3 Big Buys and 3 Big Sells for David Einhorn

by: Efsinvestment

The world-renowned hedge fund manager David Einhorn runs Greenlight Capital. His fund generated an annualized return of 22% for investors and partners. He is also the author of the famous book "Fooling Some of the People All of the Time." Greenlight returned 32.1% in 2009 and 15.9% in 2010.

Einhorn is an activist investor. He is known for taking positions in distressed companies, and pushing the management for a change. According to Edgar Online, he has a diversified portfolio of healthcare (26.26%), technology (21.75%), financial (19.29%) and services (17.23%). Here is a brief analysis of his latest three big sells and three big buys (data from Finviz and is current as of the June 9 close):

Big Sells

Ensco (NYSE:ESV): ESV recently increased its commitments under revolving credit facilities to $1.9 billion. Ensco, as of June 9, had a $7.87 billion market cap, a 17.37 P/E ratio, and a 9.46 forward P/E ratio. Earnings decreased by 28.04% this year, and 59.87% this quarter. With a 28.08% profit margin, Ensco paid a 2.55% dividend in 2010.

Einhorn reduced his ESV holdings by 51.10%, selling 4.405.000 shares worth over $255 million. I think Einhorn did the right thing by not selling off all his ESV shares. It’s obvious that ESV has good long-term potential. Today may be the best time to buy. Recent dividend payments of ESV per share are:

Mar 3, 2011


Dec 2, 2010


Sep 1, 2010


Jun 3, 2010


Carefusion (NYSE:CFN): CFN produces a variety of healthcare products and services. Market cap as of the June 9th close was $6.28 billion, P/E ratio was 25.1, and forward P/E ratio was 14.6.

While revenues are in an upward trend in the last five years, net income is highly volatile. The balance sheet shows a goodwill of almost $3 billion which is the last thing I want to see. Einhorn reduced his CFN holdings by 25.05%. Deutsche Bank, Stifel Nicolaus and Deutsche Securities recommend holding. My opinion is no other. Holding should do well.

Cardinal Health (NYSE:CAH): Cardinal will increase its dividend yield by 10%, starting with the July yield. As of June 9, the Ohio-based company had a $15.42 billion market cap, P/E ratio of 16.29, and forward P/E ratio of 14.66. Cardinal had -7.89% EPS growth in the last five years, while earnings decreased by 22.56% this year. Dividend yield was 1.96% in 2010, while profit margin is 0.95%.

The company did not have a considerable downfall since September 2010. Debts are decreasing for the last five quarters. Einhorn sold 30.38% of his Cardinal holdings. I think he is taking out his profits. It seems a good idea to own some Cardinal shares as a long-term investment. UBS, Argus and Stifel Nicolaus recommend buying. Here is the recent dividend history of Cardinal per share:

Mar 30, 2011


Dec 29, 2010


Sep 29, 2010


Jun 29, 2010


Big Buys

Best Buy (NYSE:BBY): Best Buy sells home office products, consumer electronics, entertainment products and appliances. As of the June 9 close, the Minnesota-based company had a market cap of $11.14 billion. Trailing ratio is 9.19, and forward P/E is 7.79. PEG is 0.7 while P/S is 0.2. Analysts expect the company to enjoy 10.47% EPS growth in the next five years. Dividend yield is 2.09%, while profit margin is 2.71%.

Target price is 36.45, which implies an increase of about 20%. Although debts and assets have been unstable for the last five quarters, BBY looks like a good pick. After the fall of its biggest direct competitor, Circuit City, Best Buy became the star of the show. It would be wise to buy. Einhorn opened his biggest new stake in BBY this quarter, buying 6 million shares worth over $190 million. Here, are the last four dividends:

Apr 12, 2011


Dec 31, 2010


Oct 1, 2010


Jul 1, 2010


Yahoo! Inc. (NASDAQ:YHOO): Yahoo recently said that it is seeking more Arabic-language content partners for Middle East growth. YHOO, as of June 9, had a $19.9 market cap, a 17.76 P/E ratio, and a 16.9 forward P/E ratio. Earnings increased by 113.29% this year, while gross margin is 61.32%.

Einhorn bought 8.5 million YHOO shares worth over $138 million. Debt-to assets ratio is nearly 0%, while assets are having minor increases. Target price is 19.61, implying a nearly 30% upside potential. Although Yahoo has some problems for the time being, they probably will be solved in the near future, and Yahoo will become a safer investment for long-term investors. After all, Bill Gates has an eye on Yahoo.

Travelers (NYSE:TRV): Travelers is one of the leading insurance companies in the U.S. As of the June 9 close, the company had a market cap of $25.58 billion and net income of $3.38 billion. Ttm P/E ratio stands at 8.32, while forward P/E ratio is 9.71.

Einhorn increased TRV holdings by $130 million, and Greenlight owns 0.974% of the company. Travelers is a solid dividend payer with a current yield of 2.69%. Analysts estimate 9.51% EPS growth over the next five years. With an O-Metrix score of 7, I think Travelers will beat the market with a large margin. It is a top dividend stock pick for the next five years.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.