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Will John Griffin Send David Einhorn a Box of Chocolates?

BLUE RIDGE CAPITALIt has been almost two years since David Einhorn, manager of the $7.8 Billion Greenlight Capital hedge fund presented his case for shorting The St. Joe Company (NYSE:JOE). During his speech at the Value Investing Conference in October of 2010, Einhorn skewered the company. During the speech, he mocked prices they paid for land, the hiring of a Disney executive and claims about land near Port St. Joe, a town in Northwest Florida. JOE claimed a new airport was to be built nearby, but the facts show that JOE had agreed to compensate Southwest Airlines (NYSE:LUV) for any expenses incurred to move operations there. Einhorn quipped, “To paraphrase [the iconic Wendy’s spokesperson] Clara Peller, “Where’s the beach?” The speech caused shares of JOE to tank, eventually closing 8% lower that day.

Bruce Berkowitz, manager of the $7.5 billion Fairholme mutual fund, who was named the “Fund Manager of the Decade” earlier that January by Morningstar held an enormous position in JOE, over 26.8 million shares equating to 29% of the company at this time. After the fiery presentation by Einhorn, Berkowitz told Reuters’ Aaron Pressman that the lower prices were an opportunity for buyers. Berkowitz said he was so appreciative of the lower prices and wanted to “send him a box of chocolates. This is the kind of advertising you just can’t buy. The company should hold a David Einhorn Memorial Investment Week.”

Of course, it did not quite work out for Mr. Berkowitz. Shares of JOE continued lower, touching $17.04 in the weeks after, 30% below the closing price before the conference. Einhorn had bested the best and became a legend in the industry.

History might repeat as Blue Ridge Capital, the hedge fund firm managed by John Griffin, filed a 13G last month disclosing a large stake in Martin Marietta Materials (NYSE:MLM), the $3.8 billion producer of aggregates for the construction industry. The filing noted ownership of 2.53 million shares, 5.53% of the total outstanding with a current market value of $209.9 million. The filing shows Blue Ridge increased its stake by 36% since the previous quarter.

As if on cue, David Einhorn spoke at the Ira Sohn Conference Foundation’s 17th annual Investment Conference in May. One of the companies he was bearish on and presumably short shares was MLM. He argued that the company benefitted from one-time stimulus spending, a revenue stream that is coming to an end and shares are simply too expensive with a P/E ratio of 35 at the time. Shares of MLM traded down 10% immediately afterwards.

Mr. Einhorn’s other predictions that day have been successful calls. During his presentation he expressed a bullish outlook for Apple, Inc. (NASDAQ:AAPL), a neutral outlook on, Inc. (NASDAQ:AMZN) and was bearish on United States Steel Corp. (NYSE:X), Dick’s Sporting Goods, Inc. (NYSE:DKS) and Facebook, Inc. (NASDAQ:FB). Since the speech, AAPL is up 9.6% and AMZN is down 3%. His bearish calls on X, DKS and FB all yielded at lease some success with shares down 18.5%, 1.5% and 24.5%, respectively.

While Mr. Einhorn raised the concerns many might hold regarding shares of MLM, there is a bullish case to be made. Analysts expect strong double-digit EPS growth over the next two years. An increase of 18% for fiscal 2012 and an increase of 41% for 2013 are the average expectations. The company does pay a dividend, currently yielding 1.9% and has paid the same $0.40 per share quarterly dividend since 2008.

Whether one is bullish on MLM, or views the stock as expensive, it is always notable when two prominent fund managers disagree about a particular stock. It is what makes the market dynamic, successful and more appealing. Although we may not hear many stinging quotes between David Einhorn and John Griffin, it will be fascinating to see who might owe a box of chocolates to whom.

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