Billionaire Paul Singer’s Top 5 Stock Picks

4. eBay Inc. (NASDAQ: EBAY)

The hedge fund has benefited strongly from its eBay (NASDAQ: EBAY) position that it created at the beginning of 2019. Shares of the e-commerce platform rallied almost 60% in the last twelve months alone. In addition to share price gains, eBay also offers increasing dividends to investors. It has recently raised the quarterly dividend by 12.5% to $0.18 per share.

Steel City Capital, which returned 10% net of fees in 2020, highlighted few stocks including eBay in an investor’s letter. Here is what Steel City Capital stated:

“eBay (Long): EBAY continues to be a core holding in the Partnership’s long book despite not having any “sexy” attributes or unknown catalysts. I like eBay because it checks the boxes of being both capital light and priced as a value stock (low multiple of free cash flow), factors that are attractive in a potentially inflationary environment.

In 3Q’20 the company printed $2.6 billion of revenue vs. guidance of $2.4 billion (a $200 million beat) while full-year revenue guidance was taken up by $400 million, implying 4Q’20 would be higher by $200 million as well. Free cash flow from continuing ops was guided to $2.3 billion for the full year, slightly above the $2.0 billion the business regularly generated before getting a Covid/stimulus-related boost.

EBAY will have about $4.6 billion of cash on hand at year end5 and should receive another $2.0 billion in after-tax proceeds this quarter related to the sale of its Classifieds portfolio. Additionally, the company will receive 540 million shares from Adevinta which are currently valued at ~$8.3 billion, and also holds a warrant to purchase a 5.0% stake in payment processor Adyen which was last valued at ~$775 million. Additional asset sales are also not out of the question. Backing everything out at today’s market cap of $38.2 billion gives a clean market cap for the core marketplace of $22.6 billion. At a minimum, I expect $2.0 billion of free cash flow in FY’21, with the potential for a higher figure to the extent the incoming administration is successful in cutting additional stimulus checks. By FY’22, free cash flow should ramp to $2.3 billion after incorporating a full year’s contribution from the managed payments initiative. This values EBAY at 9.6x free cash flow, or 11.7x excluding stock-based comp.”