David Einhorn, president and founder of Greenlight Capital, recently issued his latest quarterly letter to investors. The hedge fund superstar posted impressive gains for the fourth quarter and full year. With the help of five big winners, his long positions modestly outperformed the broad market.
Greenlight Capital’s funds returned a net 6.5 percent in the fourth-quarter, bringing the full year net return to 19.1 percent. Since inception in May 1996, the hedge fund has returned 19.5 percent on an annualized basis. Einhorn notes that he does not expect to keep pace with a soaring market, but warns that Mr. Market will serve a dose of reality to high-fliers.
“The parabolic rise of a growing number of market-leading story stocks created a challenging environment for value investors. Speculators have momentarily accepted the ruse that, for these visionary companies, profitability would be a mistake. Eventually, the market will remember that having a disruptive product that customers will happily buy if sold near cost is not the same as having a valuable business. Philosophically, since we would not expect to be long these high- fliers, the best we can hope to do is not be short them at the wrong time. For the most part, we weren’t.”
Einhorn explains that Chipotle (NYSE:CMG) and U.S. Steel (NYSE:X) were two big losers for the hedge fund in the fourth-quarter, but let’s take a look at the five biggest winners.
5. Japanese Yen
Q4 Performance: 7.1 percent
The yen was a macro short position for Greenlight Capital in the fourth-quarter. During that period, the currency depreciated from 98.35 yen to 105.30 yen. Einhorn comments that, “No sign of tapering in Japan. The main tool of ‘Abenomics’ appears to be a weak yen. So, it is weakening.”
The Bank of Japan currently has a policy in place to keep expanding its money base at an annual rate of 60 trillion to 70 trillion yen. The central bank’s governor, Haruhiko Kuroda, is committed to nearly doubling Japan’s monetary base to 270 trillion yen by the end of 2014. The bank also has a goal of 2 percent inflation by the end of 2014.
4. General Motors (NYSE:GM)
Q4 Performance: 13.6 percent
With the U.S. government selling its remaining stake, shares of GM drove higher during the fourth quarter. Furthermore, earnings have stabilized and the automaker recently announced it will once again pay a quarterly dividend to shareholders.
GM declared a quarterly dividend of 30 cents per share. The dividend is payable on March 28 to all common stockholders of record as of March 18. This will be General Motors’ first dividend to shareholders since May 2008. Based on the company’s outstanding shares, the payout will cost nearly $1.7 billion per year.
“Our fortress balance sheet, substantial liquidity, consistent earnings, and strong cash flow provide the foundation for an ongoing payout,” explains Dan Ammann, GM President and Chief Financial Officer. “This return to shareholders is consistent with our capital priorities and is an important signal of confidence in our plans for a continuing profitable future.” General Motors has posted 15 consecutive profitable quarters, generating $16.3 billion in adjusted automotive free cash flow.
3. Apple (NASDAQ:AAPL)
Q4 Performance: 17.7 percent
The world’s largest tech company often draws a wide-range of emotions from Wall Street, but shares of Apple continue to recover from the low of $385 seen last April. At the end of October, Apple announced it sold 33.8 million iPhones in the fiscal 2013 fourth-quarter ended September 28, 2013, representing a record for the September quarter. Apple also sold 14.1 million iPads during the quarter, and 4.6 million Macs. “Shares continued their recovery as Apple launched new products to a positive reception. Earnings estimates have changed direction and are now rising,” explains Einhorn.
Earlier this month, Apple said customers spent more than $10 billion on the App Store in 2013, the biggest haul since Apple first launched the store in July 2008. In fact, revenue in December alone totaled $1 billion. App Store customers downloaded almost 3 billion apps in December, making it the most successful month in App Store history.
2. Micron Technology (NASDAQ:MU)
Q4 Performance: 24.5 percent
Micron is a global leader in advanced semiconductor systems, engineering technology that drives innovation. Shares of the company rose from $17.47 to $21.75 during the fourth-quarter. In January, Micron reported results for its quarter ended November 28, 2013. Revenue surged 120 percent to $4.04 billion from a year earlier.
Micron is a new position for Greenlight Capital. “We established a position in MU at an average price of $16.49, marking the first time we have taken a long position in a company in which we once had a material short position,” explains Einhorn. “The industry has changed and so has MU. Its purchase of Elpida Memory out of bankruptcy in August 2013 marks the end of a decade of consolidation from roughly a dozen major DRAM players down to just three. Technological advances and locked-up intellectual property have made it unlikely that any new players will enter the industry in the intermediate term.”
1. Marvell Technology Group (NASDAQ:MRVL)
Q4 Performance: 25 percent
Shares of Marvell Technology increased from $11.50 to $14.38 in the fourth-quarter. The company is a producer of semiconductor products, and continues to gain share in a variety of popular wireless devices. Einhorn also notes that quarterly results were a ‘Beat and Raise.’
Marvell Technology’s revenue for the quarter ended November 2, 2013 jumped 15 percent to $931 million from the prior quarter, and 19 percent from a year earlier.
“Our results in the third-quarter were above the high-end of our guidance mainly due to better demand from our mobile, wireless and storage customers,” said Marvell Technology CEO Dr. Sehat Sutardja. “We continue to make excellent progress in our end markets with new innovative products and remain committed to delivering above industry revenue and profit growth as we head into next year.”
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