Einhorn’s Greenlight Bullish on ‘Cheap Stocks,’ Bought Dell

Greenlight Capital Inc., the hedge fund run by David Einhorn, bought shares of Dell Inc. and Xerox Corp. in the fourth quarter as part of a bet on undervalued U.S. stocks, according to a letter to investors.

“Our current strategy is to own cheap stocks of good businesses, largely in the United States,” Greenlight said in a letter dated Jan. 17, a copy of which was obtained by Bloomberg News. “We are more net long equities than we have been in some time, as we believe that many stocks have reached a point where they are simply cheap enough to own even if some trouble awaits us.”

Dell, the third-largest personal-computer maker, has broadened its products beyond computers and is undervalued, the New York-based hedge fund said in the letter. Greenlight bought Dell at an average price of $15.53. Shares of the Round Rock, Texas-based company gained 2 percent to $16.40 at 1:17 p.m. in New York trading.

Einhorn, whose fund can bet on rising and falling prices, is best known for shorting Lehman Brothers Holdings Inc. before it collapsed in September 2008. Greenlight gained 2.9 percent last year, according to the letter.

Xerox, Travelers

Greenlight also purchased shares of Xerox because the firm remains bullish on the Norwalk, Connecticut-based firm’s acquisition of Affiliated Computer Services Inc. in 2010. Einhorn’s fund initially bought Xerox after the takeover but sold amid concerns that the provider of printers and business services faced potential losses from the March 11 earthquake and tsunami in Japan. Greenlight originally bought Xerox at around $9.35 and repurchased the stock at $7.61, according to the letter.

Greenlight sold its stake in Travelers Cos. because recent losses due to U.S. catastrophes, including tornadoes and Hurricane Irene, have hampered the New York-based insurer’s share-buyback program, the firm said in the letter. Travelers Chief Executive Officer Jay Fishman said last month that the company expected to repurchase $1.1 billion to $1.2 billion of shares in the fourth quarter of 2011. That compares with $1.6 billion in the year-earlier period.

Greenlight owned about 1 percent of outstanding shares of Travelers at the end of the third quarter, according to a regulatory filing, and posted a “double-digit return” after selling its entire stake, according to the letter.

Short Sales

Greenlight also exited Becton, Dickinson & Co., CVS Caremark Corp. and Employers Holdings Inc. The firm covered a bet that the price of First Solar Inc. shares would decline, one of “the most profitable shorts in the history of the Partnership,” according to the letter, and also closed its short position on Diamond Foods Inc.

Short selling is when a manager borrows a share and sells it in hopes of buying it back later at a lower price.

Greenlight said it continues to bet on a weaker Japanese yen, a wager that contributed to the firm’s biggest loss last year after the currency gained more than 5 percent amid Europe’s debt problems and following the earthquake and tsunami.

The firm said it continues to hold gold and gold mining equities and expects European sovereign bond prices to fall. Greenlight “did well” in 2011 by investing in credit default swaps, or securities used to insure against default, on European sovereign debt, according to the letter.