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Jan 29, 2024

Opportunity Equity Strategy Update for 1/19/2024 - 1/26/2024

William Keenan

United Airlines Rises on Earnings while Kosmos Declines Despite Rising Commodity Prices

Last week, the Opportunity Equity Strategy's representative account rose 3.62%, outperforming the S&P 500’s 1.07% rise. (Exhibit 1). The strategy ended the week down -0.03% YTD, 265 basis points behind the S&P 500.

Exhibit 1: Performance of Opportunity Equity Representative Account Net of Fees, Versus S&P 500, Through 1/26/241

Time Period Opportunity Equity Representative Account S&P 500
Last Week (1/19 - 1/26) 3.62% 1.07%
MTD -0.03% 2.62%
QTD -0.03% 2.62%
YTD -0.03% 2.62%
1 Year 17.28% 22.43%
5 Year 6.87% 14.85%
10 Year 7.46% 12.67%
Inception (annualized since 6/26/00) 6.99% 7.30%
Source: Bloomberg, Patient Capital Management.

Delta Air Lines Inc. (DAL) rose above the 50, 100, and 200-day moving averages after competitors United Airlines and American Airlines also posted solid 4Q results and guidance. Fitch re-affirmed its long-term issuer default rating (IDR) of BB+, raising its outlook to positive from stable.

United Airlines Holdings, Inc. (UAL) rose above the 50 and 100-day moving averages after reporting strong 4Q earnings. Adjusted EPS came in at $2.00 vs. consensus estimates of $1.69, and revenues came in ahead of expectations at $13.6B vs. the $13.5B expected. The company guided for 1Q24 total revenue per available seat mile (TRASM) to be flat Y/Y, adjusted cost per available seat mile (CASM-ex) up mid-single digits, with EPS of ($0.85)-($0.35). For FY 2024, United guided for adjusted EPS of $9-$11, with adjusted CapEx of $9B.

Energy Transfer LP (ET) CEO Kelcy Warren highlighted that he expects more consolidation in the midstream industry, one day after Energy Transfer-backed Sunoco announced it had agreed to acquire NuStar Energy LP for $7.3B in an all-stock deal.

OneMain Holdings, Inc. (OMF) and Citigroup Inc. (C) rose on limited news.

Exhibit 2: Significant2 Contributors to Opportunity Equity Representative Account Performance, 1/19/24 - 1/26/24

Name Type Net Return
OneMain Holdings, Inc. Equity 7.5%
Delta Air Lines, Inc. Equity 6.3%
United Airlines Holdings, Inc. Equity 9.6%
Citigroup Inc. Equity 4.2%
Energy Transfer LP Equity

Source: Patient Capital Management. See below for additional information.

Norwegian Cruise Line Holdings Ltd. (NCLH) fell through the 50-day moving average. The company was rated a new hold at Baptista Research with an $18.80 price target (9% upside).

General Motors Company (GM) announced it would invest $1.4B in Brazil to upgrade its manufacturing facilities in the country. The company disclosed via blog post, inquiries by the United States Department of Justice (DOJ) and Securities Exchange Commission (SEC) into its Cruise subsidiary. The post included a report from Quinn Emmanuel LLP which investigated the incident with a Cruise Taxi on October 2nd, 2023, that injured a pedestrian prompting the regulatory investigation. Redburn initiated coverage with a neutral rating and $40 price target (14% upside), while Barclays raised its price target to $44 from $37 (25% upside).

CVS Health Corporation (CVS) announced an agreement with Constellation Energy to purchase 264,000-megawatt hours of zero-emission, renewable energy to power 1,000 CVS locations in California, Washington DC, Delaware, Maryland, and New Jersey. CNBC reported that Tyson Foods would replace CVS as its pharmacy benefits manager (PBM) with Rightway, a PBM startup in an effort to lower costs.

Kosmos Energy Ltd. (KOS) fell on limited news despite rising commodity prices driven by geopolitical tensions in the middle east.

There were no further detractors from performance last week.

Exhibit 3: Significant2 Detractors from Opportunity Equity Representative Account Performance, 1/19/24 - 1/26/24

Name Type Net Return
Norwegian Cruise Line Holdings Ltd. Equity -3.0%
General Motors Company  Equity -0.9%
Kosmos Energy Ltd.  Equity -1.3%
CVS Health Corporation Equity  -0.3%
Source: Patient Capital Management. See below for additional information.

As of prior week's market close unless otherwise stated.

1The performance figures for the representative Opportunity Equity account reflect the deduction investment management fees and certain other expenses. Returns greater than 1 year are annualized.

Patient Capital Management, LLC completed its acquisition of the Opportunity Equity Strategy from Miller Value Partners, LLC on May 26, 2023. Patient Capital Management served as the investment adviser to the Opportunity Equity Strategy for the majority of the week referenced herein. Additionally, prior versions of this weekly blog posting refer to Miller Value Partners as investment adviser to the Opportunity Equity Strategy.

For additional information about Opportunity Equity Strategy performance, please click on the Opportunity Equity Strategy Composite Performance Disclosure. Past performance is no guarantee of future results.

2Significant Contributors and Detractors are based on holdings that had the greatest effect on representative account performance for the week. Holdings that have been in the portfolio since the end of the most recent calendar quarter are identified by name. The net return shown above for each individual security represents the change in market price of the security during the week, according to a third-party pricing service, or for the partial period held in the portfolio during the week.  Net returns also include any purchases or sales that were made during the week. For information on how Contributor/Detractor data were calculated and a list showing the contribution to the Strategy’s weekly performance of each investment held at such quarter end, contact us.

Any views expressed are subject to change at any time, and Patient Capital Management disclaims any responsibility to update such views. There is no guarantee that market trends discussed herein will continue. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. Past performance is no guarantee of future results, and there is no guarantee dividends will be paid or continued. References to specific securities are for illustrative purposes only. Portfolio composition is shown as of a point in time and is subject to change without notice. Content may not be reprinted, republished or used in any manner without written consent from Patient Capital Management. 

©2023 Patient Capital Management, LLC