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By HD Carver

This article will examine five stocks David Einhorn added to his portfolio in the latest quarter and reported in October and November. Einhorn is the founder and president of Greenlight Capital, which has some $5 billion in assets under his management. Perhaps we can see what led to these selections by reviewing price/earnings, return on equity and price book fundamentals, contrasting his picks with the stock of a competing enterprise. In addition, I review technicals and inform investors what action to take now:

Mr. Einhorn has added 5 million shares of CBS Corporation (NYSE:CBS) stock. CBS, with a market cap of $16.22 billion, is trading at about $24.78 per share. The price/earnings ratio of 14.10 is proximate to my preferred upper limit of 15. Return on equity for the company is an acceptable, if not robust, 12.54%. CBS Corporation has a price to book of 1.64 and, in this respect, may be regarded as a value stock. The current ratio is 1.38, which is also below my ‘soft’ target of 1.50. That brings us to the debt/equity ratio of 60.53%. This is an acceptable ratio, although I prefer to see something in the 50% or less range, but 60.53% is by no means a deal breaker. CBS stock pays a dividend, yielding 1.20% against a payout ratio of 17.00%. The importance of a dividend will vary with the individual investor and typically revolves around goals. Someone investing for retirement, for example, is more apt to focus on dividend yield than, say, a day trader.

CBS’s price/earnings growth ratio is 0.62. One is the “brass ring” but never forget that this fundamental relies on projections of year-to-year earnings growth. The price/earnings growth ratio can only be as accurate as the estimate. That’s why we are looking at year-over-year quarterly revenue growth next, which in CBS’s case is 2.10%. We also want to look at year-over-year quarterly earnings growth for CBS, which is 6.60%. I also like to look at net income per employee. For CBS, that comes in at $48,609. I also like to look at where the stock is trading in relation to its 52 week low. CBS currently trades at 155% of its 52-week low. News Corporation (NASDAQ:NWS) has a market cap of $42.40 billion and trades at about $16.82. The price/earnings ratio is 16.51. NWS has a return on equity of 11.28% and the price to book is 1.59. The company’s current ratio is 2.16% and the debt/equity ratio is 54.97. News Corporation pays a 1.00 dividend yield and the payout ratio is not available. The price/earnings growth ratio is not available either. Year-over-year quarterly revenue growth is 7.20% while year-over-year earnings growth is in the negative zone at -4.80. Net income per employee is $58,039. At present, the stock trades at 122% of its 52-week low. For me, CBS is the clear choice.

Greenlight Capital acquired 2.6 million shares of Legg Mason, Inc. (NYSE:LM). This asset management firm in the financial sector trades at about $25.03. With a market cap of $3.5 billion, the Greenlight holdings represent a significant vote of confidence. Price/earnings ratio for LM is 15.26 and return on equity is 4.29%. The price to book of 0.62 is consistent with a value stock. The firm’s current ratio is 2.57% and debt/equity is 29.20%. LM pays a dividend yield of 1.10% supported handily by a 15.00% payout ratio. The price/earnings growth ratio is 1.33. Year-over-year quarterly revenue growth is -0.70%, while year-over-year quarterly earnings growth is also in negative territory at -24.80%.

Net income per employee is $72,834 and the stock is trading at 111.00% of its 52-week low. In contrast, Charles Schwab Corp. (NYSE:SCHW) with a market cap of $14.3 billion is trading at about $11.26 and has a price/earnings ratio of 16.78. The company has a return on equity of 11.98% and a price to book of 1.89. Schwab’s current ratio is 62% and debt equity is 26.15. These numbers suggest that Schwab is sitting on significant cash. Dividend yield for the stock is 2.10% with a payout ratio of 35%. The price/earnings growth ratio is 0.98 and year-over-year quarterly revenue growth is 11.10%. Year-over-year quarterly earnings growth is 77.40%. Net income per employee is $58,993 and the stock is trading at 107% of its 52-week low. This one is a tough call. Arguments can be made on both sides. The analyst opinion favors Schwab and in the final analysis I must concur. A higher yield, superior earnings and revenue growth and a solid cash position are the deciding factors for me. Frankly, I wouldn’t buy either one with my money. Maybe with yours.

That brings us to Einhorn’s purchase of 1.35 million shares of Barrick Gold Corporation (NYSE:ABX). This gold stock is trading at about $51.00 per share. Barrick’s market cap is $49.27 billion and its price/earnings ratio is $12.33. Return on equity is 19.14% and price to book is 2.20. ABX’s current ratio is 2.27% and debt/equity is 54.71%. The company pays a modest dividend yield of 0.90% and the payout ratio is an equally modest 11.00%. The price/earnings growth ratio is 0.27 while year-over-year quarterly revenue growth is 43.70%. Quarterly year-over-year earnings growth follows obediently at 44.90%. Net income per employee is not available. The stock is trading at 127% of its 52-week low. Rival, Newmont Mining Corp. (NYSE:NEM) is trading at about $68.00 and has a market cap of $32.78 billion. Price/earnings is 15.49 and the return on equity is 19.57%. Price to book is 2.36 and the current ratio is 1.42%. NEM’s debt/equity ratio is 25.37% and the stock has a dividend yield of 1.20% supported by a pay out ratio of 18.00%. The price/earnings growth ratio is 1.95. Quarterly year-over-year revenue growth is 5.70% and quarterly year-over-year earnings growth is in the negative, -8.20%. Net income per employee is $52,903 and the stock is trading at 136% of the 52-week low. I can understand Einhorn’s choice given ABX’s superior price/earnings, price/earnings growth, price to book, revenue and earnings growth. This is a clear win for Barrick.

Moving into the technology sector, Compuware Corporation (NASDAQ:CPWR), trades at about $8.33 per share and Einhorn purchased about 4.46 million of the company. CPWR has a market cap of $1.82 billion and a price/earnings ratio of 16.97. Return on equity is 11.41% and price to book is 1.85. The company’s current ratio is 1.03% and debt equity is 12.67%. The company pays no dividend. Quarterly year-over-year revenue and earnings growth is 15.40% and -12.70% respectively. Net income per employee is $24,675 and the stock is trading at 120% of its 52-week low. Close competitor, BMC Software, Inc. (NASDAQ:BMC) trades at about $35.32 and market cap is $6.05 billion. The price/earnings, return on equity and price to book are 14.55, 29.45% and 4.06 respectively. The current ratio is 1.51% and the debt/equity ratio is 23.60. The company pays no dividend. BMC has a textbook price/earnings growth ratio of 1.05. Quarterly year-over-year revenue and quarterly year-over-year earnings growth are 10.80% and -13.00% respectively. Net income per employee is $71,274. The stock is trading at 108% of its 52-week low. Analyst opinion sides with CPWR and I would have to agree. The financial strength lies with Compuware.

Greenlight Capital is the proud owner of 114,000 shares of technology company Synaptics, Inc. (NASDAQ:SYNA). The stock trades at about 33.29 per share and the company has a market cap of $1.07 billion. SYNA’s price/earnings, return on equity and price to book ratios are 19.93, 29.45 and 3.30 respectively. Current ratio is 3.64% and debt/equity is 71.00%. The stock pays no dividend. The price/earnings growth ratio is 0.93. Quarterly year-over-year revenue and quarterly year-over-year earnings growth are -12.90% and –30.40% respectively. Net income per employee is $85,962. The stock is trading at 152% of its 52-week low. Rival Cypress Semiconductor Corporation (NASDAQ:CY) is trading at about $18.75 per share and the company has a market cap of $2.9 billion. CY’s price/earnings, return on equity and price-to-book ratios are 24.74, 26.44% and 7.30 respectively. Current ratio is 1.12% and debt/equity is 3.51%. The stock pays a modest dividend yield of 0.90 supported by a payout ratio of 12.00%. The price/earnings growth ratio is 0.88. Quarterly year-over-year revenue and quarterly year-over-year earnings growth are 14.20% and 16.10% respectively. Net income per employee is $42,214. The stock is trading at 137% of its 52-week low. The analysts favor CY in this match-up but I have to side with Einhorn. SYNA has definite upside potential and financial strength as evidenced buy its price/earnings growth ratio and current ratio. After all, Einhorn didn’t bet the farm, just a few acres.

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

Source: 5 Stocks David Einhorn Added To His Portfolio