Miller Value Partners, an investment management firm, published its “Miller Deep Value Strategy” third quarter 2021 investor letter – a copy of which can be seen here. For the third quarter of 2021, the fund was down in excess of 10%, lagging the overall market and the S&P 1500 Value Index. The Deep Value Strategy remains well ahead of the market for the year, up in excess of 70%. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Miller Value Partners, in its Q3 2021 investor letter, mentioned Nabors Industries Ltd. (NYSE: NBR) and discussed its stance on the firm. Nabors Industries Ltd. is a Hamilton, Bermuda-based oil and gas drilling contractor with an $825 million market capitalization. NBR delivered a 71.92% return since the beginning of the year, while its 12-month returns are up by 212.75%. The stock closed at $100.11 per share on November 4, 2021.
Here is what Miller Value Partners has to say about Nabors Industries Ltd. in its Q3 2021 investor letter:
“Nabors Industries (NBR) was also a significant detractor during the third quarter, negatively impacted earlier in the quarter from the short-term pullback in energy prices. Nabors continues to lead peers with strong execution, significantly outperforming peers in Lower-48 oil rig daily margins. The company’s international operations are also significantly larger than its competition and historically has been a strategic asset providing consistent cash flow. Over the coming years, we see Nabors’s International operations well positioned to benefit from the upcoming ramp of their Saudi Aramco JV and the anticipated upcoming recovery in drilling in those markets. Nabors also has significant proprietary technology assets that are gaining in popularity with others in the industry. A low capital-intensive business, further growth of their technology applications would be nicely accretive to company profitability and cash flow generation. Management is also looking to leverage their asset base to develop new growth opportunities to enable Nabors to benefit from the upcoming Energy transition (Geothermal). Over the past couple of years, Nabors has focused more on free cash flow generation and has successfully reduced total debt by nearly $1.5B and we see significant ongoing debt reduction that should drive incremental equity value. The company appears to be well positioned as a significant beneficiary over the coming years from higher oil prices and greater global demand for their higher spec land rigs. We believe Nabors has the potential for significant share price appreciation, as free cash flow returns to normalized levels and the company’s valuation further expands and narrows the 70% valuation discount with their peers.”
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Based on our calculations, Nabors Industries Ltd. (NYSE: NBR) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. NBR was in 15 hedge fund portfolios at the end of the first half of 2021, compared to 15 funds in the previous quarter. Nabors Industries Ltd. (NYSE: NBR) delivered a 23.81% 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.
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Disclosure: None. This article is originally published at Insider Monkey.
