5 Best Stocks to Buy According to Angela Aldrich’s Bayberry Capital Partners

2. Burford Capital Limited (NYSE:BUR)

Bayberry Capital Partners’ Stake Value: $42,580,000

Percentage of Bayberry Capital Partners’ 13F Portfolio: 13.31%

Number of Hedge Fund Holders: 12

With Bayberry Capital Partners increasing its stake by 43% and Burford Capital Limited’s (NYSE:BUR) stock appreciating close to 10%, the company jumped fourth spots and became the fund’s second most loved stock at the end of Q2. Burford Capital Limited (NYSE:BUR) is a specialized financial services company that is currently the world’s largest provider of arbitration and litigation finance.

Earlier this year, Burford Capital Limited (NYSE:BUR) issued several bonds, including a $350 million offering in April through which it raised more than $1 billion in a span of three months. In its second-quarter 2022 investor letter, Alphyn Capital Management, an investment management firm, had this to say about Burford Capital Limited (NYSE:BUR):

“The most significant event affecting Burford will be the outcome of its YPF case against Argentina. Should Burford win, it could receive net proceeds between $1.1bn and $5.6bn. These numbers are derived from a formula written in YPF’s prospectus and bylaws and depend on several assumptions, hence the wide range, but in any case, are significant when compared to Burford’s current market capitalization of approximately $3bn. In a recent lengthy interview, an Argentinian legal expert concluded that based on what we know, the case should be a home run for Burford, but “we don’t know 70% of what is said, we don’t know the private documents, we don’t know the private positions. We don’t know lots of things. Experts have testified in both sides; we don’t know what’s there.” Hardly conclusive.

Nevertheless, I believe Burford remains an attractive investment regardless of the outcome of this one case. To understand why it is helpful to consider how Burford’s litigation finance works. Each case Buford funds has one of three outcomes, a win, a loss, or a settlement. A loss typically results in Buford losing its entire investment. Which has, historically, occurred 10% of the time. Given this risk, Buford actively assesses a case’s merits and potential return. A high payout on wins, typically 5x, increases the expected payout of the whole portfolio. In this way, litigation financing somewhat resembles venture capital investing, where VCs expect only a handful of big wins to make up for lost investments and still provide a reasonable return on the overall portfolio…”