David Einhorn (Trades, Portfolio), an investor whose talents won him acclaim with his Greenlight hedge fund since its founding in 1996, hit a bad patch this year. The firm tacked a 6.5% slide to its performance in August, placing its loss for the first eight months of the year at 20.9%. That return is putting the firm on pace for the worst performance of its history, falling below the 20.2% loss of its previous worst year, in 2015.
Much of the decline has stemmed from his top four holdings. General Motors (GM, Financial), which is about 26% of his long portfolio, sank 15% year to date. Brighthouse Financial Inc. (BHF, Financial), worth almost 15% as his second largest holding, tumbled 32%. Mylan NV (MYL, Financial) and Green Brick Partners Inc. (GRBK, Financial), the third and fourth largest, are also down.
Einhorn also moved too soon on Apple (AAPL, Financial). He almost exited the position, selling 77.4% of his shares in the second quarter, though the stock continues to meet new highs. From 2011 to 2014 and from 2015 to 2016, Apple was Einhorn’s largest holding, before he replaced it with the more sluggish GM.
Einhorn has acknowledged that his concentrated approach does not mimic the index, and he is loyal to value investing, which has been out of favor. He typically gives detailed, mathematical valuations of each of his new picks.
“We have a value orientation and we take comfort from the margin of safety afforded by the low valuations of our long investments,” he wrote in his 2017 shareholder letter.
Aside from the recent down years, Einhorn’s strategy has proved lucrative. Since Greenlight Capital’s inception to 2017, it delivered a 15.4% annualized return net of fees and expenses.
Also, more stocks in his portfolio of 29 positions have posted gains than losses this year, though they are smaller than his laggards. His best-performing picks are: IAC/InterActiveCorp (IAC, Financial), DSW Inc. (DSW, Financial), TJX Companies Inc. (TJX, Financial), Conduent Inc. (CNDT, Financial) and Apple (AAPL, Financial).
IAC/InterActiveCorp (IAC, Financial)
IAC/InterActiveCorp is the owner of more than 150 internet brands, including OkCupid, Dictionary.com and Tinder. The company’s stock soared 64.66% year to date, closing near a 10-year high at $209.10 Tuesday. Einhorn started the position in the first quarter and added shares in the second, for a holding of 326,147, or only 1.59% of the portfolio.
In the second quarter, the company recorded 38% revenue growth to $1.06 billion and 229% net earnings growth to $218.4 million. The company has a price-earnings ratio of 40.35 and price-book ratio near a 10-year high at 6.79.
DSW Inc. is a shoe retailer and one of Einhorn’s many stocks in the apparel category. He has been reducing the position in recent quarters and held 207,600 at last report, worth 0.17% of the portfolio. Shares of DSW Inc. have soared 52.13% year to date, closing Tuesday near a three-year high at $32.08 per share.
Shares of the company popped 20% on Aug. 27 when it reported second-quarter earnings results. DSW Inc. announced a 16.4% increase in revenue to $795 million, with comparable store sales rising 9.7% year over year. It also reported a net loss of $14.1 million, or 18 cents per share, due largely to charges related to the acquisition of its Canadian retail business and sale of Ebuys. The company also said it would exit one of its Canadian businesses by the end of the year. The acquisition of the Canada retail segment is expected to generate $215 million in revenues.
DSW updated its fiscal 2018 adjusted earnings outlook to a range of $1.60 to $1.75 from a previously expected range of $1.52 to $1.67.
DSW Inc. has a price-sales ratio near a two-year high at 0.89.
TJX Companies Inc. (TJX, Financial)
Einhorn bought 45,000 shares of TJX Companies in the second quarter, starting a new holding worth 0.14% of the portfolio. Shares of the low-cost apparel and home goods retailer advanced 46.35% year to date to $110.03 per share Wednesday afternoon.
TJX Companies also reported positive second quarter results that fueled stock-price gains in August. The company’s sales rose 12% to $9.3 billion, with comparable store sales up 6%. CEO Ernie Herrman ascribed the growth primarily to customer traffic. Earnings per share totaled $1.17, versus 85 cents a year earlier, exceeding the company’s expectations.
As a result of the robust quarter, TJX raised its full-year guidance for earnings per share to a range of $4.83 to $4.88, reflecting a 20-21% increased over 2017’s earnings per share of $4.04.
Conduent Inc. (CNDT, Financial)
Conduent, a maker of digital platforms for business and government using cloud and mobile technologies, has a 0.89% weight in Einhorn’s portfolio after he reduced the position over the past three quarters. Year to date, its stock has risen 40.59% to $22.96 per share Wednesday.
The stock climbed in August despite a second-quarter decline in revenues of 7.3% to $1.34 billion. Net income rose to $11 million, or 4 cents per share, from a net loss of $4 million, or 3 cents per share, a year earlier.
The company has a price-earnings ratio near a one-year high at 33.23, a price-book ratio near a two-year high at 1.39 and a price-sales ratio near a two-year high at 0.86.Ă‚
Shares of the iPhone maker have leaped another 30% this year to $221.07 Wednesday. Einhorn began investing in the company before the middle of 2010. The holding peaked at 16.78 million shares in the first quarter of 2013 when the price averaged $67. He enjoyed a sizable gain on the position but could have embraced further had he held on longer. Einhorn sold most of the position over 2017 and the first half of 2018 at prices ranging from $131 to $181, retaining 142,100 shares at 0.84% of the portfolio.
Apple’s second quarter included a 17% increase in revenue to $53.3 billion, boosted by sales of iPhone, services and wearables. Earnings per share reached $2.34 after a 40% rise.
See more of David Einhorn (Trades, Portfolio)’s stocks in his portfolio here.
