Patient Capital Management, a value investing firm, released its “Patient Capital Opportunity Equity Strategy” third quarter 2024 investor letter. A copy of the letter can be downloaded here. During the quarter, the strategy returned 5.58% net of fees compared to the S&P 500’s 5.89% return. According to a three-factor performance attribution model, allocation and selection effects contributed positively to the portfolio’s performance while interaction effects contributed negatively. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2024.
Patient Capital Management highlighted stocks like Seadrill Limited (NYSE:SDRL) in the third quarter 2024 investor letter. Seadrill Limited (NYSE:SDRL) is a global provider of offshore contract drilling services to the oil and gas industry. The one-month return of Seadrill Limited (NYSE:SDRL) was -11.40%, and its shares lost 12.18% of their value over the last 52 weeks. On October 16, 2024, Seadrill Limited (NYSE:SDRL) stock closed at $36.95 per share with a market capitalization of $2.403 billion.
Patient Capital Management stated the following regarding Seadrill Limited (NYSE:SDRL) in its Q3 2024 investor letter:
“Energy names disappointed in the quarter following commodity prices lower throughout the period. We took the opportunity to add to our highest conviction ideas. We look to names that have idiosyncratic opportunities and are attractive in a variety of different commodity price environments. Many see risk to energy prices over the next year as supply is expected to outstrip demand by 1.3mb/d even before assuming any incremental OPEC supply comes onto the market. With commodities, consensus is rarely right. We assess companies on through cycle returns and normalized prices. From this perspective, we see a handful of attractive opportunities, including Energy Transfer (ET), Seadrill Limited (NYSE:SDRL) and Kosmos (KOS).
Seadrill benefits from a consolidated industry, with more rational players, and an emerging supply and demand imbalance. We think over time as offshore drilling plays a bigger role as the marginal producer, Seadrill will benefit from more attractive contract prices.
Seadrill Limited (SDRL) is the fourth largest pure play deepwater drilling specialist. The company emerged from bankruptcy in February 2022 with a net cash position. The company is set to benefit from limited supply and increasing demand in the deepwater drilling rig market. Nearly half of all deepwater drilling rigs in the world were scrapped during the last decade. In addition, player consolidation puts the industry in a more rational position than we have seen historically. As land-based oil production growth comes under pressure, offshore production is receiving renewed interest. With a highly specialized rig base, the company is benefiting from increasing prices which are leading to strong FCF yields given the limited need for CAPEX. The company has committed to returning 50% of free cash flow to shareholders via dividends and buybacks. Over the last 12-months, the company has reduced shares outstanding by 17%. As old contracts roll-over and new contracts are signed at the higher day rates, operating profit and FCF are expected to expand dramatically. Seadrill could either consolidate the space or be acquired.”
Drilling rig silhouetted against a setting sun in an offshore location.
Seadrill Limited (NYSE:SDRL) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 41 hedge fund portfolios held Seadrill Limited (NYSE:SDRL) at the end of the second quarter which was 39 in the previous quarter. In the second quarter of 2024, Seadrill Limited (NYSE:SDRL) generated $133 million in EBITDA on $375 million in revenue, resulting in an EBITDA margin of 35.5%. While we acknowledge the potential of Seadrill Limited (NYSE:SDRL) 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 another article, we discussed Seadrill Limited (NYSE:SDRL) and shared the list of most undervalued small-cap stocks to buy according to analysts. 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.