Billionaire investor David Einhorn is renowned for his value-focussed investment approach. Having started his firm Greenlight Capital in 1996 with only $900,000 in assets under management (AUM), Mr. Einhorn has grown it to around $10 billion in AUM and has delivered an impressive annual average return of almost 20% to his investors in the process. According to the fund’s latest 13F filing, it had 43 open positions at the end of September, but its top 10 holdings alone accounted for 64.08% of the value of its equity portfolio at the end of that period. In this article we will take a closer look at Greenlight Capital’s top five dividend stock picks going into the fourth quarter of 2015.
We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about 6 basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas. We have been tracking the performance of these stocks since the end of August 2012 in real time and these stocks beat the market by 53 percentage points (102% return vs. S&P 500’s 48.7% gain) over the last 37 months (see the details here).
#5 Time Warner Inc (NYSE:TWX)
– Shares Owned by Greenlight Capital (as of September 30): 3.8 Million
– Value of Holding (as of September 30): $262.26 Million
Shares of Time Warner Inc (NYSE:TWX) fell off a cliff during the third quarter and haven’t been able to recover ever since, trading down by almost 25% year-to-date. Nevertheless, Greenlight Capital displayed its conviction in the stock by purchasing 36,000 shares of the company during the July-September period. The company has increased its dividend by 10% or more consistently for the past six years and currently pays $0.35 per share quarterly dividend which amounts to an annual dividend yield of 2.17%. On December 10 analysts at Citigroup reiterated their ‘Buy’ rating on Time Warner Inc (NYSE:TWX)’s stock, but reduced their price target to $83 from $95, which represents a potential upside of over 28%. Jamie Zimmerman‘s Litespeed Management reduced its stake in Time Warner by 38% to 547,752 shares during the July-September period.
#4 IAC/InterActiveCorp (NASDAQ:IACI)
– Shares Owned by Greenlight Capital (as of September 30): 1.5 Million
– Value of Holding (as of September 30): $97.9 Million
IAC/InterActiveCorp (NASDAQ:IACI)’s stock has had a near perfect inverted-V shaped move this year and currently trades flat for the year. The fall in the stock in the past few months has helped raising the stock’s dividend yield to 2.24%. IAC/InterActiveCorp (NASDAQ:IACI) is among the few internet companies that not only pays dividend to its shareholders, but is also currently trading at a reasonable valuation of forward price to earnings multiple of 18. During the third quarter, Greenlight Capital reduced its stake in the company by 7%. Dan Loeb‘s Third Point also reduced its stake in IAC/InterActiveCorp during the same period by 10% to 2.5 million shares.
#3 Vodafone Group Plc (ADR)(NASDAQ:VOD)
– Shares Owned by Greenlight Capital (as of September 30): 889,294
– Value of Holding (as of September 30): $28.22 Million
Vodafone Group Plc (ADR)(NASDAQ:VOD) is among the few large-cap stocks that currently boasts of an annual dividend yield of over 5%. This possibly could be a reason why, amid an almost 13% drop in Vodafone Group Plc (ADR)(NASDAQ:VOD)’s stock, during third quarter, Greenlight Capital increased its stake in the company by 40%. Interestingly, during the same period the ownership of the company among funds covered by Insider Monkey declined by seven to 27, but the aggregate value of their holdings saw a jump of over 17%. The UK-based telecom major currently trades at a price-to-book multiple of 0.90, which is significantly lower than of the most US-based telecom companies. Billionaire Jim Simons‘ Renaissance technologies was one of the hedge funds that initiated a stake in Vodafone Group during the third quarter; it held slightly over 1 million shares at the end of September.
#2 General Motors Company (NYSE:GM)
– Shares Owned by Greenlight Capital (as of September 30): 16.3 Million
– Value of Holding (as of September 30): $490 Million
Greenlight Capital took advantage of the almost 9% decline in General Motors Company (NYSE:GM)’s stock during the third quarter by boosting its holdings in the company by 55%. This bet has paid off quite handsomely during the fourth quarter as General Motors Company (NYSE:GM)’s stock registered an almost 15% climb during that period and closed last year flat. Despite the recent run-up in its stock, the $0.36 quarterly dividend that the company currently pays translates into a lucrative dividend yield of 4.18%. On December 10, the company’s shareholder finally had a sigh of relief after it announced that it has settled its long-standing faulty ignition switch case – which had caused 124 deaths – by agreeing to pay $594 million. Maverick investor Warren Buffett‘s Berkshire Hathaway also increased its stake in General Motors Company (by 22%) during the third quarter.
#1 Applied Materials, Inc. (NASDAQ:AMAT)
– Shares Owned by Greenlight Capital (as of September 30): 5 Million
– Value of Holding (as of September 30): $73.45 Million
Call it bad luck or error in judgment, but after initiating a stake in the company during the second quarter Greenlight Capital reduced its stake in Applied Materials, Inc. (NASDAQ:AMAT) by 37% during the third quarter when the company’s stock slumped 23.11% and made its 2-year low of $14.25. Since the start of the fourth quarter the stock has been on a constant uptrend and has appreciated by almost 28%. Nevertheless, the ownership of Applied Materials, Inc. (NASDAQ:AMAT) among funds covered by Insider Monkey also declined by 11 to 54 at the end of the third quarter. The company is scheduled to report its fiscal 2016 first quarter earnings in February and analysts expect it to declare EPS of $0.25 on revenue of $2.24 billion, which will be lower than the EPS of $0.27 on revenue of $2.36 billion it had reported for the same quarter last year. John Overdeck and David Siegel‘s Two Sigma Advisors more than doubled its stake in the company to over 7.4 million shares during the third quarter.