How Did Billionaire David Einhorn’s Top Bets Perform in Q4?

Since its launch in 1996, billionaire David Einhorn‘s Greenlight Capital has consistently been one of the best performing long/short equity hedge funds on the Street. In the period between 1996 and July 2013, the fund generated average annual returns of 19.5% for its shareholders at a market beta of only 0.5. Another metric that makes the fund’s performance even more impressive is that it does not use leverage to boost its returns. Greenlight Capital is famous on the Street for not generating large trading volumes. However, the third quarter of 2015 was a little different for the fund in that regard.

According to the firm’s third-quarter 13F filing, its equity portfolio saw a 35.71% quarter-over-quarter turnover between July and September. The filing also revealed that during the third quarter the value of the fund’s equity portfolio dropped by almost 25% to slightly above $6 billion and its top 10 holdings accounted for a lion’s share (64.08%) of the value of its equity portfolio at the end of September. Interestingly, even though Greenlight Capital became a little cautious during the third quarter, it increased its stake in all of its top eight equity holdings during that period. In this article we are going to analyze the performance of Greenlight’s Capital top five equity holdings during the final quarter of 2015.

David Einhorn
David Einhorn
Greenlight Capital

We track hedge funds and prominent investors 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 50 most popular large-cap stocks among hedge funds had a monthly alpha of about 6 basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas (see the details here).

#5 CONSOL Energy Inc. (NYSE:CNX)

– Shares Owned by Greenlight Capital (as of September 30): 29.6 million

– Value of Holding (as of September 30): $290.17 million

Although most energy stocks got beaten down heavily in 2015 due to the decline in crude and natural gas prices, CONSOL Energy Inc. (NYSE:CNX) turned out to be one of the worst performing stock in that sector.  Since May, shares of the company started falling heavily and ended 2015 down by 77% with almost 20% of those losses coming in the fourth quarter. However, Greenlight Capital increased its stake in the company by 33% during the third quarter. In its third-quarter letter to investors, Greenlight said that it is bullish on Consol because of its cost-cutting measures and solid drilling results, as well as “a significant success at a test well in the Utica Shale”.

“We believe the market has undue concern about the near-term prospects for Appalachian coal and natural gas, leading it to discount the company’s long-term resource value far beyond anything we anticipated,” Greenlight said.

On January 6, CONSOL Energy lowered its coal production guidance and capital spending plans for 2016 due to the continuing slump in commodity prices. It now expects to sell 27 million to 32 million tons of coals this year versus its previous guidance of 30.6 million to 33.4 million tons. Additionally, it now expects $205 million to $325 million in capital spending this year for its exploration and production division, significantly lower than its earlier guidance of $400 million to $500 million.

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#4 Chicago Bridge & Iron Company N.V. (NYSE:CBI)

– Shares Owned by Greenlight Capital (as of September 30): 7.48 million

– Value of Holding (as of September 30): $296.71 million

Shares of Chicago Bridge & Iron Company N.V. (NYSE:CBI) did try to recoup the over 20% losses they suffered during the third quarter by moving up in October. However, the gradual decline they saw after the company reported its third-quarter earnings on November 5 resulted in them ending the final quarter of 2015 down marginally by 1.6%. Taking into account that shares of the company have fallen by more than 10% since the start of 2016, it seems Greenlight Capital didn’t make a wise move by upping its stake in Chicago Bridge & Iron Company N.V. (NYSE:CBI) by 12% during the third quarter.

Even though its share price has been collapsing, Chicago Bridge & Iron Company has been doing well in terms of contract wins. In December, the company won several multi-million dollar contracts and continued that winning streak this year by winning a contract to build a polypropylene unit for China’s Hebei Haiwei Group. This perhaps explains why most of the 26 analysts who cover the stock are bullish on it currently with an average rating of ‘Overweight’.

On January 15, analysts at Robert W. Baird upgraded the stock to ‘Outperform’ from ‘Neutral’ while keeping their price target on it constant at $52, which represents a potential upside of almost 50% from the stock’s current trading price. Warren Buffett’s Berkshire Hathaway was one of the funds that reduced its stake in the company significantly during the third quarter; it brought its holdings down by 79% to slightly under 2 million shares.

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#3 Michael Kors Holdings Ltd (NYSE:KORS)

– Shares Owned by Greenlight Capital (as of September 30): 7.04 million

– Value of Holding (as of September 30): $297.52 million

Luxury retailer Michael Kors Holdings Ltd (NYSE:KORS) lost almost half of its market capitalization during the first-half of 2015 and didn’t recover in the following months, ending the year 46% in the red. Greenlight almost doubled its position in the company during the third quarter, but the stock inched down by around 2% in the last three months of 2015. In its third-quarter investor letter, Greenlight said that the issues that led to the stock’s weak performance in the first half of 2015 had been fixed and Michael Kors can get back on track and turn back to growth.

“We believe KORS has multiple avenues of continued growth, including its international business and footwear. We established our position at an average price of $45.18, less than 9.5x March 2016 fiscal year earnings estimates net of the $4 per share in cash,” Greenlight said.

Michael Kors Holdings Ltd currently trades at a forward price-to-earnings multiple of 8.08, which might make it look extremely cheap especially when compared to its competitors. The company is expected to report its fiscal-2016-third-quarter earnings early next month and analysts expect EPS of $1.46 on revenue of $1.35 billion, versus EPS of $1.48 on revenue of $1.26 billion it posted for the same period last year.

On January 5, analysts at Wedbush reiterated their ‘Neutral’ rating and $48 price target on the stock. Cliff Asness‘ AQR Capital Management made a 21-fold increase to its stake in Michael Kors Holdings to nearly 2.5 million shares during the third quarter.

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#2 General Motors Company (NYSE:GM)

– Shares Owned by Greenlight Capital (as of September 30): 16.3 million

– Value of Holding (as of September 30): $490 million

Owing largely to the 13.3% rise it saw during the fourth quarter, shares of General Motors Company (NYSE:GM) managed to end 2015 nearly flat. Although the number of funds with long positions in the company declined by 16 to 88 during the third quarter, the number of funds founded and/or managed by billionaires went up by two to 14. Billionaire David Tepper‘s Appaloosa Management LP reduced its stake in General Motors Company by 22% to 12.88 million shares during the July-September period.

On January 13, the company made several positive announcements for its shareholders, which included raising its 2016 earnings outlook by 5% or $0.25 per share, increasing its stock repurchase program to $9 billion from $5 billion and raising its quarterly dividend to $0.38 per share from $0.36 per share. General Motors Company is scheduled to report its third-quarter earnings early next month and the Street has a consensus estimate of $1.20 in EPS on revenue of $37.87 billion. For the same quarter last year, General Motors Company delivered EPS of $1.19 on revenue of $39.60 billion.

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#1 Apple Inc. (NASDAQ:AAPL)

– Shares Owned by Greenlight Capital (as of September 30): 11.23 million

– Value of Holding (as of September 30): $1.24 billion

Apple Inc. (NASDAQ:AAPL)’s stock started 2015 on a great note, climbing by 17.5% during the first two months. However, ever since they went below the $120 mark at the start of the second-half of the year, they struggled to again trade above it and ended the fourth quarter down by 4.5%. Amid a 11.66% drop in the stock during the third quarter, Greenlight Capital raised its stakes in the company by 53%. However, the stock inched down by another 4% in the last quarter of 2015.

Recently, Apple Inc. (NASDAQ:AAPL)’s stock went below the psychological $100-mark amid growing concerns of weaker iPhone 6 sales. However, that is not the only woe faced by the company currently. In 2014, the European Commission had launched an investigation against the company’s tax arrangement in Ireland, the results of which are expected in March this year. According to experts, if the Commission rules out against Apple, the company may have to shell out over $8 billion in taxes and fines. Although the recent decline of Apple’s shares has caused agony to a lot of investors, it has also helped in pushing the company’s annual dividend yield over 2%, making it attractive for fixed income investors.

Currently the Street is waiting for the company’s fiscal 2016 first quarter results, which it is expected to report on January 26, to see if Apple can live up to the great results it reported for the same quarter last year. Analysts forecast the company to beat the EPS of $3.06 and revenue of $74.60 billion it reported for the first quarter of the last fiscal year by declaring EPS of $3.24 on revenue of $76.76 billion. Philippe Laffont’s Coatue Management reduced its stake in Apple by 21% to 6.8 million shares during the third quarter.

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