Billionaire hedge fund manager David Einhorn, well known for calling out companies on their shenanigans and making a lot of money in the process, has made some major portfolio moves recently.
Namely, Einhorn got bullish on luxury fashion retailer Michael Kors (KORS) stock — and re-entered a short position in Keurig Green Mountain Inc (GMCR), one of the positions that helped to make him famous.
Although a well-known figure in the world of finance before the Great Recession, Einhorn was thrust into Wall Street’s spotlight in 2008, when he correctly predicted the precipitous decline of Lehman Brothers, shorting the stock on the way down.
GMCR Keeps Paying Off
After an incredible run-up into 2011 — GMCR had roared from $8 a share in 2009 to $108 at its peak in 2011 — Einhorn publicly announced his short position in the coffee brewer and pod-maker.
The wildly lucrative K-Cup was going off patent, and the market was about to be flooded with imitators.
What followed was a veritable meltdown in GMCR shares, which plummeted to sub-$40 levels within a year. Einhorn made a fortune.
Now, in a letter to his hedge fund investors, Einhorn announced that he re-entered the GMCR short play, this time initiating his bearish position at an average price of $102.08, according to Reuters.
That’s been a savvy play, as GMCR currently trades in the low-to-mid $50s.
This time, the patent issue isn’t the crux of the thesis. No, this time the Keurig Kold — a delayed, overpriced home soda-brewing machine — is to blame for the stock’s recent cold streak. It will retail for between $299 and $369, and won’t be fully rolled out until the 2016 holiday season.
Investors were not at all pleased when that news came out.
The Bet on KORS Stock
As for Einhorn’s bullish position on KORS, the thesis comes down to a value play, which his hedge fund, Greenlight Capital, is well known for.
KORS stock is down 47% in 2015 as North American sales have languished.
Some investors worry that the Michael Kors brand could suffer dilution as its high-end handbags increasingly find their way into outlets. This exact problem has helped to decimate Coach (COH) stock in recent years.
Einhorn thinks that North American sales will recover, and that the negative effects of a shuttered distribution center will be overcome. Greenlight is also betting on sales growth overseas and the emergence of Michael Kors’ footwear line.
Fashion, of course, is a notoriously fickle industry, making it difficult to predict long-term winners. Even if a company is fundamentally sound, consumers can change their buying habits practically overnight.
Only time will tell how Einhorn’s bets on KORS and GMCR will do, but it seems to me that GMCR is the more attractive opportunity.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.