David Einhorn’s Top Buys: 2 Potential Longs, 1 to Skip
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David Einhorn, the founder and president of Greenlight Capital, is one of today's most respected hedge fund managers. His most famous bet recently was going short on Green Mountain Coffee Roasters (NASDAQ: GMCR), which has seen a more than 70% plunge in its stock price ever since Einhorn gave his famous bearish presentation on the stock. Although I have now turned positive on GMCR given its low valuations, I usually keep a close eye on Einhorn’s 13F stock transaction trying to chase his next big idea.
Here’s a look at some of his top buys from the last quarter as per the latest 13F filing of Greenlight Capital.
Marvell Technology Group Ltd. (NASDAQ: MRVL): My Take - Buy
Einhorn purchased 998,690 shares of Marvell last quarter. Marvell reported excellent last quarter results and initiated its first quarterly dividend of $0.06 per share to be paid on July 11, 2012. Over the past seven quarters, the company has repurchased a total of 107 million shares, which are ~16% of total shares outstanding. I expect the company to continue posting strong results and keep rewarding the shareholders. In the near term, the ongoing HDD recovery in Thailand should provide a nice tailwind to Marvell for the next several quarters and it's well positioned for this reaccelerating growth. In addition key design wins with its 500GB/platter HDD solution 2.5’’ drives should help the company gain more HDD market share this year.
Expedia Inc (NASDAQ: EXPE): My Take - Buy
Einhorn purchased 1,000,000 shares of Expedia last quarter. Expedia reported much better than expected last quarter results with revenues ($816.5 million) significantly ahead of consensus ($778 million). Domestic bookings increased 16% y/y while international bookings increased 14%. Going forward, I expect strong European business to positively surprise the street and act as a catalyst for the stock. The April comscore data suggested strong acceleration in Expedia’s European business with unique visitor growth during April at +32% y/y vs. +7% y/y during March.
It appears that Expedia is now bearing the fruits of its investment in upgrading its legacy Expedia branded hotel booking platform, which lagged the other segments during the transition. I believe Expedia will continue to see traction in its international business and reacceleration in its legacy business. At 8x 2013 EBITDA, I don’t find the stock pricey.
Computer Sciences Corporation (NYSE: CSC): My Take - Neutral
Einhorn purchased 2,400,000 shares of CSC last quarter. CSC lags peers in terms of revenue growth and execution. Although the company’s management plans to cut $1 billion in cost over the next 12 to 18 months through contract restructuring, tighter expense management, and improved internal processes, I would prefer a wait and see approach. Restructuring activities in IT services businesses are difficult to execute and given the current volatile macro environment, I am a bit skeptical about its success.
Other company-specific concerns for CSC includes NHS contract risk, iSOFT integration risks and uncertainty in the US federal business. The company is trading at 9.72x forward EPS, which is a slight discount to its peers. I believe this discount is justified given the company-specific issues that are affecting CSC’s revenue growth and am neutral on the stock. I would be keeping a close eye on the company and watch for any positive data point in terms of the company’s turnaround before becoming positive on it.
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