David Einhorn (Trades, Portfolio), chairman of Greenlight Capital Re Ltd.’s (GLRE, Financial) board of directors, disclosed last week that his hedge fund eliminated its stake in General Motors Co. (GM, Financial) during the first quarter. The fund established 11 new positions with the proceeds, including top buys in Change Healthcare Inc. (CHNG, Financial), Crown Holdings Inc. (CCK, Financial) and Centene Corp. (CNC, Financial).
The fund said in its quarterly letter that Greenlight returned -21.50% during the three months ended March 31, underperforming the S&P 500 Index's return of -19.60% as the coronavirus pandemic crippled the U.S. economy. Greenlight’s letter said that on balance, the decision in the U.S. stems from the aim to decelerate the spread of Covid-19 “at the expense of the economy,” yet “socialize as much of the cost as possible.”
As of the quarter end, Greenlight’s $702 million equity portfolio contains 23 stocks, with a turnover ratio of 24%. The top three sectors in terms of weight are consumer cyclical, financial services and health care, representing 32.64%, 17.10% and 12.33% of the equity portfolio.
Sold out: General Motors
Greenlight sold its 6,154,702 shares of GM, freeing up 16.71% of its equity portfolio. The shares averaged $30.77 during the first quarter; Greenlight gained approximately 10% on the stock according to GuruFocus estimates.
Greenlight said in its quarterly letter that the long positions, which are pro-cyclical and more leveraged than the short positions, tumbled “almost twice as much as the market” during the quarter. While Einhorn expected a rebound in GM’s earnings and cash flow for 2020, the annual guidance missed Greenlight’s expectations. Einhorn’s hopes that 2020 was the year that GM rebounded were dashed during the company’s analyst day.
GuruFocus ranks the Detroit-based auto manufacturer’s financial strength 4 out of 10 on several warning signs, which include a weak Altman Z-score of 0.91 and a debt-to-equity ratio that underperforms 95% of global competitors. The website further warns that long-term debt has increased over the past three years while revenues have declined over the past year.
Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) owns 74.681 million shares of GM as of March, essentially unchanged from the 75 million shares as of December 2019.
New buy: Change Healthcare
Greenlight purchased 5,294,005 shares of Change Healthcare, dedicating 7.53% of the equity portfolio to the stake. Shares averaged $14.09 during the first quarter.
The Nashville, Tennessee-based company went public around June 27, 2019. The health care technology company offers a suite of software, analytics, technology-enabled services and network solutions that drive results in the workflows of health care system payers and providers.
Greenlight said in its quarterly letter that following one-time events like “planned contract eliminations, the rollout of a new imaging platform and the shift to ASC 606 accounting standards,” the fund sees solid growth in the coming years “with the resumption of elective synergies.”
Crown Holdings
Greenlight purchased 213,500 shares of Crown Holdings, giving the position 1.77% weight in the equity portfolio. Shares averaged $69.87 during the first quarter.
The Yardley, Pennsylvania-based company manufactures beverage cans, metal food cans and aerosol cans. GuruFocus ranks the company’s financial strength 3 out of 10 on the back of debt ratios underperforming over 78% of global competitors: Crown Holdings’ long-term debt has increased by approximately $3.6 billion over the past three years, a warning sign of high leverage.
Despite low financial strength, Crown Holdings’ profitability ranks 9 out of 10 on the back of a GuruFocus business predictability rank of five stars and a return on equity that outperforms over 98% of global packaging companies.
Centene
Greenlight purchased 204,700 shares of Centene, giving the holding 1.73% weight in the equity portfolio. Shares averaged $60.83 during the first quarter.
According to GuruFocus, the St. Louis-based health care plans company has a weak Piotroski F-score of 2 and debt ratios underperforming over 60% of global competitors, suggesting suboptimal business operations.
Disclosure: No positions.
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