ClearBridge Investments, an investment management firm, published its “Value Equity Strategy” second quarter 2021 investor letter – a copy of which can be downloaded here. Accordingly, the portfolio remains diversified among the most attractive current valuation opportunities in the market: financials, energy, consumer recovery plays, and large-cap biotech and drug stocks. You can take a look at the fund’s top 5 holdings to have an idea about their top bets for 2021.
In the Q2 2021 investor letter of ClearBridge Investments, the fund mentioned Quanta Services, Inc. (NYSE: PWR) and discussed its stance on the firm. Quanta Services, Inc. is a Houston, Texas-based specialty contractor with a $16.1 billion market capitalization. PWR delivered a 60.77% return since the beginning of the year, while its 12-month returns are up by 116.19%. The stock closed at $115.85 per share on September 29, 2021.
Here is what ClearBridge Investments has to say about Quanta Services, Inc. in its Q2 2021 investor letter:
“To highlight this diversification and our active approach, we will discuss a stock that we added this quarter that are wellpositioned for some of the changes we think are underway: Quanta Services.
Quanta Services is a specialty engineering and construction company that will be a major beneficiary of the multidecade power infrastructure investment we expect to be made to support the energy transition. Based on our estimates, electric transmission capacity needs to triple or quadruple over the next 30 years to meet the demand for a net-zero economy. It is very rare to find investment runways of this length and magnitude, and we think the duration and sustainability of this growth are not reflected in Quanta’s current price. Specifically, we think Quanta’s revenues can triple over the next 20 years, which is well above what the stock currently embeds. This growth could be especially powerful if Quanta is able to expand profit margins as management currently expects, but any combination should allow our investment to compound at an attractive rate in one of the biggest transitions in history.”
Photo by Mika Baumeister on Unsplash
Based on our calculations, Quanta Services, Inc. (NYSE: PWR) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. PWR was in 40 hedge fund portfolios at the end of the first half of 2021, compared to 33 funds in the previous quarter. Quanta Services, Inc. (NYSE: PWR) delivered a 27.58% return in the past 3 months.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.
Disclosure: None. This article is originally published at Insider Monkey.
