Hedge fund managers discuss their top stock picks

LONDON Fri Nov 1, 2013 6:57am EDT

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LONDON (Reuters) - Hedge fund managers presented their stock-picking ideas at a conference this week organised by the Sohn Conference Foundation. The Foundation raises money to support initiatives to cure and treat paediatric cancer.

Following are some of the ideas presented:

Masroor Siddiqui, co-founder of London-based Naya Capital, focused on one short and one long position in his presentation.

For the short position, Naya is betting the price of shares in Essilor (ESSI.PA), the world's largest maker of ophthalmic lenses, will fall to 60 euros from around 80 currently. Siddiqui said Essilor's business model faces rising pressure from digital technology that enables buyers to use a computer to create specific prescriptions.

Siddiqui's long position was Italian fashion house Salvatore Ferragamo. Ferragamo has the opportunity to boost its value if it tackles underpenetration in Asian markets and labour and supplier costs, which are higher than rivals, Siddiqui said.

John Armitage, the founder of $11.4-billion strong Egerton Capital, one of London's oldest funds, presented two ideas.

Scandinavian bank Nordea (NDA.ST), he said, was incredibly well capitalised and would benefit from its dominant position in Scandinavia, where problem loans remain far lower than elsewhere in Europe. He tipped the bank to return 20 percent of its market capitalisation over the next few years in dividends.

Armitage also highlighted U.S. mortgage servicing company Ocwen (OCN.N). The company, he said, was picking up business as banks pull back from chasing delinquent loans amid a weak but grinding recovery in the U.S. housing market.

Chris Cooper-Cohn, head of activist fund TCI, highlighted two of his holdings, both once state-controlled businesses.

European aerospace giant EADS EAD.PA, he said, would double and then triple its profitability thanks to cost-cutting and increased pricing power in its core aircraft manufacturing unit. Airlines across the world were also undertaking a massive replacement of their existing fleet.

Aurizon (AZJ.AX), an Australian rail freight company which TCI has owned since its 2010 privatisation, is also improving its margins thanks to cost cuts and operational efficiencies under a "killer CEO," Cooper-Cohn said.

Pelham Capital's Ross Turner presented his case for Irish business services group DCC (DCC.L). Pelham runs around $3 billion and primarily invests in European stocks.

Turner predicted DCC would continue to grow its market share in the UK oil distribution market, driven by acquisitions. He said the price of DCC stock could rise to 40 pounds per share versus their current price of 27 pounds.

The founder of AKO Capital Nicolai Tangen chose to speak about information services group Experian (EXPN.L). AKO runs more than $9 billion in equity-focused funds.

Experian has scope to expand into new regions and is aided by its market's high barriers to entry, which include an oligopolistic market structure and difficult to replicate data.

Mala Gaonkar, a managing director at U.S.-based Long Pine Capital, spoke about Qualcomm (QCOM.O), the semiconductor company that produces wireless telecommunications products.

The case for the stock, she said, is based around unit growth, price stability and royalty rate stability. Despite the number of handsets already available, there remains room for growth globally, she said.

Dynamo Capital founder Bruno Rocha focused on brewing giant Anheuser-Busch Inbev (ABI.BR).

According to Rocha, AB Inbev has economies of scale advantages in a very consolidated market. The brewer benefits from a strong position in mature markets and an even stronger one in developing economies.

(Reporting by Tommy Wilkes and Alistair Smout. Editing by Jane Merriman)

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