David Einhorn (Trades, Portfolio)'s hedge fund, Greenlight Captial, made some notable changes to its portfolio in the first quarter of 2021.
According to the firm's 13F, which detailed its U.S. equity holdings at the end of March 2021, the largest investment in the portfolio at the end of the quarter was Green Brick Partners (GBK, Financial). This investment accounted for nearly 28% of assets reported on the 13F. It was worth around $400 million at the time of the report.
This company has featured in Greenlight's portfolio since the fourth quarter of 2014. The hedge fund started buying around $8 per share, and since then, the stock has risen to approximately $23.
Einhorn on Green Brick
Greenlight is one of the few hedge funds that have a significant stake in this home builder.
Writing in his first-quarter letter to investors, Einhorn explained that he still thinks this business is incredibly undervalued. However, he also noted that Greenlight had to reduce its holdings of the stock by 28% during the first quarter of the year because it had become too big.
Here's what Einhorn said about the business in his Q1 letter:
"There is a shortage of inventory of new or existing homes for sale, so house prices are rising. The pricing umbrella has allowed Green Brick to raise prices faster than costs, some of which are rising sharply. The result is the company expects 2021 to be another year of exciting growth. The company is now planning for a multi-year housing boom, of which it believes we are still in the early stages. In 2020, Green Brick earned $2.23 per share, leaving the stock inexpensive at just over 10x trailing earnings, with the growth in 2021 and beyond still to come. While the position is still our largest, we are currently comfortable with the sizing."
Another cheap stock
The second-largest position in Greenlight's portfolio at the end of March was insurer Brighthouse (BHF, Financial). This holding accounted for 11.2% of the total 13F assets. Together, the two top holdings accounted for 40% of assets.
Brighthouse is another stock that's been in the portfolio for a while. Einhorn started buying in 2017, and since then, the performance has been mixed. Since the company's spin-off at the end of 2017, it has returned -25%.
Brighthouse is one of those value stocks that always seems cheap, but the market never seems to recognize the value. Even after rising around 100% from 52-week lows printed in June of last year, the stock is still trading at a price to tangible book value of 0.3.
The problem is, this is a life insurance company. Life insurance or any long-tail insurance business can be challenging to understand and value. They are also highly susceptible to interest rates. A sudden change in interest rates can have an outsized impact on assets and liabilities. Brighthouse has been buying back its own stock, and outperforming Wall Street expectations, but the complex nature of the company's business model is just holding it back.
Deep value
Alongside Brighthouse and Green Brick, Atlas Air Worldwide Holdings (AAWW, Financial) was the third-largest holding in Einhorn's portfolio at the end of the second quarter with a 6.5% portfolio weighting. This holding was first reported on Greenlight's 13F for the second quarter of 2020.
It's possible the fund was buying when the stock was trading below $40 per share. Today it's above $70 and still trades at a price to tangible book value of 0.9.
One of the interesting things about Greenlight's portfolio, especially with the most significant holdings, is that these holdings are not widely owned. In all three cases, Einhorn is the only manager with substantial exposure. He's clearly not afraid to invest where other investors are not willing to tread.
Disclosure: The author owns no share mentioned.
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
