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 Green Brick Partners, Inc. (NYSE:GRBK) 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.

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).

Green Brick Partners, Inc. (NYSE:GRBK)

Greenlight Capital’s Equity Stake: $599.15 Million

Number of Hedge Fund Holders: 25

Green Brick Partners, Inc. (NYSE:GRBK) is a diversified homebuilding and land development company. It operates in the real estate and construction sector. It is one of David Einhorn’s top stocks to buy as the real estate sector receives a boost from the Federal Reserve cutting interest rates. Einhorn has held Green Brick’s stocks for almost twenty years. He’s been a long-term investor.

Green Brick Partners, Inc. (NYSE:GRBK) is currently producing some of its top-ever returns. Its sales have increased by 70% annually, marking the highest growth among small to medium-sized homebuilders. Its gross margins in the previous year hit over 30%, ranking it among the industry leaders. In the cities where the company concentrates, such as Dallas, Houston, and Atlanta, there’s been a significant increase in population, job opportunities, and earnings, leading to a surge in housing demand.

The company delivered outstanding results for the second quarter of 2024. The firm declared a 20% increase in home closing revenue for the year, hitting $547 million, alongside a remarkable 35.3% growth in net income. This financial achievement was supported by a 38% increase in earnings per share from the previous year’s period.

In its strategic expansion, Green Brick Partners, Inc. (NYSE:GRBK) launched Green Brick Mortgage, a mortgage company wholly owned by the firm. Additionally, the homebuilder broadened its network of active selling communities by 22%, keeping a cancellation rate of 9.2%.

These recent achievements highlight Green Brick’s strong financial position, which is marked by a solid balance sheet, low debt levels, and ample liquidity. The firm’s backlog value increased by 11% year-over-year, showing robust demand. Looking forward, Green Brick Partners, Inc. (NYSE:GRBK) is confident in its ability to sustain a strong inventory, aiming to have around 4,700 finished lots by the end of 2024.

The firm’s 7.44% revenue increase in the past year, along with a significant rise in earnings of 22.87% in the second quarter of 2024, shows growing influence in the market. Additionally, Green Brick Partners has demonstrated a solid profit margin of 18.93%, indicating effective use of its assets.

As per Insider Monkey’s database, 25 hedge fund portfolios held Green Brick Partners, Inc. (NYSE:GRBK) at the end of the second quarter, which was 21 in the previous quarter.

Overall GRBK ranks 1st on our list of David Einhorn Stock Portfolio: Top 10 Stocks to Buy. While we acknowledge the potential of GRBK 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 GRBK, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.