If you’re finding it more challenging to spot bargains after the past-year stock market rally, you’re not alone. Billionaire investor and hedge fund manager David Einhorn recently shared his thoughts on market valuations in a recent letter via Greenlight Capital.

He noted that the market is “really quite expensive” at around 23 times earnings and that Warren Buffett’s significant stock sales of Apple (NASDAQ:AAPL) and Bank of America (NYSE:BAC) should not be ignored. In fact, Einhorn thought Buffett’s record cash hoard indicates that valuations may not be the best to overweight one’s portfolio in equities. 

Key Points About This Article

• David Einhorn sees various signs that stock markets are getting a bit pricy.
• Despite the froth, Einhorn sees value in neglected stocks like PTON and HPQ.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

David Einhorn’s letter shines light on extended market valuations

Einhorn may not be pounding the table on the stock market right now. However, that’s not to say he’s bearish or calling for some type of severe market sell-off in the near future. Indeed, timing the stock market is pretty much impossible, even for a seasoned billionaire investor who’s been in the game for decades.

Undoubtedly, the AI stock run-up is partly to blame for the growing froth in the tech sector. However, Einhorn said that it’s not just tech stocks sporting elevated valuation metrics, noting that some “non-tech stocks are trading at 30 to 50 times earnings.” That’s an astute observation that investors would be wise to consider as they hunt for their next stock purchase.

In any case, Einhorn, who I view as a disciplined value investor, seems more than willing to look to the corners of the market that are unloved and neglected. Even in a relatively expensive market, there are still opportunities out there with the value names that many others may have ditched and long forgotten about.

Sure, you probably won’t hear as much about these firms now that they’ve acted like dead money. And while bottom-fishing for deep-value bargains can still lead to stiff losses, I think Einhorn is on the right track with his recent bets. If anything, I think he’s spotted pockets of value in this mildly frothy market.

Here are two value ideas he recently shared with viewers in a televised interview with Bloomberg:

Peloton

Peloton (NASDAQ:PTON) was a pandemic lockdown darling that crashed and burned back in 2021 and 2022. The stock is still down more than 96%, and though the stationary bike maker seems rather untimely, Einhorn seems to view the name as a real source of deep value.

Einhorn went as far as to say the stock is significantly undervalued — at just 0.83 times price-to-sales (P/S), Peloton shares appear like a steal — and could be worth five times as much if the firm makes the right moves, such as trimming costs. As you’d imagine, PTON stock popped double-digit percentage points after the commentary. 

Though Peloton comprises a relatively small position (just over 1%) of Greenlight Capital’s portfolio, a bull-case scenario could still help move the needle for Einhorn’s fund, especially if it’s a five-bagger in the making.

With Peloton’s management team recently shedding light on its plans to pivot to profitability in fiscal year 2025, I certainly wouldn’t bet against Peloton. If management can right its course, the stock has a lot of room to pedal higher.

HP Inc.

HP Inc. (NYSE:HPQ) is another Einhorn stock that looks deeply discounted in this somewhat frothy-looking market environment. Recently, Einhorn went as far as to say HP stock was a cheaper way to bet on the AI race, noting the cheap multiple (shares currently go for 12.8 times trailing price-to-earnings (P/E) and the company’s abilities to grow in the “high-teens” from here.

In the second quarter, Einhorn more than doubled his position in the company, making it one of Greenlight Capital’s top five holdings. Indeed, HP does look like a dirt-cheap way to play an AI PC supercycle. Additionally, the company has been adding AI across its various offerings, including its printers.

Whether this marks the end of printer issues, though, remains the big question. Either way, it’s hard to deny the potentially deep magnitude of value in shares. The 3.02% dividend yield is an added bonus.

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