David Einhorn of Greenlight Capital is one of the most widely followed investors in modern finance. He has become famous partly through his billionaire status and partly through his often very profitable presentations at investing conferences- perhaps most notably his short of Green Mountain Coffee Roasters, which fell about 80% in the year following his recommendation. Greenlight’s 13F filings give a bigger picture of what Einhorn has in his long portfolio, and so in addition to providing a fuller list of names can also allow investors to understand broader themes in his thinking. Here are some themes that we noticed when comparing the 13F for Greenlight’s holdings as of the end of September to earlier filings:
Taking profits. During the third quarter of the year, Apple Inc. (NASDAQ:AAPL) was up nearly 15% while Seagate Technology PLC (NASDAQ:STX) rose over 20% (the NASDAQ was up only about 6%). This brought both Apple and Seagate to gains of over 60% for 2012. Einhorn and his team apparently decided to start selling shares during the third quarter, and while these are still Greenlight’s largest positions the number of shares that the fund owns fell by over a third in both cases. We think that Apple is a buy at current prices, though the stock has fallen over 15% in the last month in a half as more Apple longs likely follow Greenlight’s lead ahead of the potential expiration of tax cuts on capital gains at the end of the year. At current prices, it trades at only 13 times trailing earnings (read more of our thinking on Apple). Seagate, along with many other data storage companies, continues to look very cheap: its trailing P/E is only 4, the forward P/E is 5, and earnings growth compared to a year ago has been very strong. We think it looks like a good buy as well.
GM. One of Einhorn’s stock picks at the Value Investing Congress in early October was General Motors Company (NYSE:GM) and he’d put his money there during the third quarter with a substantial increase in Greenlight’s holdings of the automaker. See Einhorn’s case for being long GM. Poor European numbers continue to drag GM down despite good performance in North America, and earnings were actually lower in the third quarter than in Q3 2011- not good for the supposedly recovering automaker. Its trailing P/E of 9 is attractive, but we think that investors should look at other auto companies, or possibly auto parts manufacturers, if they want exposure to the industry.
Technology. We’ve already mentioned Apple and Seagate as two of Einhorn’s favorite stocks. Three other tech companies joined those two in Greenlight’s eight largest long positions by market value: Microsoft, and two stocks that the fund had bought heavily over the course of the quarter. Its stake in Marvell Technology Group Ltd. (NASDAQ:MRVL) grew from 26 million shares to 33 million; Marvell, a producer of integrated circuits, has been a big loser for Greenlight year to date with the stock price down 47% (including 20% since the beginning of October). So you can get it cheaper than Einhorn did, and at 9 times earnings on either a trailing or a forward basis. However, earnings dropped 52% in the quarter ending in July 2012 versus a year earlier and we think that we’d avoid the stock. Greenlight also nearly doubled its stake in Computer Sciences Corporation (NYSE:CSC), a $5.4 billion market cap IT services company, to a total of 6.9 million shares. Computer Sciences is expected to see $2.56 in earnings per share for the current fiscal year ending in March 2013 (an implied current-year P/E of 14) though it actually saw a small decrease in sales in its most recent quarter compared to the same period in the previous year. We wouldn’t recommend buying it either.
Greenlight’s sales of Apple and Seagate might be good advice for current owners currently looking at big paper gains, but we think that the correction in both stocks has created a good value opportunity for investors to get in. The fund’s big buys don’t look as appealing to us, with likely better opportunities in the auto theme than GM. The other technology plays face serious problems in their businesses- though, with decent multiples, it might be good to keep an eye on Marvell and Computer Sciences to see if they can stabilize.