Third Avenue Management, an investment management company based in New York City, released its “Third Avenue Small-Cap Value Fund” third quarter 2024 investor letter. A copy of the letter can be downloaded here. During the quarter, the fund returned +8.35% compared to +10.15% for the Fund’s most relevant benchmark, the Russell 2000 Value Index. Year-to-date the fund returned +8.30% compared to +9.22% return for the Index. The fund’s cash holdings declined to 12.9% during the quarter from 14.6% at the end of the preceding quarter. For more information on the fund’s top picks in 2024, please check its top five holdings.
Third Avenue Small-Cap Value Fund highlighted stocks like PBF Energy Inc. (NYSE:PBF) in the third quarter 2024 investor letter. PBF Energy Inc. (NYSE:PBF) is a company engaged in refining and supplying petroleum products. The one-month return of PBF Energy Inc. (NYSE:PBF) was 6.54%, and its shares lost 29.05% of their value over the last 52 weeks. On October 18, 2024, PBF Energy Inc. (NYSE:PBF) stock closed at $33.70 per share with a market capitalization of $3.948 billion.
Third Avenue Small-Cap Value Fund stated the following regarding PBF Energy Inc. (NYSE:PBF) in its Q3 2024 investor letter:
“Alongside those changes, the Fund also established new positions in two companies, SandRidge Energy (“SandRidge”) and PBF Energy Inc. (NYSE:PBF). Curiously, while both companies have “energy” in their names and both operate in the oil and gas industry, they have very little in common in terms of fundamental business drivers. PBF operates a portfolio of geographically diverse refineries, which is a business not directly linked to commodity prices per se, but rather to spreads and differentials among commodity prices and refined product prices. In other words, refinery spreads and, in turn, margins, profitability, and cash flows are driven by a wide variety of factors that are not directly linked to oil and gas prices. What does link the two companies together, at least in our minds, is ostensible cheapness as measured by cash flows and replacement value of the assets, as well as the exceptional condition of both companies’ balance sheets.
PBF Energy is a U.S.-listed independent refiner that owns and operates a geographically diversified, high-complexity refining system, with a 1 million barrels per day of capacity. The company closed on a large, unfortunately timed, debt-financed acquisition in February 2020. The COVID pandemic followed immediately thereafter. In response, PBF was forced to cut its dividend and subsequently took actions to reduce its debt position by $3.5bn. Yet, in response to challenging operating conditions at the onset of Covid, capacity closures across the industry led to a 1 million barrel per day reduction of U.S. refining capacity. Reduced capacity contributed to a sharp, industrywide improvement in refining margins as conditions quickly recovered. In addition, the company took in its externally managed, midstream logistics vehicle in 2022 and sold a 50% JV interest in a recently converted renewable diesel facility to Eni in 2023, raising $846mn of proceeds. With a much stronger financial position, the company eventually reinstated its dividend and has spent approximately $1 billion repurchasing 16% of shares outstanding since year-end 2022.
After a significant drawdown in the share price due to a softening near-term outlook, the Fund initiated a position in PBF at a deep discount to our conservative estimate of net asset value, a low multiple to midcycle earnings, and less than one times peak free cash flow. Should operating conditions soften further, PBF’s net cash balance sheet and depressed implied valuation could provide the potential for an asymmetric return profile going forward as the near-term outlook eventually improves, the company returns capital to shareholders, or other corporate developments surface value.”
Aerial view of an oil refinery, with smoke billowing from its chimneys.
PBF Energy Inc. (NYSE:PBF) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 32 hedge fund portfolios held PBF Energy Inc. (NYSE:PBF) at the end of the second quarter which was 31 in the previous quarter. While we acknowledge the potential of PBF Energy Inc. (NYSE:PBF) 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 PBF Energy Inc. (NYSE:PBF) and shared the list of best oil refinery stocks to invest in. 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.