Greenlight Capital's Q4 Letter: Dramatically Increased General Motors Position

David Einhorn's hedge fund Greenlight Capital finished 2016 up 8.4% and has returned 16.1% annualized since inception in 1996.

Their fourth quarter letter examines how their portfolio is positioned now that Donald Trump is president and will be trying to change policies. 

Greenlight is long various US value stocks that could benefit from corporate tax cuts (AMERCO, CC, Dillard's, DSW), they're long companies that can benefit from repatriation of foreign cash (Apple (AAPL)), and they're long companies that can benefit from demand for consumer durables (General Motors (GM), a position in which they've "dramatically increased their position."

They're also short 'bubble basket' stocks (Netflix), oil frackers, and Caterpillar (CAT).

Turning back to their thesis on GM, Greenlight writes that, "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."

During the quarter, David Einhorn's firm also exited its positions in AECOM (ACM), Michael Kors (KORS), and Take-Two Interactive Software (TTWO).   They also covered short positions in FLSmidth (Denmark: FLS), Mead Johnson Nutrition (MJN), and Reynolds American (RAI).

At the end of 2016, their largest positions in alphabetical order were: AerCap, Apple, CONSOL Energy, General Motors, and gold.  Their average exposures were 106% long and 81% short.

Embedded below is Greenlight Capital's Q4 letter:



We've posted up a bunch of letters today, so be sure to also check out Third Point's Q4 letter as well as Howard Marks' latest memo.

Value Investing Congress Notes: New York 2013

Below are notes from the 2013 Value Investing Congress in New York from both days.  Click the links below for each speaker's presentation:


Value Investing Congress Notes: Both Days


Jeff Ubben (ValueAct): Long Willis Group (WSH)

Jeffrey Smith (Starboard Value): Long Wausau Paper (WPP)

Mick McGuire (Marcato): Long United Rentals (URI)

Cameron & Tyler Winklevoss (Winklevoss Capital): On Bitcoin

Donald Yacktman (Yacktman Funds):  Process & market thoughts 

Alex Roepers (Atlantic Investment Management): His 5 new ideas 

Guy Gottfried (Rational Investment Group): 2 Canadian longs

Michael Castor (Sio Capital): Various healthcare plays

John Mirshekari (Fidelity Investments): 2 investment ideas

Chris Mittleman (Mittleman Brothers): Azteca, CMIC Holdings

Clifton Robbins (Blue Harbour Group): Chico's (CHS)

Mark Boyar (Boyar Value Group):  Long Madison Square Garden (MSG)

Joe Altman & Chris Kyriopoulos (COMPOUND): Long Ascent & Covanta

Harvey Sawikin (Firebird Management): Long Gazprom Neft

Rahul Saraogi (Atyant Capital): On India

Charles de Vaulx (IVA): Market thoughts

Whitney Tilson (Kase Capital): Short K12 (LRN)

Daniel Miller (Gabelli Focus Five): 3 ideas 

Evan Vanderveer & David Shapiro (Vanshap Capital): 2 investment ideas

Carl Chen & Tom Lu (Temple Honor Asia): 2 stock picks

Chris Mayer (Capital & Crisis): Various bank picks

Value Investing Challenge Winner: Long Ashland (ASH)

Value Investing Challenge Runner-Up: Short Life Lock (LOCK)

John Mirshekari's Presentation on Aecom & URS: Value Investing Congress

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is John Mirshekari of Fidelity Investments.  His presentation was entitled "Inflections in Incentives" and he also pitched Aecom (ACM) and URS (URS).


John Mirshekari's Value Investing Congress Presentation

-->

Key is CEOs need skin in the game. Beneficial interest as % of annual cash compensation. Pinnacle Air was 2x and Sky West was 39x. 

Insider ownership is one thing he looks at.  Capital allocation is one of the few inefficiencies left in the market.  Management incentives affect capital allocations. 

1. Watch the cannibals. (Share repurchases) Should pay more for a business in hands of a manager with pro shareholder leanings. 

2. Incentives drive decisions. Why don't managements buy back stock? Because their compensation schemes encourage size, not stock return. Revenue, EBITDA, income are the usual, not ROIC, three year relative stock return. 

Example: AutoZone (AZO). Perfectly aligned with shareholders. Share count down 75% over last ten years. AZO compounds at 21% vs. SPX 3%. Inflections in incentives. Huge opportunities to make money.

Bullish on Aecom (ACM)

Engineering company that has had this happen. Say on pay is pressuring CEOs compensation plans. They were hit by this in 2011. So they tried to change. They replaced EBITDA growth with EPS, CFO per share, FCF per share. Key is "per share" so no incentive to grow without actual performance. Include goodwill impairments in comp calculation. Focus on share count means better use of capital. 

They stopped M&A and shifted to share repurchases. They bought back 1/3 of the shares 18 months after the say on pay change in compensation. Stock still attractive and up 42% even in bear case. Bull case is 90%. 

URS (URS)

Comp with ACM. Civil engineering company. Bridges, roads on a cost plus basis. $7 EPS by 2015 could lead to 100% upside.

Could begin repurchasing stock over next two years.  FCF is $5.38 per share last four years. Adjusted for a non-recurring WC charge, we get $7.16 per year. In the past they have done 11 years, at $6B in cash, more than the value of the company today. 

Worst ROE in the industry. But could double it.

In the past compensation plan was only net income. This year they added relative total share return.  They had low say on pay this year. 

Amended proxy says they may use ROE, EPS, and including a future goodwill impairment charge.  Management says they will not do any acquisitions this year. 

 

Could actually do FCF of $16 on $7 EPS.  14x gets $98 stock price which is 100% upside.

 

Says there is no shortcut, you have to read proxies.

Be sure to check out the other presentations from the New York VIC here.