David Einhorn is the president, and co-founder of Greenlight Capital, a long-short, value-oriented hedge fund, which has around $5 billion assets under managements. Einhorn is also the author of the popular book "Fooling Some of the People All of The Time." He is known to be a philanthropist, who donated millions of dollars to charities such as Ira Sohn Research Conference Foundation, Tomorrows Children's Fund, The Project on Government Oversight, and The Center for Public Integrity.
David Einhorn "believes an investment approach emphasizing intrinsic value will achieve consistent absolute investment returns and safeguard capital regardless of market conditions."
Before investing in any company, Einhorn analyzes the company's competitive position, as well as the management's alignment with shareholders. Similar to Carl Icahn, Einhorn actively engages in stakes of stressed public companies, and then pushes for change in management policy. By doing so, Einhorn fixes these companies by transforming them into profit machines. Here, is a summary of Einhorn’s Top 10 Holdings with thoughts on their market beating potential:
1. Ensco PLC (NYSE:ESV)
Ensco plc, together with its subsidiaries, provides offshore contract drilling services to the oil and gas industry. Having a market capital of $8.55 billion, Ensco has a P/E ratio of 18.91, and forward P/E ratio is 10.87. The EPS growth estimated for the next five years is 11.28%. ESV paid a dividend yield of 2.35%, and company has profit margin of 28.08%. Canaccord Genuity recommends buying, while Morgan Keegan suggested an outperform rating for Ensco PLC. Ensco is an excellent selection for investors who seek exposure to the offshore drilling sector.
2. Pfizer Inc. (NYSE:PFE)
New York-based Pfizer Inc. is one of the oldest biopharmaceutical companies in the business. It offers prescription medicines for humans and animals worldwide. It has a market cap of $167.58 billion. The company has a P/E ratio of 20.56, and a forward P/E ratio of 9.20. With a gross margin of 75.99%, PFE is an immensely profitable company. This year earnings are expected to grow by 1.79% with a long term EPS growth estimate of 2.10%. Jefferies, UBS and Standpoint Research recommend buying for PFE. Analysts have always been pessimistic about large pharmaceutical's upside potential. Pfizer is a value investment with low multiples, which is a favorite of hedge funds as well as large institutions. Ytd return of 23% shows the hedge funds' skills in stock picking.
3. CIT Group Inc. (NYSE:CIT)
CIT Group Inc. is a bank holding company providing commercial financing and leasing products, and management advisory services. CIT has a market cap of $8.51 billion, P/E ratio of 16.46, and a forward P/E of 20.81. It has gross margin of 42.29%, and net profit margin of 8.19%. The company does not have a dividend policy. Boenning & Scattergood suggested an outperform rating for CIT. CIT is one stock to watch for Einhorn's masterful skills in action. The stock has beaten down by almost 20% since February. Those interested can acquire CIT with a price lower than what Einhord paid for.
4. CareFusion Corporation (NYSE:CFN)
CareFusion Corporation is a medical technology company providing various healthcare products and services globally. It operates in two segments, Critical Care Technologies, and Medical Technologies and Services. The market capitalization of CFN is $6.55 billion, while its P/E ratio is 41.96. It has a forward P/E ratio of 15.62. This year earnings are expected to grow by 16.05% with a long term EPS growth estimate of 12.90%. Einhorn thinks CFN has a long-term growth potential. If the EPS estimates of 13% holds, it can beat the market.
5. Apple Inc. (NASDAQ:AAPL)
Apple is the favorite stock of hedge funds. They hedge themselves against market risk by acquiring Apple. Apple beat the analyst estimates (mine as well) with a large margin. As of last closing day, Apple has a market cap of $322.57 billion. It has a P/E ratio of 16.69, and forward P/E ratio of 12.38. This year earnings are expected to grow by 66.91% with a long term EPS growth estimate of 20.13%. The company has no dividend policy yet. T-Metrix scale of 7 out of 10 is way above the average S&P (NYSEARCA:SPY) score of 4.4.
6. Cardinal Health, Inc. (NYSE:CAH)
Cardinal Health, Inc. operates as a healthcare solutions company that provides health care products. Cardinal supports a market cap of $15.28 billion. Its P/E ratio is 16.74, while its forward P/E ratio is 14.66. Although it had negative EPS growth in the last 5 years, 5 year expected EPS growth is 13.84%. Cardinal Health offers a dividend yield of 1.79%. UBS and Stifel Nicolaus recommend buying for CAH. If analyst estimates of 14% EPS growth holds, Cardinal might reach a market cap of $30 billion by 2016.
7. Sprint Nextel Corporation (NYSE:S)
Sprint Nextel Corporation, through its subsidiaries, offers wireless and wire line communications products. It has market cap of $15.49 billion. Sprint Nextel could not survive the competition with AT&T (NYSE:T) and Verizon (NYSE:VZ). Consequently, earnings have been going down, year-after-year with an EPS Growth of -37.39%. However, earnings are expected to grow by 27.20% this year. The company has no dividend policy. Kaufman Bros, Argus and Deutsche Bank recommend buying for Sprint Nextel. Einhorn's investment in Sprint Nextel is a serious bet given the titanic competitors. Similar to CIT, Sprint is another stock to watch for radical change in company policy.
8. Market Vectors Gold Miners ETF (NYSEARCA:GDX)
Market Vectors Gold Miners ETF seeks to replicate yield performance of the NYSE Arca Gold Miners Index (GDM). According to Yahoo, GDX invests "at least 80% of its total assets in common stocks and American depositary receipts (ADRs) of companies involved in the gold mining industry." As shown here, the P/E ratios of gold miners are extremely high with an average of 72. I also believe that we are living at the age of gold-mania; therefore it is best to avoid GDX along with other gold related products, including Gold (NYSEARCA:GLD).
9. Microsoft Corporation (NASDAQ:MSFT)
As shown here, Microsoft Corporation is priced insanely below its intrinsic value. The company has market cap of $217.79 billion. Its P/E ratio is 10.98, while its forward P/E ratio is 9.43. Microsoft's annual EPS growth for the past five years was 13.34%, and this year's earnings are expected to grow by 29.76% with a long term EPS growth estimate of 10.82%. Microsoft is a cash-printing machine with low ratios. The company has a net profit margin of 30.84%. MSFT shareholders enjoyed a dividend yield of 2.47%, which is expected to increase year after year. UBS and Collins Stewart recommend buying for MSFT, while Oppenheimer suggests outperform.
10. NCR Corporation (NYSE:NCR)
NCR Corporation is a global provider of technologies and services to financial services industry. NCR has market cap of $3.17 billion. NCR's P/E and forward P/E ratios are 28.71, and 10.31, respectively. Although it had a negative EPS growth in the last five years, its earning increased by 90.08% this year. Long term EPS growth estimate of 21% puts NCR a must-buy for those interested. The shares just break the $19 resistance with a strong momentum. Wedbush has a target price of $21.
Disclosure: I am long MSFT.