David Einhorn Investor Letter: Long Altice USA Inc (ATUS), BT Group PLC (BT), Still Short Tesla Inc (TSLA)

David Einhorn‘s Greenlight Capital has yet to submit its 13F for the September 30 reporting period, but thanks to the fund’s Q3 investor letter dated October 5, we’re now privy to its biggest moves of the latest quarter, as well as its latest performance figures. On the latter front, a brutal year continued in Q3 for Greenlight, which lost 9.1% during the quarter due to struggling positions such as General Motors Company (NYSE:GM), Bayer AG (OTCMKTS:BAYRY) and CNX Resources Corporation (NYSE:CNX). That pushed Greenlight’s 2018 losses to 25.7%, more than 35 percentage points behind the market.

The billionaire activist’s hedge fund sold off multiple key positions during the third quarter, including stakes in Apple Inc. (NASDAQ:AAPL), Mylan NV (NASDAQ:MYL), Twitter Inc (NYSE:TWTR) and Micron Technology, Inc. (NASDAQ:MU). To replace them, Greenlight opened new positions in Altice USA Inc (NYSE:ATUS) and BT Group PLC (NYSE:BT). Greenlight also exited short positions in TransDigm Group Incorporated (NYSE:TDG) and Martin Marietta Materials, Inc. (NYSE:MLM) in Q3, while retaining its short position in Tesla Inc (NASDAQ:TSLA). Below we’ll take a closer look at some of Einhorn’s latest moves.

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Einhorn spent the bulk of his latest investor letter taking aim at Tesla Inc (NASDAQ:TSLA), confirming that Greenlight still maintains its short position in the electric automaker. Einhorn compared Tesla to Lehman Brothers, noting the parallels in how both firms threatened short sellers, refused to raise necessary capital, and talked about going private when things looked most dire.

Einhorn stated that Elon Musk’s vision of an advanced, ultra-fast assembly line that relied almost entirely on automation has failed and that Tesla is unlikely to ever achieve the formerly predicted 25% margins on the $35,000 Model 3 because of that. Tesla has delayed the inevitable losses on those vehicles by focusing on premium versions of the Model 3 and halting orders on the $35,000 model, the availability of which has been pushed back to the second quarter of next year. However, the order backlog for those premium Model 3s is already exhausted and Einhorn expects Tesla to have a big Q4 earnings disappointment as a result, which could destroy the bull case for the stock.

Einhorn was also critical of the bloated valuation estimate of Tesla Inc (NASDAQ:TSLA) provided by Catherine Wood of ARK Investment Management during recent commentary related to whether the company should go private. Wood predicted Tesla would be a $900 billion company based primarily on it building a robust robo-taxi platform of 3 million vehicles, a business segment which Tesla has yet to confirm it will ever enter.

Several hedge funds tracked by Insider Monkey bailed on Tesla Inc (NASDAQ:TSLA) in the second quarter, as just 19 funds were shareholders of the company by the end of the quarter, compared to 30 at the start of it. Anand Parekh‘s Alyeska Investment Group, Ray Dalio‘s Bridgewater Associates, and Daniel Och‘s OZ Management were among the funds to sell off their Tesla shares in Q2.

On the next page we’ll look at some of Einhorn’s other moves and comments from his latest investor letter.

The first of David Einhorn’s new stock picks is Altice USA Inc (NYSE:ATUS), a pure-play cable provider that is cheaper than peers like Charter Communications Inc (NASDAQ:CHTR) and Cable One, thanks to a lower EBITDA multiple. Einhorn isn’t worried about cord-cutting concerns that have limited Altice shares to trading at a 10% free cash flow yield, stating that the switch from linear video to broadband streaming video is a beneficial one for Altice USA Inc (NYSE:ATUS), meaningfully pushing up data consumption rates.

The hedge funds in our database collectively grew far more bullish on Altice USA Inc (NYSE:ATUS) in Q2, as 38 funds were shareholders of the stock at the end of the quarter. That represented a 50% increase from the start of the quarter, while the value of hedge funds’ positions more than doubled to $1.05 billion.

Greenlight also opened a medium-sized position in the London-traded shares of BT Group PLC (NYSE:BT), which also trades on the NYSE. Einhorn liked BT Group’s cheap valuation of 4.7x EV/EBITDA and its 8% dividend yield when based on the fund’s 2019 estimates (the current yield is 6.77%). Greenlight also sees value potential in BT Group PLC (NYSE:BT)’s Openreach platform, which it believes could be split off from the company.

Lastly, Einhorn sold off the remainder of his fund’s Apple Inc. (NASDAQ:AAPL) position at the end of August, noting that it had earned the fund over $1 billion during the eight-year period it occupied Greenlight’s 13F portfolio. Einhorn praised Apple Inc. (NASDAQ:AAPL) for returning more of its profits to shareholders in recent years, which Greenlight itself had lobbied for in a 2013 proposal that had sought the creation of a preferred Apple stock called iPrefs. While Apple did not institute that particular proposal, it did buy back over 25% of its shares over the following five years.

Einhorn expressed some concern over possible retaliation against Apple Inc. (NASDAQ:AAPL) as part of the China trade war and doesn’t find Apple’s 17x forward earnings to be overly enticing at this point. A total of 90 hedge funds tracked by Insider Monkey were long Apple on June 30, down from 97 at the end of March.

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