But Einhorn is more worried about the market going forward. He has cut exposure over concern that its continued gains in the face of lackluster earnings may create instability, reducing his fund’s risk of volatility and preparing for resulting opportunities.
In his overview of selection positions, Einhorn mentioned three where conditions have given him good expectations: Apple (NASDAQ:AAPL), General Motors (NYSE:GM) and Marvel Technology Group (NASDAQ:MRVL).
After Apple agreed to return $100 billion to shareholder over the next three years in dividends in share repurchases in the second quarter, “sentiment towards the stock is incredibly bearish,” Einhorn said in his letter. Investor fear that Apple was losing market share to Samsung afflicted the stock in the first part of the quarter, and was allayed when Samsung’s Galaxy smart phone sales fell short of expectations. Rather than see the company’s value, investor concern then shifted to iPhone market saturation. “Sometimes, you just can’t win,” Einhorn said.
With shares falling from $442.66 to $396.53, Apple was Greenlight’s biggest quarterly loser. Einhorn is nonetheless optimistic. “Unless operating results are about to head off a cliff, we expect the shares to stage a recovery,” he said.
Einhorn’s prediction has tentatively proved true, as share gained 12.6% since he wrote those words, to trade for $448.08 per share Monday afternoon.
Apple did not operating results were near a cliff. On July 23, it issued fiscal 2013 fourth quarter guidance of revenue between $34 billion and $37 billion. Third quarter revenue was $35 billion and fiscal 2012 fourth quarter revenue came to $36 billion. iPhone sales of 31 million also set new second quarter records in 2013.
Regarding competition from Samsung, the largest smartphone maker, its second quarter 2013 financial results released July 25 showed record $6.89 billion in net profit, missing analyst expectations in spite of the launch of its Galaxy S4 in April, driven by strong Galaxy smartphone and tablet sales, but warned investors that mobile growth pace may slow. Its Mobile division showed a 9% sequential sales increase.
Samsung also shipped a record 72.4 million smartphones in the second quarter, giving it a 30.4% market share, an increase from 50.3 million unit shipments and a decrease from a 32.3% market share the previous year. Apple, by contrast, shipped an estimated 31.2 million smartphones in the quarter, giving it a 13.2% market share, an increase from 26 million shipped smartphones, and a decrease in market share from 16.6% the previous year, according to IDC Worldwide Mobile Phone Tracker data dated July 25, 2013.
Apple shares gained 2.4% since Samsung’s earnings release.
General Motors (NYSE:GM)
Einhorn had also had positive comments on General Motors, after quarter in which shares increased from $27.82 to $33.31. He believes that losses due to its biggest problem, Europe, “appear to have troughed,” the company is beginning a product refresh cycle and its North American business is strengthening. “We expect a period of rapid earnings acceleration to commence later this year,” Einhorn said.
In the second quarter, General Motors’s revenue increased to $39.1 billion from $37.6 billion the previous year, and net profit was $1.2 billion, down from $1.5 billion the previous year. As Einhorn noted, the results featured growing strength in both GM North America and GM Europe. Adjusted EBIT from North America increased to $2 billion, compared to $1.9 billion the previous year. Adjusted EBIT losses were $0.1 billion, compared with a $0.4 billion loss the previous year.
Sales volumes also rose 3.9% to 4.85 million vehicles in the first half of the year. Record sales were seen in China in the first half of 2013, rising 10.6% over last year’s previous record period.
“We have seen strong vehicle demand across China, particularly in the midsize, upper-medium, luxury and SUV segments,” said Bob Socia, President, GM China, and Chief Country Operations Officer, China, India and ASEAN. “We expect demand for our lineup of passenger cars and commercial vehicles to remain robust through the end of the year.”
Figures from the Department of Trade and Industry released July 1 showed continued yet muted growth in June vehicle sales, which were up 3.3% from June 2012 with 53,562 sold. For the first half of the year sales improved 6.8% over the same period last year, setting a growth expectation of 5% for the year.
“The market continues to be supported by an intense level of promotional activity aimed at maintaining the interest of private buyers. Against this background we can expect a period of consolidation in the industry over the coming months. The relatively low cost of finance remains a positive for buyers but the impact of imported inflation as a result of the reduced value of our currency will undoubtedly place upward pressure on new vehicle prices,” Malcolm Gauld, GMSA’s vice president vehicle sales, service and marketing said in the company statement.
GM’s market total worldwide market share decreased to 11.5% in the second quarter from 11.6% the previous year, with market share losses in the U.S., North America, Europe and South America. For the first half, it took a 11.5% of the market compared to 11.4% the previous year.
Marvell Technology Group (NASDAQ:MRVL)
Shares at Marvell already had a good quarter, rising from $10.58 to $11.71 each. But Einhorn believes that a patent suit with Carnegie Mellon is presenting “near-term headline risk,” which that an appeal will result in a drastically reduced damage calculation.
The suit Einhorn mentions involves a $1.17 billion patent verdict, the largest of its kind, rendered Dec. 27 to Marvell for infringing on Carnegie Mellon University’s integrated-circuit patents. Marvell as of the end of April has approximately $2.1 billion in cash on its balance sheet. The company immediately responded to the ruling in a statement saying there were “strong grounds for appeal” and that it would seek to overturn the ruling.
The company also denied Carnegie Mellon’s claims. “Marvell and MSI strongly believe the theoretical methods described in these patents cannot practically be built in silicon even using the most advanced techniques available today, let alone with the technology available a decade ago. Rather, Marvell and MSI use their own patented read channel technology developed in house,” it said in the statement.
Both parties submitted post-trial motions to the court which were heard May 1 and 2, 2013. Marvell said that if the court ruled against the company, it would file an appeal to the Federal Circuit at that time, and a ruling timeframe would be contingent on its schedule.
Marvell shares have gained 66.7% year to date and trade for $12.10 Monday. Einhorn increased his position in the company by over 19 million shares in the fourth quarter, but did not add to the stake in the first quarter at an average price of $8. He has a total holding of over 51 million shares.
See Einhorn’s portfolio here. Also check out the Undervalued Stocks, Top Growth Companies, and High Yield stocks of David Einhorn.
Not a GuruFocus Premium Member? Take a 7-Day Free Trial.