Analyzing David Einhorn’s New Buys

Gayatri is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

David Einhorn is one of the smartest hedge fund managers of current times. He is well known for his bearish presentation on Green Mountain Coffee Roaster at Value Investing Conference last year. He did similar damage to Chipotle Mexican Grill’s stock this year. With such big hits to his name, I find useful to track his latest buy sell activities for making investment decisions. In this article, I will be discussing, three of the new buys of his fund Greenlight Capital from last quarter.  

Yahoo! (NASDAQ: YHOO): Greenlight Capital purchased 5,050,000 shares of Yahoo last quarter. Yahoo’s stock price has been on an uptrend since the beginning of September with good quarterly earnings and buy-backs helping it. According to the company’s recent SEC filings, Yahoo has repurchased 54.4 million shares YTD for $858 million, with $212 million of that in the fourth quarter through November. The company is also making good progress in its fundamental business with cost cutting as well as investment in technology. Goldman Sachs recently raised the company’s ratings to conviction buy and revised its target price to $24. According to Goldman analyst, company has $14.8 per share in balance sheet assets and if we give 7x multiple to its core business, stock can reach $24.  I see a good upside in Yahoo’s stock price as its turnaround continues to gain traction with Marissa Meyers at its helm.

Babcock & Wilcox (NYSE: BWC): Greenlight Capital purchased 860,446 shares of Babcock & Wilcox last quarter. BWC is a relatively defensive E&C company with stable revenue stream. Nuclear Operations & Technical services business, which has relatively high entry barriers, amounts to ~74% of the company’s operating income. Although the company reported disappointing results last quarter due to slower ramp up of environmental control work, the nuclear operations and Nuclear energy segments continue to perform well. The company also announced a new $0.08 per share quarterly dividend and $250 million share repurchase program. This along with lower annual pension expense could bolster company’s EPS in a difficult operating environment. The company also received positive news on Federal Funding program recently. The US Department of Energy (DOE) recently announced that BWC’s mPower small modular reactor (SMR) technology has been selected for federal funding support in which R&D cost for mPower would be shared between the company and Federal Government. This will eventually boost BWC’s EPS and cash flow as well as secure new partners. This is important as mPower is a big project and the company is on pace to spend over $110 million annually on the program. I believe the company is well positioned to benefit from emerging growth drivers like utility environmental spend, mPower and nuclear work for the US Government and hence recommend buying the stock.

AECOM Technology (NYSE: ACM): Greenlight Capital purchased 782,704 shares of AECOM last quarter. AECOM’s management has recently changed its focus from growth and expansion (primarily via acquisition) to cash generation. The company expects to generate ~$1 billion in cash in the next five years and deploy it primarily in share buy backs. Given the company has a market cap of ~$2.5 billion, this is a substantial amount. On the fundamental front, the company’s target is to increase its EBITDA to 12% over the next few years. This could lead to a significant increase in the company’s EPS without any significant improvement in broader macroeconomic environment. I don’t find stock pricey at current levels (~8.5x forward PE) and hence recommend buying it.

To sum it up, Yahoo is an interesting turnaround story with a strong balance sheet. Babcock & Wilcox is a relatively defensive E&C company which is well positioned to benefit from emerging growth drivers like utility environmental expenditures, mPower, and nuclear work for the US Government. AECOM is available at historically low levels and it makes sense to buy the company given it focus on returning cash to the shareholders.


GayatriSharma has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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