Founded in January 1996, Greenlight Capital, Inc. is a privately-owned hedge fund management firm founded by David Einhorn. The firm manages the Greenlight Capital series of hedge funds and the assets of a reinsurance company, Greenlight Capital Re, Ltd [GLRE]. The firm has offices in New York and London.
Investment Strategy: Greenlight Capital, Inc. primarily invests across all market-caps and sectors in publicly-traded corporate debt and equity securities. The firm employs a bottom-up approach emphasizing fundamental analysis, aiming to achieve high absolute rates of return while minimizing the risk of capital loss. Greenlight Capital is a value-oriented investment manager and buys securities trading materially lower than their intrinsic values. It also short sells securities which are trading materially higher than their intrinsic values. The firm looks for clean balance sheets, low cash flow multiples, low earnings multiples and low levels of financial leverage. It typically sells its investments when fair value is reached or fundamentals deteriorate.
In this article, I will be discussing some of the top buys of Greenlight Capial from the last quarter (Source: 13F filing).
Dell Inc. (DELL): Greenlight Capital bought 14,100,000 shares of Dell last quarter. It is a new position for the stock. It is interesting that David Eihorn, one of the most successful hedge fund managers of the current times, is positive on Dell's turnaround story.
Recently, Dell reported a mixed January quarter. However, its guidance for 7% declines in the April quarterly revenues was disappointing, causing the stock to give away some of its gains from earlier this year. I believe investors should utilize this opportunity to go long on the stock. Dell is still in the initial stages of transformation, and such speed bumps are likely. However, I am still bullish about the medium to long-term prospects of the company.
Smarter business practices helped Dell improve its gross margins profile in 2011. Going forward, it is expected to continue as component pricing trends improve along with a shift in the revenue mix towards non-PC and value added solutions. With its enterprise storage better integrated, Dell could be a serious competitor in storage space, which offers long-term growth. Dell also announced the creation of a new software group, which I believe is another step towards transforming the company to more of a solution provider. Dell, with its strong balance sheet and cash flow generation could make strategic acquisitions and repurchase shares. All these factors indicate a strong medium-term outlook with accelerating revenue growth.
Delphi Automotive Plc. (DLPH): Greenlight Capital bought 8,194,661 shares of Delphi last quarter. It is a new position for the Fund. Delphi was also a new purchase by other star hedge fund managers like David Tepper and George Soros. Clearly, Delphi's stock hasn't disappointed these top hedge fund managers, returning over 45% YTD. The company reported excellent Q4 results with EPS of $0.84, well above consensus expectation of $0.55. The single biggest driver of the performance was improved gross margins, particularly in the Powertrain segment. Going forward, the company has excellent exposure to key secular trends like fuel efficiency, safety, in-vehicle technology and emerging markets. I would recommend buying the stock, as these trends will continue to drive above-average growth and strong free cash flow for the company.
Apple Inc. (AAPL): Greenlight Capital bought 150,000 shares of Apple last quarter. Apple reported excellent earnings numbers for the last quarter, beating even the most optimistic estimates. Its guidance was also better than expected, with strong momentum in iPhone and iPad sales. Going Forward, Apple has two good catalysts in 2012 in the form of iPad3 sales and iPhone5 launch. From a medium to long-term perspective, Apple's secular growth and market share gains in the smartphone and tablet space are likely to continue for the next several years. Apple's strategy of customer-centric innovation and launching products with potential to create whole new markets is still intact. If one goes by Steve Jobs' biography, Apple TV is likely the next such product in the line. At a valuation of just 9x forward earnings (adjusted for cash), Apple is trading at very attractive levels. If we look at Apple's brand awareness and customer loyalty, it actually deserves a mid teen multiple--inline with some of the reputed large/mega cap consumer companies with strong brand names. I see further chances of Apple's multiple appreciation and recommend a buy on the stock.
Yahoo Inc. (YHOO): Greenlight Capital bought 3,018,887 shares of Yahoo last quarter. I don't see much downside for Yahoo, despite of its struggling core business. All investors are focused on its asset sales, and any positive news on that front will be a likely catalyst for its stock price appreciation. Yahoo's investment in Yahoo! Japan and Alibaba, plus a large cash balance will provide any downside support the stock. Any successful turnaround in Yahoo's core business can also lead to a significant upside. Yahoo's 700 million user base and traffic leadership in several categories make it a good diversified play on online advertising.
Research In Motion Limited (RIMM): Greenlight Capital bought 2,923,317 shares of RIM last quarter. This is one stock about which I don't agree with Greenlight Capital and believe it is a sell instead of a buy. Research In Motion Ltd. is a designer, manufacturer and marketer of wireless solutions for the mobile communications market. RIM's portfolio includes the BlackBerry wireless solution, the RIM Wireless Handheld product line, software development tools and other software and hardware.
After Microsoft's (MSFT) deal with Nokia (NOK) and Google's (GOOG) acquisition of Motorola (MMI), Research in Motion has become an orphan stock, and there are very low chances of its acquisition. Three major players will continue to dominate smartphone ecosystem in the near future: Apple, the Nokia-Microsoft combination and the Google-Motorola combination. It will be very difficult for any other company to challenge this domination, and thus, every other player in the smartphone business is headed for a tough time ahead.
Although RIM is trading below its book value, continued market share losses are a serious concern for the company. The company is tracking at low end of February quarter guidance, and although sell side consensus still expects the company to be profitable in the near term, there are some concerns that the company may start posting losses as soon as this summer. Unless there are any signs of market share stabilization, I don't think any sustainable change in stock trend can occur. I see the downside in the stock price continuing in the near term.