The three funds Einhorn manages were up 5.4 to 6.3% for the quarter and 30.6 to 36.9% for the year, net of fees and expenses. It is worth noticing that form the past 13 years since 1996, Greenlight Capital, L.P. has returned 1,397% or 22% annualized; for the past decade, during which the stock market had a negative return, the funds returned about 350% or over 16% per year.
David Einhorn published his fourth quarter 2009 letter to his investors. A copy of the letter can be accessed by following this link.
The past ten years taught Einhorn that many things that appear unthinkable can easily occur within a ten-year timeframe. As for the next ten years, he sees a wide range of possibilities: on one hand, the recent government sponsored stimulus could propel a global recovery and the sustainable growth could talk hold. Global market will expand, making the financial crisis of 2007-2009 a speed bump like the 1987 crash. On the other hand, the next ten years could see distressed sovereign government is not prepared to solve the challenges brought by unfavorable demography (aging population).
Which view will prevail? Einhorn does not know. But he knows either way, inflation is on rise and dollar is on decline, hence he purchased a decent dose of gold.
Short Term View
Einhorn sounds cautious short term. He positioned his portfolio conservatively into 2010 because he thinks the market appears to be discounting a rather rosy outcome. On the long position side, he invests in stable, less cyclical businesses. On the short side, he shorts businesses that should be fundamentally challenged, especially in a difficult economic environment. He also rotate out distressed debt investment into long equity positions.
GuruFocus tracks the long side of his portfolio. He is not required to disclose his short side. As of December 31, 2009, on the long side, he has about $3 billion dispersed among 41 stocks. And the top holdings are:
No. 1: Boston Scientific Corp. (BSX), Weightings: 10.01% - 32,668,000 Shares
Boston Scientific Corporation is a worldwide developer, manufacturer and marketer of minimally invasive medical devices. Boston Scientific Corp. has a market cap of $11.68 billion; its shares were traded at around $7.73 with a P/E ratio of 11.9 and P/S ratio of 1.5. Boston Scientific Corp. had an annual average earning growth of 11.6% over the past 10 years.
GuruFocus data shows that he established the 32.7 million share position in 4Q09. The stock closed 4Q09 at $9. So you might be able to get the shares at prices lower than Einhorn paid.
Here is what he had to say about BSX in the Investor Letter:
BSX is a maker of medical devices used in a broad range of interventional medical specialties. Key products include drug eluding stents and implantable cardiac defibrillators. In October 2009, BSX shares fell after it reduced guidance for full year earnings, noting less growth than it expected in key markets. Subsequently, the Partnerships established their position in BSX at an average price of $8.42 per share or 11x 2009 adjusted earnings. We believe that BSX’s well incentivized and seemingly very capable new CEO will execute a significant turnaround, driven by margin improvement leading to EPS of over $1.00 per share in the next few years. BSX shares ended the quarter at $9.00 each.
No. 2: Pfizer Inc (PFE), Weightings: 9.16% - 14,804,098 Shares
Pfizer Inc is a research-based, global pharmaceutical company. Pfizer Inc has a market cap of $142.75 billion; its shares were traded at around $17.69 with a P/E ratio of 8.8 and P/S ratio of 2.9. The dividend yield of Pfizer Inc stocks is 4.1%. Pfizer Inc had an annual average earning growth of 11% over the past 10 years.
Einhorn bought 3 million shares of this stock in 4Q09, making this his second largest position.
No. 3: Carefusion Corp. (CFN), Weightings: 7.42% - 8,718,724 Shares
CareFusion is a global corporation serving the health care industry with products and services that help hospitals measurably improve the safety and quality of care. Carefusion Corp. has a market cap of $5.62 billion; its shares were traded at around $25.37 with and P/S ratio of 1.3.
No. 4: Cardinal Health Inc. (CAH), Weightings: 7.19% - 6,550,500 Shares
Cardinal Health, Inc. is one of the providers of products and services to healthcare providers and manufacturers to help them improve the efficiency and quality of healthcare. Cardinal Health Inc. has a market cap of $12.19 billion; its shares were traded at around $33.61 with a P/E ratio of 11.5 and P/S ratio of 0.1. The dividend yield of Cardinal Health Inc. stocks is 2.1%. 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.
No. 5: CIT Group Inc. (CIT), Weightings: 5.94% - 6,320,922 Shares
CIT Group Inc. is a bank holding company that provides financing and leasing capital for commercial companies throughout the world. CIT Group Inc. has a market cap of $14.17 billion; its shares were traded at around $35.
CIT had a prepackaged debt workout and emerged from bankruptcy in 4Q09. Einhorn must have obtain his shares through his investment in distressed debt. This is what he said about CIT situation:
During the fourth quarter, out CIT investment appreciated 30% because credit markets improved and CIT successfully executed a prepackaged plan of reorganization in forty days. As part of the restructuring, bondholders were given new notes and new stock. With the coversion of $10.5 billion of debt into equity and the extension of debt maturities, CIT emerged much better capitalized. The company needs to determine if it now has a viable business model or if it needs to go into run-off.
No. 6: URS Corp. (URS), Weightings: 5.47% - 3,608,167 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 $3.92 billion; its shares were traded at around $46.75 with a P/E ratio of 15.5 and P/S ratio of 0.4.
Einhorn bought 0.16 million shares of URS in 4Q09.
When looking into Einhorn’s portfolio, one needs to keep in mind how he acquired the positions. BSX could be on its way to turn around; you can also call PFE, CFN, and CAH “less cyclical”; but hardly CIT and URS belong to the camp of “stable” business.
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