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Three David Einhorn Stocks You Can Get Cheaper Than He Did

February 08, 2011 | About:
The Dogs of the Dow is a popular investing approach for many where investors buy the worst performing members of the Dow and hold them for a year. I’ve also heard the Dogs of Seth Klarman, and the Dogs of Warren Buffett. Here, I present to you the Dogs of David Einhorn. Einhorn is one of my favorite investors to follow. His long term track records speaks for itself and his reasoning for his decisions are always well explained, whether you agree with the decision or not. Since inception in 1996, Greenlight Capital has returned 21.5% annually.

These three stocks can all be bought today for a price lower than what Einhorn paid for them.

BioFuel Energy Corp. (BIOF): BioFuel Energy is an ethanol maker. It’s had a wild ride since its founding, going from more than $10/share when it went public, down to around $5 in the high fuel price days of 2007 and 2008, before becoming a penny stock in 2009. Einhorn has served on the BioFuel board since April 2006 so I presume he’s been in the stock ever since its IPO. He’s owned 7.5 million shares since at least before 2007. On February 4, he added another 8.6 million shares in the $0.90 to $0.95 range. The stock currently trades at $0.89.

Einhorn and Daniel Loeb’s Third Point entered an agreement with BioFuel on a six month bridge loan that will go through March 2011. Einhorn currently owns 63% of the outstanding shares. Loeb owns just under 26%. This is a risky bet for investors, and Einhorn would be protected in ways others wouldn't be, but if you think oil prices will continue to rise, owning shares of BIOF might be better than buying gold.



Flagstar Bancorp (FBC): Einhorn owns 1.65 million shares of this $920 million bank. Einhorn first bought into it in Q1 2010 at prices between $5.70 and $9.80. Records indicate he owned 3.3 million shares. In Q2 2010 he sold half of his holdings at prices between $3.44 and $8.40. While we don’t know the exact prices he bought and sold, my guess is he sold at a profit. Things since then have gone down hill quickly. Flagstar today stands at $1.66 and has continued to show losses. However, P/B stands at 0.3, loan losses are declining, and Q4 2010 showed their earnings potential, despite still showing a loss because of reserve additions.



Sprint (S): Einhorn noted in his most recent investor letter that he initiated a new position in Sprint with an average cost of $4.46. Einhorn thinks there is room for significant margin expansion and he liked their large spectrum position. He believes shares are worth $10 if you use a discounted cash flow model. If you agree with his thinking, it's your lucky day, you can get into Sprint today at only $4.31.

Disclosure: No positions

About the author:

Steven Kiel
Steven Kiel is the president and chief investment officer for Arquitos Capital Management, a Virginia-based investment management firm. He is a graduate of George Mason School of Law and a captain in the Army Reserves. He manages two spoke funds, The Freedom Fund, a value-oriented portfolio, and The Hayek Fund, a portfolio dedicated to free market principles. He can be contacted at steven.kiel@arquitos.com or through the firm's website at www.arquitos.com.

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