6 Top Stock Picks From A $6 Billion Hedge-Fund Manager

By mike-vodicka@streetauthority.com (Michael Vodicka),

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David Einhorn of Greenlight Capital Management is considered one of the most successful hedge-fund managers of all time. With anet worth of more than $1 billion and assets under management of more than $6 billion, Einhorn's smallest moves are watched closely byinsiders .

Einhorn's reputation has been built upon theshort sale .

He first rose to fame in 2002 after taking a huge short position in Allied Capital and making millions on accusations of fraudulentaccounting practices that sent itsstock crashing.

But his big leap into superstardom came in 2008 with hiscall on a Lehman Brothersbankruptcy . At the time, it was a hugecontrarian opinion, and when it came to fruition in the financial crisis later that year, he made billions.

He followed that legendary call with another huge short position in 2011, this one in Green Mountain Coffee Roasters (Nasdaq: GMCR) , right beforeshares crashed from more than $100 to less than $20. These are the kind of big-moneyinvestments Andy Obernmueller looks for in his " Game-Changing Stocks " newsletter.

That incredible string of winners has lifted Einhorn's Greenlight Capital Management to 22% annual returns since 1996 -- one of the best track records in the history of hedge-fund managers.

Clearly, Einhorn is a hedge-fund manager who knows how to analyze a stock and identify company weaknesses and strengths. And with themarket trending higher in 2012, Einhorn aggressively added to his long positions.

Einhorn's six biggest stock purchases last year:

From this group, I have chosen to highlight Apple (Nasdaq: AAPL) because it's Einhorn's largest position and Cigna Corp ( CI ) because of its exposure to long-term growth in health care services.

Einhorn's position in Apple represents almost 11% of his entire portfolio. After boosting his stake in Apple by 20% in 2012, Einhorn now owns 1.3 million shares.

As a big advocate of valueinvesting , Einhorn's interest in Apple makes sense. After falling 32% in the past six months, Apple's forwardP/E (price-to-earnings) ratio of 10 times is a 10-year low and a 30% discount to the S&P 500's forward P/E of 15.

Although Apple's growth has slowed, the company is still anearnings machine.Analysts are calling forearnings per share ( EPS ) of $51 in 2014 and annual growth of 15% in the next five years, almost double the industry average of 8%.

And don't forget the solid 2.4%dividend yield . But with more than $100 billion incash on thebalance sheet , there is plenty of room for buybacks anddividend increases.

A leading provider ofhealth insurance in the U.S. and internationally, Cigna has amarket cap of $18 billion.

Cigna already occupies a leading position in the health insurance industry, and it is continuing to expand into other segments of health care. Its $43.8 billion purchase of HealthSpring in 2012 immediately made it a big player inMedicare Advantage, which provides eligible participants with private health care options.

Cigna also appears to be insulated from potential threats of health care reform, thanks to administrative services accounting for 85% of its domestic business. The company also continues to expand into high-growth Asian markets such as China and South Korea. Despite all that good news, however, Cigna still looksundervalued , trading with a P/E ratio of 10 times that is in line with its 10-year average but a sharp discount to the S&P 500's 15 times.

Risks to Consider: David Einhorn's performance has cooled in the past few years. His huge position in Apple is also being called into question after an unsuccessfulproxy battle to create a special class of shares and share buybacks.

Action to Take --> David Einhorn is one of the most successful hedge-fund managers of all time. Although Einhorn built his reputation on shorting, he made big additions to his long positions in 2012. These sixstocks saw the biggest increase in total positions. From that group, my two favorites are Apple because it's Einhorn's biggest position and Cigna because of its exposure to thebullish growth trend in health care. Given Einhorn's votes of confidence in these companies, their stockswarrant fresh attention.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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This article appears in: Investing , Investing Ideas , Stocks
Referenced Stocks: CI , EPS

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