Green Mountain: Does David Einhorn Understand Beans? (GMCR, SBUX, JOE, S, BBY, GM, AAPL)

David Einhorn of Greenlight is well-known in investing, and not just for being long.  This is called whale-watching.  His comments today at the Value Investing Congress are single-handedly taking down shares of Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR) as he pointed to the stock being overvalued.  His concerns revolve around the high pricing of the K-Cups and he went on to call the company’s past disclosure policy as inadequate and ‘changing.’  Also cited are cash burn rates and a mediocre return on capital.

This may be good for Starbucks Corporation (NASDAQ: SBUX) as Einhorn believes that the deal is not as positive as the bulls believe and that Starbucks looks to be getting the better end of the profits.  Einhorn did disclose having a position (obviously a short-sell position).  What investors need to know is that this observation is crushing the stock and it is having more of an impact (on the flip-side) than if Warren Buffett had disclosed a position.

Einhorn often challenges companies.  He went against The St. Joe Company (NYSE: JOE) and Bruce Berkowitz of Fairholme Capital earlier this year saying that St. Joe was too aggressive in acquiring property and called it very overvalued.  It turns out that this one did fall and it sits very close to 52-week lows and trades at half the peak of the last year or so.

It looks as though Einhorn was probably caught long and wrong in Sprint Nextel Corporation (NYSE: S) from when he called it an undervalued real estate play due to vast spectrum assets.

Einhorn had also made decent sized bets disclosed in May of this year in Best Buy Co. Inc. (NYSE: BBY) at about 6 million shares worth over $172 million (down to around $150 million today on a static basis) and General Motors Co. (NYSE: GM) with a new position of more than 3.5 million shares worth more than $100 million (down close to $80 million today on a static basis). 

Betting against companies and being vocal about them is one thing.  It certainly does not assure success.  What is funny is that Green Mountain was just featured as a very expensive stock by us due to the market valuations but also as one of the dozen or so companies which are expected to outperform the fanboy holders of Apple Inc. (NASDAQ: AAPL).  

Green Mountain shares are down 11% at $81.76 and now the implied upside would be closer to 50% if the analysts are correct in their price targets.  If…  Einhorn is having a sharp impact today and now the battle will be known in time over whether or not he was right or if the bullish analysts were right for remaining so positive.

JON C. OGG