In this article, we discuss David Einhorn’s top 5 stock picks. For Einhorn’s investment philosophy and his comments on certain stocks, please see David Einhorn’s Top 10 Stock Picks.
5. Change Healthcare Inc. (NASDAQ: CHNG)
Value: $90,322,000
Percent of David Einhorn’s 13F Portfolio: 5.43%
No. of Hedge Fund Holders: 45
Change Healthcare Inc. ranks 5th on the list of David Einhorn’s top 10 stock picks. Greenlight Capital slashed its stake in the Tennessee-based company by about 9% in the fourth quarter, ending the period with about 4.8 million shares of the company, worth $90 million. Change Healthcare offers IT solutions for the healthcare industry. Its products include revenue management systems, payments cycle system for billing automation, healthcare management portals and enterprise medical imaging solutions. In February, the company posted its quarterly results. Adjusted EPS in the most recent quarter totaled to $0.34, above the estimates by $0.03.
According to our database, the number of CHNG’s long hedge funds positions decreased at the end of the fourth quarter of 2020. There were 45 hedge funds that hold a position in Change Healthcare compared to 49 funds in the third quarter. The biggest stakeholder of the company is Camber Capital Management, with 13 million shares, worth $242.5 million.
In their Q1 2020 investor letter, Greenlight Capital highlighted a few stocks and Change Healthcare Inc. (NASDAQ:CHNG) is one of them.
Here is what Greenlight Capital said:
“We initiated a large long position in Change Healthcare (CHNG). CHNG is a healthcare technology company that owns the largest medical claims clearinghouse network and several leading software platforms. For years, we were short athenahealth, which promoted itself as the “backbone of the healthcare internet.” That label is more aptly applied to CHNG.
While similar healthcare assets trade for over 20x free cash flow, we were able to acquire our stake in CHNG for $11.40, or 9x our estimated free cash flow. Until recently, McKesson’s large retained ownership of the company rendered the stock less liquid, with an available float of under $1 billion and less than one quarter of all outstanding shares. We believe this limited investor interest in the new company. In February, McKesson announced an exchange offer that increased CHNG’s public float by more than 3x, making the company investable to a much broader range of potential shareholders.
The company has not shown meaningful top-line growth recently. We believe growth in the company’s core businesses has been obfuscated by several one-time factors including planned contract eliminations, the rollout of a new imaging platform, and the shift to ASC 606 accounting standards. With these events now behind the company, we expect solid growth in the coming years with the resumption of elective surgeries. CHNG shares ended the quarter at $9.99.”
4. Atlas Air Worldwide Holdings, Inc. (NASDAQ: AAWW)
Value: $94,250,000
Percent of David Einhorn’s 13F Portfolio: 5.66%
No. of Hedge Fund Holders: 35
David Einhorn’s Greenlight Capital has a $94 million stake in aircraft leasing company Atlas Air Worldwide. The stock is up over 268% over the last 12 months. In the fourth quarter, the company’s non-GAAP EPS came in at $4.83, beating the Street’s estimates by $1.32. Revenue in the quarter jumped 24% to $932.48 million, surpassing the estimates by about $54 million.
As of the end of the fourth quarter, 35 hedge funds in Insider Monkey’s database of 887 funds held stakes in AAWW, compared to 27 funds in the third quarter. David Einhorn’s Greenlight Capital is the biggest stakeholder in the company, with 1.7 million shares, worth $94.3 million.
In their Q2 2020 investor letter, Greenlight Capital highlighted a few stocks and Atlas Air Worldwide Holdings Inc (NASDAQ:AAWW) is one of them. Here is what Greenlight Capital said:
“We also added a new large equity position in Atlas Air Worldwide Holdings (AAWW) at an average price of $36.28. AAWW operates the world’s largest fleet of Boeing 747 freighters and is a sizable owner, operator and lessor of 767, 777 and 737 freighters.
Prior to COVID-19, approximately 50% of global airfreight was carried in the belly of passenger planes, mostly on long-haul international flights. With long-haul international passenger traffic down more than 90% year-over-year (and likely to be the last segment of passenger travel to recover), there is a historic shortage of airfreight capacity. After an initial surge in demand to ship Personal Protective Equipment (“PPE”), the market is transitioning back towards more traditional airfreight products such as electronics, capital goods, perishables and pharmaceuticals. Market shipping rates increased by over 100% year-overyear in the second quarter and are expected to remain strong. As a result, we expect AAWW to see significant growth in earnings per share in 2020 (from the $5.24 it earned in 2019).
In response to the capacity shortage, some passenger widebodies are temporarily operating as freighters (nicknamed “preighters”), particularly to fulfill urgent PPE demand. However, due to lower cargo capacity, more cumbersome loading and unloading and similar overall trip costs, preighters cost roughly 2.5x as much per ton shipped compared to dedicated freighters. Preighter activity departing from China and Hong Kong has already declined by more than 50% since May as shipping rates have partially normalized. Over the next three years, we don’t expect many large freighters to be either produced or converted from passenger service given the cost and lead-times involved.
While most of the increase in earnings will occur in AAWW’s charter segment, AAWW also has attractive and substantial long-term contractual relationships serving DHL and Amazon, which stand to benefit from the growth in e-commerce and relatively steady business supporting the U.S. military. We acquired our shares at 0.54x Q1 2020 tangible book value and approximately 7x 2019 earnings that were achieved during much more competitive conditions. AAWW ended the quarter at $43.03.”
3. AerCap Holdings N.V. (NYSE: AER)
Value: $105,877,000
Percent of David Einhorn’s 13F Portfolio: 6.36%
No. of Hedge Fund Holders: 40
AerCap is one of the largest aircraft leasing companies in the world. In 2014, it bought International Lease Finance Corporation. The company is in the news after General Electric confirmed that it would sell its aircraft leasing business to AerCap for $30 billion. AerCap shares have gained about 100% over the last 12 months. David Einhorn’s hedge fund owns 2.3 million shares of the company, worth over $105 million.
The company is getting the attention of the smart money, as 40 hedge funds tracked by Insider Monkey reported owning stakes in the company at the end of the fourth quarter, up from 38 funds a quarter earlier. Horos Asset Management said in its Q4 2020 letter that they increased their stake in AerCap Holdings N.V. (NYSE: AER).
Here is what Horos Asset Management has to say about AerCap Holdings N.V. in their Q4 2020 investor letter:
“Regarding AerCap, we believe that the high uncertainty surrounding its aircraft leasing business has slowly begun to subside. On the one hand, the relatively greater global control over the pandemic and the work of airlines to increase flight safety to the best of their ability has allowed a gradual recovery in air traffic. Although, realistically, it is still far from desirable levels, the trend is positive. On the other hand, the eagerly awaited vaccines to combat COVID-19 may mark a definitive turning point for the airline industry, once the population begins to be immunized. While we are well aware that the scenario may change again (new, more contagious strains, less effective vaccines than expected or new lockdowns), we believe that AerCap’s financial and liquidity risk has been drastically reduced.
In addition, the management team has demonstrated its ability to adapt to this environment by renegotiating with Airbus and Boeing a very significant delay in the purchase of new aircraft, thereby reducing its investment needs, as well as taking advantage of the easing of capital markets to refinance debt at lower rates. Finally, the company realized an impairment in the fleet value of just over $900 million last quarter, impacting the risks of expected cash flows for its older aircraft. After this impairment (the only and last one they expect to make), AerCap’s NAV stands at 69 dollars per share at the end of the third quarter, 50% above its share price at the time of writing and despite having risen by 330% from the lows reached during the worst of the crisis.”
2. Brighthouse Financial, Inc. (NASDAQ: BHF)
Value: $131,798,000
Percent of David Einhorn’s 13F Portfolio: 7.92%
No. of Hedge Fund Holders: 33
Insurance company Brighthouse Financial Inc. ranks 2nd on the list of David Einhorn’s top 10 stock picks. The North Carolina-based company is a member of the Fortune 500 list, with over 2 million customers. The stock has gained about 60% over the last 12 months. Adjusted EPS in the fourth quarter for the company came in at $3.03, way ahead of the Street’s forecast of $2.74. Adjusted net investment income came in at $1.04 billion, compared to $1.00 billion in the third quarter.
Greenlight Capital is one of the 33 hedge funds tracked by Insider Monkey having stakes in BHF at the end of the fourth quarter. The fund owns over 3.64 million shares of the company.
Miller Value Partners, in their Q4 2020 investor letter, said that their Brighthouse Financial, Inc. (NASDAQ: BHF) position has been increased during the second half of 2020.
Here is what Miller Value Partners has to say about Brighthouse Financial, Inc. in their Q4 2020 investor letter:
“In addition, we have recently increased our position size in Brighthouse Financial (BHF), one of the of the largest annuity and life insurance companies in the U.S. Since separating from MetLife, Brighthouse has built strong sales momentum and has focused on building out a new, less capital intensive business. Brighthouse is targeting nearly $9B in annual annuity sales by the end of 2021 (double 2017 levels) and expanding its life insurance businesses by 10x over the same time period. The company is targeting its capital-intensive business to be 18% by 2025 (half of 2016 levels), which should further enhance future cash flow generation. The company’s capital ratios remain strong and well above regulatory requirements. Management is aggressively returning cash to shareholders, targeting a total of $1.5B in share buybacks by the end of 2021 and retiring nearly 1/3 of their outstanding shares. While the market remains concerned about the impact of lower interest rates and their capital-intensive business, we believe the share price is over discounting these concerns and see the potential impact lessening over the coming years. Brighthouse’s equity appears significantly mispriced, closing the year at a greater than 70% discount to book value and a price-to-earnings multiple of 3 times, a significant discount to its peers and the overall market.”
1. Green Brick Partners, Inc. (NASDAQ: GRBK)
Value: $553,765,000
Percent of David Einhorn’s 13F Portfolio: 33.3%
No. of Hedge Fund Holders: 12
Texas-based home building and land development company Green Brick Partners Inc. tops the list of David Einhorn’s top 10 stock picks. The stock accounts for about 33% of Greenlight’s portfolio, as the hedge fund owns a $553.8 million stake in the company. In the fourth quarter, the company’s GAAP EPS came in at $0.58, beating the Street’s forecast by $0.02. Revenue in the quarter jumped 10% to $254 million, missing the estimates by $ million.
According to our database, the number of GRBK’s long hedge funds positions decreased at the end of the fourth quarter of 2020. There were 12 hedge funds that hold a position in Green Brick Partners, compared to 13 funds in the third quarter. The biggest stakeholder of the company is David Einhorn’s Greenlight Capital, with 24.1 million shares, worth $553.8 million.
In their Q3 2020 Investor Letter, Greenlight Capital highlighted a few stocks and Green Brick Partners Inc. (NASDAQ:GRBK) is one of them. Here is what Greenlight Capital said:
“Green Brick Partners (GRBK) was the primary driver of this quarter’s results. The shares advanced from $11.85 to $16.10. Housing appears to be a major beneficiary from the pandemic, as low interest rates combined with an expanded preference for single-family detached housing has spurred demand. GRBK is well-positioned in secularly growing markets including Dallas, Atlanta, Colorado Springs and Vero Beach. In the second quarter, the company earned $0.66 per share, shattering consensus estimates of $0.42. The company’s record backlog and strong order rate bode well for future earnings. Current consensus of $1.88 per share this year suggests EPS growth of over 60% year-over-year. We believe the shares remain deeply undervalued at 9x estimates, as business momentum continues to accelerate.”
You can also take a peek at Billionaire Carl Icahn’s Top 10 Picks and Cathie Wood’s Top 10 Stock Picks.
