Hedge Fund Action Revealed: Apple ‘Attractive’ Below Market P-E Ratio

Greenlight Capital’s David Einhorn made an impression at the annual Sohn Investment Conference last Wednesday in New York after his bearish mention of Martin Maretta Materials (NYSE:MLM) caused shares of the construction-aggregates maker to plummet over 10 percent in just minutes. Even though Einhorn was among more than a dozen investors — including Bill Ackman, John Paulson, and Steve Mandel — he had the most impact.

“The Einhorn Effect” was also seen on companies like Lehman Brothers’ St. Joe (NYSE:JOE) and Green Mountain Coffee Roasters (NASDAQ:GMCR) after similar bearish calls. On the other hand, Herbalife (NYSE:HLF) rallied 10 percent amid investor relief that Einhorn had not attacked the company during the conference call on May 1. As for Martin Marietta, Einhorn noted that the company was trading from a steep 35 times earnings, which is way above the valuation of other companies that rely on government contracts.

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Einhorn also favors Apple (NASDAQ:AAPL), and considers the stock — at around $550 — attractively priced as it’s trading below market price/earnings ratio. Apple’s ecosystem creates high switching costs and a sticky customer base. However, Einhorn argued that real-estate investment trusts could be vulnerable since 9 percent of the market is helped by hot-money Japanese funds.

The Chief Executive Officer of Pershing Square Ackman is a fan of J.C. Penney (NYSE:JCP), saying that the shares are supported by Penney’s valuable real-estate portfolio and $3 billion of inventory. Penney shares had fallen 20 percent, to $26 that day on a wider-than-expected quarterly loss. But Ackman continued to express confidence in the company’s strategy of involving everyday pricing, fewer markdowns, more upscale offerings and “stores within a store” from the likes of Nike (NYSE:NKE), Tourneau, and Michael Graves Design.

Lone Pine CEO Steve Mandel has shown his affection for Kohl’s (NYSE:KSS), saying that the retailer bought back 15 percent of its stock in 2011 and may repurchase another 8 percent to 10 percent this year. Even though the shares, at $47, have been weak amid disappointing sales, Mandel sees improvement in the second half and a potential $5.50 a share in profit in 2013.

Meryl Witmer of Eagle Capital favors T-shirt maker Gildan Activewear (NYSE:GIL). Witmer anticipates that the falling cotton prices will help company profits, expecting the stock to double from $25 and profits to hit $3.50 a share in 2014 or 2015, up from an estimated $1.30 this year. Witmer is also a believer in Viacom (NYSE:VIAB), arguing that it could reach over $80 in a few years from the recent $47, as earnings rise to around $6.70 a share in 2015 from a projected $4.54 this year.

John Paulson is a fan of AngloGold Ashanti (NYSE:AU), noting that the company is at its lowest valuation in 10 years — trading at $34 or eight times projected earnings. He is also a fan of Caesars Entertainment (NASDAQ:CZR). Other investors, like Hoplite Capital’s John Lykouretzos, recommended Starbucks (NASDAQ:SBUX), while Dwight Anderson of Ospraie Capital advocated for Westlake Chemical (NYSE:WLK)

Some investors are showing concern over Argentina’s nationalization of YPF, but Redwood Capital’s Jonathan Kolatch doubts the country will default or seek to restructure its debt. On the other hand, DoubleLine Capital CEO Jeffrey Gundlach worries about the impact of excessive debt and austerity worldwide. Meanwhile, he is bearish on Nordstrom (NYSE:JWN) and Apple, and he is bullish on battered natural-gas and Spanish stocks.

The advice from Sohn speakers last year would have produced mixed results, with good calls on First Solar (NASDAQ:FSLR), Vestas Wind, and Crosstex Energy (NASDAQ:XTEX). Losers included bullish calls on Sprint (NYSE:S), Goldman Sachs (NYSE:GS), and Tiffany Co. (NYSE:TIF).

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