In a conference call to discuss fourth-quarter and full-year results for his reinsurer, Greenlight Re, chairman David Einhorn (Trades, Portfolio) gave his thoughts on his investing performance, several of his holdings and his economic outlook under President Donald Trump.
The much-followed value investor, who usually concentrates on companies financial fundamentals, said the state of Trumps administration was playing into his positive prediction for gold despite its recent pullback.
Gold was our largest detractor during the quarter as the price gave back two-thirds of the gains from the first three quarters of the year, Einhorn said. While rising interest rates were most responsible for the declines, our long-term outlook remains bullish. The new administration comes with a high degree of uncertainty, and its policy initiatives appear to be focused on stimulating growth and with it, inflation.
Otherwise, Einhorn stuck to delineating the valuations and performance of his biggest contributors and detractors.
General Motors (GM, Financial) was our biggest winner during the quarter. The company reported the third quarter in a row that exceeded investor earnings expectations and later raised guidance to over $6 earnings per share for 2017. However, GM continues to get very little credit for its robust operating performance. The bears continue to believe that the peak in the auto cycle is upon us and that autonomous driving poses an existential threat to GMs business. We think the current cycle could go further. Especially if employment strengthens and translates into higher wages. We significantly increased our GM position during the quarter. GM is the second lowest-multiple company in the S&P 500 index, trading about six times earnings, with a very strong balance sheet. Last year, GM purchased 5% of its outstanding shares.
Resona Holdings (TYO:8308, Financial), the largest Japanese regional bank, was our second biggest contributor during the quarter. The stock rallied in the fourth quarter along with the entire financial sector after the U.S. election and interest rates climbed globally and yield curves steepened. Management continues to make progress cleaning up its balance sheet and is poised to announce an improvement in capital return policies in the next year. Even with the strong recent performance, Resona currently earns a 10% ROE and trades at approximately 90% of book value, and nine times earnings.
The Chemours Co.
Chemours (CC, Financial) was a significant positive contributor for the second consecutive quarter, as the company continued to make progress on cost reductions and adaptation of its next-generation refrigerant Opteon outpaced expectations. In 2016, Chemours stock price more than quadrupled and was our second-biggest winner. The company recently exceeded earnings expectations and guided over $1 billion of EBITDA in 2017. We believe Chemours will exceed consensus earnings of about $2 in 2017 and $3 in 2018.
Einhorn returned 5% in the fourth quarter and 7.2% for the full year, with a 9.2% rise in his long portfolio and 3.2% decline in his short portfolio. He also started four new positions in the quarter: Syngenta (SYT, Financial), Monsanto (MON, Financial), Alcoa (AA, Financial) and Freds Inc. (FRED, Financial). For the month of January, his portfolio declined by half a percent.