David Einhorn, a famous hedge fund manager, recently released his letter for the second quarter of 2013. His fund, Greenlight Capital, returned 7.1%, net of fees and expenses in the second quarter. He showed his still-bullish attitude toward Apple Inc. (NASDAQ:AAPL) and General Motors Company (NYSE:GM). Apple has been his largest loser in the quarter, declining from $442.66 per share to $396.53 per share, while General Motors Company (NYSE:GM) climbed up from $27.82 to $33.31 per share. Those two stocks are also two of the biggest positions in his funds. Should we follow him into Apple and General Motors? Let’s take a look.
A high-yield value technology stock
Apple Inc. (NASDAQ:AAPL) is the classic example of the growth stock turning into the value stock. Previously, the company had been growing like crazy. Its earnings rose from only $69 million, or $0.10 per share, to more than $41.7 billion, or $44.15 per share. Apple did not paid any dividends until 2012, after accumulating big chunks of cash along those years of spectacular growth. Now, Apple has become a value stock with a cheap earnings multiple, strong balance sheet and high potential yield for shareholders via both dividend payments and share buybacks.
Recently, Apple Inc. (NASDAQ:AAPL) took advantage of the low interest rate environment, issuing $17 billion in bonds with the triple-A coupon rate of 0.5% to 3.9%. After the debt issuance, Apple still has quite a strong balance sheet. As of June, it had $123.3 billion in equity, $146.6 billion in cash and investments, and nearly $17 billion in long-term debt.
Looking forward, Apple Inc. (NASDAQ:AAPL) plans to return to shareholders as much as $100 billion over a three-year period in both dividends and share repurchases. Apple is trading at $441 per share, with the total market cap of $413.9 billion. The market values Apple at only 10.5 times its trailing earnings and only 6.3 times its trailing EBITDA (earnings before interest, taxes, depreciation and amortization), with the dividend yield at 2.8%. A total $100 billion cash return implies a 24% total yield to shareholders.
Samsung is much cheaper
Einhorn mentioned that the market was “incredibly bearish” toward Apple Inc. (NASDAQ:AAPL). At the beginning of the second quarter, the investment community worried that Apple had been losing market share to Samsung (NASDAQOTH: SSNLF). According to IDC, Samsung is still the global leader in smartphones, with a 30.4% market share while Apple ranked second with 13.1% market share. However, both Samsung and Apple recognized market share losses in the second quarter of this year. LG Display Co Ltd. (ADR) (NYSE:LPL) and Lenovo have moved forward, gaining market share by 1.4% and 1.6%, respectively.
As mentioned, investors had worried about Apple’s market share loss to Samsung, but now the worry has been shifted to the market saturation of high-end smartphones along with the lower-than-expected sales of the new Galaxy phone.
Samsung is trading at $1,200 per share, with the total market cap of around $157 billion. Samsung is trading at a much lower valuation than Apple, at only slightly less than 3.0 times its trailing EBITDA. Looking forward, Samsung will keep innovating to stay the number-one global smartphone maker. However, it is extremely hard to predict who will be winner in the technology field. I personally still think that Samsung is a good choice for technology investors with such a low EBITDA multiple.
General Motors will experience tailwinds in the near future
Einhorn is also bullish about General Motors Company (NYSE:GM). He commented that the company’s losses in Europe, its biggest problem, seem to have reached a trough. Simultaneously, the automobile industry continues to strengthen.
In the second quarter of 2013, General Motors Company (NYSE:GM) generated around $39.1 billion in revenue, with around 2.5 million in global deliveries. Its global market share stays around 11.5%. Its EPS came in at $0.75 per share, including a net loss from special items of around $0.09 per share. Its adjusted EBIT (earnings before interest and taxes) experienced 9.5% growth from $2.1 billion in the second quarter of last year to $2.3 billion this year, while the adjusted automotive free cash flow increased by nearly 53% to $2.6 billion.
In the second half of 2013, General Motors Company (NYSE:GM) will focus its efforts on new vehicle launch executions, with continuing cost and complexity reductions. It also expects to give intense concentration to quality and customer experience. At $36.70 per share, General Motors is worth $50.4 billion in market cap. The market values General Motors at only 5.6 times its trailing EBITDA. With a strengthening North American automobile business and the recovery of the European business, I believed General Motors would deliver decent gains for shareholders in the long run.
My Foolish take
Apple, Samsung and General Motors all have global market leading positions in their fields. Interestingly, all of them are currently valued quite cheaply in the market. I like Apple with its decent dividend yield and potential total high yield including the $100 billion cash-return plan. I also like General Motors because of its low valuation, the coming growth for the North American business and the potential recovery of the European business.
Anh HOANG owns shares of Apples and General Motors’ Series B Warrants. The Motley Fool recommends Apple and General Motors. The Motley Fool owns shares of Apple.
The article David Einhorn Is Still Bullish About These 2 Stocks originally appeared on Fool.com and is written by Anh HOANG.
Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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