David Einhorn (Trades, Portfolio)’s hedge fund firm Greenlight Capital is up 5.4% for 2014 through May, a positive turn from the 1.5% loss he reported for the first quarter. The fund was plagued by a 61% year-to-date increase in a significant short, Keurig Green Mountain Inc. (GMCR). He also reported shorting a basket of technology stocks, where the Nasdaq 100 Technology Sector has risen 12% year to date. Athenahealth Inc. (ATHN), another short which he announced on May 5, is down 6.4% since the start of the year, but has returned to around the level it was before he made the announcement.
Einhorn has made impressive showings with his top long selections, however. Several have almost doubled from his average purchase price. Making up roughly 46% of his portfolio, Einhorn’s top positions are: Apple Inc. (AAPL), Micron Technology Inc. (MU), Marvell Technology Group Ltd. (MRVL) and Cigna Corp (CI).
Apple Inc. (AAPL)
Einhorn has a massive 1,993,706-share holding of Apple, accounting for 16% of his portfolio. Adjusted for splits, the share price has appreciated 150% from his first purchase in second quarter 2010. It is also up about 19% from the first quarter 2014 average, at $90.83 per share on Monday — near a 10-year high.
Apple’s share price history:
In fiscal 2014, Apple made $45.6 billion in revenue, an increase from $43.6 billion the prior year. It also grew net income to $10.2 billion from $9.5 billion, while gross margins expanded to 39.3% from 37.5%.
While Einhorn is shorting a basket of what he believes to be overvalued technology stocks, he commented on his comparably positive outlook for Apple in his third quarter 2013 letter:
“Not only is it growing faster than Amazon, AAPL makes more money in non-hardware e-commerce alone than Amazon makes in its entire business. That gap will likely widen in AAPL’s favor as AAPL rolls out new offerings and services. We believe that near-term share performance will track the success of the new phones, while the longer-term share price will reflect the market’s eventual understanding of AAPL’s strong ability to earn high-margin and recurring revenue streams.”
Apple trades today near a 10-year high P/E ratio of 15.2, and 10-year high P/S ratio of 3.26.
Micron Technologies (MU)
Einhorn holds a 4.24% stake in Micron Technology, with 44,004,293 of the company’s shares. Up almost 32% just from the first quarter average, he has an approximate gain of 83% on his average purchase price for all his shares. Einhorn built the position over the second half of 2013.
Micron’s share price history:
Einhorn previously shorted this semiconductor company from 2001 through 2005, believing the industry was overcrowded and the products too similar. Now he believes both the industry and the company have changed, with consolidation ending, technology advances, a higher moat and companies adding value rather than capacity.
In his fourth quarter 2013 commentary he wrote:
“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.”
In its third quarter of fiscal 2014, ended May 29, Micron reported revenue of $3.98 billion, up 72% from a year previously. Net income was $806 million, or $0.68 per diluted share, increased from $43 million, or $0.04 per diluted share, a year previously.
Micron today trades at two 10-year high valuation ratios: a P/B of 3.64 and P/S of 2.78.
Marvell Technology Group Ltd. (MRVL)
Einhorn owns an 8.01% stake in Marvell Technology Group Ltd., with 39,429,328 of its outstanding shares. The stock’s price has moved up 29% from his average purchase level, and hovering around $14.71 per share on Monday — near a two-year high. Einhorn began building this stake in third quarter 2011.
Marvell’s price history:
Marvell, another semiconductor company, was Einhorn’s biggest loser in 2012, but that began to change in 2013. In his first quarter 2013 letter he wrote:
“Marvell reversed its 2012 decline as investors began to pay attention to MRVL’s prospects for share gains in controllers for hard disk drives and flash memory drives, as well as its new processor for cell phones and tablets. The company should see significant fixed operating leverage in 2013, as it has been carrying the cost of the investments in these products without any corresponding revenue until now. The company has also continued to buy back stock aggressively, adding to the potential earnings leverage.”
In first quarter fiscal 2015, ended May 3, 2014, Marvell reported a 30% year-over-year increase in revenue to $958 million. Its net income was $99 million, or $0.19 per diluted share, up from $53 million or $0.11 per diluted share a year previously. The results were due to high demand for its LTE solutions.
The company has a P/E ratio of 20.8 and P/B ratio of 1.6.
Cigna Corp (CI)
Einhorn holds 4,211,230 shares of Cigna Corp, his fourth largest holding at 5.3% of his portfolio. He began acquiring shares in second quarter 2012, when the price averaged $46 per share. Since then, it has increased 100%, and he has a 97% gain on the average price of all of his purchases. Cigna trades around $91.46 a share on Monday — near a 10-year high.
Cigna’s share price history:
Cigna Corp is a health services organization with insurance subsidiaries dealing in a variety of products and services. Back in 2012, Einhorn said in a shareholder letter he likes Cigna for its higher quality of business, highest-in-class and stable returns on equity, significant and growing Medicare Advantage business and international business. He also thought it could benefit from Obamacare:
“In fact, Obamacare may provide a growth opportunity for the company because it may finally afford CI the opportunity to compete meaningfully in the individual segment of the market,” he wrote.
In the first quarter, each of Cigna’s segments made strong revenue and earnings. Consolidated revenues increased 4% year over year to $8.5 billion. Net income also increased to $528 million, or $1.92 per share, from $57 million, or $0.20 per share, for first quarter 2013. The company also repurchased 5.4 million shares of stock, for an aggregate $425 million, bring its year-to-date total to 8.0 million shares purchased for approximately $650 million.
Cigna has a P/E of 13.4, P/B of 2.3 and P/S of 0.8, which is near a five-year high.