Is Equinor ASA (EQNR) A Smart Long-Term Buy?

Massif Capital, an investment management firm, published its second quarter 2021 investor letter – a copy of which can be downloaded here.  A quarterly portfolio net return of 3.1% gains was recorded by the fund for the second half of 2021. Year-to-date, the portfolio has returned 6.7%.  You can view the fund’s top 5 holdings to have an idea about their top bets for 2021.

In the Q2 2021 investor letter of Massif Capital, the fund mentioned Equinor ASA (NYSE: EQNR), and discussed its stance on the firm. Equinor ASA is a Stavanger, Norway-based petroleum refining company, that currently has a $61.6 billion market capitalization. EQNR delivered a 15.04% return since the beginning of the year, extending its 12-month revenues to 22.34%. The stock closed at $18.89 per share on July 19, 2021.

Here is what Massif Capital has to say about Equinor ASA in its Q2 2021 investor letter:

“We currently have two oil-related positions in our portfolio and believe the oil opportunity set is ripe. As one might expect, both positions, (including Equinor: EQNR) performed well during the second quarter, given the steady march higher that oil has made in recent months. We maintain a positive outlook for both companies, although, importantly, our posture is not predicated on an expectation for continued oil price appreciation. This is not because of our inability to imagine scenarios where that does occur, but more out of an abundance of caution for what is a highly volatile commodity that at current price levels should be more than sufficient to generate ample free cash flow for any investable oil firm.

In the future, we expect both firms in the portfolio to generate significant free cash flow and expect EQNR to reinvest that free cash flow into a combination of offshore oil and wind opportunities with high rates of return. The path forward for AOI is more complicated and does warrant a few comments.”

Based on our calculations, Equinor ASA (NYSE: EQNR) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. Equinor ASA was in 8 hedge fund portfolios at the end of the first quarter of 2021, compared to 18 funds in the fourth quarter of 2020. EQNR delivered a  -2.38% return in the past 3 months.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

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Disclosure: None. This article is originally published at Insider Monkey.