Comment
0
Tweet
0
Print
RSS Feeds

Digging Into Billionaire David Einhorn's 4Q Investor Letter, Part II

Thursday - 2/7/2013, 11:47am  ET

What's Einhorn and Greenlight Capital betting on for 2013? In billionaire David Einhorn and Greenlight Capital's fourth quarter 2012 letter to investors he outlines his hedge fund's biggest bets. Greenlight returned 4.9% during the fourth quarter, pushing its total net return for 2012 down to 7.9% (check out the top performing hedge funds).

At the end of 2012, Greenlight's largest long positions proved to be in Apple , Cigna , General Motors , gold and Vodafone Group .

After breaking down what Einhorn said carried Greenlight in 2012 (Part 1: Einhorn's 2012 Outperformers), it's time to figure out what he's betting on for 2013 (see Einhorn's newest picks). Although Einhorn doesn't outline his stake in Greenlight's largest long positions at the end of the fourth quarter, they stacked up as follows for the third quarter:

Stock

Rank

% of Portfolio

Apple

1st

12.1%

General Motors

3rd

8.1%

Cigna

4th

5.5%

Barrick Gold

24th

1.3%

Vodafone

n/a

new addition

Apple. The big news for Apple of late has been the earnings release that showed slowing growth. This coupled with the fact that Apple is increasing capital expenditures has led to uncertainty over whether Apple will be able to continue growing at the extraordinary growth rate it has managed in the past. Apple has managed to perform better than some of its competitors, despite a declining PC market.

The increased capital expenditures will be used to make bigger bets on being able to innovate and please the market with new products. The company expects to spend around 10% of its almost $10 billion planned CapEx on new retail stores and the remaining on equipment.

The tech giant still has one of the top balance sheets in the industry with well over $100 billion in cash, short-term investments and long-term marketable securities. Cash flow generation has always excelled for the company, generating some $50 billion in cash flow from operations during fiscal year 2012, and $16 billion in free cash flow last year alone.

With the recent stock's slide, down 13% year to date, the dividend yield is up to 2.3%. Apple appears to be quite the value play despite the slowing earnings, trading at only

Cigna. Einhorn notes that his fund closed a several long positions during the fourth quarter, which includes two in the managed care sector, Humana and Wellpoint, both at a small loss. Per Einhorn's letter, he notes that Greenlight reallocated that freed up capital to other managed care organizations, possibly Cigna? That was already Greenlight's fourth largest holding at the end of the third quarter.

One of Cigna's big initiatives included its break into the Medicare Advantage market with its HealthSpring acquisition. The acquisition helps bring the healthcare company's services full-circle. Cigna's diversified product portfolio includes: Its U.S. commercial business, international business and expansion in seniors and Medicare business. The other big deal for Cigna is expanding internationally, which accounts for only around 10% of revenues.

General Motors has been seeing solid growth thanks to expansion into emerging markets, namely China and India. The car company is also expanding its dealerships in Indonesia and Thailand in an effort to further tap growth opportunities.

Compared to major competitor Ford, GM does appear to be a bit more expensive:

 

Price to Earnings

Ford

2.9

GM

10.5

However, in taking a further look, we see that GM's higher valuation is warranted thanks to the company's above average growth prospects:

 

5-Yr. Expected EPS Growth (Wall Street estimates)

Ford 

5.80%

GM

   1 2  -  Next page  >>