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Ariel Investments: ‘Core Lab (CLB) Generated a Significant Amount of Free Cash Flow’

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Jose Karlo Mari Tottoc
·4 min read
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Ariel Investments, an investment management firm, published its fourth-quarter 2020 ‘Ariel Fund’, ‘Ariel Appreciation Fund’, ‘Ariel Focus Fund’, ‘Ariel International Fund’, and ‘Ariel Global Fund’ Investor Letter – a copy of which can be downloaded here. In the fourth quarter of 2020, a return of 31.56% was recorded by Ariel fund, 23.57% by Ariel Appreciation Fund, 21.62% by Ariel Focus Fund, 8.26% by Ariel International Fund, and 9.80% return by Ariel Global Fund. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

Ariel Investments, in their Q4 2020 investor letter, emphasized their Core Laboratories N.V. (NYSE: CLB) position. Core Laboratories N.V. is a Netherland-based petroleum industry company that offers reservoir description and production enhancement assistance. It currently has a $1.7 billion market capitalization. Since the beginning of the year, CLB is up 43.04%, impressively extending its 12-month gains to 190.35%. As of March 8, 2021, the stock closed at $37.92 per share.

Here is what Ariel Investments has to say about Core Laboratories N.V. in their Q4 2020 investor letter:

"Core Laboratories is a stock that moved so fast, we were not quite able to build out the full position we wanted. Still, we are satisfied. As the old adage goes, “pigs get fat and hogs get slaughtered.” The company provides geological analysis and drilling techniques to major oil and gas companies. These customers outsource those efforts because they have no desire to carry geologists on their payrolls or allocate the capex for labs. Speaking of labs, the company has more than 70 offices in more than 50 countries—every major oil-producing province in the world. As energy prices crashed with decreasing demand due to the global pandemic shutdown, Saudi Arabia and Russia compounded the turmoil by increasing output. In the midst of this chaos, the company ousted its longtime CEO and installed a new leader.

We have closely and patiently followed Core Labs for more than 15 years, so as its share price cratered, we took our time in assessing this opportunity based on our past “misses” in the Energy sector. Well aware that we had not showered ourselves in glory with some of our prior picks, we wanted to be sure that we would not be burned if we touched the stove again. As we performed our research, it was clear Core Labs was compelling. The stock had plummeted from a high of over $200 a share in 2014 to $10.45 at the time of our April 8th research report. Despite the prevailing bear story including some mild concerns around the company’s ability to finance its balance sheet, the business was not capital intensive and it generated a significant amount of free cash flow. After speaking to the new CEO—who told us we were one of few callers—we were convinced the bad news was more than priced in and the upside looked great. The stock price closed out the year at $26.51."

Countries with largest oil reserves
Countries with largest oil reserves

Pixabay/Public Domain

Our calculations show that Core Laboratories N.V. (NYSE: CLB) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, Core Laboratories N.V. was in 12 hedge fund portfolios compared to 16 funds in the third quarter. CLB delivered a 37.54% return in the past 3 months.

The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best innovative stocks to buy to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website:

Disclosure: None. This article is originally published at Insider Monkey.