Most people might not want to glance too often at their stock portfolio in 2022, but not everyone has had a rough year.
Making good use of the UK market unrest, Crispin Odey's hedge fund has had a great one. In fact, with returns of a hefty 193% year-to-date, it has been a record year for the fund.
How did the hedge fund tycoon do it? To a large extent, by going short against UK bonds and the British pound, a wise moving considering the pound plummeted even further in September after new Prime Minister Liz Truss and Chancellor Kwasi Kwarteng unveiled their controversial plan to push ahead with unfunded tax cuts for the wealthy.
Not everything is a short play for Odey, however. There are certain stocks Odey added to his portfolio during 1H22, for which he obviously has high hopes. With help from the TipRanks database, we can see if there’s widespread agreement with these choices amongst Wall Street’s analyst community. So, let’s dive in.
Peabody Energy Corporation (BTU)
Given its effect on climate change, coal’s days are numbered, right? Tell that to those backing Peabody Energy; in a market beaten to a pulp in 2022, BTU shares are up by a huge 166% on a year-to-date basis.
This pure-play coal miner with large, best-in-class operations in the US and Australia is the world’s non-government owned biggest coal producer and mainly provides coal to steel makers, the industrial sector, and electricity generators. As of the end of last year, it had stakes in 17 coal mining enterprises in Australia and the United States, as well as roughly 450,000 acres of surface property that it owned or leased, plus around 2.5 billion tons of coal reserves.
The coal mining company has benefited immensely from rising crude oil and natural gas prices which have seen growing demand for other energy sources, coal included, despite its environment damaging credentials. At the same time, U.S. coal prices have hit record highs.
The surge in demand is clear from the Q2 revenue haul; the top-line rose by 82.5% year-over-year to $1.32 billion. Additionally, earnings swung from a loss of $28.6 million, or $0.28 per share, in Q2 last year, to a profit of $409.5 million, which translates to $2.54 per share.
Conveying his confidence in the BTU story, Odey’s fund acquired a new position, snapping up 1.73 million shares. The value of this new addition? More than $47.7 million.
That’s the kind of move that will make sense to Jefferies analyst Christopher LaFemina, who notes that coal miners should keep on reaping the rewards of a shift in the macro environment.
“Coal is the outlier in mining as coal prices should remain elevated (and possibly go higher in the case of thermal coal) due to weather, supply-chain challenges, and thermal coal’s reemergence in the global energy mix,” LaFemina explained. “Peabody is poised to take advantage as the company has the most thermal coal leverage among the US coal miners in our coverage by a wide margin… We expect 2H to be significantly better than 1H as Peabody's thermal coal realized prices should be higher and rail related challenges should ease.”
Accordingly, LaFemina rates BTU shares a Buy, while his $36 price target makes room for additional gains of 30%. (To watch LaFemina’s track record, click here)
Looking at the consensus breakdown, one analyst remains on the sidelines, but 2 others join LaFemina in the bull-camp, providing this stock with a Strong Buy consensus rating. (See BTU stock forecast on TipRanks)
Ollie's Bargain Outlet Holding (OLLI)
If Odey is making a big bet on coal, the next new addition to his portfolio is of an entirely different variety.
Ollie's is a bargain retailer that offers name-brand products at steep discounts. It boasts a wide variety of product categories, including home furnishings, food, pet and garden products, flooring, toys, apparel, sporting goods, and electronics, amongst others. With no one category dominating over the rest, the retailer appeals to a wide range of consumers.
As a discount retailer, Ollie's business should be able to withstand the economic downturn and that tailwind has helped the stock easily outperform the market this year. Compared to the widespread losses, OLLI shares are up by 7% year-to-date.
However, the company has not been immune to the overall challenging retail backdrop and delivered a generally disappointing Q2 report.
The company generated revenue of $452.48 million, an 8.8% year-over-year increase, yet falling short of expectations by $4.95 million. Non-GAAP EPS came in at $0.22, missing the consensus estimate of $0.33. Additionally, the company also lowered its full-year outlook.
Odey evidently thinks the shares are worth a punt at their current valuation and the tycoon opened a new position during Q2. Odey’s fund bought 30,000 shares that are now valued at $1.64 million.
Also among the bulls is Wells Fargo analyst Edward Kelly who sees Ollie’s as a name which could do well in the current macro climate.
“While the fundamental story has been challenged, we expect momentum to turn positive in the coming quarters,” the 5-star analyst said. “The close-out buying environment looks poised to improve with normalizing supply chains, and could shift dramatically to OLLI's favor if the consumer backdrop starts to slow. Supply chain missteps appear to have been corrected. We also see OLLI as well positioned to benefit from upcoming consumer trade down.”
In line with these comments, Kelly rates OLLI an Overweight (i.e. Buy) along with a $70 price target. The implication for investors? Upside of 29% from current levels. (To watch Kelly’s track record, click here)
Overall, OLLI shares have a Moderate Buy rating from the analyst consensus, based on 12 analyst reviews that include 7 Buys, 4 Holds, and 1 Sell. The forecast calls for one-year gains of 18.5%, considering the average price target stands at $64.25. (See OLLI stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.