Legacy Ridge Capital Management, LLC recently published its “Legacy Ridge Capital Partners Equity Fund I” second quarter 2024 investor letter. A copy of the same can be downloaded here. The fund returned 25.6% gross, and 19.7% net of accrued performance fees through June. The performance has remained decent both in absolute and relative terms, despite being only 70% invested in 9 cyclical companies and not hedging positions, while animal spirits are once again inflamed across markets. For more information on the fund’s best picks in 2024, please check its top five holdings.
Legacy Ridge Capital highlighted stocks like Vistra Corp. (NYSE:VST), in the second quarter 2024 investor letter. Vistra Corp. (NYSE:VST) is an integrated retail electricity and power generation company. The one-month return of Vistra Corp. (NYSE:VST) was -18.14%, and its shares gained 153.90% of their value over the last 52 weeks. On July 25, 2024, Vistra Corp. (NYSE:VST) stock closed at $70.38 per share with a market capitalization of $24.454 billion.
Legacy Ridge Capital stated the following regarding Vistra Corp. (NYSE:VST) in its Q2 2024 investor letter:
“One of the sectors we know well which had been out of favor for several years has quickly come into favor: Independent Power Producers (IPPs). We’ve written consistently about NRG and Vistra Corp. (NYSE:VST) since the 2019 letter, have owned each, or both, since 2018, and invested a meaningful amount of our assets in VST specifically the past few years. Nate and I intend on spending more time in the year-end letter on our updated views on the IPPs and our learnings from the on-going investment, but we were a bit surprised how quickly the narrative around these companies changed. Our Blue Sky 2030 estimates of intrinsic value converged with the share price 6-years before we thought probable. In the 2019 letter, with respect to VST, we wrote:
“Over the next decade management should have close to $15 Billion to deploy to share repurchases. If you assume they have to pay an average price for the stock that’s higher than the current one, and they can only repurchase 60% of shares outstanding instead of the 100% the math implies, FCF per share in 2030 would be $14. That’s a $70 stock at today’s valuation, but a $140 stock at a more reasonable FCF yield of 10%.” And… “The IPPs are un-investable for most money managers, so there we are. When they become investable we’ll probably be long gone.”
We’re not exactly long gone, but sentiment has certainly surpassed investable. After 5+ years of VST trading between $17 – $26 a share—and $26 exactly a year ago—it hit a high of $107 in May on the heels of the Artificial Intelligence (AI) narrative and the implications for electricity demand. While we agree with the prevailing consensus view that more Data Centers will be built, Data Centers require base load energy, and that the US will probably be short base load energy, predicting the rate of any technological advancement is not our area of expertise, and we feel the margin of safety has dissipated. Therefore, what had been our largest position entering 2023 and 2024, and has been our greatest contributor to performance, is now one of the smaller positions in the fund.”
Solar panel workers installing a new farm for clean energy generation.
Vistra Corp. (NYSE:VST) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 79 hedge fund portfolios held Vistra Corp. (NYSE:VST) at the end of the first quarter which was 56 in the previous quarter. While we acknowledge the potential of Vistra Corp. (NYSE:VST) 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 a previous article, we discussed Vistra Corp. (NYSE: VST) and shared Jim Cramer’s most recent portfolio, which includes his top stock picks. In addition, please check out our hedge fund investor letters Q2 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.
