Winter 2012

BR Malls is the largest shopping center company in Brazil, with same store sales growth of 12-14%, significantly outperforming top US shopping center companies that see only 1-2% growth. This positions BR Malls favorably in a growing market.

There is a significant pent-up demand for housing in Brazil, with seven million units needed. This demand creates a favorable environment for homebuilders in the country.

Michael Karsch's firm, Karsch Capital Management, has a strong investment thesis in Viacom, focusing on its potential for growth and value creation in the media sector. The firm emphasizes thorough diligence and differentiation in its investment approach, suggesting a favorable outlook for Viacom's future performance.

William Strong also discussed his investment in Bunas Finance, indicating a strategy focused on high-quality assets at distressed valuations, which has historically led to strong returns for his firm.

William von Mueffling's Cantillon Capital Management invests in Bank Rakyat, reflecting a strategy focused on companies with high sustainable financial productivity, which is expected to yield favorable returns.

Cantillon Capital Management, led by William von Mueffling, has invested in Royal Vopak, indicating a belief in the company's strong market position and financial productivity.

William von Mueffling's investment in Oriflame Cosmetics is part of Cantillon Capital Management's strategy to target companies with sustainable financial productivity, suggesting a positive outlook for the company's growth.

William C. Martin's strategy involves investing in companies with compelling growth prospects while shorting overvalued and corrupt companies, reflecting a balanced approach to risk and opportunity in the market.

Bank Rakyat is an Indonesian bank specializing in micro lending, which allows it to achieve one of the highest returns on assets in the world. Its extensive network of small offices in remote locations creates a significant moat that is difficult for competitors to replicate, particularly for larger banks like Citibank.

Royal Vopak is the global leader in the storage of liquids at terminals, benefiting from a significant moat due to the complexity of obtaining regulatory approvals and finding suitable locations for terminals. This unique position allows Vopak to maintain high returns on capital and a strong competitive advantage.

Oriflame, a cosmetics manufacturer, is currently undervalued as its share price has not increased since its IPO in 2006, despite growth in sales and profits. The company faces challenges due to its exposure to the Russian market and currency mismatches, but its long-term operating history suggests potential for recovery and value appreciation.

OpenTable is the dominant restaurant reservation website in the US, benefiting from a network effect that makes it difficult for competitors to gain traction. As a leading portal in its vertical, it stands to capture significant market share and profits as the online reservation space consolidates.

Rightmove is the leading property website in the UK, which allows it to benefit from a winner-take-all phenomenon in the real estate market. Its strong position creates a network effect that enhances profitability and market dominance.

Oriflame is currently undervalued at 10x earnings, primarily due to negative sentiment from Western investors influenced by issues in US direct selling companies. However, it has a strong leadership position in emerging markets like Indonesia, Russia, and India, which provides sustainable earnings power. The recent insider buying by the co-founder and other executives indicates confidence in the company's future growth potential.

Prosegur has successfully expanded outside of Spain, particularly in Latin America, which has allowed it to grow rapidly despite stagnation in its Spanish operations. This strategic shift has made it a strong investment opportunity.

Swedish Match has been a remarkable investment since 1995, consistently generating high returns on equity and maintaining a stable valuation multiple. Its ability to grow earnings and free cash flow makes it a compelling long-term hold.

Aalberts is a company where the founder has maintained a meritocratic approach by not allowing his children to work in the business. This governance structure is seen as a positive factor for long-term performance and aligns with the interests of shareholders.

Investors initially focused on cost cutting and capital allocation at Deutsche Börse, but overlooked the potential for revenue growth. The belief is that as investors recognize the growth story, the stock will move up the lifecycle from value to growth, leading to appreciation.

Despite bearish sentiment around Timberland, the brand was undergoing a revitalization. Understanding the company's position in its lifecycle revealed that it was on an upswing, suggesting potential for growth and investment.

Apple is considered the ultimate lifecycle stock, with a significant opportunity identified for the iPod to capture market share previously held by Sony's Walkman. This long-term interest reflects confidence in Apple's ability to innovate and grow.

We started buying Viacom stock in the high thirties. We believe it is in the value stage of the lifecycle. People have made the assumption that cable programming isn't a great business anymore due to concerns about multi-channel penetration decreasing over time. However, existing contracts with cable operators call for price increases, and the impact of competition from services like Netflix is manageable in the near term.

HDFC has been in the mortgage origination business for a long time and generates 20%-plus returns on equity. The company has grown its mortgage book by 24% per year over the last ten years and has maintained strong earnings and book value growth at 20% for the same period. Their management has developed a very low operating cost business model, which contributes to their competitive advantage in the financial sector.

Sun Pharma is growing at 15-25% per year and generating net cash while doing so, making it a compelling business in an environment where reinvestment can yield high returns.

William Strong expressed a strong interest in Bunas Finance, a small finance company in Indonesia, due to its solid management track record and the unique underwriting process that allows for large spreads by lending against used vehicles, which are often undervalued by other finance companies.

William Strong stated that he is short treasuries, indicating a belief that the current pricing of US treasuries does not reflect the underlying risks associated with US debt.

Sam Zell took over Itel Corporation after it emerged from bankruptcy, recognizing the value in its subsidiary that leased railcars. Despite low utilization rates, he saw potential in the nearly new railcars, which were being undervalued.

Sam Zell acquired Anixter at 2x book value, realizing that the true value lay in its ownership of a key distribution pipeline rather than just the distribution business itself. This strategic insight led to significant revenue growth over the years.

Sam Zell has owned Anixter for a long time, viewing it as a company with significant potential for growth and expansion. He acquired it in a way that allowed it to be a subsidiary of Itel, which provided the necessary resources for global rollout without drawing too much attention from the market.

Zell mentions acquiring Great American Management, a distressed REIT with $127 million in net operating losses (NOLs), which he believed had significant value that was not reflected in the stock price at the time.

Zell discusses his acquisition of Itel, which allowed him to leverage its cash flow and depreciation-generating assets to support the growth of Anixter, demonstrating his strategy of using control to effect change in companies.

Zell refers to acquiring New Corp, which had $250 million in NOLs, indicating his strategy of capitalizing on tax advantages that were not recognized by the market.

Cornerstone OnDemand is a talent management software company facing intense competition in a market that has become significantly more competitive. With a revenue run rate of approximately $80 million, the company is sub-scale and is losing money, making it unlikely to achieve operating leverage in the near future. Growth is decelerating, and management is caught in a catch-22 situation regarding profitability and growth.

SMG Indium is involved in stockpiling indium, a critical metal used in LCD, LED, and solar technologies. The company has been helped to go public, indicating confidence in its business model and growth potential in the technology sector.

The investor has successfully shorted fraudulent Chinese companies listed in the U.S., which accounted for a significant portion of their short side profits. This strategy involved systematic screening and due diligence, leading to substantial gains as many of these companies faced accounting irregularities and governance issues.

The investor shorted a basket of targeted regional banks with specific geographic and construction lending exposure, which contributed significantly to their gains during a strong year in 2007. This indicates a strategic approach to identifying vulnerabilities in the banking sector.

Teavana went public with a high valuation based on expected growth, but the company has shown unimpressive same store sales growth and declining productivity at new locations, indicating it is not a breakout retail concept.

As the largest shareholders, we are pushing MRV to return capital to shareholders and restructure the board, believing there is significant value to unlock in this net-net situation.

We bought Pacific Biosciences at a low market cap, believing in its long-term potential in the genomic sequencing space, despite its current cash burn and competitive risks.

ATMI has a solid annuity-like business model with significant cash reserves and growth potential in life sciences and semiconductor technology, making it an attractive investment at its current valuation.

ATMI's strategic relationship with Intermolecular and its ownership stake position it well to benefit from new semiconductor technologies, which are underappreciated by analysts.

We own TARP Warrants in Hartford Insurance, having conducted extensive modeling to understand the risks and rewards associated with their annuity exposure.

BJ's Restaurants, Inc. represents an attractive short investment due to its premium valuation at 47x LTM earnings while only forecasting 13% growth. The company's growth is dependent on a maturing base of restaurants and its ability to secure large spaces in high traffic areas, which is becoming increasingly difficult. As BJ's expands beyond its concentrated base in California, margins are expected to decline, making the current stock price unrealistic.

BJ's Restaurants is overvalued given its current growth stage and the challenges it faces in expanding its restaurant count. The company is unlikely to reach its target of 300 locations due to limited real estate opportunities and declining same-store sales. The stock price does not reflect the stagnation in growth and the mediocre return on capital, making it a candidate for a short position.

Chicago Bridge & Iron is undervalued with a target price of ~$60, representing a potential upside of ~40%. The valuation is based on a sum-of-parts analysis and the company's expected share of global LNG spending, which is projected to exceed $300 billion. CBI's backlog and recent project awards indicate strong future growth potential that is not yet reflected in the stock price.

Chicago Bridge & Iron is positioned to benefit from the increasing global demand for natural gas, particularly in Asia, where LNG projects are expected to surge. The company has a strong market share in LNG storage and liquefaction, and its recent acquisitions have diversified its business model, allowing for a more stable cash flow. With a target price of $58.81, CBI is undervalued compared to its historical trading range and is expected to unlock significant shareholder value through potential acquisitions and share buybacks.

Michael is considering Chicago Bridge & Iron due to its strong market position in LNG projects and the expected growth in natural gas consumption globally, particularly in China. The company's ability to execute large projects efficiently and its diversified revenue streams make it an attractive investment.

Hewlett Packard is a strong cash flow generating, market-leading company that is being punished by the market for recent company announcements and multiple CEO changes. The sell off has been overdone, with HP stock moving from the year high of $50 to the recent low at $22 in September. The current price of $28 represents an opportunity to buy HP with a 45% margin of safety to its intrinsic value of $51, indicating an 83% upside.

We recommend buying the Hankook Tire share because we believe the market is underestimating the product price growth potential of Hankook led by improvement in brand value. Our target price is W71,000, implying 66% upside, as we expect Hankook will be able to achieve 9% ASP growth during the next 3-5 years, significantly higher than consensus estimates of 2-3%.

Hankook Tire is expected to see a 9% increase in average selling price (ASP) across all regions, leading to gross profit margin expansions and significant bottom-line growth of 32% and 29% in 2012 and 2013, respectively. The intrinsic valuation suggests a price target of W71,000 per share, representing a 66% upside from the current price of W42,750.