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Here’s Why Black Bear Value Partners Continue to Own Texas Pacific Land Corp. (TPL)

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Black Bear Value Partners, an investment management firm, published its third-quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly portfolio net return of -3.7% was recorded by the fund for the third quarter of 2021, trailing the S&P 500 Index, and the HFRI Index that delivered a +0.8% and -0.3% return respectively for the same period. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.

Black Bear Value Partners, in its Q3 2021 investor letter, mentioned Texas Pacific Land Corporation (NYSE: TPL) and discussed its stance on the firm. Texas Pacific Land Corporation is a Dallas, Texas-based land trust with a $9.4 billion market capitalization. TPL delivered a 66.91% return since the beginning of the year, while its 12-month returns are up by 160.06%. The stock closed at $1,213.44 per share on October 8, 2021.

Here is what Black Bear Value Partners has to say about Texas Pacific Land Corporation in its Q3 2021 investor letter:

"We continue to own TPL as it still looks reasonable to me with asymmetric upside if energy inflation takes hold. As a reminder, TPL is a royalty company with 100% of their acreage located in the Texas Permian Basin. In a nutshell they make money when drilling activity occurs but DO NOT have the capital needs. The incremental amount of work on TPL’s part is minimal as the extraction and movement of the oil/natural gas is undertaken by others. They are merely a toll collector with Returns on Capital of 80+%."

Based on our calculations, Texas Pacific Land Corporation (NYSE: TPL) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. TPL was in 21 hedge fund portfolios at the end of the first half of 2021, compared to 17 funds in the previous quarter. Texas Pacific Land Corporation (NYSE: TPL) delivered a -19.63% return in the past 3 months.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this biotech stock. We go through lists like the 10 best EV stocks 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 homepage.

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