Marvel Could Have Bottomed, And 3 More Ideas From This Hedge Fund
There is much to look at with Greenlight Capital. In 2012, the hedge fund lost 7.9% after dropping 4.9% in the fourth quarter of last year. Since inception in May 1996, David Einhorn’s hedge fund returned 1,829%. After fees and expenses, that works out to 19.4% annualized.
There are a number of investing ideas too look at from Einhorn’s fund, both on the long side and on the short side. [See also: 5 Buy and 2 Sell Ideas for Fools ]
A Short-Selling Idea
1. Green Mountain Coffee Roasters ( GMCR) was a bearish bet that did not work out, so far. The stock rallied from the teens in August 2012 and traded at around $46 recently. The 74% advance was responsible for wiping all of Einhorn’s gains for 2012 on that bearish play. A Starbucks ( SBUX) quarterly earnings report mentioned sales of 175 million K-cups in that period. This is nearly double the number sold last year in a two month period. Green Mountain also has a lower valuation than that of Starbucks. Its forward P/E is 15, while Starbucks is valued at a P/E of 21.7.
2. General Motors ( GM) performed well for Greenlight, as the fund bought 11% of its shares from the government. Greenlight points to the excess capital in the company, and opportunities of share repurchases as reasons to remain bullish.
3. Marvell Technology ( MRVL) stood to be a losing position for Greenlight. Very recently, the company was handed a verdict of more than $1 billion for patent infringement.
Marvell shares appear to be on the rebound. The stock bottomed at $7 in late-December, and traded recently above $9. Greenlight believes that the company will be able to reduce or eliminate the penalty from the verdict. Valuation is not the only reason to be like the company: Greenlight likes the large product transition that is taking place. 2013 is very likely the year shares reverse direction and move in a positive direction.
4. Computer Sciences Corp. ( CSC) provided a positive return for Greenlight Capital. Shares were acquired at an average price of $27.78, and traded recently above $40. The company has a sound business, but margins are below the industry average. This implies management could perform better, as could the company. Greenlight thinks the company could generate $4.00 in earnings per share.
Additional Comments: Marvell
Marvell is already trading above some analyst targets. The company could reverse direction as it finds a CFO. Weak PC demand is already priced in Marvell’s shares. Strong results from hard drive makers like Western Digital ( WDC) and Seagate ( STX) suggest that Marvell will still grow as demand for storage continues. The TD-SCDMA space could be a weak spot for Marvell, but demand for these types of devices were strong in places like China. China Mobile recently said that 60 million TD-SCDMA devices were sold in 2012. In December, over 7 million units were sold.