Verizon and Vodafone near record deal.

Back in February, I wrote about a safe investment with a great upside, Vodafone (VOD).  I conservatively valued VOD at $180 billion. In that valuation, I had valued VOD’s 45% stake in Verizon Wireless at $80 billion. It seems my estimates were off as it looks like Verizon is finally (after much speculation) buying VOD’s stake in Verizon Wireless for $130 billion.

I expect VOD to go up even more on Tuesday because at this price it is still very cheap on a sum of parts valuation. Hopefully, investors get a big special dividend. I continue to hold.

Disclosure: I am long VOD

Insight From Einhorn’s Latest Picks

Greenlight Capital, the hedge fund run by famed investor David Einhorn, just came out with their quarterly letter to share holders. He had interesting comments on some positions:

Apple (AAPL)

Apple is Greenlight’s largest position. Greenlight bought back the Apple shares it had sold in the third quarter. In my last article, I advised readers to stay on the sideline on Apple shares. Obviously, Apple took a big hit today after reporting quarterly results yesterday. Even at $450, I would continue to be cautious and stay on the sideline. If it hits near $400, I will most likely initiate a position, but as I mentioned before this stock does not have huge upside. So, it makes sense to be cautious. 

General Motors (GM)

General Motors is one of Greenlight’s top holdings. He is still bullish on GM even after the recent run up. I agree and am still long GM. It has multiple catalysts:

  • Buy back even more of its shares from the government. They already bought back 11% which should increase eps.
  • Lower pension risks further. It announced last year that Prudential would administer and pay $26 billion of its pension obligations at a cost of $3.5 to $4.5 billion to the company. It can use the excess capital to move more of its pension obligations to Prudential.
  • United States vehicle sales return to a more normalized level as the economy picks up.
  • Europe economy picks up.

Marvell Technology (MRVL)

Marvell used to be one of Greenlight’s top holdings. However, the stock has been one of his worst performers. Earnings and revenue have been down. Recently, a jury awarded Carnegie Mellon University (my alma mater) $1 billion for patent infringement. Einhorn thinks that award will be reduced and the market is also discounting a new product cycle. 

I am avoiding Marvell because I am not confident that the patent infringement award will be reduced and do not understand its products well enough to make an investment.

Vodafone (VOD)

Vodafone is by far the most interesting of Einhorn’s stock picks. According to Einhorn:

  • It pays a 7% dividend.
  • It owns 45% of Verizon Wireless.
  • It trades at 12 times cash earnings excluding the Verizon Wireless ownership.

This definitely seems like a great investment. I will look more into Vodafone this weekend and share my findings.

Here is the letter.

Disclosure: I am long GM.