In this article we will take a look at the 10 Best Stocks to Buy According to David Einhorn's Greenlight Capital. You can skip our detailed analysis of Einhorn's history, hedge fund performance, and investment philosophy, and go directly to the 5 Best Stocks to Buy According to David Einhorn's Greenlight Capital.
Greenlight Capital is a U.S-based hedge fund founded in 1996 by David Einhorn. The fund mainly focuses on publicly traded corporate equities and debt offerings. Greenlight became popular in 2008 for its short position on Lehman Brothers, which went bankrupt and collapsed in 2008 during the financial crisis. The hedge fund’s performance improved by 24.42% in Q4 2020 and 11.88% in the last four quarters.
David Einhorn noted in April 2021 that inflation will only continue to grow, and his company has positioned itself to account for it, especially now that the economy is recovering. The hedge fund was off to a bit of a rocky start in 2021. Its portfolio dropped by 0.1% in Q1, and its short sells have underperformed. Some of Greenlight's positions were affected by the sharp price surges caused by retail trading short squeeze.
Greenlight Capital recently announced that it acquired Twitter, Inc. (NYSE: TWTR) shares at $21.59. The hedge fund has around 487,500 Twitter shares in its portfolio. Greenlight noted in an investor letter that Twitter, Inc. (NYSE: TWTR) has a substantial user base, but its book value is only 2% of Facebook, Inc. (NASDAQ: FB).
Another stock worth mentioning in Einhorn's portfolio is The Chemours Company (NYSE: CC), where Einhorn owns 2.23 million shares worth over $62 million. Chemours recently reported its Q4 2020 results, according to which the adjusted EBITDA surged 8% YoY to 246 million. The Chemours Company (NYSE: CC) stock has returned more than 135% to investors over the course of the past twelve months.
In GoPro, Inc. (NASDAQ: GPRO), Einhorn owns 1 million shares worth over $11.84 million. GoPro stock has offered 145% in returns to investors over the course of the past twelve months. In April 2021, GoPro, Inc. (NASDAQ: GPRO) surpassed one million subscribers.
David Einhorn is a famous Tesla, Inc. (NASDAQ: TSLA) short. The hedge fund's portfolio suffered a significant blow towards the end of 2020 after Tesla's impressive rally in the year, during which it gained 740%. Greenlight believed that the company is currently overpriced based on numerous factors such as the extremely high $800 million valuation. Greenlight views the high valuation as a sign that Tesla, Inc. (NASDAQ: TSLA) share price will fall. However, the hedge fund exited its short position in Tesla in the first quarter.
Einhorn isn't alone in his struggles to report consistent gains. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. 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 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 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 16th. 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 some of the best stocks to buy based on David Einhorn's Q1 portfolio.
Best Stocks to Buy According to David Einhorn's Greenlight Capital
10. Capri Holdings Limited (NASDAQ: CPRI)
Einhorn’s Stake Value: $9,740,000 Percent of David Einhorn’s 13F Portfolio: 0.67% Number of Hedge Fund Holders: 47
Capri Holdings Limited (NASDAQ: CPRI) deals in apparel, footwear, and accessories across the globe. It was founded in 1981, and is placed tenth on our list of 10 best stocks to buy according to David Einhorn's Greenlight Capital. Capri stock has returned more than 234% to investors over the course of the past twelve months. Greenlight added this stock to its portfolio in the last quarter. Greenlight holds more than 191,000 shares in the company worth over $9.7 million, representing 0.67% of their portfolio.
Morgan Stanley's analyst Kimberly Greenberger has rated the stock as "Overweight" and has a price target of $64. The firm expects higher segment EBIT contribution from Michael Kors and Versace. BTIG's analyst Camilo Lyon maintains a "Buy" rating on the stock and has a price target of $76. Lyon believes that margin will improve steadily.
Out of the hedge funds being tracked by Insider Monkey, Rima Senvest Management is a leading shareholder in Capri with 3.78 million shares worth more than $193 million. In its Q4 2020 investor letter, Avory & C0, an asset management firm, highlighted a few stocks and Capri Holdings Limited (NASDAQ: CPRI) was one of them. Here is what the fund said:
“John Idol, was amongst the most nimble and resilient CEOs in 2020. Capri, as most of the retail sector, faced various challenges; 1) Supply disruptions in their leather goods as a result of the large impact covid had on Italy, 2) Dwindling demand as brick and mortar locations were forced to shut down globally and 3) Debt due in December of 2020. John acted quickly and reduced his cost base through global furloughs, delayed reopenings, turned to social selling and clienteling, was able to refinance all the debt in 2020 and pushed it out multiple years, along with getting their three brands, Jimmy Choo, Versace, and Michael Kors to positive or mid negative single-digit comparable sales by August. Coming out of Covid Capri is a leaner business. Versace is realizing positive sales, and they now expect 2020 to be a profitable year. We believe that this type of management execution can and should totally transform the narrative around this company for many years to come.”
9. Sonos, Inc. (NASDAQ: SONO)
Einhorn’s Stake Value: $7,588,000 Percent of David Einhorn’s 13F Portfolio: 0.52% Number of Hedge Fund Holders: 46
Sonos, Inc. (NASDAQ: SONO) is one of the most popular companies in the high-end audio products industry. The company announced its Q1 2021 financials revealing that it generated $132.3 million GAAP net income, which was 87% higher than the Q1 2020 GAAP net income of $70.8 million. Its non-GAAP net income excluding legal transaction fees, restructuring, and stock compensation was $153.2 million, compared to $87.4 million a year ago. It is placed ninth on our list of 10 best stocks to buy according to David Einhorn's Greenlight Capital
Some of the company's key developments include securing a multi-year licensing agreement with Legrand. The licensing agreement will allow Legrand to use Sonos audio patents for its NUVO lineup of wireless products. Sonos, Inc. (NASDAQ: SONO) will be paid a licensing fee as part of the contract.
8. The ODP Corporation (NASDAQ: ODP)
Einhorn’s Stake Value: $3,114,000 Percent of David Einhorn’s 13F Portfolio: 0.21% Number of Hedge Fund Holders: 24
The ODP Corporation (NASDAQ: ODP) supplies, provides business services and digital workplace technology solutions to its clients. It was founded in 1986 and is placed eight on our list of 10 best stocks to buy according to David Einhorn's Greenlight Capital. ODP stock has offered investors returns exceeding 78% in the past year. Greenlight added this stock in the last quarter. The hedge fund run by Einhorn owns 71,932 shares in the company worth over $3 million, representing 0.21% of their investment portfolio.
The company posted Q1 2021 EPS of $0.95 beating estimates by $0.38, while revenue for the period was up 13.2% YoY to $2.38 billion. Last month, the company also stated that it plans to to split the company into two separate independent, publicly traded companies, ODP and NewCo.
Just like Twitter, Inc. (NYSE: TWTR), The Chemours Company (NYSE: CC) and GoPro, Inc. (NASDAQ: GPRO), The ODP Corporation (NASDAQ: ODP) is one of the best stocks to buy according to David Einhorn. At the end of the first quarter of 2021, 24 hedge funds in the database of Insider Monkey held stakes worth $397 million in The ODP Corporation (NASDAQ: ODP), up from 20 the preceding quarter worth $283 million.
7. fuboTV Inc. (NYSE: FUBO)
Einhorn’s Stake Value: $9,544,000 Percent of David Einhorn’s 13F Portfolio: 0.66% Number of Hedge Fund Holders: 18
fuboTV Inc. (NYSE: FUBO) is a U.S-based TV streaming service that mainly focuses on air live sports channels. It recently announced plans to roll out a new studio that advertisers will use. The company's new platform will also feature new shows and returning shows from Gilbert Arenas, Matthew Hatchette, and Terrell Owens. It is placed seventh on our list of 10 best stocks to buy according to David Einhorn's Greenlight Capital
fuboTV also revealed that it entered into a partnership agreement with LiveRamp as part of its plan to increase its capacity for addressable advertising. The launch is taking place at an ideal time when the Fubo Sports Network and fuboTV are preparing to stream the qualifying matches of the Qatar World Cup in 2022, after winning the exclusive rights to air the matches.
fuboTV Inc. (NYSE: FUBO) revealed Fubo Sports Network’s original programming at the IAB NewFronts presentation. The company disclosed its Q4 2020 financial results, with revenue coming in at $105.1 million, a significant milestone because it was the first time that the company’s revenue surpassed $100 million. Its subscription service had 547,880 customers at the end of 2020, after adding 92,800 net subscribers in Q4 2020.
"FuboTV (FUBO) is a streaming service that offers a sports-focused “skinny” bundle of TV channels that also includes a variety of news and entertainment content. Essentially, this is the type of package that Apple unsuccessfully tried to assemble for years. While FUBO does not currently achieve the gross margins that Apple reportedly sought, FUBO expects to primarily earn profits on advertising and online sports wagering. Our average effective price (we owned shares and warrants) was $5. The shares surged from the $10 October IPO price to end the year at $28. The huge move brought to light a number of bear cases that we believe misapprehend FUBO’s lucrative opportunity in online sports wagering.
The bears contend that the sports wagering market is small and FUBO won’t be able to compete with established books like William Hill or Caesars Entertainment. To the extent that sports wagering is a bet on who wins a game and by how much, we agree. However, we perceive the integrated opportunity to be qualitatively different. What if you could bet 1:2 on whether Giannis will make the next free throw, 1:3 on whether Jacob deGrom’s next pitch will be a strike or 20:1 that Aaron Judge will homer on the next at bat? One could even bet on whether Tiger will make his next putt or whether Nadal’s next serve will be an ace. Suddenly, watching sports goes from being a passive experience to a highly engaging, active one. Higher engagement leads to higher ad revenues and the ability to make other in-app sales to players. We expect the software to launch in 2021, initially for play money and later with the benefit of regulatory licenses for real money. We think the right comparison will be to video gaming companies such as Take-Two Interactive Software or Activision Blizzard rather than other over-the-top (OTT) video providers.”
6. EchoStar Corporation (NASDAQ: SATS)
Einhorn’s Stake Value: $24,467,000 Percent of David Einhorn’s 13F Portfolio: 1.70% Number of Hedge Fund Holders: 14
EchoStar Corporation (NASDAQ: SATS) is an internet service provider that offers broadband internet services and broadband satellite services. It is placed sixth on our list of 10 best stocks to buy according to David Einhorn's Greenlight Capital. Some of the latest developments pertaining to the company include securing a major contract from the Georgia Technology Authority through its subsidiary Hughes Network Systems, LLC.
The contract is part of the GTA Direct program that aims to provide high-speed internet to government offices in Georgia and commercial customers in the state. EchoStar will also provide network management through its subsidiary and network monitoring.
EchoStar recently disclosed its Q1 2021 financials revealing a healthy performance with consolidated revenue reported to $482.6 million. Its net income during the same period was $77.6 million, while the net income attributable to its common shares was $78.5 million. Its basic and diluted EPS for the three months ended March 31 was $0.84 per share. The combination of good performance and securing lucrative contracts explains why EchoStar Corporation (NASDAQ: SATS) is one of the best stocks in Greenlight’s books.
Just like Twitter, Inc. (NYSE: TWTR), The Chemours Company (NYSE: CC) and GoPro, Inc. (NASDAQ: GPRO), SATS is one of the best stocks to buy according to David Einhorn.
"EchoStar (Long): While the Partnership’s investment in EchoStar (SATS) is not new, it has not previously been discussed in any detail. The company’s business is very simple – it derives the vast majority of its revenue from the sale of satellite-based broadband internet services to consumers and enterprises across the Americas. As of 6/30/2020, SATS had 1.5 million subscribers, of which 1.2 million are located in the U.S. To a lesser extent, the company generates revenue from the sale of equipment to government and commercial customers.
The average consumer is unlikely to be familiar with SATS offering. While more than 100 million U.S. households have broadband internet access, EchoStar and its main competitor, ViaSat, only serve a combined 1.8 million subscribers. Most American households rely on terrestrial service from cable or fiber. The small minority of households that rely on satellite connectivity do so because it is too costly to run a terrestrial line to their location. These households tend to be located in geographies with very limited population density. Specifically, more than half of SATS consumer subscribers are located in areas with five or fewer houses per square kilometer. In areas like this, it just doesn’t make sense for the local cable company to run a line to the house – they’ll never earn an adequate return on their investment.
SATS is currently valued at ~3.5x EV/EBITDA (MRQ annualized) and has reasonable growth prospects ahead of it. Specifically, the company will launch its Jupiter 3 satellite in the second half of 2021, resulting in a combination of additional subscribers and the availability of higher speed and capacity for existing customers. The new satellite should begin contributing to profitability sometime in 2022. In addition to its core satellite business, the company owns a grab bag of other assets whose value could be monetized in the future. The most interesting are the S-Band spectrum licenses being used to develop new commercial service offerings (i.e. Internet of Things).
At 3.5x EV/EBITDA, SATS valuation is an outlier in the satellite communication industry. Its closest North American peer – ViaSat – currently trades at 8.0x EV/EBITDA, consistent with its historical premium. The reasons for this premium confound me – SATS is the clear leader in North America (1.2 million subs vs. 600,000 subs) and has far less exposure to the in-flight connectivity business which has been battered by the pandemic. As another point of reference, a consortium of private equity investors acquired European-based Inmarsat in 2019 at an implied EV/EBITDA multiple of ~9.0x.
SATS is also an outlier with respect to the strength of its balance sheet. The company carries no net debt, with its $2.4 billion cash balance completely offsetting outstanding borrowings. Comparatively, ViaSat’s net leverage sits around 3.75x. It is utterly insane that EchoStar’s lower quality competitor carries leverage at a level fully in excess of EchoStar’s total valuation.
In the absence of accretive investment opportunities, the company could simply repay debt, reducing its interest burden by $160 million annually. With current run-rate EBITDA of $660 million and maintenance capital expenditures in the realm of $400 million, SATS is poised to generate in excess of $250 million of annual cash flow if it does nothing else but repay its outstanding debt. And as a reminder, EBITDA should begin to grow in 2022, following the launch of the Jupiter 3 satellite. At today’s market capitalization of ~$2.4 billion, SATS offers a compelling free cash flow yield slightly in excess of 10%. Considering the company’s leading market position in an effective duopoly, high barriers to entry in the markets it serves (low density rural areas), good prospects for growth, and recurring revenue streams, SATS is a compelling bargain in today’s low interest rate world.
The most prominent area of pushback that I run into with SATS is the competitive threat from Low Earth Orbit (LEO) satellites. It’s a hard topic to address with brevity or certainty, but I’ll highlight some of my thoughts. There’s a long list of hurdles that LEOs must overcome before establishing their operational and financial viability. For example, there doesn’t yet exist economically viable antenna technology that would support widespread residential adoption. Second, only a small portion of the nameplate capacity of a LEO system will be saleable, which should support the competitiveness of next generation geosynchronous (GEO) satellites. In order to maximize saleable capacity, LEO operators will need to target customers outside of rural communities (EchoStar’s bread and butter). Competing with the terrestrial networks that serve more densely populated areas won’t be easy. And then there is the issue of building necessary ground infrastructure. In total, such an endeavor will take billions of dollars over a multi-year period. None of this is to say it can’t be done. Two of the leading projects are being spearheaded by the world’s best known and most deep-pocketed entrepreneurs: Starlink (SpaceX/Elon Musk) and Project Kuiper (Amazon/Jeff Bezos). But I do believe reports of the pending death of GEO satellites are greatly exaggerated.”
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Disclosure: None. 10 Best Stocks to Buy According to David Einhorn's Greenlight Capital is originally published on Insider Monkey.