Hedge fund legend David Einhorn is making a big bet on GM (GM)

Jim Merithew/Wired.com

David Einhorn is buying more General Motors stock.

The Greenlight Capital founder said his hedge fund had "dramatically increased" its GM position, according to the firm's latest quarterly investor letter, which was viewed by Business Insider.

Here's Einhorn's logic:

"While the bears have been screaming 'peak auto' for the last couple of years, we think a strengthening job market will sustain the current upcycle and lead to better than expected credit performance at GM's finance subsidiary. While the bears also cite long-term concerns over self-driving cars, we see a huge intermediate-term opportunity in assisted-driving cars. In any other industry, investors would be enthused by the developing upgrade cycle, which could last for a number of years as incremental improvements in each model year attract consumers.

"GM's valuation is extreme: at its year-end price of $34.84 per share, GM trades at less than 6x earnings. It is rare for a company to pay out only a quarter of its profits in dividends and still yield 4.4%. GM has substantial foreign operations that (other than China) barely contribute to profits and could improve over time. Finally, we believe that GM can unlock substantial value through modest changes to its capital structure."

The stock has rallied 27% over the past year, according to Markets Insider data.

Greenlight Capital is a New York stock-focused hedge fund and managed about $8.6 billion as of mid-year 2016, according to the Hedge Fund Intelligence Billion Dollar Club ranking.

The firm's flagship fund returned 4.5% in the fourth quarter, taking the year-to-date return to 8.4%, according to the letter. The fund has now returned 2,090% since its inception in 1996, or 16.1% annualized.

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