Greenlight Capital Fund recently released its Q2 2020 Investor Letter, a copy of which you can download here. The fund posted a return of 1.0% for the quarter, underperforming its benchmark, the S&P 500 Index which returned 20.5% in the same quarter. You should check out Greenlight Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.
In the said letter, Greenlight Capital highlighted a few stocks and Brighthouse Financial Inc. (NASDAQ:BHF) is one of them. Brighthouse Financial Inc. (NASDAQ:BHF) is a life insurance company. Year-to-date, Brighthouse Financial Inc. (NASDAQ:BHF) stock lost 24.4% and on August 4th it had a closing price of $28.68. Here is what Greenlight Capital said:
“Take BHF, for example. In 2017, we bought the company at a $6 billion valuation. At the time, the consensus view was the company would have trouble transferring “adjusted” earnings into GAAP earnings and wouldn’t be able to return capital to shareholders until 2020. Fast forward to today: the company has since generated $6 billion of retained earnings, while repurchasing 22% of its shares. In response, the market now values the company at about $2.5 billion.
In May, the company demonstrated that it had effectively hedged the first quarter’s market turbulence. Due to a large hedging gain, the company reported $47 per share in quarterly earnings. Yes, BHF earned more than the entire price of the company in a single quarter. Moreover, it bought back 12% of the outstanding stock at depressed prices. Despite all of this and a rapidly rebounding S&P 500, BHF stock only advanced from $24.17 to $27.82 during the quarter, leaving it down 29% for the year. During the quarter, the shares barely outperformed the company’s bonds maturing in 2027, which now yield 3.3% – although the equity languished, the credit markets have reversed any pandemic-induced concerns. Perhaps we just need Dave Portnoy to select “B”, “H”, “F” out of his bag of Scrabble tiles.
We understand that book value and GAAP earnings are problematic metrics for BHF. There is a change of accounting pending next year that we expect will take out a chunk of the book value, but at a price to book ratio of 0.16x, this should not be a risk to the stock price. In addition, there is a mismatch between the GAAP accounting for hedges and the risks being hedged. As a result, we expect a large loss in the second quarter, as some of the hedge gains will be reversed due to improving market conditions – just as the first quarter resulted in record GAAP income.
Like many companies, BHF provides “adjusted” earnings that take into account the problems with GAAP accounting. On that basis, its P/E ratio is 3.3x. Management has targeted a goal of repurchasing $1.5 billion of stock by the end of 2021. It has $636 million to go. At current prices, this implies the company will retire an additional 23% of the stock over the next 18 months.”
This isn’t the first time Greenlight Capital talked about Brighthouse Financial Inc. (NASDAQ:BHF) favorably either. The investment firm has been a long time Brighthouse Financial Inc. (NASDAQ:BHF) bull. A year ago we shared Greenlight Capital’s bullish Brighthouse Financial Inc. (NASDAQ:BHF) thesis in this article.
In Q1 2020, the number of bullish hedge fund positions on Brighthouse Financial Inc. (NASDAQ:BHF) stock decreased by about 42% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t seem to agree with Brighthouse Financial’s growth potential. Our calculations showed that Brighthouse Financial Inc. (NASDAQ:BHF) isn’t ranked among the 30 most popular stocks among hedge funds.
The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
Video: Top 5 Stocks Among Hedge Funds
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Disclosure: None. This article is originally published at Insider Monkey.