Billionaire David Einhorn Exercises Caution Going Into Q4, But Remains Bullish On These 5 Stocks

Greenlight Capital is a renowned New York-based long/short equity hedge fund founded by David Einhorn in 1996. Mr. Einhorn is widely respected on the Street for his brilliant stock picking skills, which can be gauged from the fact that in the period between the fund’s inception in 1996 and July 2013, Greenlight Capital generated average annual returns of 19.5%. According to Greenlight Capital’s latest 13F filing submitted with the SEC for the September quarter, its U.S equity portfolio at the end of September was worth slightly above $6 billion, which is almost a 25% decline from the $7.97 billion that it was worth at the end of June. An interesting fact that emerges when one looks closely at the fund’s 13F filing is that even though the value of Greenlight Capital’s equity portfolio shrunk by almost 25% in the period between July and September, the fund actually increased its stake in all eight stocks that ended up as its largest equity holdings by the end of September. In this article we are going to analyze the top five of those stock picks Greenlight Capital is bullish on.

But first let’s understand why we at Insider Monkey track hedge fund activity. From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicates that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 38 month period beginning from September 2012, returning 102% (read the details here).

#5 CONSOL Energy Inc. (NYSE:CNX)

Shares Owned by Greenlight Capital (as of September 30): 29.61 Million

Value of Holding (as of September 30): $290.17 Million

Even though Greenlight Capital increased its stake in CONSOL Energy Inc. (NYSE:CNX) by almost 6.77 million shares during the third quarter, the massive 54.88% decline that the company’s stock suffered during the same period relegated CONSOL Energy Inc. (NYSE:CNX) to the fifth-largest equity holding in Greenlight’s portfolio at the end of September, down from being the fourth-largest at the end of June. Owing majorly to the decline in crude oil prices, shares of CONSOL Energy Inc. (NYSE:CNX) have had a gradual decline since May of this year and currently trade down by 76.66% year-to-date. Although several analysts don’t share his sentiment, Mr. Einhorn continues to be bullish on the company. In its third quarter letter to investors, Greenlight mentioned that it expects the company to keep growing its production and become cash flow positive next year. On October 27 the company reported a per share loss of $0.28 on revenue of $813.90 million for the third quarter, compared to EPS of $0.09 on revenue of $884.60 million that it had reported for the same quarter last year. Mason Hawkins‘ Southeastern Asset Management also increased its stake in CONSOL Energy Inc. during the July-September period and held almost 46.4 million shares of  the company as of September 30.

#4 Chicago Bridge & Iron Company N.V. (NYSE:CBI)

Shares Owned by Greenlight Capital (as of September 30): 7.48 Million

Value of Holding (as of September 30): $296.72 Million

Thanks largely to the rally that shares of Chicago Bridge & Iron Company N.V. (NYSE:CBI) experienced between February and May of this year, shares trade nearly flat for the year despite suffering a downtrend since that time. During the third quarter, when the stock of the company lost more than 20%, Greenlight Capital bought an additional 758,014 shares of Chicago Bridge & Iron Company N.V. (NYSE:CBI). On October 28 the stock of the company jumped a whopping 19% after it announced that it would be selling its nuclear business to Westinghouse Electric Company. On November 13 analysts at Citigroup Inc initiated coverage on the stock of Chicago Bridge & Iron Company N.V. with a ‘Buy’ rating and $62 price target. Iconic investor Warren Buffett‘s of Berkshire Hathaway did not feel as confident in the stock as Einhorn, reducing his stake in the company by 78% to slightly below 2.0 million shares during the third quarter.

#3 Michael Kors Holdings Ltd (NYSE:KORS)

Shares Owned by Greenlight Capital (as of September 30): 7.04 Million

Value of Holding (as of September 30): $297.53 Million

Moving on to Michael Kors Holdings Ltd (NYSE:KORS), in which Greenlight Capital initiated a stake in the second quarter, the fund nearly doubled that position in the third quarter, purchasing an additional 3.42 million shares. Although shares of the company have had a dramatic decline this year and currently trade down by nearly 48% year-to-date, Greenlight continues to be bullish on the company. In its aforementioned letter the fund said that it believes “KORS has multiple avenues of continued growth, including its international business and footwear.” Since the fund also disclosed in the letter that it bought its stake in Michael Kors Holdings Ltd (NYSE:KORS) at an average price of $45.18 per share, it’s clear that it would be sitting on a paper loss of more than 10% at the moment if it still continues to own the 16.3 million shares that it held at the end of September. On November 4 Michael Kors Holdings Ltd reported EPS of $1.01 on revenue of $1.13 billion for the second quarter of fiscal year 2016, whereas analysts were expecting the company to report EPS of $0.89 on revenue of $1.08 billion, so it was a positive step in the right direction. Ricky Sandler‘s Eminence Capital reduced its stake in Michael Kors Holdings Ltd by 8% to over 4.17 million shares during the July-September period.

#2 General Motors Company (NYSE:GM)

Shares Owned by Greenlight Capital (as of September 30): 16.3 Million

Value of Holding (as of September 30): $489.29 Million

Greenlight Capital increased its stake in General Motors Company (NYSE:GM) by 11% during the third quarter. After remaining flat for much of the first half of the year, the stock of General Motors Company (NYSE:GM) went through a U-shaped correction between July and October and is back to trading flat for the year. Mr. Einhorn continues to be bullish on General Motors Company (NYSE:GM) as well, citing the company’s solid financial results and “stable estimates”. On October 21, General Motors Company reported its third quarter results, declaring EPS of $1.50 on revenue of $38.80 billion, thumping analysts’ expectations of EPS of $1.19 on revenue of $38.61 billion. David Tepper‘s Appaloosa Management LP reduced its stake in General Motors Company (NYSE:GM) by 31% to under 13 million shares during the third quarter.

#1 Apple Inc. (NASDAQ:AAPL)

Shares Owned by Greenlight Capital (as of September 30): 11.22 Million

Value of Holding (as of September 30): $1.24 Billion

Finally, Greenlight Capital reinforced Apple Inc. (NASDAQ:AAPL)’s position as the fund’s largest equity holding by purchasing an additional 3.84 million shares of the company during the third quarter. The stock of Apple Inc. (NASDAQ:AAPL) has had a special affinity with the $120 mark this year, having traded around it for much of the year. The company recently announced that it will be cancelling all Beats Music streaming subscriptions on Nov. 30, merely 18 months after acquiring Beats Music. It was also reported recently that the company might be working on a simple peer-to-peer payment system through which individuals can send money to others via the ‘iMessage’ platform. On November 16 analysts at Stifel Nicolaus reiterated their ‘Buy’ rating and $150 price target on the stock. Famous activist investor Carl Icahn of Icahn Capital LP continued to remain one of the largest shareholders of Apple Inc. at the end of September, with ownership of over 52.76 million shares of the company.

Disclosure: None