Digging Into Billionaire David Einhorn’s 4Q Investor Letter: Apple Inc. (AAPL), CIGNA Corporation (CI)

Compared to major competitor Ford, GM does appear to be a bit more expensive:

Price to Earnings
Ford 2.9
GM 10.5

However, in taking a further look, we see that GM’s higher valuation is warranted thanks to the company’s above average growth prospects:

5-Yr. Expected EPS Growth (Wall Street estimates)
Ford 5.80%
GM 12.20%

GM also announced that it will repurchase 200 million shares from the U.S. government for $5.5 billion and lower its shares outstanding by roughly 11%, reducing the U.S. Treasury’s stake in the company from 26.5% to 19%. The U.S. government also recently announced plans to fully exit its GM ownership over the next 12 to 15 months.

Einhorn’s other big bet is on gold. Although he doesn’t outline his favorite gold pick, Einhorn’s biggest third quarter gold bet was on Barrick Gold Corporation (USA) (NYSE:ABX). Einhorn and Greenlight owned nearly 2 million shares at the end of the third quarter. The gold miner also pays a 2.4% dividend yield.

Morgan Stanley has also noted that the macroeconomic conditions remain conducive for the price of gold to go higher. The bank sees gold reaching $1,773/ounce for 2013, over 6% upside from current levels. Morgan Stanley had this to say about its gold forecast…

We expect that very low nominal interest rates, an ongoing commitment to QE3, and a below-par recovery with attendant pressure on the U.S. easing will still combine to encourage investment buying of gold, despite elevated prices.

For Barrick, specifically, the gold miner should see positive EPS growth thanks to higher gold prices and lower-cost mine production. Barrick has also diversified beyond gold, with the acquisition of Equinox Minerals in 2011, which added two copper mines. Compared to other major gold miners, Barrick does appear to be quite cheap on a price to earnings basis:

Price to Earnings
Barrick 9.6
Goldcorp 19.6
Yamana Gold 34.1

Einhorn noted that he had boosted his Vodafone position, believing the stock has been unnecessarily forced down on “news that just doesn’t seem that bad.” Vodafone has been increasing its smartphone (80% of sales) penetration across all of Europe, not to mention new initiatives in India. Vodafone is also one of the top dividend paying telecoms, with a 5.5% yield.

The enterprise segment is one of the key drivers of Vodafone s long-term prospects, leading the company to create a new business segment called Vodafone Group Enterprise. This new segment

Vodafone Group Plc (ADR) (NASDAQ:VOD) does hold a 45% stake in Verizon Wireless. Einhorn believes that at current valuation leaves, the stock is placing no value on its Verizon stake and that…

…with Verizon’s increasing dependence on Verizon Wireless, it wouldn’t surprise us [Greenlight Capital] if Verizon decided to buy all of Vodafone to gain full ownership of Verizon Wireless.

Although Einhorn managed to lag the broader market in 2012 he’s betting on the likes of Vodafone and Cigna to carry his portfolio in 2013. Part 3 will take a look at Einhorn’s bet on Marvell Technology (check out Greenlight’s portfolio).

The article Digging Into Billionaire David Einhorn’s 4Q Investor Letter, Part II originally appeared on Fool.com and is written by Marshall Hargrave.

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