Tracking David Einhorn's Q2 Portfolio Moves

by: Davy Bui

David Einhorn, famed money manager and regular at the World Series of Poker, runs Greenlight Capital. Having made his name in the midst of the 2008 crisis by publicly denouncing the troubled financial firms before the full scope of the systemic crisis was known. Recently, Einhorn has been in the news, squaring off against Bruce Berkowitz over St. Joe (NYSE:JOE) and calling for Steve Ballmer's removal at Microsoft (NASDAQ:MSFT).

Greenlight's latest 13F-HR filing suggests Einhorn was lukewarm on the market in the 2nd quarter. Normally an active trader by value investing standards, Einhorn added only 4 new positions for a total of $253M while completely divesting eight stocks worth nearly $1B.

New Positions This Quarter

COMPANY Current Price Market Cap Yield PE EV / EBITDA Debt to EBITDA
Aeropostale Inc (NYSE:ARO) $12.04 971.9M N/A 5.3 2.0 0.0
Huntington Ingalls Industries Inc (NYSE:HII) $28.59 1.395B N/A 7.2 6.8 4.4
Assured Guaranty Ltd (NYSE:AGO) $12.00 2.210B 0.18 (1.57%) ex-div:"May 16" 6.1 N/A N/A
State Bank Financial Corp (STBZ.PH) $14.38 454.6M N/A 10.7 0.0 N/A
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The most intriguing of Einhorn's new picks, Aeropostale is a mall-based, specialty retailer of casual apparel and accessories, principally targeting 14 to 17 year-old young women and men through its Aeropostale stores and 7 to 12 year-old kids through its P.S. from Aeropostale stores. On an ROE basis, ARO trailed the industry average of 73% by 23 points but its ROI of 39% beats the industry's 25%, which is probably a reflection of Aeropostale's debt-free balance sheet. Selling at 2x EV-to-EBITDA, the stock looks dirt cheap and my analysis of past free cash flow agrees. The company has averaged $150M free cash flow over the last 5 years which would put fair value well above $20 per share. It also carries $1.72 cash per share on the balance sheet which is over 10% of its current share price. With no debt and an easily digestible $1B market cap, the stock is screaming for a private equity buyout. But Wall Street was spooked by a horrific same-store sales which reported double-digit drops in same-store sales and suggests the company may have structural problems beyond teenage unemployment and tightened consumer spending. At this price, investors may be well-compensated for these problems.

Huntington Ingalls Industries Inc designs, builds and maintains nuclear and non-nuclear ships for the United States Navy and Coast Guard, and provides aftermarket services for military ships around the globe. A new issue which only began trading earlier this year, HII does not have a proven track record as a public company. Based on last year's results, Huntington Ingalls appears to have potential for investment but the company has a leveraged balance sheet at 4.4x debt-to-EBITDA.

The last two picks come from the troubled financial sector. Assured Guaranty Ltd. may be the strongest bond insurer left standing after the spectacular meltdown of Ambac and MBIA but the industry is undergoing dramatic change with many issuers bypassing the insurers in the wake of the financial crisis. State Bank Financial Corporation is the holding company for State Bank and Trust Company (the Bank), a Georgia-based, state-chartered bank offering a range of community banking services to individuals and businesses within its middle Georgia and metropolitan Atlanta markets. As we have seen with Bruce Berkowitz and Bill Miller, investing in financials can blow up a portfolio but some value investors are digging into select regional players.

Among his existing 33 holdings, Einhorn added to only 5 positions: Apple (NASDAQ:AAPL), Best Buy (NYSE:BBY), Ingram Micro (NYSE:IM), Microsoft and Seagate (NASDAQ:STX). STX was his biggest add during the quarter, upping his stake by 252%.

Readers can see all of Greenlight Capital's Q2 moves in spreadsheet format here.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MSFT, ARO over the next 72 hours.