Need to Know: Hedge-fund manager who called last year’s tech crash bets on Florida, oil drillers and this commodity

Speaking to MarketWatch the Monday before CPI data, he said the clamor for bonds or Treasury bills right now makes no sense to him. “I wouldn’t lend these guys money for a beer overnight,” he says.

But then his mandate for his $260 million flagship fund is to find investments “undergoing some sort of dynamic change” flying under the radar. Up 748% since its 2019 inception, the fund had triple digit returns in 2020 and 2021, and has gained 18% so far this year — but he says the last six quarters have been hard for many of his investment themes.

“Things are going much better than I had expected in the businesses themselves, unfortunately the share prices just haven’t kept up with the…fundamental realities of the business,” Kupperman said. “I think there’s a catch-up phase that’s overdue.”

The manager rightly called a tech selloff in 2022 — he isn’t interested in the Magnificent Seven tech names as he says they’re too expensive — but his prediction for oil prices to reach $200 this year has not panned out.

Read: The Magnificent Seven add more than $200 billion to their market caps

Energy, though, is part of one theme he’s not about to abandon. The hedge fund’s two biggest positions are oil-field services companies Valaris
VAL,
+1.60%
and Tidewater
TDW,
+0.20%,
up around 4% and 64%, respectively.

He notes some “spectacular” earnings recently from Valaris, which the fund started buying in the low $20s — it currently trades at $70 per share.

Valaris is currently earning just over $200,000 a day on drilling charter rates — the daily cost to rent out their equipment — but rival Diamond Offshore
DO,
+2.44%
just signed a charter contract worth over $500,000 a day, he notes. Valaris has also been signing new contracts in the $400,000s for several months, which means substantial cash flow going forward, he said.

“Given its order book, charter rates and how much cash flow it can produce, Valaris should be trading at $100 [per share].”

He says the fundamentals are also there for prices of uranium — a theme he’s well known for — to shoot higher. “It reminds me of back in 2003 when I played it and it went from $12 to $130,” he says of the commodity currently.

Read: Why uranium prices have climbed to their highest in over a decade

Kupperman sees demand driven by many factors — Japan reactors getting turned back on, and more being built across China, India and Indonesia — and limited supply. “And so the price of uranium this year has increased from roughly $50 to $75 … 50%, which is good, but it’s still below the cost needed to build a new mine.”

“Almost every week, we learn about a new positive development in the nuclear sector,” he said. “I think the world’s coming around to nuclear as the least bad energy option out there,” said the manager.

But the price will probably have to go “dramatically higher,” to encourage more mine building, and sees 2025 as the peak year for uranium deficits. They see 2024 demand at 210 million pounds globally versus supply forecasts of 160 million pounds globally.

Kupperman invests in Sprott Physical Uranium Trust
SRUUF
and U.K.-based uranium investment group Yellow Cake
YCA,
+0.27%,
but avoids junior miners that he thinks are “speculative and risky.

He’s also sticking to a bet on St. Joe
JOE,
+6.33%,
one of Florida’s biggest landowners with some of the state’s best land. “Florida has the most net migration of a state right now, people are really desperately leaving all the terrible places in the northeast that are crime ridden and bad weather and high taxes and they want to go somewhere nice,” he says.

The 87-year old company’s shares are up 34% so far this year. St. Joe is “increasing the value of the 170,000 acres of land it owns as more people move to Florida, and are also developing commercial real estate and “doing surprisingly well.”

“I think this stock trades at about 20% of replacement cost and we’re value investors and we buy things very cheaply and it has massive tailwinds,” said Kupperman.

His fund targets up to 12 themes, but has about five themes at any given time that take up 50% to 75% of the portfolio. Right now he’s buying shares of a new company that’s still under wraps.

In his October letter to investors, he described it as a company that has “historically produced elevated returns on capital” though has seen share prices fall due to a likely weak third quarter.

The markets

After Tuesday’s 1.9% surge for the S&P 500
SPX,
stock futures
ES00,
+0.44%

YM00,
+0.34%
are climbing, led by tech
NQ00,
+0.63%,
with Treasury yields
BX:TMUBMUSD10Y

BX:TMUBMUSD02Y
are creeping up. The dollar
DXY
and gold prices
GC00,
+0.40%
also higher.

The buzz

Target
TGT,
+4.32%
crushed earnings estimates, and the stock is up 14%.

Tech names Palo Alto Networks
PANW,
+2.16%
and Cisco
CSCO,
+1.80%
report after the close.

October retail sales is due at 8:30 a.m. — a 0.2% drop from September’s 0.7% gain is expected — alongside producer prices and the Empire State manufacturing survey. Business inventories are coming at 10 a.m., and at the same time, the Fed Vice Chair for Supervision Michael Barr will testify to a House panel. Richmond Fed President Tom Barkin will speak at 3:30 p.m.

The Republican-run House of Representatives passed a temporary spending bill to avert a partial government shutdown ahead of Friday’s deadline. The bill now heads to the Democratic-controlled Senate.

Quarterly filings by big investors could put some stocks in focus. Warren Buffett’s Berkshire Hathaway
BRK.A,
+1.15%

BRK.B,
+1.21%
exited General Motors
GM,
+4.83%
and picked up shares in Sirius XM
LSXMK,
+1.98%
and Atlanta Braves
BATRK,
+3.94%.

Soros Fund Management sold off Nvidia
NVDA,
+2.13%,
Microsoft
MSFT,
+0.98%
and Rivian
RIVN,
+4.39%,
and bought Arm
ARM,
+3.37%,
Maplebear
CART,
+1.25%
and Apple
AAPL,
+1.43%.
David Tepper’s Appaloosa Management hedge fund boosted its Amazon
AMZN,
+2.25%
stake and dumped Apple, while Michael Burry of ‘Big Short’ fame made bearish bets against the iShares Semiconductor ETF
XSD
and Booking Holdings
BKNG,
+1.74%.

Israeli troops in search of Hamas militants have raided Gaza’s largest hospital where hundreds of patients, including newborns, are stranded.

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The chart

Companies that have mentioned El Niño or other weather disruptions have underperformed the S&P 500 by up to 28 percentage points year to date, a team of Morgan Stanley analysts led by Edward Stanley has found, as they offer up the following chart:

“The [World Meteorological Organization] reports that El Niño has a 90% likelihood of continuing through the Northern Hemisphere winter, pushing global average temperatures higher. As these weather events become stronger, we think this theme will continue to drive diverging equity performance in the coming 3-6 months,” said Stanley and his colleagues.

The tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

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