 Good day, fellow investors. Today we're going to start discussing three stocks, the top portfolio positions from David Einhorn, the billionaire hedge fund investor, value investor, and I'm going to share my view of on the companies and his investment thesis, but also the market's concerns, because he's a contrarian, so he buys what's cheap. The stocks we're going to discuss in this series are General Motors, Brighthouse, Financial, and Mylan, his top three portfolio positions. Let's dig into General Motors, and these are the topics for today. So, how Einhorn's position evolved through time to better understand what's going on? What he proposed to the board of General Motors that was rejected to unlock the value, GM's fundamentals, the headwinds for the car sector, GM's cruise and soft banks investment, Einhorn's bull thesis, he's also short Tesla, very important, perhaps not a pair trade, but close, then conclude how to hold GM as a stock, should it be long, short? Am I buying GM at the price-earnings ratio of six? And how does GM fit our comparative YouTube stock market table? So, let's start with how the position evolved over time. It's very important to understand that Einhorn is not really a long-term investor. He buys value, he waits for catalysts for the unlocking of that value, and then he sells. He did that, he started buying 2012 when General Motors was cheap, and then he sold immediately all his complete position in 2014. So, he made a profit there, and then he started buying back again. Let's see. So, he first started buying GM around 23 and then sold his entire stake in 2014 at 45. Then he started buying again GM in 2015 at prices between 28 and 39. He bought more in 2016, mostly through call options, and then reduced the position through 2017 and 2018, at prices a bit higher than what was his entry point. So, as the stock goes up, he sells a bit. So, this is very important to understand that he constantly rebalances his portfolio. GM is still his largest long position for his US stock market portfolio, but he's constantly rebalancing, and what he was hoping to sell on was a stock split. He proposed to split the GM dividend stock to make a dividend stock and to make a GM growth stock, because he thought that the dividend stock can continue to pay dividends, but that the growth stocks from GM Cruz, the China joint venture, and all the growth things that are not really profitable, not really able to pay dividends, that that should be a special stock so that this gets valued properly as a dividend stock and the other stock gets valued properly as a growth stock. That, according to Einhorn, would unlock the value and make every stock price around 40 for each stock, thus at 60. He hoped that the GM board would accept that, split the stock and unlock his investment and he would probably sell them. As Einhorn said, GM's dividend is not respected by the market. However, the board believes that voting for any of the green light candidates for the board represents an endorsement of green light's flawed plan. They presented green light's dividend share idea to the rating agencies fully and fairly, and the rating agencies said that this might compromise GM's credit rating, increase borrowing costs and increase the instability of the company, so the board rejected his proposal and there is no catalyst, but there still might be a spin-off of Cruz that would be valued probably more than the valuation soft bank invested, which is around 11.5 billion, but 11.5 billion, but more about that later. Let's discuss a bit the fundamentals. The price to book is 1.47, forward consensus price earnings ratio 6.32. Don't get confused by the price earnings ratio of 185, the current price earnings ratio, because that is just a non-cash 7.3 billion tax charge, as taxes got lower and a lot of companies had to adjust their tax accounts. Forward dividend yield 4% price to sales just 0.38, so if you look at the fundamentals, good dividend, extremely low price earnings ratio, when compared to the market, there is stable production and there is also potential growth. Let's look further. This is the tax charge that is related to the US tax reform, the real diluted EPS is 0.22, but if you adjust for the tax charge impairments and all those non-cash costs, then the adjusted earnings per share is 6.62, which is not bad on the 37 stock price. So a stock with a price earnings ratio of 6, with a dividend yield of 4%, which means that if they would pay all their earnings out, the dividend yield would be 16%, how is that possible and why is then the stock so cheap? Let's look at Einhorn's view and also at the headwinds that come from the market's view, because if not the stock price would be much, much higher. The main concern for the markets is peak auto sales and that has happened in 2015. If we look at total vehicle sales for the US, we can see huge growth since the recession and then peaking three years ago in August and we have seen flat slowly declining sales. So cars is a cyclical business. Higher interest rates don't bode well for those who want to buy a car and take a loan. Don't bode well for companies that have I think 100 billion in liabilities, 80 billion in long-term debt as GM. So there are a lot of headwinds plus the dollar is getting stronger. The first six months of 2018 commodities have been higher. You need to buy your raw materials to build those cars. So there were a lot of headwinds and there are also some other specific things that are very interesting. General Motors, CFO Chuck Stevens retired recently but in the meantime he sold over 375,000 shares of stock that brought him 8 million in proceeds in the past 15 months. So the CFO that is going to retire is not going to keep 8 million in GM's stock that gives him 4% in dividends. He sold that stock, his package so that's another insider sale from the former CEO which is a big warning sign because if the stock would be so great he would have kept it because he lost probably 6 billion, 8 billion if GM's stock doubles. As I said higher interest rates don't bode well for car sales. When the effective federal funds rate, the interest rate from the Fed and all other loans were very low up to 2015 you can see how car sales were constantly growing. However since then the interest interest rates on loans have gone up and you can see how car sales stalled. Further recent news are also not that good. Global car sales hit speed bump as demand slows and trade tensions loom. Just a recent article from The Wall Street Journal. But let's look at the fundamentals. Revenue 148 billion in 2008, 144 billion trailing. However the gross margin has improved and that's what counts you want to see profits. And the gross margin is around 19-20% now that's also Tesla's target I think. Operating margin 5%, 6% for inline with all other car producers. Net income is negative from the tax charge so adjust for that. Dividends however positive growing since 2014 the company has been forced to return money to shareholders mostly from government because of the bailout in 2009. However what am I very concerned or I don't really like operating cash flows 15 billion capital spending 27 billion for free cash flow per share of 11 billion. These are morning stars data we later show really the general motors data that are a little bit different but still in 2018 free cash flow is negative so the company is really investing big in capex. Something very interesting soft banks vision fund invested 2 billion in GM crews giving it evaluation of 11.5 billion. Commercialization of GM crews autonomous drive is expected already in 2019 and as an analyst you cannot know what will happen with this. Einhorn expects that they should add 11 dollars per share in value to GM that didn't happen the market didn't do that but there is definitely value here a lot of money is invested however nobody can know what will be the result of this. As it is I think Einhorn's view is it is free there has not been stock price adjustment because of crews the development the expected soon monetization so that's a growth option another catalyst that you get for free from investing in GM. Is this worth 11 billion well it is like any other growth stock like any other uncertain growth stock that we don't yet know how the future will look like we don't know whether we will all drive driverless cars or there will be some regulation of something happening somebody gets killed and then everything is forbidden or everything is delayed for a year two three years five years and that has a huge impact on such an investment competition will be there will there be other car makers that have the same plans etc etc so a lot of uncertainties you cannot put them into a model and that's why usually analysts put a value of zero on that even if soft bank vision fund sees value and they are ready to invest at the 11 billion dollar valuation Einhorn sees that GM doesn't have to invest anymore in crews up till commercialization he really sees GM to eventually unlock further further value through future transactions perhaps future investments in crews perhaps a spin-off and it gives more money to GM to repurchase is its undervalued shares he also recognized that it faces headwinds from raw material pricing it would be at risk if its supply chain in Mexico is disrupted by a change in government policy i think that changed recently as a trade deal was announced however the long case a strengthening job market this is when he increased his GM position the current upcycle hope to lead to better expected credit performance for GM finance subsidiary that is lending the money to the buyers car buyers that buy GM's car so he sees a huge intermediate term opportunity in assisted driving cars what will happen in 2019-20 as he expects then the bottom line GM trades at less than six times earnings finally they believe the GM can unlock substantial value through modest changes to its capital structure the spin-off more dividends more buybacks etc however since David Einhorn started buying GM not much has happened and GM has underperformed the market so i think the biggest fear now here 2015 was different 2016 was different already two years have passed and now if the recession comes that's the big worry worry for GM shareholders and Einhorn consequently however he is a bit protected because he is long GM and short Tesla GM says has 20 billion of cash can survive any foreseeable foreseeable downturn so the downturn a black swan probably not and has another 14.5 billion that it can borrow however Tesla is capitalized to survive only the next three quarters so he is long GM short Tesla also GM bears are focused on the overhang from leased vehicles returning to the market making the case that excess vehicles are forcing down used car pricing if you lease cars and used cars prices go down that's not good because the value you get back after the lease is lower but Tesla has the same problem and the lease card that are coming back are a very very low value so that's Einhorn's thesis be long GM and short Tesla now put that into a recession perspective let's say that a short recession comes i think that if a recession comes all the central banks are going to print more money make everything easier again because of the huge debt pile to make things easier for countries people everybody so think who will pass worse who will see a more difficult problem GM or Tesla so GM has the cash can survive Tesla not that much so it is a pair trade so if you think about GM think about okay i'm long GM but in a case of recession how do i protect myself from the downside so the Einhorn probably does it by being short Tesla which might be the most vulnerable stock and company in case of a recession because then the leases are cancelled and so on and so on so i see Einhorn is betting on spin-off catalyst dividends better revaluation from the market but he's also protected by being short Tesla so that might be i think it is a pair trade even if not perfectly correlated it isn't working yet but if the economics change if autonomous driving grows on technology there it doesn't matter what happens to the economy but Tesla gets hit in a recession that would be a great return for Einhorn even if GM's stocks drops from the whole car pair trade deal for 2017 auto sales held up they are still holding a little bit down used cars did not collapse GM GM gained market share paid the 4.4 percent dividend bought back a lot of stock 9 percent of its year end 2016 market cap so exceeded earnings not cashflow but that's a different story and presented the case that it is a leader in future automobile technologies this sums up his bull thesis however the question is okay what will happen in the next recession you can see here operating income in 2008 2009 minus 20 billion and 21 billion free cashflow minus 19 billion and 22 billion so that was a very very hard recession a lot of illiquidity low car buying nobody was buying a car then but then things improved the government intervened bailed out the company from bankruptcy and then sales came back so if there is a mild recession there might be no profits for one year the company can still pay a dividend they need what 3 billion to pay that dividend so that's not likely to have a one time in a 100 years event again so let's put it into our stock market comparative table you can download it in the links below on my stock market research platform so Einhorn's largest position low PE ratio spin-off are the catalyst 4% dividend recession is the risk and now where do I see the returns due to the high extremely high capital intensive business cyclicality I think at this point even with a price on a ratio of 6 that the return for GM investors from a business perspective in the long term will be around 7% that's 5-7% from the dividend that's still good but Einhorn is betting on the catalyst and I think is betting on the GM cruise spin-off so that's a different story for him then unlocking value selling the stock and getting his return so intermediate term investment as he said in one of his letters and long term investor just getting the dividend is not what Einhorn is he's an intermediate buy value waiting for the value to unlock and then sell it isn't going as planned but perhaps it will we will see he's also protected from the car industry crash recession by being short Tesla so that's the story I'm not buying GM because the recession is there I prefer companies with less than 80 billion in long term that I know it's a cyclical I know that there might be a dividend cut I like to buy those stocks when there is blood on the streets and those stocks won't go bankrupt so in case of a recession then we're going to look at car maker stocks to catch the upswing when things get better again when everybody is positive when the earnings are so big when the cash loans are so big I'm not really a fan of buying these stocks I prefer to wait for a recession in the meantime I have other fish to fry and you can check my stock market research platform as I'm digging into all the 278 stocks 277 stocks Chinese stocks traded on the US market looking forward to your comments are you long GM how does it fit your portfolio please share your insights and I'll see you in the next video don't forget to check the video about David Einhorn and his story and his success from legend to loser and perhaps back if we see a recession and GM explodes I'll see you in the next video