David Einhorn (Trades, Portfolio), chairman of Greenlight Capital and widely followed investor, discussed another losing quarter in a conference call Monday. Greenlight has suffered a 21.4% loss for the year through October, putting it on pace for its worst year since 2015, when it lost 20.2%.
The investor also announced that he started a position in Altice USA and exited positions in Micron (MU, Financial) and Twitter (TWTR, Financial).
Einhorn's comments on the highs and lows of the quarter are below:
"Greenlight Re investment portfolio declined 8.4% in the third quarter. Our longs lost 2% and our shrots lost 5.7%. During the quarter the S&P 500 index returned positive 7.7%.
Two short positions were among the largest losers in the quarter. A profitless health care company reported a positive revenue surprise and the shares advanced despite very low margins on the addiitonal revenue. A technology short also proved costly as the market supported a bullish narrative based on insights that won’t materialize for at least a year.
Our long position in General Motors (GM, Financial) declined 14.5% for the quarter. The shares were weak due to general fears about auto industry cyclicality and a marginal reducrion in GM’s forecast due to higher steel prices and adverse foreign currency movements. GM is currently rolling out its next-generation pick up trucks, which should continue to deliver high margins and profitability. Last week GM exceeded third-quarter earnings estimates by a wide margin. In October, Honda joined SoftBank by investing in Cruise by valuing it over $14 billion. At that value, GM’s stake in Cruise is worth about $7.50 per GM share, meaning GM’s core auto business trades at four times current earnings. If we include the $2 billion of future Honda payments to Cruise over the next 12 years, which smell like disguised equity investments, the implied valuation of GM Cruise is roughly $50 billion. Today, all of GM is valued at about $51 billion.
Brighthouse Financial (BHF, Financial) was our biggest winner in the quarter. In August, the company announced a $200 million buyback. We’re pleased that the company is commencing a capital-return program two years earlier than projected, yet the shares continue to trade at about 40% of book value while comparable insurance companies trade closer to book value.
The Tesla (TSLA, Financial) short was our second-biggest winner during the quarter. Since settling securities fraud charges with the SEC in September, Tesla recently announced a rare quarterly profit. We believe this will be as good as it gets for the company. While Tesla expects to make 65,000 Model 3s in the fourth quarter, we believe they have exhausted most of the demand from customers who can afford the highest-priced versions of the Model 3. Tesla is contending with a litany of competitive regulatory, human resources, vehicle quality and capital structure issues.
We initiated a medium-sized long position in Altice USA (ATUS, Financial), which trades at a discount to its pure-play cable peers despite better free cash flow conversion and a better new investment opportunity profile. We also purchased shares in BT Group, the incumbent telecom operator in the U.K. The company is paying an attractive 6% dividend and we believe that sentiment will turn incrementally more positive as BT exceeds reduced earnings expectations.
During the quarter, we exited long positions in Micron and Twitter. We exited our long position in Mylan (MYL, Financial) with a small loss as U.S. generics declined more than we had anticipated. We also covered a couple of industrial shorts with medium-sized losses.
In October, the heavy selling in growth and momentum stocks and the relative outperformance of value stocks resulted in a gain of 1.2% in our investment portfolio despite our net long exposure to weak equity market that saw the S&P 500 decrease by 6.8%.
At month-end, the portfolio was approximately 92% long and 67% short. Our underwriting operations continue to perform in-line with expectations despite moderate hurricane activity during the quarter. Our innovations unit announced its first reinvestments during the quarter in diverse areas such as digital insurance distribution, a self-insured health market and blockchain insurance applications. We’re excited how our innovation efforts can provide us new business opportunities over time.
See David Einhorn (Trades, Portfolio)'s portfolio here.
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