In this six-part series, we will go through each one of the positions Elliott traded this past quarter.
Elliott Management is a New York based $20 billion+ event driven and distressed hedge fund run by the legendary Paul Singer. The fund is secretive in its approach, but sources attribute a 15% annual net return to its main fund since inception in 1977, compared to 11% for the S&P 500. The firm started new positions in Riverbed Technology (RVBD), Autodesk, Inc. (ADSK), News Corp. (NWS), NVIDIA (NVDA) and sold 30%-40% of its positions in Delphi Automotive (DLPH) and NetApp (NTAP).
Abbreviated financial summaries and metrics for these securities are included below. Detailed analysis and recommendations require a subscription (more information at the bottom of the article).
Why go long NVIDIA (NVDA)?
NVIDIA performed well in the 3rd quarter, meeting revenue and earnings expectations, partly by cutting costs. Despite weakness in GPU sales due to a decline in the global PC sales, the Company was able to meet expectations because of strength in its low latency GRID computing platform its Tegra mobile computing product line. Although gross margin declined 60 bps (0.6%), the company’s operating margins improved, due to lower operating expenses.
Tegra 4, NVIDIA’s 4th generation mobile process was launched as the world fastest. It is being included in Microsoft’s new Surface 2, but the lion’s share of profits come from its use with the Android system. While GPU is 83% of NVIDIA’s sales, Tegra is 11%. In order for NVIDIA to continue to grow its free cash flows, it needs to continue to invest in its Tegra line. The company should probably trade at 15x forward earnings and some of its competitors include Qualcomm, Micron Technology, and AMD.
What does NVIDIA do?
NVIDIA sells processors to OEMs (original equipment manufacturers) that build PCs, workstations, servers, smartphones, and tablets. They target four market segments, Gaming, Enterprise, Mobile, and Cloud, where the Company’s expertise in visual computing allows it to create solutions and experiences for its customers.
More on Elliott Management
Paul Singer created Elliott Associates in January 1977, starting with $1.3 million from friends and family. In its earliest years, the firm focused on convertible arbitrage. However, since the 1987 stock market crash and early 1990s recession, the firm has focused primarily on distressed debt investing, and is therefore commonly referred to as a distressed debt or vulture fund. More recently, the company has been focused on activism.
Elliott is noted for its relatively high returns and low volatility. The New York Times has called Paul Singer ‘one of the most revered’ hedge fund managers on Wall Street. The firm is currently closed to new investors. As of mid-2008, Elliott had 175 employees in New York, London, Tokyo and Hong Kong.