Billionaire David Einhorn of Greenlight Capital is one of the most closely followed hedge fund managers in the U.S. We’ve already covered the big moves that Einhorn made during the third quarter of 2012 (learn more about what Greenlight bought and sold and see what the fund reported owning). Here are his five largest positions by market value in the technology sector as of the end of September:
Greenlight cut its stake in Apple Inc. (NASDAQ:AAPL) by 25% during the third quarter to 1.1 million shares. However, the large technology company- which topped our rankings of the most popular stocks among hedge funds for the third quarter- was still Einhorn’s largest position as his fund had over $700 million invested in the stock at the end of September. It’s possible that the investment team is cooling on Apple Inc. (NASDAQ:AAPL), but it could also be that Greenlight is taking some profits after having made a high return. We think that at 13 times trailing earnings, even a much slower growth rate than Apple Inc. (NASDAQ:AAPL) has been achieving recently would make it a buy.
Seagate Technology PLC (NASDAQ:STX) was another of Einhorn’s top picks from the technology sector as Greenlight owned almost 17 million shares of the data storage company. Its P/E multiples are very low, as is the case for many companies in the data storage industry, as even a 71% rise in the stock price has been outpaced by earnings growth. Even at its current levels, 9% of the shares outstanding are held short as of the most recent data. While we can understand some concerns about the industry, net income has been up and we think that the stock is cheap enough to be worth investigating.
The fund increased its holdings of microprocessor and data storage company Marvell Technology Group Ltd. (NASDAQ:MRVL) by 28% to a total of about 33 million shares. Marvell’s stock price has dropped 40% in the last year, and in its most recent fiscal quarter its revenue fell 18% from its levels in the same period in the previous year (resulting in less than half as much net income). Sell-side analysts expect something of a rebound, as its forward P/E of 11 is a bit lower than the multiple based on trailing earnings. We think that we’d avoid the stock unless it starts to actually see better results- we’re skeptical of shrinking companies that are suddenly expected to start growing, and aren’t even priced that cheaply based on those expectations.
Apple wasn’t the only large tech company in Greenlight’s portfolio as the fund reported owning 7.7 million shares of Microsoft Corporation (NASDAQ:MSFT). Microsoft is down 11% in the last three months- the NASDAQ is down about 4%- as the markets eye unimpressive reviews of the Surface tablet and worry that Windows 8 will confuse consumers or generally function poorly. Microsoft is another cheap-looking company, at least on a forward basis where the P/E is 8, but those earnings expectations include a temporary boost from sales of Windows and Office as new versions are released. It’s another “wait and see” from our perspective.
Computer Sciences Corporation (NYSE:CSC) was an Einhorn buy during the quarter; Greenlight nearly doubled the size of its position in the $5.8 billion market cap IT services company. Computer Sciences’ revenues were down last quarter versus a year earlier, but the company cut costs as well. It also reported positive earnings (last year it had recorded a large goodwill impairment). The stock is up 62% in the last year but is still priced at only 11 times consensus earnings for the fiscal year ending in March 2014. The EV/EBITDA multiple is 4.7x, so the company looks like a good value from that perspective as well. We might take a closer look at Computer Sciences to see if it makes sense as an investment.