Palm Valley Capital Management, an investment management firm, released the “Palm Valley Capital Fund” third quarter 2023 investor letter. A copy of the same can be downloaded here. In the third quarter, Palm Valley Capital Fund increased 0.56% compared to a 4.93% and 4.56% decline for the S&P SmallCap 600 Index and the Morningstar Small Cap Index, respectively. The fund’s equity securities lost 0.78% during the same period, before the negative impact of fund expenses and the positive effect of interest income. Also, the fund ended the period with 81% held in cash equivalents. In addition, you can check the top 5 holdings of the fund to know its best picks in 2023.
Palm Valley Capital Management highlighted stocks like Avista Corporation (NYSE:AVA) in the third quarter 2023 investor letter. Headquartered in Spokane, Washington, Avista Corporation (NYSE:AVA) is an electric and natural gas utility company. On October 5, 2023, Avista Corporation (NYSE:AVA) stock closed at $31.72 per share. One-month return of Avista Corporation (NYSE:AVA) was -5.74%, and its shares lost 13.26% of their value over the last 52 weeks. Avista Corporation (NYSE:AVA) has a market capitalization of $2.427 billion.
Palm Valley Capital Management made the following comment about Avista Corporation (NYSE:AVA) in its Q3 2023 investor letter:
“We did not fully sell any positions during the third quarter. We purchased four new names: Avista Corporation (NYSE:AVA), Farmland Partners (ticker: FPI), Equity Commonwealth (ticker: EQC), and SSR Mining (ticker: SSRM). We believe these opportunities materialized because higher interest rates are disproportionately impacting investor sentiment toward certain sectors, even as capitalization-weighted, tech-heavy indexes have powered through the headwinds.
Founded in 1889, Avista is a regulated utility with operations in Washington, Idaho, Oregon, Alaska, and Montana. Avista provides electricity to 411,000 customers and natural gas to 377,000 customers. As interest rates have increased, utility stocks have significantly underperformed the broader stock market. Avista’s stock has also been under pressure as wildfires have become a more obvious risk for investors. We believe Avista is currently generating below normalized earnings. Approximately half of Avista’s electricity is produced from low-cost hydroelectric generation. Weather conditions over the last year reduced the company’s hydroelectric output and increased its cost of production. Additionally, we also expect earnings to lag in 2023 because the company’s last approved rate increase in Washington was insufficient to cover the subsequent unexpected rise in inflation. Avista filed a new Washington rate case in June 2023 that takes higher costs into consideration and, if approved, should go into effect in 2025.
Avista is selling at 14x 2023 expected earnings and 13x our normalized estimate. Furthermore, at 1.05x tangible book value, the firm is at a considerable discount to its historical net asset valuation. We expect Avista’s earnings to reach our normalized estimate by 2025 and believe the company’s long-term growth objective is achievable given its territory’s large capital investment needs. While utilities are not risk-free, at Avista’s current valuation, we believe we are being adequately compensated for risk.”
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Avista Corporation (NYSE:AVA) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 10 hedge fund portfolios held Avista Corporation (NYSE:AVA) at the end of second quarter which was 13 in the previous quarter.
We discussed Avista Corporation (NYSE:AVA) in another article and shared the list of under-the-radar dividend stocks to buy. In addition, please check out our hedge fund investor letters Q3 2023 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.
