David Einhorn, manager of hedge fund Greenlight Capital, recently sat down for a rare interview with Consuelo Mack on WealthTrack. The interview encompasses topics ranging from quantitative easing 2, his worries about the financial system, as well as many of his current positions including gold, Pfizer (NYSE:PFE), Apple (NASDAQ:AAPL), CareFusion (NYSE:CFN) and his shorts of St. Joe (NYSE:JOE) and Moody's (NYSE:MCO). Einhorn has returned 22% annualized so it's always worth paying attention to what he has to say.
We'll first start with a position that Einhorn hasn't talked much about previously: CareFusion. This medical device maker was spun-off from Cardinal Health (NYSE:CAH) and is essentially a mix of various high multiple, high growth, high margin businesses. CFN has an infusion business which Einhorn thinks will benefit due to a competitor (Baxter (NYSE:BAX)) having to recall equipment. The Greenlight manager likes that CFN has an opportunity to take market share and a year later receive recurring revenue.
So we think there's an opportunity here for them to expand their revenues, to expand their margins, obviously expand their earnings, and we don't believe that this has been fully adopted by Wall Street, which is very focused on medical devices and healthcare reform, and all the problems that go within that sector.
Interestingly enough, we published an in-depth research report on CareFusion in our new issue of Hedge Fund Wisdom for those of you interested in the full investment thesis.
Another new position for Einhorn is Apple and we wanted to highlight his comments since he's only briefly mentioned it in a past investor letter. He's admired the company for a while, but has always had a hard time grasping the valuation. Over the summer when shares dipped (he purchased around $248 per share), he was comfortable with the value and pulled the trigger. Overall, he likes the company's growth profile as it has a multiple in the low teens and is unlevered.
Of his AAPL position, Einhorn says:
Looking at Apple today, the stock is about $310, or $320 a share. There's about $45 a share in cash. So you're paying about $265 for the business. I think they're going to earn well over $20 a share in the next year, so you're looking at a PE net of the cash in the low teens, which is below a market multiple.
This has been a longstanding position for Greenlight Capital so it's always intriguing to re-visit his thesis on this name. He highlights that everyone knows PFE's main issue is that its biggest drug, Lipitor, is coming off of patent. Einhorn feels that after this event the company will still see a lot of earnings. He feels that the company will be able to:
...sort of cost cut themselves to maintain the profitability that they're promising people, and then when people see that there's still more than two dollars a share of earnings, even without patented Lipitor driving the results, I think there'll be an opportunity for the multiple to improve on those earnings.
And lastly, Einhorn revisits his short of St. Joe. Readers will recall that Einhorn laid out the bear case for JOE at the Value Investing Congress that sent shares spiraling downward. This has been an interesting saga mainly because another guru we track on the site, Bruce Berkowitz of Fairholme Capital, has taken the other side of the trade and is long JOE in size. Einhorn feels that the company trades well above the value of its land.
Embedded below is the video of David Einhorn's entire WealthTrack interview with Consuelo Mack:
The interview offers interesting thoughts from Einhorn all around, and it's good to hear elaborations on the theses of some of his investments. You can see what else Einhorn is investing in via our Hedge Fund Wisdom newsletter (new issue just released) And for more thoughts from this talented hedge fund manager, check out his book: Fooling Some of the People All of the Time.
Disclosure: No positions