SNSS .95
March 26, 2010, 11:07 AM ET.What Hedge Fund Managers Are Doing Before Dawn.
Getty ImagesI was procrastinating writing this article at 5 a.m., so I pinged every hedge fund manager on my IM list to see if anyone could force-feed me investing ideas.
Hedge fund manager No. 1: Small manager, less than $100 million in assets under management. His biggest macro belief is that inventory rebuilding is going to drive economic growth for the next several years. He pointed out that Caterpillar (CAT) announced on a recent call that even if its sales are flat over the next year it would have to buy steel nonstop to rebuild inventory. This, in turn, will drive jobs, housing, growth into 2011 and beyond. This is not a “new normal” but “enormous growth.”
“So what are your favorite ‘green shoots’ stocks?” I asked.
Any of the basic-materials stocks that are going to be fueling this inventory rebuilding, he answered: Reliance Steel (RS) (Disclosure: I own it), Valspar (VAL), Cliff (CLF), Vulcan Materials (VMC). These stocks have a long way to go in this rally. And the rally is not going to stop. There’s an enormous pile of cash on the sidelines that’s just now coming into this rally.
Hedge fund manager No. 2: At his previous fund, hedge fund manager #2 handled all the short-selling. He had enormous years in 2007-2009 shorting and then going long financials and then left to start his own fund. Now he’s focused on media stocks.
I shorted BIDU yesterday afternoon and wanted to know what he thought before he gave me his brain dump on the media stocks. (Here’s an argument from Sean Udall at Minyanville as to why BIDU might be a short and SOHU might be a buy.)
“Its just going straight up,” he said. “It’s like the opposite of catching a falling knife. I wouldn’t get in the way of that.”
“But what about the rumor that SOHU might be snagging the GOOG business in China?”
But he ignored me and started telling me about the top positions in their portfolio:
Virgin Media (VMED): 20% free cash-flow yield, we are expecting 30% free cash flow growth, and VMED is steadily improving its balance sheet, improving its video offerings, and we expect BSkyB to begin carrying VMED shoon.
Liberty Starz (LSTZA): It’s the Encore and Starz cable channels. 30% EBITDA margins. Trades for a multiple of 4.5x EBITDA. Long term contracts with movie studios and cable companies so earnings are very stable but there is upside to these estimates in any economic recovery. Most media companies trade at multiples double to what LSTZA trades at.
Hedge fund manager No. 3: Specializes in small biotechs.
“My number one position by far is Sunesis Pharmaceuticals (SNSS),” he told me. SNSS makes Vorolexin, a drug for treating AML leukemia. Phase II results showed that they increased the survivability of AML patients.
Hedge fund manager No. 3 gave me three atalysts on SNSS:
“1.) 1Q10 regulatory update on Voreloxin from the FDA
2.) Several presentations at ASCO, showing Voreloxin in mature data sets; including cytarabine combination data
3) Finalization of a partner for ph. III testing in AML.
I expect this to be a $3-$5 stock in a few months,” he concluded.
Send me an email at altucher@gmail.com if you’d like to see followup interviews with these managers on any of these stocks.
What I’m reading this morning:
- Is Bono the worst investor in America?
- An intriguing chart proving job growth is coming.
- The one Internet stock you’ve never heard of.
(Disclosure: Long SNSS, Short BIDU, Long RS, although positions can change at any time).
James Altucher, a contributor to Dow Jones Adviser, is a managing partner of Formula Capital, an alternative asset management firm, and an author on investment strategies. Unlike Dow Jones reporters, he may have positions in the stocks he writes about.
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