Greenlight Capital is one of the most successful investment managements over the globe, mostly renowned for its short selling of Lehman Brothers. Einhorn's Greenlight Capital has consistently outperformed the overall market indices. The company is able to generate a minimum 25% annual net return for its investors. Greenlight mostly invests in publicly traded North American equities and debt offerings. In the fourth quarter of 2011, Greenlight sold out eight stocks, while opening ten new stakes. I have examined the biggest 3 buys and 2 big sells from a fundamental perspective, adding their year-to-date returns. The O-Metrix score is applied where possible, as well.
Change in Shares
% of Portfolio
Research In Motion (RIMM)
Becton, Dickinson and Company (BDX)
Marathon Oil Corp. (MRO)
Data obtained from Finviz/Morningstar and is current as of February 17.
Dell is one of the top buys of Greenlight. A P/E ratio of 9.5 and a forward P/E ratio of 8.9 show that there's plenty of room for growth. Analysts estimate a 5.1% annual EPS growth for the next five years. Profit margin is 5.9%, while it offers no dividend.
Although Dell is heavily overbought, nothing could have stopped the upwards trend. Since I rated it as a buy, the stock returned 3.7% in ten days. Assets and cash flow are very trustworthy. Debt-to equity ratio (0.7) is another convincing number, which crushes the industry average of 6.0. The forward P/E ratio will reward Dell with a 40% discount to its five-year average, and return on equity (47.2%) is absolutely breathtaking. Most of the computer stocks have been suffering from Apple's leapfrogs, but not everyone is rich enough to buy Apple products. Dell is a strong competitive in this arena, plus it has a solid balance sheet. Dell might fall back to $15- regain its power and hit harder to new 52-week highs soon. Dell has an O-Metrix score of 2.77.
Greenlight opened a new stake in Yahoo, buying around 3 million shares worth $48.7 million. The stock is selling at a P/E ratio of 18.7, and a lower forward P/E ratio of 16.4. Estimated annualized EPS growth for the next five years is 13.8%. Profit margin (20.5%) is slightly below the industry average of 21.4%, and it has no dividend policy.
With a Beta value of 0.92, Yahoo is the fifth-least volatile stock in its industry. The stock is in a much better shape than it was in August. Moreover, it offers a suitable entry point as it declined to mid-$15. Talks with Alibaba Group have been called off because of a minor disagreement, but that surely doesn't mean they are over with it. Yahoo might struggle competing in its environment, but its grand stake in Alibaba will help the company grow at significant rates. Although the stock is not doing very well at the moment, it has the potential to outperform. Based on these numbers, Yahoo has an O-Metrix score of 3.93.
Research in Motion
Research in Motion is the last new stake of Einhorn in my list. He bought around 2.9 million shares last quarter, worth $42.3 million. The Waterloo-based company is trading at a P/E ratio of 3.6, and a forward P/E ratio of 5.2. Five-year annual EPS growth forecast is 2.2%, which is totally conservative given the 58.3% EPS growth of past five years. It pays no dividend, and the profit margin is 11.2%, higher than the industry average of 9.3%.
RIMM has been a big loser in the smart phone market. However, its balance sheet is quite strong. Assets and cash flow are very trustworthy. Debt-to equity (0.0) is also convincing, which crushes the industry average of 2.3. The Blackberry maker is heavily suffering from the solid competition between Apple (AAPL) and Android, and this situation will not change much until it offers something as strong and innovative as them. As a stock, RIMM needs more time to pull itself together. But as I said, don't expect a significant leap as long as it doesn't take a major role in the innovation arena. Based on these indicators, RIMM has an O-Metrix score of 2.50.
Becton, Dickinson and Company
Greenlight closed its stake in Becton Dickinson, selling more than 1.5 million shares worth $113 million. It shows a trailing P/E ratio of 14.2, and a lower forward P/E ratio of 12.5. Analysts expect the company to have an 8.6% annual EPS growth in the next five years. It sports a 2.32% dividend, while the profit margin is 15.5%.
Becton Dickinson has been a dividend raiser for the last fifteen years, offering a mouth-watering payout ratio and less volatility. The stock is extremely resistant to recessions, which has an annual dividend increase of 17% for the last 15 years. No matter what, Becton Dickinson is a winning stock. I would keep it for collecting dividends at the very least. The stock is fairly priced, so let's hope Einhorn doesn't regret his decision. Becton Dickinson has an O-Metrix score of 4.08.
Marathon Oil Corp.
Marathon is also kicked off the table. While Greenlight held more than 2.1 million shares worth $46.6 million, now the management doesn't seem to be playing oil this quarter. It is selling ten times earnings, and seven times forward earnings. Analysts estimate an 8.8% annual EPS growth for the next five years. It sports a 2.02% dividend, and the profit margin is 4.1%.
As Iran is halting sales to the European Union, an oil crisis can be added to the present ones. Both Crude and Brent Crude is at triple-digit prices, which is a highly dangerous situation. The Strait of Hormuz feeds 17% of the total oil traded over the world, and Iran exports 18% of its oil to the Union. Now that the sales are halted, it's about how long can Iran can sustain its economy while halting its sales by about 1/5. Therefore, I am not that pessimistic about oil future in the long term. Marathon Oil has a C Grade O-Metrix score of 5.94.
Disclosure: I am long AAPL.