Value stocks have become so cheap relative to earnings that companies have been able to buy back a larger portion of their own market cap, David Einhorn says. The star manager’s Greenlight Capital just posted its best ever quarterly performance relative to the S & P 500 – and Einhorn attributed much of the success to his preference for companies with big share repurchase programs in place, according to a letter to investors Monday. “We aren’t relying on other active investors to buy the stocks that we own, so we instead are choosing to emphasize investing in companies that appreciate this dynamic and are creating value both through their operations and through buying back their own stock at very low prices,” he said. Share repurchases, or buybacks, let companies buy their own shares back from the market, thereby shrinking the pool of outstanding shares. Historically they’ve been an attractive option for companies wanting to boost their per-share earnings and perhaps enhance the value of their stock. CNBC Pro used that methodology, along with data from FactSet, to find cheap stocks that have shrunk their share count in the last year by more than 5% through share repurchases. Each stock’s current forward earnings estimate is a 25% discount or greater to their average 5-year forward earnings. Finally, they can afford to continue buying back stock, with total debt-to-capital below 70%. Here are the stocks we came up with: Several financial stocks turned up on our list, including Discover, Global Payments and Fleetcor Technologies. Consumer cyclicals are also well represented. Apparel maker PVH’s price-to-earnings discount is about 54%. Tapestry’s is about 30%. Lennar and PulteGroup are also on the list. The energy companies, Marathon Oil and Marathon Petroleum, have the biggest price-to-earnings discounts at about 83% and 85%, respectively. Meta Platforms, Qorvo, Nucor and Fortune Brands are also on the list. “We appear to be entering a softening period of the economic cycle, where it is likely that earnings will fall. So, these stocks may not appear as cheap as the P/E multiples suggest,” Einhorn said of his own top holdings as of June 30, most of which have bought shares back or Greenlight expects them to do so. “We have done our own sensitivity analysis, and we think that it is doubtful that any of these companies will see earnings fall by more than 50%.” “Actually,” he added, “it isn’t so much about investors… but more likely the companies themselves that will create long-term value above and beyond business earnings by repurchasing a chunk of themselves cheaply.”
