In this article, we discuss the 5 stocks that Michael Burry is buying as recession fears mount. If you want to read about some more stocks that Michael Burry is buying, go directly to Michael Burry is Buying These 10 Stocks As Recession Fears Mount.
5. Ovintiv Inc. (NYSE:OVV)
Number of Hedge Fund Holders: 44
Ovintiv Inc. (NYSE:OVV) markets oil and natural gas. Latest data shows Scion Asset Management owned 300,000 shares of the company at the end of the first quarter of 2022 worth $16.2 million, representing 8.05% of the portfolio. Burry had last bought shares in the firm in the second quarter of 2022. That position, comprising around 600,000 shares, was purchased at an average price of $26.87 per share. The present holding was acquired at an average price of $42.95 per share. The stake bought in 2021 was sold off entirely in the third quarter of 2021.
On June 14, Barclays analyst Jeanine Wai maintained an Overweight rating on Ovintiv Inc. (NYSE:OVV) stock and raised the price target to $72 from $56, noting that overall mood on the oil and gas sector was constructive.
At the end of the first quarter of 2022, 44 hedge funds in the database of Insider Monkey held stakes worth $2 billion in Ovintiv Inc. (NYSE:OVV), the same as in the previous quarter worth $1 billion.
In its Q4 2021 investor letter, Miller Value Partners, an asset management firm, highlighted a few stocks and Ovintiv Inc. (NYSE:OVV) was one of them. Here is what the fund said:
“The outlook for high multiple favorites depends to a great degree on interest rates. Warren Buffett likened interest rates to the force of gravity for asset prices. At current low levels, high valuations on long-duration assets can be justified. If interest rates move up, the adjustment will be painful. Market action early in the new year, with the swift moves up in interest rates and down in the Nasdaq, offers a taste of the medicine.
We underwrite all our names to have sufficient upside even if risk-free rates move up to 3% (a scenario, not a forecast!). As we evaluate the opportunity set, we find more attractive prospects in the classic value names. We often hear that people think value investing is dead, which only strengthens our conviction. Our gross exposure to classic value has risen from 44% a year ago to 62% currently.
One new name that illustrates the potential we see is Ovintiv Inc. (NYSE:OVV), an oil and gas producer. We’ve seen a huge shift in the industry away from growth towards returns on capital, cash generation, and capacity discipline. Ovintiv Inc. (NYSE:OVV) exemplifies the change.
OVV’s new CEO Brendan McCracken says: “We are at the forefront of driving innovation to produce oil and gas from shale both profitably and sustainably. We will generate superior returns and free cash flow by continuously improving capital efficiency and expanding margins while driving down emissions. We will deliver that value to our shareholders through disciplined capital allocation.”
Based on crude at $65 (well below the current $83.82 as of 1/14/22), Ovintiv Inc. (NYSE:OVV) guides to free cash flow generation of $11B over the next 5 years and $21B in the next 10 years. The company’s market cap is currently $10B and its enterprise value is $16B. It’s returning a significant portion of the capital to shareholders. If crude averages $70 in 2022, the company will return $700M to shareholders (in addition to paying down a significant amount of debt), which implies a yield of 7% at the current $39.53 price. In other words, there’s a good shot the company will return nearly its entire market cap to shareholders over the next 5 years.”
