He always makes research before investing, but what´s curious is that he thinks that “you never really know what will happen”. Despite the uncertainty, the journey is well worth the effort.
The curious feature about Einhorn is his capacity to publicly challenge companies that are doing very well, attack them and give a negative opinion. This was the case of Allied Capital and Lehman Brothers.
He criticizes their accounting, says the shares are overvalued and usually cause them to sink. The last example: Green Mountain Coffee (GMCR).
Einhorn mostly likes stock which is not exposed to credit risks. Just to mention some of his top buys: Bestbuy (BBY), Yahoo (YHOO), CVS Caremark (CVS), Microsoft (MSFT), Cit Group (CIT), among others.
Now, let´s look at some of those buys with further detail. One of them is Fifth Street Finance Corp. FSC is a mid-size BDC (a business development company). It lends money to private-equity firms. Its model is based on borrowing low and lending high.
In 2008, with the start of the recession, many BDCs started to have serious problems and never got back. Their share price started to drop and that´s where Greenlight Capital saw a chance.
Another company is Seagate Technology, or STX, a hard disk drive manufacturer. Despite a possible drop in demand due to the launch of tablets and the substitution to flash storage, among other facts, this hard drive company has the ability to protect profitability. Besides, it is about to acquire Samsung´s hard disk operations, which will certainly increase its market share.
Let´s take a glance at GDX, a company comprising the 30 top gold mining companies. Einhorn betted on it because gold mining companies stock seems cheap, and gold price has jumped and it will continue rising insofar as central banks do not stop printing fiat money. He saw an upside trend in it.
What did Einhorn see in Einstein Noah Restaurant Group (BAGL)? Undoubtedly, light at the end of the tunnel. After the company´s reorganization, Greenlight assumed 97% ownership in BAGL. In spite of being in a highly competitive segment, BAGL has been able to remain in its own feet. Poorly performing stores were closed and management was able to improve margins. Einhorn´s idea was to keep a controlled growth and he made it.
There is still more: Broadridge Financial, a technology solution provider to financial services at worldwide level. What is motivating about this company? Shares, which have been traded at $20.74, with a P/E ratio of 15.04, a good dividend yield, an estimated growth of 25.33% for this year and 9% for next five.
Finally, Walgreens, a drugstore operator in the US. With shares trading at $33.66 and a dividend yield of 2.69%, there is no doubt it will continue growing. The impact to Einhorn portfolio was 2.66%.
To sum up, I think that Einhorn has the skills to know where and when to invest. Most of his short-term investments have been successful and he has always known when to sell those stakes. I consider that through research and assuming risks, he has had the ability to forecast each company´s growing opportunity and that is what investors should consider to succeed.