The number of old people in America is on the rise due to the aging of Baby Boomers. But he’s focusing on an out of favor part of the healthcare market this year.
HMOs remain one of the most disliked areas of the market. Robbins notes that the myth surrounding HMOs is that their profits are the reason healthcare costs are high. He points out that their profits are only 0.4% of all healthcare spending.
And while the rest of the healthcare sector has rebounded the last few years, HMOs have not. Stocks in this part of the healthcare market is still 18% cheaper than where they traded in 2007 on a relative basis. But the worst is over for HMOs. After profits were flat for four years, they are beginning to rise.
His healthcare picks for 2014 are Humana (NYSE: HUM) and WellPoint (NYSE: WLP). Humana is a medicare advantage company. It’s well capitalized and could take on more debt to either buyback shares or even buy up a smaller HMO. Wellpoint is a traditional managed care company. Robbins’ Humana price target is between $143 and $152. At the midpoint, that’s 34% upside. For WellPoint, his price target is $125 to $134, which is 25% upside.
PointState Capital is short oil but long refiners
Zach Schreiber, founder of PointState Capital, pitched an idea of going short oil. Schreiber expects crude oil prices to fall. A couple of the biggest benefactors will be the leading refiners, Valero (NYSE: VLO) and Marathon Petroleum (NYSE: MPC).
The core of Schreiber’s thesis is that the supply of crude oil in the U.S. is quickly outpacing demand. There is a ban on crude oil exports. And the U.S. refuses to cut oil imports because of politics. So there’s no where to put all the oil.
This oversupply of crude oil has yet to be felt. It’ll take much lower prices before supply and demand comes in balance.
The spread between WTI (U.S. benchmark) and Brent (European benchmark) crude oil will continue to rise. Schreiber thinks that Valero and Marathon Petroleum have the most to gain from this increase in spread. They can take the input from cheaper WTI crude and sell it at higher Brent prices.
The debt levels at both these refiners are very reasonable. And they generate high levels of cash flow. They both offer a dividend too. Valero’s dividend yield is 1.7% and Marathon Petroleum’s is 2.1%.
DoubleLine is short homebuilder stocks
Jeff Gundlach, founder of DoubleLine Capital, is bearish on housing. Specifically, he doesn’t like single-family housing. This part of the market is overhyped.
New home sales are slowing and housing starts are plateauing. That’s because first-time homebuyers are virtually nonexistent, especially given the weak job market for young adults.
There’s also the fact that the younger generation has a preference toward renting. This will lead to an even lower home ownership rate going forward. Part of that is because the demand for rentals will rise, which will increase rents. Throw in the student loan debt and that’ll make it tough to save up for a down payment.
Housing affordability is still one of the bright spots for the housing market. But Gundlach is quick to point out that the interest rate rise from last year led to a big drop in home sales. Assuming rates will eventually rise again, the outlook for housing affordability is negative.
Shorting the SPDR S&P Homebuilders ETF (NYSE: XHB) is the broadest way to play the Gundlach and DoubleLine thesis. However, there are a number of major homebuilders that’ll feel the pressure. Including PulteGroup (NYSE: PHM), Lennar Corp. (NYSE: LEN) and D.R. Horton (NYSE: DHI).
Following the big name investors can be a useful way to find intriguing investments. Some of the most intriguing investment ideas from this year’s Sohn Investment Conference appears to be broad themes that can be played from many angles.
The top 3 investment ideas from the investment conference can give investors a starting point for protecting themselves from unforeseen market moves, or for just finding unique investments.
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