Analyzing Greenlight Capital’s 3 Most Recent Stock Acquisitions
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Greenlight Capital is a hedge fund based out of New York with an estimated portfolio value of approximately $5.6 billion as of June 2012. It is predominately known for its well-respected manager, David Einhorn, who has made well-timed bearish calls over the years (most notably the Lehman Brothers collapse in 2008 and recent Green Mountain Coffee (NASDAQ: GMCR) swoon-dive). Moreover, having an annualized net return in excess of 20% since its founding in 1996 has certainly helped his credibility. Therefore, let’s analyze his three newest positions according to Greenlight’s most recent 13-F filing and see if they are companies that we find enticing as well.
Greenlight initiated a new position in Computer Sciences (NYSE: CSC) to the tune of 2.4 million shares. The Virginia-based firm provides various IT services worldwide, including business process outsourcing, network operations, and customer relationship management. The stock has been battered recently, falling approximately 25% in just the last three months alone and sitting close to its $22.80 52-week low. A big reason being the surprisingly awful earnings report card in their most recent quarter in which they badly missed consensus estimates and admitted that there are market headwinds from the Federal business and in Europe. Nonetheless, the stock has moved down considerably and has a relatively safe dividend yield in excess of 3% as the company generated approximately $600 million in free cash flow this past year. I’d rate the stock a hold for now until there is some more clarity regarding the company’s financial position.
Online travel site Expedia (NASDAQ: EXPE) is another new holding of Greenlight with a 1 million share position. The company has a number of notable websites that many people utilize, such as Hotels.com, Hotwire.com, and its namesake Expedia.com, while sitting on a nice net cash position of approximately $750 million. Moreover, management has succeeded in exceeding consensus estimates the past two quarters giving us more reason to believe that things are improving. On the flip side, EXPE pays a paltry .7% dividend yield and has far lower operating and profit margins than its main competitor Priceline.com (NASDAQ: PCLN). I’m indifferent to EXPE as I don’t see it as a screaming buy due to abnormally low valuations and I don’t see the stock as a sell due to it having solid financials and management rectifying earlier mistakes. EXPE is a hold in my opinion at this point.
The recently IPO’ed Roundy’s (NYSE: RNDY) rounds out this list of new positions for Greenlight Capital with a 561,934 share position as of March 31, 2012. Roundy’s is a grocery chain with 159 retail grocery stores and 99 pharmacies as of May 10, 2012 in Wisconsin, Minnesota, and Illinois and been in business since 1872. The eye-popping 8.9% dividend yield definitely looks attractive along with the comparatively low 8x trailing P/E and 7x forward P/E. However, as fellow “Fool” Brian Stoffel excellently points out here, the company is already showing negative sales trends and going to start facing more competition from bigger chains, such as Whole Foods (nyse:wfm), moving into their domain. I’m always wary of companies that have recently gone public and already showing warning signs, so I’d definitely put RNDY on my radar for now and see if sales are able to stabilize, but not buy at this time.
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Prohomes has no positions in the stocks mentioned above. The Motley Fool owns shares of Priceline.com. Motley Fool newsletter services recommend Green Mountain Coffee Roasters and Priceline.com. 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.