Leon Cooperman on Bonds, Stocks, and Apple vs. Research in Motion

Leon Cooperman of hedge fund firm Omega Advisors yesterday sat down with Bloomberg Television to talk about the markets, his portfolio, and what he likes/dislikes at this juncture.

On Treasuries:

Cooperman said that, "I have great confidence the Fed is ultimately going to get their way. The Fed is trying to elevate asset prices, help consumption, help the economy and in two-three years time, we will be worrying about inflation and interest rates will be materially higher. An instrument that I have absolutely no interest in - the most widely traded instrument in the world - is US government bonds. I don’t think people understand how risky a US government bond is at 2% return."

On Equities:

After bashing government bonds, Cooperman also examined the potential of investing in high yield bonds but dismissed them as fully priced. So he turned to equities and said that, "the S&P, which is 13 ½ earnings, yields a bit over 2%, 10% below the historical multiple at a time when interest rates are below historical and you can find lots of cheap stocks out there that will yield more than bonds today that are good companies that will grow over time."

This is largely in line with what the hedgie has been preaching for sometime now. We've highlighted in the past his trademark phrase that equities are the best house in the financial asset neighborhood.

On Apple (AAPL) versus Research in Motion (RIMM):

The Omega Advisors founder thinks Apple (AAPL) is worth north of $600. On Research in Motion (RIMM), he notes that, "It's funny, it was really like a mass hysteria. We put about a half of one percent of our assets into RIM late last year on a theory that they had a revenue base that was being mispriced by the market. Which was 20% of what we had in Apple, we've owned Apple now for a long time, and we continue to own a big position, so we had five times more Apple investment than RIM."

He says they sold RIMM due to stop loss discipline, but he admits that it's still intriguing. David Einhorn's hedge fund Greenlight Capital recently bought shares of RIMM, as highlighted in this free excerpt from our newsletter.

Cooperman also mentioned that he likes gold, Qualcomm (QCOM), JPMorgan (JPM), Bank of America (BAC), Altisource Portfolio Solutions (ASPS), Unitedhealthcare (UNH), WellPoint (WLP), Boston Scientific (BSX), Echostar (SATS), and Dish Network (DISH).

Embedded below is the video from Cooperman's interview with Bloomberg TV:



For more from this hedgie, you can view Cooperman's presentation on risks to the equity outlook.

Leon Cooperman: Long Charming Shoppes, KFN & ETFC ~ Invest For Kids Chicago Notes

At Invest For Kids Chicago yesterday, Leon Cooperman of Omega Advisors gave a presentation on going long Charming Shoppes (CHRS), KKR Financial (KFN), and E*Trade Financial (ETFC).

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.


Long Various Equities

Cooperman previously worked at Goldman Sachs for 25 years and made money in bottom-up stockpicking even when the market did nothing during the first 10 years of his career. He points out that currently everything in the markets is correlated and eventually this will change in time.

He agrees with Marc Lasry that we'll see low growth (1% GDP) and no double-dip recession. In order to dent unemployment, he argues we need to see 3% GDP growth.

Regarding the markets, Cooperman says that "people are light risk and that was why October was up so strong." He believes the market is discounting very conservative set of expectations and that the ECB will do what it takes to solve the Euro crisis. He believes there is no chance of a repeat of 2008.

Cooperman continues to preach that stocks are the best house in the neighborhood. This is the same message he presented at the Value Investing Congress. In particular, he likes three names:

Charming Shoppes (CHRS) - He likes the Layne Bryant division which services a niche of large women's apparel. He thinks the division is worth $700 million while the company has $227 million in cash and $140 million in debt and says it's probably worth 2x.

KKR Financial (KFN) - He likes the debt management arm of KKR as the 9% dividend is 2x covered by earnings. You get a 5-6% return plus the 9% dividend he says.

E*Trade Financial (ETFC) - He continues to like the improvement in the company's mortgage portfolio after their horrible foray into the market went so poorly years ago.

Additionally, Cooperman mentioned he likes the following stocks as well: Apple (AAPL), Boston Scientific (BSX), SLM (SLM), and Energy XXI (EXXI). For more from this manager, head to Cooperman's presentation from the Value Investing Congress here.


You can view full notes from Invest For Kids Chicago here.

Leon Cooperman's Value Investing Congress Presentation

At day two of the Value Investing Congress, Leon Cooperman of hedge fund Omega Advisors gave the case for going long Apple (AAPL) and E*Trade (ETFC) in a presentation entitled "The Investment Outlook & Some Attractive Values."

Be sure to check out all of our notes from the Value Investing Congress.


Leon Cooperman (Omega Advisors)

Embedded below is the full slideshow presentation from Cooperman:




"Like it or not, we've entered a world of risk-on risk-off macro world." Four conclusions that require four assumptions:

1. Assume US will avoid recession; remain slow growth at worst: Metrics suggest we are not on a recession track. Bank lending improving, consumer savings rate up to 4% from 1%, debt service ratio good. Not a “feel good” environment, with 9% unemployment, 10% only part-time. “I take very strong exception to the idea that 2011 is another 2008.” Corporate America most cash on balance sheets since 1955. Oil drop from 115 to 80.

2. Assume that Eurozone will effectively ring-fence Greek sovereign debt issues: “We expect sane policies to prevail, since there is no choice.” His view, based on 45 years of experience, is when the problem is so catastrophic, and expected to occur, it doesn’t occur. He thinks they’ll follow the US banking model, raise capital, shed noncore assets, delever.

3. Assumption that failed, Obama would come to the center: He says it’s not happening. Old expression: “When the President is in trouble, the market is in trouble.” He rants against Obama- says he only wants to tax the wealthy, debase the dollar, borrow from the world to create a welfare state.

4. Assume the Middle East settles down, oil prices stay reasonable: At 1100, the SPX had already discounted a mild recession that was not happening. He says stocks are compelling valuations here. Says market dropped 20%, a traditional recession market correction is 25%. Thinks the recent lows of 1100 are the downside for the cycle. Requires two of the top 4 assumptions.

Even if we did have a recession, SPX eps usually only drops 15-20%, so even if they did drop, he says 14 times trough earnings to be very compelling. He still expects SPX eps of $100 or more in 2012. Still in early stages of an economic recovery.

Valuation: Stocks are cheap relative to history, inflation, and interest rates. Last 50 years, SPX ave P/E was 15x. Now multiple is 11.6x, with only 2% interest rates vs. 6.6% average. Highest ERP in 20 years. Average bear market bottom the P/E was 12x, where we are now. Just had one of the worst 10 year return years in history, believes will mean revert. Corporate bonds are nowhere near where they were in 2008/9, down 70% in yield, yet SPX is 2 multiples lower than it was back then. He is starting to buy corporate bonds with 9% yields. 45% of the SPX stocks now pay higher yields than 10-year treasury bonds- same high level as 2009, we haven’t seen this in 50 years.

Avoid treasuries: Says 10-year bonds historically yield same as nominal GDP. Says if you believe we get 2% growth, plus 2-3% inflation, that’s 4-5% yield, and bonds will lose a lot of money. Still predicts low growth for next decade: 2-2.5% GDP, 2-2.5% inflation, 4-5% nominal GDP, stocks make 7-9%, treasuries negative return.

“You don’t have to have a strongly rising stock market to make a lot of money.” 1967 Dow was 1000, 10 years later, 1982, the Dow was 1000. Over time, there is ample opportunity to find things that are mispriced to the market. (They had EP yesterday as a 2% position before the buyout).

He’s 78% net long, says things look very cheap. With a little patience, can make a great deal of money.


Top Ten Long Ideas:

Apple (AAPL): Less than 10x multiple net of cash. Succession clear. Financial policies somewhat destructive, sitting on $80B in cash, but that may change.

Boston Scientific (BSX): 20% FCF yield

Qualcomm (QCOM): 16% grower trading for 12x

Sallie Mae (SLM)

ACE (ACE)

Transocean (RIG): Says deep water drilling cycle is turning. 6.5% yield, well covered dividend, day rate is improving. Says stock is discounting $5-10B, but will settle for $1-2B

Exxon Mobil (XOM)

KKR (KKR): Dividend paying stock, but get K1, getting 9% yield, and expects growth.

Energy XXI (EXXI)

E*Trade Financial (ETFC): Ken Griffin involved, TD Ameritrade (AMTD) could buy them. Mortgage losses over, even with no deal, management is on the right track.


For more from the Omega Advisors manager, head to Cooperman's thoughts from Delivering Alpha.


Don't miss the rest of the hedge fund manager presentations in our notes from the Value Investing Congress.

Omega Advisors' Leon Cooperman Likes Apple, Boston Scientific, KKR Financial, & Sallie Mae

At the Delivering Alpha conference, hedge fund founder Leon Cooperman of $6 billion Omega Advisors sat down with Maria Bartiromo to talk about the markets and what stocks he likes.

While Cooperman feels the market will be higher by the end of the year, he said that on a short-term tactical approach, he's found that hedge funds have low exposure. We've highlighted this as Dan Loeb's Third Point had reduced exposure for four consecutive months.

Cooperman thinks the fact that investors are underinvested could be a catalyst as money flows back into stocks and his focus is on a nine to twelve month timeframe. As to where the hedge fund manager is seeing value, he points to:

- Apple (AAPL): He says you can buy it at 10x next year's earnings.

- Boston Scientific (BSX): It generates over $1 per share in free cashflow annually (a 15% free cashflow yield) as the company looks to use that cash to buyback 10% of the company.

- KKR Financial (KFN): The stock yields over 9%, sells at a discount to book value, and the dividend is covered twice by earnings. He expects the yield to even go higher.

- Sallie Mae (SLM): Cooperman says that the $13 stock will earn $1.90 next year and he says the assets are worth $19-20.


In order to be bullish on equities (which he is), Cooperman says you have to invest under four assumptions:

1. The US is not like Japan and we will have a growing economy

2. The ECB will step up for European financial institutions

3. The President softens his anti-wealth, anti-business stance

4. Stability in the Middle East


Embedded below is the video of Leon Cooperman's interview from the Delivering Alpha conference:



We also detailed Leon Cooperman's appearance on the hedge fund best ideas panel at the conference as well. He will also be presenting his latest investment ideas at the Value Investing Congress.

Hedge Fund Best Ideas: Kyle Bass, Dan Loeb, Leon Cooperman, Phil Falcone

All today we've been covering the Delivering Alpha conference and we conclude with the Best Ideas & Alpha panel featuring Kyle Bass (Hayman Capital), Leon Cooperman (Omega Advisors), Philip Falcone (Harbinger Capital), Dan Loeb (Third Point), J. Tomilson Hill (Blackstone Alternative), and Anne Popkin (Symphony Asset Management). Each presented their best current idea:

Kyle Bass (Hayman Advisors)

Bass is well known for his subprime short and prediction of sovereign defaults. At the conference, he said that the sovereign debt crisis is unlike anything seen in history.

Bass believes Japan is in the worst position, saying "Japan spends almost half of their revenue on debt service. So, a minute move can put them literally into check-mate ... We see a structural anomaly creating the cheapest option in the world."

Simply put, Bass says to buy price put options on government bonds in Japan. He believes it's the best opportunity in the world. In the past, we've outlined how Bass was betting against Japanese Government Bonds (JGBs).


Leon Cooperman (Omega Advisors)

Earlier this summer, the legendary hedge fund manager presented at the Leaders in Investing Summit where he was concerned about employment and thought that bonds were screaming to be shorted. At today's conference, Cooperman says that the economic and financial crisis from 2008 would not repeat in 2011 or 2012.

The manager continues to avoid government bonds and again says that stocks are the "best house in the asset management neighborhood." He likes stocks assuming that Obama softens his 'anti-wealth' stance and that the Middle East remains stable. He mentioned liking Apple (AAPL), Sallie Mae (SLM), and Boston Scientific (BSX). To see what other stocks Cooperman is invested in, head to our Hedge Fund Wisdom newsletter.

Cooperman will also be presenting his latest investment ideas at the Value Investing Congress next month.


Philip Falcone (Harbinger Capital)

Falcone has seen somewhat of a transformation lately as his hedge fund looks more like a private equity fund with his large private investment in a 4G wireless network: LightSquared. At the conference, he pitched Spectrum Brands (SPB), noting the company's solid balance sheet and high free cashflow (11-12% free cashflow yield).

The company sells batteries, personal care products, home and garden items, and more. Falcone points to their strong management team and collection of strong global brands. The company is currently focused on debt paydown and reducing leverage from 3.5x to 3x.

Harbinger owns 28 million shares via his publicly-traded Harbinger Capital. We detailed Falcone's original acquisition of SPB shares back in August 2009 as well as his subsequent purchase in April of 2010. While SPB isn't a "high octane" stock, he likes it.


Dan Loeb (Third Point)

We've covered Loeb's recent activist investment in Yahoo! (YHOO) and that's exactly what he talked about at the conference. Just today he sent another letter to Yahoo as his first conversation didn't seem to go too well. Ahh, the trials and tribulations of activist investing.

He feels YHOO has an intrinsic value of around $20 per share and you can see Loeb's investment thesis in his original letter to Yahoo. But in summary, he feels that the company has great assets but has been horribly mismanaged. Calling the board of directors "clowns," Loeb points out that the company hasn't changed since 2004, has kept a "crappy interface" and the "same stupid logo."

In particular, it seems that Loeb really likes their ownership stake in Alibaba Group. Interestingly enough, Loeb says that the company does not need to break up. He says they've hedged the position against the S&P 500 and they've also hedged exposure to Yahoo Japan.

We've also detailed how Third Point has reduced equity exposure for four consecutive months.


J. Tomilson Hill (Blackstone Alternative Asset Mgmt)

This manager believes that non-performing loans and mortgage-backed securities are the best play on a risk-adjusted basis. He also says that, "you have the ability to buy mortgage servicing rights at prices we've not seen before."


Anne Popkin (Symphony Asset Management)

She argued that levered credit is cheap and is focused on loans and high yield bonds. The manager cautioned not to put all your eggs into this one basket and not to buy an entire position right away. Popkin says, "risk management is absolutely crucial here, because volatility is very high." So it sounds as if she's used the volatility in the sector to slowly assemble a position.


Embedded below is video of the entire Best Ideas & Alpha hedge fund panel:




For more coverage of the Delivering Alpha conference, head to our posts:

- Bill Ackman's new investment: long Hong Kong Dollar

- China: Bubble or Bonanza? Dan Arbess versus Jim Chanos

- Paul Touradji & Jeff Scott on commodities

- Jim Chanos: long corruption, short property in China

David Einhorn Dumps Boston Scientific (BSX): Greenlight Capital's Investor Letter

David Einhorn recently sent out hedge fund Greenlight Capital's first quarter investor letter. In it, we learn that the fund has exited their position in Boston Scientific (BSX). Readers will remember that Einhorn had just started this position and mentioned it in his fourth quarter investor letter. They purchased shares of BSX for $8.42 and sold them for $7.57. So, Greenlight has cut their losses quickly on this one and moved on to the next investment.

The Greenlight team writes, "We had bought BSX based on the view that new management had been brought in to execute a significant turnaround plan, which after careful study, it would detail contemporaneously with fourth quarter results. Instead, management decided not to provide any meaningful targets, raised new operating issues, and seemed to say that turning the company around would be harder than they thought and would take a long time. We re-assessed our thesis and forecasts, and limited our loss by selling the position."

Overall, Greenlight notes that they didn't have much portfolio turnover to report. Greenlight's Offshore fund was down 1.3% for the year as of the end of March as noted in our hedge fund performances post. However, keep in mind that Greenlight has also returned 22% annualized since inception.

Einhorn's five largest positions as of the first quarter were:

1. CIT Group (CIT)
2. Gold
3. Lanxess (LXSG)
4. Pfizer (PFE)
5. Vodafone Group (VOD)

Remember that if you want a peak inside Greenlight's investment research process, we recommend reading David Einhorn's book: Fooling Some of the People All of the Time. In regards to his recent VOD position, we recently examined Einhorn's Vodafone thesis for those of you seeking their investment rationale. Keep in mind also that their gold position is in physical gold, as they were one of the first major hedge funds to use this rather than proxies for gold like exchange traded funds.

Possibly the most notable thing to take away from Greenlight's investor letter are their exposure levels. Excluding credit derivatives, gold and foreign currencies, Greenlight Capital had an average exposure to equities and fixed income of 100% long and 70% short. This 30% net long level coincides with what we've seen lately from various hedge fund research outlets that have indicated hedgies currently have below average net long exposure. Hedge funds have definitely become more cautious as of late.

Embedded below is Greenlight Capital's first quarter investor letter:



You can directly download a .pdf here.

In the letter we also learned that Greenlight closed out various longs in BJ Services (BJS), McDermott (MDR), LiveNation (LYV), MEMC Electronics (WFR), and Mercer (MERC). Additionally, we saw that they covered shorts in Abercrombie & Fitch (ANF), Federal Realty Investment Trust (FDR), and HSBC (HBC). While Einhorn and company exited Live Nation, we've made note recently that Jay Petschek's hedge fund Corsair Capital started a new position in LYV and Stephen Mandel's Lone Pine Capital started a stake as well, so it's intriguing to see the divergence of opinion here.

That about wraps things up on Greenlight's end. To learn how to invest like Einhorn, we highly recommend reading his book: Fooling Some of the People All of the Time. And for more insight, you can also read David Einhorn's previous investor letter here.

John Paulson Ramps Up Financials Exposure: 13F Filing

(This post is part of our series on tracking hedge fund portfolios. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund 13F filings.)

Next up is John Paulson's hedge fund firm Paulson & Co. Before rocketing to hedge fund fame, Paulson managed a seemingly mediocre merger arbitrage fund. All of that quickly changed when he shorted collateralized debt obligations and bought credit default swaps in 2005 for his new trade against subprime. At the end of 2007, the Opportunities fund was up 590% and his Opportunities II fund was up 353%.

Wall Street Journal columnist Gregory Zuckerman detailed the impressive wager in the book, The Greatest Trade Ever, one we highly recommend reading. Such amazing performance led Paulson's hedge funds to be the #1 and #4 funds as ranked in Barron's hedge fund rankings (top 100).

For 2009, Paulson's Advantage fund was up 13.75%, his Advantage Plus up 21%, Credit Opportunities up 34%, and Recovery fund up 24.2%, all as noted in our hedge fund performance numbers post. Nowadays, Paulson has found his next big bet: a wager against the US dollar which he is executing via his new gold fund. Next we'll examine their holdings to see what other wagers they are making.

Below are Paulson & Co's long equity, note, and options holdings as of December 31st, 2009 as filed with the SEC. All holdings are common stock unless otherwise denoted.


Brand New Positions
Apollo Group (APOL)
Bank of America (BAC-S preferred)
Burlington Northern Santa Fe (BNI) ~ this was a merger arb play and is obviously no longer in the portfolio
CIT Group (CIT) ~ most likely a result of a debt to equity conversion
Chattem (CHTT)
Comcast (CMCSA)
Capital One (Warrants expiring 11/14/2018)
DirecTV (DTV) ~ as a result of the Liberty Media transaction
Encore Acquisition (EAC)
Hyatt Hotels (H)
IMS Health (RX)
JP Morgan Chase (Warrants)
Kraft (KFT)
Lear Corp (LEA)
Liberty Media (LSTZA) ~ again, part of the Liberty Media transaction
Macerich (MAC)
Mead Johnson (MJN)
New York Community Trust (NYB)
Northern Trust (NTRS)
Pfizer (PFE)
Sprint Nextel (S)
3 Com (COMS)
Vail Resorts (MTN)
Valley National Bancorp (VLY)
Wells Fargo (WFC)
XTO Energy (XTO)


Increased Positions
Suntrust Bank (STI): Increased by 1925.4% (not a typo, their previous position was small)
Conseco (CNO): Increased by 579.3%
Ashford Hospitality Trust (AHT): Increased by 283.4%
JPMorgan Chase (JPM): Increased by 250%
Felcor Lodging (FCH): Increased by 247.8%
Marshall & Ilsley (MI): Increased by 117.1%
Citigroup (C): Increased by 68.9%
Sunstone Hotels (SHO): Increased by 25.8%
Pepsi Bottling Group (PBG): Increased by 4%
Gold Fields (GFI): Increased by 2.4%
Starwood Hotels (HOT): Increased by 1.54%
First Horizon National (FHN): Increased by 1.5%


Reduced Positions
Regions Financial (RF): Reduced by 44.7%
Bank of America (BAC): Reduced by 5.5%


Removed Positions (Sold out completely):
CF Industries (CF)
Cemex (CX)
Liberty Media (LMDIA) ~ part of the transaction
Old National Bancorp (ONB)
People's United Financial (PBCT)
Ultrashort Financial (SKF)
Schering Plough (SGP) ~ merger transaction complete
Varian (VARI)
Wyeth (WYE) ~ merger transaction complete


Top 15 Holdings by percentage of assets reported on 13F filing

1. SPDR Gold Trust (GLD): 17.07%
   
2. Bank of America (BAC): 11.49%
   
3. Anglogold Ashanti (AU): 8.70%
   
4. Citigroup (C): 8.47%
   
5. Boston Scientific (BSX): 4.51%
   
6. Comcast (CMCSA): 3.75%
   
7. Sun Microsystems (JAVA): 3.50%
   
8. Capital One (COF): 3.30%
   
9. Suntrust (STI): 3.11%
   
10. Kinross Gold (KGC): 2.95%
    
11. Wells Fargo (WFC): 2.39%
    
12. XTO Energy (XTO): 2.35%
    
13. Philip Morris International (PM): 2.19%
    
14. Pepsi Bottling Group (PBG): 1.97%
    
15. IMS Health (IMS): 1.91%
    

First and foremost we want to address a lot of misinformation that has been floating around regarding Paulson & Co's stake in exchange traded fund GLD. This position is a HEDGE for them. Most hedge funds have share classes denominated in US dollars. While Paulson has this as well, they also have a hedge fund share class denominated in gold. As such, they've stated in the past that their position in GLD is a hedge for this share class.

Many people out there misinterpret this as outright bullishness on gold. After all, it is a truly massive position in GLD that shows up on filings. Paulson is expecting massive inflation and is focused on a bet against the US dollar. He's expressed this bet via his brand new gold fund that invests primarily in the equity of gold mining companies and then also some derivatives on the price of gold. Hopefully this clarifies things and if not, make sure to check out our in-depth examination of Paulson's gold fund.

Turning to Paulson & Co's latest 13F filing, we must remind everyone that a lot of these positions are a result of Paulson's merger arbitrage strategy. Before Paulson became famous with his bet against subprime that netted him billions, he was (and still is) focused on merger-arb. So, keep in mind that a large number of his long positions disclosed here are most likely hedged with paired short positions either in other companies or possibly even against the box.

Paulson & Co took new positions in financials via warrants of JPMorgan Chase and Capital One, as well as preferred unit shares of Bank of America and common stock in SunTrust, Citigroup, and JPMorgan. Some of Paulson's "new positions" are deceiving because they didn't actually buy shares, but instead received equity as a result of various corporate transactions. This explains their 'new' stakes in CIT Group, DirecTV, and Liberty Media. Also, since Warren Buffett's Berkshire Hathaway has purchased Burlington Northern, Paulson & Co obviously no longer hold that position.

However, Paulson's largest new addition was in Comcast (CMCSA) as they brought it up all the way to their sixth largest US equity holding. We also note that Paulson & Co still maintains a large Boston Scientific position and we highlight this because David Einhorn's Greenlight Capital recently assembled a huge BSX position as well. In the past, many investors have voiced concerns about this not being a good investment. But then again, those people aren't Einhorn or Paulson. Lastly, more recent filings indicate that Paulson has added to positions and we've detailed those transactions as well.

Paulson 'sold' his stakes in Wyeth, Schering Plough, and Liberty Media as a result of mergers and other corporate transactions. One notable sale Paulson did make though was relinquishing almost half of his Regions Financial position. To learn more about Paulson and his success, we highly recommend reading The Greatest Trade Ever.

Assets from the collective holdings reported to the SEC via 13F filing were $19.79 billion this quarter compared to $17.1 billion last quarter, so a noticeable increase of well over $2 billion. Remember that these filings are not representative of the hedge fund's entire base of assets under management.

We'll be tracking 40+ prominent funds in our fourth quarter 2009 hedge fund portfolio tracking series. We've already covered Seth Klarman's Baupost Group, Mohnish Pabrai's Investment Fund, Carl Icahn's hedge fund Icahn Partners, David Einhorn's Greenlight Capital, Stephen Mandel's Lone Pine Capital, John Griffin's Blue Ridge Capital, David Tepper's Appaloosa Management, and Warren Buffett's portfolio. Check back daily for our new updates.

David Einhorn's Greenlight Capital Betting On Boston Scientific (BSX): 13F Analysis

(This post is part of our series on tracking hedge fund portfolios. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund 13F filings.)

Next up is value investor David Einhorn and his hedge fund Greenlight Capital. As we learned in Einhorn's recent investor letter, Greenlight Capital has returned 22% annualized since inception, a truly solid track record. Their emphasis is typically on spin-offs, mergers, and other value unlocking events. For 2009, Greenlight's various hedge funds were up 36.9%, 33.7%, and 30.6% as mentioned in our 2009 hedge fund performance numbers post.

The positions listed below were Greenlight's long equity, note, and options holdings as of December 31st, 2009 as filed with the SEC. Note that we are only covering the major portfolio maneuvers. All holdings are common stock unless otherwise denoted.


Brand New Positions
Boston Scientific (BSX ~ we already knew about this position from Einhorn's letter)
CIT Group (CIT)
Ralcorp Holdings (RAH)
Becton Dickinson (BDX)
Energy Partners (EPL ~ this one was a very small position)


Increased Positions
Foster Wheeler (FWLT): Increased by 92.9%
Pfizer (PFE): Increased by 23.5%
URS Corp (URS): Increased by 4.81%
Automatic Data Processing (ADP): Increased by 3.2%


Reduced Positions
Barrick Gold (ABX): Reduced by 94.7%
Huntsman (HUN): Reduced by 89.66%
Sinclair Broadcast (SBGI): Reduced by 80.7%
Teradata (TDC): Reduced by 66.2%
Patterson UTI (PTEN): Reduced by 62.3%
MEMC Electronics (WFR): Reduced by 60%
Nike (NKE): Reduced by 53.9%
Endurance Specialty Holdings (ENH): Reduced by 29%
BJ Services (BJS): Reduced by 26.7%
Ticketmaster (TKTM): Reduced by 25.9%


Removed Positions (Sold out completely):
EchoStar (SATS)
Danaos (DAC)
Teekay (TK)
Anixter (AXE)
Belden (BDC)
Crosstex Energy (XTXI)
Novatel Wireless (NVTL)
Duke Realty (DRE)
Smithfield Foods (SFD)
Aircastle (AYR)
Colonial Propeerties (CLP)
General Cable (BGC)
Liberty Media (LINTA)
Oshkosh (OSK)
Amkor (AMKR)
AerCap (AER)
Wyeth (WYE)


Top 15 Holdings (by percentage of assets reported on 13F filing)

1. Boston Scientific (BSX): 10.54%
2. Pfizer (PFE): 9.65%
3. Carefusion (CFN): 7.81%
4. Cardinal Health (CAH): 7.57%
   
5. CIT Group (CIT): 6.25%
6. URS (URS): 5.76%
7. EMC (EMC): 4.48%
8. Travelers Companies (TRV): 3.81%
9. Aspen Insurance (AHL): 3.78%
10. Einstein Noah Restaurants (BAGL): 3.78%
11. Microsoft (MSFT): 3.71%
12. Everest Re (RE): 3.01%
13. HealthNet (HNT): 2.92%
14. McDermott (MDR): 2.81%
15. MI Developments (MIM): 2.49%
    

As you can see, the theme of health plays prominently in Greenlight Capital's long US equity portfolio. By far the largest activity out of Einhorn's fund in the fourth quarter was their brand new position in Boston Scientific (BSX). They also show a new stake in CIT Group (CIT), but keep in mind that this is most likely a result of the debt to equity conversion. Not to mention, we already knew of these positions since Einhorn disclosed them in his recent investor letter. However, we did not quite know the size of their BSX stake as it is now their top US equity long holding. Pfizer comes in a close second, a position which they again added to in the fourth quarter.

Another notable increase was that they almost doubled their stake in Foster Wheeler, though the position is still sized smaller relative to their overall portfolio. On the selling side, Greenlight was out in full force as they unloaded a ton of names and heavily reduced others such as Huntsman, Teradata, and Barrick Gold. Don't forget that Einhorn also has a large physical gold position that obviously doesn't show up in these filings, so that could partially explain the sale of that last position.

Keep in mind also that Greenlight also has numerous European equity positions that don't show up in a 13F filing and we know they have a large position in Vodafone Group and we also detailed their new position in F&C Asset Management. Assessing their entire portfolio, Greenlight's six largest disclosed long positions are Arkema, Boston Scientific, CIT Group, Ford Motor Company debt, gold, and Vodafone Group.

If you wanted to better understand how Greenlight hypothesizes and researches their investment themes, we highly recommend checking out Einhorn's book Fooling Some of the People All of the Time: A Long Short Story. Typically, Greenlight approaches things by identifying mispricings in the markets and then proceeding from there. Their performance track record speaks volumes as to their success.

Assets from the holdings reported to the SEC via 13F filing were $2.79 billion this quarter compared to $2.66 billion last quarter. Remember that these filings are not representative of the hedge fund's entire base of assets under management. Therefore, the figures above represent the percentage of their reported 13F assets, not their entire portfolio.

We'll be tracking 40+ prominent funds in our fourth quarter 2009 hedge fund portfolio tracking series. We've already covered Seth Klarman's Baupost Group, Mohnish Pabrai's Investment Fund and Carl Icahn's hedge fund Icahn Partners so check back daily for our updates.