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PageArticleJanuary 25, 202351 min read
BSD OLD
By
The BuySide Digest
aka The BSD
What is the BSD?
Whatever you call them, you know their names, and more importantly, you know that when they open their mouths, the market listens. Whether they are quoted in print, make a television or podcast appearance, put out a new white paper, or file an SEC doc, we’ll be sure to track, analyze, and synthesize the most important takeaways.
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[gravityform id="1" title="false" description="false"]Media appearances of BSDs
Media appearances of prominent investors and their main themes.
Hedge Fund Letter Summaries
Quick summaries of the hardest hitting letters of the quarter scrubbed by our analyst team.
Elevator Pitches
Pitches on the names our favorite funds are buying. Filter out the noise and get the quick elevator pitch on why they are long with links to their writeup.
The BSD Archive
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Q4 2022 INVESTOR LETTER SUMMARIES
(The below is the excerpt from the actual letter. To see the full letter, click this link)
Nordstern Capital
- China is responsible for 15% of the world’s exports, 30% of global manufacturing, and more than 50% of the global demand for many commodities. This behemoth was closed for most part of the last three years. Whatever you may think about Xi Jinping, it is clear by now that zero-covid is over and China is opening (for business) again.
- We expect China’s demand for commodities to accelerate from the depressed levels of last year, while the supply of many commodities remains tight.
- Just like in the mining sector, the structural issue in fossil energy is decadelong systemic underinvestment in future production capacity. Ongoing investor neglect offers plenty of opportunities
Massif Capital
- We continue to search for opportunities in oil. It is hard not to have a positive long-term outlook for oil, but that positive long-term outlook must be tempered by the messy near-term economic backdrop and oil price sensitivity to even slight changes in demand.
- We would also note that a positive outlook for oil need not be one in which oil goes to $140 a barrel; a positive outlook includes a scenario in which oil is range bound between $60 and $80 a barrel. In fact, that might be the goldilocks scenario for oil companies, as it is a high oil price but not high enough to limit economic growth.
- We continue to believe that Europe, and specifically certain types of energy-focused European industrials, offer great long-term potential.
First Eagle Investments
- While equities were weak across the board in 2022, lower-valuation stocks turned the tables on growth names; the MSCI World Value Index outperformed its growth analog by more than 2,250 basis points last year.
- The soft landing/hard landing debate really boils down to wage inflation versus unemployment. Can the Fed bring down the former without causing a spike in the latter? History suggests this is unlikely. At the same time, precedent may not be a reliable guide considering the highly unusual circumstances that led us down this path.
- The Fed isn’t the only central bank squeezing out liquidity, of course, and the US isn’t the only country facing slowing growth and potential recession.
ELEVATOR PITCHES BY FUNDS
Ionic Rare Earths (by Massif Capital)
- We initiated our position in IXR in May of 2022. IXR could have an exciting year ahead as it unveils its scoping study for a rare earth refinery in Europe or the U.S.
- This is a big deal geopolitically because when IXR successfully builds its heavy rare earth refinery, it will be the only heavy rare earth-focused refinery outside of China and Vietnam. When IXR turns its mine on, it will also be the sole operator of a primary heavy rare earth mine outside China.
Viper Energy (by Bernzott Capital Advisors)
- This mineral rights company, possessing a premiere sponsorship with Diamondback Energy, was the top contributor for the year. Buoyed by Diamondback’s advantaged assets in the Permian Basin coupled with elevated oil prices, Viper reported strong earnings and FCF generation. This resulted in attractive capital return actions for shareholders through a combination of cash distributions and share repurchases.
- We expect similar capital return actions to continue as Diamondback remains focused on growing production on Viper’s acreage. We believe the stock remains undervalued relative to its FCF generation and capital return growth potential.
Avid Bioservices (by Laughing Water Capital)
- Avid’s long tenured regulatory track record is a distinct competitive advantage vs. upstarts that may also seek to add capacity, and it is likely that Avid is adding new capacity at the request of customers.
- CDMO is able to fill their new capacity, they should be able to generate somewhere around $120M in steady state FCF, assuming conversion of convertible debt and utilization of substantial NOLs. This implies CDMO currently trades at ~7x intermediate term FCF. It would not surprise me to see fast growing, recession resistant cash flows valued at 20x, suggesting ~200% upside is possible. This may prove conservative as the Company will retain significant strategic optionality at that time.
MEDIA APPEARANCES BY PROMINENT INVESTORS
Michael Burry
Powell should have just said 'I don't know,'. And say it again and again as he sits on his hands for the next 6 months. Then we might get some real price discovery.
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