The Morning Brief: Greenlight’s Bubble Basket Bet Pays Off
Greenlight Capital founder David Einhorn says his flagship fund’s short positions returned 7 percent in January, enabling his investment portfolios to post a 1.2 percent gain for the month. In fact, speaking on a conference call to investors in his reinsurance company, Greenlight Re, Einhorn said the negative bet on his “bubble basket” of momentum stocks that he publicly discussed last year is his biggest winner so far this year, saying the stocks “seem disconnected from traditional valuation metrics.”
Einhorn said he entered the year 16 percent net long but boosted this exposure as the market sold off in January and February “as our shorts have fallen in value and we found a few things to buy.” Einhorn also said he is short “heavy equipment manufacturers where [boards] are assuming the current commodity environment is in ordinary cyclical downturn.” The New York hedge fund manager stressed that this is a play on the end of the commodity supercycle, which “will exert a long period of earnings headwinds for these companies.” He also continues to be short the oil frackers, which he discussed at the Ira Sohn conference last May.
Among his long positions, Einhorn said he owns “well-positioned, cash-rich companies” such as Apple and GM, also long-held positions in his hedge fund. He also said aircraft leasing company AerCap Holdings, his biggest loser last month, “is exceptionally well-managed and is growing earnings” and that its stock “has been unduly punished” by concerns over a slowdown in emerging markets, especially China.
As of January 31, Greenlight’s portfolio was 26 percent net long and Einhorn says the fund is holding some cash so it can have the “flexibility to be opportunistic as equity and distressed credit opportunities emerge.”
The majority of Greenlight Re’s equity capital and collected premiums are managed by DME Advisors, which is controlled by Einhorn.
Long-time financier and hedge fund manager Donald Drapkin, 67, died after suffering injuries while skiing in Aspen, Colorado last month, according to northjersey.com, which cited family friends. The one-time attorney at Cravath, Swaine and Moore and associate of financier Ronald Perelman was chairman and founder of Casablanca Capital, a fledgling activist hedge fund firm.
Shares of Valeant Pharmaceuticals International rose 4.4 percent, to close at $79.27, after surging as high as $84.48 following its announcement that it will restate $58 million of revenues. The embattled drug giant says in a press release that the revenue, which was recognized in the second half of 2014, should not have been recognized upon delivery of product to the controversial specialty pharmacy Philidor. The company said it expects to reduce 2014 earnings and increase 2015 earnings.
“Following entry into the option to acquire Philidor in December 2014, the company began to consolidate Philidor’s accounts and began to recognize sales to Philidor only when dispensed to patients, and no similar adjustments would be necessary for sales after that date,” the company states in its announcement. In 2014, Valeant had nearly $8.3 billion in revenue, so the $58 million was just a tiny part of the entire reported pie.
Jeffrey Ubben’s ValueAct Capital Partners cut its stake in Agrium, the agriculture products retailer, to 4.9 percent. As a result, the San Francisco hedge fund firm no longer needs to file updates on its holdings unless it moves back to the 5 percent threshold.
Nelson Peltz’s New York-based Trian Fund Management bought more than 650,000 shares of Pentair for nearly $48 per share, boosting its stake in the industrial company to 7.95 percent.
Deutsche Bank raised its price target on Allergan from $308 to $339, noting that the pharmaceutical company’s merger with Pfizer is on track. Deutsche Bank said it adjusted the target to reflect its revised earnings model. At the end of the fourth quarter, Allergan was the third most widely held stock among hedge fund managers, with a total 165 including it in their portfolio. In addition, the stock ranked first among all hedge funds that held the stock among their top-ten holdings.