Billionaire David Einhorn’s Investor Letter: 2 New Picks and Other Holdings

Greenlight Capital‘s David Einhorn is set to participate in the Sohn Investment Conference tomorrow and he will be holding his head high as his fund finally managed to break its losing spree and posted 3% gains, net of fees and expenses, for the first quarter, after having lost 20% last year. Although quarterly results have little bearing on the fund manager, who values patience and invests with a long time horizon in mind, but short term positive results certainly help to boost the confidence of clients, something which the industry was lacking in the first quarter as investors pulled out a record $15 billion from hedge funds. In this article we are going to take a look at Greenlight’s recent investor letter and discuss its two new positions, which seem to be doing pretty well, a long investment that the fund is upbeat about and another one which has eroded Greenlight’s profitability, and finally a short position stressed in the first quarter investor letter.

Our research determined that following the small-cap stocks, that hedge funds are collectively bullish on, can help a smaller investor beat the S&P 500 by around 95 basis points per month (see more details here).

#5 Pioneer Natural Resources (NYSE:PXD) –  The big short that can’t stop gaining

Firstly, let’s discuss Greenlight’s short bet. Einhorn referred to  the second largest pure play shale oil producer as the “Mother Fracker” at the last year’s Sohn Investment Conference. He drew attention to the company’s $19 billion gross CAPEX since 2006, and how the company has earned a negative economic return on it. In the first quarter investor letter Greenlight highlighted the discrepancy between the rosy presentations of Pioneer Natural Resources (NYSE:PXD), which tout 1 million or more barrels of oil equivalent (BOE) at a cost of $8 million per well, and the figures in its 10-K filings with the SEC, which reveal a cost of $14 million per well and 660,000 BOE per horizontal well. This could also be the reason behind a more than 32% surge in Pioneer’s stock price so far this year. Moreover, the company’s Permian carrying value of $8.7 billion, calculated on the $52.82 price per barrel forecast, will be subjected to an impairment charge of $5-$7 billion for a $5 to $10 reduction in oil price and will effectively wipe away a significant amount of the company’s market value. As of mid-April the short interest in Pioneer stood at 5.67% of its float. Russell Lucas‘ Lucas Capital Management slashed its Pioneer Natural Resources (NYSE:PXD) holding by 25% during the first quarter to 16,700 shares valued at $2.36 million.

#4 Sunedison Inc (OTCMKTS:SUNEQ)’s dent in the portfolio

The collapse of the developer and seller of photovoltaic energy solutions from $5.09 at the start of January to $0.54 at the end of March has been hard for Greenlight to bear. The fund managed to negotiate the addition of an independent director, Claire Gogel, a former executive of Greenlight, to the company’s board. However, Sunedison Inc (OTCMKTS:SUNEQ)’s bankruptcy ship laden with unsustainable amounts of debt had already sailed. According to a 13D filing last month, Greenlight held about 11.33 million shares of Sunedison, which amass about 2.8% of the company’s outstanding stock (see details). Both Ray Carroll‘s Breton  Hill Capital and Beech Hill Partners, which is managed by Paul Cantor, Joseph Weiss and Will Wurm disposed of their entire Sunedison Inc (OTCMKTS:SUNEQ) holdings during the first quarter.

#3 Michael Kors Holdings Ltd (NYSE:KORS)- the not so forgotten fashion darling

Greenlight reported ownership of 8.98 million shares of Michael Kors Holdings in its 13F filing for the fourth quarter. Einhorn has capitalized well on a more than 32% rally in the $9.3 billion global accessories, footwear and apparel company’s stock price on year-to-date basis. Greenlight took a long position in Michael Kors during the second quarter of 2015, when many gave up on the company thinking it was a fad, but Einhorn identified the situation as more of a growth hiccup. Piper Jaffray recently upgraded the company to ‘Overweight’ from ‘Buy’ and boosted the price target to $67, which provides an upside of 26% to the current trading levels. The analysts believe that the firm hasn’t lost popularity or market share and now has a more stable footing on a global scale. Buckingham Capital Management, led by David Keidan, initiated a stake in Michael Kors Holdings Ltd (NYSE:KORS) containing 250,000 shares during the first three months of this year.

#2 PVH Corp (NYSE:PVH) – the unfairly beaten-down apparel company

Moving onto the newly initiated positions, Einhorn added the $7.88 billion apparel company to his fund’s portfolio at an average price of $75.65. Based on PVH Corp (NYSE:PVH)’s current stock price, the investment has already reaped more than 27% in returns. Greenlight figured out that the concerns surrounding a weak 2015 holiday season and foreign exchange headwinds were overplayed and went long at a time when these apprehensions were eroding the stock price. The significant sales growth of Calvin Klein business in Europe, continued cost-cutting efforts at Heritage, and integration moves that will ultimately result in direct sales as opposed to the current franchise operations are the salient reasons why PVH Corp (NYSE:PVH) has inspired Greenlight’s confidence. Even after a 45% reduction in its PVH holding, Larry Robbins‘ Glenview Capital was the largest shareholder of the company, within our database, owning about 2.44 million shares at December-end.

#1 Yelp Inc (NYSE:YELP)- the promise of high returns

Lastly, Greenlight added the $1.64 billion owner of search and review website for local businesses at an average price of $21.16. So far this year, Yelp Inc (NYSE:YELP)’s stock has plunged by more than 25% owing to slower growth in the face of increasing competition and also anxiety about an upcoming negative documentary. According to Greenlight’s investor letter YELP’s management is reducing costs by moving its sales force to lower cost cities, is adding more transaction-based revenue, and providing more reporting tools to its customers. The hedge fund expects the stock to hit a $55 mark by 2019, doubling its revenues. However, if the firm decided to operate only its top 20 markets instead, even then the upside would stand at 30%. Ken Fisher‘s Fisher Asset Management reduced its Yelp Inc (NYSE:YELP) stake by 1% during the first quarter to 380,900 shares valued at $8 million.

Disclosure: None