Health care plans. The most apparent trend in Greenlight’s portfolio is the addition of two new positions which each occupy a place in the top ten 13F holdings: health insurers Cigna (NYSE:CI) and Coventry (NYSE:CVH). Each company trades at a trailing P/E of 10, with Coventry’s forward P/E also being 10 and Cigna’s being 7. As such there is a value case for these insurers as long as their business stays stable. While they both reported declines in earnings in their most recent quarter compared to the same period in 2011, revenue increased at a double-digit growth rate. Perhaps Einhorn believes that this revenue growth will continue and the companies will stabilize their margins, delivering earnings growth which will drive up the stock price. Lee Ainslie and Larry Robbins are among the hedge fund managers who are bullish about Cigna.
Staying confident. Greenlight kept its largest position- Apple Inc (NASDAQ:AAPL) constant, but the stocks in the second through fourth spots saw significant increases from big winner Seagate Technology (NASDAQ:STX), which has more than doubled this year, to General Motors (NYSE:GM), which is slightly down. The position in Seagate increased from 14.5 million shares to 23.2 million shares, and the fund reported 17.4 million shares of GM in the portfolio, up from 14.8 million three months earlier. Both of these stocks are trading at value levels (even after Seagate’s rise). GM trades at only five times forward earnings estimates and a five-year PEG of 0.5; Seagate also trades at five times forward earnings, has an even lower five-year PEG of 0.2, and pays a 3.9% dividend yield. Seagate looks like a better stock to us at it marries low valuation multiples with high expected growth and dividend payments, but we can understand why Greenlight would want seconds on both stocks. Einhorn is also extremely bullish about Apple Inc (NASDAQ:AAPL) and thinks Apple will become a trillion dollar company.
Adios, Dell. The one position that Einhorn reported in the top ten in Greenlight’s portfolio for the first quarter that has since been sold out of entirely is Dell Inc (NASDAQ:DELL). We covered this move and explained that the company had failed to expand its business lines as Einhorn had wanted. The company has been in transition away from PCs and toward enterprise operations, and has spent a good deal of cash making acquisitions in that area.
Xerox. This was another position that Greenlight added heavily to in the second quarter, going from 15.4 million shares at the beginning of April to 26 million shares at the end of June. Xerox Corporation (NYSE:XRX) is best known for its business equipment but also manages business processes and IT; perhaps the fund has decided that what it was looking for in Dell was there in Xerox all along. Xerox Corporation (NYSE:XRX) is also a fairly strong value stock: its business is stagnant compared to a year ago but it trades at only eight times earnings and pays a dividend yield of 2.4%. So far this year the stock is down 13%, and it is currently trading below its June close, so an investor could get it at a lower price than Einhorn did.
Einhorn has a good reputation as an investor and so his movements should be closely watched. We like his bullishness on positions such as Apple Inc. (NASDAQ:AAPL), Seagate, General Motors (NYSE:GM), and Xerox, and we think it was probably right for him to get out of Dell. Health insurance is an area where we are a little more concerned about various risks, but on a quantitative basis we see the potential to generate value and these positions may be worth further investigation.
