Oaktree Capital Management recently disclosed its 13F portfolio updates for the first quarter of 2023, which ended on March 31.
Founded by Howard Marks (Trades, Portfolio) and several fellow investors in 1995, Oaktree Capital Management is a global investing firm that specializes in alternative and credit strategies. The Los Angeles-based firm now has over 39 portfolio managers and 950 employees in offices around the globe. Marks is the co-chairman and chief financial officer. The core investment philosophy of the firm has six tenets: risk control, consistency, market inefficiency, specialization, bottom-up analysis and disavowal of market timing.
In the first quarter, the firm’s top buys, as per its 13F filing, included an addition to Alvotech (ALVO, Financial) and a new stake in Daqo New Energy Corp. (DQ, Financial). Meanwhile, its top sells were reductions to Weatherford International PLC (WFRD, Financial) and Vistra Corp. (VST, Financial).
Investors should be aware that 13F reports do not provide a complete picture of a guru’s holdings. They include only a snapshot of long equity positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They do not include short positions, non-ADR international holdings or other types of securities. However, even this limited filing can provide valuable information.
Alvotech
Oaktree increased its stake in Alvotech (ALVO, Financial) by 101.35% for a total of 12,762,633 shares, adding 1.03% to the equity portfolio at the quarter’s average share price of $12.79.
Based in Iceland, Alvotech is a biosimilars company, which means it develops biologic medicines to fulfil a similar role as treatments that already exist in the market. Like generics, biosimilars decrease the cost and increase access to life-saving medications, but biosimilars are derived from living organisms and require significantly more research and development to create compared to small-molecule generics.
Alvotech is not currently profitable and has a high price-sales ratio of 18. The company’s Humira biosimilar, developed with Teva Pharmaceutical (TEVA, Financial), has yet to clear Food and Drug Administration hurdles. Shares are down 18% since the company went public in June 2020.
Daqo New Energy
The firm took a new position in Daqo New Energy (DQ, Financial) worth 1,056,121 shares, giving it a weight of 0.61% in the equity portfolio. During the quarter, shares averaged $45.95 apiece.
Daqo New Energy is a Chinese photovoltaics company that manufactures monocrystalline silicon and polysilicon primarily for use in solar panels. Despite stunning growth and enviable margins, the stock trades at a price-earnings ratio of just 1.93 as of this writing amid fears that it may be delisted from U.S. exchanges in 2024 as part of the Holding Foreign Companies Accountable Act.
The company's revenue and earnings have truly exploded in recent years as global spending on solar energy has ramped up. The company has an operating margin of 67.05% and a net margin of 38.70%. As mentioned above, the U.S. delisting risks are keeping the stock depressed, but even if a delisting were to occur, it is not likely that shareholders would take a total loss. Downside potential is mostly limited to investors’ negative perceptions.
Weatherford International
Marks’ firm slashed its stake in Weatherford International (WFRD, Financial) by 48.12%, leaving a remaining holding of 1,843,818 shares and slimming the equity portfolio by 1.03%. Shares traded for an average price of $58.57 during the quarter.
Weatherford International is an Irish-American oilfield services company, one of the largest of its kind. The wellbore and production solutions specialist helps customers worldwide with constructing, finishing and maintaining oil wells.
The company's revenue has skyrocketed, growing at a rate of 131.2% per year over the past three years even as earnings have moved in the opposite direction. This has catapulted Weatherford’s stock in to significantly overvalued territory according to the GF Value chart.
Vistra
The firm slimmed its Vistra (VST, Financial) investment by 8.55%, ending the quarter with 23,228,843 shares. The trade took 0.60% off the equity portfolio at the quarter’s average share price of $23.18.
Vistra is a retail electricity and power generation company based in Irving, Texas. It primarily generates electricity through natural gas, nuclear, coal and solar facilities, though its long-term growth plans center mostly around renewables. Its recent acquisition of Energy Harbor significantly boosted Vistra’s renewable energy exposure, making it the second-largest competitive nuclear power company in the U.S.
While Vistra’s competitive position remains strong, its investments in growth are weighing on the company’s financial strength, margins and profitability. The return on invested capital has fallen below the weighted average cost of capital, indicating value destruction.
See also
Oaktree’s other notable trades in the quarter included reductions to PG&E Corp. (PCG, Financial) and Itau Unibanco Holding SA (ITUB, Financial) and the sale of its PulteGroup Inc. (PHM, Financial) and Valaris Ltd (VAL, Financial) holdings.
As of the quarter’s end, Oaktree held 174 positions valued at a total of $8.06 billion. The turnover for the quarter was 3%.
The top holding was TORM PLC (TRMD, Financial) with 20.52% of the equity portfolio, followed by Chesapeake Energy Corp. (CHK, Financial) with 8.09% and preferred shares of Garrett Motion Inc. (GTXAP.PFD, Financial) with 7.59%.
By sector weighting, the firm had the biggest portions of its portfolio allocated to energy, financial services and industrials.
