At the 20th annual Sohn Investment Conference, where hedge fund managers shared their top market ideas, David Einhorn made an f-word call on the oil industry.
Hedge fund manager David Einhorn thinks oil producers are screwed no matter what happens to crude; Jana Partners’ Barry Rosenstein is bullish on shareholder activism; Keith Meister, founder of Corvex Management, thinks Pizza Hut parent Yum! Brands YUM looks delicious; and Omega Advisors CEO Leon Cooperman is feeling good about stocks including Actavis ACT , Citigroup C and General Motors GM .
Presenters at the 20th annual Sohn Investment Conference, held at New York’s Lincoln Center on Monday, were generally bullish, sharing more than a dozen of their favorite stock picks, as well as a few of their current short bets. But Einhorn’s bearish call on fracking was a memorable highlight.
Einhorn, founder and president of Greenlight Capital, kicked off the event by arguing that a handful of leading American oil companies that rely heavily on fracking were “poised for a fall”—even if the price of crude rebounds from its current depressed prices. “We object to oil fracking because the investment can contaminate portfolio returns,” Einhorn said during his presentation.
Of those short positions, Einhorn described Pioneer Natural Resources PXD as the “mother fracker,” saying its oil production and reserves have not kept up with the company’s increased spending on drilling and developing wells. “It’s well loved, well located and well run,” Einhorn said as he introduced the company. Still, he added, “A business that burns cash and doesn’t grow isn’t worth anything,” he said. “That’s like using $50 bills to counterfeit $20s.”
Shares of Pioneer Natural Resources dropped immediately as Einhorn detailed his position; they fell more than 3% during Einhorn’s presentation and were still down almost 2% when the market closed.
Einhorn is also shorting other fracking-dependent oil companies that he believes are overvalued, including Concho Resources CXO , Whiting Petroleum WLL , Continental Resources CLR and EOG Resources EOG .
In closing, Einhorn summed up his outlook by alluding to another f-word that sounds similar to “frack” but would not be appropriate to say in public. No matter what the oil price does, “the frackers are—,” Einhorn said, then pursed his lips and smiled mischievously before walking off stage.