Top Ideas From Delivering Alpha

Tyler Mathisen of CNBC hosted a panel yesterday at the CNBC/Institutional Investor "Delivering Alpha" conference with six of the brightest minds in the hedge fund world, and asked them for some of their best investment ideas. Up first was Kyle Bass from Hayman Capital, and his idea was to short Japanese government bond using price put options. Bass said that sovereign defaults happen in clusters, such as the times we are currently in. They happen seventy or eighty years apart, and we could see a few countries default faster than anyone expects. Bass as been notoriously bearish on Japan, as the country could default soon after Greece defaults. The country has ¥44 trillion in revenues, and spends ¥92 trillion yearly. Bass believes this is not sustainable forever. He believes that once Greece defaults, Japan will not be isolated. He likened it to what happened with AIG AIG in 2008, only in the sovereign credit space. Bass noted that Japan 5 yr credit default swaps traded at 127 basis points. He talked about how Japan's Finance Ministry worries about potentially defaulting if Greece were to default. He mentioned the country has had nine finance minsters in five years, and six in the past three years. The country's current account surplus is much lower than its need for capital. Bass believes that Japan could default within the next two years, and the catalyst is a default in Europe. His single best idea is buying price put options on Japan government bonds, as you want to be to be long volatility on Japan. Omega Advisor's Leon Cooperman was up next, and he is bullish, particularly on U.S. equities. He believes that stocks are the "best house in the neighborhood." He assumed that we will not have recession in 2011, and he does not believe we will have one in 2012. He also assumed the ECB would step up to the plate similar to what the Fed did in 2008. Already this morning, we saw the ECB announce liquidity measures to prevent European banks from going under. He also assumed President Obama would soften his anti-wealth stance, and that the Middle East stays somewhat stable. Cooperman showed slides that the S&P 500 trades at 11.5 times earnings, and the average price-earnings ratio from 1960-2009 was just under 15. He noted that 47.5% of all S&P 500 equities yield more than the 10 year U.S. Treasury, which is right around 2%. He also talked about investing in high yield credit, as selective high yield credit is starting to make sense. His best idea is that he would not own U.S. government bonds. He did give his top five stock picks: Apple AAPL, Boston Scientific BSX, KKR KKR, Qualcomm QCOM and Sallie Mae SLM. Following Cooper was Phil Falcone, of Harbinger Capital Investments. Falcone's top pick was Spectrum Brands SPB. Harbinger owns nearly 28 million shares of the company. Spectrum Brands focuses on the smart shopper who are looking for value. The company has value added brands, and as Procter & Gamble PG recently showed, the middle income shopper is increasingly moving towards the lower end of the spectrum. He believes Spectrum Brands will capitalize on this. Falcone noted that the company sells for 10-15% less than its competitors, and has quality brands such as Cutter, Rayovac, George Foreman, and others. The company has low capital costs and high cash flow. He believes Spectrum Brands is worth $38 per share next year, up 60% from current levels, as the company pays down debt, takes down its leverage by a factor of three, and investors notice its improvement in free cash flow, which he believes will ultimately yield 15%. J. Tomilson Hill of Blackstone Marketable Alternative Asset Management talked about the opportunities in residential mortgage backed securities and non performing loans as his best idea. He said that in order to buy a pool of non performing mortgages, you need to be able to analyze anywhere between thirty and fifty thousand mortgages. Hill said that he does not think we will see another 15-20% decline in mortgage values across the board. After Hill was Third Point's Dan Loeb, who has been in the news recently with his activist movement against Yahoo YHOO. Ostensibly, his best idea was Yahoo, and he gave reasons why. The company has twelve #1 web properties, including Yahoo! News, Yahoo! Finance, and Yahoo! Sports. The Sunnyvale, Calif.-based company is the number two web brand by total minutes at 17.2 billion per month, but the company has a horrendous management team and terrible corporate governance. He said that he was going to try to replace former CEO Carol Bartz as his first move, but that happened on the eve he filed his letter with the SEC. He's reached out to potential CEO's and he said that "No one wants to work with these clowns on the board." He noted that Yahoo has not really changed since 2004. It still has the "same crappy interface, and the same user logo." Loeb notes that the company is in desperate need of a new board of directors, particularly Chairman Roy Bostock, who Loeb tried to have step down. Loeb noted that Yahoo has an intrinsic value of $20 per share, and thinks anywhere between $19 and $31 per share is is doable. He did make sure to note that he has hedged his Yahoo position with a position on the S&P 500, as well as Yahoo Japan. Last up was Symphony Management's Anne Popkin, who gave her best investment idea as levered credit. Popkin made sure to note that the higher end of levered credit was particularly interesting to her.