Palm Valley Capital Management, an investment management firm, published its fourth-quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly portfolio return of 0.04% was recorded by the fund for the fourth quarter of 2021, while its benchmarks, the S&P SmallCap 600 Index, by comparison, returned 5.59% and 3.72% return for the Morningstar Small Cap Index over the same period. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
Palm Valley Capital Management, in its Q4 2021 investor letter, mentioned Dril-Quip, Inc. (NYSE: DRQ) and discussed its stance on the firm. Dril-Quip, Inc. is a Houston, Texas-based manufacturing company with an $811.7 million market capitalization. DRQ delivered a 16.57% return since the beginning of the year, while its 12-month returns are up by -31.60%. The stock closed at $22.94 per share on January 10, 2022.
Here is what Palm Valley Capital Management has to say about Dril-Quip, Inc. in its Q4 2021 investor letter:
“During the fourth quarter we took advantage of weakness in the precious metal and energy sectors to acquire two small new positions that we believe are selling at attractive prices relative to their strong, asset heavy balance sheets, (including) Dril-Quip (ticker: DRQ). Founded in 1981, DrilQuip manufactures drilling and production equipment that is used in deepwater energy exploration and
production. Dril-Quip’s customers include major integrated and foreign national oil and gas companies such as Chevron, Shell, Exxon, Murphy, and Petrobras. Similar to most energy equipment and service companies, Dril-Quip performed wonderfully during the energy boom that peaked in 2014. Revenues, operating income, and free cash flow benefited tremendously from bloated E&P budgets and the focus on production growth. Of course, oil prices eventually collapsed in 2014 from $110 per barrel to $29 in 2016, with oil briefly turning negative in 2020! During this time, energy companies reduced their capital expenditures considerably, driving down Dril-Quip’s revenues and earnings.Dril-Quip’s balance sheet is extraordinary with nearly a billion dollars of tangible book value ($26.90 per share). The majority of the company’s assets are liquid with net working capital exceeding $20 per share, including more than $10 per share in cash. Although we can’t precisely predict when deepwater energy exploration and production will rebound, there are signs that offshore activity has bottomed and may increase in 2022. We believe Dril-Quip’s balance sheet provides us with a sufficient margin of safety and the necessary liquidity to take advantage of improving industry conditions.”
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Based on our calculations, Dril-Quip, Inc. (NYSE: DRQ) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. DRQ was in 12 hedge fund portfolios at the end of the third quarter of 2021, compared to 9 funds in the previous quarter. Dril-Quip, Inc. (NYSE: DRQ) delivered a -13.50% return in the past 3 months.
In August 2021, we also shared another hedge fund’s views on DRQ in another article. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.
Disclosure: None. This article is originally published at Insider Monkey.
