Praetorian Capital, an investment management company, released its fourth-quarter 2024 investor letter. A copy of the letter can be downloaded here. For the full year, the fund lost 10.55% net of fees. The fund was down by 14.76% net of fees in the fourth quarter. It compounded capital at a 41.76% annual net rate, since inception. The core portfolio positions mostly declined in the quarter, while the event-driven book produced a slightly positive return. The core portfolio positions overall decreased over the course of the year, but the losses in the core book were offset by the event-driven book. For more information on the fund’s top picks in 2024, please check its top five holdings.
Praetorian Capital highlighted stocks like Tidewater Inc. (NYSE:TDW) in the fourth quarter 2024 investor letter. Tidewater Inc. (NYSE:TDW) provides offshore support vessels and marine support services to the offshore energy industry. The one-month return of Tidewater Inc. (NYSE:TDW) was 4.83%, and its shares lost 15.75% of their value over the last 52 weeks. On January 13, 2025, Tidewater Inc. (NYSE:TDW) stock closed at $55.08 per share with a market capitalization of $2.88 billion.
Praetorian Capital stated the following regarding Tidewater Inc. (NYSE:TDW) in its Q4 2024 investor letter:
“In 2010, at the dawning of the age of shale, offshore oil production accounted for approximately 31% of global oil supply. As shale has encroached on offshore, that number has declined to only 27% of total oil production in 2024. As you can imagine, this has led to a bear market in offshore services equipment that has lasted for more than a decade and bankrupted almost all players in the sector. This offshore equipment (Drillships, Semi-Subs, Jackups, PSVs, AHTS, and other associated pieces of highly engineered steel) is what we own through positions in Valaris (VAL – USA), Tidewater Inc. (NYSE:TDW) and Noble (NE – USA), as I believe that the decade-long bear market has now ended, and that the call on this equipment will lead to excess profits for these companies for many years into the future.
Why did shale encroach so effectively against offshore and steal so much market share?? I’d like to point you to three factors. To start with, the Deepwater Horizon accident gave the industry a black eye, at a time when a burgeoning ESG movement was taking hold—this led oil executives to shun offshore oil production, even if the returns were superior to shale. Secondly, shale executives overpromised in terms of the economics of shale. We can debate if this overpromise was malicious or just oil industry optimism, but that discussion can be saved for a different time. However, the net effect of this overpromise led E&P executives to believe that shale would have better returns on capital than offshore, particularly as the production could be ramped up and down to take advantage of fluctuations in the oil price—this diverted capital from offshore assets, starving them of capital spending. Finally, there was an odd belief, even amongst many energy executives, that the energy transition would lead to peak oil consumption during the 2020s, implying that long-cycle energy projects, like offshore, were unnecessary…” (Click here to read the full text)
A fleet of offshore supply vessels and tugs carrying materials to an oilrig in the distance.
Tidewater Inc. (NYSE:TDW) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 35 hedge fund portfolios held Tidewater Inc. (NYSE:TDW) at the end of the third quarter which was 35 in the previous quarter. While we acknowledge the potential of Tidewater Inc. (NYSE:TDW) 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 Tidewater Inc. (NYSE:TDW) and shared Praetorian Capital’s views on the company in the previous quarter. In addition, please check out our hedge fund investor letters Q4 2024 page for more investor letters from hedge funds and other leading investors.
READ NEXT: Michael Burry Is Selling These Stocks and A New Dawn Is Coming to US Stocks.
Disclosure: None. This article is originally published at Insider Monkey.