Greenlight bought GM on the belief that its shares are low enough that investors will be fully compensated for the possible overhang of the government's stake, which amounts to about one-third of GM's shares. The government helped bail out the nation's largest automaker in 2009. Chief rival Ford (F), on the other hand, didn't receive a handout.
Greenlight also said it thinks GM is now free of potential pension- and health-care "legacy liabilities," and its shares are priced at the low- to mid-point of their true potential in its latest industry cycle. That's because GM is poised to return to a mid-cycle sales volumes helped by an update of its North American product line.It also notes that GM holds $33 billion in cash, which represents "nearly its entire market capitalization," said Greenlight. Einhorn expects the company to return capital to shareholders over the next year. The hedge fund concludes that GM has "significant upside even if the U.S. experiences a very slow, 'new normal' type of economic recovery."
Greenlight said Marvell, which designs semiconductors used in cell phones and computer hard drives, is a new addition based on its relative cheapness and its protected market niche. Its shares are trading at six times its estimated 2012 earnings, net of almost $4 per share in cash. And Greenlight expects the company will buy back 12% of its shares this year and still have about 30% of its market value in cash. "In short, this is a well-run company in structurally defensible markets that is being valued as if it is neither," said Greenlight.