David Einhorn released his Quarterly Letter for 1Q10 (see a copy at the end of the post). During the quarter in which S&P 500 returned 5.4%, his three funds barely broke even or incurred a small loss. The quarter was not friendly for a hedge fund that employs long/short strategy, particular for Einhorn, as the winners are few and losers are many.
Long term, Einhorn’s performance is very enviable: from 1996 when he started a hedge fund with $1 million and through 2008, he produced an annualized net eturn of 22% for his investors.
For the quarter that offered low return, Einhorn also had a low turnover, having not added any significant new long or short position. He expressed no-excitement in the availabilities in new opportunities. “We had a very hard time identifying significant new opportunities.” He said. Einhorn makes money both ways, long or short. If he has difficulties in coming up with ideas, one might be infer that the market is either too expensive or too cheap?
Perhaps the most news worthy of his latest movement is the number of long positions that he closed during the quarter. At the end of last year, Einhorn reported on the long side $2.94 billion invested in 41 stocks. The low number of names suggests that he and his firm actually put some thoughts behind the particular position. Yet, during the quarter, he closed eight of them.
These are the eight stocks that Einhorn closed out:
BJ Services Company (BJS, Financial)
BJ Services Company is a provider of pressure pumping and other oilfield services serving the petroleum industry worldwide. Bj Services Company has a market cap of $6.74 billion; its shares were traded at around $22.94 with a P/E ratio of 254.9 and P/S ratio of 1.6. The dividend yield of Bj Services Company stocks is 0.8%. Bj Services Company had an annual average earning growth of 11.9% over the past 10 years.
Einhorn accumulated 2.3 million shares during 1Q09 at an average price of $10.45 per share. He started to sell in 4Q09 and closed out this quarter at an average price of $20.98. The reason he sold, according the quarterly letter:Energy Services stock oversold during the crisis that we thought would survive for better times. Thesis played out and sentiment reversed
Boston Scientific Corp. (BSX, Financial)
Boston Scientific Corporation is a developer, manufacturer and marketer of minimally invasive medical devices. Boston Scientific Corp. has a market cap of $10.76 billion; its shares were traded at around $7.1 with a P/E ratio of 11 and P/S ratio of 1.3. Boston Scientific Corp. had an annual average earning growth of 5.4% over the past 10 years.
Einhorn took a heavy position of 32.7 million shares in this company in 4Q09 for $8.42 per share and dumped them all in1Q09 for $7.57 per share. Although it is not atypical for a hedge fund to trade in and out a stock that quickly, it is for Einhorn. As Einhorn lamented:
McDermott International Inc. (MDR, Financial)
McDermott International is one of the worldwide energy services companies. Mcdermott International Inc. has a market cap of $6.31 billion; its shares were traded at around $27.34 with a P/E ratio of 16.5 and P/S ratio of 1.
Einhorn bought his 3.6 million shares in 4Q08 to 1Q09 period at a little over $10 per share and sold during 1Q10 for $24.72 per share. Handsome Gain! He gave the following reason the investment:
PattersonUTI Energy Inc. (PTEN, Financial)
Patterson is one of the providers of domestic land drillingservices to major & independent oil & natural gas companies. Pattersonuti Energy Inc. has a market cap of $2.28 billion; its shares were traded at around $14.83 with and P/S ratio of 2.9. The dividend yield of Pattersonuti Energy Inc. stocks is 1.3%. Pattersonuti Energy Inc. had an annual average earning growth of 30.3% over the past 10 years. GuruFocus rated Pattersonuti Energy Inc. the business predictability rank of 2.5-star.
Einhorn bought his 3.4 million shares in 1Q09 for $9.5per share and sold in the past two quarters for $15.33 per share. The reason? same story as with BJ Services.
Ticketmaster Entertainment Inc. (TKTM)
Ticketmaster Entertainment is a live entertainment ticketing and marketing company. It consists of Ticketmaster and Front Line Management Group. It has a market cap of $883 million. The stock is traded around$15.4 per share.
Einhorn accumulated 4.8 million shares in 4Q08 and 1Q09 at $8.27 per share. He has been selling since them. As of 4Q09, he had only 874,154 shares left at the end of 4Q09. In 1Q10, he sold them all. Average exit price was $12.25. Einhorn remarked:
MEMC Electronic Materials Inc. (WFR, Financial)
MEMC Electronic Materials, Inc. is a producer of polysilicon and silicon wafers. MEMC Electronic Materials Inc. has a market cap of $3.46 billion; its shares were traded at around $15.2 with and P/S ratio of 2.9.
Einhorn bought 7.3 million during crisis times of 4Q08 at $13.68. He has been a seller since 2Q09, cutting positions in half in that quarter. At the end of 4Q09, he had only 415,483 shares left, and recently he exited the position complete. Total average exit price was $16.27. Einhorn sounded a bit disappointed at the very profitable trade:
Mercer International Inc. (MERC, Financial) debt
Mercer International Inc. owns and operates a diverse pulp and paper business in the southern German states of Saxony and Thuringia, in the former East Germany. Mercer International Inc. has a market cap of $194.7 million; its shares were traded at around $5.34 with and P/S ratio of 0.2.
This is a small and long investment that lingered on Einhorn’s book for over a decade. At peak times between 2001 and 2005, Einhorn owned 2.5 million shares of the stock but has been selling from time to time since then. As recent as 3Q08, he still held 257,447 common shares and that was the last time we saw any filing on the equity side. “We bought this too long ago to remember why”, he said.
Conclusion
One theme stands out in David Einhorn’s trades: several of the positions closed out by are in Energy Services arena. He bought them low during crisis times and sold them.
GuruFocus provides real time information and insights of Investment Gurus such as Warren Buffett and David Einhorn for Premium Members. If you are not a premium member, click here to sign up or upgrade. 7-Day Free Trial is available.
Greenlight Capital Q1 2010 Letter To Investors
Long term, Einhorn’s performance is very enviable: from 1996 when he started a hedge fund with $1 million and through 2008, he produced an annualized net eturn of 22% for his investors.
For the quarter that offered low return, Einhorn also had a low turnover, having not added any significant new long or short position. He expressed no-excitement in the availabilities in new opportunities. “We had a very hard time identifying significant new opportunities.” He said. Einhorn makes money both ways, long or short. If he has difficulties in coming up with ideas, one might be infer that the market is either too expensive or too cheap?
Perhaps the most news worthy of his latest movement is the number of long positions that he closed during the quarter. At the end of last year, Einhorn reported on the long side $2.94 billion invested in 41 stocks. The low number of names suggests that he and his firm actually put some thoughts behind the particular position. Yet, during the quarter, he closed eight of them.
These are the eight stocks that Einhorn closed out:
BJ Services Company (BJS, Financial)
BJ Services Company is a provider of pressure pumping and other oilfield services serving the petroleum industry worldwide. Bj Services Company has a market cap of $6.74 billion; its shares were traded at around $22.94 with a P/E ratio of 254.9 and P/S ratio of 1.6. The dividend yield of Bj Services Company stocks is 0.8%. Bj Services Company had an annual average earning growth of 11.9% over the past 10 years.
Einhorn accumulated 2.3 million shares during 1Q09 at an average price of $10.45 per share. He started to sell in 4Q09 and closed out this quarter at an average price of $20.98. The reason he sold, according the quarterly letter:Energy Services stock oversold during the crisis that we thought would survive for better times. Thesis played out and sentiment reversed
Boston Scientific Corp. (BSX, Financial)
Boston Scientific Corporation is a developer, manufacturer and marketer of minimally invasive medical devices. Boston Scientific Corp. has a market cap of $10.76 billion; its shares were traded at around $7.1 with a P/E ratio of 11 and P/S ratio of 1.3. Boston Scientific Corp. had an annual average earning growth of 5.4% over the past 10 years.
Einhorn took a heavy position of 32.7 million shares in this company in 4Q09 for $8.42 per share and dumped them all in1Q09 for $7.57 per share. Although it is not atypical for a hedge fund to trade in and out a stock that quickly, it is for Einhorn. As Einhorn lamented:
We had bought BSX based on the view that new management had been brought in to execute a significant turnaround plan, which after careful study, it would detail contemporaneously with fourth quarter results. Instead, management decided not to provide any meaningful target, raised new operating issues, and seems to say that turning the company around would be harder than they thought and would take a long time. We assessed out thesis and forecasts the limted loss by selling the position.
McDermott International Inc. (MDR, Financial)
McDermott International is one of the worldwide energy services companies. Mcdermott International Inc. has a market cap of $6.31 billion; its shares were traded at around $27.34 with a P/E ratio of 16.5 and P/S ratio of 1.
Einhorn bought his 3.6 million shares in 4Q08 to 1Q09 period at a little over $10 per share and sold during 1Q10 for $24.72 per share. Handsome Gain! He gave the following reason the investment:
Engineering and construction company with a few problem contracts and a lot of net cash. We correctly expected margin, excluding the problems, to be healthy and new work pick back up
PattersonUTI Energy Inc. (PTEN, Financial)
Patterson is one of the providers of domestic land drillingservices to major & independent oil & natural gas companies. Pattersonuti Energy Inc. has a market cap of $2.28 billion; its shares were traded at around $14.83 with and P/S ratio of 2.9. The dividend yield of Pattersonuti Energy Inc. stocks is 1.3%. Pattersonuti Energy Inc. had an annual average earning growth of 30.3% over the past 10 years. GuruFocus rated Pattersonuti Energy Inc. the business predictability rank of 2.5-star.
Einhorn bought his 3.4 million shares in 1Q09 for $9.5per share and sold in the past two quarters for $15.33 per share. The reason? same story as with BJ Services.
Ticketmaster Entertainment Inc. (TKTM)
Ticketmaster Entertainment is a live entertainment ticketing and marketing company. It consists of Ticketmaster and Front Line Management Group. It has a market cap of $883 million. The stock is traded around$15.4 per share.
Einhorn accumulated 4.8 million shares in 4Q08 and 1Q09 at $8.27 per share. He has been selling since them. As of 4Q09, he had only 874,154 shares left at the end of 4Q09. In 1Q10, he sold them all. Average exit price was $12.25. Einhorn remarked:
Cheap unlevered spun-off. Bought cheaper during crisis. Results ok but sentiment improved after a merger with Live Nation.
MEMC Electronic Materials Inc. (WFR, Financial)
MEMC Electronic Materials, Inc. is a producer of polysilicon and silicon wafers. MEMC Electronic Materials Inc. has a market cap of $3.46 billion; its shares were traded at around $15.2 with and P/S ratio of 2.9.
Einhorn bought 7.3 million during crisis times of 4Q08 at $13.68. He has been a seller since 2Q09, cutting positions in half in that quarter. At the end of 4Q09, he had only 415,483 shares left, and recently he exited the position complete. Total average exit price was $16.27. Einhorn sounded a bit disappointed at the very profitable trade:
Our thesis was high net cash position and low multiple of recovery case mid-cycle earnings. Results fell short of expectations but sentiment improved and we moved on
Mercer International Inc. (MERC, Financial) debt
Mercer International Inc. owns and operates a diverse pulp and paper business in the southern German states of Saxony and Thuringia, in the former East Germany. Mercer International Inc. has a market cap of $194.7 million; its shares were traded at around $5.34 with and P/S ratio of 0.2.
This is a small and long investment that lingered on Einhorn’s book for over a decade. At peak times between 2001 and 2005, Einhorn owned 2.5 million shares of the stock but has been selling from time to time since then. As recent as 3Q08, he still held 257,447 common shares and that was the last time we saw any filing on the equity side. “We bought this too long ago to remember why”, he said.
Conclusion
One theme stands out in David Einhorn’s trades: several of the positions closed out by are in Energy Services arena. He bought them low during crisis times and sold them.
GuruFocus provides real time information and insights of Investment Gurus such as Warren Buffett and David Einhorn for Premium Members. If you are not a premium member, click here to sign up or upgrade. 7-Day Free Trial is available.
