The big buzz coming out of this year's Value Investing Congress, which recently concluded this week in New York City, is the bomb dropped by David Einhorn. His firm, Greenlight Capital, is short Florida landowner St. Joe (NYSE:JOE). As news of his position hit the airwaves, shares in St. Joe began falling fast and by the end of the day, shares were down by 10% on volume of nearly 13 million shares. The average daily volume is just under 700,000 shares.

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The Choice is Yours
Without question, when Einhorn shorts a stock, it pays to pay attention. Two years ago, Einhorn was public about his concerns for Lehman Brothers and was short the stock. When Lehman went bankrupt, Einhorn was crowned king. Aside from Lehman, Einhorn has also had a couple of other publicly stated short positions work in his favor. Einhorn is regarded as a very meticulous investor - he made his short case on St. Joe with a 150-slide presentation. According to Einhorn, St. Joe's real estate assets are a "ghost town." In his opinion, the company will have to incur significant impairment charges due to accounting rural land as developed.

Don't Bet the Farm
While Einhorn's case theory on St. Joe is compelling, it's not a slam dunk, and he acknowledges this by saying he will lose a lot of money if he is wrong. St. Joe has no net debt, a distinction shared by one other significant publicly traded land company, Tejon Ranch (NYSE:TRC). That's a big deal, considering most land companies have no way to service the debt, especially St. Joe, which has significant plots of rural land. Consolidated Tomoka Land (NYSE:CTO) is another name with minimal debt. Otherwise, names like Forest City Enterprises (NYSE:FCE.A) illustrate how much leverage can exist on a balance sheet.

It's hard to see how St. Joe's equity is worthless considering that it owns the most fundamental tangible asset there is - land. In addition, the company owns nearly 600,000 acres of Northwest Florida, a lot of which is waterfront. With a debt-free balance sheet, there is indeed residual value to the equity. If anything, Einhorn may be providing opportunistic investors the chance to pick these shares cheaply, especially if they keep declining, which many think will happen now that he is short. (For related reading, see Should You Follow Your Fund Manager?)

Time for Opportunity
Interestingly, Fairholme Capital Management, run by value legend Bruce Berkowitz, is St. Joe's largest shareholder, owning nearly 30% of the company. Both Einhorn and Berkowitz have incredible long-term track records; however, neither man is perfect. One way or another, St. Joe could soon be providing opportunity to investors. (For more, see Activist Hedge Funds: Follow The Trail To Profit.)

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