Black Bear Value Partners, an investment management firm, published its first quarter 2024 investor letter. A copy of the letter can be downloaded here. Black Bear Value Fund returned -6.7% in June and is up +2.1% YTD and the S&P 500 returned +3.6% in June and +15.3% YTD. HFRI Value Index returned -0.3% in June and +4.3% YTD. The businesses, the firm owns are attractively priced, have solid balance sheets, and are managed effectively. In addition, please check the fund’s top five holdings to know its best picks in 2024.
Black Bear Value Partners highlighted stocks like LSB Industries, Inc. (NYSE:LXU), in the second quarter 2024 investor letter. LSB Industries, Inc. (NYSE:LXU) engages in the manufacture, marketing, and sale of chemical products. The one-month return of LSB Industries, Inc. (NYSE:LXU) was -12.70%, and its shares lost 26.57% of their value over the last 52 weeks. On July 9, 2024, LSB Industries, Inc. (NYSE:LXU) stock closed at $7.49 per share with a market capitalization of $535.862 million.
Black Bear Value Partners stated the following regarding LSB Industries, Inc. (NYSE:LXU) in its Q2 2024 investor letter:
“LSB Industries, Inc. (NYSE:LXU) manufactures and sells nitrogen-based products for the agricultural, industrial and mining markets. They are the 5th largest producer of ammonia and the leading merchant marketer of nitric acid in the U.S. The Company has gone through a remarkable turnaround (both operationally and financially) as it was chronically undermanaged by the previous ownership/management team. Looking forward, they are beneficiaries of the low-carbon movement as they are co-developing low-carbon ammonia projects as well as growing their existing capacity. LSB (and other domestic producers) use natural gas as their main raw material. This is a competitive advantage given the low cost of natural gas in the US versus foreign competition.
Management has a very good grasp of quality capital allocation. The Company is currently levered 2.5x but has been buying back their debt at a discount. While the stock is cheap (and they are buying back stock) having a safer balance sheet is a priority and free cash flow has been allocated between stock buybacks and debt paydown/buybacks.
As capacity expansion comes online the company should be able to generate $75-$110MM per year in free cash flow. That equates to a 13-19% levered free cash flow and 9-13% on the enterprise value. In addition, LSB has a blue ammonia development (utilizes carbon capture/storage) and a longer-term low-carbon ammonia export project. These 2 projects will generate 50-100MM in additional cash flow over the coming 2-4 years, effectively doubling the earnings power of the business. At today’s price that translates to a 20-40% annual FCF yield. We stand to make the most if the price remains low and management can buy in shares cheaply.”
A rustic farm field with a tractor spreadng nitrogen-based fertilizer in the background.
LSB Industries, Inc. (NYSE:LXU) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 18 hedge fund portfolios held LSB Industries, Inc. (NYSE:LXU) at the end of the first quarter which was 16 in the previous quarter. In the first quarter, LSB Industries, Inc. (NYSE:LXU) generated an adjusted EBITDA of $33 million compared to $51 million in Q1 2023. The company repurchased around 700,000 shares of its stock during the quarter. While we acknowledge the potential of LSB Industries, Inc. (NYSE:LXU) 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 addition, please check out our hedge fund investor letters Q2 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.