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David Einhorn Goes Long CNC And CNH; Laments We Are At Fartcoin Stage Of Market Cycle

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David Einhorn Greenlight Capital
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David Einhorn’s Q4 2024 letter to Greenlight Capital investors, discussing his long positions in CNH Industrial (NYSE:CNH) and Centene (NYSE:CNC). See the full letter at the bottom of this post.

Dear Partner:

The Greenlight Capital funds (the “Partnerships”) returned 7.2% in 2024, net of fees and expenses, compared to 25.0% for the S&P 500 index. Since the inception of Greenlight Capital in May 1996, the Partnerships have returned 3,117% cumulatively or 12.9% annualized, both net of fees and expenses. Over the same period, the S&P 500 index has returned 1,421% or 10.0% annualized. Greenlight’s investors have earned $5.7 billion, net of fees and expenses, since inception.

Donald Trump was inaugurated yesterday. While 2024 was dominated by election uncertainty, with the election now behind us, it feels like we are faced with more uncertainty than ever. We know who the President is, but it’s anyone’s guess as to what he will do. We carefully followed the campaign, but don’t seem to remember any discussion about territorial expansion. President Trump now aspires to take over Greenland, Canada and the Panama Canal. This could be Manifest Destiny Part 2: the New American Colonialism, a Trump negotiating position, an attempt to distract from other issues or simply more meme fuel. We’re not sure.

Economic policy is similarly uncertain. Will we have a labor shortage caused by mass deportations and potentially voluntary emigration due to the removal of benefits and the fear of arrest? Will we have large tariffs? Will the Department of Government Efficiency eliminate $1 trillion from government spending? Will any savings generated be allowed to reduce the deficit, or will they be directed to offset additional tax cuts and/or new spending initiatives favored by the new administration? How will financial markets react to all this?

MicroStrategy (MSTR)

There is an open debate as to whether Bitcoin will at some point enter the mainstream as an official currency. In fact, there is a bill before Congress for the U.S. to establish a “Strategic Bitcoin Reserve” and buy one million Bitcoins over five years. The bill’s purpose appears to be the use of public funds to ramp up the price of Bitcoin, thereby enhancing the wealth of existing Bitcoin holders. This seems a dubious use of taxpayer funds, but the new administration has a lot of Bitcoin-owning supporters, so it might happen. More likely, cooler heads will decide that the government should not borrow another trillion dollars in the bond market to speculate in Bitcoin and that there is, in fact, nothing strategic about doing so.

One of the biggest owners of Bitcoin is MicroStrategy (NASDAQ:MSTR). While MSTR owns a small software business, its principal pursuit is buying Bitcoin. In practice, MSTR is an investment company that buys and holds Bitcoin.2 MSTR trades at a large premium to the value of the underlying Bitcoin it holds. The idea is to raise money from new investors at a premium and use the proceeds to buy more Bitcoin. Since the Bitcoin that MSTR buys costs less than the Bitcoin-implied value of MSTR’s stock, the new investment is dilutive to new investors but accretive to existing investors. MSTR’s promoters have labeled the return to existing investors created by this scheme the “Bitcoin yield.” As Bitcoin itself yields nothing, the Bitcoin yield is simply a measure of the Ponzi finance’s effectiveness. Lately, it has been pretty effective.

A Year In Review

Coming off an extraordinary 2022 and an excellent 2023, we had high hopes for 2024. The year started strong, slid into ok, and finished subpar. In early August, we were up double digits and roughly in line with the S&P 500. From that point on, our paths diverged.

The more challenging results stemmed from a few different unfortunate events: the FTC successfully blocked Capri’s (NYSE:CPRI) sale to Tapestry (more on that below); HP (HPQ) issued weak guidance for the first part of 2025; Solvay (EBR:SOLB) reported results that, while superficially sufficient, provided enough fodder for skeptics to debate earnings quality; and Green Brick Partners (GRBK) declined over concerns that interest rates are rising and homebuilding is slowing. The recent declines of HPQ, SOLB and GRBK were givebacks of prior gains.

We had some good successes, as well. The largest was gold, which appreciated 27% during the year and we supplemented our direct holdings with call options. Kyndryl Holdings (NYSE:KD) appreciated 67% for the year, as the company achieved excellent operating results. Peloton (NASDAQ:PTON) and Tenet Healthcare (NYSE:THC), discussed below, were also large winners during 2024.

In the latter part of the year, the environment for our strategy turned from favorable to unfavorable. Value stocks had a historic 15-day losing streak in December. The Russell 1000 Pure Growth Index outperformed the Pure Value Index by 25% from the beginning of August through the end of the year. This was a similar spread to the first three quarters of 2018. That time we lost over 25%. This time we fared better (or less badly).

Apple (AAPL)

A look at a prior favorite company of ours, Apple (NASDAQ:AAPL), shows that the stock at times sported a single digit P/E ratio and achieved 19.2% compounded revenue growth during the eight years we owned it. The last couple of years AAPL has had no revenue growth, but the P/E multiple has expanded from 22x to 37x. In this environment, we can’t say the multiple won’t expand to 45x a year from now. It might. But we don’t see why it should or what the investment appeal is at this valuation.

Portfolio Positions

We established several other new positions in the second half of 2024.

Peloton Interactive (PTON)

We presented our PTON thesis at the Robin Hood Investors Conference in October and previously sent you copies of the presentation. Yes, David rode for 20 minutes while presenting the thesis.5 PTON was a popular stock during the COVID era as demand for at-home fitness products and services skyrocketed. During this time, the company invested heavily for growth without any regard for profitability or expense management. After multiple missteps and subsequent management changes, the stock fell 98% from its peak price in early 2021. Throughout this time, PTON has maintained a loyal and engaged customer base through its subscription-based business model.

We established a new medium-sized position in CNH Industrial (CNH) and a small position in Centene (CNC).

CNH Industrial (CNH)

CNH is a leading manufacturer of tractors, combines and other agricultural equipment. The farm equipment industry is going through a downcycle led by weak commodity prices and we estimate CNH will ultimately generate trough earnings close to $1 per share. We acquired our position at an average price of $10.53 per share, or less than 11x these expected bottom-ofcycle results. Investor sentiment is extremely weak on the view that the bottom is several years away.

We are optimistic that this current downturn will be shorter and shallower than the prior one experienced about a decade ago. First, the industry experienced strikes and supply chain issues over the last few years, tempering peak sales and inventory levels. Second, CNH and its peers took the corrective action of underproducing to end demand and destocking inventories earlier and more aggressively this time around. As a result, we expect CNH’s sales to return to growth sometime in the coming year simply by producing to end demand, even if farmer spending remains weak. In the meantime, CNH pays a 3% dividend and management has committed to returning the remaining free cash flow through buybacks. We estimate that management will be able to repurchase 5-6% of its stock annually. CNH ended 2024 at $11.33.

Centene (CNC)

CNC is the largest Managed Medicaid company. Shares are trading at a historically low valuation despite the company currently significantly underearning in its Medicaid book. This valuation disconnect is driven by concerns about the impact of a likely non-extension of enhanced ACA exchange subsidies beyond 2025 on CNC’s exchange business, as well as potential attempts by the incoming Trump administration to make adverse changes to the Medicaid program. We think a repricing in the core Medicaid business over the next two years could more than offset some of these potential headwinds, which are not guaranteed to materialize. We acquired our shares at an average price of $60.54, or about 9x current earnings. Management and the board are taking advantage of the situation by sharply ramping up share repurchases, as well as making large personal stock purchases. CNC ended the year at $60.58.

We increased our position in CPRI. When the court blocked CPRI’s sale, we suffered a moderate loss. Fortunately, the position was not large. While we expected the merger would go through and we were surprised by and disagreed with the court’s ruling, we recognized the downside risk if the deal broke. When we get an adverse result on an event like this, our instinct is to declare that our thesis has broken and take our loss. After evaluating this situation, however, we came to the opposite conclusion and added to our holdings. During the period when the merger was pending, CPRI’s results were simply awful. Before the proposed deal was announced, CPRI shares traded at about $35, and when the deal broke, the market took the lousy results into account and the shares fell to about $20. Our current thesis is that the interim results were so awful that they likely reflected management distraction, if not neglect. We also believe there is strategic potential for the company’s Versace and Jimmy Choo brands. It should not be difficult for management to re-engage and achieve at least somewhat less awful results. If that happens the shares should stage a recovery.

We also exited several positions.

With our expectation that the Ukraine War will end, we sold our defense-related ETFs after a year with an approximate 36% IRR.

LivaNova (LIVN)

We sold our position in LivaNova (NASDAQ:LIVN) after three and a half years at a -6% IRR. When we bought the shares, we believed that LIVN had three exciting opportunities in its pipeline. None of those materialized and we decided to move on.

ODP Corporation (ODP)

We sold ODP Corporation (NASDAQ:ODP) after three and a half years at a -13% IRR. We originally believed that while the retail business was deteriorating, the business-to-business unit was stable and quite valuable. Over the years, management spent a lot of money on growth initiatives that ultimately failed. More recently, the business-to-business unit showed deteriorating results. This surprised us, and after updating our field research, we concluded that ODP’s competitive position has deteriorated substantially. As such, we took our loss.

Tenet Healthcare (THC)

We exited THC after two years at a 99% IRR. The investment benefited from a low initial entry price, the company deleveraging by selling a few hospitals at substantial premiums to that implied by the stock price, strong results in the core business and share repurchases. With the valuation at a more reasonable level and the possible risk that the Trump administration might be less friendly to this sector, we decided to declare victory.

Joe and Erica Euler welcomed their son, Cameron Martin Euler, on November 21st. Cam was a last-minute gift to Dad, as his arrival came in the final moments of Joe’s birthday.

Congratulations Joe, Erica, and big brother Brooks on the newest addition to the family!

At year-end, the largest disclosed long positions in the Partnerships were Brighthouse Financial, CONSOL Energy, Green Brick Partners, Lanxess and Solvay. The Partnerships had an average exposure of 90% long and 54% short.

“The things that scare you only make you better and stronger.” -– Octavia Spencer

Best Regards,

Greenlight Capital

Read the full letter here or see more hedge fund letters here.

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The post above is drafted by the collaboration of the Hedge Fund Alpha Team.