Investing

David Einhorn’s Favorite Consumer Cyclical Stocks

Summary

  • With a weight of 27.5%, Green Brick Partners is the guru’s largest position.
  • Other consumer cyclical stocks he owns are Jack In The Box, Capri Holdings and The ODP Corp.

Despite being known for his short positions in Tesla Inc. (TSLAFinancial) and Netflix Inc. (NFLXFinancial), Greenlight Capital leader David Einhorn (TradesPortfolio) sees plenty of value opportunities in the market.

The activist investor’s New York-based firm, which seeks to generate long-term capital appreciation by taking an approach rooted in emphasizing intrinsic value, invests in companies that have the potential to achieve consistent returns and safeguard capital regardless of market conditions.

As of the end of the first quarter, the consumer cyclical sector had the largest representation in Einhorn’s $1.44 billion equity portfolio with a weight of 29.77%.

According to GuruFocus portfolio data, the guru’s four consumer cyclical holdings as of the end of the three months ended March 31 were Green Brick Partners Inc. (GRBKFinancial), Jack In the Box Inc. (JACKFinancial), Capri Holdings Ltd. (CPRIFinancial) and The ODP Corp. (ODPFinancial).

Green Brick Partners

In the first quarter, the investor trimmed his stake in Greenbrick Partners (GRBKFinancial) by 27.78% to 17.4 million shares. As his largest holding, the position accounts for 27.5% of the equity portfolio. GuruFocus estimates Einhorn has gained 170.37% on the investment over its lifetime.

The Plano,Texas-based company, which is involved in homebuilding and construction, has a $1.15 billion market cap; its shares were trading around $22.45 on Tuesday with a price-earnings ratio of 9.33, a price-book ratio of 1.73 and a price-sales ratio of 1.16.

The GF Value Line suggests the stock is significantly overvalued currently based on historical ratios, past performance and future earnings projections.

GuruFocus rated Green Brick’s financial strength 5 out of 10. Although the company has issued approximately $97.4 million in new long-term debt over the past three years, the Altman Z-Score of 4.51 indicates the company is in good standing. The return on invested capital also surpasses the weighted average cost of capital, indicating the company is creating value as it grows.

The company’s profitability scored a 7 out of 10 rating. While the operating margin is in decline, Green Brick has strong returns on equity, assets and capital that outperform a majority of competitors. It also has a moderate Piotroski F-Score of 5, which indicates business conditions are stable, as well as a profitability rank of one out of five. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.

Of the gurus invested in Green Brick, Einhorn by far has the largest stake with 34.34% of the outstanding shares. Diamond Hill Capital (TradesPortfolio), Hotchkis & Wiley, Jim Simons (TradesPortfolio)’ Renaissance Technologies, Third Avenue Management (TradesPortfolio), John Rogers (TradesPortfolio), Jeremy Grantham (TradesPortfolio) and Caxton Associates (TradesPortfolio) also own the stock.

Jack In The Box

Einhorn boosted his Jack In The Box (JACKFinancial) holding by 48.6% during the quarter to 179,800 shares, which represent 1.37% of the equity portfolio. According to GuruFocus, he has gained an estimated 54.27% on the investment since the second quarter of 2020.

The fast-food restaurant chain, which is headquartered in San Diego, has a market cap of $2.65 billion; its shares were trading around $120.50 on Tuesday with a price-earnings ratio of 17.42 and a price-sales ratio of 2.51.

According to the GF Value Line, the stock is fairly valued currently.

Jack In The Box’s financial strength was rated 3 out of 10 by GuruFocus. Despite have weak interest coverage, the Altman Z-Score of 3.02 indicates the company is in good standing. The ROIC also eclipses the WACC, suggesting good value creation.

The company’s profitability fared better with a 7 out of 10 rating, driven by an expanding operating margin, strong returns that outperform a majority of industry peers and a high Piotroski F-Score of 7, suggesting business conditions are healthy. Jack In The Box also has a one-star predictability rank.

Simons’ firm is the restaurant’s largest guru shareholder with a 1.3% stake. Einhorn has the second-largest holding with 0.81%. Pioneer Investments (TradesPortfolio), Hotchkis & Wiley, Louis Moore Bacon (TradesPortfolio), Joel Greenblatt (TradesPortfolio) and Paul Tudor Jones (TradesPortfolio) also have positions in the stock.

Capri Holdings

The guru established a position in Capri Holdings (CPRIFinancial) during the quarter, buying 191,000 shares. The investment was given 0.68% space in the equity portfolio. GuruFocus data shows Einhorn has gained an estimated 1.96% on the stock so far.

The New York-based fashion house, which owns luxury brands like Michael Kors, Versace and Jimmy Choo, has an $8.06 billion market cap; its shares were trading around $53.74 on Tuesday with a price-book ratio of 3.74 and a price-sales ratio of 1.99.

Based on the GF Value Line, the stock appears to be significantly overvalued currently.

GuruFocus rated Capri’s financial strength 4 out of 10. Despite having adequate interest coverage, the Altman Z-Score of 2.26 indicates the company is under some pressure since assets are building up at a faster rate than revenue is growing.

The company’s profitability fared better, scoring a 7 out of 10 rating. Although the operating margin is in decline, it outperforms over half of competitors. Capri also has negative returns that are underperforming, but is supported by a moderate Piotroski F-Score of 5. While revenue per share had declined over the past five years, the fashion house still has a one-star predictability rank.

PRIMECAP Management (TradesPortfolio) is Capri’s largest guru shareholder with a 2.47% stake. Steven Cohen (TradesPortfolio), Ray Dalio (TradesPortfolio), Bacon, Jones, Greenblatt, Lee Ainslie (TradesPortfolio) and Grantham also own the stock.

ODP Corp.

Einhorn entered a 71,932-share holding in ODP (ODPFinancial) in the most recent quarter, allocating 0.22% of the equity portfolio to the position. GuruFocus says he has lost an estimated 7.62% on the investment so far.

Headquartered in Boca Raton, Florida, the company, which is a retailer of office supplies and business services, has a market cap of $2.59 billion; its shares were trading around $47.42 on Tuesday with a price-book ratio of 1.31 and a price-sales ratio of 0.27.

The GF Value Line suggests the stock is significantly overvalued currently.

ODP’s financial strength and profitability were both rated 5 out of 10 by GuruFocus. While the company has adequate interest coverage, the Altman Z-Score of 1.9 indicates the company is under some pressure since its Sloan ratio is indicative of poor earnings quality.

The retailer also has a declining operating margin and negative returns that underperform a majority of industry peers. ODP also has a moderate Piotroski F-Score of 4, but the one-star predictability rank is on watch as a result of revenue per share declining over the past five years.

Of the gurus invested in ODP, Hotchkis & Wiley has the largest stake with 4.64% of outstanding shares. Other top guru shareholders are Simons’ firm, Chuck Royce (TradesPortfolio), Greenblatt and Barrow, Hanley, Mewhinney & Strauss.

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Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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