3 Contrarian Stocks Einhorn Just Bought

BOSTON ( TheStreet) -- David Einhorn, manager of long-short hedge fund Greenlight Capital, held a concentrated portfolio of 38 stocks at the end of the first quarter. Greenlight has returned upwards of 22% a year since its 1996 inception, underscoring Einhorn's investment acumen. His portfolio underwent a dramatic change during the last quarter.

David Einhorn (Greenlight Capital)

He amplified five positions: Travelers ( TRV), Pfizer ( PFE), Becton Dickinson ( BDX), Microsoft ( MSFT) and BioFuel Energy ( BIOF).

Einhorn reduced his stakes in 11 stocks, most notably: Ensco ( ESV), Cardinal Health ( CAH), CIT Group ( CIT), CareFusion ( CFN) and Transatlantic Holdings ( TRH).

He grew even more pessimistic about seven stocks, holdings from the fourth-quarter, which the fund completely sold out of: Everest Re Group ( RE), Health Management ( HMA), Health Net ( HNT), Potash ( POT), Verigy ( VRGY), Flagstar Bancorp ( FBC) and Capitol Federal ( CFFND).

In contrast, Einhorn grew particularly bullish on seven stocks during the quarter, building new positions in: AmDocs ( DOX), Seagate Technology ( SKH), HCA Holdings ( HCA) and CVS Caremark ( CVS).

Here is a closer look at three more of Einhorn's new positions. These three stocks may be worth consideration for individual investors.

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3. Interestingly, Einhorn added General Motors ( GM) to his portfolio during the first quarter, purchasing 3.4 million shares, equal to roughly $106 million, or 2.1% of his total portfolio value.

Hedge-fund manager David Tepper, who employs a similar strategy, dumped GM in the first quarter, eliminating his entire position. GM delivered a solid first-quarter report, boosting its net sales 15%, past $36 billion, and more than tripling GAAP earnings.

GM ranks among the highest-rated U.S. stocks, most recently garnering an upgrade from UBS, previously cautious about GM, to "buy." UBS boosted its 12-month price target 20%, from $35 to $42, while altering its thesis for the company, which, UBS believes, is poised to steal market share from leading auto-manufacturer Toyota ( TM) due to Japanese supply-chain disruptions. However, a government sale of its still-sizable stake is weighing on investors. GM has dropped 16% in 2011. Net operating-loss carry-forwards, stemming from its bankruptcy restructuring, are worth as much as $19 billion in tax-shielded profits and are yet another reason to consider GM's stock.

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2. Yahoo ( YHOO) is an Internet search company, with valuable investments overseas, including a 40% stake in Alibaba Group, a Chinese e-commerce firm, which recently transferred its Alipay unit to a separate entity without knowledge or approval of Yahoo.

Yahoo, considered an attractive takeover target due to its overseas Internet holdings, has tumbled 4.6% in 2011, in part due to Alibaba's disconcerting move. The stock is down 2.5% over 12 months.

Einhorn acquired 8.5 million shares of Yahoo during the first quarter, translating to a position of $142 million, or 2.8% of his total long portfolio. Yahoo is cheap relative to peer investments, costing a trailing earnings multiple of 19, a cash flow multiple of 13 and a sales multiple of 4.3, 45%, 48% and 52% industry discounts. Yahoo's trailing four-quarter pre-tax margin, at 23%, ranks in the 92nd percentile for the Internet commerce and services industry.

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1. Best Buy ( BBY) was a position that Einhorn disclosed ahead of his 13F filing, in his quarterly letter. Best Buy was Greenlight's largest new position for the first quarter. The firm purchased 6 million shares, equal to about $172 million. Einhorn, who established his position at an average price of $33.33, is in the red on this bet. Still, he makes a compelling argument for the down-but-not-out security.

In his quarterly letter, Einhorn stressed that investors are far too concerned that Best Buy has reached its growth limit and will suffer declining sales in the future. In particular, he views Best Buy's holiday dip as a fleeting issue rather than a signal of looming obsolescence. In essence, Einhorn is making a bet against online shopping for electronics. He sees Best Buy offering customer value through "store help, merchandising, service and being able to walk out of the store with your purchase." The challenge of seeking a refund or repair for an Internet-purchased high-ticket item, such as a 3D television, illustrates Einhorn's point. Internet shopping may dominate for low-ticket, easily replaceable items, but brick-and-mortar will likely retain a lock on expensive goods.

Despite such security, Best Buy will face indisputable headwinds as its U.S. business matures in coming years and it fine-tunes its combination sales strategy, offering products through both its Web site and retail outlets. Einhorn concedes that square footage will drop by a couple percent a year. Still, he is encouraged by the Best Buy Mobile concept. Though rarely discussed, Best Buy is among the world's largest retailers of cellular phones, offering models from all major carriers, at stores and stand-alone mall kiosks. It was the first third-party retailer to start selling the Apple ( AAPL) iPhone and iPad. Einhorn is also optimistic about Best Buy's international growth prospects, going forward.

-- Written by Jake Lynch in Boston.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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