Night Watch Investment Management, an investment management company, released its fourth quarter 2024 investor letter. A copy of the letter can be downloaded here. In the fourth quarter the fund LP depreciated by -2.92% net of fees and ended the quarter at 10.30%. In the fourth quarter of 2024, the market experienced significant volatility. The initial excitement following the US elections quickly gave way to discouragement as rising inflation figures prompted the Federal Reserve to revise their interest rate cut expectations for 2025 downward. In addition, please check the fund’s top five holdings to know its best picks in 2024.
Night Watch Investment Management highlighted stocks like Valaris Limited (NYSE:VAL), in the fourth quarter 2024 investor letter. Valaris Limited (NYSE:VAL) is an offshore contract drilling services provider. The one-month return of Valaris Limited (NYSE:VAL) was -9.00%, and its shares lost 25.91% of their value over the last 52 weeks. On January 7, 2025, Valaris Limited (NYSE:VAL) stock closed at $46.47 per share with a market capitalization of $3.305 billion.
Night Watch Investment Management stated the following regarding Valaris Limited (NYSE:VAL) in its Q4 2024 investor letter:
“Our offshore energy exposure was the largest detractor of the fund’s performance in 2024. Our thesis is based on the fact that we are seeing a move from oil & gas production from Western countries – often constrained by environmental regulation and punitive taxation – to regions such as Brazil and Western Africa, which happen to be offshore. There have been no new orders of offshore equipment since 2014 and the resulting supply / demand mismatch should bring in excess profits for this sector in the years ahead.
We initially became interested in offshore energy after Valaris Limited (NYSE:VAL) emerged from bankruptcy in 2021. At the time, day rates for floating rigs were around $200k / day, compared to operating expenses per rig around the same amount. A tightening market has since pushed up day rates to around $500k. A rig has gone from operating at break-even, to being able to earn $100m per year. Valaris allows us to buy the industry’s most modern fleet for less than $150m per rig, providing really attractive returns once every rig has been put to work.
However, H2 of 2024 saw a pause in the market’s recovery. The rapid increase in demand has tightened other parts of the offshore supply chain. There are temporary shortages in subsea equipment and FPSOs (the floating platform that you need for the production of oil). 2025 projects are therefore being pushed into 2026 and offshore energy companies such as Valaris sold off – hard. While we failed to predict this pause, we believe the thesis remains unchanged. Our call on offshore oil remains a high conviction bet.”
A modern offshore drilling vessel navigating the seas with equipment mounted on its decks.
Valaris Limited (NYSE:VAL) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 42 hedge fund portfolios held Valaris Limited (NYSE:VAL) at the end of the third quarter which was 39 in the previous quarter. Valaris Limited’s (NYSE:VAL) revenue was $643 million in the third quarter 2024, up from $610 million in the prior quarter. While we acknowledge the potential of Valaris Limited (NYSE:VAL) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
In another article, we discussed Valaris Limited (NYSE:VAL) and shared the list of best falling stocks to buy according to hedge funds. In addition, please check out our hedge fund investor letters Q4 2024 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.