The most significant contributors to Greenlight Capital’s (GLRE) gains last year included Micron Technology (MU) and Twitter (TWTR). Its biggest detractors included Adient (ADNT), Bayer (BAYRY), and Brighthouse (BHF). It has short positions in DexCom (DXCM), Advanced Micro Devices (AMD), Netflix (NFLX), and Tesla (TSLA).
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Brighthouse Financial (BHF) was Greenlight Capital’s biggest detractor during last year’s fourth quarter, falling 31% despite positive third-quarter results. BHF’s outlook had been positive, and it said its performance was much better than it had expected a year earlier.
BHF’s fourth-quarter earnings results, announced it February, were stronger than expected. David Einhorn remains positive on BHF’s continued improvement.
Dispelling investor misunderstandings
In an investor letter, Einhorn tried to dispel investor concerns regarding BHF by stating that the company’s accounting principles have been misunderstood. While BHF is required to mark its hedges to market, the same does not apply to its liabilities, creating a mismatch between its assets and liabilities. Einhorn pointed out that during the fourth quarter, dynamics reversed and equity markets (SPY) (DIA) and interest rates fell, which was “a negative for the business but a positive for the hedges.” These events resulted in BHF reporting a profit of ~$12 per share in Q4.
Brighthouse Financial’s upside potential
Einhorn dug deeper into his bullish argument for BHF, stating that the company intends to repurchase $1.5 billion in stock by the end of 2021. The fund believes the company’s ability to fund this buyback could improve.
Einhorn stated that while the company’s stock appreciated 9% during the first quarter, it remains considerably undervalued at around four times its 2019 adjusted earnings and 30% its year-end book value.