The Sohn and Next Wave Sohn Conferences took place in San Francisco last week, shining the spotlight on several growing and established hedge funds, who shared some of their best ideas with attendees. Last year’s event raised $320,000 for San Francisco’s underprivileged youth, providing them with educational opportunities.
Among the hedge funds tracked by Insider Monkey that pitched ideas were Highland Capital Management, which is headed by James Dondero; Christopher Lord‘s Criterion Capital, Oleg Nodelman‘s EcoR1 Capital, and Mick McGuire‘s Marcato Capital.
At last year’s Sohn Conference, some of the big ideas were Morgan Stanley (NYSE:MS), which was pitched by Jeffrey Ubben’s ValueAct Capital, Marcato Capital Management’s bullish thesis on Buffalo Wild Wings (NASDAQ:BWLD), and Social Capital’s aggressive long-term call on Workday Inc. (NYSE:WDAY). Morgan Stanley has jumped by over 54% in the past year, while Workday has gained 20% and Buffalo Wild Wings has declined by 24%.
Five pitches from this year’s Conference caught our attention, which were on Deckers Outdoor Corp (DECK), Vistra Energy Corp (VST), Mercadolibre Inc (MELI), Sony Corp (ADR) (SNE), and Ironwood Pharmaceuticals Inc. (IRWD). We’ll examine the reasoning behind those pitches in this article.
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Let’s start with Deckers Outdoor Corp (NYSE:DECK), which was pitched by Mick McGuire. The stock ranks as Marcato’s largest position as of June 30 (1.95 million shares valued at $133 million), and the fund is currently engaged in an activist campaign against the company. McGuire’s campaign is focused on the company spinning off or selling some of its non-core brands and recapitalizing its balance sheet. McGuire told CNBC last week that the company could do a better job in terms of the latter, predicting that the $2 billion company could have as much as $500 million in net cash at the end of this year.
McGuire believes Deckers Outdoor Corp (NYSE:DECK)’s margins could double along with its stock if the company is successful at shifting its focus to its growing Ugg brand. McGuire has nominated a full slate of ten candidates for the company’s board whom he believes could successfully execute his vision and is prepared to fight a proxy contest if necessary. Marcato won three seats on Buffalo Wild Wings (NASDAQ:BWLD)’ board after a proxy battle earlier this year, though the stock fell heavily after the win and has yet to recover.
Vistra Energy Corp (NYSE:VST) was pitched by Mark Okada of Highland Capital, which took a very large stake in the stock in the second-quarter, a $258 million position that became the fund’s largest. Since its IPO during that quarter, Vistra Energy has gained 23%.
Highland Capital believes there are a number of reasons why Vistra Energy shares could drive higher, including their already attractive valuation and the M&A opportunities that could be available to it thanks to its low leverage. Citi analyst Praful Mehta suggested that it’s likely the company will acquire Dynegy Inc. (NYSE:DYN) for $11-$12 per share in stock. Billionaire John Paulson also took a big stake in Vistra Energy Corp (NYSE:VST) during the second-quarter.
On the next page we’ll check out why leading hedge funds like Mercadolibre Inc (NASDAQ:MELI), Sony Corp (ADR) (NYSE:SNE), and Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD).
Christopher Lord of Criterion Capital pitched Mercadolibre Inc (NASDAQ:MELI) at the Sohn Conference, which his fund did not have a position in as of June 30. Lord expressed that the company has a management team that he knows very well, and that they have a large and unpenetrated addressable market (TAM of about $1.2 trillion).
The e-commerce company is the largest in Latin America, a region with growing smartphone and broadband internet penetration, as well as a growing middle class. Some analysts aren’t thrilled with the company’s continued use of free shipping to drive revenue growth, though others see it as a strong move to gain market share long-term in exchange for near-term profit, a strategy that worked out pretty well for another e-commerce company, Amazon.com, Inc. (NASDAQ:AMZN).
Carl Kawaja of Capital Group pitched Sony Corp (ADR) (NYSE:SNE) during the event, predicting that the Japanese electronics giant is on its way to becoming a significant company again after several lean years. Kawaja believes that Sony’s management team is much stronger than it’s been in the past and that it’s beginning to capitalize on its huge opportunities in gaming, music, and sensors. Kawaja believes that the market is undervaluing Sony because of the breadth of its businesses, but that investors should expect 50% upside.
Lastly is Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD), which was pitched by Oleg Nodelman of EcoR1 Capital. Nodelman is bullish on Ironwood’s Linzess, the first approved treatment that targets Irritable Bowel Syndrome with Constipation (IBS‑C) and Chronic Idiopathic Constipation (CIC) by calming pain-sensing nerves and promoting accelerated bowel movements.
The treatment has an addressable market of 40 million Americans and is being marketed by Allergan. The treatment’s ad campaign was the lone winner of an Effie award earlier this year, which are awarded to pharma companies for launching ad campaigns that successfully drive results. The “Tell Me Something I Don’t Know” campaign is credited with increasing Linzess’ prescription volume by 13% year-over-year.
Nodelman believes that Ironwood’s pipeline of seven other treatments is largely being unaccounted for by the market and thinks the stock could jump by as much as 1,000%.