According to Tilson he has looked at JC Penney before and thought that it is fairly cheap but was unable to see a catalyst to remedy the undervaluation. The fact that his old buddy Bill Ackman is now a major shareholder got his attention. The fact that Steve Roth of Vornado Realty Trust is investing alongside Ackman and combined they own 25% of the company it really, really got Tilson’s attention.
Not the first time Tilson has ridden Ackman’s coattails. Of course the most recent was General Growth Properties where he made about 20 times his original investment in a very short time period.
It is hard not to think about Ackman’s Target investment though when the name JC Penney pops up in the same sentence as Ackman. That has not worked out nearly as well as planned for Ackman and his investors. The plan for Target which owns a lot of real estate was to spin off a separate REIT to try and unlock value. JC Penney also owns a lot of real estate but Tilson doesn’t think a REIT spinoff is part of the plan.
Seagate is a declining business with a large market share of the spinning disc drive business. This is a dying industry as flash discs are taking over. The attraction is that Seagate is just too cheap given the future value of its cash flows. Essentially a bet that the business will not decline as fast as the market thinks.
Then Tilson goes into Berkshire Hathaway in a little detail:
- Was hoping the market would overreact to the Sokol situation and knock Berkshire well down so that a nice buying point would emerge
- Thinks that as more details come out that Sokol looks worse and worse
- Buffett didn’t know anything about what Sokol was doing, thinks Buffett will have to tighten up internal controls
- Thinks Berkshire is actually worth more now than before because the Lubrizol acquisition added value
- One of the Fast Money clowns then asks Tilson if he is worried that the new cheap “B” shares are in weak hands which could create weakness in the stock (this is five seconds after Tilson was just discussing how he was wishing for a sell off so he could buy more). Tilson simply refers to intrinsic value being what his concern is. If there was a concern about the Sokol issue it would be that Buffett knew more about the Sokol trades than has been disclosed.