Greenlight Capital’s David Einhorn is far from bullish, but he sees massive opportunity in a few value names the market has forgotten about.
What To Know: If Einhorn is bullish on anything, it’s inflation. He maintains the view that investors should be bearish on stocks because of what the Federal Reserve is going to have to do to bring inflation down, he said Wednesday on CNBC’s “Fast Money Halftime Report.”
“I think we’ve moved from an economy that’s spent many years in secular deflation and I think that we’re now in an inflationary era,” Einhorn said.
He told CNBC that he expects Fed policy to create an “increasingly difficult” environment for financial assets.
“I think that both long- and short-term rates are headed higher and probably higher than what people are expecting,” he said.
Why It Matters: For the last six years or so, the market has turned its back on value stocks, which has created opportunity in several forgotten names, he said.
“So you have a large segment of the market where really nobody is paying attention, and these stocks are extremely cheap,” Einhorn emphasized.
Nobody cares about value names, but it’s an attractive place to put money to work because the companies can return so much capital to shareholders that investors get paid to sit around and wait, he said.
“I have a pretty conservative view towards which way the overall market will go, but I’m very excited about a number of the positions in my long portfolio because they’re just ridiculously inexpensive and returning tons of capital,” the hedge fund manager said.
Some of Einhorn’s top value picks include Tenet Healthcare Corp THC, CONSOL Energy Inc CEIX and Teck Resources Ltd TECK.
He told CNBC that he established a “medium-sized” position in Tenet last quarter.
“We looked at it and saw that the multiple was in the single digits,” Einhorn said. “The business to us appears to be relatively stable and recession resistant.”
Now the company is really starting to return capital to shareholders, he said, adding that it has a $6-billion market cap and a $1-billion buyback in place.
Consol Energy has zero debt and is valued around $2 billion. The company is on pace for $800 million to $900 million in free cash flow this year and is expected to replicate that next year, Einhorn said.
“So pretty much the free cash flow is going to equal the whole value of the company between this year and next year,” he said with a laugh.
“So within a couple of years, we expect to get pretty much all of our money back.”
Teck Resources is another name that looks very attractive, he said, adding the company just separated its metals business from its coal business in a way that most of its cash flows will be allocated toward the metals segment.
“And I think that if we are going to have all of this electrification, we’re going to need a lot more copper,” Einhorn stressed.
He told CNBC he’s very bullish on copper prices in the near to medium term and he expects Teck Resources to be a big beneficiary.
THC, CEIX, TECK Price Action: Tenet Healthcare was up 1.3% at $59.29, Consol Energy was up 5.76% at $57.87 and Teck was up 4.8% at $41.84 Wednesday afternoon, according to Benzinga Pro.
Photo: World Poker Tour from Flickr.
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