By Aubrey Tabuga
Greenlight Capital is an American hedge fund manager founded by David Einhorn in 1996. With a starting amount of $900,000, Einhorn was able to turn it into a $6 billion hedge fund company in a matter of 12 years. Einhorn has made a huge business out of strategic shorting when the market is struggling. He became famous for short-selling the Lehman stock prior to the 2008 collapse. In the latest quarter, the fund had about $6 billion worth of assets under management. Because of Greenlight's popularity in yielding robust profits, it is worth to check on its latest picks.
The big buys for the third quarter are General Motors Company (GM), Computer Sciences Corporation (CSC), Yahoo! Inc. (YHOO), Marvell Technology Group Ltd. (MRVL), and Aetna Inc. (AET). Investors who are closely watching the moves of the popular fund manager can obtain important insights from this short article. I examine these stocks from a fundamental perspective, briefly going through the historical trading activities of the hedge fund concerning these stocks for a better appreciation of the moves.
% of Portfolio
EPS next 5Y
Sources: whalewisdom.com & finviz.com
General Motors Company
The hedge fund increased its stake in General Motors by 23% in the third quarter bringing the GM share to 8.18%. This is the fourth time that Greenlight bought additional shares of GM since it initiated its position during the first quarter of 2011. The total amount of its shares held was six-fold its initial stake making it one of the top stocks in Greenlight's portfolio.
General Motors Company is a designer, manufacturer, and marketer of cars and other automobile. It operates worldwide under various brands that include Buick, Chevrolet, Cadillac, and GMC. The Detroit-based company had just entered into a joint venture with its China partners for the development of a car plant that is worth $1 billion. The plant aims to keep up with the rising demand for cars in China, the world's largest car market. GM is also opening a global research center in the same country that is geared towards the development of electric vehicles.
These positive developments have obviously boosted up the stock as it continues to gain a robust performance. The price had leaped by 24.72% from a year ago. Within the quarter, it has gained 19.13%. GM's growth prospects are encouraging with earnings expected to rise by 11.83% annually in the next 5 years. Within the current year, earnings have grown by 58.46%. Meanwhile, General Motor's forward P/E is 6.81, which is quite lower than the current ratio at 9.50.
Computer Sciences Corporation
Greenlight increased its position again in Computer Sciences Corporation, this time by 89%. It is recalled that the hedge fund also bought additional shares in the previous quarter. The stock comprised 3.69% of the total shares of the hedge fund. Computer Sciences Corporation is a provider of IT and professional services to governments and commercial enterprises in North America, Europe, Asia, and Australia. The company has been recently ranked by Zacks a "strong buy" with its impressive EPS jump in the latest quarterly report. Towards mid-November, CSC has been awarded a $34 million contract modification for upgrading aviation training simulation technology for the U.S. Army Aviation Center of Excellence.
The stock had hit a performance gain of 64.63% from a year ago. The half-year performance was up by an incredible 41.99%. Investors can hope for positive earnings in the coming year with an estimated EPS of $3.28, a significant development from the current losses per share of $8.90. Meanwhile, CSC has been paying stable dividends to its investors since 2010. However, continued strength and growth will lie on the company's ability to lift revenues up.
Greenlight purchased new Yahoo stocks again in the latest quarter. The shares held amounted to 1.34% of its total investment portfolio. Trends show that Einhorn does not tend to hold on to its Yahoo stake. The fund manager had sold all the shares it bought in the last quarter of 2011 during the subsequent quarter. Yahoo! Inc. is a digital media company that offers personalized content and experiences worldwide. It is reported to be contemplating on more acquisitions. The Sunnyvale-based company had successfully acquired Stamped late last month. Stamped is a company that allows users to share recommendations on book, restaurants, and others.
Yahoo's stock has gained 17.23% from the previous year. Its performance within the quarter has gone up by 27.34%. Despite a decline in the earnings this year and the next, the long term annual growth estimate is an encouraging 11.68%. Likewise, the profit margin is indeed impressive at 66.94%. However, for Yahoo to sustain this trend, it needs to boost revenues. At present, the quarterly revenue growth [yoy] is -1.23%. The revenues have been contracting by 4.95% in the past 5 years.
Marvell Technology Group
Marvell Technology has been a favorite of Greenlight for 5 consecutive quarters now. The fund manager has been purchasing additional shares since it initiated its position in the third quarter of 2011. In the latest quarter, the company comprised 4.99% of the fund manager's total portfolio. Marvell Technology Group engages in the design, development, and marketing of semiconductors. It operates in many countries around the world.
The company recently reported declines in its revenues and earnings. These results were attributed primarily to the slowdown in the demand for PC, so the company focuses on data storage to yield gains in HDDs and SSDs. For one of its products in this segment, Marvell won the Enterprise Product of the Year by the Best in Biz Awards. The stock had lost 37.66% from the previous year but is slowly picking up. Its performance within the month had already gained 10.34%. Marvell's profit margin is a decent 10.75%; its earnings are expected to grow by 7.93% per year in the next 5 years.
Greenlight had increased its stake in Aetna by 38% in the third quarter putting the share to the total portfolio to 2.90%. It had initiated its position only in the preceding quarter. Aetna Inc. is a health care benefits company based in Hartford, Connecticut. Its business lines are in Health Care, Group Insurance, and Large Case Pensions. The company was recently recognized as one of the most community-minded companies in America. Aetna is poised to buy the national company Coventry Health Care Inc. and its subsidiaries, an acquisition that has to be approved by authorities in 20 states. A couple of weeks ago, Aetna got the nod from the Kansas Insurance Department to buy Coventry Health Care of Kansas Inc.
Aetna's year-to-date performance is up only by 1.95%. Within the quarter, however, the stock price had gained 8.96%. So far, the earnings are estimated to grow annually by 10.19% in the coming years while the profit margin is a positive 5.22%. Aetna's forward P/E at 7.67 is slightly lower than the current one at 8.06. Also, the company is a loyal dividend payer. It has been paying increasing dividend amounts for over a decade now.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.