David Einhorn: "I'm Not A Homerun Hitter"

David Einhorn of Greenlight Capital spoke at the Ira Sohn Conference yesterday and gave a couple of investment ideas, and showed his love for baseball, by starting his presentation off with a quote from Ken Griffey Jr. and ended it with a "Let's go Mets" chant. Einhorn quoted Griffey to start by saying, "I don't consider myself a homerun hitter, but when I'm seeing it well, and hitting it well, it will go out." He also quoted Jean Claude-Juncker, Luxembourg Prime Minister and Euro Group President by saying, "When it becomes serious, you have to lie." After the loquacious Einhorn finished quoting, he went on to give his two ideas. The first idea was Delta Lloyd, a Dutch Insurer. Einhorn said the book value is 24€, and it trades at 15.48€, as of yesterday. The embedded value of Dutch Lloyd is 32€. Einhorn touted the company as being a strong player in the life insurance business, and is the number 4 Dutch life insurer, and the only one that did not have to receive a federal bailout. It holds 2.3 times the amount of capital required, and 40% more than Delta Lloyd's own target. It has a strong balance sheet, a 6% dividend yield, does not use debt much, and Einhorn believes if certain actions are taken, shareholders, not policyholders will keep the upside. The company's investment portfolio is comprised of 80% fixed income, and 20% in real estate and equities. Delta Lloyd has done a great job of avoiding risk, particularly in Europe. Based on the company's equity portfolio, the stock has a P/E of less than 5. The value here is that Aviva, its parent company, still owns 43% of the company. It sold 30% of the company in the IPO, 15% in April 2011 at 17.25€. The Aviva overhang is depressing the stock, although Aviva has signaled the stake is being held for value. Greenlight has been in discussion with Aviva to purchase the rest of the stake, but has been rebuffed so far. Einhorn moved on to his second idea, which is Microsoft MSFT. Five years ago, Einhorn argued that Micrsoft was the equivalent of Alex Rodriguez, but now, he says that only parts of Microsoft are A-Rod. In the past five years, earnings per share have doubled, but the search business is still bleeding cash. Einhorn said that perhaps it was time for Microsoft to consider strategic alternatives for the search business, perhaps offering it to Facebook in exchange for a big chunk of the social networking giant. The other sectors of Microsoft are seeing double digit growth. Einhorn said that any success in the smartphone industry is not baked in to the stock, rightfully so, considering past transgressions. Over the last 5 years, revenues have grown four times faster than the S&P 500, its doubled its doubled dividend, now trades at a remarkable discount to the S&P. The major problem with Microsoft is Steve Ballmer, who appears to be stuck in the past. Investments over the past 5 years have been barely above average, but Einhorn said he sees opportunities, particularly in the cloud computing space. Some analysts think that Microsoft has over $5 billion in revenues from software-as-a-service, which would make it twice as big as Salesforce.com CRM. The Kinect is a great product, and has uses outside of gaming, and Sharepoint is another great product. Einhorn went on to say, that because of Microsoft's "Charlie Brown management," the company is getting beat on exciting and innovative products. Ballmer is afraid to impinge on anything that might touch Windows or Office, despite these products potentially facing risks down the road from competitors. Ballmer has used cash poorly on acquisitions, and the research & development is subpar because of Ballmer's unwillingness to touch anything that would cut into Windows or Office. As such, Microsoft is losing out in high growth areas. Ballmer is stuck in the past Einhorn said, even going so far as to shoot down a tablet that Microsoft had in the works, the Courier, because it had an operating system that borrowed from Windows, but had its own OS. Ballmer deemed it "unnecessary." Einhorn concluded by saying that Ballmer should let people use products they want to use, not what he wants them to use, and that it was time for Microsoft's board to consider giving someone else a chance.