Value investor David Einhorn had his best year in a decade in 2022. His hedge fund Greenlight Capital returned 36.6%, helped by short positions in a group of high-flying stocks, some winning long positions in the coal sector and Twitter.
That compares with a negative 21% return on the
Investors who want to ride with Einhorn can buy shares of
Greenlight Capital Re
(ticker: GLRE), an offshore reinsurer based in the Cayman Islands that has 60% of its shareholder equity invested with Einhorn, who is the company’s chairman and controlling shareholder.
Greenlight Re shares are up 26% in the past year to $9.25 in what has been a strong reinsurance sector. But the stock trades at discount to nearly all its peers at about 70% of its third-quarter book value of $13.55 a share.
Reinsurers, which provide protection to property and casualty insurers like
(CB) and Travelers (TRV), generally trade at a premium to book value. Larger companies in the field include
Greenlight’s cheap price reflects poor long-term performance—the stock is trading for half its 2007 IPO price of $19. Also contributing to the discount is a microcap market value of $325 million and virtually no analyst coverage.
Greenlight Re’s investment portfolio appreciated 25.3% in 2022—less than Einhorn’s hedge fund due to lower risk. The insurance portfolio is about flat in the past five years, against a 9% annualized return on the S&P 500.
“We are probably not as smart as we appeared in 2022, but we are probably not as dumb as we appeared in 2018 either. The market environment, as we have been highlighting, turned extremely favorable for our strategy in a period that immediately followed one that was extremely unfavorable for our strategy,” Einhorn wrote in a recent letter to Greenlight Capital investors. Greenlight Re’s portfolio was down 30% in 2018, against a 5% negative return for the S&P 500.
Greenlight, unlike many hedge funds, has sizable short positions (which it doesn’t disclose) and was 96% long and 56% short in the fourth quarter.
Einhorn expressed optimism that his approach “will continue to achieve attractive absolute and risk-adjusted returns over a long period of time.”
If the revival in value stocks continues—they bested their growth brethren in 2022—Einhorn’s reinsurer could be a good play. For starters, the Dec. 31 book value is likely to be above the Sept. 30 level perhaps by 5% based on strong fourth-quarter investment performance.
Greenlight Re’s five largest holdings as of year-end 2022 were
(BHP), a life insurer and annuity provider;
(CEIX), a coal producer;
Green Brick Partners
(GRBK), a homebuilder;
(KD), a technology services spinoff from
(TECK), a miner of coal and other commodities.
Known for a deep-value orientation, Einhorn lamented in his client letter that many investors with a “value bent either adapted, retired, or went out of business. Value investing, as an industry, is unlikely to ever fully recover.”
Looking at Einhorn’s holdings, they are in deep-value territory, generally meaning either low price/earnings ratio, low price/book ratios or price to sales ratios and sometimes a combination of these factors. Brighthouse trades for a fraction of book value, Consol for about three times projected 2023 earnings, and Kyndryl for just 20% of sales. Critics of deep value investing say that cheap stocks often are weak businesses that are cheap for a reason.
Greenlight Re also gives investors exposure to stronger reinsurance rates across a range of areas including property, auto, and workers compensation that are buoying the industry. “2022 reinsurance pricing conditions were the best we have seen in over a decade,” the company said in a November presentation.
The company lost 28 cents in the first nine months of 2022 as underwriting losses more than offset investment gains. The only estimate for 2023 according to FactSet is $1.40 a share, meaning Greenlight trades for less than seven times projected earnings. It is tough, however, to predict the company’s results since they depend on Einhorn’s performance and insurance underwriting.
A discounted Greenlight Re could offer a nice play on Einhorn’s revival and better insurance pricing.
Write to Andrew Bary at firstname.lastname@example.org