Nomadic Value Partners recently released its Q2 2021 Investor Letter, a copy of which you can download here. In the second quarter, the fund posted returns of 9.6% compared to 8.6% total return for the S&P 500 Index. You should check out Nomadic Value’s top 5 stock picks for investors to buy right now, which could be the biggest winners of this year.
In the Q2 2021 Investor Letter, the fund highlighted a few stocks and Mercer International Inc. (NASDAQ:MERC) is one of them. Mercer International Inc. (NASDAQ:MERC) owns and operates three modern pulp mills. In the last three months, Mercer International Inc. (NASDAQ:MERC) stock lost 1%. Here is what the fund said:
“We sold Mercer International (MERC) on May 11th after the stock hit a rich valuation, given the pricing risks in its end markets – NBSK pulp and framing lumber. As a refresher, we bought a small position in MERC during the depths of the COVID sell down in commodity markets. Market pulp is one of the most volatile commodities in the world and we entered at a price where I judged this volatility to be a benefit, rather than a risk. We first bought MERC in Q2 2020 and doubled down at a higher price after the market confirmed a recovery in prices and the stock began to work. What I did not forecast at the time of purchase was supply chain shortages colliding with a raging US housing market. Lumber prices soared to all-time highs in a short amount of time and MERC’s lumber business, which exports high grade framing lumber to the US, has benefitted greatly. We doubled our money holding MERC in less than a year.
The various sub-industries within forest products have never been very high returning over a full business cycle, and to hold a business in forest products too long almost guarantees lackluster returns. The industry is never as simple as high demand = high prices. Therefore, an investor must watch supply and its ability to quickly ramp production. But even capacity is fickle due to private market activity, new build construction lead times, and increasingly, climate change. All we can predict is unpredictability in prices. Unless prices are unreasonably low and company balance sheets are strained for survival, then the industry is not worth fooling with, in my view. I am happy to sell our forest products business to eager investors looking to play a demand wave for home construction, runaway inflation, or whatever the “new regime” thesis is. With extraordinary luck, we got close to top ticking lumber prices at around $1,700 per MMBF when we sold our shares in MERC. As of this note, lumber is trading around $550 per MMBF.”
Nomadic Value Partners has been a long time Mercer International Inc. (NASDAQ:MERC) bull. In August 2020, we shared Nomadic Value Partners MERC’s thesis in this article.
In Q3 2020, the number of bullish hedge fund positions on Mercer International Inc. (NASDAQ:MERC) stock increased by about 30% from the previous quarter (see the chart here), so a number of other hedge fund managers believe in MERC’s growth potential. Our calculations showed that Mercer International Inc. (NASDAQ:MERC) isn’t ranked among the 30 most popular stocks among hedge funds.
The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
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Disclosure: None. This article is originally published at Insider Monkey.
