Highlights from Greenlight’s Q3 Letter (Part 2): Einhorn’s New Picks and Two Stocks He Is Shorting

We have obtained the third quarter letter to investors of David Einhorn‘s Greenlight Capital and decided to take a look at some of the picks that the investor outlined within its pages. In the previous article we analyzed some of Greenlight’s tech picks, many of which significantly affected its returns during the third quarter, as well as year-to-date (see the article here). As we have already mentioned, Greenlight’s funds lost 14.3% during the third quarter. In this article, we will take a look at two of the new positions outlined in the letter, as well as one of its largest holdings and two stocks that Einhorn has shorted.

See the first part here.

See the third part here.

Michael Kors Holdings Ltd (NYSE:KORS) was one of the new picks mentioned in Greenlight’s previous 13F filing. The investor reported ownership of 3.62 million shares. Einhorn initiated a stake after Michael Kors Holdings Ltd (NYSE:KORS)’s stock lost 25% on the back of a 5.8% decline in comparable-store sales reported for the first quarter. The company also shut down a distribution center, which caused a temporary halt in its e-commerce segment and customer interest also declined on the back of a repetitive winter product line. However, Greenlight believes that Michael Kors Holdings Ltd (NYSE:KORS) overcame those issues.

“We believe KORS has multiple avenues of continued growth, including its international business and footwear. We established our position at an average price of $45.18, less than 9.5x March 2016 fiscal year earnings estimates net of the $4 per share in cash,” Greenlight said.

The other new holding in Greenlight’s portfolio was UIL Holdings Corporation (NYSE:UIL), in which Greenlight reported a new stake in its 13F for the first quarter. During the second quarter, the fund almost doubled its position to 4.99 million shares. According to the letter, Greenlight acquired the stake at an average price of $49.57. UIL Holdings Corporation (NYSE:UIL)’s stock is up by 15% year-to-date and currently trades around $50.50. The investor believes that the combination with Iberdola USA, which has regulated utility assets in the Northeast and holds one of the largest wind energy portfolios in the U.S, will benefit the shareholders of UIL Holdings Corporation (NYSE:UIL), since the new entity will be “less levered than its peers with a large tax asset and attractive renewables cash flows that we believe are not fully reflected in the stock price today.”

Read on to see Greenlight’s opinion about General Motors Company (NYSE:GM), which represents one of its largest holdings, as well as two companies in which it has short positions, namely athenahealth, Inc (NASDAQ:ATHN), and Keurig Green Mountain Inc (NASDAQ:GMCR). It’s important to mention that Greenlight currently has short exposure of around 66%. Einhorn’s short positions are a separate story, since the investor only discloses them during interviews, at conferences, and in letters. Over the years, Einhorn has managed to make a number of successful short bets, such as his call on the Lehman Brothers’ bankruptcy.

In General Motors Company (NYSE:GM), Greenlight held some 14.65 million shares as of the end of June, after having initiated a position with 9.47 million shares a quarter earlier. The stock lost around 9% during the third quarter, which offset most of its gains throughout the year and sent the stock down to just 2% in the green year-to-date. The slowdown of the Chinese economy has put some pressure on General Motors Company (NYSE:GM)’s stock, but Einhorn and his team like the company because of its solid financial results and “stable estimates.”

(see Einhorn’s take on GM from its letter for the first quarter)

athenahealth, Inc (NASDAQ:ATHN) is one of the stocks which Greenlight has been shorting for more than a year, first mentioning it during the Ira Sohn conference in May, 2014. However, in the last three months shares of athenahealth have advanced by 11%, rallying after the company’s latest financial report, although the investor considers this appreciation unjustified. During the Robin Hood Conference in October 2014, Einhorn said that he thought the stock could lose 80% of its value, because even though he likes athenahealth’s business, it was overvalued at 100-times earnings. athenahealth, Inc (NASDAQ:ATHN)’s shares have advanced by 16% since Einhorn’s presentation and it currently trades at a whopping 600-times earnings and 88-times forward earnings, which makes the stock even more overvalued.

Finally, Keurig Green Mountain Inc (NASDAQ:GMCR) is another stock that Greenlight is shorting and very successfully so far. It held a short stake back in 2011, and in his letter, Einhorn said that he re-entered the position at $102.08. The stock has slumped by 59% year-to-date and, thus, the short position in Keurig Green Mountain Inc (NASDAQ:GMCR) represented Greenlight’s third-biggest winner so far in 2015, as, according to the investor, its original thesis on the stock has played out.

Disclosure: None