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.
Thursday, February 2, 2017
Greenlight Capital's Q4 Letter: Dramatically Increased General Motors Position
Thursday, April 24, 2014
Marcato Capital's Presentation on Sotheby's & Dillard's
Mick McGuire of hedge fund Marcato Capital Management recently made a presentation on both Sotheby's (BID) and Dillard's (DDS) at the Active Passive Investor Summit.
They are activist investors in Sotheby's and their thesis is summed up by: significant levels of unproductive capital, inappropriate mix of debt & equity, and desire for more shareholder friendly capital allocation. Daniel Loeb's Third Point is also a BID activist here.
Marcato also presented a passive investment example in Dillard's where activists got involved in the stock a few years ago, the stock continued to drop and the activists eventually bailed on their position.
Dillard's went on to turn itself around and Marcato thinks it's an attractive passive investment opportunity today as it trades at a 12% free cash flow yield and is using FCF to buy back shares. The hedge fund thinks DDS could head as high as $155 per share (currently trades around $95).
Embedded below is Marcato's slideshow presentation:
You can view other activity from Marcato here.
Monday, June 18, 2012
Why Lone Pine's Steve Mandel Likes Kohl's (KSS)
At the Ira Sohn Conference last month, Steve Mandel of hedge fund Lone Pine Capital talked about how he was long Kohl's (KSS) and bearish on fixed income. Since KSS was the only particular stock he spoke of, we thought it was worth examining why Mandel likes Kohl's.
During Steve Mandel's presentation, he noted that he likes "share count shrinkers": companies that use free cashflow to shrink the number of outstanding shares by 8% to 10% annually. He cited KSS as an example as the company has gone from 30 stores to national over 20 years and they have higher sales than J.C. Penney (JCP).
Mandel said that at $46, the stock trades less than 10x 2012 eps and is buying back stock. The bear case on the name is that the company is viewed as 'obsolete' as internet retailers take market share.
Now, the above is direct from Mandel. But we wanted to take it a step further to look for other potential reasons as to why Lone Pine might like the stock.
Kohl's: Best of a Bad Bunch
The following is a guest post from valuhunteruk.com:
Kohl’s is a national chain of 1,100+ department stores with a moderate focus toward the Midwest/West regions of the US. Department stores generally got very hard hit by the market decline in 2008 and they have slumped since the end of 2009 so valuations are quite reasonable with Kohl’s trading at roughly 10x trailing earnings.
If we first look to Kohl’s operating performance we find that this it is an able competitor. The competitors I have chosen to focus on are those in the Department Store Index apart from Sears: Nordstrom (NYSE: JWN), Macy’s (NYSE: M), Dillard’s (NYSE: DDS), and J.C. Penney (NYSE: JCP). On the basis of these comparisons Kohl’s should be trading at a slightly more ambitious multiple.
The core of this advantage appears to be structural — Kohl’s stores are on average far smaller than competitors. For example, Nordstrom’s average store is 211,000 square feet, Dillard’s is 174,000 but Kohl’s is only 87,000. As a result, Kohl’s SGA (selling, general, and administrative) costs are the lowest in the industry at the per store level. Coping with pressure on the top-line is far easier with this kind of advantage.
Another advantage from smaller stores is high sales per square foot. Nordstrom is way in the lead here with $400 of sales per square foot but Kohl’s with $190 per square foot is way above everyone else. Again, it appears that that these smaller stores allow Kohl’s some protection against changes in the top line and allow it to use its space more effectively.
Kohl's historicals are just as strong. Over the past five years, Kohl’s has continued to expand adding 198 stores and nearly 16,000,000 square feet of capacity whilst the rest of the sector, except Nordstrom, has stood still.
More surprisingly, whilst this expansion has led to declining sales figures at a per store and per square foot level, the pace of decline is comparable to that experienced by the sector as a whole. It has outpaced Dillard’s, the clear laggard, and only Macy’s managed to prevent declines in sales per store and per square foot over the past five years.
At an operating level, it is difficult to understand that the market has attached to Kohl's. On the basis of trailing P/Es, Kohl’s trades at a 30% discount to Nordstrom and a 14% discount to Macy’s.
On an EV/store basis, this gap is even larger although this is surely complicated by accounting for leases. Considering the fact that Kohl’s has the second highest pre-tax margins in the industry, a structurally lower cost base, and more potential for expansion we may argue that this discount is unwarranted.
The company is also attractive at a financial level, which seemed to be the focus of Stephen Mandel's decision. Kohl’s has just begun paying dividends but it is the share buyback program that is most interesting. In 2010, the company bought back just under 19m shares worth $1bn and in 2011, Kohl’s bought back just under 46m shares worth $2.3bn. In the first quarter of 2012, $325m worth of shares were bought back.
This program is being achieved through drawing down the company’s cash balance, which amounts to a modest re-leveraging. However, despite the substantial repurchases already made, EBIT/Interest Expense (inc. rental expenses) was 7.2x at the end of January 2012. The company expects to return another $1bn through 2012.
On both a financial and operating basis, the case for Kohl’s looks strong. However, in this sector one always has to consider the effect of broader movements in consumer spendings. Pundits are widely divided on where the economy is going although, as might be expected, the recent decline in broad market indexes has led to a wave of negativity.
For this sector, one should bear in mind that over the last five years (the longest period for which results are comparable) there was very little to choose between the companies in terms of sales growth.
Certainly, Kohl’s and Nordstrom were boosted by continued store expansion but the standard deviation of sales growth for the group was steady around 5.7%. Kohl’s definitely stands out in the sector, but the investor must feel comfortable with taking the risk of investing in the department store sector as a whole.
To see what other US stocks this prominent hedge fund owns, head to the new issue of our premium research: Hedge Fund Wisdom.
