Greenlight Capital Q4 Letter: New Stakes in Brighthouse Financial, Twitter, Time Warner, Ensco

David Einhorn's Greenlight Capital has released its fourth quarter 2017 letter.  They finished the year up 1.6%.

Greenlight Takes New Stakes in Brighthouse Financial, Twitter, Ensco, Time Warner

The hedge fund firm initiated numerous new positions recently.

The hedge fund's new stake in Brighthouse Financial (BHF) is all about valuation.  The company was spun out of MetLife and they feel analysts have been too negative on BHF's prospects.  They feel shares are trading at a 40-50% discount to peers and note management is incentivized if shares appreciate.

Einhorn's firm also jumped back into Time Warner shares (TWX), a previous holding.  They utilized volatility in the name to re-establish a stake as the US government has opposed their sale to AT&T (T).  Greenlight feels the government has a weak anti-trust case but even if they somehow win, shares are still cheap and the company has strategic options.

Greenlight also entered Twitter (TWTR) shares with their thesis being that the user experience has improved yielding growth in new users and time spent on the platform.  They feel the company now has a better pitch to advertisers, yielding revenue growth.  The company has around a 25% margin gap to other social media peers and Greenlight feels they can close the gap.  (Note: David Einhorn is on Twitter, though he doesn't post about the market, usually just poker.)

Embedded below is Greenlight Capital's Q4 2017 letter:



For more from this manager, be sure to also check out David Einhorn's recent investment talk at  Oxford Union.

What We're Reading ~ Analytical Links 1/17/13

By popular demand from readers, we're expanding the "what we're reading" linkfests to twice a week, starting now.  To differentiate the lists, we'll be posting:

- 1 set of news links focused on hedge fund and finance industry updates 
- 1 set of analytical links focused on security analysis, investment process, etc.

If you come across (or have written) something interesting, please don't hesitate to email it over: marketfolly (at) gmail (dot) com.  Today we'll post the first installment of the 'analytical links' and tomorrow will feature the 'hedge fund links.'  Enjoy!

Analytical Links


The Success Equation: Untangling Skill & Luck in Business, Sports and Investing [Mauboussin]

A checklist to qualify and disqualify ideas [SimoleonSense]

Curating your financial life [Abnormal Returns]

AIG downgraded as shares appreciate [ValueWalk]

Finding value in HMO's [Contrarian Edge]

Notes on visiting Herbalife (HLF) [Bronte Capital]

12 cognitive biases that prevent you from being rational [io9]

Don't go to business school unless it's a top school [Daily Beast]

Bargain hunting at JC Penney (JCP) [Contrarian Edge]

Ensco (ESV): Drilling deep for value [Barrons]

Indecent proposal for SuperValu (SVU)? [Stone Street Advisors]

Actually worth a read: Jim Cramer's 10 themes for 2013 [TheStreet]

Michael Dell's grand plan? [Term Sheet]

Why console gaming is dying [CNN]

How America drinks: water and wine replace cheap beer and soda [Atlantic]

David Einhorn Buys BP (BP)

David Einhorn recently penned his Greenlight Capital year-end letter. In it, we learn that the manager started a brand new position in BP (BP) during the fourth quarter. Greenlight's average purchase price was $41.18 per share.

Of his new stake, Einhorn writes,

"The Deepwater oil spill in April 2010 caused a significant decline in BP's share price. BP reserved nearly $40 billion pre-tax to account for costs related to this accident and has thus far sold $22 billion of non-core assets (with a stated target of up to $30 billion in divestitures), leaving the balance sheet in excellent shape. Pro forma for these asset sales and after taking into account our estimate of BP's eventual oil spill related expenses, we expect BP will be able to earn nearly $20 billion per year from continuing operations. At less than 7x pro forma earnings, we purchased BP at a 25% discount to its peers."

Einhorn also feels that the company will be able to re-instate its dividend this year. His hedge fund is already up on its position as BP shares trade just north of $48 per share currently.

His new position is intriguing for a few reasons. First, this is his second subsequent oil-related purchase in 2010. As we've detailed previously, Einhorn bought Ensco (ESV), an offshore contract drilling company whose shares sold-off during the oil spill despite ESV having no involvement in the actual spill. We penned a previous investment analysis on ESV in our Hedge Fund Wisdom newsletter (free sample issue with ESV analysis here).

If anything, ESV was hurt by the near-term oil drilling moratorium that was enacted. Shares of ESV have appreciated significantly since Einhorn's original purchase and it is now one of Greenlight's top 5 positions.

Second, this investment is intriguing due to its timing. Many would argue that the time to buy BP was during the actual oil spill itself, as shares spiraled from $59 down to $27.50. After all, "buying when there's blood in the streets" is often a value investor's mantra. We already know of one such value investor that dove in head first, as Whitney Tilson's T2 Partners bought BP during the spill.

It's most likely that Einhorn waited to make his investment due to the large uncertainty surrounding BP, its financial condition, and the potential liability associated with the oil spill. For further analysis of the oil company, be sure to check out T2 Partners' presentation on BP. And for more recent commentary from David Einhorn, head to Greenlight Capital's year-end letter.

David Einhorn & Greenlight Capital's 2010 Year-End Letter

David Einhorn's hedge fund firm Greenlight Capital has returned 21.5% annualized net of fees since inception in May 1996. For 2010, his various hedge funds returned 12.5%, 14%, and 15.9%. You can see how that compares to other managers in our 2010 hedge fund returns summary.

Einhorn was positioned defensively last year due to the uncertain economic environment and such positioning led to slightly under-performing the market indices.

New Stakes in BP (BP) and Sprint (S)

During the fourth quarter they started a new position in BP (BP) at an average price of $41.18.

Greenlight also started a new stake in Sprint Nextel (S) at an average price of $4.46. We wrote about Einhorn's Sprint position last month.

Top Five Positions (in alphabetical order)

- Arkema (France: AKE or on the pink sheets: ARKAY)
- Ensco (ESV)
- Gold
- Pfizer (PFE)
- Vodafone Group (VOD)

Embedded below is Greenlight Capital's year-end letter to investors:



You can download a .pdf copy here.

David Einhorn & Greenlight Capital's Q3 Investor Letter

Dealbreaker has posted up the latest investor letter from David Einhorn's Greenlight Capital and in it we see that Greenlight is 98% long, 63% short and their largest disclosed long positions in alphabetical order are:

1. Arkema (AKE on foreign exchange, ARKAY on the pink sheets)
2. CIT Group (CIT)
3. Ensco (ESV)
4. Gold (physical)
5. Pfizer (PFE)
6. Vodafone (VOD)

Overall, Einhorn's top positions are largely unchanged and we've detailed the respective thesis on each investment in the past. In particular, we highlighted the case for Ensco (ESV) in our newsletter Hedge Fund Wisdom. Additionally, we've outlined Einhorn's Vodafone thesis as well.

Possibly the most notable change in Greenlight's portfolio in the third quarter was the sale of their Ford debt position as it had been a top holding in the past. They also sold longs in ATP Oil & Gas (ATPG), EMC (EMC), Lockheed Martin (LMT), and Nestle (NSRGY).

On the short side of the portfolio, we see that Greenlight had been short Corinthian Colleges (COCO) in the for-profit education space. Many hedge funds have been short this sector and Einhorn admits they covered this position too early (but still saw a 91% return). The hedge fund also covered shorts in Office Depot (ODP) and Royal Caribbean (RCL). Einhorn also recently detailed the short thesis on St. Joe (JOE) at the Value Investing Congress, a position he defends with his latest commentary.

Embedded below is David Einhorn & Greenlight Capital's third quarter investor letter:



You can download a .pdf copy here.

Last, but certainly not least, Einhorn makes a point to focus on the shift in the Federal Reserve's policy and that they've been expecting the Fed would be forced to monetize the debt. He highlights this as one of the main reasons he owns physical gold. To see Greenlight's upcoming Q3 portfolio changes detailed in full, be sure to subscribe to Hedge Fund Wisdom as our next issue will be released sometime next week.

David Einhorn & Greenlight Capital: Long Apple, Ensco, NCR (Q2 Letter)

Dealbreaker posted up hedge fund Greenlight Capital's second quarter 2010 letter and we wanted to highlight the latest portfolio moves from David Einhorn's camp. Year to date for 2010, Greenlight's funds are up 1.6%, 2.2% and 0.8% respectively. Some of their portfolio gains as of late can be attributed to their long position in physical gold as well as their short of Moody's (MCO). It sounds as though Greenlight will maintain this short position as well, writing "we believe that an eventual, but likely, legal loss will have a significant impact on MCO shares."

While David Einhorn will be presenting investment ideas in October at the upcoming Value Investing Congress (special discount here), we still get an intermediate update on his current portfolio. The main talking point in the hedge fund's letter is their revelation of various new positions. Firstly, they revealed they are long Apple (AAPL) at an average purchase price of $248.09 per share. Greenlight highlights the company's more than $40 per share in cash and thinks that while growth in the next few years will be slower than recent times, the company still has not fully penetrated its various markets. We've highlighted numerous times how AAPL is one of the most popular hedge fund holdings.

Secondly, Greenlight took a new position in African Barrick Gold (LON: ABG). They like that it trades "at less than 6x 2010 EBITDA, a 10% free cash flow yield and $200 per ounce of reserves." Einhorn previously talked about this new stake in his Ira Sohn Investment Conference presentation.

Thirdly, Einhorn touches on their new stake in Ensco plc (ESV). While we revealed Greenlight's ESV stake last week, we now get some color on their thesis. They point out the company's $7 per share in net cash and tangible book value of $37.50. They feel shares of ESV were unjustly sold off as it was not involved in the oil spill and the drilling moratorium should not affect the company's long-term potential. Greenlight's average purchase price of Ensco was $39.41.

Lastly, Greenlight Capital purchased a stake in NCR (NCR) in the second quarter as the stock sold off due to accounting losses on pension obligations, among other reasons. Einhorn points to NCR's strong cash flow generating business and strong net cash balance sheet position. Greenlight purchased NCR at $13.58 per share and MarketFolly actually revealed this stake back in May when Greenlight acquired it.

In terms of positions the hedge fund sold completely out of, we see that they have finally exited their short of Allied Capital (AFC). Their commentary next to this position jokingly says, "So much to say we could write a book about it." If you're unfamiliar, David Einhorn did write a book on this very short-selling battle entitled, Fooling Some of the People All of the Time.

Embedded below is the entire second quarter letter from hedge fund Greenlight Capital:



You can download a .pdf copy here.

Greenlight's top five largest disclosed long positions are: CIT Group (CIT), Ensco (ESV), gold, Pfizer (PFE), and Vodafone Group (VOD). While shares of Pfizer (PFE) continue to trade lower and lower, Greenlight still owns their stake as they feel the company deserves to be trading at a higher earnings multiple than current levels. Remember that you can hear David Einhorn's newest investment ideas at the upcoming Value Investing Congress (special discount here) where he and other top hedge fund managers will be presenting in October.

David Einhorn's Hedge Fund Greenlight Capital Buys Ensco (ESV)

David Einhorn's hedge fund Greenlight Capital just filed a 13G with the SEC regarding shares of Ensco (ESV). The filing discloses activity on June 30th, 2010 and reveals a 5.2% ownership stake in ESV with 7,416,880 shares. This is a brand new position for Einhorn's firm as we previously did not see it in Greenlight's portfolio last quarter. However, this is not the first time the hedge fund has owned Ensco. They last owned shares of ESV back in the fourth quarter of 2008. To hear Einhorn's latest investment ideas, keep in mind he's presenting at the upcoming Value Investing Congress in October (discount here).

Before the Gulf oil spill, ESV was trading around a 52-week high at above $50 per share. Since the spill, shares hit a low of $33 and are now trading around $40. While Ensco is not directly involved in anything regarding the Gulf of Mexico tragedy, its shares have been sold off as worries have mounted regarding the drilling moratorium. Many hedge funds and investment managers have argued that ESV has unjustly been sold off and Einhorn has certainly joined in the mix as his filing speaks for itself. In the past, we've noticed that John Burbank's Passport Capital and Johnathan Auerbach's Hound Partners both held positions in ESV as of the first quarter of this year. What they've done with those stakes, though, remains to be seen.

For more investment ideas from David Einhorn and other top hedge fund managers, be sure to check their presentations out at the Value Investing Congress in October in New York City. Market Folly readers can receive a discount to the event here. In terms of other recent coverage of Greenlight Capital, head to our coverage of Einhorn's Ira Sohn presentation as well.

Taken from Google Finance, Ensco is "an offshore contract drilling company. As of February 15, 2010, Ensco’s offshore rig fleet included 42 jackup rigs, four ultra-deepwater semisubmersible rigs and one barge rig. Additionally, it had four ultra-deepwater semisubmersible rigs under construction. Ensco’s operations are concentrated in the regions of Asia Pacific, which includes Asia, the Middle East and Australia, Europe and Africa, and North and South America".

And for further elaboration on the potential thesis behind this Ensco investment, check out Manual of Ideas' in-depth analysis of ESV.