David Einhorn's Top 5 Trades of the 3rd Quarter

Guru adds to ETF, opens positions in Synnex, NCR and Twitter

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Nov 18, 2020
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Greenlight Capital leader David Einhorn (Trades, Portfolio) disclosed his portfolio for the third quarter of 2020 earlier this week.

The well-known activist investor's New York-based firm seeks long-term capital appreciation by taking an approach rooted in emphasizing intrinsic value, investing in companies that have the potential to achieve consistent returns and safeguard capital regardless of market conditions. Einhorn is also known for his short positions, which include Tesla Inc. (TSLA, Financial) and Netflix Inc. (NFLX, Financial).

During the quarter, Einhorn entered 16 new positions, sold out of four stocks and added to or trimmed a slew of other existing holdings. His most notable trades included new investments in Synnex Corp. (SNX, Financial), NCR Corp. (NCR, Financial) and Twitter Inc. (TWTR, Financial), an addition to the SPDR Gold Trust (GLD, Financial) holding and a reduction in the VanEck Vectors Gold Miners exchange-traded fund (GDX, Financial).

Synnex

The guru invested in 273,200 shares of Synnex, allocating 3.12% of the equity portfolio to the position. It is now his eighth-largest holding. The stock traded for an average price of $125.66 per share during the quarter.

The Fremont, California-based company, which provides business-to-business information technology services, has an $8.06 billion market cap; its shares were trading around $156.45 on Wednesday with a price-earnings ratio of 16.51, a price-book ratio of 1.95 and a price-sales ratio of 0.34.

The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced. The GuruFocus valuation rank of 5 out of 10, however, indicates it is more fairly valued even though the share price and price-sales ratio are approaching 10-year highs.

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GuruFocus rated Synnex's financial strength 6 out of 10. Although the company has issued approximately $1 billion in new long-term debt over the past three years, it is still at a manageable level due to sufficient interest coverage. The high Altman Z-Score of 3.1 also indicates the company is in good standing despite the fact its assets are building up at a faster rate than revenue is growing. The weighted average cost of capital has eclipsed the return on invested capital, however, meaning that value is being destroyed as the company grows.

The company's profitability scored an 8 out of 10 rating, driven by an expanding operating margin, returns that outperform over half of its competitors and a moderate Piotroski F-Score of 4, which suggests business conditions are stable. Due to a slowdown in revenue per share growth over the past 12 months, Synnex's predictability rank of five out of five stars is on watch. According to GuruFocus, companies with this rank return an average of 12.1% annually over a 10-year period.

Of the gurus invested in Synnex, Sarah Ketterer (Trades, Portfolio) has the largest stake with 1.55% of outstanding shares. Chuck Royce (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), John Hussman (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio) also have positions in the stock.

NCR

Having previously exited a position in NCR in the first quarter of 2014, Einhorn picked up a new 1.4 million-share stake, dedicating it to 2.54% of the equity portfolio. Shares traded for an average price of $19.35 each during the quarter.

Headquartered in Atlanta, the company, which provides enterprise software, hardware and services to bank, retailers, restaurants, small business and telecom companies, has a market cap of $3.29 billion; its shares were trading around $25.50 on Wednesday with a price-earnings ratio of 7.99, a price-book ratio of 2.75 and a price-sales ratio of 0.57.

According to the Peter Lynch chart, the stock is undervalued. The GuruFocus valuation rank of 9 out of 10 also supports this assessment.

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NCR's financial strength was rated 4 out of 10 by GuruFocus. As a result of issuing approximately $1.2 billion in new long-term debt over the past three years, the company has weak interest coverage. In addition, the Altman Z-Score of 1.4 warns it could be at risk of bankruptcy in the next several years if it does not improve its liquidity. The ROIC surpasses the WACC, however, indicating good value creation.

The company's profitability fared a bit better, scoring a 6 out of 10 rating on the back of an expanding operating margin, strong returns that outperform a majority of industry peers and a moderate Piotroski F-Score of 5. As a result of revenue per share declining over the past three years, NCR's one-star predictability rank is on watch. GuruFocus says companies with this rank return an average of 1.1% annually.

With his purchase of a 1.09% stake, Einhorn is now the company's largest guru shareholder. Other gurus who have positions in NCR are Richard Snow (Trades, Portfolio), the FPA Capital Fund (Trades, Portfolio), First Pacific Advisors (Trades, Portfolio), Greenblatt, Royce, Lee Ainslie (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and Pioneer.

Twitter

After divesting of a previous position in Twitter in the third quarter of 2018, the investor entered a new 487,500-share holding, giving it 1.77% space in the equity portfolio. The stock traded for an average per-share price of $38.28 during the quarter.

The San Francisco-based social media company has a market cap of $34.46 billion; its shares were trading around $43.57 on Wednesday with a price-book ratio of 4.42 and a price-sales ratio of 9.97.

Based on the Peter Lynch chart, the stock appears to be overvalued.

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GuruFocus rated Twitter's financial strength 6 out of 10. Although assets are building up faster than revenue is growing, suggesting deteriorating efficiency, the Altman Z-Score of 4.61 indicates the company is in good standing.

The company's profitability did not fare as well with a 3 out of 10 rating. In addition to negative margins and returns that underperform a majority of competitors, Twitter has a low Piotroski F-Score of 2, which suggests operations are in poor shape. It has also recorded slowing revenue per share growth over the past year.

David Tepper (Trades, Portfolio) is Twitter's largest guru shareholder with 0.59% of outstanding shares. Other top guru investors are Pioneer, Steven Cohen (Trades, Portfolio), Bill Gates (Trades, Portfolio)' foundation trust, Greenblatt, Michael Price (Trades, Portfolio), Mario Cibelli (Trades, Portfolio), Jones, Tom Gayner (Trades, Portfolio) and First Pacific.

SPDR Gold Trust

Einhorn upped his position in the SPRD Gold Trust by 511.95%, buying 316,900 shares. The trade had an impact of 4.58% on the equity portfolio. During the quarter, the stock traded for an average price of $179.71 per share.

The guru now holds 378,800 shares total, representing 5.48% of the equity portfolio and is his sixth-largest holding. GuruFocus estimates he has lost 0.31% on the investment.

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The ETF, which tracks the performance of the price of gold bullion, has a $74.4 billion market cap; its shares were trading around $176.32 on Wednesday. The 14-day relative strength index of 45.8 indicates the stock is neither overbought nor oversold.

Gurus who currently have positions in the ETF include Dalio, First Eagle Investment (Trades, Portfolio), Caxton Associates (Trades, Portfolio), John Paulson (Trades, Portfolio), Alan Fournier (Trades, Portfolio), Ronald Muhlenkamp (Trades, Portfolio), the Signature Select Canadian Fund (Trades, Portfolio), Gabelli, Murray Stahl (Trades, Portfolio), Cohen, Jim Simons (Trades, Portfolio)' Renaissance Technologies, John Hussman (Trades, Portfolio), Jones and Ken Fisher (Trades, Portfolio).

VanEck Vectors Gold Miners

The guru reduced his holding of the VanEck Vectors Gold Miners ETF by 47.13%, selling 864,000 shares. The transaction had an impact of -3.44% on the equity portfolio. Shares traded for an average price of $40.76 each during the quarter.

Einhorn now holds 969,100 shares total, representing 3.1% of the equity portfolio and is his ninth-largest holding. According to GuruFocus, he has lost 43.71% on the investment.

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Replicating the performance of the NYSE ARCA Gold Miners Index, which in turn tracks the performance of companies involved in the gold mining industry, the ETF has a market cap of $15.73 billion; its shares were trading around $36.41 on Wednesday with a price-earnings ratio of 19.5 and a price-book ratio of 2.42. The 14-day relative strength index of 42.03 indicates the stock is neither overbought nor oversold.

Other gurus who are currently invested in the ETF are Stanley Druckenmiller (Trades, Portfolio), Louis Moore Bacon (Trades, Portfolio), Stahl, Simons' firm, Gabelli and Fisher.

Additional trades and portfolio composition

Other stocks Einhorn established positions in during the quarter included Intel Corp. (INTC, Financial), Ingredion Inc. (INGR, Financial) and Dillard's Inc. (DDS, Financial). He also added to Atlas Air Worldwide Holdings Inc. (AAWW, Financial) and Resideo Technologies Inc. (REZI), while trimming The Chemours Co. (CC) stake. Tempur Sealy International Inc. (TPX) and EchoStar Corp. (SATS) topped the list of stocks he completely removed from the portfolio.

The guru's $1.23 billion equity portfolio, which is composed of 36 stocks, is most heavily invested in the consumer cyclical sector with a weight of 36.44%. The industrials space has a much smaller representation at 16.80%.

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In 2019, Greenlight significantly underperformed the S&P 500 with a return of 9.3%. The index posted a 31.48% return.

Disclosure: No positions.

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