Stock maestro's picks: British pubs
The good ol' days are gone so be patient, says Glenview Capital's Larry Robbins. Here are his 5 stock picks for the new year.
(Fortune) -- They call him the L-Train. Larry Robbins is the driven, blunt, larger-than-life founder and CEO of Glenview Capital who manages $7 billion a year and has been honored as one of Trader Monthly's top 100 Hedge Fund Traders. At this year's Value Investing Congress held in Manhattan, which drew investing luminaries like Bill Ackman and Leon Cooperman, he told a crowd of fellow hedgies that his fund is adapting to uncertain times.
"We don't have the same tailwinds," he said. "For example, M&A and private equity are on hold. They're not dead. There are a bunch of smart 26-year-olds all ready to buy out every company in America. But the L in the LBO isn't available so they'll have to wait."
Robbins went on to explain that Glenview is doing something it doesn't normally do: Exercising patience. "It's a meaningful departure from our normal aggressive style," he said
There are only two ways to make money in this market, continued Robbins: either earnings or multiples must grow. He doubted the likelihood of the former, and said he was in search of undervalued stocks likely to post big gains. He found some prospects in HMOs and British pubs, among others. (See Robbins' stock picks, below.)
Robbins sat down with Fortune before his speech Wednesday to discuss his fund's strong performance, the current economic gloom, and what it will take to be successful in 2008. Here are some highlights:
Fortune: Many funds got creamed in 2007, but you're up an estimated 20% or more this year. How did you do it?
Our performance was strong in 2007 for a couple of reasons. We came into the year defensive on the long side and we had made a few big, aggressive, concentrated bets on what I considered to be a unique, highly attractive opportunity in the pharmaceutical services sector. That included Medco (Charts, Fortune 500), McKesson (Charts, Fortune 500), Express Scripts (Charts, Fortune 500), and CVS (Charts, Fortune 500). We still like the stocks, but they got too pricey so we sold most of the position because they have to come back in before we'll own them again.
Second, we've maintained a short position in mortgages since late 2006. That gave us a hedge against liquidity contraction and it gave us early and valuable insights into the consumer lending market and its deteriorating conditions.
Q: How gloomy is the market going into 2008?
A: I see a cloudier picture than ever. There is uncertainly hanging over the consumer during a time of contracting liquidity for the consumer. There is also a gap in information concerning liquidity and the investment banks. You don't know what is going on. Let me put it this way. We're in an environment when the S&P can move almost 3% in a day and you don't which direction it will go. I have a great amount of respect for everyone here, but I said I would only participate in this conference if I could be at my post looking at my screen until the closing bell at 4pm. That's why I'm talking to you at 4:10 and giving my presentation at 4:20.
Q: What do you do to make money, or at least preserve capital, amid all the uncertainty?
A: There is only one rational response. Risk reduction. We had already reduced risk coming into this environment. Given that, we're in a good position to take a careful and cautious approach to the markets. And you have to have some dry powder in reserve [i.e. cash] for visibility and to take advantage of opportunities.