3 Hot Stock Picks from Guru David Einhorn

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I don’t always pay attention to, or put much credence in, the latest big stock picks by various hedge fund managers. They’re human like the rest of us, and I’ve seen some insane choices made over the years. Certainly the Bill Ackman debacle at JCPenney (JCP) comes to mind as one of the more egregious examples.

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But some managers are worth paying attention to, like David Einhorn of Greenlight Capital. More than a few times, I’ve investigated a few of his more obscure picks and found his thesis to be well-supported. And that’s a great way to piggyback on fund managers — as a starting point for your own research.

With that in mind, here are three interesting David Einhorn stock picks.

Conn’s Inc. (CONN)

david-einhorn-stock-picks-conn-stockConn’s Inc. (CONN) operates in an area I’ve studied for years: rent-to-own. It is a wildly successful industry that has also proven to be popular with its customers. This is a high-margin business because the company will collect substantial financing charges on the rental business. It allows them to collect the cost of the actual appliance back, plus a gigantic profit over time.

I thought this space was mature, but Conn’s proves it isn’t. It specializes in the Southwest region (mostly Texas) and has opened up stores in highly specific places with limited competition. It also sells mattresses and furniture, which are not products other RTO’s usually get involved with.

Conn’s announced insanely good same store growth in Q4 (33%), yet the market sold the stock off big time because of heavier credit losses. The stock is down more than 40% this year, but Einhorn is still optimistic about the stock: “We believe that this is a retailer with 15% to 20% unit growth and current double digit comparable store sales growth, and that the market overreacted to moderately bad news.” I agree. CONN stock trades at just 13 times FY15 earnings estimates of $3.40 to $3.70. That was good enough for me to buy shares.

Nokia (NOK)

david-einhorn-stock-picks-nok-stockA David Einhorn stock pick surprise came in the form of Nokia (NOK). I owned Nokia back in the day when cell phone use was exploding, and I sold out with a hefty profit. Then I stopped paying attention. I woke up and found the company had totally lost its position in the cell phone world.

Well, David Einhorn took a 3.5 million share position as Nokia is selling its phone business to Microsoft (MSFT) for $7 billion. That’s part of an overall turnaround plan in which it will push into technology, networks and mapping. It isn’t a device business anymore, and that’s ultimately a good thing for the company.

David Einhorn likes this move. I’m not so sure, though, so I’m staying on the sidelines, watching NOK stock carefully.

Hatteras Financial Corp (HTS)

david-einhorn-stock-picks-hts-stockAnother interesting stock pick from David Einhorn was Hatteras Financial Corp (HTS), an agency mREIT.

The company buys mortgages, but in the form of pass-through securities that are guaranteed by the government. Thus, it can borrow money at cheap rates, and then turn around and buy these securities that yield higher rates, and throw off 90% of that income to investors.

David Einhorn apparently believes that interest rates will remain low enough for some time, so that the interest rate spread the company uses to make those investments will remain intact. I find mREITs to be risky for my taste, but a small position in one like Hatteras might make sense for a diversified long-term portfolio.

As of this writing, Lawrence Meyers was long CONN. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at pdlcapital66@gmail.com and follow his tweets at @ichabodscranium.


Article printed from InvestorPlace Media, https://investorplace.com/2014/05/david-einhorn-stock-picks/.

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