Nathaniel August’s Mangrove Partners is known for outperforming the market very often; in the first three years since its launching (2010), the fund brought an astonishing return of 44% annually. It continued with its strong performance in the next year, delivering 26.6%. In spite of losing around 1.9% in 2015, the fund compensated for it in 2016, when it delivered an eye-popping return of 50.6%, making it an average annual return between 2014 and 2016 of 23%. In 2017 it generated a return of 8.71% and last year through October it lost 0.20%. According to its plain brochure, on January 1st, 2017, the fund held around $780.30 million in assets under management. In today’s article, we are going to take a look at the fund’s best idea which was presented by Nathaniel August at 2018 Sohn Conference, which may have contributed to the fund’s poor last year’s performance.
Namely, at the 2018 Sohn Conference, held in April, Nathaniel August presented Peabody Energy Corporation (NYSE:BTU) as one of his best ideas for investing. Peabody is one of the biggest private-sector coal companies in the world and a member of the Fortune 500, which offers services in the areas of mining, sale and distribution of coal. Nathaniel August shared his opinion on the company, saying that Peabody is “the largest and the least expensive way to participate in the coal market”. When asked about the difficulties coal market has been facing for years in the US, in an interview published on CNBC, Nathaniel August responded that the most of Peabody’s EBITDA, or, in numbers – $800 million, is actually coming internationally, more specifically from its Australian operations, while another $600 million is coming out of its US operations. The interesting thing Nataniel August pointed out was that the US operations don’t export at all, instead, they supply US utility buyers, being at the bottom end of the cost curve, representing most competitive mines in the US. In his opinion, the most attractive part of Peabody’s stock is the fact that its complete market cap is covered only by the value of its Australian operations.
Nathaniel August wasn’t worried about China being the largest importer of the coal and facing environmental-related challenges because he believed that the country is actually trying to reduce its coal production and increase imports because coal mining is one of the causes of China’s environmental issues. Also, he pointed out that the steelmaking industry in China is on the rise, and that is expected to further grow in the upcoming years, hence they are going to need more coal.
Before we move on to what happened with Peabody’s stock since then, you can find more details about Nathaniel August’s best idea from Sohn Conference 2018 in the video below.
Insider Monkey was at the Sohn Conference, and we didn’t’ find this stock pitch very attractive, instead, our attention was drawn to Ascendis Pharma A/S (NASDAQ:ASND), a clinical stage biopharmaceutical company. After the conference, we recommended this stock to our premium subscribers and then once again in October (when the stock price was still low) in a free sample issue of our monthly newsletter. What happened since then? Well, Peabody Energy Corporation (BTU) lost 22.55% since the conference, having a closing price of $27.99 on April 5th, whereas our recommendation, Ascendis Pharma A/S (ASND) gained 81.21%, trading on April 5th at $118.52.
Our mission is to identify promising (and also terrible) hedge fund stock pitches and share them with our subscribers, which we managed to perform once again. We launched a long activist investing strategy in our monthly newsletter 2 years ago. This strategy’s stock picks returned 61% in 2 short years, vs. a gain of 21% for the S&P 500 Index ETF (SPY).
We have also been very successful at identifying stocks that will decline even in a bull market. We launched our short strategy a little more than 2 years ago and share our short stock picks in our quarterly newsletter. This strategy’s picks lost 27.5% since then, vs. a gain of 25% for the S&P 500 Index. This means our short strategy actually outperformed the market by 52.5 percentage points (let us know if you don’t understand how the outperformance for a short strategy is calculated).
Three weeks ago our monthly newsletter identified another undervalued stock that is expected to increase its earnings by more than 10% annually and trades at only 10 times its 2019 earnings. We expect this stock to return 60% in the next 12-24 months (it already returned 9% in 3 weeks). Email us if you are interested in this stock or subscribe here. We take a closer look at hedge funds like Mangrove Partners in order to identify their best and worst ideas.
This article was originally published at Insider Monkey.