John Burbank is sort of a legend among investors, launching his firm, Passport Capital, with only $50,000 in 2000 and currently managing over $4.0 billion in Assets Under Management. Today, Mr. Burbank spoke with CNBC‘s David Faber, presenting his insights regarding Yahoo! Inc. (NASDAQ:YHOO), on which his fund is long and discussing the US stock market and the Fed’s policy.
About Yahoo! Inc. (NASDAQ:YHOO), Mr. Burbank said that its stock is undervalued because the market does not fully reflect the company’s large equity stake in Alibaba Group Holding Ltd (NYSE:BABA). According to Burbank, Yahoo will either present a good plan on how to spend over $40 billion from the sale of its full stake in Alibaba, in which case the stock will go up, or the market is not going to like the plan, which will lead to activist investors pushing for some better ways to use the additional cash, which will still lead to a growth of the stock in the longer term. According to Passport Capital’s latest 13F filing, the fund initiated a stake in Yahoo during the second quarter and currently owns some 562,000 shares.
Moreover, Burbank considers that Yahoo! Inc. (NASDAQ:YHOO), needs a better tax allocation for its equity positions in both Alibaba and Yahoo Japan. The investor considers that the market currently expects the company’s management and board to pay a big amount in taxes for its equity investments, but Burbank considers that the company can find a way to better profit from them and save on taxes. One of the ways mentioned by Burbank is to split the company into its core business and into a entity that will manage the equity investments, which will significantly increase the value of the company.
Burbank is not the only one who considers that Yahoo! Inc. (NASDAQ:YHOO), should separate its equity assets from other assets. Jeff Smith of Starboard Value sent a letter to CEO Marissa Mayer a couple of weeks ago, proposing a spin-off of the equity assets. In fact, Yahoo! Inc. (NASDAQ:YHOO), has benefited from a lot of attention from activist investors over the years, such as Dan Loeb, who helped the company change its course and replace the management of the company. However, Yahoo’s core business is still struggling, even though the company benefited from its investments in Alibaba and Yahoo Japan, which means that activists might still be pursuing the board and Mrs. Mayer to take action.
The founder and Chief Investment Officer of Passport Capital also discussed the US stock markets and his investment approach with the Fed tightining the environment. He considers that since the crisis, the companies are more oriented towards returning value to shareholders rather than other issues such as the overall economic growth and unemployement. Moreover, more and more US-headquarted corporations are considering going global in order to expand faster. In this way, being bullish on US companies represents a good investment. However, the Fed’s policy is tightening, which creates a lot of volatility.
Mr. Burbank also said that 2014 so far has been a “bear year” even though there wasn’t any big surprises among the financial results of companies, but rather the volatility was “moving under the surface.”
“I think that with the Fed actually ending QE and with if the dollar can rally […] longer-term S&P and the dollar are what you want to own,” Burbank said.