#$lc

Momentum has slowed down a little bit, breadth has been somewhat weak, this is mostly due to the fact that the Russell 2000 has been down for three days in a row. Inauguration day and the beginning of earnings season are two catalysts some are pointing at as possible triggers for a pullback in the market. That remains to be seen and only time will tell. With earnings season right around the corner, it is important to check the earnings date of your holdings. My long-only watchlist consists of a few names with an extra focus on $POT $LC $AIRG and $BCO. Here is the rest of the list;

We have an interest in the above names if and only if they go through yesterday's high. That one single criterion on most days eliminates a bulk of the names. These ideas are what we consider swing trades that can last anywhere from 1-10 days. Most stocks if not all go through a momentum burst that lasts 1-10 days and that is what we look to take advantage of.

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at [email protected] or 646-480-7463.

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We live in a world in which we are bombarded with information, tweets, blogs, etc., content is the new salesman, content is the new marketing, content is the new networking. With information being so readily available, bloggers try to differentiate themselves with their writing skills, volume, and consistency, putting out blog posts to meet quotas. We are working to stand out from the crowd by showing performance, by taking all the information and seeking alpha, that’s the sole purpose of the blog. It won’t always be pretty, it’s never easy, and performance is spotty, but we seek superior risk-adjusted returns, not notoriety for our writing skills.  If this is something you can relate to, then this blog might be for you.

Ariad Pharmaceuticals (ARIA): Ariad has seen estimates edging significantly higher leading into its third quarter report, with expectations now reflecting a 49% increase on the bottom line and 56% on the top. It’s recent success has rewarded shareholders with the stock up 40% in 2016. Shares were up well over 100% until this past month’s sell off into the election. Investor’s focus will be primarily on its core leukemia treatment, Iclusig, which currently generates a majority of total revenue. Continued demand for the drug along with expansion into new territories will help support the top line. In addition to increased traction in domestic markets, Iclusig was recently approved in Japan which is expected to increase exposure and provide a new layer of revenue for this very successful drug. The only downside to its recent success comes from an over reliance on one particular drug. Many pharmaceutical companies often have a robust pipeline and catalogue of treatments to offset any losses when its other treatments struggle.

Sysco Corp (SYY): Sysco has made significant strides in recent quarters on the back of continued acquisitions and efforts to diversify and strengthen its product portfolio. Its efforts appear to be paying off as the second quarter delivered a robust 23% increase on the bottom line and 10% on the top. Strong sales can be attributed to its success as a major supplier of organic and healthy foods across major markets. This will likely continue when the company reports earnings Monday morning but margins could start to tick down. Food cost deflation along with unfavorable currency headwinds is likely to result in weaker margins and softer earnings growth. The deflationary trend is reflected in current estimates that are calling for about 15% growth.

Dean Foods (DF): Dean Foods’ recent focus on price realization, cost productivity and creating a balance between price and volume is expected to deliver strong returns despite industry wide headwinds. Analysts are expecting this to lead to a 29% increase in earnings but a 4% decline in sales. The top line is more likely to be impacted by the broader pullback from processed and unhealthy to organic and high quality ingredients.  Shares have been on the up this month after news broker that the company was fielding takeover bids. Any hints of chatter surrounding sales during the company’s conference call will overshadow the outcome, good or bad, of the earnings results.

Lending Club (LC): Lending Club was one of the earliest pioneers of what we are now calling fintech but it is now also the first company in the space to come under regulatory scrutiny due to questionable business practices. This hiccup may not have a long lasting impact on financial performance but it certainly dented share prices and brand reputation. Shares are down 55% in 2016 heading into what’s expected to be a lackluster third quarter report. Heavy marketing investments and rising expenses related to attracted users is likely the biggest threat to margin growth. Lending Club posted a loss in the second quarter and is projected to do the same in the third, marking two consecutive quarters of unprofitability. The top line is unfortunately trending down as well with current estimates forecasting a 10% decline from a year earlier.

MGM Resorts (MGM): Travel trends have picked up this earnings season beginning with strong results from airlines and continuing with better than expected results from Las Vegas Sands this week. Major hotels are lined up to report next week with expectations edging higher on improving industry trends. MGM in particular is expected to report a beat Monday morning from higher demand at its Las Vegas resorts. Strong employment and increased tourism has been largely credited with this surge during the third quarter. Near term headwinds include potential struggles in Macau gaming, despite some promising reports that the region is improving.

[Photo Credit: CafeCredit.com, via Flickr]

We did this last quarter and it was wildly popular so back by popular demand Obviously, with the new (not old) data!

As Q2  letters start to come out and the final Q1 letters come out we wanted to update this post. Besides the actual articles (at least the ones we authored) it took hours of time every week updating and curating the best material. See the latest update of hedge fund Q2 letters below.

The last 13Fs came out yesterday for Q2 2016, and the media loves to report the newest “hot” hedge fund holdings - some media outlets do a better job than others of the reporting, and one of our favorites on this topic is MarketFolly.

There are many issues with how 13F data is reported as many (including us) have discussed, while some see great merit, or at least some merit. One hedge fund in this list mocked the 13F data in their letter which was released days before the 13F filing deadline.

However, if you have a choice the best option is go to the source - see what hedge funds are actually saying!

Some hedge funds are more public than others. However, most of the time even if a hedge fund manager is willing to talk to media media they are reluctant to discuss specific positions, especially short ideas.

So how do you get the best information on hedge funds? Unless you are a big firm about to invest millions in a hedge fund (in which case you can call up the CEO), the best information is usually available only in hedge fund letters, which is usually only sent to investors and potential investors.

Some hedge funds publicly release their letters because they have publicly traded vehicles and are required by regulators.  Some smaller funds release their notes in an effort to get press not available to funds that size. Many of these funds have great track records but cannot compete with hedge fund managers who can do the rounds on CNBC, Bloomberg, Yahoo Finance etc. whenever they want. Some of the bigger hedge funds make it very hard to get their hedge fund letters via security and/or by greatly limiting who they send it to.

Thankfully, we have reliable sources and readers who help us solve this issue. While most of the time we cannot post the full letter when we can we do so, and when we cannot we do an analysis which would fall under fair use. To make it easy to find these hedge fund letters I decided to put together links of some funds I follow and/ find value in their positions/thoughts.

The letters listed below are not an endorsement of the fund nor does omission  in any way imply disapproval.

I decided to put together this resource page which I hope to update a lot over the next few weeks and to add to at least annually if not more. Additionally, if we are missing any good funds which you feel we should include please contact us at tips(@)valuewalk.com. We also use other more secure methods, PGP and everything is entirely anonymous.

Note for accuracy sake some of the funds listed below are mutual funds which are required (I believe) to publicly disclose most holdings every quarter.

Without further to do here is our list of good readers for H1/Q2 16 letters.

Enjoy!

Q2/H1 2016 – hedge fund letters to investors

Adage Capital ‘Smart Beta’ Distorts Market

Apollo Asia – hoping for alpha

Ariel Investments June, Focus Fund June

Ariel Appreciation Fund

Aristides Capital Q2

Aristotle Capital Management

Artko Capital Management

Arquitos Capital Partners Q2, Sitestar

Artemis Capital – warning

Astenbeck Capital Q2

Avenir Capital Q2

Baupost Q2 2016 letter

Bill Nygren Q2

BlueMountain Capital Q2

BlueTower Asset Management Q2

Booth Laird

Bretton Fund Q2

Brevan Howard June

Bridgewater Associates attacks media

Canyon Capital Q2 – Danger in bonds

Carlson Capital Q2 – Bond woes

Cedar Creek Partners

Coho Capital Long Amazon

Cooper Creek Q2

Cowan Asset Management

Cornwell Capital – fat tails

Corsair Capital Q2 “Quintiles Transnational / IMSHealth Thesis”

Clearbridge

Crescat Capital Q2 letter

CQS Q2 Insights – Sir Michael Hintze

Crispin Odey June

Crispin Odey Q2 call – warning

Crispin Odey Q2 – gold

David Capital Short SFS

Dodge & Cox Q2

Donville Kent

Donville Kent Q2 – LOL

Elm Ridge Capital

Emerging Value Capital Management Q2

Euclidean Technologies letter Q2 – Value vs Growth

Fairholme Capital H1

First Eagle Global Q2

FPA Capital

FPA Capital Fund webcast audio, transcript And slides

FPA Crescent Fund Q2

FPA Crescent Fund Q2 webcast audio, transcript And slides

FPA International Value Q2 webcast audio, transcript and slides

Global Asset Management

Goodhaven H1

Greenlight Capital Q2

Greenhaven Road Capital Q2 ; Long IBKR

Greenwood Investors

GDS Investments

GMO Q2 letter The Duration Connection

Half Moon Capital Q2

Hoisington Investments Q2

Horizon Asia

Horseman Capital Q2

Iolite Partners

International Value Funds

IVA Worldwide Jensen Quality Q2 conference call

John Hempton June letter – Long RBS

Kerrisdale Capital June – Hit by DISH

Kerrisdale Capital Q2 letter

King Street Capital Q2 – Warning

KKR Adult Swim Only: 2016 Mid-Year Update

Lakewood Capital Q2: Short Aussie Banks & Core Labs

Livermore Partners Q2 – Up 68%

LongLeaf Capital Q2

Mairs & Power

Maverick Capital Q2

Meson Capital Q2

Milkwood Capital Q2

Mott Capital Q2

Muhlenkamp And Company

Newbrook Capital Q2 – Short GT

Nishkama Capital short Paypal

Oaktree Capital – Navigating Cycles

Oakmark Funds

Old West Investment Management. Long Cheniere

Omega Advisors – Bullish

Passport Capital Q2

Raging Capital Q2 – short LC, VRX, PTMS

RV1 Capital

Pershing Square Q2 – Herbalife, FTC

Platinum July & Q2

Polaris Global

Pzena Q2

RA Capital Management Q2

Sandon June

Sequoia Fund Q2 – Dumps Valeant

Stanphyl Capital – short Tesla – June letter

Starvine Capital Q2

Sui Generis June

Trapeze Asset Management Q2

Third Avenue Q2

Third Point Q2

Thornburg Value

Tiger Global Q2

Tourbillon Capital Q2

Tweedy Browne Q2

TwinPeak Q2

TVG Partners H1

T11 Q2 letter

Vltava Fund Q2 “Investing In An Environment Of Declining Company Earnings.”

Vulcan Value Q2

Weitz Funds Q2, Colfax, AGN, ENDO, Liberty woes

Yahoo Finance is tracking the stocks you’re following, based on your Yahoo Finance ticker searches.

Bank of America (BAC) – The bank reported second-quarter earnings that beat estimates on both the top and bottom lines. Bank of America posted earnings per share of 36 cents on net revenue of $20.6 billion. Bank of America’s stock is down about 17% since January 1.

Netflix (NFLX) – The online streaming giant has signed a contract with CBS Studios International to be the exclusive streaming source for the new Star Trek series in 188 nations outside the U.S. and Canada. The next set of shows will debut in January 2017.

Groupon (GRPN) – Piper Jaffray upgraded Groupon to overweight with a price target of $6, noting that the company is quickly narrowing its product and regional focus to categories where it can be successful.

LendingClub (LC) – Former Global COO for BlackRock’s iShares, Patrick Dunne, will take over as LendingClub’s chief capital officer.

Madison Square Garden (MSG) – An article in Barron’s over the weekend argued that Madison Square Garden’s shares could be undervalued by as much as 35%. According to a calculation from a Gabelli analyst, which is one of MSG’s largest shareholders, the company looks undervalued at a recent share price of $175, based on its estimated asset value of $275 a share.

Bidness Etc looks at the current business model of LendingClub to identify weak areas, which need regulatory oversight

LendingClub Corp (LC) is the largest player in the online lending industry where companies do not claim themselves to be banks. They have a unique target market of small borrowers and investors, which allow them to easily position themselves. These companies have emerged after the financial crises of 2008 and have rapidly grown, but are still nowhere near the too-big-to-fail label. Companies like LendingClub are in their high-risk-high-growth phase and can certainly fail.

Online lending, also known as peer-to-peer lending, has been a blessing for the small borrowers as they get loans on much better interest rates compared to what credit cards have to offer. We cannot argue on the utility of these types of loans for the small businessmen and worthy individual borrowers, but the need to keep a check on the operations of this company is also pressing.

Concerns

Recently, the US Treasury expressed some concerns about the algorithms used by theses lenders. The authority was also concerned about the scenario in which these companies hit a down credit cycle; in that case the company should ensure that it has enough capital to increase its marketing activities.

Data-driven algorithms have significantly accelerated credit assessments and have helped the online lenders in cutting their costs, but we should not forget that they carry the risk of producing unjust credit outcomes, which may violate fair lending rules. This problem is still present because applicants are not allowed to check the data, which counts towards the lending decisions.

The online lending industry has not yet seen a complete credit cycle, which makes it hard to predict the future. LendingClub has been operating in a low interest rate environment since its inception; the business model is expected to face shrinking margins in a contractionary monetary policy environment. In that regard, higher charge offs and delinquency rates for old consumer loans can help the regulators to predict when credit conditions for this business will start deteriorating.

Development of secondary market is essential for the growth of this business and for that LendingClub needs to be more transparent. Loan origination is high in the primary market, but for the business growth to multiply instead of adding up, securitization needs to grow here rapidly. A big chunk of loans normally originates for the purpose of securitization. Meanwhile, small business loans originate for business owners so that they can meet their general working capital and growth needs.

Oversight Needed

To make the situation better, regulators have to ensure a sound experience for the borrowers and for that they have to ensure a solid structure at the back-end. Borrowers and investors protection should be the main aim of regulators and that can be ensured through effective oversight, which is missing currently. The business should be made transparent for the borrowers and investors. Partnered or syndicated loans should be promoted in this sector; these types of loans ensure due diligence from the all parties involved.

On May 9, 2016, the board of the company accepted the resignation of the CEO Renaud Laplanche over wrongly sold loans. After that, so far three main government bodies namely US Department of Justice, Securities and Exchange Commission and recently New York’s Department of Financial Services have launched separate investigation on the company.

The term peer-to-peer lending is no longer suitable in case of LendingClub – the amount of “Standard Program Originations” to “Banks and finance companies” and “Other institutional investors” segments has increased by a quarter over the course of one year. At the same time, standard program origination to individuals has decreased drastically. This is also one of the main reasons why the business of this company needs to be examined further. The recent revelations, which led to the resignation of the CEO were also shocking because it revealed that the business of the company was drifting away from the original model. If its investors are mostly institutional, then what is the basic difference between LendingClub and a traditional lender?

LendingClub Corp. (LC) Financials - Diversified Financial Services | Reports May 9, After Market Closes

Key Takeaways

The Estimize consensus is calling for earnings of 6 cents per share on $149.95 million in revenue, 1 cent higher than Wall Street on the bottom line and $2 million on the top

Online lenders have had trouble maintaining traction with both borrowers and investors

Investors fear Lending Club is poised to mirror OnDeck’s dismal earnings and forward guidance from this week

What are you expecting for LC? Get your estimate in here!

Peer to peer marketplace, Lending Club, is scheduled to report first quarter earnings today, after the market closes. Lending Club has fallen victim to the same problems that many of its peers have experienced in recent years. Steadily increasing income and modest bottom line growth have simply not been enough to appease investors. In the past 6 months shares of Lending Club have dropped over 50% thanks to weak forward guidance. Earnings, however, are still showing signs of topping expectations. The Estimize consensus is calling for earnings of 6 cents per share on $149.95 million in revenue, 1 cent higher than Wall Street on the bottom line and $2 million on the top. Compared to a year earlier profits are forecasted to increase 184% while revenue could increase as much as 85%. Lately, online lenders are teaming up up with banks to spur origination loans and sell loans to investors. However given the current market volatility, these companies are losing their appeal amongst both borrowers and investors. Unfortunately for Lending Club, success is contingent on its peers. This past week the company saw shares plummet over 10% after OnDeck reported weak earnings and forward guidance. The concern is Lending Club will report the same problems when it discloses earnings today. Apart from systemic concerns, Lending Club is seeing weakness in multiple areas such as its high debt management risk. If Lending Club can’t unload loans to investors, as has been the case, this leaves a large amount of risk still on its books. So while loan originations increased 82% last quarter and continue to increase, Lending Club moves into riskier territory. Just today Lending Club CEO, Renaud Leplanche, resigned after ongoing allegations of sales not meeting investor’s criteria. Shares are now down nearly 25% in pre market trading since the announcement. Do you think LC can beat estimates? There is still time to get your estimate in here!