Einhorn Reviews Holdings and New Buys in Conference Call

Einhorn discussed Consol, Michael Kors, gold, shorts, new positions, Apple and more

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May 04, 2016
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Hedge fund manager David Einhorn (Trades, Portfolio) held a conference call Tuesday to discuss the earnings of his reinsurance company and investment vehicle, Greenlight Re, with more upbeat news than in recent periods. Holdings in Greenlight’s portfolio climbed 2.5%, while the S&P 500 index rose just 1.5% in the first three months of the year. Last year, Einhorn suffered a 20% loss.

Though Einhorn said he saw profits across his long, short and macro positions, the portfolio was not immune to some serious hits, like SunEdison (SUNE, Financial), whose stock crumbled after a surprise bankruptcy. Einhorn also updated on market sectors he finds bullish and bearish, and on his “bubble basket” of momentum tech stocks, in the transcription below.

Einhorn: The Greenlight Re investment portfolio returned 2.5% in first quarter. During the quarter, we made money in longs, shorts and macro positions. We had a few significant winners during the quarter. Consol Energy (CSX, Financial) gained 43%. The company announced further improved successful drilling results, an improved cash flow profile and a $420 million sale of its net coal assets. Michael Kors Holdings (KORS, Financial) beat earnings expectations for the third quarter in a row, and the shares rallied 42%. Our thesis that Michael Kors is not a fad but a fundamentally healthy brand is playing out. Earnings estimates are rising and the stock still trades at just 11x earnings when you back out the net cash position. The stock is cheap on an absolute basis and trades at a large discount to similar branded consumer goods companies.

Our bubble basket of shorts fell 13% during the quarter as investor sentiment shifted away from momentum in January and February, and investors were less forgiving of earnings disappointments. We actively trade and update the basket composition and during the quarter, we covered a few positions including Mobileye (MBLY) and Viva.

Gold was up 16% in the quarter as the ECB announced a kitchen sink policy, the Bank of Japan announced negative interest rates and the U.S. Fed reduced its forecast for future rate hikes. These increasingly aggressive and counterproductive monetary policies are bullish for gold.

Our two biggest performance detractors for the quarter were Resona (TYO:8308, Financial) and SunEdison (SUNE, Financial). Resona Bank shares fell 32% on the Bank of Japan’s implementation of the negative rates. Although negative rates present a headwind for all Japanese financials, Resona trades at just 60% of its book value, which we believe is too low for a bank earning a double-digit ROE without a credit or capital issue. SunEdison collapsed during the quarter and filed for bankruptcy subsequent quarter end. Unfortunately, we underestimated the fragility of the situation. We are very disappointed with the outcome.

During the quarter, we found a few new long positions in mortgage REITS, American Capital Agency (AGNC, Financial) and Hatteras Financial (HTS, Financial), the global apparel company PVH Corp. (PVH, Financial), natural gas and Yelp (YELP, Financial). In our current portfolio, we’re both bullish and bearish. We’re bullish on companies that trade at low multiples, have a high margin of safety and are fundamentally executing as we’ve seen from the excellent quarterly results from Consol Energy, Michael Kors and GM (GM).

We continue to own Apple (AAPL, Financial), which has traded down to a single-digit PE of a bear case earnings. We believe there is tremendous value in Apple’s brand and growing global customer base that periodically buys new devices and increasingly buys additional services.

We’re bearish on companies that are fundamentally challenged and pricing in a good bit of hope for the future. These include the oil frackers, heavy equipment manufacturers, our bubble basket of shorts and individual company-specific shorts.

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