Rising hedgie stars at Sohn bet on biotech, retail

Published Wed, Oct 5 20165:27 PM EDT

Emerging hedge fund investors kicked off the seventh annual Sohn San Francisco Investment Conference with bets on a biotech and a beleaguered jewelry chain. One manager sees a quick merger arbitrage opportunity for an outstanding deal in the agricultural space. Wednesday's event is the West Coast version of the prominent conferences which began in New York. The Sohn conferences, which are known for hedge fund managers making market-moving presentations to their peers, benefit pediatric cancer and other causes for underserved youth. The conference is presented in partnership with CNBC. The "Next Wave" panel began Wednesday's conference featuring up-and-coming hedge fund managers who recently set out on new ventures. Here are their picks below: Rende, whose $85 million fund focuses on health care, made a bullish presentation on BioMarin Pharmaceuticals , a maker of drugs for rare diseases. His base case is for BioMarin to be worth $130 a share, while he sees upside to $170 a share in a takeout. There are two big drugs from the company that Rende is focusing on. The first is Vimizim, a therapy for Morquio A syndrome, a genetic disorder with just 3,000 patients in the developed world. Vimizim therapy costs $350,000 a year per patient, according to the hedge fund manager. The second is Kuvan, which is used to treat an inherited disorder called Phenylketonuria. On the recent political scrutiny of the drug industry for high prices, Rende's presentation noted that BioMarin's "corporate pricing strategy has always been conservative even before the recent political scrutiny." The hedge fund manager recommended buying Signet Jewelers , owner of Kay Jewelers and Jared brand stores. The diamond retailer's shares are down more than 30 percent this year on bad press about its sales practices, among other things. "We think there's not a lot of merit to the claims and Signet will recover its small dip before the end of the year," said Drescher. Buzzfeed posted an article in May about women who claimed Kay Jewelers employees had swapped in lower-quality diamonds into their rings when they were taken in for repair. And Signet came under scrutiny in June from Jim Grant of Grant's Interest Rate Observer, who raised questions about practices by the company's finance division in his newsletter. Drescher thinks that Grant's concern is overblown and that Signet's growing credit portfolio is actually a positive. "Signet's credit portfolio is a valuable asset that could easily be sold to a third party," said Drescher. The hedge fund manager believes the company will earn $9.27 next year, including the proceeds from the sale of its credit portfolio. Applying a modest 15 multiple on that earnings estimate gets Drescher to his target of $139. The stock closed Wednesday at $81.43. The hedge fund manager, who focuses on corporate actions like mergers and spinoffs, is making a bet on Swiss agricultural giant Syngenta , which is in the process of being bought by Chinese state-owned chemicals company ChemChina. The $43 billion deal announced in February " has the best chance of being completed out of the big agricultural mergers out there right now," said Melsom. "The Swiss government has pretty much blessed this deal." There's 7 percent upside to the stock if the ChemChina takeover goes through, something Melsom believes will happen before the end of the year. Note that an additional panelist, Neal Kaufman of Hillair Capital, presented on a microcap wireless company that trades for under $1 a share.

A pedestrian walks past a Zales store in New York.

Scott Eells | Bloomberg | Getty Images

Wednesday's event is the West Coast version of the prominent conferences which began in New York. The Sohn conferences, which are known for hedge fund managers making market-moving presentations to their peers, benefit pediatric cancer and other causes for underserved youth. The conference is presented in partnership with CNBC.

The "Next Wave" panel began Wednesday's conference featuring up-and-coming hedge fund managers who recently set out on new ventures.

Here are their picks below: