4 Strong Picks From a Top Hedge Fund Manager
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I think it is important to consider stocks that prominent investors recently added to their portfolios. As it is explained in one of the blog posts in Warren Trades, top value managers have more resources and information than any individual investor to analyze companies. In general they do not buy stocks for daytrading or short term trading. Hedge funds with billions under management are long term oriented so tracking their picks is one important step when analyzing stocks. In this article I will detail 4 interesting picks from top value manager David Einhorn, founder of Greenlight Capital.
The first one is General Motors (NYSE: GM). I agree with David Einhorn that the company has not given credit for its improved competitive and financial position post-bankrupcy. First of all, GM is poised to benefit from a significant product upgrade cycle. According to Detroit News, Chevrolet will introduce 13 all-new or significantly updated models during 2013 in what one executive calls a "big year" for General Motors. Chevrolet says more consumers are considering its vehicles and it's seeing younger buyers, especially for vehicles such as the Sonic and Spark. Both are attracting about 60 percent of buyers from non-GM brands.
The company is also benefiting from a continued recovery in the US market highlighted in the recent auto sales report. General Motors reported its highest September U.S. sales since 2008, exactly 210,245 vehicles sold or up 1.5 percent compared with a year ago. New products helped drive a 29 percent increase in passenger car sales. Sales of GM's mini, small and compact cars alone were up a combined 97 percent, and all GM brands increased their retail sales.
The company also announced in the recent Citi Global Industrials Conference that it expects to increase capacity to 120% in the future and is seeing a dramatic improvement in pricing in the U.S. GM is also aligning supply and demand and rationalizing the dealer footprint. Valuation is very attractive. Currently, shares of General Motors are trading at just 8x consensus 2012 EPS estimates. According to Zacks, over the last five years, shares have traded in a range of 5.0x to 10.3x trailing 12- month earnings. Considering that, the stock is trading at a discount to the peer group, considering that the current P/E is at a 35% discount to the peer group.
The second pick from Einhorn is Seagate Technologies (NASDAQ: STX). This stock is one of Einhorn's top holdings. I think that while the tech supply chain awaits the return of unit growth within the PC market or the data center growth to fully compensate for the shortfall, Seagate and the HDD industry are controlling capacity, holding the line on margins, and remaining focused on cash flow, buybacks and dividends. This is the main reason why shares are holding very well despite other PC related stocks being in a clear downtrend. I think that investors should benefit from Seagate's continued capital distribution strategies. In the last analyst day held in NYC, management explained that Seagate has the financial and strategic latitude to maintain its profitability gains despite macro headwinds. I think that the stock will keep trading in the range from $33 to $28 as EPS growth visibility is still unclear, but the company continued shareholder oriented strategies which created a floor in the stock.
Einhorn also invested in Oaktree Capital (NYSE: OAK). Oaktree is growing very well as its reported assets under management were $81.0 billion and fee-generating assets under management were $66.2 billion, up from $73.0 billion and $63.4 billion, respectively, as of September 30, 2011. The company is a top value oriented asset manager that benefits from the secular trend of alternative assets. OAK is a top dividend stock as it provides a robust 7% yield (based on annualizing its last quarterly payout) at its current stock price of $43. Based on earnings projections, this yield should move considerably higher over the next year as well. The median target price on OAK by the five analysts that cover the company is $48 and some analysts model a price of $55.
Finally, Einhorn likes Einstein Noah (NASDAQ: BAGL), a small restaurant chain. The stock is clearly one of Einhorn's favorites. Einhorn has held BAGL for more than sevel quarters and Greenlight Capital owns almost 65% of the company's oustanding shares. Einstein Noah is also one of Einhorn's top dividend-paying holdings, with an annualized dividend of 50 cents per share, generating a yield of about 3%. Einstein Noah shares sold off sharply as the company missed earnings expectations. It also announced that it is continuing to explore a possible business combination or sale. In addition, its board of directors is considering a possible recapitalization of the company, which may include payment of a special dividend, as part of its continuing review of strategic alternatives to maximize shareholder value. I am positive on the fact that management is shareholder oriented. A Fool analyst thinks that the company's differentiated offerings provide a strong, competitive edge against other chains like McDonald's or Starbucks. The article is also positive on the fact that Einstein Noah is shifting to healthy offerings, increasing sales to people who are getting more and more health conscious.
As I explained in a blog post, I think that it is essential to analyze each company's competitive advantages, growth projections and its operating history. David Einhorn shares this view and I always find his analysis and investment decisions very interesting. Greenlight Capital has a strong research team that produces superb fundamental analysis when investing in a stock. In this article I detailed several picks from Einhorn and provide a fundamental reason to invest in them.
martinzaldua has no positions in the stocks mentioned above. The Motley Fool owns shares of Oaktree Capital. Motley Fool newsletter services recommend General Motors Company. 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.If you have questions about this post or the Fool’s blog network, click here for information.