Blue Ridge Capital Buys More Martin Marietta Materials (MLM): John Griffin Versus David Einhorn ~ market folly

Friday, June 22, 2012

Blue Ridge Capital Buys More Martin Marietta Materials (MLM): John Griffin Versus David Einhorn

John Griffin's hedge fund firm Blue Ridge Capital filed a 13G with the SEC regarding their position in Martin Marietta Materials (MLM).  Per the filing, Blue Ridge has disclosed a 5.53% ownership stake in MLM with 2,530,000 shares.

This marks an increase in their share count by 36% since the end of March.  Back then, Griffin's firm owned a position worth over $138 million.  However, since then shares have fallen from around $85 to current levels of $68.  Blue Ridge's additional shares means their stake is now worth around $173 million.

David Einhorn Bearish On Martin Marietta Materials

We always love when two prominent managers have a dichotomy of opinion on a certain name.  It's what truly makes a market and in this case we have John Griffin & Blue Ridge long shares of MLM versus David Einhorn and Greenlight Capital who is bearish on the name.

At the Ira Sohn Conference (see notes here) last month, David Einhorn was bearish on shares of MLM.  He argued that the company's multiple is too high (at the time a 35 P/E).  Einhorn also said that one-time fiscal stimulus has goosed earnings.

Since his presentation talked about tons of stocks, that's all he mentioned about MLM in particular and he's presumably short the stock. MLM shares tanked 10% the day Einhorn made his presentation.

Long Thesis on MLM?

While we obviously don't know Blue Ridge's specific thesis for being long Martin Marietta Materials, Tom Russo of Gardner, Russo & Gardner made comments regarding why the company is attractive.

In an interview with Columbia Business School, Russo said that "(MLM's) business, stone quarrying, tends toward natural monopolies.  It is very expensive to haul stone on a truck and stone isn't valuable enough to allow it to recoup shipping costs.  Within 25 miles is about the only distance that you can draw from to get stone ... so if you own a quarry in an urban region, you have a very valuable asset."

The company tried to complete a $4.5 billion hostile takeover of rival Vulcan Materials (VMC) but it fell through.  The company has appealed and many argue they only have a small glimmer of hope as it heads to Delaware's Supreme Court.

Per Google Finance, Martin Marietta Materials is "a producer of aggregates for construction industry, including infrastructure, nonresidential, residential, railroad ballast, agricultural, and chemical grade stone used in environmental applications."

For more on John Griffin, check out Blue Ridge Capital's recommended reading list.

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