A quick glance at David Einhorn's five new stocks – Comcast, Fortune Brands Innovations, Primo Brands, PayPal, and Versigent
In yesterday's e-mail, I shared highlights from my old friend David Einhorn's second-quarter investor letter for his hedge fund, Greenlight Capital. In it, he disclosed five new stocks that he added to Greenlight's portfolio.
David is one of the smartest investors I know. So let's take a quick glance at each of them and see if any are worth a closer look...
1) Of media and technology company Comcast (CMCSA), he wrote:
At our entry price of $23.91 per share, CMCSA traded at only 5x EBITDA [earnings before interest, taxes, depreciation, and amortization], which we believe significantly undervalues its free cash flow generation and the collective value of its businesses... CMCSA shares ended the quarter at $24.55.
I took a quick look at Comcast in my June 23 e-mail, noting that the stock hit a 13-year low the previous day and writing:
... Comcast has a mountain of net debt ($85.1 billion), but it generates a ton of free cash flow ($20.4 billion in the last 12 months) and pays a huge dividend (5.9%). Plus, the stock trades at a super-low multiple (6.4 times this year's estimates).
Since then, the stock is up 17%. And it currently trades for 7.6 times this year's consensus analysts' earnings-per-share estimates.
2) Of building-products company Fortune Brands Innovations (FBIN), David wrote:
[If] FBIN simply achieves the low end of prior management's mid-cycle margin targets on current revenue, it should support approximately $5 of earnings per share. We acquired our position at an average price of $39.37, or approximately 8x those earnings, while peers trade for almost 20x. FBIN shares ended the quarter at $54.90.
This idea caught my eye because my college buddy Bill Ackman of Pershing Square owned its predecessor company, Fortune Brands Home & Security, 15 years ago.
In fact, he disclosed this position at my Value Investing Congress on October 18, 2011. Here's the presentation his analyst Ali Namvar gave, as well as an article about it.
FBIN was a monster for the next decade, rising more than 10-fold to its 2021 peak of more than $100. But it has lost more than half of its value since then – thanks to internal missteps, the severe downturn in the housing market, and the spinoff of its cabinets business, MasterBrand (MBC):
The stock currently trades for 13 times this year's estimates.
3) Of bottled-water company Primo Brands (PRMB) – which owns Poland Spring, among others – David wrote:
We acquired our shares at an average price of $20.20, implying a 12% free cash flow yield on our expectation for 2027 results, which compares to peer free cash flow yields of 3-5%. PRMB ended the quarter at $24.44.
The stock has had many ups and downs since its 1992 IPO. It fell to less than $1 during the global financial crisis, was in the $10-to-$18 range for a decade, quickly doubled to around $35 early last year, and has since pulled back to around $23 today:
The stock trades for 17.6 times this year's estimates.
4) Of global payment platform PayPal (PYPL), David wrote:
We believe PYPL's collection of payment assets is worth substantially more than the 8x earnings we paid. PYPL ended the quarter at $43.18. Subsequent to quarter-end, Stripe and Advent International reportedly made a joint offer to buy PYPL for $60.50 per share.
I've written about PayPal dozens of times (archive here). In fact, last Friday, I commented on the stock's drop due to its acquisition possibly falling apart:
To pressure PayPal, Advent and Stripe leaked to Bloomberg that they're walking away, which they knew would tank the stock. But I think they really want to buy the company and know it's a steal at their $50 billion offer. As the article noted, "Advent and Stripe could always opt to come back at a later date if the situation changes."
It's likely that they'll come back with a moderately higher offer (maybe $65 to $70 per share – a decent premium to yesterday's closing price of $61.47), PayPal will accept, and the stock will soar.
The stock is still down around 14% since the news.
5) Lastly, of car-parts maker Versigent (VGNT), David wrote:
By the end of 2028, VGNT is targeting $1 billion of cumulative free cash flow, or approximately one-third of its current market capitalization, with the majority expected to be returned to shareholders through buybacks. We acquired our shares at an average price of $29.20, or approximately 4x this year's expected earnings. VGNT ended the quarter at $42.01.
The stock has done very well since its spinoff from Aptiv (APTV) earlier this year, rising from around $30 to yesterday's close of $47.40:
Despite the run-up, the stock trades at a mere 6.3 times this year's estimates, compared with the industry average of more than 18 times. That's primarily because it's a newly independent spinoff facing market skepticism common to car-supplier carve-outs.
Which of these stocks are you most interested in having me take a closer look at? You can send me an e-mail and let me know by clicking here.
Best regards,
Whitney
P.S. Happy 40th birthday to my new friend, French tennis legend Gael Monfils. I had the pleasure of spending the day with him last week, playing a round of golf:
He's the oldest player left in the U.S. Open, now that Venus Williams and Stan Wawrinka are out. This is his 22nd and final year on tour, his last Grand Slam.
He's playing at 7 p.m. tonight in Louis Armstrong Stadium against an opponent barely half his age – 22-year-old Paraguayan Adolfo Daniel Vallejo, who has reached a career-high ranking of No. 60.
Meanwhile, Monfils hasn't played much and has only a 4-9 record this year, so he's ranked No. 311. But the betting sites have the match as a toss-up. I think it's going to be a barnburner, so join me in cheering Monfils to victory!
Best of all, you can do so for less than $20. That's the price right now on Vivid Seats for a day-session nosebleed seat at Arthur Ashe Stadium.
Here's the catch: As long as you enter the grounds before 6 p.m., you can stay and watch the night matches at Armstrong in the upper-level seats.
If you want courtside seats in Armstrong, they're currently going for a few hundred dollars thanks to the popularity of Monfils and Filipino sensation Alex Eala, who's playing afterward.
Let me know if you come, and let's sit together!