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 CNH Industrial NV (NYSE:CNHI) 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.
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.
David Einhorn Greenlight Capital
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).
CNH Industrial NV (NYSE:CNHI) is an industrial company engaged in designing, producing, marketing, selling, and financing agricultural and construction equipment. The agriculture part of the company makes and sells farm machines. The construction part makes and sells construction equipment, including excavators. It is one of the best stocks to buy, according to billionaire David Einhorn, as the agricultural machinery industry nears the end of a bearish cycle.
“It’s exactly the kind of situation that absolutely nobody cares about right now because it’s cheap, and the news over the next period of time isn’t going to be very good. Agriculture prices are low, and agricultural equipment is ending a down cycle,” Einhorn said at a panel with CNBC’s Leslie Picker.
While the industrial stock has underperformed, the market is going down by about 5%, and Einhorn expects it to bounce back heading into 2025. As aging equipment in the construction and agricultural sectors gets replaced, the billionaire investor expects CNH Industrial NV (NYSE:CNHI) to be one of the biggest beneficiaries. Its strong position in the U.S. machinery and construction industry makes it a solid position for robust growth.
CNH Industrial NV's (NYSE:CNHI) effective cost management program has played a crucial role in this success, maintaining a healthy gross profit margin of 21.64% and keeping detrimental margins in check despite industry-wide pressures. The company's ability to control costs, particularly in challenging economic conditions, is a key differentiator.
“We found an attractive entry point for London based, agriculture machinery manufacturer, CNH Industrial N.V. (NYSE:CNHI), as shares are currently pricing in multi-year declines similar to the slope of the last agricultural downcycle (2014- 2016). Although farm incomes have begun to moderate and will likely translate to lower machinery purchasing in 2024, our analysis of U.S. farm fundamentals suggests the severity and longevity of the next downcycle will likely be shallower and shorter in duration. Additionally, CNHI remains on track to deliver on previously articulated operational efficiency and cost savings targets, which should drive margin improvement and profitability growth over the near to medium term. Looking ahead, we believe the industry will benefit from precision agriculture.”
Overall, CNHI ranks 10th on our list of best stocks to buy according to Billionaire David Einhorn. While we acknowledge the potential of CNHI 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 CNHI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
