Einhorn Boosts Apple Stake, Praises Capital-Return PlanNoah Buhayar and Zachary Tracer
Hedge fund manager David Einhorn said he increased his bet on Apple Inc. and that the iPhone maker took a “major step forward” by issuing debt so it could return cash to investors.
Einhorn anticipates more innovations from the Cupertino, California-based technology company, he said on a conference call today held by his Greenlight Capital Re Ltd. reinsurer.
“Our thesis remains that Apple has a terrific operating platform,” he said. “Its loyal, sticky and growing customer base will make repeated purchases of a growing portfolio of Apple products.”
Apple Chief Executive Officer Tim Cook announced the largest stock-repurchase program in history last month amid mounting pressure from Einhorn, 44, and other investors to return more cash to shareholders. Apple posted its first profit decline in a decade last quarter as the iPad maker faced accelerating competition from rivals including Samsung Electronics Co.
“This is a vastly more shareholder friendly capital-allocation policy than where Apple stood a few months ago,” Einhorn said. “We’ve added to our Apple position. Now we just wait for the release of Apple’s next blockbuster product.”
Apple’s stock slumped 17 percent in the three months ended March 31, pressuring returns for Einhorn’s hedge fund Greenlight Capital Inc. Einhorn is chairman of Cayman Islands-based Greenlight Re and oversees its investment portfolio. Primary carriers share risks and premiums with reinsurers.
Apple last month raised its quarterly dividend 15 percent to $3.05 a share, from $2.65, and boosted its share-repurchase program to $60 billion from $10 billion. Cook said that new products will come later this year and throughout 2014. The company is working on television products and a watch that’s connected to other Apple devices, people with knowledge of the plans have said.
The iPhone maker has jumped 13 percent since announcing the new capital plan on April 23. The company slipped about 0.5 percent to $458.66 at 4 p.m. in New York. The reinsurer advanced 1.3 percent and is up 8.4 percent this year.
Einhorn’s hedge fund held more than 1.3 million Apple shares as of Dec. 31, according to data compiled by Bloomberg. Earlier this year, he had urged Apple to issue high-yielding preferred stock to carve out more cash for investors. He successfully sued to block a vote at Apple’s annual shareholder meeting in February that would have required the company to seek investors’ approval for creating preferred stock.
Einhorn’s comments are probably welcome at Apple, because the hedge-fund manager had called for more payouts, said Gene Munster, an analyst at Piper Jaffray Cos. A Greenlight Re spokesman declined after the conference call to disclose the size or dates of Einhorn’s most recent purchases.
“He’s been the thorn in Apple’s side when it comes to capital distribution,” Munster, who rates the company overweight, said in a phone interview. “He’s putting his money where his mouth is and endorsing the current capital-distribution plan.”
Apple issued a record $17 billion in bonds last week to fund the return of cash to shareholders. The offering included $3 billion of floating-rate notes and fixed-rate securities in six parts with maturities from three to 30 years.
Greenlight Re said yesterday that first-quarter profit fell 13 percent to $56.7 million from a year earlier. The reinsurer’s investment portfolio gained 5.8 percent in the period, compared with 6.5 percent in the first quarter of 2012.
Einhorn said that about a quarter of the investment result came from a bet on a decline in the yen, which had been his most unprofitable wager in 2010 and 2011. Haruhiko Kuroda, who was confirmed as Bank of Japan governor in March, last month began a campaign to end falling prices by doubling monthly bond purchases in a bid to reach 2 percent inflation in two years.
“The Bank of Japan officially joined the global monetary printing race,” Einhorn said. “It seems that every time a central banker takes a more aggressive action, without short-term negative consequences, it reinforces the behavior of other central bankers.”
The hedge-fund manager previously criticized central bank policy in the U.S., where the Federal Reserve has kept its target interest rate for overnight loans among banks near zero since December 2008 and embarked on a bond buying program that has expanded its balance sheet to more than $3 trillion. Actions by central banks affirm his view that gold prices will rise, even after the metal’s price decline in April, he said.
“Recent events, including the regime change at the Bank of Japan, support our long-term thesis of both a weaker yen, and stronger gold,” Einhorn said.