Practical analysis for investment professionals
12 September 2012

Will the “Value Investing Challenge” Yield the Next Great Investment Idea?

Yesterday the Value Investing Challenge, a partnership between the Value Investing Congress and SumZero, announced the three finalists for its inaugural investment idea contest, including — we are pleased to note — two CFA charterholders. The winner will be announced at the 8th Annual Value Investing Congress on 1–2 October 2012 in New York City, and will be invited to present alongside headliners David Einhorn, founder and president of Greenlight Capital, and Bill Ackman, founder and CEO of Pershing Square Capital Management.

The rules of the game were straightforward: Write an investment pitch of up to 3,000 words on an opportunity with a market capitalization of at least $300 million. To be eligible, contestants had to be members of SumZero, a private, reciprocity-based online community build exclusively for buy-side investment professionals, who “share actionable ideas with one another and grow their professional networks.”

The three finalists were chosen from more than 110 eligible ideas by an anonymous panel of prominent value investors “based on the clarity of their written pitch and the degree of persuasiveness inherent in their investment ideas,” according to a news release. The ultimate winner will be chosen by the investing public, who can vote for the best idea on the contest website. Here’s a summary of the three pitches:

  • Jack in the Box (JACK) — Ryan Fusaro, CFA, of LionEye Capital Management recommends purchase of the restaurant operator and franchisor, concluding that the company’s transition from a low-margin, capital-intensive restaurant operator to a high-margin franchisor and real estate firm has gone unappreciated by investors. In addition, he sees further upside coming from increased recognition of its fast-growing Qdoba Mexican restaurant segment.
  • FIAT SpA (F.IM) — Steven Wood, CFA, of GreenWood Investors LLC recommends purchase of the Italian automaker, drawing favorable comparisons to an investment in Ford Motor (F) at the end of 2008, when the company was in trouble. He expects Fiat’s money-losing European operations to be restructured or otherwise rationalized in 2013, and further margin expansion to come from platform harmonization and a relaunch of its Alfa Romeo brand, all of which is not reflected in Fiat’s current valuation.
  • Cincinnati Bell (CBB) — Matthew Kirk of Lonestar Capital Management recommends purchase of the regional telecom and data service provider, citing an incentivized management team that is working to unlock shareholder value via a spin-off of a portion of its “crown jewel” CyrusOne data center segment. He expects this separation to free up cash flows from its legacy telecom business, allowing for debt reduction and initiation of a dividend.

You can read the full research reports and vote for the winning investment pitch until 26 September 2012.

About the Author(s)
David Larrabee, CFA

David Larrabee, CFA, was director of member and corporate products at CFA Institute and served as the subject matter expert in portfolio management and equity investments. Previously, he spent two decades in the asset management industry as a portfolio manager and analyst. He holds a BA in economics from Colgate University and an MBA in finance from Fordham University. Topical Expertise: Equity Investments · Portfolio Management

1 thought on “Will the “Value Investing Challenge” Yield the Next Great Investment Idea?”

  1. JACK seems attractive in that it requires no future changes. The value is already there, just arguably unrecognized. The other two require management to make risky changes to achieve the valuation.

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