Marvel Could Have Bottomed, and 3 More Ideas from this Hedge Fund

Marvel Could Have Bottomed, and 3 More Ideas from this Hedge Fund

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There is much to look at with Greenlight Capital. In 2012, the hedge fund lost 7.9% after dropping 4.9% in the fourth quarter of last year. Since inception in May 1996, Daivd Einhorn’s hedge fund returned 1,829%. After fees and expenses, that works out to 19.4% annualized.

There are a number of investing ideas too look at from Einhorn’s fund, both on the long side and on the short side.

A Short-Selling Idea

1. Green Mountain Coffee Roasters Inc. (GMCR, Earnings, Analysts, Financials): Engages in the specialty coffee and coffee maker business. Market cap at $6.44B, most recent closing price at $43.28.

GMCR was a bearish bet that did not work out, so far. The stock rallied from the teens in August 2012 and traded at around $46 recently. The 74% advance was responsible for wiping all of Einhorn’s gains for 2012 on that bearish play. A Starbucks (SBUX) quarterly earnings report mentioned sales of 175 million K-cups in that period. This is nearly double the number sold last year in a two month period. Green Mountain also has a lower valuation than that of Starbucks. Its forward P/E is 15, while Starbucks is valued at a P/E of 21.7.

 

Bullish Ideas

2. General Motors Company (GM, Earnings, Analysts, Financials): Operates as a global automaker. Market cap at $44.55B, most recent closing price at $28.45.

GM performed well for Greenlight, as the fund bought 11% of its shares from the government. Greenlight points to the excess capital in the company, and opportunities of share repurchases as reasons to remain bullish.

 

3. Marvell Technology Group Ltd. (MRVL, Earnings, Analysts, Financials): Designs, develops, and markets analog, mixed-signal, digital signal processing, and embedded and standalone ARM-based microprocessor integrated circuits. Market cap at $5.06B, most recent closing price at $9.45.

MRVL stood to be a losing position for Greenlight. Very recently, the company was handed a verdict of more than $1 billion for patent infringement.

Marvell shares appear to be on the rebound. The stock bottomed at $7 in late-December, and traded recently above $9. Greenlight believes that the company will be able to reduce or eliminate the penalty from the verdict. Valuation is not the only reason to be like the company: Greenlight likes the large product transition that is taking place. 2013 is very likely the year shares reverse direction and move in a positive direction.

Marvell is already trading above some analyst targets. The company could reverse direction as it finds a CFO. Weak PC demand is already priced in Marvell’s shares. Strong results from hard drive makers like Western Digital (WDCand Seagate (STX) suggest that Marvell will still grow as demand for storage continues. The TD-SCDMA space could be a weak spot for Marvell, but demand for these types of devices were strong in places like China. China Mobile recently said that 60 million TD-SCDMA devices were sold in 2012. In December, over 7 million units were sold. 

Marvell is the most interesting play because a reduced payment from the patent infringement suit would provide a lift in the short-term.

 

4. Computer Sciences Corporation (CSC, Earnings, Analysts, Financials): Provides information technology (IT) and professional services to governments and commercial enterprises. Market cap at $6.62B, most recent closing price at $42.59.

CSC provided a positive return for Greenlight Capital. Shares were acquired at an average price of $27.78, and traded recently above $40. The company has a sound business, but margins are below the industry average. This implies management could perform better, as could the company. Greenlight thinks the company could generate $4.00 in earnings per share.
 

 


 

Written by Chris Lau.

 

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