Brighthouse Financial Inc (BHF), Twitter Inc (TWTR): Why Billionaire David Einhorn Is Betting on These Stocks

General Motors Company (NYSE:GM) was Greenlight’s largest winner last year and it was the fund’s largest position in 2017. However, General Motors Company (NYSE:GM)’s stock performed in line with the market as the company delivered excellent results. The investor believes that the automaker’s shares are still undervalued and considers that in 2018 it will deliver similar results. “The shares remain inexpensive at 7x consensus 2018 earnings estimates that we expect the company to exceed by a wide margin. This undervaluation is more extreme considering GM’s investment in future automobile technologies,” Greenlight said in its letter.

Greenlight also presented its case regarding several new positions initiated in 2017. The fund added Brighthouse Financial Inc (NASDAQ:BHF) to its equity portfolio during the third quarter and reported holding around 6.79 million shares worth $412.96 million at the end of September. Brighthouse Financial Inc (NASDAQ:BHF) went public in July and represents a spin-off of Metlife Inc (NYSE:MET)’s US retail business that sells annuities and life insurance.

“BHF appears to be a traditional spin-off – an underperforming and unloved part of a larger, more successful company. The tone of the spin-off road show was noticeably downbeat, with management advancing a business plan that does not sound particularly exciting for shareholders. Notably, despite very conservative capitalization and high risk-based capital levels, the base expectation calls for no capital return until 2020. The result is a valuation of just 56% of book value and 6.4x 2018 EPS estimates,” Greenlight said.

In this way, the fund believes that the market is too pessimistic regarding Brighthouse Financial Inc (NASDAQ:BHF) and that the stock has a lot of upside and the management is incentivized to help the growth.

During the fourth quarter, Greenlight also added two new companies to its portfolio. The fund repurchased a stake in Time Warner Inc (NYSE:TWX) when the stock fell following reports that the US government opposed the sale to AT&T Inc. (NYSE:T). Einhorn’s fund considers that the merger is likely to go through and even if it doesn’t, the stock was still cheap. Time Warner Inc (NYSE:TWX) still has strategic options to create value in case the merger is not completed. The company has strong earnings growth, especially at HBO, which is seeing higher subscription revenue growth. Moreover, Time Warner Inc (NYSE:TWX) has become under-levered after it suspended buybacks pending merger.

“TWX and Netflixnow have roughly the same enterprise value, despite TWX having a better library, an exciting content creation engine and substantial current profitability,” the fund said.

Twitter Inc (NYSE:TWTR) is another company in which Greenlight initiated a stake last quarter, albeit a small one. The fund is betting that in 2018 Twitter Inc (NYSE:TWTR) “will have a pitch to advertisers”, which should allow the company’s revenue to grow. Twitter Inc (NYSE:TWTR) has an enterprise value of about 2% of Facebook Inc (NASDAQ:FB), despite a big user base and broad reach. Moreover, Greenlight pointed out that the new management has improved the user experience, which “led to rapid growth in number of users and time spent on TWTR in 2017.”

Disclosure: none