Value stocks have become so cheap relative to earnings that companies have been able to buy back a larger portion of their own market capitalization, says David Einhorn. Star manager Greenlight Capital just posted its best-ever quarterly performance against the S&P 500, and Einhorn attributed much of the success to his preference for companies with large share buyback programs, according to a letter to investors Monday. “We do not rely on other active investors to buy the shares we hold, so we choose to emphasize investing in companies that appreciate this dynamic and that create value both through their operations and through the purchase of their own shares at very low. prices,” he said. Share buybacks or buybacks allow companies to buy their own shares on the market, thereby reducing the pool of shares outstanding. They have historically been an attractive option for companies looking to increase their earnings per share and perhaps increase the value of their shares. CNBC Pro used this methodology, along with FactSet data, to find cheap stocks that have reduced their share count by more than 5% over the past year through share buybacks. Each stock’s current estimate of future earnings is a discount of 25% or more to its 5-year average future earnings. Finally, they can afford to continue buying back shares, with total debt-to-equity below 70%. Here are the stocks we found: Several financial stocks appeared on our list, including Discover , Global Payments , and Fleetcor Technologies . Consumer cycles are also well represented. Clothing manufacturer PVH’s price-to-earnings discount is 54%. The tapestry is 30%. Lennar and PulteGroup are also on the list. Energy companies Marathon Oil and Marathon Petroleum have the biggest price-to-earnings discounts at around 83% and 85%, respectively. Meta Platforms , Qorvo , Nucor and Fortune Brands are also on the list. “It looks like we’re entering a softening period in the business cycle, where earnings are likely to fall. So these stocks may not look as cheap as the P/E multiples suggest,” Einhorn said of his own top holdings as of June 30, most of whom have repurchased shares or Greenlight expects they will. “We’ve done our own sensitivity analysis and we think it’s doubtful that any of these companies will see profits fall by more than 50%.” “In reality,” he added, “it’s not so much about investors … but about the companies themselves that will create long-term value beyond business earnings by buying back part of themselves at low cost.”
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