The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.By James Brumley NEW YORK ( StreetAuthority) -- It's that time of year again, when investment managers are required to disclose their fund's holdings to the SEC, and by extension, to all investors. And for most investment companies and hedge funds, it's a pretty straight-forward process . . . just make a list of all the stocks you own, and how much of them you own. If you're Greenlight Capital's David Einhorn, however, it's not quite that simple. With Einhorn's willingness to hold short as well as long positions (not to mention his willingness to speak out about them) in the $7 billion hedge fund, it's a bit of a process to truly figure out what he's thinking, or trading. On the other hand, considering his fund has returned an average of 21% per year for the past 15 years, sifting through the data is worth the effort.
The other two new positions are likely to be intact, as they seem to be longer-term ideas. As such, they're the ones investors may want to seriously consider. The first of these is Computer Sciences ( CSC). Einhorn bought 2.4 million shares of the $4 billion computer services firm, making his stake worth $61 million. Computer Sciences is a bit of a leap of faith. The company isn't profitable on a trailing basis, but is expected to swing to a profit -- in spades -- this year. The pros say the outfit is poised to earn $2.69 per share for the current fiscal year (ending in March of 2013), and earn $3.11 per share next fiscal year, thanks to a recently announced $1 billion cost-cutting effort. That translates into a forward-looking price-to-earnings ratio of only about 8, which is a bargain by almost any standard. The other newcomer to the Greenlight portfolio is the 561,934 share, $5.6-million position in Roundy's ( RNDY). Yes, this is the same grocery store that saw its shares take a 20% hit a couple of weeks ago on weak same-store as well as overall sales results. Net earnings cratered, from 29 cents per share a year earlier to 6 cents in the first quarter of this year. It's an inauspicious start. And besides, what's an aggressive guy like Einhorn want with a grocery store stock anyway? Actually, he's probably doing what all investors should be doing: looking at the bigger picture. As it turns out, on an operating basis, Roundy's actually earned 28 cents per share last quarter, topping estimates of 26 cents. The company also expects its expansion effort to lead to annual revenue growth of 2.5% to 3%. That's not a lot, but in the grocery business, where margins are notoriously thin, a little more incremental revenue goes a long way toward the bottom line. Risks to Consider: While it's possible for all hedge funds, it's especially possible for an actively-traded fund like Greenlight Capital, that by the time you learn about a position, it's actually been exited for weeks. Action to Take--> While Greenlight Capital added just three new positions and only added to three pre-existing positions, there's actually a lot of potential within that small group.
My top pick among those is Roundy's, with Computer Science Corp. being a close runner-up. While it's not without its challenges, Roundy's didn't deserve the hit it suffered earlier in the month. Investors just can't get past the poor GAAP results yet, even if they're temporary. The forward-looking P/E of less than 7 for the grocer implies there's about 40% upside before it's valued on par with its peers. Computer Science Corp. is also about 40% undervalued, though it could take longer to re-inflate the stock's price, since the value is based on earnings that won't be reported for more than a year. Still, it's a compelling idea, too.
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