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from Counterparties:

MORNING BID – Momentum stocks: A primer

Lots of stocks have been getting killed in the last several weeks and the declines don’t seem really like they’re set to abate headed into a week where news is again at a premium (sure, earnings, but it’s just a few names, and they’re mostly decidedly not in this category of the momentum names that fueled the rally in 2013). So the likes of Facebook, Tesla Motors, Netflix, Alexion Pharmaceuticals, and a bunch of others have seen their fortunes turn in the market. But at this time we thought it would be a good way to get into this topic again by trying to lay out just what the hell a momentum stock is in the first place, because they exhibit a number of characteristics beyond just “a stock that’s going up very high.” So here goes:

Growing Industries: Internet retail, internet security, solar, cloud computing, companies that use the cloud for providing services (think Salesforce.com), biotechnology, and anything else where the prospects for growth are big and related to a growing sector of the economy. Utilities don’t really qualify here, naturally. The reasons are two-fold: for one, in order to jump onto a rising growth story, you’d want to be in a place where the expected future returns outpace the returns you’re getting now, something you won’t get from the telephone company, someone who sells toothpaste, or the guys hooking up the electricity.

Revenue, Revenue, Revenue: Credit Suisse’s quantitative research models shows that the big winners in 2013 were those whose price when compared to enterprise value showed most of the value in the stock wrapped up in their future growth prospects. Lots of these types are showing a big boom in the money they’re bringing in every year, even if that’s not translating yet into earnings – Tesla, for instance, saw its revenue rise by about 75 percent in 2011, which then doubled in 2012, and increased nearly four-fold in 2013. That’s growth, and that’s what feeds the expectations for more growth. The exception here is probably biotechnology, where much of the prospects are given over to expectations for a drug approval – though it’s notable that Alexion, for example, has posted revenue growth of 37 percent or better for five years running.

Rising Stock Price: This is sort of a no-brainer, but it’s a little more nuanced than just “OMFG LOOK AT THAT.” (Ok, maybe not much, but let’s unpack it anyway.) There’s a lot of talk about stocks that steadily rise and then go through a period of what people blandly call “consolidation,” but in a sense that kind of thing is important – it means that investors are seeing their stocks sit, churn for a while, and not really move, but those confident in the prospects and in the valuation of a company will buy as these dips occur, thus ensuring a “base” when the stock falls back. They’re not “value” investors, but they’re investors believing that a company’s value sits at a certain price where they’d be willing to buy, again and again. But these stocks exhibit no such pattern – they don’t really come up for a breather at all, and sort of just simply keep going and going and going. So investors who get into these names, including but not exclusively hedge funds, are doing it and finding what Mike O’Rourke of JonesTrading called “instant gratification from price appreciation.” When investors talk about stocks going “parabolic,” that’s what they’re referring to – look at Netflix last year, rising with barely a stop from around $90 to more than $450 a share.

from Financial Regulatory Forum:

The JOBS Act at age two – prodigy or enfant terrible?

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By Stuart Gittleman, Compliance Complete

NEW YORK, Apr. 3, 2014 (Thomson Reuters Accelus) - The financial services industry is still getting used to the two-year old JOBS Act, as funds gingerly begin to explore new general-solicitation freedoms and "crowdfunding" venues sort through the rules, speakers said at a Fordham Law School forum in New York.

As mandated by the JOBS – or Jumpstart Our Business Startups – Act enacted in April 2012, the Securities and Exchange Commission has adopted rules for general solicitations that became effective in September 2013, and is reviewing comments to a December 2013 set of proposed crowd-funding rules.

from Felix Salmon:

Trish Regan, Einhorn apologist

Ever since the story first broke, more than five weeks ago, that David Einhorn was suing Seeking Alpha, the Israeli financial website has been very, very quiet on the topic. Sometimes they have simply failed to respond at all to requests for comment (including mine); other times, as with Andrew Ross Sorkin, a spokesman will formally decline to comment.

So it was a big deal when Seeking Alpha president David Siegel appeared on Bloomberg TV today, and answered Trish Regan’s questions about the Einhorn lawsuit. Or, at least, it would have been a big deal, if Regan had actually bothered to ask him any of the obvious questions. Like, for instance, whether he’s going to fight it, or what he thinks of the merits of the case.

from Breakingviews:

Dan Loeb bids against himself at Sotheby’s

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By Richard Beales
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Dan Loeb seems to be bidding against himself at Sotheby’s. The Third Point hedge fund activist surprised the auctioneer by nominating three directors to run against the incumbents, even after the firm offered him one uncontested board seat and even acted on some of his gripes.

from Financial Regulatory Forum:

IA brief: SEC examiners give first look at hedge fund exam findings

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By Jason Wallace, Compliance Complete

NEW YORK, Feb. 11 (Thomson Reuters Accelus) - Last week, representatives of the Securities and Exchange Commission gave the first of many reports concerning its "presence exam" initiative for conducting initial regulatory exams of private advisers, and reported a lower rate of deficiencies compared with regular exams. The panel highlighted exam findings and staff observations concerning investment conflicts, marketing, valuation and custody.

The Dodd-Frank Act required approximately 1,500 private advisers to register with the SEC in 2012 - resulting in a current population of approximately 4,000 registered private advisers.

from Counterparties:

Can Mathew Martoma accept money from Steve Cohen?

DealBook’s Matthew Goldstein and Ben Protess report that “prosecutors never thought their insider trading case against Mathew Martoma would go to trial... [He] appeared to have every incentive to cut a deal against a boss who fired him in 2010”. Martoma, a former analyst at SAC Capital now facing federal insider trading charges, seemed to have plenty of incentives to cooperate with authorities: a solid case against him, a wife and three children, and the possibility of a decades-long prison stay ahead of him.

But he didn’t cooperate, and apparently didn’t implicate SAC chief Steven Cohen. That, Goldstein and Protess report, worries prosecutors: “Mr Martoma’s resistance... has baffled officials... Some authorities have grown suspicious about his motives... noting that Mr Cohen is paying for Mr Martoma’s defense.”

from Expert Zone:

Indian hedge funds get knocked down but get up again

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

The fortunes of hedge funds focused on India continue to twist and turn, with many plots and subplots. After witnessing widespread losses and heavy redemptions in 2008, Indian hedge fund managers bounced back remarkably to post a 50 percent return in 2009. They continued their good form in 2010, delivering healthy gains of 12 percent during the year.

But in 2011, the managers witnessed losses amid declining markets and a depreciating rupee. At the end of that year, many managers expressed confidence in the underlying market for the following year and predicted gains for the rupee by mid-2012 -- both these predictions came to pass. The Eurekahedge Indian Hedge Fund Index was up 13.13 percent in 2012, making it the strongest regional hedge fund mandate for the year. Some of the funds even witnessed asset inflows in 2012 and early 2013, a rarity for Indian hedge funds since the financial crisis.

from Unstructured Finance:

Jim Chanos, bad news bear, urges market prudence

Prominent short-seller Jim Chanos is probably one of the last true “bad news bears” you will find on Wall Street these days, save for Jim Grant and Nouriel Roubini. Almost everywhere you turn, money managers still are bullish on U.S. equities going into 2014 even after the Standard & Poor’s 500’s 27 percent returns year-to-date and the Nasdaq is back to levels not seen since the height of the dot-com bubble in 1999.

“We’re back to a glass half-full environment as opposed to a glass half-empty environment,” Chanos told Reuters during a wide ranging hour-long discussion two weeks ago. “If you're the typical investor, it's probably time to be a little bit more cautious.”

from Unstructured Finance:

Carl Icahn in his own words

Icahn's Big Year in investing and activism

By Jennifer Ablan and Matthew Goldstein

We held an hour-long discussion with Carl Icahn on Monday as part of our Reuters Global Investment Outlook Summit, going over everything from his spectacular year of performance to his thoughts on the excessive media coverage of activists like himself who push and prod corporate managers to return cash to investors. We also talked about the legacy he wants to leave.

There was much Icahn wouldn’t talk about on the advice of his lawyer, however. While he said he took a look at Microsoft, he won't say why he decided not to join ValueAct’s Jeffrey Ubben’s activist campaign. He also stayed mum on any plans for his Las Vegas white elephant, the unfinished Fontainebleau Las Vegas resort, which he bought out of bankruptcy proceedings in 2010.

from Ben Walsh:

Ken Griffin wants to break up the big banks, or run one

Ken Griffin, who runs the $14 billion hedge fund Citadel, said Tuesday that he wants to break up banks:

“We don’t have a good legal justification for breaking up the banking system. But if I could wave a magic wand, I’d break up the banking system.”

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