We recently compiled a list of the David Einhorn’s Stock Portfolio: Top 10 Stocks to Buy. In this article, we are going to take a look at where Alight, Inc. (NYSE:ALIT) stands against the other the David Einhorn’s Top Stocks Pick.
Will the stock market rally persist heading into the year-end?
Major indices are at record highs, making it hard to predict market direction despite the Federal Reserve’s policy tweaks. Investors have pushed equities higher amid AI excitement and expected rate cuts, but momentum is waning.
Recent market swings are driven by Middle East tensions, with the S&P 500 down 1.1% in October after a 2% rise in September. Geopolitical risks and potential conflicts, like Israel and Iran, add uncertainty, pushing investors towards safe havens like gold and bonds.
READ ALSO: 7 Best Nanotech Penny Stocks to Buy and 7 Dirt Cheap Stocks to Invest In Now.
S&P Global’s Daniel Bergin warns of a dangerous economic period, comparing it to the 1962 Cuban Missile Crisis:
“The betting is that the Israelis would not attack, try to attack, the nuclear facilities at this time. But a few months from now, a few weeks from now, whatever it is, Iran would have the capacity — its thought — to deliver a nuclear weapon, and that raises the stakes.”
The Fed and Chinese authorities are cutting rates to support their economies. Alexander Cousley from Russell Investments notes:
“We haven’t moved into this world where fiscal has become the dominant driver, and so that’s what we’re really looking for… we are still in this period where Chinese authorities respond to weakening data, and the thing starts to improve a little bit, and we don’t see the actual follow through.”
David Einhorn’s Market Concerns and Investment Strategy
Economic growth uncertainty in two of the world’s largest economies should be a point of concern for investors eyeing opportunities in the equity markets. David Einhorn, the legendary investor behind Greenlight Capital, was the first to raise concerns about valuations in the market early in the year.
In a letter to investors, the hedge fund manager reiterated that the stock market was fundamentally broken as investment capital did not care about valuation:
“The result is that a very small portion of trading volume today is based on strategies that try to identify which stocks are undervalued in order to buy them for an intermediate or a long-term investment period, with a view that the shares will outperform as they close the discount to fair value,” states the April ’24 letter.
David Einhorn launched Greenlight Capital at 27 with $900,000 from family and friends. He gained prominence by short-selling Allied Capital in 2002, a move validated by the SEC years later. During the Great Recession, he shorted Lehman Brothers in 2007.
Known for value investing, Einhorn now questions its viability due to market changes and the rise of passive investing. Earlier this year, he expressed concerns that value investing might be obsolete due to a broken market structure and the increasing dominance of passive investing.
This shift in market structure has led Einhorn to change his investing philosophy. Now, he focuses on companies that look cheap in value and return capital to shareholders through repurchases or dividends.
Despite changing his strategy, Einhorn has generated strong long-term returns. Greenlight has averaged annual returns of 13.1% since its launch in 1996, compared to 9.5% for the broader benchmark S&P 500. That equates to a total return of over 2,900% compared to the S&P 500’s 1,117%.
Einhorn’s solid returns over the years have come to haunt, as former Greenlight Capital analyst James Fishback sued Greenlight Capital over claims he was underpaid. In a filing to the American Arbitration Association, Fishback alleges that he was underpaid over the years he worked at the hedge fund and wants the arbitrator to award him $5 million.
Since departing to establish his own company, Fishback has consistently frustrated Einhorn, publicly debating his ex-employer on Twitter regarding his stance on Tesla’s stock and provoking him with comments about his recent achievements.
Nevertheless, Greenlight Capital lost 1.7 per cent in August, a generally volatile but positive month for the broad market. The loss cut its gain for the year to 9.1 per cent. It is not clear which investments drove last month’s loss.
Amid the mixed results, David Einhorn’s stock portfolio could offer some reprieve as it contains some stocks trading at highly discounted levels. According to Einhorn’s Greenlight Capital, undervalued stocks tend to underperform for extended periods to the extent of becoming extremely cheap.
Similarly, such stocks are well-positioned to bounce back and rally when investors note how undervalued they are, especially when other counterparts are trading at premium valuations.
Source: Pexels
Our Methodology
To compile the list of the David Einhorn Stock Portfolio: Top 10 Stocks to Buy we examined Greenlight Capital’s 13F portfolio, as of Q2 2024. The stocks are ranked in ascending order based on Greenlight Capital’s stakes in them.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Alight, Inc. (NYSE:ALIT)
Greenlight Capital’s Equity Stake: $81.73 Million
Number of Hedge Fund Holders: 42
Alight, Inc. (NYSE:ALIT) is a technology company that provides cloud-based integrated digital human capital and business solutions worldwide. Its emphasis on offering cutting-edge technological solutions for human capital management (HCM) is a major contributor to its success.
Alight, Inc. (NYSE:ALIT) has distinguished itself in the market by utilizing artificial intelligence and machine learning to make HR and financial tasks easier. Through AI, Alight examines extensive data sets, enabling companies to predict patterns and spot possible problems before they grow bigger, therefore making it a solid AI investment play.
The company has been investing in improving its cloud-based services, which include workforce management, payroll, and benefits administration. By drawing in new customers and keeping hold of current ones, it has positioned itself as a market leader in the quickly changing HR technology sector. Additionally, it is in a strong position to profit from the expanding trend of companies trying to enhance employee experiences and streamline HR operations.
Alight, Inc. (NYSE:ALIT) delivered mixed second-quarter results, with revenues dropping 4.1% to $538 million, down from $561 million the year before. This drop was caused by reduced sales, lower net business activity, a decrease in project income in our Employer Solutions division, and the winding down of our Hosted business activities.
Nevertheless, the company is inching closer to profitability, its net loss having shrunk to $0.01 in the quarter from $0.14 a share delivered the same quarter last year. The company also returns value to shareholders, having bought $80 million worth of stock in the quarter.
Alight, Inc. (NYSE:ALIT)’s sales of its payroll and professional services division have improved its financial position on its gross margins by 350 basis points to more than 40% and elevating adjusted EBITDA margins from 21.7% to 25%. Additionally, the company finished its two-year transition to cloud technology, which is anticipated to yield $75 million in yearly cost savings from operations, aiding in the growth of margins.
The stock remains attractively priced while trading at a price-to-earnings multiple of 11. Insider Monkey’s Q2 2024 data revealed that the company was held by 42 hedge funds.
Meridian Growth Fund stated the following regarding Alight, Inc. (NYSE:ALIT) in its Q2 2024 investor letter:
“Alight, Inc. (NYSE:ALIT) is a leading cloud-based human capital technology provider of enterprise-level software that helps businesses and their employees manage critical human resources functions. Through its investments in software and automation, Alight has built a distinct advantage that allows its customers to deliver HR services at a much lower cost while providing a better experience for employees.
We slightly trimmed the position early in the quarter when the stock appreciated on the announced sale of a non-strategic business unit and news that an activist investor had initiated a position. Later in the period, the stock declined when Alight announced weaker-than-expected results. We believe the softer quarter will prove to be an isolated event.”
Overall ALIT ranks 8th on our list of David Einhorn Stock Portfolio: Top 10 Stocks to Buy. While we acknowledge the potential of ALIT as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ALIT, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
