(GuruFocus, December 2, 2009) David Einhorn, president of Greenlight Capital, employs a long-short value-oriented stratey. He started his fund in 1996 with a $1million. And since then, he had made more than 25% return per year for his partner. In the disastrous 2008, his Offshore fund finished '08 -16.5% and their Greenlight LP was down over 22%. And YTD through September 30, 2009 the two funds returned 22.9 and 30.0% respectively.
GuruFocus records his long domestic equity portfolio that worth $2.6 billion distributed among the 53 stocks. He manages far more money than this amount.
His latest quarterly letter to investors can be found here. He presented the cases for both the bulls and the bears, and he was not going to pick side and he has proven that he can make money both ways. The other aspect of this rally is that so far, it feels like a “professionals” rally. There is a lot of discussion about professional money managers deploying capital and covering shorts due to perceived business risk. Many mutual fund and hedge fund managers feel they have to beat the current market rally. Anecdotally, we know several portfolio managers who brought their gross and net exposures down to very low levels six months to a year ago, and have now brought them back up. Studying the figures, both short interest and mutual fund cash levels are down significantly. The rally has been met by steady sales by corporate issuers and corporate insiders and withdrawals from equity mutual funds. We wonder whether non-professional investors who suffered frightening losses after the tech bubble popped and, again, after the credit bubble popped, will be interested in playing “the-stock-market-bubble-game” again with money they are trying to save for retirement. Recent strong flows into bond funds, particularly municipal bond funds, suggest they won’t. There may be a lot less “cash on the sidelines” waiting to buy equities than some bulls contend.
The bull case is that with all the recessionary cost-cutting in corporate America, a recovery in sales will create record earnings in short order. The mega-bull case, which can’t be ruled out, cynically believes that the authorities will foster yet another asset bubble so that some folks feel wealthier and spend some of the paper wealth on holiday gifts and other items thereby improving the economy and justifying the rally. The bear case challenges the likelihood of sales recovering and questions the repeatability of some of the positive factors that were in place during the prior peak. Both sides seem to make sense and we find ourselves agreeing with proponents of each, depending on the day.
On the long side, here are his top ideas:
No. 1: Pfizer Inc (PFE), Weightings: 7.64% - 11,987,000 SharesPfizer Inc is a research-based, global pharmaceutical company. Pfizer Inc has a market cap of $122.63 billion; its shares were traded at around $18.17 with a P/E ratio of 8.3 and P/S ratio of 2.5. The dividend yield of Pfizer Inc stocks is 3.5%. Pfizer Inc had an annual average earning growth of 11% over the past 10 years. GuruFocus rated Pfizer Inc the business predictability rank of 2.5-star.
No. 2: Carefusion Corp. (CFN), Weightings: 7.32% - 8,718,724 Shares
CareFusion is a global corporation serving the health care industry. The company is headquartered in San Diego, California. Carefusion Corp. has a market cap of $5.71 billion; its shares were traded at around $25.83 with and P/S ratio of 1.3.
This is a spun-off of Cardinal Health Inc.
No. 3: Cardinal Health Inc. (CAH), Weightings: 6.86% - 6,652,500 Shares
Cardinal Health, Inc. is one of the leading providers of products and services to healthcare providers and. Cardinal Health Inc. has a market cap of $11.62 billion; its shares were traded at around $32.23 with a P/E ratio of 9.8 and P/S ratio of 0.1. The dividend yield of Cardinal Health Inc. stocks is 2.2%. Cardinal Health Inc. had an annual average earning growth of 10.7% over the past 10 years. GuruFocus rated Cardinal Health Inc. the business predictability rank of 3-star.
Einhorn made the following comment about CAH and CFN in the quarterly letter:
CAH distributes pharmaceuticals and medical products and manufactures medical equipment and related disposables. CAH’s businesses have und CareFusion (“CFN”), its higher margin and relatively higher growth medical equipment business. At its Investor Day this June, CAH’s new management team announced a reduced operating outlook and high spin-off related ‘dis-synergies’. In response, Street analysts sharply reduced their fiscal year 2010 EPS estimates and the share price weakened. The Partnerships established their position in CAH at an average price of $30.22 per share, representing 11x the reduced fiscal 2010 consensus Street EPS estimate of $2.75 (down from the $3.51 in EPS reported for fiscal 2009).
We expect CAH to exceed earnings expectations over the next few years due to margin improvement initiatives, new product introductions, reduction of investment spending, a strong generic drug cycle and stabilizing hospital capital spending trends. On September 1, CAH completed the spin-off of CFN. Following the spin-off, the new management teams at both CAH and CFN have received significant stock incentives in their respective companies. CAH shares, including the pro rata value of CFN shares, ended the quarter at $37.70 each.
No. 4: TERADATA CORP (TDC), Weightings: 6.56% - 6,197,717 Shares
Teradata Corporation is the world's largest company focused on raising intelligence through data warehousing and enterprise analytics. Teradata Corp has a market cap of $5.03 billion; its shares were traded at around $29.3 with a P/E ratio of 20.2 and P/S ratio of 2.9.
No. 5: URS Corp. (URS), Weightings: 5.78% - 3,442,567 Shares
URS Corporation offers a broad range of planning, design, and program and construction management services for transportation, hazardous waste, industrial processing and petrochemical, general building and water/wastewater projects. Urs Corp. has a market cap of $3.5 billion; its shares were traded at around $41.55 with a P/E ratio of 13.9 and P/S ratio of 0.4.
No. 6: MARKET VECTORS - GOLD MINERS ETF (GDX), Weightings: 5.58% - 3,200,000 Shares
Market Vectors - Gold Miners Etf has a market cap of $613.8 million; its shares were traded at around $51.1069 . The dividend yield of Market Vectors - Gold Miners Etf stocks is 6.2%.
This is David Einhorn’s famous gold play.
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