5 Big Buys And 2 Big Sells By David Einhorn

by: Efsinvestment

The world-renowned hedge fund manager David Einhorn runs Greenlight Capital, a long-short value-oriented hedge fund. Since its establishment, Greenlight Capital generated an annualized return of above 20%. Einhorn, a graduate of Cornell University, is also the Chairman of the Greenlight Capital Re (GLRE).

Einhorn is best known for shorting stocks that have questionable business practices and accounting complexities. He is the author of the famous book "Fooling Some of the People All of the Time." In this book, he explained his thesis against the Allied Capital Company. More recently, Einhorn crushed Green Mountain Coffee Roasters (GMCR), questioning the company’s accounting practices, transparency, and business activities. The stock lost near 45% of its market since Einhorn’s presentation on the company.

Einhorn is an activist investor. He is known for taking positions in distressed companies, and pushing the management for a change. According to Edgar Online, he has a diversified portfolio of stocks. Technology stocks constitute 33% of the portfolio, followed by financials (20%) and service stocks (15.63%). In the most recent quarter, Einhorn made significant transactions. I have examined the 5 big buys and 2 big sells from a fundamental perspective, adding my O-Metrix scores where possible:

Big Buys

Company Name


Shares Held

% Change

% of Portfolio


General Motors


17.73 million




Marvell Technology


16.64 million




Market Vectors Gold Miners


7.26 million




CBS Corp.


5 million






1.31 million




Big Sells




Sold Out






Sold Out



Data from Finviz/Morningstar and is current as of November 30. You can download O-Metrix calculator, here.

The fair value is calculated according to the following formula (adding book value gives the upper boundary):

  • Fair Value = E0 + E1 / (1+r) + E2 /(1+r)2 + E3/(1+r)3 + E4/(1+r)4 + E5/(1+r)5 + Disposal Value + {Book Value}

O-Metrix score is calculated as:

  • O-Metrix = 5 x (Dividend Yield + Expected EPS Growth) / PE Ratio

Big Buys

General Motors was among the biggest losers of 2011. The stock lost almost 45% since January, offering a cheap deal to those willing to take the risks. Apparently, Einhorn is among the risk-takers, increasing his GM stake by 330% in the last quarter.

General Motors, which employs over 200,000 workers worldwide asked for government protection during the sub-prime crises. Consequently, since 2009, GM became a quasi-government owned enterprise. The U.S. and Canadian governments, along with the Union Auto Workers owns near 60% of the outstanding shares. The company, which used to be the biggest automobile maker for the most of the last decade, lost its leadership to Japanese manufacturers, recently. The restructured GM is a more profit-oriented company that has the primary aim of reducing costs and boosting profits. As a result of these efforts, Q3 EPS of $1.03 was 8 cents higher than the consensus estimates. Analysts are pretty bullish on GM’s future, expecting near 12% EPS growth for the next 5 years. 15 out of 19 analysts covering GM have buy ratings. If their EPS estimates hold, General Motors can be the turnaround story of this decade, returning substantial profits to its shareholders.

Marvell Technology is a Bermuda-headquartered semiconductor company with operations worldwide. Unlike its giant competitor, Intel (INTC), the stock lost near 30% in this year. Although it is recovering from its August dip of $12, Marvell is still trading almost 40% below its 52-week high. Einhorn initiated a new purchase of 16.64 million shares and owns 2.75% of the company.

The technology stocks are among the cheapest ones in the market, and Marvell is no exception. The stock is trading with a low trailing P/E ratio of 11.19, and forward P/E ratio of 9.85. It does not pay any dividends, but at a price of $13, it is trading at a discount to its peers. Moreover, its P/FCF ratio is at a single digit number of 9.5, and the company has $4 cash per each outstanding share. Based on 16% EPS growth for the next 5 years, Marvell has an O-Metrix score of 7.6. Fair value range is $22 - $31.

Market Vectors Gold Miners is an exchange traded fund that seeks to replicate the performance of NYSE Arca gold miners index. Einhorn has traditionally been bullish on the gold, stating:

Gold is the money of choice that we would like to have a meaningful amount of our assets denominated in gold.

Einhorn also thinks that gold is a safe investment when the monetary and fiscal policies do not provide enough austerity. On the other hand, the legendary investor, Warren Buffett does not like gold, because it does not create any cash-flow. I am on Buffett’s side when it comes to precious metals.

Those bullish on gold, attach its price to the monetary base, claiming that it still has a long way to go. In my opinion, gold has reached or at least trading near its peak level. Gold does not generate anything other than its shine, and its value is based on what buyers are willing to pay for. One can surely speculate on gold. However, I would not count on it as an investment, but rather a speculative bubble, which might burst at some point. Even the commodity investor, Jim Rogers suggests that gold is expensive at its current levels.

CBS is a new addition to Einhorn’s portfolio. He initiated a fresh purchase of 5 million shares in the last quarter.

New York-headquartered CBS is one of the largest media titans in the U.S. It offers cable TV, publication, and local broadcasting services through several media channels. The stock was one of the top performers in 2011, returning more than 30% since January. Based on 12.70% EPS growth estimate, my fair value range for CBS is $32 - $47. Thus, even after returning 30% in this year, the stock still has significant upside potential to reach this fair value.

Apple, the legendary stock of the 21st century, is the biggest holding in Einhorn’s portfolio. He owns 1.31 million shares, and increased his holdings by 22% in the last quarter. Almost 10% of Greenlight’s portfolio is invested in Apple.

Everybody loves Apple and almost all analysts covering the company suggest it as a buy or hold. However, their target prices significantly differ from each other. Hudson Square has a target price of $700, whereas Deutsche Bank has a conservative target of $530. Based on 19% EPS growth estimate, my target price range for Apple is $666 - $750. At a trailing P/E ratio of 13.5, the stock is trading at the bottom of its valuation. Apple has near 80% upside potential to reach its fair value.

Big Sells

Einhorn scrapped Pfizer holdings in the last quarter, stating that future reimbursement cuts for branded pharmaceuticals might adversely affect the company. Pfizer was the largest stake in Einhorn’s portfolio in the second quarter. The liquation of Pfizer shows that Einhorn lost his confidence in the company.

Unlike Einhorn, I believe Pfizer is undervalued -- particularly compared to its peers. Surely, there are much cheaper stocks in the market, but with a yield of above 4%, Pfizer is a nifty stock for dividend lovers. My fair-value range for Pfizer is $21 - $33.

BP is another stock, Einhorn dumped in the third quarter. Since its dip of below $30 due to the Gulf disaster in the last year, BP returned more than 50%. However, it is still trading at highly attractive ratios. The trailing P/E ratio of 5.62 and forward P/E ratio of 6.35 are among the lowest in the industry. BP pays a nifty yield of 4%.

Surely, the growth expectations are limited for a company of BP’s size. However, at a price of $43, the stock is trading near its book value. It is also well below the analysts’ mean price of $53. Although Einhorn sold out his BP holding, I believe current price offers a good entry point.

Disclosure: I am long AAPL.