Miller Value Partners, an investment management company, released its “Deep Value Select Strategy” third-quarter 2024 investor letter. A copy of the letter can be downloaded here. In the third quarter, Strategy returned 4.6% (net of fees) behind the S&P 1500 Value Index’s 9.1% return and the S&P 600 Value Index’s +11.3% returns. The strategy returned 20.13% (net of fees) year to date, well ahead of +14.8% and +6.1% returns for the indexes. In addition, please check the fund’s top five holdings to know its best picks in 2024.
Miller Deep Value Select Strategy highlighted stocks like Nabors Industries Ltd. (NYSE:NBR), in the third quarter 2024 investor letter. Nabors Industries Ltd. (NYSE:NBR) is a drilling and drilling-related services provider for offshore oil and natural gas wells. The one-month return of Nabors Industries Ltd. (NYSE:NBR) was 0.33%, and its shares lost 17.89% of their value over the last 52 weeks. On November 26, 2024, Nabors Industries Ltd. (NYSE:NBR) stock closed at $73.46 per share with a market capitalization of $701.391 million.
Miller Deep Value Select Strategy stated the following regarding Nabors Industries Ltd. (NYSE:NBR) in its Q3 2024 investor letter:
“Our two largest detractors during the quarter were Nabors Industries Ltd. (NYSE:NBR) and Quad Graphics (QUAD) that were down 8% and 16% during the quarter. Both companies’ share prices are at deep discounts to their long-term fundamental value in our estimation and we have recently increased our positions in both holdings. Nabors became the strategy’s largest holding during the third quarter
Energy was the only sector with negative returns in the third quarter. With the recent pullback in commodity prices, there has been ongoing fear that Nabors will experience greater operational pressure on their global rig business. The recent industry consolidation may lead to some near-term choppiness in industry capital expenditures; however, we see this as temporary, as Nabors is well positioned to expand their working global rig count next year. Nabors has signed contracts for a greater than 20% increase in their international working rig feet over the coming two years. In addition, their joint venture with Saudi Aramco (“SANAD”) plans to expand from 7 to 50 rigs over the coming seven years and has the potential to generate EBITDA in excess of $500M. Leading drilling peers in the Middle East (ADNOC, Arabian Drilling, ADES Holding) have EV/EBITDA multiples between 8.3 times and 11.8 times, while Nabors is valued near 3.5 times EV/EBITDA. We believe SANAD has significant and growing embedded value! Nabors Drilling Solutions segment also has a growing global expansion opportunity. The segment has very low capital intensity and 90% cash conversion. Achieving management’s 20-25% EBITDA contribution target would have a very positive impact on future free cash flow. At quarter end, Nabors’ market share price is only trading at $1.30/share (pre reverse split), which is down 90% from its former highs. With the recent share price weakness, Nabors looks extremely attractive, at less than one times forward cash flow (only lower for a short time during the Covid 2020 outbreak). The greatest near-term risk would be pullback in oil prices under $60/barrel, which could create a global pullback in rig deployments and potentially pressure margins. In this scenario, Nabors share price might be under additional pressure but with a majority of capex dedicated to maintenance capex a falling rig count would also see a pullback in capital expenditures which should continue Nabors to generate free cash flow. We believe Nabors has the potential to generate greater than $1B in free cash flow over the next five years which will significantly reduce company debt and accrue to an equity holder overtime. The marketplace is overlooking the fact that Nabors has successfully reduced debt by $1.8B since the beginning of 2018 and has no debt maturities before 2027. We believe Nabors’ long-term upside potential is multiples of the current share price.”
A drilling rig on a large oil field, capturing a crucial moment of the extraction process.
Nabors Industries Ltd. (NYSE:NBR) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 16 hedge fund portfolios held Nabors Industries Ltd. (NYSE:NBR) at the end of the third quarter which was 14 in the previous quarter. While we acknowledge the potential of Nabors Industries Ltd. (NYSE:NBR) 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 its Q2 2024 investor letter, Miller Deep Value Select Strategy expressed its confidence in Nabors Industries Ltd.’s (NYSE:NBR) long-term growth prospects, highlighting the company’s robust global presence and strong relationships with leading energy companies. In addition, please check out our hedge fund investor letters Q3 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.