David Einhorn got off to a slow start this year.
His Greenlight Capital funds, managed by his eponymous New York hedge fund firm, broke even in January. This compares with a 1.8 percent gain for the Standard & Poor’s 500.
For Greenlight, it was a tale of two books. Its largest long holdings did very well, but its high-profile short bets got hammered. If the portfolio’s short bets had been long holdings instead, they would have had a magnificent month. Oh well.
Four of Greenlight’s five largest-disclosed longs entering the new year were up in the mid- single-digits last month. For example, aircraft leasing giant Aercap surged about 6.2 percent.
Another big winner was General Motors which rose 5.2 percent. In its fourth-quarter letter sent to clients and obtained by Alpha, Greenlight said it dramatically increased its GM position in the period. “More jobs, higher income for savers and higher wages should drive demand for consumer durables and there is no better consumer durable than an automobile,” the letter stated.
Apple gained nearly 5 percent last month. In the letter Greenlight said the iPhone and iPad maker could benefit from repatriation of foreign cash and tax reform. It had over $200 billion in offshore cash at the time.
Gold, meanwhile, rose 3.76 percent for the month. Greenlight said it continues to hold the metal as a play on more political and economic uncertainty and less stability as a result of the election of Donald Trump as president, given that Trump does not hold “any core policy believes and is apt to change his mind as he sees fit.”
Ironically, Greenlight’s only loser among its five largest longs was CONSOL Energy, dropping 7 percent. The stock was one of its top performers last year, gaining 130 percent. However, it was down 11 percent in December and is now off by about 20 percent over the most recent two-month period.
The results were the opposite on the short side. In the letter Greenlight stressed that it is still short its “bubble basket” of stocks it thinks are overvalued. Greenlight explained that bubble-basket stocks mostly don’t have profits, so they wouldn’t benefit from corporate tax cuts.
“Further, an accelerating economy should allow investors to find growth without needing to pay nosebleed prices for a narrow group of profitless top-line growth stocks,” Greenlight added in the letter.
One stock it disclosed that sits in the basket is streaming content giant Netflix. “Its domestic market has matured,” Greenlight explains. “It risks an unfavorable change in net neutrality rules, and it has not demonstrated that its huge investment in original content has a positive return. We believe it doesn’t.” However, the stock gained 13.7 percent in January.
Amazon.com, meanwhile, rose about 10 percent last month. In its fourth-quarter report, Greenlight acknowledges that the e-commerce giant was one of a number of its short bets that lost money last year. Greenlight did not mention covering this specific short.
Greenlight is also short Caterpillar and a few other similar industrial cyclicals that it said moved up sharply in price after the election. Its reasoning: The stock surged on talk about infrastructure spending, even though the proportion of Caterpillar machines used for this type of work “represents only a small part of its business.” Mining and energy are Cat’s biggest segments. The stock was up 3.1 percent in January.
Greenlight was also still short oil frackers, stressing the economics still don’t work when all the costs are taken into account. Greenlight doesn’t mention names, but in the past it singled out Pioneer Natural Resources. In January, the stock was essentially flat. It gained 44 percent last year.
Athenahealth, another long-standing Greenlight short, surged 20 percent in January. The healthcare computing services company declined by 35 percent last year.
In its fourth-quarter report, Greenlight also said it established one new long position in a European financial company it declined to identify.
However, it did disclose that Bayer is the previously unnamed European life sciences company it discussed in its second-quarter letter.
