Greenlight Capital, run by guru David Einhorn (Trades, Portfolio), does not require much of an introduction.
Over the history of Greenlight Capital the firm has compounded its assets under management at something near a 20% per year rate. Einhorn manages this while running a concentrated long/short portfolio. His long portfolio is about $6 billion large. His short portfolio is only about one-third smaller so he is net about 33% long.
Managers who run concentrated portfolios do so because outperformance tends to come from their best ideas. They embrace the added volatility that comes with concentration because it is outweighed by the additional expected value of the strategy. Because his best ideas are his largest positions I want to discuss the top five positions of Greenlight Capital now the firm just filed a fresh 13-F.
Apple
Apple (AAPL, Financial) has been a long-term holding for Greenlight Capital, and the firm did very well with it. Einhorn started buying somewhere between $40 and $50 back in 2010 and has both increased and decreased the position over the years. Currently he is really putting the pedal to the metal and jacked up the exposure to 20.53%.
Einhorn thinks Apple is misunderstood even though literally everyone knows the company. He has in the past taken an activist approach with Apple but not as openly as Carl Icahn (Trades, Portfolio). Einhorn likely believes Apple has much more growth ahead of it while the market is more cautious pricing it at only 11x forward earnings which indicates possible shrinkage. The market’s view is not entirely crazy because the company products have a very short lifecycle, and the company has to come up with blockbusters almost nonstop to sustain $233 billion worth of annual sales.
CONSOL Energy
Einhorn called Consol Energy (CNX, Financial) his best idea although he failed to make it Greenlight’s largest position or even second-largest position. According to GuruFocus data this is his fifth-largest long position. However, Resona and Gold don’t need to be disclosed and if you add the exposure to CNX Coal resources, which is a recent spinoff, the exposure surpasses that to Michael Kors (KORS, Financial) and Chicago Bridge & Iron (CBI, Financial).
Einhorn initiated buying this company at $30 per share and kept buying it all the way down to the current $7 per share. The coal/gas company currently has a $1.7 billion market cap and roughly $5.5 billion enterprise value. The market treats it as a coal company, but it is actually a company that owns both coal and gas assets. It owns high-quality coal assets (high energy content) and low-cost, modern mines that are nonunionized. In addition the company has recently implemented a zero-based budgeting program.
Einhorn expects EBITDA to settle at $425 million per year and $280 million after CapEx. Einhorn views the thermal coal business as being worth $3 billion. The company also owns metallurgic coal mines which he likes far less but still estimates to be worth $900 million. CONSOL Energy also owns publicly traded shares and some private minority interests in gathering systems, and Incentive Distribution Rights (IDRs) in CONE Midstream which he values at $667 million. Finally, there are some noncore assets the company will be divesting that are worth approximately $500 million. If you add it all up it amounts to $6 billion.
That would make CONSOL Energy about fairly valued but actually:
It owns a million net acres of gas and 54 tcfe of resources in Marcellus and Utica shales. To put it in Einhorn’s words:
That is enough gas to supply the entire country for two years.
Einhorn values the shale gas business by DCF and it ultimately amounts to $6.6 billion worth of value. Which means CONSOL Energy is undervalued by 126%.
General Motors
General Motors (GM, Financial) makes up 8.11% of his long portfolio and is almost double the size of his third-largest position. Greenlight bought the shares at around $34.62. According to Einhorn the stock fell unfairly over China concerns while its quarterly numbers were good, and estimates are stable. I would add to that, the Volkswagen (VOW, Financial) scandal may have spooked investors out of the auto sector.
Gold
Einhorn has been something of a gold bug for quite some time now. The position in the metal functions as something of a tail risk hedge. For the most part it isn’t contributing very much to the returns of Greenlight Capital but right when the entire market is taking a beating or even treasuries aren’t deemed safe anymore, this position is going to do a whole lot of good.
Resona Holdings
Resona Holdings (RSNHF, Financial) is Japan’s largest regional bank and the fifth-largest bank in Japan, and with that one of the few banking stocks in Greenlight’s portfolio. The bank has a $12.36 billion market cap and trades around 0.86x book value. As part of a 2003 recapitalization the Japanese government acquired a majority equity stake.
Because the bank’s earnings are better than expected it is paying back the government at an accelerated pace, and this does not appear to be reflected in sell side’s consensus estimates. Einhorn commented:
With the more volatile international Japanese banks trading at 9x EPS and its peer regionals at 13x EPS, Resona is cheap on both an absolute and relative basis.
What’s interesting about Einhorn’s comment (from the Q1 2014 letter to shareholders) is that it may imply this represents one leg of a pair trade. Meaning, this is perhaps not the best position in the top five to copy outright.
