Stocks Still Great for Long-Term Investors: Larry Robbins
Even with the prospect of rising interest rates, the stock market is a great place to be for long-term investors, Glenview Capital Management founder and CEO Larry Robbins told CNBC in a rare television interview Tuesday.
Glenview was founded by Robbins in 2000 and has approximately $6 billion in assets under management, and for nearly a decade generated leading returns among hedge funds.
"We are not taking risk off. We believe that this is still a very, very above-average opportunity set for long-term investors," Robbins told "Squawk on the Street".
"Frankly, as an industry, we all need to remind ourselves to think and act like owners," he said.
"Our companies are trading at 10.5 times earnings—that's an extremely high cost of equity capital—that opportunity set may not last forever."
Robbins said that accessing debt cheaply through both the high-yield and high-grade bond markets and deploying this capital against high-return opportunities will remain an attractive strategy even as the cost of debt rises.
"As we look at the totality, this environment went from being a '10' on a scale of one to 10 to maybe becoming a 'nine,' but nonetheless we believe that this is an above-average opportunity to deploy capital," he said.
As some investors look to own hard assets instead of stocks or bonds, Robbins reminded investors that assets should be correlated with the companies that own them.
"Whether you own a ship or a company that owns ships, those things should be inextricably linked," he said. "Since the middle of 2012, the market has started to move that way and companies have started to deploy capital like owners."
This includes reinvesting into core businesses and distributing cash to shareholders, Robbins said, explaining that this was not only fueled by cheap money, but also by the spread between the cost of capital and the use of capital, a traditional tenant in business.
The great capital allocators, such as John Malone and Warren Buffett, are deploying capital now, and investors should take note, he said.
"We don't have to anticipate what they might do, we can just look at what they are doing and we can realize that they are taking advantage of precisely that."
One of the companies in which Glenview is the largest shareholder—Tenet Healthcare—did just that on Monday, announcing an acquisition of Vanguard Health Systems. Robbins said his firm "applauded the deal" and estimates that the acquisition will increase EPS for Tenet by $1 per share by 2015 or by 25 percent on a cash basis. "It's a great example of a management team and a board that used all the tools in their toolbox to drive value," he said.
In an interview with CNBC on Monday, Tenet's CEO Trevor Fetter said that even after the Vanguard purchase, the company would be "more aggressive" in its acquisitions moving forward.
However, one of Glenview's other investments has not been using its capital properly, Robbins said, and his firm is taking action.
Early Tuesday, Glenview said it wants a shake-up of the board of Health Management Associates, saying the health-care company has underperformed its competitors. The firm filed a consent solicitation statement, nominating eight candidates to replace the current board of directors.
"We're not taking this as a traditional activist situation," Robbins said of his involvement in the move. "We are what we call 'suggestivists.' We set forth why change needs to happen, but in this case we wanted to take our suggestions directly to shareholders. A well-experienced board is the best way to take this company forward."
"A newly constituted, fully independent board" is a key factor in moving the company forward, he said.
After what he calls a "lost decade" for HMA, Robbins said the move was made because the company has been poor at managing its cash flows as well as poor at execution of a long-term capital allocation plan. For instance, HMA could have bought back stock at low multiples instead of buying hospital properties at high multiples in new geographies, he said.
In addition, the company requires an experienced board as soon as possible to find a new top executive following the retirement of CEO Gary Newsome.
HMA needs to take advantage of consolidation within the industry like Tenet has, Robbins said, along with having a strong management team. "We don't believe that they have done an effective job."