7. Ultrapar Participacoes (NYSE:UGP)
Year to Date Gain as of October 25: -32.96%
Forward Price to Earnings Ratio: 8.58
Number of Hedge Fund Holders: 10
Headquartered in São Paulo, Brazil, Ultrapar Participacoes (NYSE:UGP) is an energy company that distributes liquefied petroleum gas to residential, commercial and industrial consumers. While down by about 33% for the year, it is turning out to be one of the oversold penny stocks to invest in now.
The company has been firing on all cylinders, as evidenced by the solid second-quarter results that affirm underlying growth. Net income in the quarter was up 106% to BRL491 million, resulting in an 85% increase in accumulated net income for the year to BRL947 million. Ultrapar Participações S.A. achieved a 3% growth in EBITDA growth due to increased capacity occupancy.
Consequently, Ultrapar Participacoes (NYSE:UGP) reiterated its commitment to returning value to shareholders by approving a payment of BRL276 million in interim dividends for the first half of 2024, reflecting strong financial performance. As it stands, Ultrapar Participações S.A. is a solid investment play for income-focused investors as the stock yields 3.42% in dividends.
Ultrapar Participacoes (NYSE:UGP) trades at a significant discount with a price-to-earnings multiple of 8.58. With oil prices supporting above the $70-a-barrel level amid escalating geopolitics in the Middle East, it is a solid penny stock investment for gaining exposure in the energy sector.
Insider Monkey’s second quarter of 2024 survey of 912 hedge funds revealed that 10 had bought and owned Ultrapar Participacoes (NYSE:UGP)’s shares. In the same quarter, its biggest hedge fund investor was Jim Simons’ Renaissance Technologies due to its $9.58 million stake.
Here is what Third Avenue Management Value Fund has to say about Ultrapar Participações S.A. (NYSE:UGP) in its Q1 2022 investor letter:
“Ultrapar is a Brazilian fuel distribution and storage business. Operating under the Ipiranga brand name, Ultrapar is one of three companies with dominant fuel distribution networks in Brazil. With more than 7,000 service stations, Ipiranga holds an approximate 19% market share in Brazilian vehicle fuel distribution and also operates a related convenience store business under the AmPm brand. Ultrapar also operates one of Brazil’s largest Liquefied Petroleum Gas (“LPG”) distribution businesses as well as one of Brazil’s largest bulk liquids storage terminal networks. The Brazilian equity market has, in recent years been a relatively poor performer, particularly as measured in U.S. dollars. Ultrapar is one example of a relatively high quality Brazilian business that is currently available at valuation levels we haven’t seen in some time. Additionally, like many businesses in Brazil, the fuel distribution business has a few country-specific complexities. In the main, we would say that the overall direction of policy in Brazil has made operating the business more straightforward and the separation of several businesses in the energy storage and distribution arena from state-controlled Petrobras is gradually allowing the industry to operate in a more traditional arms-length manner. Further, as it relates to Ultrapar specifically, in recent years, it is generally accepted that Ipiranga has been the least well operated of the big three fuel distributors. This is most glaringly evidenced by routinely inferior fuel distribution margins. Ultrapar also spent years making ill-advised acquisitions in an attempt to diversify, a process which is currently being put into reverse. The disposition of several large but noncore businesses has led to a substantial cash inflow recently, putting Ultrapar on excellent footing to make operational improvements and, potentially, to make strategic additions to its business. This strategy will be executed by a new CEO, to whom Ultrapar’s controlling family has made a considerable financial commitment. We have high-regard for the new CEO, having familiarity with him from his previous career at Cosan S.A., another one of Brazil’s big three fuel distributors. In summary, we think that there is a lot of room for operational improvement as well as general valuation upside at Ultrapar.”
