Should you bet against frackers with Einhorn?

Published Mon, May 4 20152:19 PM EDTUpdated Mon, May 4 20154:08 PM EDT

David Einhorn, a hedge fund manager who successfully bet against Lehman Brothers and others, found his next target: oil fracking companies. The Greenlight Capital president laid out his short thesis during the annual Sohn Investment Conference in New York. Shares of Pioneer Natural Resources , EOG Resources , Concho Resources , Continental Resources and Whiting Petroleum dropped as Einhorn mentioned them in his speech at the conference. Should you follow his lead and sell the fracking stocks ... or even bet against them as well? "A business that burns cash and doesn't grow is not worth anything," said Einhorn, making the claim that the fracking companies did not provide any excess cash flow when oil was at $100 so they certainly won't now. Crude oil Monday was trading around $59 a barrel. Einhorn criticized the industry for discouraging investors from looking at GAAP results and instead focusing on metrics created by the companies themselves that purport to show growth. The hedge fund manager called Pioneer the "motherfracker" in his presentation. The company was down almost 3 percent in Monday afternoon trading. He said this slice of the energy industry sold their so-called growth story to Wall Street, who then provided cheap financing to fuel rapid oil drilling with little return over the years. Read More A peak inside bull market shows trouble brewing But that same Wall Street seems to be cooling on this growth story as well. Pioneer shares at their close on Friday were just $7 away from the consensus 12-month price target collected by FactSet. When a stock is near its 12-month Street price forecast and analysts haven't yet raised targets, it is sometimes a bad sign. One reason may be Pioneer's sky-high valuation, which Einhorn pointed out as well. The company's price-earnings ratio is a whopping 167 based on estimated earnings. Its average forward P/E over the last five years is 35 times. Joe Terranova of CNBC's "Halftime Report," who is also chief market strategist at Virtus Investment Partners, defended Pioneer, which reports earnings Wednesday, after Einhorn's speech. "I think it's going to be a solid quarter," said Terranova, who said he would look to buy more shares Monday afternoon on the Einhorn-spurred weakness. Terranova, up 6 percent this year in the Halftime Portfolio competition , owns the stock among his market-beating picks. The trader stated that more than 90 percent of Pioneer's production is hedged at $70 a barrel. Einhorn made it clear he was talking about oil fracking firms and not those who use the hydraulic fracking technique to extract natural gas.

David Einhorn

Adam Jeffery | CNBC

David Einhorn, a hedge fund manager who successfully bet against Lehman Brothers and others, found his next target: oil fracking companies.

The Greenlight Capital president laid out his short thesis during the annual Sohn Investment Conference in New York. Shares of Pioneer Natural Resources, EOG Resources, Concho Resources, Continental Resources and Whiting Petroleum dropped as Einhorn mentioned them in his speech at the conference.