One of the winners from this move in the stock price is Warren Buffett: Berkshire Hathaway owned 15 million shares at the end of September (find Warren Buffett’s stock picks). Another winner is Greenlight Capital, managed by billionaire David Einhorn. Greenlight had increased its stake in GM by 24% during the third quarter of 2012, to a total of 21.6 million shares (see Einhorn’s favorite stocks), and at the Value Investing Congress in early October Einhorn had listed GM as one of his two long picks. Since the beginning of October GM is up 19%; an investor who bought on October 4th– two days after Einhorn’s presentation- would be up 12%. This means that once again Einhorn made a good call on a public investment presentation, as has been the case several times in the past. Let’s see how the rest of Einhorn’s picks have done in the last two and a half months:
Einhorn’s other long pick was health insurer CIGNA Corporation (NYSE:CI). Chalk this one up as a win for Einhorn as well: Cigna is up 13% this quarter (the S&P 500, incidentally, is about flat). At a market capitalization of $15 billion, Cigna trades at 10 times trailing earnings; partly because of recent acquisitions, revenue and earnings were up strongly last quarter from the third quarter of 2011. Wall Street analyst estimates have the stock priced at 9 times consensus earnings for 2013, and a five-year PEG ratio just below 1; we think that the markets are generally giving insurance companies low prices due to uncertainty over future government regulation of the healthcare sector. Cigna had been one of hedge funds’ favorite healthcare stocks during the third quarter.
One of the short picks from the VIC was Chipotle Mexican Grill, Inc. (NYSE:CMG). This stock is down 7% from the end of September, though that reflects a recovery from a sharp drop in mid October. Everyone knows that Chipotle is a great growth story- last quarter, revenue was up 18% from a year ago, driving a 20% rise in net income- the only question is how long the high growth rates can continue. The stock carries trailing and forward P/Es of 34 and 28, respectively. In his presentation, Einhorn claimed that the company will see increased competition from Taco Bell, which is retooling for both a younger and a higher-end market. Read more about Einhorn’s presentation on Chipotle.
Einhorn’s other short was a re-run of his famous call to short Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR). “What do you call a stock that’s down 90%?” he asked, likely in reference to the company. “A stock that was down 80%”- where Green Mountain was then trading compared to a year ago- “and then got cut in half.” See why Einhorn went after Green Mountain. Unfortunately for him, Green Mountain is actually up 76% from the beginning of October. Since it had been at such a low level before, it is still well down from its peak, and Greenlight’s short position is likely still profitable, but investors who only got in after his presentation have been burned. In fact, the losses that an Einhorn follower would have made on this short more than match the gains that would have come on a Chipotle short and on long positions in GM and Cigna.
