With markets lower on Mondayfollowing a rally last week, which stocks are still undervalued? David Einhorn, president of hedge fund Greenlight Capital, shares some of his picks.
Sprint: “Sprint has been a disaster stock,” Einhorn told CNBC. “The Nextel acquisition absolutely killed the company. They almost went bankrupt. But we think they’re in a good spot for a turnaround right now.”
Einhorn highlights the company’s competitive advantage in controlling more spectrum that its competitors, especially as new mobile devices use more and more bandwidth. “There’s an opportunity for Sprint to improve market share, both from better handsets and from having all of this spectrum,” he added.
Vodafone: “It’s the same as Sprint, except they own the Verizon wireless network,” he explains. “Vodafone also has a huge spectrum position in Europe, and I think they’re going to have an opportunity to be a winner there, as well.”
Apple: “Buy one apple device, you want to buy more apple devices. Your kids buy apple devices, you buy them. Now all of a sudden, you have to get your employer to support it,” Einhorn says. “Before you know it, they’re using iPhones and iPads.” He continues: “This is not the early stage, because gosh knows the stock’s done great for a long time. But net out the cash, it’s a market multiple, which is extraordinary for a company doing as well as this.”
Pfizer: “The multiple is very low; there’s a lot of value there compared to where the stock is trading,” he says. “They’ve been muddling along for awhile and trying to build towards dealing with their Lipitor patent expiration. I think it’s a question of waiting for that to go on, and then the world will see, ‘Jeez they’re still earning more than two dollars a share,’ and I think the stock will be revalued.” Pfizer recently announced a change in top management.
CareFusion: “Spun off from Cardinal Health, they have a terrific market share opportunity. Their competitor Baxter has to recall all their pumps,” Einhorn says. “It’s a pretty unlevered balance sheet and the margins are set to expand.”
Einhorn's hedge fund, which is net long about 35 percent, has its largest long position in gold. Einhorn sees asset bubbles forming in other commodities, such as corn and oil, as their prices are buoyed by the Fed’s quantitative easing measures. “I think commodity prices are up because of the easy money policies,” he says.
Einhorn is short the ratings agencies like Moody’s and McGraw Hill, which owns Standard & Poor’s. He is also bearish on the Saint Joe Company, a real estate developer based in Florida.
CNBC Data Pages:
David Einhorn holds positions in all of the investments mentioned through his hedge fund Greenlight Capital.