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Billionaire David Einhorn’s Greenlight Capital hedge fund lost 14.3% during the third quarter. Through the third quarter his fund was down 17.1%. This puts him as one of the worst-performing hedge funds of the year.
However, Einhorn didn’t become a billionaire by chance. He has a great long-term track record.
The big question is this: has Einhorn lost his edge or should we be looking at Einhorn’s stock picks closer than ever?
I will say, it’s tough to bet against Einhorn here. From 1996 to 2005, Einhorn generated an annualized return of 29% and his return over the last five years is an impressive 12% annualized.
With that, Einhorn decided to shake up his portfolio last quarter, cutting his losers and doubling down on winners. Here’s David Einhorn’s big moves from last quarter:
A Bigger Bet on Apple
Einhorn took his Apple (NASDAQ: AAPL) stake up 50% in the third quarter. It’s still his largest holding and makes up a fifth of Greenlight’s long U.S. equity portfolio. This comes despite a slowdown in potential growth for Apple heading into this holiday season. Einhorn is betting that Apple will still be a big winner this year.
Longer term, Einhorn’s bet is on the fact that the ecosystem of iPhones and iOS operating system is strong enough to keep customer retention high. Given the ecosystem that Apple has build, the switching costs for customers is on the rise. Then, there’s the idea that the Apple TV, Apple Watch and Apple Pay are all being underrated and over discounted by the market.
Other Big Bets
Einhorn also made a bold move in Michael Kors (NASDAQ: KORS), doubling his stake in the third quarter. This puts the fashion accessories maker as Greenlight’s third-largest holding. Shares of Kors are down 45% year-to-date, however.
Michael Kors has seen a decline in comparable store sales. Growth is certainly slowing for this once fast-growing retailer. However, Einhorn is taking solace in the fact that it has a solid balance sheet, strong free cash flow, share buybacks, cheap valuation and the potential to rekindle growth with a big push toward e-commerce.
Another stock that Einhorn has been buying of late is Consol Energy (NYSE: CNX). He now owns nearly 13% of the coal and natural gas company. Einhorn believes this is simply a company that the market is misunderstanding.
Einhorn Sours on Solar and Memory
Two notable stake reductions for Einhorn last quarter were SunEdison (NYSE: SUNE) and Micron Technology (NASDAQ: MU).
Greenlight sold 25% of its SunEdison stake and 67% of its Micron stake. Of note, at the end of the second quarter, these two stocks were Greenlight’s second- and third-largest holdings, respectively.
Now, Einhorn still owns 5.8% of SunEdison, which is a maker and installer of silicon wafers used in solar applications. SunEdison is also making a push into other renewable energy areas like wind. One of the big overhangs for the company remains its sizable debt load and virtually nonexistent cash flow.
As for Micron, the issue here is that the company has proven to be more commodity-like than Einhorn expected, with the cyclicality of the memory chip industry proving very volatile. That is not to mention the fact that Micron is seeing a rise in competition from the likes of Hynix and Samsung.
Einhorn is a great long-term investor having a tough year. He has made the tough decision to reduce his stake in the companies that caused a lot of pain this year, SunEdison and Micron Technology. He cut his losses and decided to double down on the stocks that will have the most upside going forward, which include Apple, Michael Kors and Consol Energy.
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