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 The ODP Corporation (NASDAQ:ODP) 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).
The ODP Corporation (NASDAQ:ODP)
Greenlight Capital’s Equity Stake: $87.28 Million
Number of Hedge Fund Holders: 26
The ODP Corporation (NASDAQ:ODP) is a consumer cyclical investment play and one of David Einhorn’s top stocks to buy as the Federal Reserve cuts interest rates to boost liquidity levels in the economy. The company has carved a niche in providing business services, supplies, products, and digital workplace technology solutions.
While the company has seen its results impacted by the prevailing economic challenges characterized by high interest and reduced liquidity, it is actively working on various projects to achieve higher revenue growth by the end of 2024. Its primary aim is strategically shifting its growth direction within its main operations.
The ODP Corporation (NASDAQ:ODP) is pushing to transform its business model and emphasize artificial intelligence processes throughout the company to drive future expansion and enhance investment chances. One notable project is Project Core, aimed at refining the company’s focus on its core activities and improving operational efficiency.
A challenging business environment characterized by high interest rates was one of the catalysts behind the company posting a 10% decline in sales in Q2 to $1.7 billion. Adjusted net income from continuing operations of $20 million, or adjusted diluted earnings per share from continuing operations of $0.56, versus $48 million or $1.22, respectively, in the prior year period.
Performance in the quarter was below expectations, impacted by more cautious business spending and weaker consumer activity. Nevertheless, it is already looking into the future, having rolled out the Power of 1 strategy to propel expansion. This strategy aims to enhance customer satisfaction by providing an additional product or collection of products designed to assist them in achieving success.
Likewise, The ODP Corporation (NASDAQ:ODP) remains in a solid financial position with about $831 million in total available liquidity, which affirms why it continues to return value through buybacks. It repurchased 2.4 million shares in the quarter for $104 million.
According to Insider Monkey data on 912 hedge funds, 26 hedge funds held shares of The ODP Corporation (NYSE:ODP), valued at $190.80 million, as of Q2 2024. Greenlight Capital held 2.22 million company shares, 30% more than the previous quarter and valued at $87.28 million. It accounted for 4.26% of the firm’s 13F portfolio.
Here is what Greenlight Capital said about The ODP Corporation (NASDAQ:ODP) in its Q2 2024 investor letter:
“However, it wasn’t all roses. We had three material losers in the long portfolio (and an undisclosed loser in the short portfolio), and deservedly so. The ODP Corporation (NASDAQ:ODP) declined from $53.05 to $39.27. The quarterly results were disappointing with business-to-business sales declining 8% and adjusted operating profit cut in half. On the positive side, ODP finally announced that it intends to sell or exit Varis, its money-losing procurement and technology services platform, and as a result upgraded its earnings guidance. The company also replaced its Chairman who retired.”
Overall ODP ranks 7th on our list of David Einhorn Stock Portfolio: Top 10 Stocks to Buy. While we acknowledge the potential of ODP 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 ODP, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.