We recently compiled a list of the 10 Best Stocks to Buy According to Billionaire David Einhorn. In this article, we are going to take a look at where Brighthouse Financial, Inc. (NASDAQ:BHF) stands against the other best stocks to buy according to Billionaire David Einhorn.
The markets are broken and getting worse. That’s the stance held by billionaire investor David Einhorn, who insists we are in a secular destruction of the professional asset management community. The sentiments come against one of the longest bull runs that have resulted in valuations in the equity markets getting out of hand.
While the S&P 500 is at record highs after a 30% plus gain year to date, Einhorn views the markets as fundamentally broken. Passive investors with no opinion or concern about value have been the main drivers pushing the market higher while shunning underlying fundamentals. According to Einhorn, passive investors increasingly buy into market indexes by default, propping growth stocks at the expense of value stocks.
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Likewise, the billionaire hedge fund manager laments that value investors are increasingly marginalized.
“And so effectively instead of the valuation becoming the signal, the valuation people were just noise and everybody else is sort of the signal. And this is why I think we have a structurally dysfunctional market, a bit of a broken market, and essentially a perpetual erosion of value as a strategy, as you would,” Einhorn said in an interview with CNBC.
The sentiments underline the growing concerns that value stocks are becoming increasingly cheaper and cheaper relative to their underlying fundamentals. That’s in part because investors are turning their attention to indexes and growth stocks, resulting in overstretched valuations. Increased focus on growth stocks at the expense of value stocks has resulted in one of the most expensive stock markets in decades.
Amid the premium valuations, David Einhorn insists there is still some value to unlock by focusing on value stocks trading at discounted valuations. By focusing on value investments, Einhorn has generated strong long-term returns through Greenlight Capital, the hedge fund he founded in 1996 with $900,000 from family and friends.
Likewise, Greenlight Capital rose to prominence at the height of the financial crisis, as Einhorn sensed a window of opportunity to generate some returns by shorting the stock of Lehman brothers. Similarly, it was on the news in 2002 as it shorted Allied Capital, a transaction that was validated in 2002 by the US Securities and Exchange Commission.
Since 1996, Greenlight Capital has averaged 13.1% in annual returns compared to 9.5% gains for the S&P 500. The outperformance comes from Einhorn emphasizing the balancing of long- and short-term exposure in investments. Likewise, he advocates monitoring industry risks and obtaining insurance against foreseeable macro threats.
Additionally, stock picking has always been essential as one of Einhorn’s key investment strategies of integrating considerable picture awareness into successful portfolio management strategies. Diversification as one of the ways of spreading risks is also Einhorn’s key investment strategies.
“Having my eyes open to the big picture doesn’t mean abandoning stock picking, but it does mean managing the long-short exposure ratio more actively, worrying about what may be brewing in certain industries, and, when appropriate, buying some just-in-case insurance for foreseeable macro risks even if they are hard to time,” Einhorn said.
Our Methodology
To make the list of the best stocks to buy according to billionaire David Einhorn, we scanned Greenlight Capital’s investment portfolio. We then settled on the hedge fund’s largest holdings analyzing why they stand out and the number of hedge funds that hold stakes in them. Finally, we ranked the stocks in ascending order based on Greenlight Capital’s stake value.
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).
Brighthouse Financial, Inc. (NASDAQ:BHF)
Greenlight Capital’s Stake Value: $130.23 Million
Number of Hedge Fund Holders: 32
Brighthouse Financial, Inc. (NASDAQ:BHF) is a financial services company that provides annuity and life insurance products. Its Life segment offers term, universal, whole, and variable life products for policyholders. While the stock is down by about 7% in 2024, the company continues to deliver solid financial results that affirm underlying growth.
Third quarter results delivered on November 7, 2024, show a 73% increase in revenue to $2.02 billion. However, net income fell by 67% to $150 million. Annuity sales for the year totaled $7.8 billion, with a 15% increase in Shield Annuity products as life insurance sales increased by 19% to $87 million. On the other hand, Brighthouse Financial, Inc.’s (NASDAQ:BHF) revenue is projected to grow at 16% per year over the next three years compared to the industry average growth rate of 5.3%.
In order to increase capital efficiency, unlock capital, and reach the desired combined RBC ratio, Brighthouse Financial, Inc. (NASDAQ:BHF) is still making headway on a number of strategic initiatives. The business is currently working with a third party to finalize a reinsurance deal. Under typical market circumstances, this transaction should bring the pro forma estimated combined risk-based capital to the low-end target range of 400% to 450%.
Here is what Greenlight Capital stated the following regarding Brighthouse Financial, Inc. (NASDAQ:BHF) 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. Brighthouse Financial, Inc. (NASDAQ:BHF) fell from $51.54 to $43.34. In successive quarters, BHF announced large, non-recurring and unexpected losses. This time, the company suffered a loss in a reinsurance arbitration that cost several hundred million dollars.”
Overall, BHF ranks 3rd on our list of best stocks to buy according to Billionaire David Einhorn. While we acknowledge the potential of BHF to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than BHF but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.