David Einhorn dumps Apple

The hedge fund manager—once a major player—cites Apple’s heightened valuation and the threat of Chinese retaliation.

From a letter to investors snagged by CNBC:

“We ultimately sold because our differentiated thesis from 2011 has become consensus,” Einhorn said. “We are somewhat worried about Chinese retaliation against America’s trade policies” …

Since Greenlight’s first purchase of Apple in May 2010, the firm said its investment earned clients over $1 billion. Apple shares skidded after his announcement, down 2.4 percent.

Greenlight has had a painful year and that did not slow down in the third quarter. The firm lost an additional 9.1 percent in the most recent quarter – bringing Greenlight’s total losses for the year to 25.7 percent, the letter said.

My take: Sounds like Greenlight needed the cash. I remember when Einhorn sued Apple in 2013 to unlock that cash. From What exactly does David Einhorn want from Apple?:

David Einhorn, the 44-year-old founder of Greenlight Capital and the author of Fooling Some of the People All of the Time, is a complicated guy. He’s a billionaire hedge fund manager who made a killing shorting Lehman Bros. and Allied Capital, finished 18th in the World Series of Poker, almost bought a piece of the Mets, tried to force Microsoft to fire Steve Ballmer, paid the second largest individual fine in U.K. history for alleged insider trading and has donated heavily to charitable causes — including the Michael J. Fox Foundation and the Democratic Party.

He also own[ed], through Greenlight, a big stake in Apple — 1.09 million shares as of September [2013], down from 1.45 million three months earlier. And like many major Apple investors who have watched the value of their holdings drop 35% in the past four months, he looks at the company’s $137 billion in cash and marketable securities and feels it burning a hole in his pocket. On Thursday, he issued an open letter to Apple shareholders.

What does he propose? He wants Apple to create a perpetual preferred stock — a kind of extra special dividend — that would be distributed at no cost to Apple’s existing shareholders, like him.

Apple rejected Einhorn’s special dividend scheme, but the buybacks the company had initiated the year before—and which it has since speeded up 10-fold—ended up having the same effect.

9 Comments

  1. David Emery said:

    Wow, that’s so much spin my neck is sore just reading it.

    0
    October 5, 2018
  2. Ken Cheng said:

    “our differentiated thesis from 2011 has become consensus”
    LOL, he’s playing a really long game if he believes that. Next thing we know, we’ll be hearing from other infamous Apple bears.

    0
    October 5, 2018
  3. Gregg Thurman said:

    Was it Apple or Buffet that bought his shares? Either way this is a good thing.

    0
    October 6, 2018
  4. Jonny Tilney said:

    “…once a major player”.

    Ouch! That must hurt.

    1
    October 6, 2018
  5. Einhorn made a colossal mistake. One must realize just how much cash Apple has to deploy. They will buy back $100 billion at an average cost of about $225, $100 billion during the next phase at $275 and another $100 billion at $325. This assumes, of course, that they use $50 billion of their cash pile for 3 years, along with $50 billion annually of Free Cash Flow.

    This eliminates over a billion shares from the float. With just a little growth, very little, you have $70 billion in profits with 3.7 billion shares in about 3 years. That’s $18.91 in earnings per share. Slap on a p/e of 18.5, and you arrive at exactly $350. That’s where I see the share price in about 3 years and I believe other investors do, too.

    Apple has indicated they will be cash neutral in a few years and I believe them. The most amazing part of this potential scenario is that the market cap will only need to move about 20% to reach $350.

    Good luck, everyone.

    1
    October 6, 2018

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