This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Is David Einhorn's Secret 'Fiscal Cliff' Bet Blowing Up?

NEW YORK ( TheStreet) -- Hedge fund manager David Einhorn has grabbed headlines for suing tech darling Apple (AAPL - Get Report), getting burned on coffee maker Green Mountain Coffee Roasters (GMCR - Get Report) after a public feud and betting the wrong way on high-flying chipmaker Marvell Technologies (MRVL).

But it's what Einhorn isn't saying that may be most relevant to his investors in 2013.

For instance, Einhorn has kept a long-held short trade in ratings agency Moody's (MCO - Get Report) on the down low in recent days, in spite of renewed scrutiny on the legitimacy of AAA ratings ascribed to risky debts prior to the crisis and his confirmation of the bearish bet in October.

Meanwhile, after referring to a short trade against asphalt and concrete producer Martin Marietta (MLM - Get Report) at an investor conference in May, Einhorn's been silent on the company's near 40% gain since he first unveiled the trade.

In fact, at that conference -- called Ira Sohn -- Einhorn surprised investors by disclosing a short trade against Martin Marietta instead of a rumored bet against supplements seller Herbalife (HLF), which Einhorn confirmed Thursday he has no position in.

The Ira Sohn conference was also where Einhorn first referred to the prospect of a $4 to $6 a share preferred dividend paid by Apple, which he continues to press.

But what about Martin Marietta?

Despite comments from Einhorn in May that the company's earnings would fall off a "fiscal cliff" as government stimulus spending on road construction faded and budget austerity measures kicked in, the company has seen earnings and revenue stabilize. Martin Marietta shares fell nearly 10% the day Einhorn disclosed his trade, but have since recovered strongly.

With the company forecast to report growing year-over-year earnings when it discloses fourth-quarter and full-year results this week, Einhorn's short trade may be suffering from an unanticipated recovery in construction and housing markets just as government spending -- the company's largest earnings stream -- faces headwinds.

On Friday, Jefferies analyst Mike Betts upgraded his fourth-quarter and full-year earnings estimates for Martin Marietta and its principal competitor Vulcan Materials (VMC - Get Report), citing stronger-than-expected aggregates and cement shipments in the U.S. reported by the likes of international players Cemex of Mexico and HeidelbergCement of Germany.

Given construction spending in the U.S., and particularly the Southeast, Betts now forecasts Martin Marietta will grow overall aggregates shipments, countering previous estimates of a near 4% fourth-quarter decline. As a result, Betts expects Martin Marietta will post fourth-quarter earnings per share of 57 cents, beating Wall Street earnings forecasts by 6 cents.

At Vulcan Materials -- a company Martin Marietta may continue to pursue as a merger target on friendly terms -- Betts expects a fourth-quarter profit that beats consensus EPS estimates by 10 cents. Betts gives both Martin Marietta and Vulcan Materials "buy" ratings and new price targets of $114 and $63, respectively.

Such forecasts could indicate continued pain for the short trade Einhorn disclosed in May. Since mid-May, Martin Marietta shares have risen over 30% from just above $75 a share to current levels of $98 a share, indicating steep losses for Einhorn -- that is, if he's still shorting the company.

Those share-price gains come amid expectations from the likes of Jefferies' Betts that Martin Marietta may be benefitting from a revival in the construction markets that drive the company's materials orders.

Betts expects "mid-cycle" earnings for the company in 2013. Such a scenario could also counter the logic underpinning Einhorn's short trade.

"Recent earnings benefited from one-time fiscal stimulus that is about to wind down," Einhorn said at the Ira Sohn conference in May. Those comments were also taken negatively for Vulcan Materials, given the prospect of a hostile or friendly merger and their similar earnings profiles.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $124.24 0.00%
CMG $659.19 0.06%
GMCR $113.55 0.26%
MCO $102.09 0.00%
MLM $142.18 0.04%

Markets

DOW 17,678.23 -40.31 -0.23%
S&P 500 2,056.15 -4.90 -0.24%
NASDAQ 4,863.3620 -13.1570 -0.27%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs