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David Einhorn Discloses Positions in Micron Tech, Anadarko Petroleum

January 22, 2014 | About:

Holly LaFon

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Greenlight Re investor David Einhorn (Trades, Portfolio) disclosed in his fourth quarter letter today new positions in Micron Technology (MU), BP plc (BP) and Anadarko Petroleum (APC).

Einhorn described the position in Micron as “large” and the BP and Anadarko purchased as “medium-sized.” The long Micron position actually signals a reversal of a large prior short position Greenlight took from January 2001 to February 2005. That position was immensely profitable. During the period Einhorn held the short position, Micron’s share price plunged about 74%.

The long position was established at an average price $16.49 a share. This is the first time Einhorn has taken a long position in a company after once shorting it. “The industry has changed and so has MU,” Einhorn wrote in his letter. The company’s price has recently surged 71% in the past six months, to $23.65 a share on Wednesday – near a 10-year high.

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Micron Technology manufacturers semiconductor memory chips, and has a $25.09 billion market cap. Einhorn has a great deal of optimism regarding the company:

“Its purchase of Elpida Memory out of bankruptcy in August 2013 marks the end of a decade of consolidation from roughly a dozen major DRAM players down to just three. Technological advances and locked-up intellectual property have made it unlikely that any new players will enter the industry in the intermediate term. MU and its competitors have signaled that they will refrain from adding capacity and will instead prioritize economic value-add. 

For the first time in memory, MU intends to use its excess cash flow to shrink the outstanding share count rather than build new factories. We believe the company will approach $4 per share of earnings and free cash flow in calendar 2014, and should enjoy a better multiple as investors begin to appreciate the new dynamic. The shares ended the quarter at $21.75.”

For fiscal 2013, Micron reported $1.13 per share of earnings, and $0.54 per share in free cash flow. Fiscal 2012 showed a loss per share of $1.04 and free cash flow per share of $0.42.

Micron has a P/E of 23.6, near a three-year high. It has a P/B of 2.57, near a 10-year high. Its P/S ratio is 2.19, near a five-year high.

Anadarko Petroleum (APC) was one of Einhorn’s “medium-sized positions.” The stock price fell 12% in the past three months, and trades around $83.72 a share on Wednesday. Most of the drop occurred in December due to litigation, as Einhorn describes in his letter:

“APC is a global exploration and production company with a high-quality upstream portfolio comprised of U.S. onshore resources, deep-water Gulf of Mexico assets, and interests in other high-potential oil and gas basins around the world. The company also owns 91% of Western Gas Equity Partners (WGP), a publicly traded master limited partnership created in 2012 to hold APC’s limited and general partner interests in Western Gas Partners (WES). In mid-December the company suffered a legal setback stemming from its 2006 acquisition of oil and gas assets from Kerr-McGee, whose titanium dioxide unit went bankrupt.

With APC facing potential damages of $14 billion or $5 billion, investors dumped the shares, which we then acquired at an average cost of $78.55. Assuming a worst-case legal outcome, APC’s core valuation net of its stake in WGP and its interest in an undeveloped, but valuable prospect in Mozambique, is less than 4x EBITDA. This is cheap compared to peers that lack APC’s valuable upstream assets and exciting exploration prospects, but nonetheless trade at higher valuations. Our legal analysis suggests that the ultimate payment is likely to be the lesser of the two amounts and will be partly tax deductible. APC shares ended the quarter at $79.32.​”

The two parties involved in the legal case had 60 days after the interim memorandum of opinion it issued Nov. 12 to submit further briefing, after which the court would issue a judgment.

In the third quarter, Anadarko reported record U.S. onshore sales volumes, reaching 590,000 barrels of oil equivalent per day. Net income also increased to $182 million, compared to $121 million the previous year, and revenue increased to $3.85 billion from $3.33 billion the previous year.

Anadarko’s 10-year revenue and earnings history:

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The company has a P/E ratio of 23.1, and P/S of 2.79. Its P/B is 1.8, near a one-year low.

See David Einhorn (Trades, Portfolio)’s portfolio here. Not a Premium Member of GuruFocus? Try it free for 7 days here!


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