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Nov 15, 2022

Opportunity Equity Update for Week Ended 11/11/22

Christina Siegel Malbon

Farfetch Gains on Moderating Inflation and Updated Zero-COVID Policy While Cryptocurrency Names Fall in Sympathy with FTX Bankruptcy

Last week, the Opportunity Equity Strategy's representative account gained 9.60%, outperforming the S&P 500’s 5.93% rise. (Exhibit 1). The strategy ended the week down 25.67% YTD, 1,059 basis points behind the S&P 500.

Exhibit 1: Performance of Opportunity Equity Representative Account Net of Fees, Versus S&P 500, Through 11/11/221

Time Period Opportunity Equity Representative Account S&P 500
Last Week (11/4 - 11/11) 9.60% 5.93%
MTD 7.15% 3.19%
QTD 18.38% 11.55%
YTD -25.67% -15.08%
1 Year -34.97% -12.76%
5 Year 5.77% 11.06%
10 Year 12.46% 13.39%
Inception (annualized since 6/26/00) 6.49% 6.64%

Source: Bloomberg, Miller Value Partners. Visit the Strategy page for Opportunity Equity performance through the most current month end period.

Farfetch Limited (FTCH) rose above the 50 and 100-day moving averages after data showed the US inflation accelerated less than forecast increasing speculation that the Fed will slow the pace of interest-rate increases. The stock further benefitted from China making changes to its Zero-Covid policy reducing the amount of time travelers and close contacts must spend in centralized quarantine, reducing burdensome testing requirements on airlines and limiting its contract tracing strategy. The company announced its intention to hold a capital markets day, its first since its public market debut, on December 1st.

Teva Pharmaceutical Industries Limited (TEVA) crossed above the 50, 100 and 200-day moving average rebounding from the sell-off last week following its earnings announcement. Teva won a trial over Eli Lily & Co in relation to patent infringement for Teva’s migraine treatment, Ajovy. Teva was awarded $176.5M in the case. Teva announced the resubmission of a new drug application (NDA) to the FDA for their schizophrenia treatment which received a complete response letter (CRL) in April. The company expects the review to take up to 6 months and hopes to launch the therapeutic in the first half of 2023.  BMO cut its price target to $10 from $11 (5% upside) while maintaining its market perform rating.  

Ovintiv Inc. (OVV) reported 3Q earnings that were mixed relative to consensus expectations. Total production of 516mboe/d came in at the high end of guidance and above consensus of 501mboe/d leading to a revenue beat at $3.7B vs $2.8B expected. EBITDAX missed consensus coming in at $958M (26.2% margin) vs $1,033M (36.8% margin) expected as a result of higher expenses in the quarter while EPS of $1.44 missed consensus of $2.00 driven by greater than expected hedging losses. Capital spending of $511M was above the high end of guidance ($450-500M) and higher than expected at $493M. Cash flow per share of $3.70 beat consensus of $3.62. The company bought back $325M in stock during the quarter (2.3% of shares outstanding) and paid its quarterly dividend (1.8% annual yield) while continuing to paydown debt via open market purchases. The company guided for FY22 total production of 505-515mboe/d up from 501-510mboe/d previously while maintaining total cost guidance of $16.35-16.60/mboe. CAPEX guidance is expected to hit the high end of their prior range of $1.7-1.8B and is expected to be $1.8B, in-line with consensus. 4Q shareholder returns are expected to total $250M, consisting of $188M in buybacks (1.3% of shares outstanding) and $62m in dividends. National Bank cut its price target to $74 from $77 (28% upside), while RBC raised its price target to $58 from $57 (1% upside).

Expedia Group, Inc. (EXPE) rose above the 50 and 100-day moving averages on the hopes that a lower inflation reading might lead to a slower pace of rate hikes by the Fed. The company reported 3Q earnings the week before that showed continued strong demand in the travel space and a resumption in their share repurchase program of $200M (1.3% of share outstanding). The company is on track to rollout their unified loyalty program, One Key, in 1Q23. Citigroup cut its price target to $102 from $118 (1% upside), while Susquehanna cut its price target to $100 from $115 (-3% downside).

OneMain Holdings, Inc. (OMF) rose above the 200-day moving average.

Exhibit 2: Significant2 Contributors to Opportunity Equity Representative Account Performance, 11/4/22 - 11/11/22

Name Type Return
Farfetch Limited Equity 24.4%
OneMain Holdings, Inc. Equity 13.7%
Teva Pharmaceutical Industries Limited Equity 11.9%
Expedia Group, Inc. Equity 11.0%
Ovintiv Inc. Equity 7.8%

Source: Miller Value Partners. See below for additional information.

Silvergate Capital Corporation (SI) and Coinbase Global Inc (COIN) fell in sympathy with the broader cryptocurrency market after FTX, the world’s second-largest crypto exchange by daily volume, experienced a liquidity crunch and apparent bank run over the week ending with Chapter 11 bankruptcy. Silvergate disclosed FTX was a digital asset deposit customer but makes up less than 10% of the bank’s total deposits of $11.9B. The firm has no outstanding loans to nor investments in FTX. Wells Fargo lowered its price target to $25 from $50 (-27% downside), while Bank of America lowered its price target to $37 from $72 (8% upside), downgrading the name to neutral from buy. Coinbase reported that it had $15M in deposits with FTX, and no loan exposure. Barclay’s lowered their price target to $63 from $77 (10% upside) while Citi lowered its price target to $80 from $105 (39% upside).

Energy Transfer LP (ET) followed energy prices lower over the week. Founder and Chairman Kelcy L. Warren purchased an additional 1.2M units at an average cost of $12.35 for a total consideration of $14.8M. Jefferies transferred coverage of Mattel, Inc. (MAT) resulting in an updated price target of $19 (11% upside) down from $21 previously, while maintaining its hold rating.

Alaunos Therapeutics Inc. (TCRT) held a poster presentation highlighting the potential of the company’s human neoantigen T-cell receptor platform (hunTR) to expand its TCR Library. The poster was presented at the Society for Immunotherapy of Cancer’s (SITC) 37th Annual Meeting in Boston.

Exhibit 3: Significant2 Detractors from Opportunity Equity Representative Account Performance, 11/4/22 - 11/11/22

Name Type Return
Silvergate Capital Corporation Equity -35.7%
Mattel Inc. Equity -2.1%
Coinbase Global, Inc. Equity -2.3%
Energy Transfer LP Equity -0.8%
TCRT Restricted Warrant 2019 Derivative -28.0%

Source: Miller Value Partners. See below for additional information.

Check out the Income Strategy weekly Update. Click to Read.

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.

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. Returns listed above represent the market performance of the individual security during the week, or for the partial period held in the portfolio 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 Miller Value Partners 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 Miller Value Partners. 

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