It's been a tough couple of years for value investors, and Greenlight Capital's David Einhorn has a lot of explaining to do to his investors in his Q4 letter, which was sent out Tuesday. In a year in which the S&P 500 gained 20 percent, Greenlight Capital generated just a 1.6 percent gain as the market continued to reward growth over value.
Burned By Shorts
In the fourth quarter, the S&P 500 gained 6.6 percent compared to a 1.6 percent loss for Greenlight. Einhorn’s long positions, led by General Motors Company GM have been performing relatively well in recent months. However, Einhorn’s basket of short bets, which include Caterpillar Inc. CAT, Amazon.com, Inc AMZN, athenahealth Inc. ATHN, Netflix, Inc. NFLX and Tesla Inc TSLA, obliterated most of Greenlight’s gains from its long positions in 2017.
“We believe all those stocks appeared priced with little margin for error entering the year, and none executed well or met fundamental expectations in 2017,” the letter read.
Einhorn remains long GM and said shares are still “significantly undervalued” given stability in the auto market, the stock’s 4.4 percent dividend yield, and aggressive share buybacks, GM’s 10 percent earnings beat in 2017 and its 7x forward PE ratio.
In the fourth quarter, Greenlight’s biggest winner was Mylan NV MYL. Einhorn anticipates additional generic approvals for the company in coming months following its generic Copaxone approval in Q4.
Greenlight’s second biggest winner was CONSOL Energy, which completed its long-anticipated split of its coal-centered business, Consol Energy Inc CEIX, from its oil & gas business, CNX Resources Corp CNX. Einhorn said both companies have high-quality resources and strong growth opportunities and quality management teams.
Greenlight also initiated a couple of new positions in Q4, most notable a “small” new position in Twitter Inc TWTR. Einhorn said Twitter’s reacceleration of user growth in late 2017 makes for a strong pitch to advertisers in 2018.
Greenlight also re-purchased a stake in Time Warner Inc TWX and took new positions in ENSCO PLC ESV and Brighthouse Financial Inc BHF.
Greenlight also exited long positions in the VanEck Vectors Gold Miners ETF GDX, Hewlett Packard Enterprise Co HPE and Rite Aid Corporation RAD and closed a short position in Deere & Company DE.
Despite another tough quarter for Greenlight, the firm has still delivered strong overall returns for long-term investors. Since its creation in 1996, Greenlight has generated an average annual return of 15.4 percent net of fees and expenses.
Disclosure: the author is long CNX.
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