With its main fund plummeting by 20.4%, there is no doubt that 2015 was a terrible year for billionaire David Einhorn‘s Greenlight Capital. However, if one considers the fund’s past performance, Greenlight still ranks as one of the best performing hedge funds in the industry despite the disappointing year. According to the fund’s fourth quarter letter to its investors, it has generated annualized returns of 16.5% net of fees and expenses since its inception in 1996. A testament to Mr. Einhorn’s ability to generate superior returns and the faith that his investors have in him is the low level of redemptions Greenlight saw in 2015 despite performing poorly. Analysis done by Bloomberg shows that Greenlight’s assets under management (AUM) fell to $8.6 billion from $11.8 billion during the year, largely due to performance, as investors’ withdrawals were limited to around 5% of AUM. Considering the fund’s past performance, we think that Greenlight will soon recover from this rough patch, so in this article we will delve into the fund’s top five long-term picks that will likely carry it back to glory.
We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).
#5 Oil States International, Inc. (NYSE:OIS)
– Shares Owned by Greenlight Capital (as of December 31): 887,428
– Value of Holding (as of December 31): $24.18 million
Greenlight Capital initiated its stake in Oil States International, Inc. (NYSE:OIS) during the first quarter of 2013, but reduced it significantly in 2014 amid a sharp decline in the company’s stock. Once Oil States International, Inc. (NYSE:OIS)’s stock started showing some stability in the fourth quarter of 2015, the fund again solidified its stake by purchasing an additional 622,400 shares of the company. Billionaire Israel Englander‘s Millennium Management was another hedge fund which boosted its holding in Oil States International during the fourth quarter, increased it by 117% to 2.22 million shares. Due to the recent move up in crude oil prices, shares of Oil States have appreciated by 26% in the past month and currently boast year-to-date gains of over 15%. However, a lot of analysts who cover the stock think that it is overvalued at current levels, believing that at an EBITDA multiple of 5-times it should ideally be trading around $15 per share, which represents potential downside of over 50% from its current price.
#4 Vodafone Group Plc (ADR) (NASDAQ:VOD)
– Shares Owned by Greenlight Capital (as of December 31): 889,294
– Value of Holding (as of December 31): $28.7 million
Vodafone Group Plc (ADR) (NASDAQ:VOD) became a part of Greenlight Capital’s portfolio in the fourth quarter of 2012. Though the company’s stock hasn’t appreciated much since Greenlight took a stake in the company, Vodafone Group Plc (ADR) (NASDAQ:VOD) has paid considerable dividends during that period. The company currently pays a quarterly dividend of $0.53 per share, which translates into an attractive annual dividend yield of over 7% at present. In February, the company issued convertible bonds in two tranches to raise $4.17 billion, which it plans to use for ‘general corporate purposes’. On March 15, Vodafone Group announced that it has set up a global business unit targeting digital security for its enterprise customers. Ken Griffin‘s Citadel Investment Group initiated a stake in Vodafone Group Plc (ADR) (NASDAQ:VOD) during the fourth quarter by, purchasing 523,587 shares of the company.
Three more long-term holdings of David Einhorn are discussed on the next page.
#3 IAC/InterActiveCorp (NASDAQ:IAC)
– Shares Owned by Greenlight Capital (as of December 31): 2.5 million
– Value of Holding (as of December 31): $150.12 million
Moving on, IAC/InterActiveCorp (NASDAQ:IAC)’s stock is currently trading near the same levels at which it traded in the first quarter of 2013, when Greenlight Capital initiated a stake in the company. Shares of the media and entertainment company started on a downward journey last July which has continued into this year, as they are currently trading down by over 22% year-to-date and by 46% since mid-July. Last November the company completed the spin-off of its dating products unit into an independent publicly traded entity called Match Group Inc (NASDAQ:MTCH). However, it continues to own an 85% stake in the spun-off company. On February 5, IAC reported worse than expected fourth quarter financial numbers along with an announcement that it will be suspending its quarterly dividend payments. Nevertheless, several analysts who track the stock continue to be bullish on it, citing the low valuation at which the company currently trades at and the remarkable growth shown by IAC/InterActiveCorp (NASDAQ:IAC)’s HomeAdvisor segment. On March 23, analysts at SunTrust initiated coverage on the stock with a ‘Buy’ rating and $57 price target.
#2 Green Brick Partners Inc (NASDAQ:GRBK)
– Shares Owned by Greenlight Capital (as of December 31): 24.19 million
– Value of Holding (as of December 31): $173.65 million
Greenlight Capital first initiated a stake in Green Brick Partners Inc (NASDAQ:GRBK) during its IPO in the second quarter of 2007, but liquidated its entire position in subsequent years. It again took a stake in the company in the fourth quarter of 2014 and by the end of 2015 owned almost 50% of the outstanding shares of Green Brick Partners Inc (NASDAQ:GRBK). Shares of the company fell by 33% during the October-to-December period, but have recouped some of those losses this year, as they currently trade up by over 6% year-to-date. On March 10, the company reported preliminary fourth quarter results of $0.16 in EPS and revenue of $85.5 million, which stand to be improvements over the EPS of $0.13 on revenue of $67.6 million that it reported for the same quarter of the previous year. On January 6, analysts at JMP Securities initiated coverage on the stock with a ‘Market Perform’ rating.
#1 Apple Inc. (NASDAQ:AAPL)
– Shares Owned by Greenlight Capital (as of December 31): 6.28 million
– Value of Holding (as of December 31): $661.53 million
Though Greenlight Capital reduced its stake in Apple Inc. (NASDAQ:AAPL) by 44% during the fourth quarter, the company still represented its largest equity holding going into 2016. Apple Inc. (NASDAQ:AAPL) has been a part of the fund’s portfolio since the second quarter of 2010, when the stock traded near the $35 mark (split-adjusted). Providing a respite to many investors, Apple Inc. (NASDAQ:AAPL)’s stock recently changed its trajectory and started moving up. Though it is currently trading in the green for 2016 with a marginal gain of around 2%, technical analysts feel that it will face significant resistance from here on, especially near the $120 mark. Last month, the company unveiled a new 4-inch smartphone, the ‘iPhone SE’, with prices starting at $399, which is targeted at customers in developing countries. Along with the phone, it also launched a newer version of the iPad Pro, which comes with a stylus and keyboard support and sports a 9.7-inch screen. Analysts are currently divided over whether the new phone will help Apple boost its market share or whether it will in fact end up reducing the appeal of the company’s products to its core customers. One of the company’s largest suppliers, Foxconn, recently announced that it has agreed to acquire Sharp for $3.5 billion. While Apple didn’t play a direct role in this deal, many on the Street believe that it could lead to Sharp supplying smartphone screens for Apple once more. Billionaire David E. Shaw‘s firm D.E. Shaw increased its stake in Apple by 311% to 5.58 million shares during the fourth quarter.