David Einhorn bets 26% of his money on a single stock

David Einhorn has a penchant for picking stocks short. What put the billionaire investor on the map was his hedge fund Greenlight Capital‘s missing from private equity giant Allied Capital, claiming it was engaged in fraud. Also, shorting Lehman Brothers before the collapse resulted in significant profits for the hedge fund.

However, he often ends up on the wrong end of a trade. For example, it shorted adze (NASDAQ:TSLA) in 2020, even before the electric car stock surged to a 750% gain.

Earlier this year, however, Einhorn restructured his now-famous hedge fund DME capital management is the successor to the Greenlight business. And just like before, Einhorn is betting big on a single stock. As we’ll see, there’s good reason for this, but is it also a stock you should bet on?

Let’s see if DME Capital, with $2 billion in assets under management, should invest that much money in this company.

Key points about this article:

• Renowned short seller David Einhorn is famous for taking big positions in companies, especially the stocks he short, although sometimes these bets go terribly wrong.
• Einhorn was the first to highlight problems at Allied Capital before it finally imploded during the 2009 financial crisis, and he bet against Lehmann Brothers before it collapsed. However, he is a long and short investor and his largest holding by far DME capital management hedge fund is discussed below.
• If you’re looking for action with huge potential, be sure to grab our free copy brand new “Next NVIDIA” report.. It has a software stock where we are sure it has 10x potential.

Greenbacks for Green Brick Partners

Aerial view of housing development

The largest stock position in the hedge fund is Green Brick Partners (NYSE:GRBK), a homebuilder and land developer. Einhorn owns 8.2 million shares of the company, currently valued at more than $507 million. It represents 26% of the total DME Capital portfolio.

That’s actually slightly less than he previously held, as he sold 2.3 million shares in July, or 22% of his position in the stock. At that time, Green Brick represented nearly 30% of DME’s total holdings. However, it might just have been profit-taking.

Over the past year, GBRK shares have nearly doubled in value and are now trading at $81 per share. Since Einhorn has owned Green Brick for decades, his average purchase price is about $56 per share, implying a 46% gain on the stock. Shares are up 57% year to date.

Housing Boom to Bubble?

Federal Reserve Chairman Jerome Powell

Part of the reason for the superior returns was tailwinds that pushed the real estate industry higher. Despite the Federal Reserve’s “higher for longer” interest rate policies, which it just ended with a 0.5% rate cut, housing demand has been robust. That pushed Green Brick’s business.

There has been an inventory shortage of existing homes for sale for a long time and we are still in one today. According to the National Association of Realtors (NAR), anything less than a six-month supply of homes is considered a shortage. In its industry update last week, NAR said this while supply improved by 0.7% in August, the stock was 4.2 months.

This supply imbalance caused the house construction boom, despite the conditions that should have suppressed the market. The median sales price of existing homes was $416,700, up 3.7 percent from a year ago.

However, existing home sales fell 4.2% last month at a seasonally adjusted annualized rate of 3.86 million units. It was the third consecutive month of decline. While the housing industry may not collapse, there may still be headwinds, even with interest rate cuts.

A distorted real estate market

Luxury home

While median home prices were over $400,000, that’s only because that’s the median price. A deeper dive into where the sales were taking place shows that they were skewed towards the wealthy. Homes priced over $750,000 were strong, while homes under $500,000 declined.

Green Brick Partners reported second-quarter home closing revenue rose 20 percent to $547 million as it closed 26 percent more homes, or 987 units, a record for the builder. However, the median home sales price was $554,200, just above the range that is having trouble moving homes over the past three months. When Green Brick reports its third quarter results, business may not be as strong as it was.

Of course, the Fed has cut rates, which, as noted, could bring more buyers into the market, and mortgage rates have fallen in anticipation of the cut. It may just be a wash in terms of momentum. It could also explain why Einhorn locked in profits on GRBK stock.

So why is Einhorn so invested in Green Brick Partners? Well, he owns the company. He founded the builder in 2002 when investigating the Allied Capital and claiming he was involved in mortgage fraud. It is that vested interest in the success of the home builder that has him attached to his stock.

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