Greenlight Capital is one of the most prominent value-oriented hedge funds around. Last week, billionaire David Einhorn,the fund’s founder, took the stage at the annual Great Investors’ Best Ideas Investment Symposium in Dallas and presented his stock recommendations. A number of other prominent investors, including T Boone Pickens and Mario Gabelli, also attended the events and pitched some of their favorite stocks.
Einhorn gave his stock recommendations during an interview with Gretchen Morgenson, assistant business and financial editor of The New York Times. In this article, we are going to discuss some of the stocks which are highly recommended by Einhorn.
Imitating hedge funds and other institutional investors can help identify some of the most profitable stocks on the market. However, our extensive research that covered the period between 1999 and 2012, showed that the best approach is to follow these investors into their small-cap stocks. Our backtests showed that the 15 most popular small-cap stocks among hedge funds managed to generate a monthly alpha of 81 basis points, versus an alpha of 0.7 percentage points posted by their top 50 large-cap picks (see more details).
CIT Group Inc. (NYSE:CIT)’s stock has dipped by 9% so far this year but the pullback offers a unique opportunity to build a position. According to Einhorn CIT stock is among the stocks which are not just cheap but are ‘very cheap.’ The stock trades at P/E ratio of nearly six, further corroborating Einhorn’s point. While discussing a number of stocks, including CIT Group, Einhorn said: “These are cheap stocks that you’re getting ideas for today. Of course, none of these are working because we’re just not in a phase of the market where that wants to be rewarded.” Greenlight Capital did not report holding shares of CIT Group in its 13F for the end of June. The number of funds from our database long CIT Group slid by four to 30 in the second quarter, while the total value of their holdings fell to $1.03 billion from $1.11 billion.
In Mylan NV (NASDAQ:MYL), Greenlight Capital boosted its position by 71% to 4.95 million shares during the second quarter. Overall, 44 funds tracked by us held $1.96 billion worth of Mylan shares in their portfolio at the end of June. During his interview, Einhorn discussed the increase in price of EpiPen by Mylan and stated that despite the negative press generated by the product, it forms a tiny portion of the company’s business. He stressed that the company’s future earnings projection have already taken the coming generic nature of EpiPen into account, which will further erode its contribution to the company’s overall earnings. Therefore, Einhorn is positive about the future performance of the stock.
He contrasted Mylan with Mallinckrodt PLC (NYSE:MNK), saying that the company raised the price of its Acthar Gel drug, without courting negative press received by Mylan for EpiPen price increase. He added that since the drug in question is used mainly for treating infantile spasms, so is not demanded by many people, making it less conspicuous than EpiPen. At the same time, the investor also cautioned that Mallinckrodt’s earnings are more dependent on Acthar Gel and hence change in the health care system may have more profound effect on the stock price. Greenlight didn’t held shares of Mallinckrodt at the end of the second quarter, while 29 funds tracked by us held $1.32 billion worth of Mallinckrodt’s stock in aggregate, having amassed 20% of its outstanding stock at the of June.
Chemours Co (NYSE:CC) stock has surged by some 216% year-to-date. Greenlight Capital boosted its position by 85% over the quarter to 16.4 million shares held at the end of June. The market value of the holding stands at $135 million and forms 2.48% of Greenlight’s portfolio. A total of 28 funds from our database had positions in Chemours Co worth about $423 million at the end of June. Einhorn is particularly upbeat about the company’s titanium oxide and refrigerant segments and said that the company is expected to show solid gains as it further boosts these two business segments with price increases.
In General Motors Company (NYSE:GM), Greenlight Capital held a $487.09-million stake which contained 17.211 million shares and was its second-largest position at the end of June. Overall, 65 funds we track amassed about $3.29 billion of General Motors Company stock heading into the third quarter. Einhorn considers that the dip in General Motors Company’s stock is mainly due to momentum investing. He pointed to the strong dividend yield of the stock and applauded the company’s robust share buyback plan. Shares of General Motors are trading at slightly over 4.0 times earnings, which, according to Einhorn, makes it an extremely attractive stock.
For learning more about auto industry, read our Top 10 Highest-Rated Auto Insurance Companies in America