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James Li
James Li
Articles (227)  | Author's Website |

David Einhorn Fuels Warren Buffett’s General Motors

Guru adds 2 other positions to portfolio in 1st quarter

May 16, 2017 | About:

David Einhorn (Trades, Portfolio), president of Greenlight Capital, seeks long-term capital appreciation through an emphasis on intrinsic value. During the first quarter, the activist investor made a big bet on General Motors Co. (NYSE:GM) and added two new positions: Conduent Inc. (NYSE:CNDT) and Micron Technology Inc. (NASDAQ:MU).

General Motors

Einhorn increased his General Motors holding 315.82%, adding 41,587,036 shares at an average price of $36.56. With this transaction, the guru increased his portfolio 20.44% and leapfrogged Warren Buffett (Trades, Portfolio) as top holder of General Motors.

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General Motors has a financial strength rank of 5, suggesting a modest business operation. Although the company has good interest coverage, General Motors' Altman Z-score of 1.20 implies bankruptcy within 48 months.

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Despite modest financial strength, General Motors has a profitability rank of 6, suggesting satisfactory growth potential. The auto manufacturing company’s operating margin is near a 10-year high of 6.06%.

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General Motors reported solid earnings performance in the first quarter, including net revenue growth of 10.6% and net income growth of 33.5% compared to first-quarter 2016 values. CEO Mary Barra reported that the first-quarter results “reflected [General Motors'] resolve to grow profitably and demonstrate the strong earnings power of this company.” Barra reiterated management’s plan to “transform GM for the long term and unlock more value for [General Motors'] shareholders.”

Conduent

Einhorn invested in 5.96 million shares of Conduent, one of the world’s largest providers of diversified business services. The Xerox Corp. (NYSE:XRX) spinoff averaged $15.22 per share during the quarter.

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With a financial strength rank of 4 and a profitability rank of 2, Conduent is an “out-of-favor company that nobody else wants,” according to Carl Icahn (Trades, Portfolio)’s investing philosophy. The company’s Altman Z-score of 0.93 implies possible bankruptcy within the next 48 months.

Conduent CEO Ashok Vemuri detailed several profit-increasing initiatives, including the completion of the management team and the realignment of the company’s “vertical and horizontal offerings.” Vemuri also discussed a new “go-to-market strategy” that seeks to generate profitable revenue streams in 2017 and beyond.

Einhorn’s 5.96 million shares represent the second-largest stake in Conduent as of March 31. Icahn has the largest stake in Conduent with 19,806,000 shares.

Micron Technology

Einhorn invested 1.6 million shares of Micron Technology, a major semiconductor manufacturing company. Micron’s share price averaged $24.42 during the quarter.

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While the company’s financial strength ranks a modest 5 out of 10, Micron Technology has a poor Piotroski F-score of 4 and an Altman Z-score of 2.10. The former suggests poor business operation while the latter suggests mild financial distress.

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Despite modest financial strength, Micron Technology has a profitability rank of 6, implying satisfactory growth potential. The company’s three-year revenue growth rate of 11.70% outperforms 75% of global competitors. As the company has volatile EBITDA per share, Micron Technology’s business predictability ranks 2.5 stars out of 5.

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Bridgewater Associates and John Hussman (Trades, Portfolio) also invested in Micron Technology as the company offers good growth potential. The former added 405,342 shares while the latter invested in 200,000 shares.

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Disclosure: The author has no positions in the stocks mentioned.

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About the author:

James Li
I am an editorial assistant and researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

Visit James Li's Website


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