The Morning Brief: Caterpillar is the Latest Short to Cause Greenlight Angst

April 26, 2017  


The company surged on Tuesday after a strong earnings report and is up double-digits for the year.

Bad day for David Einhorn’s Greenlight Capital. Shares of Caterpillar surged nearly 8 percent, to close at $104.42, after the maker of construction and mining equipment, diesel engines, and industrial gas turbines reported quarterly earnings that easily exceeded Wall Street expectations. The stock is now up 12.6 percent for the year.

In its year-end letter, Greenlight told clients it was short Caterpillar and a few other similar industrial cyclicals that it said moved up sharply in price after the election. In its first-quarter letter that made the rounds on Tuesday, the long-short hedge fund firm said that while it made money on its longs during the first three months, it lost money on its shorts. It was an especially rough period for its bubble basket and Tesla in particular. "Perhaps as the prospects for tax reform have dimmed, the market has regained enthusiasm for profitless companies that aren’t at risk of paying taxes," Greenlight states in its letter. "A number of these stocks are back in full-blown momentum mode." It lamented that analysts are still hiking their target prices, "which the market treats as news."

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Shares of hedge fund favorite ConAgra Brands fell 3.9 percent, to close at $39.33, after UBS downgraded the shares to "sell" and cut its price target from $38 to $35, asserting its premium price-to-earnings multiple "does not reflect decelerating EPS growth and industry risks."

The investment bank states that the company’s "decelerating rate of margin improvement and limited room for positive" consensus earnings revisions will cause the stock’s relative premium to the market to contract over the next few quarters. UBS also trimmed 2018 earnings per share estimates.

At the end of 2016, the stock was the largest U.S. long position of JANA Partners. It also owned call options on the stock. ConAgra was also the sixth largest long of Ratan Capital Management, the reeling former Tiger Seed headed by Nehal Chopra.

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Tide Point Capital Management disclosed that as of March 30 it owned 2 million shares of Kayne Anderson Acquisition Corp., or 5.7 percent of the company created to do deals in the energy business.

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Several hedge fund firms were among the investors who recently participated in a private placement of stock and warrants of SteadyMed Therapeutics, a specialty pharmaceutical company that focuses on developing drugs to treat orphan and high-value diseases. The hedge funds are Adage Capital Management, Deerfield Management, and Kingdon Capital Management. The other investor was OrbiMed, a private equity firm which specializes in health care companies.


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