Even though many investors view Caterpillar Inc. (NYSE:CAT) as an infrastructure-related stock because a company also produces equipment involved in infrastructure development, Greenlight considers that its post-election rally alongside some other “similar industrial cyclicals” was premature, because Caterpillar Inc. (NYSE:CAT)’s machines are not used only in infrastructure, but also in mining and energy, which are actually its largest segments.
“We just completed a once-in-a-generation boom in iron ore mine development, and horizontal drilling means we can produce more oil with fewer rigs. Even in a U.S. infrastructure boom, CAT is overpriced,” Greenlight said.
David Einhorn’s fund is also shorting a “bubble basket”, which mostly includes stocks that haven’t generated any profits and, therefore, are “unlikely to benefit from corporate tax cuts.” One of the stocks that is in the basket is Netflix, Inc. (NASDAQ:NFLX), because its domestic market has matured and the company risks in net neutrality rules. In addition, the company has not showed that its large bet on original content is paying off and Greenlight considers that it doesn’t.
“NFLX is able to report that its U.S. streaming segment is highly profitable only by allocating a disproportionate amount of content amortization to its smaller and unprofitable international streaming segment,” the letter added.
Greenlight also reiterated its position to short oil frackers (previously it mentioned that it is short Pioneer Natural Resources (NYSE:PXD)). Under a Trump administration, we are likely to see a “drill-baby-drill” attitude, which is “likely to lead to additional mal-investment”, which will result in lower oil prices and higher losses for frackers.
Finally, one commodity that Einhorn and his team are bullish on is gold. Due to the fact that the president-elect doesn’t seem to have any core policy beliefs and changes his mind as he sees fit, there might be more political and economic uncertainty under a Trump presidency. Moreover, more geopolitical, economical and policy uncertainties also contribute towards a bullish case for gold.