David Einhorn’s Favorite Consumer Cyclical Stocks
- With a weight of 27.5%, Green Brick Partners is the most important position of the guru.
- The other consumer discretionary stocks he owns are Jack In The Box, Capri Holdings and The ODP Corp.
Although he is known for his short positions in Tesla Inc. (TSLA, Financial) and Netflix Inc. (NFLX, Financial), leader of Greenlight Capital David Einhorn (Trades, Wallet) sees many valuable opportunities in the market.
The New York-based investor activist, which seeks to generate long-term capital appreciation by taking an approach based on a focus on intrinsic value, invests in companies that have the potential to earn returns constant and protect capital regardless of market conditions.
At the end of the first quarter, the consumer discretionary sector was the most represented in Einhorn’s $ 1.44 billion equity portfolio with a weighting of 29.77%.
According to GuruFocus portfolio data, the guru’s four consumer discretionary holdings at the end of the quarter ended March 31 were Green Brick Partners Inc. (GRBK, Financial), Jack In the Box Inc. (JACK, Financial), Capri Holdings Ltd. (CPRI, Financial) and The ODP Corp. (ODP, Financial).
Green brick partners
In the first quarter, the investor reduced its stake in Greenbrick Partners (GRBK, Financial) by 27.78% to 17.4 million shares. As its largest stake, the position represents 27.5% of the equity portfolio. GuruFocus estimates that Einhorn earned 170.37% on the investment over its lifetime.
The Plano, Texas-based company, which is involved in the construction and construction of housing, has a market cap of $ 1.15 billion; its shares were trading around $ 22.45 on Tuesday with a price-to-earnings ratio of 9.33, a price-to-book ratio of 1.73 and a price-to-sell ratio of 1.16.
The GF value line suggests that the stock is currently significantly overvalued based on historical ratios, past performance and future earnings projections.
GuruFocus rated Green Brick’s financial strength at 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 that the company is in good standing. Return on invested capital also exceeds the weighted average cost of capital, indicating that the business is creating value as it grows.
The company’s profitability was rated 7 out of 10. While the operating margin is declining, Green Brick has strong returns on equity, assets and capital that outperform the majority of its competitors. It also has a moderate Piotroski F-Score of 5, indicating that trading conditions are stable, as well as a profitability ranking of one in five. According to GuruFocus, companies with this rank are reporting an average of 1.1% per year over a 10-year period.
Among the gurus invested in Green Brick, Einhorn holds by far the largest stake with 34.34% of the shares outstanding. Capital of Diamond Hill (Trades, Wallet), Hotchkis & Wiley, Jim simons (Trades, Wallet) ‘Renaissance Technologies, Third avenue management (Trades, Wallet), John roger (Trades, Wallet), Jeremy grantham (Trades, Wallet) and Caxton Associates (Trades, Wallet) also have the action.
Jack in the box
Einhorn boosted his Jack In The Box (JACK, Financial) holding 48.6% during the quarter at 179,800 shares, which represents 1.37% of the equity portfolio. According to GuruFocus, it has gained around 54.27% on the investment since Q2 2020.
The fast food restaurant chain, headquartered in San Diego, has a market cap of $ 2.65 billion; its shares were trading around $ 120.50 on Tuesday with a price-to-earnings ratio of 17.42 and a price-to-sell ratio of 2.51.
According to the GF Value Line, the stock is currently valued at its fair value.
Jack In The Box’s financial strength has been rated 3 out of 10 by GuruFocus. Despite poor interest coverage, the Altman Z-Score of 3.02 indicates the company is in good standing. ROIC also eclipses WACC, suggesting good value creation.
The company’s profitability fared better with a score of 7 out of 10, driven by an expanding operating margin, strong returns that outperform the majority of its industry peers and a high Piotroski F-Score of 7, suggesting that trading conditions are sound. Jack In The Box also has a predictability rank of one star.
Simons’ company is the restaurant’s largest guru shareholder with a 1.3% stake. Einhorn holds the second largest stake with 0.81%. Pioneering investments (Trades, Wallet), Hotchkis & Wiley, Louis moore bacon (Trades, Wallet), Joel greenblatt (Trades, Wallet) and Paul Tudor Jones (Trades, Wallet) also have positions in the stock.
The guru has established a position in Capri Holdings (CPRI, Financial) during the quarter, by purchasing 191,000 shares. The investment received 0.68% space in the stock portfolio. GuruFocus data shows Einhorn has gained around 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 a market cap of $ 8.06 billion; its shares were trading around $ 53.74 on Tuesday with a price-to-book ratio of 3.74 and a price-to-sell ratio of 1.99.
Based on the GF value line, the stock currently appears to be significantly overvalued.
GuruFocus rated Capri’s financial strength at 4 out of 10. Despite adequate interest coverage, the Altman Z-Score of 2.26 indicates that the company is under some pressure as assets accumulate at a faster rate than incomes do not increase.
The company’s profitability is faring better, scoring a 7 out of 10. Although the operating margin is down, it outperforms more than half of its competitors. Capri also has negative returns which are underperforming, but is supported by a moderate Piotroski F-Score of 5. Although income per share has declined over the past five years, the fashion house still has a predictability of a star.
PRIMECAP management (Trades, Wallet) is Capri’s largest guru shareholder with a 2.47% stake. Steven cohen (Trades, Wallet), Ray dalio (Trades, Wallet), Bacon, Jones, Greenblatt, Lee ainslie (Trades, Wallet) and Grantham also own the shares.
Einhorn took a participation of 71,932 shares in ODP (ODP, Financial) in the last quarter, allocating 0.22% of the equity portfolio to the position. GuruFocus says it has lost around 7.62% on the investment so far.
Based in Boca Raton, Florida, the company, which is a retailer of office supplies and business services, has a market capitalization of $ 2.59 billion; its shares were trading around $ 47.42 on Tuesday with a price-to-book ratio of 1.31 and a price-to-sell ratio of 0.27.
The GF value line suggests that the stock is currently significantly overvalued.
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 that the company is under some pressure as its Sloan ratio indicates poor earnings quality.
The retailer also has a declining operating margin and negative returns that underperform the majority of its industry peers. ODP also has a moderate Piotroski F-Score of 4, but the one-star predictability ranking is under scrutiny due to the decline in earnings per share over the past five years.
Among the gurus invested in ODP, Hotchkis & Wiley holds the largest stake with 4.64% of the shares outstanding. The other major gurus shareholders are the firm of Simons, Chuck royce (Trades, Wallet), Greenblatt and Barrow, Hanley, Mewhinney & Strauss.
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I / we have no position in any of the mentioned stocks and do not intend to initiate any position within the next 72 hours.