Third Avenue Management is bullish on Tidewater Inc. (NYSE:TDW), a $560-million market cap provider of offshore service vessels and marine support services, based in New Orleans, Louisiana. In its Q4 Small Cap Investor Letter, the fund shared its thesis on Tidewater, Aspen Insurance Holdings, Five Point Holdings, and Carter Bank and Trust. In this article, we’re going to take a look at Third Avenue’s stock commentary about Tidewater, which is struggling due to a weak demand from offshore drillers.
Here is what Third Avenue said:
Tidewater is a special situation. It was recommended to us by the Value Team who outlined their thesis in the 9/30/17 letter. It is an oil and gas service company focused on offshore service vehicles (OSVs).Given the carnage in the energy sector over the past 3 years, it’s a fertile hunting ground for enterprising, deep-value investors.
Unfortunately, most energy companies are poorly capitalized which reduces their appeal to us. Tidewater went through a pre-packaged bankruptcy in early 2017 and emerged with a net cash balance sheet. The Company suffers from the stigma of being a post-bankruptcy company, but this stigma created an opportunity.
Post-bankruptcy, not only is Tidewater a net cash company, but it is trading at a discount to our estimate of liquidation value and stated book value. Book value is a reliable metric due to fresh start accounting. During the bankruptcy process, book value is restated to reflect current market values. Current market prices are depressed in our estimation given the poor industry dynamics with day rates and utilization at historic lows If the industry remains depressed, many assets will need to be scrapped as owners can no longer afford to maintain them, setting up a robust rebound as oil and gas markets recover. We cannot predict the timing of a cycle up turn, but we are comfortable investing in a net cash company with strong assets. Management visited our offices in November and stressed their determination to manage costs aggressively to protect their pristine balance sheet.
Tidewater Inc. (NYSE:TDW) owns and operates a fleet of vessels to support the offshore energy exploration and production activities in more than 60 countries. It operates in Americas, Asia/Pacific, Middle East/North Africa and Sub-Saharan Africa/Europe.
For the period from August 1 through September 30, Tidewater reported a loss of $15.7 million, or $0.81 per share, versus a loss of $178.5 million, or $3.79 per share, for the same period of 2016. Revenues were $74.3 million, versus $143.7 million in 2016.
Meanwhile, Tidewater isn’t very popular among the hedge funds covered by Insider Monkey. As of the end of September, only six funds in our database were holding TDW in their portfolios.
In this piece, we will take a look at ten recent IPOs in micro cap stocks.
There are a variety of benefits and drawbacks to listing a firm’s equity for trading on the stock market. The single biggest benefit of the process called an IPO, is that it allows management to raise large amounts of funds and investors to potentially profit by seeing their existing stakes multiply in value. At the same time, the IPO process also brings in a variety of constraints. Publicly listed companies are subject to corporate financial reporting requirements of the jurisdictions in which their shares trade. At the same time, share prices can be a volatile affair, and while investors stand to gain significantly if their companies are well received by the market, they also risk equally massive losses should the opposite occur.
Warren Buffett never mentions this but he is one of the first hedge fund managers who unlocked the secrets of successful stock market investing. He launched his hedge fund in 1956 with $105,100 in seed capital. Back then they weren’t called hedge funds, they were called “partnerships”. Warren Buffett took 25% of all returns in excess of 6 percent.
For example S&P 500 Index returned 43.4% in 1958. If Warren Buffett’s hedge fund didn’t generate any outperformance (i.e. secretly invested like a closet index fund), Warren Buffett would have pocketed a quarter of the 37.4% excess return. That would have been 9.35% in hedge fund “fees”.
Actually Warren Buffett failed to beat the S&P 500 Index in 1958, returned only 40.9% and pocketed 8.7 percentage of it as “fees”. His investors didn’t mind that he underperformed the market in 1958 because he beat the market by a large margin in 1957. That year Buffett’s hedge fund returned 10.4% and Buffett took only 1.1 percentage points of that as “fees”. S&P 500 Index lost 10.8% in 1957, so Buffett’s investors actually thrilled to beat the market by 20.1 percentage points in 1957.
Between 1957 and 1966 Warren Buffett’s hedge fund returned 23.5% annually after deducting Warren Buffett’s 5.5 percentage point annual fees. S&P 500 Index generated an average annual compounded return of only 9.2% during the same 10-year period. An investor who invested $10,000 in Warren Buffett’s hedge fund at the beginning of 1957 saw his capital turn into $103,000 before fees and $64,100 after fees (this means Warren Buffett made more than $36,000 in fees from this investor).
As you can guess, Warren Buffett’s #1 wealth building strategy is to generate high returns in the 20% to 30% range.
We see several investors trying to strike it rich in options market by risking their entire savings. You can get rich by returning 20% per year and compounding that for several years. Warren Buffett has been investing and compounding for at least 65 years.
So, how did Warren Buffett manage to generate high returns and beat the market?
In a free sample issue of our monthly newsletter we analyzed Warren Buffett’s stock picks covering the 1999-2017 period and identified the best performing stocks in Warren Buffett’s portfolio. This is basically a recipe to generate better returns than Warren Buffett is achieving himself.
You can enter your email below to get our FREE report. In the same report you can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12-24 months. We initially share this idea in October 2018 and the stock already returned more than 150%. We still like this investment.
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