Billionaire David Einhorn, founder of value-oriented hedge fund Greenlight Capital, managed to return some 21.5% annually through 2010 (since he started Greenlight in 1991). Greenlight and Einhorn employ a fundamental approach to investing, focusing on intrinsic value. During the fourth quarter last year, Einhorn reiterated his confidence in a couple of his top picks by adding to his positions, notably keeping a certain tech giant as his top pick, while also betting on a couple other tech companies. Let's take a look at some of Einhorn's most notable trades (check out Einhorn's top picks).
Einhorn increased his Apple Inc. (NASDAQ: AAPL) position, upping his shares 15%, keeping the tech giant as his top stock pick, which now makes up 10.8% of Greenlight's portfolio.
Apple Inc. has fallen over $250 since its $700 peak late last year, and now the stock appears rather cheap on a number of levels (see what you should make of Apple). The tech company trades around 10 times earnings, compared to its five-year average multiple of 16 times. Although its P/E of 10 is in line with those of its peers, such as IBM and Intel, the case can be made that Apple deserves to traded at a premium, for Apple has exerted the ability to generate outsized growth despite a struggling economy. Analysts expect Apple to grow EPS at 19% annually over the next five years, compared to the 10% forecasted for both IBM and Intel.
Part of the decline can be attributed to the fact that hedge funds fell out of love with Apple Inc. during the fourth quarter. This mass exit by hedge funds appears to have caused an "oversell" of the stock and induced panic among individual investors. Thanks to the price drop, the company already pays a 2.5% dividend yield, but Bloomberg analysts believe that Apple Inc. will boost its dividend by over 50% to $4.14 per share, which would be a 3.6% dividend yield based on its current share price.
Marvell Technology (NASDAQ: MRVL) was another buy for Einhorn; he upped his stake 58% and now has Marvell as his fourth largest holding. Marvell has been in Einhorn's top ten holdings since his hedge fund first bought the stock during the third quarter of 2011.
The stock is still down 15% to 20% from where Einhorn bought it and he appears to be holding on for a turnaround. Company sales fell 7% in 2013 and the company's general business model has been under pressure due to its exposure to the PC business (with regards to its hard disk drives). However, the company's future will be driven by its mobile-focused products, including its latest wireless chips which has the ability to send 3G data to mobile devices anywhere in the world. As well, the company hopes to expand its product portfolio to include new networking and storage devices.
Aetna (NYSE: AET) was another one of Einhorn's additions, upping his stake 48% and moving the stock to his fund's 7th largest position. With the expected rise in Medicaid and Medicare, Aetna has been looking to break into the market, and this includes its acquisition of Coventry Health Care and Genworth's Medicare Supplement business. Also, as baby boomers start to hit retirement ages, the need and demand for managed health care plans is expected to rise. Aetna's healthcare segment, which includes managed health care plans, make up 92% of Aetna's revenues, making the company an interesting play on the aging population.
Google (NASDAQ: GOOG) and Vodafone (NASDAQ: VOD) were two other stocks Einhorn added to his portfolio last quarter. One of Google's under-appreciated opportunities lies in its YouTube platform. Alexa ranks the video website as the third most popular website in the world, while Google itself ranks as the number one site. Alas, Google has yet to figure out how to successfully monetize the video-site giant, leaving lots of room for revenue growth.
In 2012, Google generated 62% of revenue from owned websites (i.e., search), which has been Google's staple over the past few years, helping drive revenue growth at a compounded annual growth rate of 18% over the last five years.
I think Google will continue to dominant the search game, currently owning over 65% of the market share for U.S. searches, but I also believe that YouTube and its recent Motorola acquisition will become a bigger part of revenues in the future.
Einhorn's other major addition, Vodafone, is the European mobile communications company paying a dividend yield of 5.5%. Vodafone has over 80% of its sales exposed to the rapidly growing smartphone market, and the company is looking to the emerging markets for more growth. Most notably, Vodafone now has an agreement that will expand its presence beyond Europe to the Middle East and North Africa.
Now, as far as the value that Einhorn sees in Vodafone, it has a lot to do with the fact that he believes that Verizon Communications derives almost all of its value from its 55% stake in Verizon Wireless, but the market is only attributing around a few billion dollars in value to Vodafone's 45% interest in Verizon Wireless (see why Vodafone is below fair value).
Einhorn still loves Apple Inc., and recently touted his iPrefs as a way for the company to unlock shareholder value, including putting to use its $137 billion cash position. Meanwhile, the billionaire fund manager also snatched up more shares of search giant Google, which holds a dominant position in both search and mobile operating systems (with Android). Other notable Einhorn faves include Marvell and Aetna, both of which should perform well over the interim. Lastly, Einhorn added Vodafone to his portfolio based on the fact that the market appears to be steeply undervaluing the company's 45% ownership of Verizon Wireless.