David Einhorn’s Interview: Tech is a Smaller Bubble

Billionaire David Einhorn, is the manager of Greenlight Capital, a hedge fund with over $10 billion in Assets Under Management. In a recent interview with Bloomberg Television’s Stephanie Ruhle and Erik Schatzker, Mr. Einhorn was asked regarding his opinion on technology stocks, Federal Reserve’s policies, investment strategies, as well as other matters. The manager of Greenlight emphasized that he is fond of technology stocks, as he considers the Technology sector to be a smaller bubble, which doesn’t involve all technology companies. This is also confirmed by taking a look at Greenlight’s equity portfolio, in which the first two positions are represented by Apple Inc. (NASDAQ:AAPL) and Micron Technology, Inc. (NASDAQ:MU) (see the full list of Einhorn’s picks here).

“[…]we think that there’s a sub-segment of tech which is high momentum stocks that have gotten completely out of control in terms of their valuation, and we think that those stocks actually did reach sort of a bubble proportion,” Mr. Einhorn stated.

Einhorn also discussed his short position on athenahealth, Inc (NASDAQ:ATHN), revealed yesterday during Ira Sohn conference., saying that he considers it a good company, with a good strategy and a good management, but its stock is overpriced. The stock of athenahealth, a company that provides clinical-related services through a Web-based currently trades down 20% year-to-date, dropping by around 15% on Tuesday.

“And what happened was is a few weeks ago Morgan Stanley came out with this conventional DCF valuation where they projected out the results until 2030 and we just looked at that and said, wow, how are you going to get from a 10 percent margin before the stock comp to a 30 percent margin? And we thought about the business, and we just don’t think that the assumptions that they’re using there are plausible.”

Another company mentioned by Einhorn was King Digital Entertainment PLC (NYSE:KING), a company that went public around a month ago, whose stock declined right after the IPO, and is currently down over 1%. The manager of Greenlight Capital said among other things that with the IPOs, investors are buying shares of these companies  “without thinking too much about them because they were going up 40 percent the next day or 30 percent the next day.”

“We like to get our analysis right and sometimes just wait longer than other people, and that’s one of the things that — our horizon for investments is not usually a day or a week or a month. We tend to on the long side be really one to four years, which is ancient on Wall Street these days particularly with hedge funds.”

Einhorn also expressed his ideas regarding the current chairman of the Federal Reserve, Janet Yellen. He said that he would like to “keep an open mind.” In his point of view, Yellen has been approaching problems right and that he would like to see if “she has a better reason why rates should remain at zero at this stage in the economy.”

“if you start at a zero rate and you start with a huge amount — huge balance sheet and the economy turns down, the available tools that they will have are limited and there’s a risk that they will have to choose a tradeoff between doing something exceedingly aggressive, right, versus allowing a — a crisis situation to fester. And they might choose to do something exceedingly aggressive and it may have a — that 1 percent outcome.”

The full video of Einhorn’s interview on Bloomberg Television can be watched below:

Disclosure: none

Recommended Reading:

Greenlight Capital 2014 Q1 Investor Letter (See also our hedge fund investor letters group)

Avoid David Einhorn’s Large Cap Stock Picks

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