Credit Derivatives Trader Boaz Weinstein founded hedge fund Saba Capital in 2009 that has soared to close to $984 million worth in assets. Considering Weinstein’s Saba Capital thrives on a trading strategy of long volatility and Weinstein has adopted a mindset with a special eye toward credit meets equity, it is no surprise to see an upward move from the hedge fund in Valeant Pharmaceuticals Intl Inc (NYSE:VRX) paired with a fresh stake in Tesla Inc (NASDAQ:TSLA).
Forbes named Weinstein one of its “Ones to Watch” just five years ago, as the investor yielded a great deal of attention when he was one of the few who emerged unscathed from JP Morgan’s cataclysmal $2 billion trading blunder. Also an esteemed chess prodigy, Weinstein has studied the art of playing the long game in more ways than one. Let’s dive in to Weinstein’s tactful moves in these two giants:
Valeant Pharmaceuticals Intl Inc
Valeant has always swung to the volatile way of the biotech-verse and therefore has divided many a wise investor and analyst on Wall Street. Activist investor ValueAct Capital Management approaches the troubled biotech giant from a refreshing bullish stance. After news broke that the hedge fund increased its holding in VRX, shares soon went racing 4% yesterday evening.
ValueAct added 500,00 shares at $10.88 per share coupled with an additional 2.5 million shares at $10.81 each, according to the most recent SEC filing. Interestingly enough, ValueAct’s vote of confidence in Valeant comes on the heels of Bill Ackman conversely eliminating his 27.2 million share stake in the giant.
What incentive does ValueAct see to pull a total 180 spin when compared to Ackman’s Pershing Square? The hedge fund points to the “belief that the securities were undervalued and represented an attractive investment opportunity.” Moreover, ValueAct hopes to evolve the conversation with VRX “to discuss ways to enhance shareholder value.”
Likewise, Weinstein seems to back ValueAct, with Saba Capital also adding a significant approximately $123% increase to 996,589 shares in Valeant in the fourth quarter now worth $14.47 million. However, any investment in the needle-mover stock is always a gamble, with shares having lost roughly 24% of their value. Those betting on this giant are in the game for the long-term.
TipRanks analytics exhibit VRX as a Hold. Out of 15 analysts polled by TipRanks in the last 3 months, 3 are bullish on Valeant stock, 9 remain sidelined, and 3 are bearish on the stock. With a return potential of nearly 37%, the stock’s consensus target price stands at $15.36.
Tesla broke news with a twist for a Street anticipating an equity raise in the works, but maybe not one to the tune of $1.15 billion. The capital raise springs to action to back the production of the electric car giant’s Model 3, its first mass market vehicle served to the public.
“According to our financial plan, no capital needs to be raised for the Model 3, but we get very close to the edge,” CEO Elon Musk noted, continuing, “So, then that’s probably not the best thing for shareholders on a risk adjusted basis. So, we’re considering a number of options, but I think it probably makes sense to raise capital to reduce risk.”
Perhaps Musk sees pressure under the new leadership of President Trump who revealed in tandem with Musk’s equity plans that the government intends to slacken regulations for the environment. Should Musk endure the elimination of an electric vehicle subsidy at the hefty price tag of $7,500, perhaps he is playing the game of caution wisely by seeking out funding.
Goldman Sachs analyst David Tamberrino for one recognizes the bearish writing on the wall. Though Tamberrino believes the capital raise will bolster the giant’s cash balance, he ultimately remains pessimistic on downside waiting for Tesla in the wings.
Therefore, the analyst rates a Sell rating on Tesla and boosts the price target from $185 to $187, which represents a just under 29% downside from where the stock is currently trading.
“We update our model to reflect Tesla’s announced capital raise, which included $1bn+ convertible debt/equity raise in 1Q17, vs. our previously forecasted $1.7bn equity raise in 3Q17. This should leave Tesla with a high enough cash balance exiting the year, but we forecast another capital raise is needed in 2018 to maintain a cash balance above $1bn. The impact to our 2017/2018 EPS is a slight headwind given increased interest expense, but our 2019/2020 estimates increase slightly on lower dilution. This also pushes our 6-month price target up slightly to $187, which implies 29% downside potential. Further, we detail feedback to our recent downgrade,” Tamberrino asserts.
Unlike Tamberrino, Weinstein recognizes promises in Musk’s giant, choosing to opt for a new position in Tesla, investing in 21,900 shares totaling $4.68 million. Perhaps Tamberrino has missed the opportunity erring on the side of caution, as since Weinstein’s new stake in the giant, these shares have garnered almost 20% of their value.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, David Tamberrino is ranked #4,381 out of 4,558 analysts. Tamberrino has a 33% success rate and faces a loss of 34.6% in his annual returns. When recommending TSLA, Tamberrino loses 3.8% in average profits on the stock.
TipRanks analytics show TSLA as a Hold. Based on 18 analysts polled by TipRanks in the last 3 months, 6 rate a Buy on Tesla stock, 6 remain sidelined, and 6 are bearish on the stock. The 12-month average price target stands at $243.38, marking a nearly 8% downside from where the shares last closed.