One of the first rules of investment advice is to never follow a stock tip without doing your own homework. As an example, just look at SunEdison (SUNE), which has been in the portfolio of David Einhorn's Greenlight Capital since 2014.
Greenlight's position in the Missouri-based renewable-energy company attracted a lot of attention when Einhorn presented his case for the company on Oct. 20, 2014, at the Robin Hood Investors' conference in New York. Shares of the company climbed 6.4% that day while the broader S&P 500 rose nearly 2%. In an interview with CNBC during the conference, Einhorn said SunEdison's stock could reach $32 a share (it traded in the mid-teens at the time.) Einhorn also said the company represented a "complicated financial situation but simple story."
Since then, the company's financials remain, as Einhorn put it, "complicated" but its story has not been "simple." Shares have fallen nearly 92% since October 2014 and currently trade below $1.50. Representatives for Greenlight Capital declined to comment on SunEdison.
On Thursday, an analyst team at Credit Suisse led by Patrick John lowered its rating on SunEdison to Neutral from Outperform and lowered its price target to $3 from $19 due to "increased uncertainty."
"Our changed view is not solely due to the announcements this week -- but more about the passage of time and numerous developments over the last few months," John wrote in the report.
Earlier this week, SunEdison announced that it was selling a silicon wafer production facility and closing a polysilicon production facility in an effort to focus on more cost effective businesses. SunEdison also had three of its contracts with Hawaiian Electric canceled after SunEdison "failed to meet guaranteed project milestones," according to filing Hawaiian Electric sent to the Hawai'i Public Utilities Commission.
SunEdison is also the subject of two legal actions. The first was filed by David Tepper's Appaloosa Management last month, and it alleges that SunEdison breached its fiduciary duty to its yieldco, TerraForm Power (TERP) in its announced plans to acquire Vivint Solar (VSLR). The second, is tied to Chilean-based Latin American Power seeking damages of $150 million for SunEdison's failed takeover bid.
"Our cautious stance, even after the dramatic sell-off, is more a function of uncertainty in the long-term earnings and cash generation of the company and heightened execution concerns," John wrote.
The recent news hardly makes for a "simple" story.
Greenlight Capital has a 6.6% stake in SunEdison, according to data compiled by Thomson Reuters. The firm also gained a seat on SunEdison's board last month.
To be sure, Greenlight Capital's portfolio contains many positions, some of which aren't disclosed to public. (For a look at some of Greenlight's publicly disclosed positions, check out this piece by TheStreet's Emily Stewart.)
Einhorn has also spoken publicly about investors not blindly following the path of so-called influential investors. And, perhaps, for good reason. Several of Greenlight's holdings, which were presented at various investor conferences -- thus, likely to gain more investor attention -- have not performed well.
In a presentation at the 2015 Robin Hood conference, Einhorn acknowledged that Greenlight timed its position of CONSOL Energy (CNX) "poorly" as the stock was trading around $7 at the time of the presentation, down from the $30-range when Greenlight bought it. (As of Friday's pricing, the stock trades below $8 and Greenlight still has a position in the company as of its most recent 13-F filing.)
Greenlight also had a position in Micron Technology (MU), which it exited during the fourth quarter. Shares of the company are down 64% over the last year and trading recently around $11. According to a Greenlight Capital investment letter obtained by Reuters last July, Einhorn wrote that Micron would be worth more than Netflix (NFLX) in the next few years. Shares of Netflix currently trade around $90 a share and are up 34% over the last year.
While Greenlight's presentations include the usual disclosures that its contents should not be construed as investment advice, investors are hungry for ideas.
Perhaps the best idea to follow is one Einhorn presented at a 2012 Value Investors Conference.
"It doesn't make sense to blindly follow me or anyone else into a stock," Einhorn said. "Do your own work. And when a successful investor shows you their work, check their work and use it as an opportunity to revisit your own."
