David Einhorn (Trades, Portfolio) is a legendary value investor and the founder of Greenlight Capital, an investment firm that reported ~$1.84 billion in 13F holdings as of its latest portfolio update for the first quarter of 2023.
Investors should be aware that 13F reports do not provide a complete picture of a guru’s holdings. They include only a snapshot of long equity positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They do not include short positions, non-ADR international holdings or other types of securities. However, even this limited filing can provide valuable information.
Einhorn takes a bottom-up approach to investing where he seeks assets that are undervalued and mispriced by the market. Thus, in this article, we will take a look at the two stocks with the largest weights in Einhorn's portfolio, and why I believe they qualify as "super stocks;" let’s dive in.
1. Green Brick Partners
Green Brick Partners (GRBK, Financial) is a real estate company that focuses on a few core areas. This includes land acquisition and development, homebuilding, building operations and even financing.
Greenlight Capital added to this position at the end of June 2023, according to GuruFocus Real Time Picks, a Premium feature. This stock is now the largest in Greenlight’s portfolio, making up 31.64% of the 13F portfolio weight.
Financials
Despite the cyclical decline in the housing market, Green Brick Partners has reported some surprisingly strong results. Its revenue was $452.1 million in the latest quarter, which beat analyst forecasts by $171 million and rose by close to 15% year over year.
The company delivered a record 761 homes in the first quarter. Its net orders across all its builder brands rose to a staggering 1,067 homes, up a rapid 78% year over year.
Another interesting metric to watch in the home building industry is the “cancellation rate." This is the percentage of home-building contracts that are canceled due to buyers pulling out.
In the first quarter of 2023, the cancellation rate declined by 14% sequentially to 6.2%, which was solid.
Green Brick’s growth has also been sustainably done as the business recorded a gross margin of 27.6%, up 140 basis points quarter over quarter. It should also be noted this is one of the highest among other homebuilders, which is a sign of an efficient business model.
Its operating income was $78.1 million, and it rose by 6.17% year over year. Net income was a record $64 million and earnings per share was $1.37, which beat analyst forecasts by $0.71. These are fantastic results given the major push by Wall Street to focus on the profitability of companies and not just revenue in this rising interest rate environment.
Its balance sheet holds $177.3 million in cash and short-term investments and $348.1 million in long-term debt. Its overall debt-capital ratio was down 500 basis points year over year to 23.8%, which was a positive sign.
Valuation
Greenlight Capital trades at a price-earnings ratio of 9, which is close to its five-year average. Its price-sales ratio is 1.47, which is also fair value relative to historic levels.
2. CONSOL Energy Inc.
CONSOL Energy Inc. (CEIX, Financial) is the second largest position in Greenlight Capital’s portfolio, making up 8.6% of its total 13F portfolio.
The business is engaged in the extraction of natural gas and coal. Coal mining is a major part of its business, and it is one of the largest producers of coal in the United States.
Although the world is moving towards renewable energy, coal still is expected to make up 18% of energy generation in 2023, according to EIA projections. Coal is also still commonly used in many emerging markets and thus could be a strong export opportunity for the U.S.
Coal prices skyrocketed to over $200 per tonne at one point, up $86 from the 10-year average, driven by Russia’s invasion of Ukraine. Energy security has become a major concern in Europe and thus coal has become a popular back up energy apply. Coal is also a vital component necessary for the steel production process, as it acts as a source of carbon.
CONSOL Energy also generates a portion of its revenue from natural gas exploration and production. Its business focuses on unconventional extraction locations such as the Appalachian Basin where controversial fracking techniques are commonly used.
A unique part of CONSOL’s business model is the fact the company is vertically integrated in many ways. For example, its business includes midstream operations and even energy reading.
Financials
CONSOL Energy generated strong financial results for the first quarter of 2023. Its revenue was $680.9 million, which beat analyst forecasts by $96 million and rose by 26% year over year.
This was driven by the sale of a staggering 6.7 million tonnes of coal in the first quarter of 2023, up from 6.5 million in the prior year. Its average realized revenue per tonne of coal also rose to $84.32 per share, up from $59.60 in the prior period.
Its overall sales were driven by strong industrial demand. In addition, CONSOL has a number of contracts with the Indian industrial market which last until at least 2026, and offer stability of cash flows, which were $221 million in the first quarter.
CONSOL also achieved strong profitability, with $230 million in net income and record earnings per share of $6.55.
Its balance sheet is robust with $268 million in cash and short-term investments and total debt of $306.2 million, $253 million of which is long-term debt.
Another positive signal is the company’s buyback of 1.2 million shares for $67 million. This represents 3.5% of the public float.
Valuation
CONSOL Energy trades at a price-earnings ratio of 3.44, which is 44% cheaper than the 6.62 median price-earnings ratio for the energy sector. Its price-to-cash-flow also is around 3, which is 16% cheaper than the industry median.
Final thoughts
Both Green Brick Partners and CONSOL Energy are two strong super stocks in my opinion. These are both operating in traditional industries that are expected to be facing headwinds. However, these businesses have bucked the trend with strong top and bottom-line growth. Therefore it is no surprise to me that Einhorn has made these stocks the largest in his portfolio.
