David Einhorn (Trades, Portfolio), president of Greenlight Capital, disclosed this week that his hedge fund established a position in DXC Technology Co. (DXC, Financial) and increased its holdings of The Chemours Co. (CC, Financial) and EchoStar Corp. (SATS, Financial).
Short position gains cut into otherwise strong long position gains
Einhorn’s fund mentioned in its quarterly letter that it returned 13.80% during 2019, lagging the Standard & Poor’s 500 Index return of 31.50%. While the long positions returned 37.40%, outperforming the benchmark, the short positions returned -20.10%, cutting into the strong gains in long positions.
Greenlight detailed in the letter its short position in Netflix Inc. (NFLX, Financial), a company that soared on Jan. 21, driven by an earnings beat that overshadowed low domestic membership growth. The fund said that the Los Gatos, California-based company’s “open-ended growth story” narrative is ending as several other subscription services enter the fray.
Portfolio overview
As of quarter-end, Greenlight’s $1.35 billion equity portfolio contains 18 stocks, with turnover of 3%. The top three sectors in terms of weight are consumer cyclical, industrials and financial services, with weights of 45.20%, 14.60% and 10.40%.
New buy: DXC
Greenlight purchased 813,000 shares of DXC, giving the position 2.27% weight in the equity portfolio. Shares averaged $32.83 during the quarter.
The Tyson, Virginia-based company combines Hewlett Packard Enterprise Co.’s (HPE, Financial) Enterprise Service segment with Computer Sciences Corp. GuruFocus ranks DXC’s profitability 6 out of 10: The company’s three-year revenue and Ebitda growth rates are outperforming 68% and 77% of global competitors even though operating margins are outperforming just 55.68% of global information technology services companies.
Greenlight said in its letter that many of DXC’s challenges, which stemmed from a “difficult post-merger period” and resulted in lowered profit expectations for the next two years, can be fixed. The letter further says that field research indicates that “improvement is underway” and that the price does not reflect the improvements.
Chemours
Greenlight purchased 327,402 shares of Chemours, increasing the holding 5.05% and the equity portfolio 0.44%. Shares averaged $16.67 during the quarter.
The Wilmington, Delaware-based company produces titanium dioxide, a white pigment used in paint. GuruFocus ranks the company’s profitability 7 out of 10: Even though the three-year revenue growth rate of 4.8% underperforms 55.88% of global competitors, Chemours has an expanding operating margin and a return on equity that outperforms over 96% of global chemical companies.
The fund said in its letter that the titanium dioxide cycle is “turning more favorable” and that Chemours is “poised to retake lost share.”
EchoStar
Greenlight purchased 84,900 shares of EchoStar, increasing the position 14.34% and the equity portfolio 0.27%. Shares averaged $40.24 during the quarter.
The Englewood, Colorado-based company provides broadband technology and video delivery solutions for home and office. GuruFocus ranks the company’s profitability 6 out of 10: Operating margins are outperforming over 81% of global competitors despite returns underperforming over 70% of global communication equipment companies.
Disclosure: No positions.
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