Einhorn Buys Apple, Saying in Letter That Growth Prospects Are Undervalued

David Einhorn, the hedge-fund manager known for shorting Lehman Brothers Holdings Inc. before it collapsed, said he bought shares of Apple Inc. in the second quarter because the iPhone maker’s growth is undervalued.

Einhorn’s firm, Greenlight Capital Inc., purchased the stock at an average price of $248.09 each, or 15 times the money manager’s estimate for 2010 earnings, according to a letter sent to fund shareholders on July 16. Apple, which also produces iPads, iPods and iMacs, traded for $245.58 as of 4 p.m. New York time yesterday.

“While growth over the next few years will certainly be slower than it has been over the last few years, AAPL does not appear to have fully penetrated its market opportunities,” wrote Einhorn, referring to Apple by its stock symbol. “Accordingly, the opportunity to invest in this leading company (with a better financial profile than market participants seem to acknowledge) appears iTtractive.”

The 41-year-old investor beat the average hedge fund during the second quarter. Greenlight Capital LP, Greenlight Capital Qualified LP and Greenlight Capital Offshore returned 2.2 percent, 1.7 percent and 2.2 percent, respectively, net of fees and expenses, according to Einhorn’s letter to shareholders. The HFRX Global Hedge Fund Index fell 2.8 percent during the period.

The Standard & Poor’s 500 Index retreated 16 percent between April 23 and July 2, the biggest loss during the bull market that began in March 2009. The measure dropped 11 percent during the second quarter, including reinvested dividends.

‘Schizophrenic Market’

“We have maintained a conservative and defensive portfolio, with a small net long position throughout and have almost entirely avoided the volatility of the schizophrenic market,” Einhorn wrote.

Apple, based in Cupertino, California, will earn a record $12.9 billion in the fiscal year ending in September, according to the average analyst estimate in a Bloomberg survey. That compares with $69 million in 2003. The company has transformed itself from a computer maker into a producer of music players known as iPods, tablet PCs called iPads and the iPhone.

Greenlight also bought shares of African Barrick Gold Ltd. during the second quarter. The London-based company, which mines for the precious metal in Tanzania, was spun off from Barrick Gold Corp. in March in a 581 million pound ($885 million) initial public offering.

To contact the reporter on this story: Caroline Dye in New York at cdye@bloomberg.net