Livermore Strategic Opportunities commentary for the third quarter ended September 30, 2018.
Q3: Livermore focused on gold and oil producers which continues to lead performance. Telsa’s self-inflicted wounds add to our short thesis.
To Livermore Strategic Opportunities Partners:
The quarter and YTD performance remained robust for Livermore Partners. Sticking to our themes and taking advantage of renewed volatility, we blended together some opportunistic trades and new investments. Both of which generated some nice alpha for the portfolio.
Summer’s market gains have continued to manifest led by strong US growth and a more buoyant consumer. Who along with more disposable income, are helping extend the current and very stretched economic cycle. This has produced strong earnings, higher multiples, and a bit of wishful thinking..
Given a hawkish Federal Reserve and rising bond yields, may suggest the market is nearing a top.
Therefore, I am pleased to share that as of September 30st, Livermore Strategic Opportunities LP ended with a gain of 18.51% during Q3 2018 and YTD performance of 33.95%.
Livermore Strategic Opportunities: Long Positions
Much strength came from core holdings in both long and short positions. Notably, our core long positions in APAC Brent oil-producer Jadestone Energy, Mexican gold producer, Torex Gold, as well as London listed, Solgold. These names really outperformed in the Quarter.
Solgold was a unique opportunity where we felt building tension within multiple resource players could lead to a buyout. And sure enough, mining giant, BHP Billiton acquired a block of the company which lead the stock to a strong re-rating to 36 pence by Quarter end. We met CEO Nick Mathers during the Spring BMO Mining Conference and this looked to be the real deal. At 22 pence, it turned out to be a real gem…
Regarding Gold, Livermore Strategic Opportunities recently committed to the space by joining legendary hedge fund manager John Paulson in his newly launched Shareholder Gold Council (SGC). Along with fellow Billionaire and goldbug, Nagwi Sarwari. Two great investors with much to prove in this new endeavor.
We are supportive of Paulson and have joined the Board of Directors of the SGC. With our intentions to focus on helping the sector regain lost value by focusing more on returns on equity and investment rather than simply chasing ounces. I feel this is a unique opportunity and one where Livermore Strategic Opportunities can be of help. Especially given our history of activism and strong corporate governance.
Jadestone Energy (JSE.LN), continued with very strong returns in the Quarter (over 10%) and now year (50%). Its new to London given our IPO and the stock is gaining some justified attention. With its Montara acquisition from Thailand National Oil Company (NOC), PTT now officially closed, we should begin to witness strong financial performance and hopefully even higher prices. The company has 50% of current production hedged, very strong cash flows (2X 2019 est.), $100mm in annual FCF, and solid management (Ex-Talisman Energy).
Our favorite International producer given its potential to scale to $1B market cap and very attractive valuation. see link.
Burberry had a tough quarter. China worries and the potential of increased capital spending for new designs and refocus weighed on the shares. We do think Burberry has a strong brand and is moving quickly to alter its path in order to increase profitability. Livermore Strategic Opportunities remains supportive and views any weakness and a chance to add to our stake.
On the short side, we had a solid and profitable Q3. Our themes of a weakening China played well as we continued to hold short positions in Alibaba (BABA) Weibo (WB) and well as China ETF, FXI. All added to gains in the Quarter and helped to off-set times of higher volatility within the portfolio.
Telsa (TSLA) also remained a large notable short position. Telsa’s stock had a challenging Q3 given many strange events. All of which, to me, reflects a business model that doesn’t work in all markets. If at all...
Additionally, you have a CEO that continues to hurt his own image and the image of the brand by using social media as his outlet. This has caused the company harm by an SEC investigation and fraud charges coming against Musk. Charges he has now settled, but his behavior seems to be on a destructive path. We continue to be bearish. Our views were amplified with our recent Bloomberg interview.
Overall, our special situation theme has been successful. So we must continue to focus on uncovering hidden value. The fundamentals of the US economy remain vibrant, although one must begin to gauge the length of the current (and ever extending) economic cycle. All the while asking the question: Just how long can this market push higher without a true correction; or potential recession?
And as always, Livermore Strategic Opportunities will remain focused on undervalued opportunities, especially where activism is possible. Though we see increased volatility adding to the stress of the markets, it will also create unique opportunities. Therefore, Livermore will be patient capital and only invest where we identify situations where we can outperform.
I thank you for all your support and will continue to work tirelessly in our pursuit.
Livermore Strategic Opportunities
This article first appeared on ValueWalkPremium