- Mala Gaonkar is eyeing ServiceNow, a $95 billion enterprise software company based in Santa Clara.
- Greenlight Capital David Einhorn is pitching gold, “the ultimate reverse asset.”
- Activist ESG investor Lauren Taylor Wolfe is betting on Wex, a high-quality payments company.
Hedge funds are having to adapt to a pretty different environment as inflation runs rampant, interest rates rise, and the continuation of the Russia/Ukraine war.
At the 2022 Sohn Investment Conference, Stanley Druckenmiller warned Wall Street that we’re about six months into aand that it still has some ways to run.
“For those tactically trading, it’s possible the first leg of that has ended. But it’s highly, highly probable that the bear market has a ways to run,” he added during the virtual broadcast of the event Thursday.
For managers looking for inspiration in these volatile times, Insider pulled together some of the top insights from the day from investors including former Lone Pine manager Mala Gaonkar, billionaire investor and Greenlight Capital head David Einhorn, and Lauren Taylor Wolfe, founder of activist hedge fund Impactive Capital.
Learn more about their investment ideas here:
Mala Gaonkar, SurgoCap Partners
Gaonkar — the long-time Lone Pine Capital managing director and portfolio manager — is set to launch her own fund, SurgoCap Partners, in January 2023, which is expected to raise at least $1 billion.
The fund is expected to focus on the intersection of technology and the following themes: enterprise data, financial services, healthcare, and industrials.
One company she’s keeping an eye on as she prepares to roll out the fund is ServiceNow, a $95 billion enterprise software company based in Santa Clara. The company’s tech and data platform help automate workflow across all aspects of a business — which could include dealing with customer complaints or organizing factory upgrades, Gaonkar explained.
The software company already has 80% of Fortune 500 companies as its customer base, she added, but she sees potential for ServiceNow to significantly grow the services clients are already using.
Kraft Heinz started with ServiceNow’s information technology products but has expanded to use the company’s workflow tools for its product research and development and manufacturing operations.
“We believe ServiceNow has an underappreciated runway of growth, with the opportunity to reinvest capital at very high levels for the foreseeable future,” she said. ServiceNow was trading at $472.74 a share and was down 25% year-to-date as of noon on Friday.
David Einhorn, Greenlight Capital
Theboss is known for taking both long and short positions, more famously when he shorted Lehman Brothers over a year before the bank’s collapse and betting against Tesla.
Now, Einhorn is pitching gold. It’s “the ultimate reverse asset,” he said at the conference. He told the audience that he prefers gold to cryptocurrencies since gold is recognized as a “globally acceptable” central bank asset.
“The question is whether there’s enough gold to back the currency reserves,” he said. “The answer is for the price of gold to go higher, perhaps much higher.”
Spot gold, or the live price of gold, was down roughly 0.95% at $1,830 per ounce on Friday morning, while US gold futures dropped a little over 1% to $1,832.40.
Over the past few months, he’s been outspoken about the Federal Reserve’s handling of inflation rates, and his attitude since hasn’t seemed to change. As inflation continues to surge prices across a myriad of industries, Einhorn said he still believes that the level of inflation is understated.
He also blamed the Fed for not increasing interest rates fast enough to help control inflation.
“As we watch the Fed implement unconventional monetary policy, the Fed promised it could handle inflation when and if it occurred,” he said at Sohn. “For example, here was Ben Bernanke promising he could raise interest rates in 15 minutes if needed. As it turns out, this wasn’t quite right.”
Lauren Taylor Wolfe, co-founder of Impactive Capital
After spending a decade at Blue Harbour Capital, Wolfe started her own activist investment firm, Impactive Capital, in 2018 focusing on environmental, social, and governance.
This year, Wolfe is betting on Wex, a high-quality payments company that operates across three segments: commercial and government vehicle fleet industry, corporate payment, and healthcare.
“By nature of its revenue models, it benefits in inflationary environments and it compounds earnings through the cycle,” she said. “Its high quality and resilient business have enjoyed a long track record of double-digit returns.”
Despite its track record of earnings and growth, Wex is trading at its lowest multiple in over a decade, said Wolfe, and is trading at 13 times earnings. Wex was trading at $57.05 a share, down 64% so far this year, as of mid-day Friday.
“This is driven by market fears over new entrants primarily in the smaller corporate payment segment,” she said.
Over the next three years, Wolfe predicts that Wex will generate $2.2 billion in free cash flow and $2.2 billion in debt capacity. This means there will be $4.5 billion of capital to deploy, which is 60% of their.
“If Wex deploys this capital entirely to share repurchases, they’ll generate about $23 a share in earnings by 2026.”
At last year’s Sohn conference, Wolfe pitched government services company KBR, which was “misunderstood and had an accelerated yet underappreciated tech business,” she said. As of Friday, KBR was up 25.7% year-on-year.