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The Morning Brief: David Einhorn’s Short-Selling Blues

David Einhorn’s Greenlight Capital has seemingly had a particularly tough time with a number of its shorts of late. In its third quarter report making the rounds on Wednesday, the New York-based sometime-activist firm said it had three “material losers” in the September three-month period, when it lost 3.9 percent. Two of them were short positions: U.S. Steel, which rose from $26.04 to $39.17, and pharmaceutical company Mallinckrodt, which rose from 480.02 to $90.15 after it closed on its acquisition on Questcor.

Greenlight also said it finally (mercifully) closed out its ill-fated negative bet on Keurig Green Mountain, a short Einhorn publicly touted at an October 2011 conference in a presentation entitled “GAAP-uccino.” In the report, Greenlight disclosed that its average sale price of the short was $47.59, while the average purchase price was $67.02, which works out to an average loss of 41 percent.

In the first quarter, Greenlight closed out on four losing shorts, including another very high-profile negative bet — Chipotle Mexican Grill — which posted a 33 percent loss for the fund. “This short gave us gas,” Einhorn noted in his first-quarter letter. The other three shorts he closed out were Australia-based iron ore company Fortescue Metals Group, which lost 20 percent; Loblaw Companies, the largest food retailer in Canada, a 26 percent loss; and Michael Kors Holdings, the apparel company that cost him a 114 percent loss.

In the second quarter, Greenlight told clients its shorts lost a little less than the market, but it lost money on shorts of companies that were involved in takeovers — both buyers and sellers. Meanwhile, Einhorn said in the third quarter letter that he added to his portfolio of what he calls “bubble” stocks. He earlier disclosed that he was shorting Athenahealth. In the report, he said he is also short another high-profile company, Greenlight posted a 2.2 percent gain in October, bringing its return for the year to 4.8 percent.


Kenneth Tropin’s Rowayton, Connecticut-based Graham Capital Management enjoyed a strong final week in October. In fact, four systematic funds — portfolios driven by computer programs — were up for the month and at least two of them are up by double-digits for the year. For example, Graham K4 D10 rose 4 percent in October and 7.1 percent for the year, and Graham K4 D15 returned 6 percent last month and 10.7 percent for the year. Graham Tactical Trends added 4.4 percent in October and 11.4 percent for the year, while Graham Proprietary Matrix gained 0.7 percent in October and 6.8 percent for the year. Among the firm’s discretionary funds — for which decisions are made by portfolio managers rather than computers — Graham Discretionary lost 1.8 percent in October but is still up 1.3 percent for the year, while Graham Discretionary Enhanced Vol fell 3.5 percent but is still up 2.6 percent for the year.


Robert Citrone’s Discovery Global Opportunity Fund rallied sharply in late October, cutting its loss for the month to 5.25 percent. It is still down 11.71 percent for the year, according to a communication with investors. The fund is managed by South Norwalk, Connecticut-based Discovery Capital Management.


Agrium Chief Executive Chuck Magro said he has engaged in “friendly” talks with activist Jeffrey Ubben of San Francisco-based ValueAct Capital Partners, according to Reuters. Magro also told reporters that the hedge fund manager likes the fertilizer company’s strategic plan. ValueAct recently reported that it owns 5.7 percent of Agrium. About 1.5 years ago Agrium defeated Barry Rosenstein’s Jana Partners in its proxy fight with the company.


Meanwhile, ValueAct disclosed in a regulatory filing that it sold another 3.4 million shares or so of Rockwell Collins, reducing its stake in the aerospace and defense company to 5.8 percent from 8.3 percent.


Stifel Nicolaus slashed its price target on hedge fund favorite TripAdvisor to $87 from $120, but maintained its Buy rating. “The company fairly consistently mis-forecasts its business so now, immediately following a period of over-forecasting, has historically been a time to sit and wait for the benefit that the updated under-forecasting should eventually bring to the shares,” it explains in a note to clients. “The inability of the company, on a fairly consistent basis, to be able to forecast its own business in three-month increments is discouraging to us but the associated sell-off in the shares leaves us with little choice but to continue to recommend the shares and wait for the next ride up this roller-coaster.”

Meanwhile, Credit Suisse lowered its estimates and cut its target price on TripAdvisor to $105 from $120 citing the company’s “updated guidance parameters.”


Credit Suisse lowered is estimates for hedge fund favorite and cut its price target to $1,450 from $1,550, citing near-term “cyclical forces.” It points out in a note to clients the online travel company reported third-quarter results that were in line with expectations but that gross bookings were below its estimates. “Our Outperform rating and thesis remain unchanged and are predicated on the expectation that PCLN will remain an open-ended growth story,” it assures clients.

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