David Einhorn’s Greenlight Capital came roaring back in the second quarter of 2014, delivering 7.9 percent return for investors in a quarter that saw the S&P 500 deliver a strong 5.2 percent return.
Returns on the year for the activist investor are 6.9 percent as David Einhorn’s fund had previous difficulty in its short portfolio during the previous period.
The primary contributor to second quarter profits were long equities, which were up a strong 14 percent.
David Einhorn’s key holding Micron
A key holding for David Einhorn has been Micron Technology, Inc. (NASDAQ:MU). The fund’s recent investor letter said a spike in DRAM prices wasn’t a one trick pony and their earnings continued to beat expectations. What Greenlight didn’t discuss, but a note making the rounds of hedge fund manager comments, is that recent industry consolidation has put pricing power back into the hands of manufacturers.
As a recent investor letter from Taconic noted, pricing power and industry profitability are likely to result from this industry consolidation. For its part, Greenlight thinks consensus earnings estimates remain on the low side and Micron is positioned for additional earnings surprises and price multiple expansion.
David Einhorn also likes Oil States International
Another position Greenlight shares with other investors is that of Oil States International, Inc. (NYSE:OIS), which is also a holding of Barry Rosenstein’s JANA partners. Greenlight noted that the company completed its spin-off of its legacy accommodations segment (a move Rosenstein advocated) into Civeo Corp (NYSE:CVEO). This forced a re-evaluation of the financials of each respective company, which brought the stock price “closer to their respective values.” Rosenstein had advocated for a divestiture on these very grounds.
While investors generally thought Apple Inc. (NASDAQ:AAPL) had saturated the market, their earnings proved otherwise. The report noted that 130 new iOS cell phone users is helping propel the stock, as stronger earnings per share guidance and increased stock repurchase authorization bode well for the stock, a potential value play at only 11 times earnings, the report noted.
David Einhorn notes takeover season returns
In the report David Einhorn noted an interesting trend as “takeover season” returns: The stock of the acquirer is seeing gains – even when other troubled companies are involved. David Einhorn pointed to the Safeway Inc. (NYSE:SWY) example, previously reported in ValueWalk, as an example of a company in distress being purchased at nearly 17 times earnings. He also pointed to examples of Martin Marietta Materials, Inc. (NYSE:MLM), Lorillard Inc. (NYSE:LO) and Questcor Pharmaceuticals Inc (NASDAQ:QCOR) as riding the takeover wave.
In the report David Einhorn took the media to task for reports about discussion of his 1st quarter investor letter mentioning “cool kid” tech stocks being out of favor and that implying he didn’t like technology. “Nothing could be further from the truth,” he wrote, citing investments in Apple Inc. (NASDAQ:AAPL), Micron Technology, Inc. (NASDAQ:MU), Marvell Technology Group Ltd. (NASDAQ:MRVL) and Lam Research Corporation (NASDAQ:LRCX) as undervalued tech stocks. That said, he has created a bubble list of overvalued tech stocks and shorted them.