David Einhorn has achieved a 21.5% annualized return at his firm, Greenlight Capital, since he founded it in 1996, by investing in undervalued long positions and short positions. Four of his holdings are currently trading for less than he paid for them: Marvell Technology Group (MRVL), WellPoint (WLP), Humana (HUM) and Genworth Financial (GNW).
Marvell Technology (MRVL)
David Einhorn initiated a position in Marvell in the third quarter of 2011, buying 16,640,000 shares at an average price of $14, after the stock declined 25% in the first half of that year. In each of the next three quarters, he added to the position. After his most recently reported purchase on July 16, Einhorn owned 29,595,179 shares. Marvell’s stock has declined 34% from the $14 average price that Einhorn paid for the stock to its Wednesday trading price of $9.17.
Marvell Technology is a designer, developer and supplier of mixed-signal and digital signal processing integrated circuit for high-speed, high-density, digital data storage and broadband digital data networking markets.
Marvell Technology Group Ltd. has a market cap of $5.53 billion; its shares were traded at around $9.17 with a P/E ratio of 11.2 and P/S ratio of 1.6. The dividend yield of Marvell Technology Group Ltd. stocks is 2.5%. Marvell Technology Group Ltd. had an annual average earnings growth of 32.3% over the past 10 years. GuruFocus rated Marvell Technology Group Ltd. the business predictability rank of 2.5-star.
When Einhorn first bought Marvell, it announced improved results for its quarter ended July 30, 2011: a 12% sequential increase in revenue and GAAP net income of $192 million, an increase from $147 million in the first fiscal quarter 2012. In the previous quarter, the company had reported an 11% sequential decline in revenue and GAAP net income decreased from $273 million in the fourth quarter of fiscal 2011.
Marvell CEO Sehat Sutardja attributed the results to typical seasonality and said it was an “industry leader in profitability for both operating and cash flow margins, demonstrating the strength of our long-term business model.”
In the company’s most recently reported quarter ended July 28, Marvell reported a 2% sequential and 9% year-over-year revenue decrease. GAAP net income went to $93 million from $95 million the previous quarter and $192 million in the corresponding quarter the previous year.
Sutardja attributed the new decline primarily to a slowdown in the macroeconomic environment that hit storage and mobile end markets.
Einhorn commented on his Marvell investment in his second-quarter letter:
Marvell Technology Group (MRVL) was the other significant loser, as its shares fell from $15.73 to $11.28 during the quarter. MRVL gave tepid guidance and Wall Street has modestly reduced its estimates of earnings per share from $1.25 to $1.15 this year and from $1.45 to $1.40 for next year. MRVL has about $4 per share in cash and now trades at roughly 5x next year's earnings net of the cash on the balance sheet. Most of the cash is excess, and the company has commenced what we hope will be an aggressive share repurchase program. We have used the reduced stock price as an opportunity to increase our stake in the company.
Einhorn’s new stake in WellPoint originated in the second quarter of 2012. He bought 1,930,689 shares at an average price of $69. WellPoint’s stock was relatively flat for the first two quarters of the year. Then, in July, it dropped almost 16%.
WellPoint Inc. is the largest publicly traded commercial health benefits company in terms of membership in the U.S. WellPoint Inc. has a market cap of $19.27 billion; its shares were traded at around $57.65 with a P/E ratio of 8.3 and P/S ratio of 0.3. The dividend yield of WellPoint Inc. stocks is 1.9%. WellPoint Inc. had an annual average earnings growth of 17.2% over the past 10 years. GuruFocus rated WellPoint Inc. the business predictability rank of 4-star
WellPoint’s stock dropped in July on news that it would reduce its full-year 2012 outlook due to a combination of lower enrollment and slightly higher medical cost trends.
WellPoint was one of six health care companies Einhorn bought in the second quarter amid uncertainty surrounding the direction of government health care.
Einhorn bought 1,645,000 shares of Humana in the second quarter at an average price of $82.
Humana Inc. is a health services company that facilitates the delivery of health care services through networks of providers to its medical members. Humana Inc. has a market cap of $11.37 billion; its shares were traded at around $69.67 with a P/E ratio of 9.4 and P/S ratio of 0.3. The dividend yield of Humana Inc. stocks is 1.5%. Humana Inc. had an annual average earnings growth of 23.5% over the past 10 years. GuruFocus rated Humana Inc. the business predictability rank of 5-star.
Humana shares also tumbled in July when it lowered its full-year 2012 EPS guidance due to “short-term operational challenges,” such as “higher-than-previously expected individual Medicare Advantage benefit ratios associated with new members and increased utilization for both new and existing members.”
In the second quarter, Humana’s revenues were $9.7 billion, a 4% increase from the previous year, primarily due to increases in its retail and employer group segments driven by increases in its individual and group Medicare Advantage plans membership.
Cash on Humana’s balance sheet increased to $1.3 billion at quarter end from $225 million at the end of the first quarter, primarily due to the operating subsidiaries paying higher dividends to the parent company, and partially offset by share repurchases and a cash dividend.
Genworth Financial (GNW)
Einhorn purchased 658,700 shares in the second quarter of 2012 at an average price of $6. The stock has declined 13% since then to trade for $5.24 per share on Wednesday.
Genworth Financial is an insurance company in the U.S. Genworth Financial Inc. has a market cap of $2.79 billion; its shares were traded at around $5.24 with a P/E ratio of 9.4 and P/S ratio of 0.3.
Genworth’s stock price fell in April when the company announced that it would push back the IPO for 40% of its Australian mortgage insurance business from the second quarter of 2012 to early 2013. The postponement was due to recent business performance in Australia. In the 2012 first quarter, Genworth expects its Australian segment to post a loss due to accelerated processing of later-stage delinquencies from previous years.
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