* U.S. Steel's stock down 23 pct since Einhorn call
* Einhorn's US Steel pick overshadowed by Martin Marietta
* China, pension costs hurt US Steel, Einhorn says
By Sam Forgione
NEW YORK, June 19 Hedge fund manager David
Einhorn, best known for his prescient short bet against Lehman
Brothers and recently, Green Mountain Coffee Roasters,
hasn't received the same attention for another notable bearish
call - United States Steel Corp.
The Greenlight Capital manager unveiled his negative
critique of U.S. Steel at the Ira Sohn charitable
conference on May 16, where more attention was focused on
Einhorn's bearish views on industrial goods company Martin
Marietta Materials and online retailer Amazon.com
Yet it's Einhorn's U.S. Steel call that has outperformed,
after the closely watched hedge fund manager zeroed in on the
company's poor earnings, high pension costs and the impact of
China's slowing demand for iron ore.
As of Monday's close, the steelmaker's stock price was down
23.1 percent since the popular conference, where top hedge fund
managers reveal their best investing ideas. Meanwhile, shares of
Martin Marietta have lost about 8.5 percent over the same time
period and Amazon's stock is down 0.8 percent.
Hedge fund managers like Einhorn are not required to
disclose their short positions. But it's widely believed that
Einhorn's $7.8 billion Greenlight Capital is looking to profit
from a drop in the stock price of all three companies.
The day of the conference, Einhorn's criticisms of Martin
Marietta immediately cut about 14 percent off the stock before
it recovered a bit that day to close down roughly 8 percent.
Shares of U.S. Steel, meanwhile, ended the day down 4.9 percent.
Einhorn, who declined to comment, used his presentation to
highlight that Pittsburgh-based U.S. Steel has lost money in
nine of the last 13 quarters. He also pointed out that the steel
manufacturer has three retirees for every current employee,
meaning a lot of its revenues are going to pay pensions to
A U.S. Steel spokeswoman declined to comment.
In the first quarter, U.S. Steel reported a net loss of $219
million. In the company's most recent annual report, U.S. Steel
said its pension plans were underfunded by $2.4 billion.
RISING SUPPLY, FALLING PRICES
To some degree, it should come as no surprise that the
producer of iron ore and manufacturer o f steel products for the
automotive and construction industries has fallen on hard times.
Oversupply of steel is always an issue for the industry, but
it's particularly difficult now with declining demand from China
and other fast-growing economies.
"There's always an oversupply of steel. But the magnitude of
the oversupply has increased," said Mark Parr, a steel and metal
companies analyst at KeyBanc Capital Markets Inc. "The supply of
iron ore has come on much more rapidly than the demand has
The European debt crisis has also dragged on the steel
producer, which has direct exposure to Europe via its U.S. Steel
Kosice mill in Slovakia, Morningstar analyst Bridget Freas
Freas said that while most of Einhorn's criticism was valid,
s he believed it w as an "easy target." She said U.S. Steel was
already viewed as weak by many on Wall Street at the time of the
Ira Sohn conference.
Still, some shareholders said they are surprised by the
rapid escalation of the company's failing fortunes.
"I have been surprised by the degree of the downturn in the
stock," said Edward Maran, portfolio manager at Thornburg
Investment Management, which own 8 millions shares of U.S.
Steel. "I would not have expected it to test the lows that were
reached during 2008, 2009."
Other industry analysts agree with Einhorn's criticism.
"They've got some real, real problems, and U.S. Steel has
clearly been the worst performer of the group," said metals
analyst Charles Bradford, president of Bradford Research.
Interestingly, another top performer remains a stock that
Einhorn didn't mention at Ira Sohn, but many were expecting him
to unveil as this year's big short.
Shares of nutritional supplement company Herbalife
have gained about 11 percent since the conference.
The stock had sold off in advance of the conference in
anticipation that Einhorn would give it a negative critique. But
he never even mentioned it during his 137-slide presentation.