We got a glimpse into what some of the biggest and best hedge funds were buying last week.
Per the quarterly filing requirement with the SEC, certain hedge funds have to disclose their holdings via a form commonly referred to a 13F.
One of the biggest standouts from these 13Fs happened to come from one of the most watched hedge funds, billionaire David Einhorn’s Greenlight Capital.
Greenlight Capital added General Motors (NYSE: GM) to its portfolio, and it did so in a big way. This was the only major new purchase for Einhorn last quarter, and the nearly 9.5 million shares of GM he purchased puts the Detroit auto stock as one of Greenlight’s top five holdings.
Greenlight doesn’t have a lot of turnover in its portfolio. The hedge fund buys what it wants to own for several years. Apple (NASDAQ: AAPL) has been a top three holding for Greenlight for close to five years now.
Another top Greenlight holding is Micron Technology (NYSE: MU), which has been in its top five since September 2013.
The stock prices of both Apple and Micron are up over 100% during the last 24 months. What’s interesting with Greenlight and GM is that investors can still buy the automaker at prices close to where Greenlight was buying it. GM’s stock price is just around the midpoint of where it traded during the first quarter, which is the time period when Greenlight was buying.
Things get more interesting. Recall that GM settled with a consortium of hedge funds earlier this year which were pushing for capital returns to shareholders. GM agreed to return upwards of $5 billion to its shareholders via buybacks. That buyback will be done by the end of 2016. For a $56 billion market cap company, that’s not to be overlooked.
Even with the announced buyback, GM shares have been lagging its peers. GM’s stock is down 5% over the last three months, while Honda Motor Co. (NYSE: HMC) and Toyota Motor Corp. (NYSE: TM) are both up close to 5% over the same period.
Along with its renewed focus on returning cash to shareholders, GM has gotten more disciplined in terms of finding projects to undertake. It recently upped its target return on invested capital for projects from 15% to 20%.
This should drive GM to further boost cost efficiencies and undertake restructuring, including the exit of various markets like Australia and the shutdown of Chevrolet Europe.
One potential overhang for GM shares has been that cheap gas hasn’t necessarily translated into increased sales of gas guzzling vehicles – like trucks – which is where GM has a leadership position.
It’s easy to see GM get distracted by this, but note that GM’s models have gone through a complete overhaul during the last half decade. It now has a number of compact and midsize cars resonating with buyers.
With a better lineup of vehicles and improved manufacturing efficiencies, GM is no longer beholden to high labor costs. It operates a demand pull model these days, where it can produce based on demand, versus having to produce vehicles for the sake of meeting labor costs. This leads to less brand dilution, where GM doesn’t find itself overproducing and then dumping cars to rental companies.
All this marks a new transparent and disciplined GM. And when it increases its quarterly dividend by 20% next month to 36 cents a share, you’ll be looking at a 4.1% dividend yield.
There’s no reason to believe that income-starved investors won’t be snapping up GM shares in the near term. Top auto stock competitor Ford (NYSE: F) is offering a 3.9% dividend yield, but with a valuation that’s 20% higher on a price-to-earnings basis.
GM as a company or a stock isn’t new and shiny like electric car manufacturer Tesla (NASDAQ: TSLA), but the key is that it’s a capital return story – something Greenlight has already realized.
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