Here’s Why Artisan Partners Invested in TotalEnergies SE (TTE)

Artisan Partners, an investment management company, released its “Artisan Global Value Fund” third quarter 2022 investor letter. A copy of the same can be downloaded here. In the third quarter, its Investor Class fund ARTGX returned -10.16%, Advisor Class fund APDGX posted a return of -10.17%, and Institutional Class fund APHGX returned -10.14%, compared to a return of -6.82% for the MSCI All Country World Index. In addition, please check the fund’s top five holdings to know its best picks in 2022.

Artisan Partners highlighted stocks like TotalEnergies SE (NYSE:TTE) in its Q3 2022 investor letter. Headquartered in Courbevoie, France, TotalEnergies SE (NYSE:TTE) is an oil and gas company. On October 14, 2022, TotalEnergies SE (NYSE:TTE) stock closed at $51.00 per share. One-month return of TotalEnergies SE (NYSE:TTE) was 4.210% and its shares lost 1.70% of their value over the last 52 weeks. TotalEnergies SE (NYSE:TTE) has a market capitalization of $127.666 billion.

Here is what Artisan Partners specifically said about TotalEnergies SE (NYSE:TTE) in its Q3 2022 investor letter:

“We added one new position this quarter, TotalEnergies SE (NYSE:TTE). TTE is one of the world’s largest energy companies. It develops and produces oil and gas, produces and sells refined products, is one of the largest producers and traders of LNG, and owns a large portfolio of renewable power generating assets. TTE has one of the lowest cost portfolios of oil and gas assets and therefore one of the lowest breakeven points in the industry. It also has one of the best balance sheets in the industry. We estimate it will reach a net cash position sometime in 2023.

The valuation of TTE—and that of Shell—is fascinating. TTE sells at approximately 4X earnings and has a 5% dividend yield. With its current buyback program and a recently announced special dividend, the owners yield is more than 10%. The valuation and owners yield are not dissimilar to those of Shell, which we also own and which trades at just under 5X earnings. To say that a discount is attached to European oil companies relative to US peers is an understatement. Exxon Mobil sells at 8X earnings, Chevron 9X and Conoco 8X. If TTE and Shell redomiciled to the US, their share prices would probably double.

We have a few theories for the valuation anomaly. First, as mentioned above, Europe generally trades at a big discount to the US. In the case of TTE and Shell, this makes no economic sense. The oil and gas business is a global one, and TTE and Shell have attractive assets. The main explanation, we believe, is that large sections of the European asset management industry will not invest in oil and gas because of ESG restrictions. Yet if the recent war in Ukraine and the current energy crisis have shown us nothing else, the supply of energy is an enormous social good. Indeed, it is an existential good. Moreover, it is companies such as TTE that will invest billions to supply the LNG that Europe desperately needs to restore its economy and reduce the crushing cost burden on families who must now choose between heating their homes and eating. Finally, TTE is also investing billions per year in renewable power generating assets such as wind and solar. Such assets will likely never replace clean burning natural gas and nuclear as base power suppliers, but they are a valuable and clean adjunct to modern grids. We believe TTE’s renewable portfolio is worth between $25 billion and $35 billion and is moving from almost no profit contribution toward meaningful levels of profit over the next few years. We wonder how it makes sense for investors to disinvest from these kinds of assets on ethical grounds.”

TotalEnergies SE (NYSE:TTE) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 20 hedge fund portfolios held TotalEnergies SE (NYSE:TTE) at the end of the second quarter which was 20 in the previous quarter.

We discussed TotalEnergies SE (NYSE:TTE) in another article and shared Aristotle Capital’s views on the company. In addition, please check out our hedge fund investor letters Q3 2022 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.