With Its Long Book Posting Solid Gains, Here Are Greenlight Capital’s Top Equity Portfolio Changes

David Einhorn‘s Greenlight Capital, one of the biggest and most famous activist hedge funds, is one of the few funds that managed to end 2016 in the green, but failed to beat the returns of the S&P 500. According to its fourth-quarter letter to investors, Greenlight Capital returned 4.5% during the fourth quarter, net of fees and expenses, and ended 2016 with a net return of 8.4%. Despite this weak performance last year, the fund has generated an average annual return net of fees of 16.1% since it was founded in May 1996. An interesting fact that emerged from the fund’s annual letter was that its long positions performed extremely well in 2016, contributing 19.9% to the gross returns.  However, its short book failed to replicate that performance and ended up eating into its profits.

This divergence in the performance of the long and short positions is captured well by Greenlight Capital’s recent 13F filing. According to the filing, Greenlight’s US long equity portfolio was worth $5.82 billion at the end of December, nearly 11% more over the quarter. The fund’s equity portfolio had a quarterly turnover of almost 40% and its top 10 equity holdings amassed 71% of its portfolio value, at the end of December. In this post, we are going to take a closer look at some noteworthy moves that Greenlight made between October and December.

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Michael Kors Holdings Ltd (NYSE:KORS)

– Shares Held By Greenlight Capital (as of December 31): 0

– Value of The Holding (as of December 31): 0

Michael Kors Holdings Ltd (NYSE:KORS) was one of Greenlight Capital’s largest holding at the end of September 2016. However, the fund sold its entire stake in the luxury retailer, which had contained 3.07 million shares, during the fourth quarter. In its fourth letter, the fund revealed that it earned an IRR of 20% in its Kors investment when the company’s business stabilized and it decided to repurchase shares, but the investor decided to exit the position after several of Kors’ potential growth drivers and its US business disappointed. Michael Kors Holdings Ltd (NYSE:KORS)’s stock ended the fourth quarter 8% in the red and has lost a further 10.9% so far this year. The company has been struggling to grow its sales for the past several quarters with same store comps declining  at a rapid rate. For its most recent quarter, the company reported mixed numbers and provided a dismal outlook for the coming quarters. The sales revenue of the company during the third quarter saw a 3.2% year-over-year drop to $1.35 billion and the management at Kors doesn’t think this trend will reverse anytime soon. The company now expects fiscal 2017 revenue to be around $4.48 billion, a significant drop from $4.71 billion it reported for the prior fiscal year.

Syngenta AG (ADR) (NYSE:SYT)

– Shares Held By Greenlight Capital (as of December 31): 925,000

– Value of The Holding (as of December 31): $73.12 Million

Syngenta AG (ADR) (NYSE:SYT) was a new entrant in Greenlight Capital’s equity portfolio during the fourth quarter. In the last four years, shares of the agrochemicals company haven’t delivered any returns barring for the dividends. However, currently the stock is trading up 8% year-to-date. In February last year, Chinese state-owned agrochemical company ChemChina agreed to acquire Syngenta AG (ADR) (NYSE:SYT) for $43 billion. Although, this deal was expected to get completed by the first quarter of 2017, it has faced several regulatory hurdles over the past few months and is now expected to get completed by the second quarter. On February 16, analysts at Jefferies Group LLC downgraded Syngenta’s stock to ‘Hold’ from ‘Buy’.

Chemours Co (NYSE:CC)

– Shares Held By Greenlight Capital (as of December 31): 8.94 Million

– Value of The Holding (as of December 31): $197.6 Million

Chemours Co (NYSE:CC) fell four positions in Greenlight’s equity portfolio during the fourth quarter and became its tenth largest equity holding at the end of December owing largely to the fund reducing its stake in the company by 45% during the October-December period.  Shares of the performance chemicals manufacturer have appreciated by over 500% since Greenlight Capital initiated its stake in the company during the last quarter of 2015 and have doubled since September 2016. Hence, Greenlight Capital’s decision to lower its holding can be seen as a move to take sizable profits off the table. Chemours Co (NYSE:CC) became a separate publicly traded company in July 2015 after it was spun-off from E I Du Pont De Nemours And Co (NYSE:DD). On February 13, both companies agreed to each pay half of the $670.7 million in settlements to resolve over 3,500 personal injury lawsuits arising from a leak of perfluorooctanoic acid from a plant in West Virginia.

Apple Inc. (NASDAQ:AAPL)

– Shares Held By Greenlight Capital (as of December 31): 5.80 Million

– Value of The Holding (as of December 31): $672.83 Million

Like Chemours, Greenlight Capital  also thought of booking some profits in Apple Inc. (NASDAQ:AAPL), which it has been holding since Q2 of 2010, during the fourth quarter by reducing its holding in the tech major by 24%. However, this decision doesn’t seem to have gone in favor of the fund as Apple Inc. (NASDAQ:AAPL)’s stock has appreciated by over 17% so far in 2017 and is currently trading at its lifetime highs. Moreover, with Oracle of Omaha giving his confidence vote to the company by quadrupling its stake in it, most analysts on the Street think that this rally can continue for a while. Despite reducing its stake, Greenlight continues to be optimistic about Apple’s future prospects citing the repatriation of  cash and tax reform under Trump’s administration, which it expects will help the company in bringing back $200 billion offshore cash and reduce its GAAP taxes going forward. On February 17, Apple revealed that it will soon start manufacturing the low-cost iPhone SE in India. Industry experts think that this move will help the company in making some inroads in the Indian smartphone market. However, a lot of them are of the opinion that this alone won’t help the company to reach its target of selling 10 million phones in the country given the competition it faces from low-cost manufacturers.

General Motors Company (NYSE:GM)

– Shares Held By Greenlight Capital (as of December 31): 13.17 Million

– Value of The Holding (as of December 31): $458.77 Million

– Call Options Held By Greenlight Capital (as of December 31): 25 Million

– Value of The Holding (as of December 31): $871 Million

Though Greenlight capital reduced its equity stake in  General Motors Company (NYSE:GM)by 22% during the fourth quarter, it also initiated a massive derivatives bet on the vehicle manufacturer during that time by purchasing Call options underlying 25 million shares of the company. General Motors Company(NYSE:GM)’s stock has gone nowhere in the last two years since Greenlight Capital initiated its stake in the company. If it wouldn’t have been for the attractive dividend yield of the stock, one could have easily said that Greenlight made next to nothing by sitting on this position for two years. However, the $0.38 per share that the company currently pays – equivalent to a forward yield of over 4% – would have ensured that it at least got more than its money back on this investment. Greenlight continues to remain bullish on the company over the long-term and thinks that the thesis provided by bears is flawed.

“While the bears have been screaming “peak auto” for the last couple of years, we think a strengthening job market will sustain the current upcycle and lead to better than expected credit performance at GM’s finance subsidiary. While the bears also cite long-term concerns over self-driving cars, we see a huge intermediate-term opportunity in assisted-driving cars. In any other industry, investors would be enthused by the developing upgrade cycle, which could last for a number of years as incremental improvements in each model year attract consumers,” the fund said in its recent letter to investors.

According to recent reports, General Motors is currently in talks PSA Group (“Peugeot”) to sell its loss-making ‘Opel’ division. For its fiscal 2016 fourth quarter, GM reported EPS of $1.28 on revenue of $43.90 billion, which was better than analysts’ expectation of EPS of 1.17 on revenue of $40.97 billion.

Disclosure: None