Upon the release of Greenlight Capital's fourth quarter
shareholder letter this week, penned by hedge fund manager
, it was revealed that some of Einhorn's high conviction stocks,
or companies that Einhorn kept buying over the latest quarters,
came up short of the Guru's expectations.
"The disappointing fourth quarter result reduced our year from
good to pedestrian," Greenlight admitted. "While it is hard to
view our performance last year as a catastrophe, it nonetheless
falls short of our goals."
Greenlight Capital lost 4.9 percent in the fourth quarter of
2012, which lowered its year-to-date net return to 7.9 percent.
By the end of the year, the fund disclosed Apple (
), Cigna Corp. (
) General Motors (
) Gold and Vodafone Group (
) as its largest long positions.
All but one of
Einhorn's high conviction stocks
listed in GuruFocus' conviction picks feature, were mentioned in
the shareholder letter.
General Motors Co. (
GM was an overall hit for Greenlight Capital's fourth quarter.
The fund started 2012 by shedding 22.07 percent of its stake in
the company in the first quarter. However, it eventually bought
back the shares later on in the year as it increased its stake by
17.64 percent in the second quarter, and 23.84 percent in the
Currently, Einhorn holds about 21.6 million shares of General
Motors. The company trades today at $28.87, up 1.05 percent.
Although GM is priced relatively lower from Einhorn's initial
average purchase price of $34.98, the stock has been showing
Greenlight's long position in GM was marginally profitable in the
fourth quarter, as it advanced from $22.75 to $28.83, according
to the shareholder letter.
Greenlight appears optimistic in GM's management decisions
lately, especially after GM was reported repurchasing 11 percent
of its shares from the government, committing to sell the balance
of its stake over the next year.
"GM's reduced share count is quite accretive to its earnings, and
we hope that the recent action is a first step by management
toward shareholder-friendly capital allocation," Greenlight
The fund rewards GM some points for this move, for the fact that
it polishes shareholder appeal, furthering opportunities for
For the November and December months, GM's sales rose 3 percent
and 5 percent, respectively. Its retail volume was up 38 percent
in the last month of the year, from just the previous month.
In December, GM also became the first US automaker to sell more
than 1 million vehicles in a single year that get an
EPA-estimated 30 mpg or higher on the highway, according to a
company news release.
GM will pay a dividend of $0.59375 per share on March 1. The
dividend is out of GM's Series B mandatory convertible junior
preferred stock. The total amount of the dividend is
approximately $59.4 million.
Marvell Technology (
Einhorn's second conviction pick last year was Marvell Technology
Group Ltd., a semiconductor company, whose products include
high-performance processors, storage controllers, LED processors
and broadband and wireless transceivers.
For Greenlight Capital, Marvell was a straight miss throughout
the entire year of 2012. Over the quarters, shares fell from
$13.85 to $7.26, although it did not seem to faze Einhorn, who
continued to add to his stake with high conviction, not reducing
Einhorn purchased about 16.64 million shares of Marvell in the
third quarter of 2011 for $14 per share on average, and increased
the position by almost 1 million shares in the next two quarters.
In the second quarter of 2012, he made his second largest
purchase of the company to date of more than 7 million shares,
bringing his total holding to over 25 million shares.
Currently, he sits with over 32 million shares, after he
increased again in the third quarter.
Einhorn's predictions about Marvell have not all been completely
in the wrong. For instance, in 2011 he was right about the
company diversifying its client base, while other investors
showed concern when they found out that Research In Motion (
) was at the time, Marvell's largest customer. Marvell's naming
of Western Digital as its largest customer in the 2012 fell right
in line with Einhorn's prediction.
Driven by a legal battle gone awry, Marvell's shortcomings in
fourth quarter still has not caused Einhorn to lose complete
"Though we'd love to just admit we are wrong, sell the stock and
move on, we continue to like the opportunity here," Greenlight
said. "Marvell is on the cusp of a large production
transition...We have re-evaluated and decided to buy even more
MRVL. We expect its shares to sprint higher in 2013."
Marvell trades at $9.10 today, down 2.31 percent.
Computer Sciences Corp. (
Based in Falls Church, Va., Computer Sciences Corp. provides
technology-enabled business solutions to its clients.
In 2012, Greenlight added to its stake in Computer Sciences in
the second quarter by 50.92 percent, and again the third quarter
by 89.57 percent. This was after purchasing the stock in the
first quarter at $27.03 per share on average.
A change in management was what spurred Einhorn to get a hold of
the stock in February 2012, after the company's 50 percent
decline the previous year due to deteriorating profitability and
problems with one of its business contracts, according to the
Computer Sciences turned out as a gain for Greenlight in the
fourth quarter, as the company increased by almost 60 percent in
market value in the last year.
For the past 10 years, Computer Sciences Corp. exhibited a
revenue growth rate of 5.4 percent and a free cash flow growth
rate of 3.7 percent.
Greenlight views the company as a "fundamentally sound business"
that has merely suffered due to inefficiencies within its
organization, mismanagement in its history and charges that
obscured its underlying earnings.
Remaining confident in the company to continue its 2012
improvement streak, Greenlight shares:
"While the stock has appreciated in response to management's
progress to date, we continue to believe that the company has
significant opportunities for margin improvement, free cash flow
conversion and capital deployment under the leadership of its
well incentivized and shareholder-friendly management team."
DST Systems Inc. (
Einhorn's final conviction pick last year was information
processing and software services company, DST Systems Inc.
After acquiring DST in 2011, Greenlight Capital increased its
stake in the company throughout 2012, until it reached more than
2 million shares as of Sept. 30.
Although Greenlight made no mention of DST systems in its fourth
quarter letter, the stock, which is 1.9 percent of the fund's
portfolio delivered 32.91 percent in gains last year. So overall,
this conviction pick was a win for Einhorn in 2012.
Headquartered in Missouri, DST's information processing solutions
and services support the global asset management, insurance,
retirement, brokerage and healthcare industries. In addition to
technology products and services, DST also provides integrated
print and electronic statement and billing solutions.
In the past 10 years, DST's revenue growth rate was 11.4 percent,
and its EBITDA growth rate was 10.7 percent, according to its
Currently, the stock trades at $65.49, a couple of points away
from its five-year high of $74
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