Billionaire Einhorn’s Most Undervalued Stocks

David Einhorn became a billionaire as the founder of Greenlight Capital. He is most famous for shorting Lehman Brothers prior to its collapse. So where is he seeing opportunity these days and what stocks in his portfolio have the most upside opportunity?

We analyzed his portfolio and holdings to see which stocks have the highest opportunity from the perspective of analysts and from a cash flows perspective.

Science Firm with Massive Upside

Danimer Scientific (NYSE:DNMR) is the most undervalued stock in Einhorn’s portfolio, at least based on analysts estimates.

According to 5 analysts, Danimer Scientific has upside potential to $2.67 per share, representing 55.7% upside opportunity.

Before scooping up a boatload of shares like Einhorn, it’s worth pointing out that Danimer has some real problems lurking under the hood, particularly on its balance sheet where it is anchored by a large debt burden of $268 million versus just $62 million in cash on the books. Perhaps of greater concern is the sharp decline in cash from 2021, where it stood at $286 million.

Looking to the past, it’s not clear what might have compelled Einhorn to make this bet given that revenues declined last year by 9.4% and the gross margin is -14.9%. As a result of those poor figures, it’s not a surprise to see EBIT came in negative at -$123.9 million.

Perhaps Einhorn doesn’t have a whole lot of conviction, though, in the holding as it represents just 0.3% of his overall portfolio.

Offshore Drilling Firm Einhorn Sees Value

Another undervalued position in Einhorn’s portfolio Is Seadrill Limited. Unlike Danimer Scientific, there are lots of compelling reasons to buy Seadrill.

Of the 6 analysts covering Seadrill, the consensus fair value estimate is $62.67 per share. If the stock were to rise to that level, it would translate to upside potential of 39.2%. A cash flows analysis validates a similar valuation and reveals upside potential to $61.39 per share.

Indeed, management appears to have spotted the disconnect also between price and value, and have a share repurchase plan in place. At the moment, a $250 million scheme is in place to buyback shares.

One reason for management to be enthusiastic about the prospects of the firm is that revenues have been accelerating higher this year. In the last two quarters, year-over-year revenues are up by 67.2% and 58.0%.

Operating income is up to $115 million and $117 million over those same quarters, a significant increase versus the prior year quarters that collectively came in at $13 million.

The bottom line is Seadrill has a lot of bullish tailwinds, including more cash than debt on its balance sheet, profitability over the past year, and an aggressive management buyback scheme in place.

Oil & Gas Play with Serious Upside

Another energy stock with a lot of potential is Gulfport Energy. While many companies recently have suffered from downward revisions among analysts, Gulfport is enjoying a bullish sentiment from two analysts, who have raised guidance for the next period.

It’s understandable why and gets even more intriguing when examining the fundamentals. For example, it’s trading at just 1.4x earnings, has been profitable over the past year, and has a track record of consistently increasing earnings per share.

Conservative investors will also like the fact that it trades with relatively low price volatility and, even more so, the fact that analysts have a price target of $160 per share on it. It’s quite possible that the consensus estimate is not fully reflecting the intrinsic net worth of the enterprise, as evident from the discounted cash flow analysis forecast that pegs fair value at $183 per share. 

Buyers should be aware that, in spite of the bullish forecasts, revenues year-over-year have been on the decline for each of the past four quarters, down -4.0%, -26.8%, -67.6% and -66.1% respectively. Remarkably, however, operating income has remained positive in all four quarters in spite of the sharp drop in the top line.

David Einhorn Most Undervalued Stocks

According to both analysts and a cash flows analysis, the most undervalued stocks in David Einhorn’s portfolio include Danimer Scientific, Seadrill Limited, and Gulfport Energy.

Of the three, Danmier Scientific is the most confounding with its high debt burden, weak gross margins, and analysts do not expect it will be profitable this year.

Seadrill is a much more compelling opportunity given that revenue growth has been accelerating and sales are forecast to rise again this year, plus management has been engaged in a share repurchase scheme that will drive up earnings per share as the total number of shares outstanding drops.

The other energy company with a lot of upside opportunity, Gulfport, is perhaps the most attractive of the bunch with 36.2% upside according to a discounted cash flow analysis, a very low PE ratio, and a history and forecast of strong earnings.

For those considering an opportunity, keep in mind that Greenlight focuses on US equities and debt, but its goal is to generate consistent returns and capital preservation by comparing intrinsic net worth against price. The company will often take positions in companies that would fall outside the criteria someone like Buffett would focus on, such as wide moat firms.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.