David Einhorn Sees Significant Upside in General Motors (GM), Raises Stake
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In his third-quarter letter to investors, David Einhorn disclosed his Greenlight Light Capital hedge fund significantly raised its stake in General Motors (NYSE: GM) during the quarter.
Einhorn said while the fund first established a small position when shares broke the IPO price, recent weakness in the stock prompted Greenlight to add to the position. The fund initiated a position at an average price of $25.78 per share.
He said GM is being priced by the market as a cyclical stock trading at less than 6x this year's earnings. While it is normal to value cyclicals at low multiples of peak earnings, "we believe that 2011 is not a peak and, in fact, is below mid-cycle."
GM is poised to grow earnings from a return to mid-cycle volume, estimated at 15 million units, and from a coming major refresh of its North American product portfolio.
While the market is focused on GM's "legacy liabilities," the new GM "does not have pension and healthcare liabilities that are likely to over-run the company."
GM has $33 billion in global cash, nearly equal to the company's entire market cap, Einhorn notes. He sees a chance the company will return capital to shareholders over the next year.
While the firm recognizes global economic weakness and the government ownership overhang, Greenlight believes these concerns are priced in and there is significant upside from current levels even if the U.S. experiences a very slow "new normal" type of economic recovery.
Einhorn said while the fund first established a small position when shares broke the IPO price, recent weakness in the stock prompted Greenlight to add to the position. The fund initiated a position at an average price of $25.78 per share.
He said GM is being priced by the market as a cyclical stock trading at less than 6x this year's earnings. While it is normal to value cyclicals at low multiples of peak earnings, "we believe that 2011 is not a peak and, in fact, is below mid-cycle."
GM is poised to grow earnings from a return to mid-cycle volume, estimated at 15 million units, and from a coming major refresh of its North American product portfolio.
While the market is focused on GM's "legacy liabilities," the new GM "does not have pension and healthcare liabilities that are likely to over-run the company."
GM has $33 billion in global cash, nearly equal to the company's entire market cap, Einhorn notes. He sees a chance the company will return capital to shareholders over the next year.
While the firm recognizes global economic weakness and the government ownership overhang, Greenlight believes these concerns are priced in and there is significant upside from current levels even if the U.S. experiences a very slow "new normal" type of economic recovery.
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