See What Jeffrey Smith, Tom Russo, and Alex Roepers Were Pitching At Capitalize for Kids Toronto

Top investors and finance sector heavyweights recently gathered in Toronto to take part in the Sohn Capitalize for Kids Conference, which is conducted every year to spread awareness and raise money for children’s brain and mental health initiatives. Among the renowned investors who pitched their favorite companies during the event were activist investor Jeffrey Smith, as well as Tom Russo and Alexander Roepers.

We’ll take a look at which companies these investors like and also analyze what other hedge funds think about them. Also, if you’re interested in attending the conference one day or simply visiting the great city of Toronto for any reason, be sure to check out this list of 8 Places to Visit in Toronto, Canada.

Through extensive research, we have determined that the best approach to outperform the broader indices is to follow hedge funds into their top small-cap ideas. In our backtests, a portfolio of the 15 most popular small-cap stocks generated monthly alpha of 81 basis points, versus 0.7 percentage points posted by hedge funds’ top large- and mega-cap picks (see more details here).

Stewart Information Services Has a Strong Balance Sheet and Future

Jeffrey Smith thinks Stewart Information Services Corp (NYSE:STC) has a strong network built over decades and that around 50% of its sales are through direct channels. The Texas-based title insurance company has 12% market share in the industry, which Smith thinks is less risky than conventional insurance companies. He thinks loss rates for title insurers have plummeted since 2009. Smith also thinks that the company’s margins could rise in the future due to its cost-cutting measures. The company has been underperforming due to management issues, but has a strong balance sheet and growth prospects, added Smith. Stewart Information recently reached an agreement with Jeffrey Smith’s fund Starboard Value LP under which Stewart Information Services Corp (NYSE:STC) will add four new members to its Board of Directors, including Matthew Morris, the current CEO of the company. Mr. Smith started discussions with Stewart Information after buying a 9.9% stake in the company in August. A total of 14 funds tracked by Insider Monkey were bullish on Stewart Information Services Corp (NYSE:STC) as of the end of the second quarter.

MasterCard’s Growth Opportunities

Gardner Russo & Gardner LLC’s Tom Russo is long Mastercard Inc (NYSE:MA). The 72-year old investor thinks that with about 85% of the world still using cash, there is still a huge growth opportunity for MasterCard, as card-based transactions are bound to expand globally. Russo thinks that MasterCard’s earnings are currently depressed, mainly because the company’s growth initiatives are adding to its operating expenses. Russo compared Mastercard Inc (NYSE:MA) to Wells Fargo & Co (NYSE:WFC), which he thinks is “attractive”, but lacks such reinvestment opportunities, and which has also faced a crisis in the form of its unauthorized bank accounts scandal. Thus, MasterCard is a better investment option than Wells Fargo, according to Russo. A total of 82 funds tracked by Insider Monkey are long Mastercard Inc (NYSE:MA) as of the end of June.

On the next page we’ll discuss the three companies pitched by Alex Roepers.

 

Alex Roepers Loves Owens-Illinois, Eastman Chemical and Harman

Alex Roepers of Atlantic Investment Management pitched Owens-Illinois Inc (NYSE:OI), Eastman Chemical Company (NYSE:EMN) and Harman International Industries Inc (NYSE:HAR) in his presentation at the conference.

Mr. Roepers, who has a Master of Business Administration degree from Harvard Business School, said Owens-Illinois Inc (NYSE:OI) has renowned customers, including beer company Heineken and French beverage company Pernod Ricard. The company is at par with peers in terms of technology, and currently has no foreign competitors to challenge its market dominance. Roepers admitted that the liquor glass industry has faced some pressure due to the influx of plastic glasses and cans, but that this factor is currently not a threat to the Ohio-based Fortune 500 company. Owens-Illinois does 70% of its sales outside of the U.S., and a strong dollar negatively affected its earnings recently. At the end of the second quarter, Robert Rodriguez and Steven Romick’s First Pacific Advisors had 10.30 million shares of Owens-Illinois Inc (NYSE:OI) in its portfolio on June 30.

Eastman Chemical Company (NYSE:EMN) is another favorite of Alex Roepers. The investor thinks that 75% of Eastman’s business now deals in specialty chemicals which have strong margins and growth potential. Roepers believes the chemical company can earn $8 to $9 per share in earnings and said that the company could also be a buyout candidate soon, as it recently paid off its debt and is now focusing on repurchasing some of its shares. From within our database, 39 hedge funds had about $804.6 million worth of Eastman Chemical Company (NYSE:EMN) positions as of the end of the June quarter.

Alex Roepers said that 12 top car companies in the world are customers of Harman International Industries Inc (NYSE:HAR), the Connecticut-based company which makes entertainment systems and connected products for automobiles. Roepers said the company posted strong results recently, and has a firm grip in high-end markets. The stock is down by over 16% year-to-date and trades at a reasonable P/E of 15.65. John W. Rogers’ Ariel Investments owns over 1.26 million shares of Harman International Industries Inc (NYSE:HAR) as of June 30.

 

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