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 Kyndryl Holdings, Inc. (NYSE:KD) 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).
Kyndryl Holdings, Inc. (NYSE:KD)
Greenlight Capital’s Stake Value: $113.16 Million
Number of Hedge Fund Holders: 33
Kyndryl Holdings, Inc. (NYSE:KD) is a company that provides technology and IT services. They offer cloud services, core enterprise services, applications, data services, and artificial intelligence services. Amid the artificial intelligence frenzy and growing demand for cloud computing solutions, it is turning out to be one of the best stocks to buy, according to billionaire David Einhorn.
Kyndryl Holdings, Inc. (NYSE:KD) is up by over 76% for the year, benefiting from solid financial results and growth trends affirming long-term prospects. While revenue was down by 7.4% in the fiscal second quarter, Signings for Kyndryl Consult grew 81% year over year. Kyndryl Holdings, Inc. (NYSE:KD) also posted $260 million in sales to cloud hyperscaler customers. It is also on track to hit its hyperscaler revenue target of nearly $1 billion in the current fiscal year.
The stock’s sentiments have also received a significant boost amid expectation that the company is slowly inching to profitability. Kyndryl Holdings, Inc.’s (NYSE:KD) net loss in the fiscal second quarter narrowed to $43 million from $142 million a year ago. The company’s profit margins are showing signs of improvement as more enterprises desire to implement AI-powered applications and services.
Kyndryl Holdings, Inc. (NYSE:KD) is experiencing some AI-related momentum, as evidenced by the robust growth of its consulting division and sales linked to alliances with cloud hyperscalers. Given the improving margins and the possibility that sales will resume growth in the upcoming fiscal year, the stock may still have room to rise.
Rewey Asset Management stated the following regarding Kyndryl Holdings, Inc. (NYSE:KD) in its Q3 2024 investor letter:
“We continue to see significant neglect and undervaluation in shares of Kyndryl Holdings, Inc. (NYSE:KD), a position that shows 94% upside to our AFV price target of $44.60 per share.
Kyndryl is a $5.5 billion market cap designer, builder, manager, and modernizer of mission critical, i.e., backbone, information technology infrastructure systems, including public, private, and multi-cloud environments. KD was spun out of IBM in November of 2021. Since the spin, KD has been aggressively repositioning its business by shedding unprofitable legacy IBM driven contracts, partnering with leading technology companies including MSFT, GOOGL, AMZN, SAP, VMW, ORCL, etc., signing new contracts at significantly higher margins, and optimizing its cost structure. Today’s KD bears little resemblance to its pre-spin form where IBM neglected profits in the unit to secure large hardware sales in separate divisions.
KD has maintained a very strong financial profile through its transition and has ample financial flexibility as it moves forward to a future that is likely to show strong revenue, earnings and free cash flow growth. KD’s net debt is very reasonable at $1.97 billion ($1.26 bil. cash, $3.24 bil. debt), approximately 79% of FY2025 expected EBITDA. KD’s financial strength is further amplified by its investment grade rating at all three agencies, and as it has not drawn down any of its $3.15 billion revolver…” (Click here to read the full text)
Overall, KD ranks 5th on our list of best stocks to buy according to Billionaire David Einhorn. While we acknowledge the potential of KD 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 KD 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.
