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Sifting for gold at Sohn 2016

Genevieve Kahr
David A. Grogan | CNBC
Genevieve Kahr

There's more to be gleaned from events like the Sohn Investment Conference than a simple list of things to buy, sell, or hold.

Here's a smattering of what struck me from Sohn 2016:

There is surprisingly low penetration still of synthetic rubber gloves in the medical field. People are allergic to natural rubber, but the industry has been slow to switch to synthetic gloves. Kraton Performance Polymers makes polymers used in diapers, synthetic gloves and other products, and this switch is one of many reasons that Rubric Capital Management's David Rosen thinks shares of Kraton are worth $65 to $97. The shares rose nearly 15 percent Wednesday, following his presentation, to just shy of $26.

CEOs are also chief capital allocators. This is a point Warren Buffett has repeatedly made: that the role management plays in allocating capital across businesses and boosting returns on that capital is a critical yet poorly recognized one. It seems shareholders are wising up: Rosen mentioned that the compensation of Kraton's management depends on how much it improves the company's return on capital employed (or "ROCE"). Meanwhile, at General Motors, the key metric is now return on invested capital, as The Wall Street Journal pointed out.

"Book on TripAdvisor" is making waves. Nicholas Danaher of Domando Capital Management thinks shares of TripAdvisor, which closed Wednesday around $63, could "at least" double. That's in part because he equates its new "Book on TripAdvisor" option as the travel industry's equivalent to Amazon.com's "Buy With 1-Click." It could make the site, already hugely popular for research and reviews, a "tollbooth for the global travel market," he said (and its commissions on booking are lower). The stock has been hugely unpopular because of its volatility and the company's tendency to miss on earnings or guidance estimates, as it just did again Wednesday, with shares down another 4 percent or so after-hours. Much larger rivals Priceline Group and Expedia will bear watching.

Shrugging off Silicon Valley. Danaher dismissed the notion that start-up Airbnb stands in the way of his thesis on TripAdvisor (as did John Khoury on Hyatt Hotels, for different reasons). Larry Robbins of Glenview Capital Management meanwhile remains invested in shares of Laboratory Corp. of America, noting that in the case of troubled would-be rival Theranos, "did disruption work? No!"

Satellite antennas that provide good in-flight internet are heavy. There's a problem with the idea that business aviation will remain a cash cow for Gogo, said Ailanthus Capital Management's Genevieve Kahr: the satellite antennas that now best transmit the internet are way too heavy for small private jets. So, lucrative private jet operators often stick with Gogo's super-light "air-to-ground" antennas instead. The "holy grail" for small planes, said Kahr, would be a satellite antenna that was also small and light. Kymeta, it turns out, is a 4-year-old company out of Redmond, Washington, working on precisely that.

Italian banks, especially the demutualizing ones, are worth a closer look. That's the case Davide Leone of his eponymous firm made as the overhaul deadline imposed by Italy's government approaches. Bank demutualizations are typically profitable, he said, and Italy should be no exception. It means a transition from a "vote per head" model in which labor costs tend to be higher, salaries more protected, and bank branches more numerous, to a "vote per share" model that's typically more profitable and efficient. Geography (northern Italy is in better shape than southern) and collateral quality, he emphasized, are key to selecting the better-positioned ones.

There's no "magic light switch" for the oil patch. You often hear people today say that if oil prices go back above $50, a "gusher" of U.S. supply will come back online. Not so fast, said David D'Alessandro of CMDTY Capital Management (echoing what Jeffrey Ubben of ValueAct Capital Management has also told us). There are key differences between now and 2010, when the fracking boom started. Back then, unemployment was still high, and financing was super cheap and plentiful. Today, both labor and capital markets are tighter, plus the regulatory environment is stricter. Plus, firms that do raise money on an oil-price rebound are more likely to use it to shore up their damaged balance sheets than to produce more oil right away, said D'Alessandro. It's partly why he thinks "the lows are in" for the oil price.

Pipelines store oil, too. Another common misconception, said D'Alessandro, is that the world has 900 million barrels of oil-storage overhang. Only about two-thirds of that storage is actually usable, he said (which admittedly is still a lot); more than 300 million barrels are "stored" in places like China and India's strategic petroleum reserves, which may not ever be released, in big, new oil refineries (like Brazil's notorious Petrobras), and even in pipelines. The massive build-out, aided by the master limited partnership structure, of U.S. pipelines has required many millions of barrels of oil to fill a new pipeline before a barrel in becomes a barrel out.

The oil age still has a ways to go. Nick Tiller of Precocity Capital thinks Royal Dutch Shell shares are worth double — or more — their current price of $50. He noted that high oil prices actually hurt Shell's return on capital employed during the boom (it fell from 14 percent to 10 percent), since new fracking technologies were expensive, and the oil-services companies reaped more of that benefit. Now, he expects Shell's capital expenditures to fall in half, to around $25 billion, while its production grows thanks to its just-closed acquisition of BG Group, which also transforms the company into roughly half natural gas. But Shell is still an oil play, too, and Tiller is OK with that: he expects oil demand to grow through 2030, the popularity of Tesla Motors notwithstanding. Coal, he said, peaked as a share of world energy in 1920 and yet survived — even at times thrived — over the next century. Oil could play out the same way.

What do negative rates actually mean? In the case of Shell, some of whose bonds maturing in the next couple years have been offering a negative yield, it means that "bondholders are paying Shell to pay shareholders' dividend," Tiller said. And a nice "fat dividend" it is, of around 7.5 percent.

And what about excess balance sheets? In discussing his short position against Bank of the Ozarks, Muddy Waters Capital's Carson Block brought up the company's large unfunded balance sheet commitments. Unfunded commitments have become a point of contention for bank investors specifically worried that troubled oil and gas players will call on them and distress loan portfolios. But Block also mentioned what unfunded commitments more broadly seem to have stemmed from: the post-crisis era where banks with excess balance sheets were eager to reframe their bloat as a valuable future portfolio. In Ozarks' case, this, in Block's colorful language, became an "a--backward" business model.

The line between public and private. Hyatt Hotels is attractive to Long Pond Capital's Khoury for a number of reasons. It's sold off lower-end properties that could be disrupted by Airbnb. It has an attractive business model particularly in its managed and franchise business, which basically leases the Hyatt name and tools to hoteliers. In fact, that business almost fits Warren Buffett's "ideal" characteristics in which it takes almost no capital and yet grows, Khoury said. And Hyatt's shares have lagged along with the lodging space — which Khoury called the "most out-of-favor sector in public markets today" — meaning the opportunity to get more value per dollar invested has grown. And then, there are the huge share buybacks the controlling Pritzker family has executed (and accelerated as shares sold off), reducing the public float by a whopping 41 percent. "If they keep repurchasing," Khoury said, "at some point, there'll be no float left!"

Again, this is just a smattering of what was said. There was also Social Capital's Chamath Palihapitiya saying Jeff Bezos of Amazon is — ironically, in this age of digital disruption — "building the most durable company in the world," one that is potentially worth 10 times its current value. Larry Robbins reiterated he is still long LabCorp along with pet health-care company VCA, Thermo Fisher Scientific, Anthem, Flextronics International and CBS (whose cord-cutting concerns he likened to drug distributor McKesson, which also "was supposed to be going out of business in 2004"). Starboard Value's Jeffrey Smith said the second-largest paperboard maker, WestRock, is worth about double where it's trading today.

A parting observation: Here were some of the world's savviest investors arguing persuasively that the market is undervaluing many good individual businesses — by 50 percent, or more. And these were not particularly obscure or troubled companies like Valeant Pharmaceuticals International,. Not one stock picker that I heard remarked on how everything was too expensive thanks to extreme central bank policy, or that it was particularly difficult to find a good underpriced investment, or anything of the sort.

To be sure, DoubleLine Capital's Jeffrey Gundlach (the "new bond king") remarked separately in our "Closing Bell" interview that he sees more big opportunity on the short than long side of the equity market today — although he did recommend a long, hedged position in mortgage real estate investment trusts. And Stanley Druckenmiller, the famed longtime investor, blatantly warned the audience to get out of the stock market, saying of the Federal Reserve's policy that the "chickens are coming home to roost."

For now, though, most investors combing through corporate balance sheets remain focused on getting the market to realize their goose of choice is really a golden egg.