David Einhorn (Trades, Portfolio), founder of hedge fund Greenlight Capital, turned a corner this year, gaining 3.0% net of fees in the first three months after five consecutive quarters of losses. Celebration was temperate in his shareholder letter out this week as he told investors he would “like to make it a habit” but did not manage the portfolio for mere short-sighted quarterly gains.
“We think one of our advantages is the ability to be more patient than others, especially as investment horizons appear to be getting shorter,” he said.
A long, short and sometimes activist investor, Einhorn combines fundamental and quantitative analysis to select investments. In the first quarter, he found four stocks that fell to opportune price levels – either due to market volatility or negative events. He reported them first in a conference call his week and then gave his buy prices in a shareholder letter. All four were bought near three to five-year lows.
American Capital Agency (NASDAQ:AGNC)
Einhorn said he bought shares of the company for an average price of $17.41. The stock has hovered around that price since the fourth quarter, but has not seen that range for five years. Thursday, it closed at $18.58.
Hatteras Financial (NYSE:HTS)
Einhorn bought shares of Hatteras Financial for $12.34 on average. The company slid to a five-year low of $10.54 in January. It closed Thursday at $16.08.
Both American Capital and Hatteras are REITs that focus on mortgage securities backed by the U.S. government. The catalyst for their price lag: “fears of potential Fed rate hikes and concerns over external manager incentives,” Einhorn said.
Why Einhorn sees upside: "We think the book values already reflect the bond market’s rate hike expectations, and both companies can grow book value per share through buybacks funded by principal repayments and selling securities."
PVH Corp. (NYSE:PVH)
Einhorn purchased shares in the apparel company at an average price of $75.65. PVH Corp. briefly traded under $70 in January, a three-year low for the stock. Since the nadir, it has rallied to $91.50 at close Thursday.
Why the stock pulled back: “Investors grew concerned about a weak 2015 holiday season and foreign exchange headwinds,” Einhorn said.
The investor sees the decline as temporary. PVH has growth potential for margin in three areas: Calvin Klein business in Europe, multi-brand wholesale segment Heritage and Tommy Hilfiger in China, he said.
Yelp (NYSE:YELP)
Though Einhorn has referred to a “bubble basket” of high-priced, mostly technology or internet short positions, he purchased Yelp Inc., a business review website with no earnings, in the first quarter. Einhorn’s cost per share averaged $21.16. In January, the stock touched an all-time low of $14.53.
The catalyst for the decline: “The stock has suffered due to missed expectations and anxiety about an upcoming negative documentary,” Einhorn said.
Einhorn, however, envisions double revenue by 2019, a bidding war, an underwhelming documentary and 30% upside. Thursday, Yelp’s shares closed at $21.42. “We rate them five stars,” Einhorn said.
Einhorn’s official first-quarter portfolio should emerge in the next few weeks on GuruFocus. See his portfolio here. Start a free 7-day trial of Premium Membership to GuruFocus.
