NEW YORK Share prices of many high-quality U.S. companies such as Apple and Pfizer are failing to reflect true value as investors continue to pile into shares whose prices have already rallied substantially, hedge fund manager David Einhorn said on Tuesday.
Einhorn told the Reuters 2011 Investment Outlook Summit in New York he sees investors expecting highly valued, cyclical companies to continue to rally, while strong companies with lower multiples, like drug maker Pfizer (PFE.N), stagnate.
"There's a large discrepancy between sort of the 'haves' and 'have-nots' within the market," said Einhorn, who oversees about $6.5 billion as president and founder of hedge fund Greenlight Capital.
"The things that have been trading at high values have moved toward higher values, and the things that are more stable and cheap have remained cheap, and so that's been a challenge."
Einhorn, who calls himself a "value sensitive" investor, said the bifurcation in the stock market could make it a good time for stock pickers to set up attractive bets, but bets may take a while to come to fruition.
He said he has bought big positions in companies like Apple (AAPL.O), Microsoft (MSFT.O) and Pfizer because he thinks they have room to grow. Those three number among his top seven holdings. As of the end of September, Einhorn held 837,500 Apple shares, 23 million Pfizer shares, and 7.6 million Microsoft shares.
"I don't think Apple has a high valuation," given its cash and earnings expectations, Einhorn said, as he called it is one the best U.S. brands.
Apple shares hit a lifetime high of $323.99 earlier on Tuesday.
He said Microsoft may be undervalued relative to its peers, citing potential earnings and revenue growth driven by U.S. corporations that deferred making new investments in technology due to the recession. Einhorn also discounted investor pessimism about Pfizer's pipeline of experimental medicines.
Einhorn, who became well known for questioning the health of Lehman Brothers four months before its collapse, is also closely watched for his short calls.
He said he is sticking to his short bet against credit ratings agency Moody's Corp (MCO.N) and Mcgraw-Hill Companies MHP.N, the parent of ratings agency Standard & Poor's, amid concerns about their legal liabilities.
He also said bond insurer MBIA Inc (MBI.N) still faces problems, and it is difficult to tell whether the company has enough assets to meet its obligations. He declined to say if Greenlight has made a short bet on the company.
And after making a short bet against Florida land owner St. Joe Co (JOE.N) public in October, Einhorn said he now has "more conviction" in his bet after investors and others spoke to him about his call over the past few months.
"Having now heard out all of the objections... I feel more confident that our core analysis there is correct," he said.