In this article we discuss David Einhorn’s top 10 stock picks. You can skip our detailed analysis of Einhorn’s investment strategy and go to David Einhorn’s Top 5 Stock Picks.
David M. Einhorn is an American investor and hedge fund manager who founded Greenlight Capital in 1996. The hedge fund manages over $1.6 billion in managed securities. The Cornell graduate quickly rose to fame during his initial years in the industry, thanks to his prescient bets against Lehman Brothers, Allied Capital and Green Mountain Coffee. But the 52-year-old investor who exited the billionaire club in 2019 has been facing severe losses over the last several years. In January 2021, his hedge fund reportedly lost about 11%. In 2020, Greenlight Capital rose 5.2%, compared to S&P 500 index’s gain of 18.4%. His audacious bets against Tesla and Netflix haven’t paid off. Since 2015, his hedge fund has lost over 30%.
However, Einhorn’s latest letter to investors shows an unwavering tone and confidence.
Story Stocks Bubble
The hedge fund manager in the Q4 letter acknowledged that Greenlight’s short portfolio had a “difficult quarter.” Einhorn clarified that he doesn’t believe all tech stocks are in a bubble. He believes the “story stocks” which don’t have strong valuations are in a bubble.
Einhorn reiterated his bet against Tesla in the letter, while acknowledging that his short bet against the stock accounted for heavy losses for his hedge fund.
Owning Tesla Stock is a “Fad”
TSLA cars are not a fad; if they were, TSLA would sell many more than it does. The fad is in owning TSLA stock. We have quipped before that twice a silly stock price is not twice as silly, it’s still just silly. But what about 20 times a silly price? In the 2000 internet bubble, Cisco Systems peaked out at 29 times revenue, which would be a discount to where TSLA now trades. This begs the question as to why a stock might trade at 20 times a silly price. Of course, there is the possibility that we are just wrong and bad at measuring silliness. But setting that aside, we think that the answer is that certain stocks are held exclusively by valuation-indifferent investors. In our early training, one of the first concepts we learned is market capitalization, or the share price times the number of shares outstanding. This is what a company is worth in the market today. Valuation analysis means comparing the market capitalization to various indications of value. It might be a comparison to current and future revenues, earnings, cash flows, asset values, etc.
The hedge fund concluded its remarks with the following quote:
“And there’s reason to believe maybe this year will be better than the last.”
– Counting Crows
Would David Einhorn Rethink his Bets?
In a 2017 interview at the Oxford Union, Einhorn had said:
“We’re wrong often and we have to constantly question whether we’re wrong. There’s a lot of times that come along where you buy a stock and then a certain amount of time happens or additional events happen, and you have to look at it a different way and say ‘no, sorry’. We should have done the opposite of what we did and then change course.
The One Sole Reason for Greenlight’s Success
“If I had to pick one, I think it’s the ability to look at a situation and see it for what it is, which isn’t necessarily what’s presented to you, when something makes sense to figure out what makes sense, and when something does not makes sense to question it, to challenge it, to look at it from a different way, and to often come to the opposite conclusion. You don’t have to do that very often because most of the time, when someone tells you something, it makes sense. So there’s another side to it and when you can come to a view, you know maybe just a few times a year where you have an important difference of opinion with what everybody else is thinking about a particular situation. If you can figure that out, that’s important. We’ve been able to make a small number of large investments that the vast majority of the time have worked out very well, because we really have had an important difference of opinion between what we think and whoever’s on the other side of that transaction when we enter it.
The culture as a firm, where a lot of smart and nice people interact well. I think there’s a lot of humility. I think that people respect one another, people respect one another’s views, people respect me, I respect them, I respect their time which is I think an unusual management culture for senior people to truly respect the time of junior people. So you wind up with a group of people think in recent things before they speak, that can adjust new facts, that can adjust to feedback, and it can work well within a culture. And that’s what we have.”
Einhorn Compares Tesla to Bankrupt Lehman Brothers
“Lehman threatened short sellers, refused to raise (it even bought back stock), and management publicly suggested it would go private. Months later, shareholders, creditors, employees, and the global economy paid a big price when management’s reckless behavior led to bankruptcy.”
David Einhorn’s struggles shed light on a broader problem the hedge fund industry is facing. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 88 percentage points since March 2017. Between March 2017 and February 5th 2021 our monthly newsletter’s stock picks returned 187.5%, vs. 75.8% for the SPY. Our stock picks outperformed the market by more than 111 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Let’s start our list of David Einhorn’s top 10 stock picks.
10. Danimer Scientific, Inc. (NYSE: DNMR)
Percent of David Einhorn’s 13F Portfolio: 2.43%
No. of Hedge Fund Holders: 18
Georgia-based Danimer ranks 10th on the list of David Einhorn’s top 10 stock picks. The bioplastics company makes biodegradable materials, additives, filaments, aqueous coatings and injection-molded articles, among other products. The stock is up about 50% year to date. The stock is a new arrival on David Einhorn’s portfolio, as his hedge fund bought about 1.7 million shares of the company, worth $40.57 million.
A total of 18 hedge funds tracked by Insider Monkey were bullish DNMR at the end of the fourth quarter. David Einhorn’s Greenlight Capital owns 1.7 million shares of the company, worth $40.6 million.
9. Resideo Technologies, Inc. (NYSE: REZI)
Percent of David Einhorn’s 13F Portfolio: 3.32%
No. of Hedge Fund Holders: 31
Texas-based Resideo Technologies makes smart and connected home equipment and solutions. The stock is up over 30% year to date. The company’s Q4 revenue jumped 15% to $1.3 billion, meeting the Street’s estimates. Non-GAAP adjusted EBITDA came in at $212 million, compared to $139 million posted in the same quarter last year. For 2021, the company expects revenue to come in the range of $5.2 billion-$5.4 billion.
Greenlight Capital is one of the 31 hedge funds tracked by Insider Monkey having stakes in REZI at the end of the fourth quarter. The fund owns over 2.6 million shares of the company.
In their Q4 2020 investor letter, Greenlight Capital highlighted a few stocks and Resideo Technologies Inc. (NYSE:REZI) is one of them.
Here is what Greenlight Capital said:
“REZI is a residential HVAC and security business that was spun out of Honeywell in 2018. REZI enjoys strong recurring revenues generated through replacement sales into a base of 150 million homes. However, execution errors and overspending following the spinout caused REZI’s margins to plummet. By the time the pandemic struck, REZI was already in the process of implementing a turnaround plan, and we used the sell-off in April to establish a small position at an average entry price of $4.88.
We believe that the new management team is well-equipped to capitalize on the opportunity set in both the core business as well as REZI’s low voltage distribution business (ADI). In the most recent quarter, progress made on existing turnaround projects combined with the tailwind of pandemic-driven spending on the home resulted in REZI nearly doubling expected profits and guiding well ahead of consensus for the fourth quarter. We see the potential for this to continue and for earnings to grow from around $2 per share in 2021 to $3 per share in the coming years. The shares ended the quarter at $21.26 and REZI is now a medium-sized position.”
8. Teck Resources Limited (NYSE: TECK)
Percent of David Einhorn’s 13F Portfolio: 3.4%
No. of Hedge Fund Holders: 31
Teck Resources Ltd ranks 3rd on the list of David Einhorn’s top 10 stock picks. Teck is a Canada-based mining company that produces coal, copper, zinc, silver, molybdenum, germanium, indium and cadmium. The Fortune 2000 company posted upbeat fourth quarter results, thanks to strengthening copper prices. Adjusted EPS came in at C$0.46, compared to C$0.22 in Q4’20. Adjusted EBITDA rose 20% on a year-over-year basis to C$839 million.
The company is getting the attention of the smart money, as 31 hedge funds tracked by Insider Monkey reported owning stakes in the company at the end of the fourth quarter, up from 27 funds a quarter earlier.
7. The Chemours Company (NYSE: CC)
Percent of David Einhorn’s 13F Portfolio: 3.87%
No. of Hedge Fund Holders: 30
Delaware-based chemicals company Chemours ranks 7th on the list of David Einhorn’s top 10 stock picks. The stock is up about 100% over the last 12 months. In the fourth quarter of 2020, the company’s adjusted EBITDA jumped 8% to $246 million. The company’s 2021 guidance was also in-line with the consensus estimates. The company is one of the biggest producers of titanium in the world. It has three major segments: Titanium, Fluoroproducts and Chemical Solutions.
As of the end of the fourth quarter, there were 30 hedge funds in Insider Monkey’s database that held stakes in Chemours, compared to 28 funds in the third quarter. Sessa Capital, with 9.5 million shares of CC, is the biggest stakeholder in the company.
6. SPDR Gold Shares (NYSE: GLD)
Percent of David Einhorn’s 13F Portfolio: 3.94%
No. of Hedge Fund Holders: 62
David Einhorn has a $65 million stake in gold ETF Spdr Gold Trust. The ETF has gained about 9% over the last 12 months but currently trades in the red amid rising pressure on gold prices.
With a $692.9 million stake in SPDR Gold, First Eagle Investment Management owns 3.9 million shares of the company as of the end of the fourth quarter of 2020. Our database shows that 62 hedge funds held stakes in GLD as of the end of the fourth quarter, versus 65 funds in the third quarter.
Click to continue reading and see David Einhorn’s Top 5 Stock Picks.
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Disclosure: None. David Einhorn’s Top 10 Stock Picks is originally published on Insider Monkey.