In recent years, it hasn’t been a good time to push David Einhorn stocks. In 2021, Greenlight Capital’s holdings delivered 11.9% to its limited partners, 16.8 percentage points less than the S&P 500.
However, since Greenlight’s inception in May 1996, the limited partnership’s achieved an annualized total return of 12.3%, net fees. Over the same period, the index averaged 7.7%, 460 basis points less.
So, while some might say Einhorn is washed up, his Q4 2021 return of 18.6% — 760 basis points higher than the index — suggests the long-time investor still has a win or two up his sleeve.
Einhorn released Greenlight’s Q4 2021 shareholder letter on Jan. 26. Unlike many shareholder letters, Einhorn’s is full of interesting observations and honest admissions. You can read the letter here.
Greenlight had some big wins in the fourth quarter, none bigger than a 48% gain from Green Brick Partners (NYSE:GRBK). Green Brick is a homebuilder and land development company in the hot real estate markets of Florida, Texas, Georgia and Colorado.
- Green Brick Partners
- Brighthouse Financial (NASDAQ:BHF)
- Change Healthcare (NASDAQ:CHNG)
- Capri Holdings (NYSE:CPRI)
- LivaNova (NASDAQ:LIVN)
- Jack in the Box (NASDAQ:JACK)
- Sonos (NASDAQ:SONO)
David Einhorn Stocks to Buy: Green Brick Partners (GRBK)
As I said in the introduction, Einhorn’s hedge fund owns 17.4 million shares of the homebuilder, good for a 30.2% stake in the company.
Einhorn said this about Green Brick’s fourth-quarter performance on pg. 2 of his shareholder letter:
“Green Brick Partners (GRBK) advanced 48% from $20.52 to $30.33 per share. There were no significant developments in the quarter. Perhaps the market decided that $30 was more appropriate compared to $20, given GRBK is expected to earn $3.65 per share in 2021 (up 62% year-over-year) and $4.28 in 2022. Though the shares advanced 32% for the year, the P/E multiple shrank as earnings grew faster than the share price.”
The story behind Einhorn’s involvement in Green Brick goes back to 2002 when homebuilding veteran Jim Brickman met Einhorn out of the blue. Brickman decided to invest with Einhorn. They got to know each other. In 2009, they formed Green Brick Partners together. In October 2014, it went public through a reverse merger.
As long as the housing business remains strong, GRBK is a lock to keep moving higher in 2022 and beyond.
Brighthouse Financial (BHF)
Brighthouse Financial is Einhorn’s second-largest position at 11.2%. The insurance company provides its customers with both annuities and life insurance products. Brighthouse has more than three million customers and total assets of $254 billion.
The company was busy buying back its stock in 2021. In the past year, it repurchased 12% of its outstanding shares for $499 million. It also returned $1 billion to BHF shareholders in dividends during 2021.
Despite annuity sales being flat over 2020 — annuities account for almost 99% of its $7.14 billion in revenue — its adjusted earnings nearly doubled 2020’s at $1.82 billion.
The insurer’s Q4 2021 results beat on both the top and bottom lines. Analysts were expecting fourth-quarter sales of $2.15 billion. Brighthouse delivered $2.32 billion. On the bottom line, it had earnings per share of $5.18, almost 50% higher than the consensus estimate of $3.46. It was Brighthouse’s fourth consecutive positive earnings surprise.
BHF stock is up 32% over the past 52 weeks. That’s 3x the return for the S&P 500.
David Einhorn Stocks to Buy: Change Healthcare (CHNG)
Change Healthcare is Greenlight Capital’s fifth-largest position by weight at 4.45% as of the end of December. In terms of market cap, it’s the 14th largest company in Einhorn’s portfolio.
Change Healthcare provides a technology platform for healthcare providers and payers to facilitate more than 15 billion adjudicated claims per year. That’s more than $1.5 trillion annually.
UnitedHealth Group (NYSE:UNH) is trying to acquire Change for $13 billion, including the assumption of $5 billion in debt. The transaction was originally supposed to close in 2021. However, the two parties extended the deadline to meet regulatory approval.
The Department of Justice filed a lawsuit to block the acquisition. Opponents of the deal include hospitals and pharmacists. They believe the combination of UnitedHealth’s Optum health services division with Change will create a lack of competition leading to higher costs.
While CHNG shares fell in late January on concerns that the sale to UNH might not go through, they’ve since recovered, adding nearly 6% since the suit announcement.
Capri Holdings (CPRI)
Capri is the owner of Michael Kors, Jimmy Choo and Versace. A trio of fashion brands that Einhorn believes is ideally positioned to make big share price gains in the months ahead.
His shareholder letter assigned three full paragraphs to the company. While CPRI is only Greenlight’s 9th-largest position, Einhorn upped his shareholdings by 46% in the fourth quarter, a sign he’s committed to this stock.
“We believe there is substantial upside to the shares, as the market re-rates the company as a diversified luxury brand owner. In the meantime, CPRI will generate about 10% of its current market capitalization in cash this year,” he said. “CPRI has recently announced a share repurchase program which equates to 11% of the float.”
Greenlight’s average price paid is $55.86. It currently trades at nearly $66.50.
Capri’s trailing 12-month (TTM) free cash flow (FCF) is $680 million. That’s higher than it’s ever been. Based on its TTM revenue of $5.36 billion through the end of the third quarter, Capri’s FCF margin is a healthy 12.7%. By comparison, LVMH (OTCMKTS:LVMUY), the world’s leading owner of luxury brands, is 24%.
While Capri has much work to do if it wants to catch up to LVMH, it’s clear to Einhorn that the company is making great strides.
David Einhorn Stocks to Buy: LivaNova (LIVN)
LivaNova is the product of an October 2015 merger of Houston-based Cyberonics and Sorin SpA, an Italian medical devices company. Together, the London-based company provides therapeutic solutions to healthcare professionals and their patients.
The company has three reportable segments: Cardiopulmonary (49% of sales), Neuromodulation (46%), and Advanced Circulatory Support (5%). The company’s Neuromodulation segment is LivaNova’s most profitable operating segment.
The company’s major products include the LivaNova Vagus Nerve Stimulation (VNS) Therapy System, which treats drug-resistant epilepsy; the XTRA Autotransfusion System; and the S5 Heart-Lung Machine.
In 2021, the segment accounted for 74.0% of its operating income. Its operating margin was 38.6%, 980 basis points higher than in 2020. Overall, in 2021, LivaNova’s operating margins increased by 50% to 15.0%.
Although LivaNova only accounts for 1.71% of Greenlight Capital’s portfolio, Einhorn increased its holdings by 92% in the fourth quarter.
A total of six analysts cover LIVN stock. Five of them rate it a “Buy” with the sixth at “Hold.” The median target price is $108, providing plenty of upside to its current share price of around $77.
Analysts expect LivaNova to earn $2.64 a share in 2022. That’s up 27.5% from $2.07 in 2021.
Jack in the Box (JACK)
Greenlight increased its holdings in the California-based burger chain by 42% in the fourth quarter. It now accounts for 1.06% of Einhorn’s $1.75-billion portfolio.
Jack in the Box reported Q1 2022 results on Feb. 23. The quarter’s highlight was a two-year same-store sales increase of 13.7%. While operating earnings were down 17.1% to $73.7 million during the quarter, the company is doing a reasonably good job battling higher food costs.
During the quarter, it signed 26 development agreements to add 96 future franchised locations. That brings total future commitments to 201 since it launched its franchise development program in mid-2021.
Del Taco is the second largest Mexican quick-service restaurant (QSR chain in the U.S. Jack in the Box is paying 7.6x Del Taco’s TTM adjusted earnings before interest, taxes, depreciation and amortization (EBITDA).
“Del Taco has a loyal, passionate guest base and a strong operating model, and we believe that we can leverage our infrastructure, experience refranchising, and development strategy to support Del Taco’s growth plans and expand Del Taco’s footprint,” said Jack in the Box CEO Darin Harris in early December.
The acquisition accelerates Jack in the Box’s growth plans. That’s a big reason Einhorn upped his stake in the company. If it can execute these plans, Einhorn will benefit greatly from his investment.
David Einhorn Stocks to Buy: Sonos (SONO)
Sonos is one of Einhorn’s smaller holdings with a weighting of just 0.75%. On the plus side, he did increase his stake in the wireless speaker company by 21% during the quarter.
In April 2021, I recommended 10 stocks to buy under $50. They’ve been a mixed bag. Sonos has been one of the worst of the bunch, down 39% in the 11 months since.
At the time, my argument for buying SONO was that it was starting to come into its own as a public company after starting slowly out of the gates in August 2018. It had just come off the best quarter in its history and expected to grow both the top and bottom lines in fiscal 2021.
It did just that.
Its revenues in 2021 were 32% higher to $1.72 billion, while its adjusted EBITDA jumped 157% to $278.6 million. Both of these were company records.
“Demand for our products remains stronger than ever, and we are entering fiscal 2022 with a significant backlog due to the continued industry-wide supply constraints. Despite these supply constraints, we expect to deliver another strong year in fiscal 2022, including 16% revenue growth and 17% adjusted EBITDA growth at the high end of our outlook,” CEO Patrick Spence stated in November.
By 2024, Sonos expects to generate annual revenue of $2.5 billion and an adjusted EBITDA margin of 16.5% at the midpoint of its guidance.
SONO was a buy at $43. It’s a buy at $27.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.