2017 was a year to forget for David Einhorn and Greenlight Capital. The fund returned just 1.6%, well below S&P500’s 19.4% gain. Things got even worse in January 2018. While the S&P500 rose 5.6% and registered its best January performance since 1997, Einhorn’s fund slumped 5.5%. “While we’ve never underperformed like this, our prior worst underperformance compared to the S&P came in March of 2000, which was a similar environment,” said Einhorn in a recent conference call. In his latest letter to investors, the billionaire investor mentioned that Greenlight Capital’s short positions were the biggest losers in 2017. Among them are bets against companies like Amazon.com, Inc. (NASDAQ:AMZN), which rose 56% in 2017, and Netflix, Inc. (NASDAQ:NFLX), which appreciated by 55% during the same period of time. If David Einhorn did not exit those positions, it may well be that the same stocks drove losses even higher in January.
The series of unfortunate events did not stop there, however. According to a recent report by Bloomberg, Greenlight Capital’s main hedge fund shed another 6.2% in February amid the broader market selloff. As a result, the fund’s losses have extended to 12.3% for the year. The S&P500 index lost 3.7% in February, but is still up 1.8% for the year. Insider Monkey has analyzed Greenlight Capital’s equity portfolio in search of stocks that might have been oversold during the recent market correction and present a buying opportunity.
First up is ENSCO PLC (NYSE:ESV), a British provider of drilling services for oil and gas companies. Since the start of the year, the stock has lost roughly 25% of its value. By comparison, Diamond Offshore Drilling Inc (NYSE:DO) and Unit Corporation (NYSE:UNT), two of ENSCO’s competitors, have lost 22% and 13% of their value, respectively. Energy Equipment & Services industry as a whole fell by just 4.7% so far this year according to data by Fidelity.
Analysts are not bullish on ENSCO PLC (NYSE:ESV), yet their consensus is a Hold rating with a price target of $7.41 per share. It represents a 67% upside potential given today’s closing price of $4.42 per share. The company’s Price to Book (P/B) ratio is currently 0.16, significantly lower than Offshore Drilling’s P/B of 0.53 or Unit Corporation’s 0.73 P/B multiple. When looking at the Price to Sales (P/S) ratio, ENSCO shares also seem to be undervalued. Whereas, Offshore Drilling and Unit Corporation shares have a P/S ratio of 1.37 and 1.38 respectively, ENSCO shares are trading at a P/S multiple of 1.02. ENSCO PLC (NYSE:ESV)’s recent financial report has not left investors overjoyed. Although the company’s 2017 fourth quarter financial results surpassed expectations, market participants were disappointed to learn that it registered a loss of $0.66 per share for the year, wider than analysts’ expectations of $0.5 per share. By comparison, ENSCO reported earnings of $1.59 per share in 2016. This put even more pressure on the stock.
Consol Energy Inc (NYSE:CEIX), a coal mining company, ended today’s trading session at $31.69 per share, down 19.4% for the year. Arch Coal, Inc. Class A (NYSE:ARCH), one of Consol’s main competitors, is actually in green territory, up by 3.2% since the start of 2018. Peabody Energy Corporation (NYSE:BTU) is also making progress, currently up by 3.4% for the year.
Consol Energy Inc (NYSE:CEIX)’s latest earnings report shows 2017 was a very good year, as the company managed to increase its revenue and became profitable again. Gross margin rose by 13 percentage points, while operating and net margins turned positive. Shares are currently trading at a trailing Price to Earnings (P/E) ratio of 13, with analysts having projected a forward P/E ratio of 8.14 (the ratio of current price to earnings expected in the next 12 months).
The long-term outlook for coal companies is, however, bleak. The main driver behind their recent success is more favorable regulatory framework. The demand for coal in the Unites States is dependent on the electric power sector. Given the general shift towards cleaner energy and the sector’s preference for natural gas and renewable energy, it is expected that demand for coal will continue to fall. Internationally, the demand for coal is also cooling down, with China and India also favoring clean energy.
Next up is Adient PLC (NYSE:ADNT), an Irish company specialized in the manufacturing of seating systems and components for a variety of vehicles. Since the start of the year, the stock has been in a clear downtrend, having lost 24% of its value. Lear Corporation (NYSE:LEA), that is also engaged in the manufacturing of seating systems, has been oscillating between $180 and $200 per share since the beginning of 2018, currently up by 2.3% for the year.
The first trigger of Adient PLC (NYSE:ADNT)’s recent decline was the announcement of a joint venture with Boeing Co (NYSE:BA) on January 17. Boeing was facing increased costs due to delays in airplane deliveries mainly due to bottlenecks in supply of airplane interior parts. So, it decided to team up with Adient to create Adient Aerospace, a company that will develop seats for airplanes. Market participants reacted angrily, as Adient’s stock fell nearly 10% at market open. At the end of January, Adient PLC (NYSE:ADNT) issued its financial report for the fiscal first quarter. The company posted adjusted earnings of $1.06 per share, missing analysts’ estimates of $1.11 per share. Revenues came in at $4.2 billion, also below Wall Street’s expectations of $4.32 billion. Investors pushed the stock 7.5% lower following the release of the report.
A maker of mattresses and other bedding products, Tempur Sealy International Inc (NYSE:TPX) saw its stock plunge 22% since the start of 2018. By comparison, the stock of Sleep Number Corp (NASDAQ:SNBR), one of its main competitors, fell by only 8.9% during the same period of time. Analysts recommend Tempur Sealy International Inc (NYSE:TPX) mainly as a Buy and have a consensus price target of $66.43 per share, which implies and upside potential of 36% given today’s closing price of $48.74 per share.
Tempur Sealy International Inc (NYSE:TPX) stock started downhill in November 2017 after the company’s third quarter financial report. Tempur Sealy reported falling revenues and margins, and investors carried out the sentence in the stock market. Although shares regained some of the losses, they resumed their downtrend in 2018. The company’s latest earnings poured more fuel on the fire. Tempur Sealy reported revenue of $648 million and adjusted earnings of $0.79, missing analysts’ estimates of $679 million in revenue and $0.82 in earnings per share. The company’s management said it is “a much stronger company” in 2018 as it adapts to changing consumer’s purchasing habits.
Disclosure: none.
