NEW YORK (
) - When David Einhorn shorts, investors generally listen. When he goes long, investors best take notice.
And in an appearance at the Value Investing Congress on Tuesday, Greenlight Capital's head honcho discussed the benefits of a long investment thesis on
(GM - Get Report)
, which he believes could earn as much as $6 per share in 2014.
Einhorn argued the shares are significantly undervalued at these levels, as the market focuses on the negatives, and not the positives. GM shares were up more than 2% at $23.58 in recent trades on elevated volume of 12.3 million. Over the past 52 weeks, the stock has appreciated nearly 8%.
Prior to going bankrupt, GM had a bloated cost structure, but that changed after the government bailed them out in 2009. "GM stock remains an ugly duckling," Einhorn said during his presentation, as investors have long memories, and worry about the government ownership overhang and European business difficulties.
Since coming back to the public markets, GM has cleaned up its balance sheet, with $32 billion in cash (which accounts for three quarters of the company's market cap), and $38 billion in liquidity. The company's brand quality is improving across the board, and its pension risks are overblown, Einhorn said.
The Detroit-based automaker has been able to improve its fixed cost structure, as it focuses on its U.S. brands, Chevrolet, GMC, Buick, and Cadillac. Einhorn said GM could buy back the federal government's stake of 500 million shares at $30 each, costing $15 billion, and still be left with $23 billion in liquidity.
As car sales normalize over time in the United States, GM should benefit as product refreshes receive favorable reviews. The product refresh is critical and GM seems to be getting it right, Einhorn noted. The Cadillac ATS is
car of the year.
GM has a strong presence in both China and Brazil with the market shares of first and third, respectively, and with South America seeing a significant product refresh, this should drive share and pricing. Overall international profitability could add $1 in earnings by 2013, Einhorn said.