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 Viatris Inc. (NASDAQ:VTRS) 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).
Viatris Inc. (NASDAQ:VTRS)
Greenlight Capital’s Equity Stake: $78.66 Million
Number of Hedge Fund Holders: 45
Viatris Inc. (NASDAQ:VTRS) is one of David Einhorn’s top 10 stocks to buy for diversifying an investment portfolio in the healthcare sector. The company sells its pharmaceuticals in 165 countries, and a large portion of its operations revolve around generic medications.
Einhorn invested in Viatris on growing optimism that generic drug pricing pressures have stabilized and that the company’s revenue and cash flow are growing at a solid rate. Likewise, newly appointed leadership at VTRS has streamlined its drug offerings through a series of sales and has pledged to allocate 50% of its free cash flow to investors through “bold” share repurchases, suggesting a potential capital return in the double-digit range based on our projections.
Viatris Inc. (NASDAQ:VTRS) has more than 250 products in development or regulatory review, including sophisticated generics and therapies for conditions with few other options. It stands out for its ability to maximize its product portfolio and generate value through its robust drug pipeline.
Viatris Inc. (NASDAQ:VTRS) met Wall Street expectations despite reporting Q2 revenue of almost $3.8 billion, a 3% year-over-year decline. It also posted adjusted earnings per share of $0.69, exceeding the average analyst estimate of $0.68 and up 3% year over year. Additionally, Viatris increased its forecast for new product revenue for the entire year. The initial estimate of $450 million to $550 million has been raised to a range of $500 million to $800 million.
It is one of the best investments for passive income as it offers a 3.9% dividend yield that is significantly higher than the S&P 500 average of 1.4%. Consequently, it is a solid play for income-focused investors.
Viatris Inc. (NASDAQ:VTRS) spends roughly $580 million a year on dividend payments. This implies that its dividend is sustainable at the moment. The fact that the stock is trading at 4 times its forward earnings underscores how undervalued it backed by solid fundamentals.
Besides, 45 hedge funds held a stake in the company as of Q2 2024, according to Insider Monkey’s database, down from 50 in the preceding quarter.
Greenlight Capital stated the following regarding Viatris Inc. (NASDAQ:VTRS) in its fourth quarter 2023 investor letter:
We established medium-sized positions in Alight (ALIT) and Viatris Inc. (NASDAQ:VTRS), and a small position in Syensqo (Belgium: SYENS). VTRS is a manufacturer of generic and off-patent branded drugs. The company was created in 2020 after a merger between Mylan and a division of Pfizer. We previously invested in Mylan, but sold five years ago due to concerns around management’s ability to deliver on promises, as well as deterioration in the generic industry. Those concerns were well-founded, as the shares proceeded to decline by more than 60% after we exited. After a recent management change, we decided to take another look and found that after years of sharp declines, generic drug pricing has stabilized and competition has been diminished. The company’s revenue and cash flow are now growing, and we expect this improvement to accelerate. VTRS’ new management team has simplified its drug portfolio via various divestitures and has committed to returning 50% of free cash flow to shareholders through “aggressive” share buybacks, implying a double-digit capital return based on our estimates. We acquired our shares at an average price of $10.63, or just 4.0x 2024 consensus earnings. VTRS shares ended the quarter at $10.83.”
Overall VTRS ranks 10th on our list of David Einhorn Stock Portfolio: Top 10 Stocks to Buy. While we acknowledge the potential of VTRS 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 VTRS, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.