Newpark (NR, Financial) was among the bottom ten holdings in performance through the end of May 2020. The company primarily makes drilling fluids for oil and gas production. As an oilfield services provider, Newpark fell directly into the crosshairs of the dramatic decline in oil prices. While just north of $2.00 per share into early June, Newpark reached a nadir of $0.65 in early April when oil prices were in freefall—and this was actually a few weeks before oil prices troughed in negative territory.
Newpark (Nasdaq: NR)
Newpark fits into our undervalued asset category, and our commitment to the position is grounded in what we see as strong underlying asset support. Indeed, as of the company’s fiscal first-quarter 10-Q filing, Newpark had current assets greater than all liabilities, with the excess surpassing the market cap several times during the quarter. Also important is that this calculation accords no value to the firm’s property, plants, and equipment. Loosely defined, Newpark is a Ben Graham “net-net”— theoretically worth more liquidated than alive! With such strong asset support, we remain comfortable owning Newpark’s shares, even amid negative energy headlines.
Beyond being a relatively safe asset play in the otherwise perilous oil patch, Newpark has an interesting portfolio of products and services that can drive earnings in more normalized markets. On the oilfield side, the company is a leading provider of drilling fluids with a global presence and therefore not simply a Permian shale play. Further, Newpark has recently expanded into completion fluids, which promises to increase wallet share from its customers. Given these factors, we think the near-term risk is manageable while any sustained rebound in oil and gas production could lead to a much higher stock price.
From Royce Investment Partners' Royce Opportunity Fund commentary "4 Deep Value Picks for a Recovering Market"
