Tracking David Einhorn's Portfolio - Q4 2011 Update

by: John Vincent

This series of articles is an ongoing analysis of the changes made to Einhorn's Greenlight Capital U.S. stock portfolio on a quarterly basis. Greenlight Capital's U.S. long stock holdings stood at $5.23 billion at the end Q4 2011 which is 12% more than the ~$4.67 billion of Q3 2011.

The fund returned 9.7% during the quarter although it underperformed the S&P 500 index which returned 11.15% then. The 2011 full-year returns of 2.9% outperformed the S&P 500 index which remained flat. Einhorn summarized the 2011 performance as "Never has so much work gone into making 2%...While outperforming the S&P 500 has never been our goal, this is the 13th consecutive year that we have done so, though this time by a trivial margin." The net-long position was altered marginally from a 94-55 long-short ratio to 93-53 in the last two quarters of 2011. The net-long position is significant compared to the 101-75 long-short ratio as of the end of Q4 2010.

New Stakes:

Dell Inc (NASDAQ:DELL): Dell, a 4% of the long US stock portfolio stake, was initiated during this quarter at an average purchase price of $15.53 per share. The stock currently trades at $17.99. The investment thesis is that the valuation is extremely low and Einhorn summed it up as "DELL has roughly $7 per share in net cash and investments and currently earns about $2 per share (up from $1.50 in 2010). Accordingly, DELL's P/E multiple is about 7x, and net of the cash and investments, it is less than 4x. This reflects a valuation usually associated with collapsing businesses." He is equally enamored by Dell's commitment to repurchase shares - "During the first three quarters of 2011, DELL repurchased 7.5% of the company and has the balance sheet to do much more."

Delphi Automotive PLC (NYSE:DLPH): DLPH, a ~3% of the long US stock portfolio stake, was purchased in Q1 2011 prior to its IPO. DLPH began trading (11/17/2011) in the NYSE at an IPO price of $22 per share. The stock has returned over 35% in the last 45 trading days and it will be interesting to watch Einhorn's next move on the position in Q1 2012.

Xerox (NYSE:XRX): XRX, a ~2.5% of the long US stock portfolio stake, was purchased during this quarter at an average purchase price of $7.61 per share. The stock currently trades at $8.33. The investment theory is that the Affiliated Computer Services (ACS) acquisition in 2/2010 will help with its foray into business process outsourcing. Also significant is its commitment to share repurchases - it expects to spend $1.0-$1.4 billion on share repurchases in 2012.

CA Inc (NASDAQ:CA), DST Systems (NYSE:DST), Liberty Media Capital (NASDAQ:LMCA), Omnivision Technologies (NASDAQ:OVTI), Research in Motion (RIMM), Tessera Technologies (NASDAQ:TSRA), and Yahoo Inc (NASDAQ:YHOO): These are smaller (<1.5% of the long US stock portfolio) stakes initiated this quarter. OVTI, RIMM, and YHOO are trading closer to the range Einhorn could have bought them at and are worth consideration for investors attempting to follow Einhorn's trades. The other positions are all trading well above Einhorn's possible entry price-range and as such are not value options.

Stake Disposals:

CVS Caremark Corp (NYSE:CVS): CVS, a 2% stake initiated in Q1 2011 when the price-per-share varied between $32.67 and $35.41, was held almost steady until this quarter when it was eliminated. In Q4 2011, the price-per-share varied between $32.97 and $41.17. The stock currently trades at $43.98. The elimination of this significant stake clearly indicates a bearish bias.

First Solar (NASDAQ:FSLR) puts: FSLR puts, a very small (<1%) stake initiated in Q3 2011 when the price-per-share varied between $63 and $132, paid immediate dividends as it traded as low as $29.87 in Q4 2011. The position was mostly exited by the end of the year and the remainder was liquidated in the first two weeks of 2012. In his EOY 2011 letter to investors Einhorn commented: "Our largest winner by far was our short of First Solar , which fell from $130.14 to $33.76 per share and was the worst performing stock in the S&P 500."

Ingram Micro (NYSE:IM), Lyondellbasell Industries (NYSE:LYB), and Marathon Oil Corp (NYSE:MRO): These were small positions (~1% each of the long US stock portfolio) eliminated this quarter. MRO was purchased in Q2 2011 while LYB and IM stakes were purchased in 2010. The stake eliminations indicate a mild bearish bias.

Becton Dickinson (NYSE:BDX): BDX, a 1% stake initiated in 2009, was increased by 2010 to a ~4% position and further increased again by 20% in the first quarter of 2011. The holding was reduced by around a third in Q3 2011 and eliminated this quarter. The periodic stake disposal of this ~4% position and its eventual elimination indicates a strong bearish bias.

Synaptics (NASDAQ:SYNA), Employers Holdings Inc (NYSE:EIG) and Semgroup Corp (NYSE:SEMG): SYNA, a minute ~0.06% position, was liquidated in the quarter. EIG and SEMG were other small positions that were eliminated in the quarter (together they accounted for <1% of the long US stock portfolio). As the position sizes were very small, these disposals do not indicate a bearish bias.

Stake Increases:

Apple Inc (NASDAQ:AAPL): AAPL, a very large 11.3% stake, was expanded by over 11% in the quarter when the stock price varied between $363.57 and $422.24. The stock currently trades around $500. Einhorn is extremely bullish on Apple shares in spite of his cautionary comment regarding Apple TV earlier this month - for the rumored TV product to have good margins, it needs to be revolutionary. However, he also indicated AAPL can continue to be very successful without the TV.

General Motors Company (NYSE:GM): GM, a large 7.4% of the long US stock portfolio stake, is being aggressively built-up - the stake was increased by ~30% this quarter - in Q3 2011, the stake was tripled at an average purchase price of $25.78. The share price ranged between $19.05 and $26.45 in Q4 2011 and trades currently at $24.93. Einhorn is especially bullish on GM. For investors attempting to follow him, the current share price is an excellent entry point.

Marvell Technology Group (NASDAQ:MRVL): MRVL, a large 4.6% position initiated in Q3 2011 with an average purchase price of $13.35, currently trades at $16.14. The stake was upped by 4.4% this quarter when the share price varied between $13.14 and $15.67. The investment logic is that the valuation is low because of certain misconceptions in the market. In fact, the company is well-run and operates in structurally-defensible markets. The stake increase, albeit minor signifies a bullish bias.

CBS Corporation (NYSE:CBS) and Legg Mason (NYSE:LM): These are smaller positions (<3% of the long US stock portfolio) that were increased incrementally during the quarter. CBS, a 3% stake increased by ~20% this quarter, was initiated in Q3 2011 at an average purchase price of $20.79. The stock currently trades at around $29.57. LM, a small 1.5% position initiated last quarter when the price-per-share ranged between $24 and $34, currently trades at $26.87. The position was increased by 30% this quarter when the price-per-share varied between $22.95 and $29.08. For investors attempting to follow Einhorn, these are decent options to consider.

Stake Decreases:

Travelers Companies (NYSE:TRV) and Broadridge Financial Solutions (NYSE:BR): These positions were reduced significantly this quarter. TRV, a 4.5% position, was trimmed to just 1% during the quarter. Purchased initially in 2009 and roughly doubled in 2010 and doubled again in Q1 2011, TRV was held almost steady until Q3 2011 before the large disposal this quarter. This about-turn in the quarter indicates a clear bearish bias. BR was a small 1% stake initiated in 2010 that was reduced by ~85% this quarter.

Aspen Insurance Holdings (NYSE:AHL), Carefusion (NYSE:CFN), Energy Partners Limited (NYSE:EPL), Furiex Pharmaceuticals (NASDAQ:FURX), HCA Holdings (NYSE:HCA), Huntington Ingalls (NYSE:HII), NCR Corp (NYSE:NCR) and NVR Inc (NYSE:NVR): These stakes were decreased by less than 20% during the quarter and indicates a mild bearish bias.

The rest of the positions have remained unchanged during the quarter. Large positions among them include BAGL (>2%), Gold sector (GDX >7%, GDXJ ~1%, ABX ~1%, and a large stake in physical gold), Microsoft (MSFT - 7.5%), Seagate Technology (STX - 4.5%), and Sprint Nextel Corp (S - 3.3%). Among these, S is trading at a large discount to the average purchase price of Einhorn's stake.

The spreadsheet below highlights changes to Greenlight's US stock holdings in Q4 2011:

Click to enlarge

Please visit our Tracking David Einhorn's Greenlight Capital Holdings article series for an idea on how his holdings have progressed over the years and our previous update highlighting the fund's moves during Q3 2011.

Disclosure: I am long AAPL.