Miller Value Partners, an investment management firm, published its “Miller Opportunity Equity” fourth quarter 2021 investor letter – a copy of which can be seen here. A quarterly net decline of 4.29% has been recorded by the fund for the fourth quarter of 2021, compared to the S&P 500 Index’s 28.71% gain for the same period. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
Miller Value Partners Opportunity Equity, in its Q4 2021 investor letter, mentioned Ovintiv Inc. (NYSE: OVV) and discussed its stance on the firm. Ovintiv Inc. is a Calgary, Canada-based natural gas company with a $10.6 billion market capitalization. OVV delivered a 21.13% return since the beginning of the year, while its 12-month returns are up by 122.82%. The stock closed at $40.82 per share on February 3, 2022.
Here is what Miller Value Partners Opportunity Equity has to say about Ovintiv Inc. in its Q4 2021 investor letter:
“The outlook for high multiple favorites depends to a great degree on interest rates. Warren Buffett likened interest rates to the force of gravity for asset prices. At current low levels, high valuations on long-duration assets can be justified. If interest rates move up, the adjustment will be painful. Market action early in the new year, with the swift moves up in interest rates and down in the Nasdaq, offers a taste of the medicine.
We underwrite all our names to have sufficient upside even if risk-free rates move up to 3% (a scenario, not a forecast!). As we evaluate the opportunity set, we find more attractive prospects in the classic value names. We often hear that people think value investing is dead, which only strengthens our conviction. Our gross exposure to classic value has risen from 44% a year ago to 62% currently.
One new name that illustrates the potential we see is Ovintiv (OVV), an oil and gas producer. We’ve seen a huge shift in the industry away from growth towards returns on capital, cash generation, and capacity discipline. OVV exemplifies the change.
OVV’s new CEO Brendan McCracken says: “We are at the forefront of driving innovation to produce oil and gas from shale both profitably and sustainably. We will generate superior returns and free cash flow by continuously improving capital efficiency and expanding margins while driving down emissions. We will deliver that value to our shareholders through disciplined capital allocation.”
Based on crude at $65 (well below the current $83.82 as of 1/14/22), the company guides to free cash flow generation of $11B over the next 5 years and $21B in the next 10 years. The company’s market cap is currently $10B and its enterprise value is $16B. It’s returning a significant portion of the capital to shareholders. If crude averages $70 in 2022, the company will return $700M to shareholders (in addition to paying down a significant amount of debt), which implies a yield of 7% at the current $39.53 price. In other words, there’s a good shot the company will return nearly its entire market cap to shareholders over the next 5 years.”
Our calculations show that Ovintiv Inc. (NYSE: OVV) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. OVV was in 44 hedge fund portfolios at the end of the third quarter of 2021, compared to 40 funds in the previous quarter. Ovintiv Inc. (NYSE: OVV) delivered a 14.21% return in the past 3 months.
In January 2022, we published an article that includes OVV in the 10 Oil and Gas Stocks in Billionaire Steve Cohen’s Portfolio. You can find more than 100 investor 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.
