Is It Time To “Take Profits” For Vertex Energy (VTNR)?
Global Investors Wasatch, an investment management firm, has published its letter to investors “Wasatch Micro Cap Value Fund” for the second quarter of 2021 – a copy of which can be found downloaded here. A quarterly return of 8.78% was recorded by the fund’s investor class for the second quarter of 2021, outperforming the benchmark, the Russell Microcap® Index, which returned 4.14% for the same period. You can check out the top 5 holdings of the fund to get an idea of their top bets for 2021.
In Wasatch Global Investors’ Q2 2021 letter to investors, the fund mentioned Vertex Energy, Inc. (NASDAQ: VTNR) and discussed his position on the company. Vertex Energy, Inc. is a Houston, Texas-based petroleum refining company with a market capitalization of $ 373.2 million. VTNR has generated an impressive return of 755.58% year-to-date, while its 12-month returns are up sharply to 1,178.07%. The stock closed at $ 6.09 per share on September 17, 2021.
Here’s what Wasatch Global Investors has to say about Vertex Energy, Inc. in its Q2 2021 letter to investors:
“The main contributor to the Fund’s performance for the second quarter was Vertex Energy, Inc. (VTNR), a consolidator, refiner and mid-market refiner of distressed petroleum products such as used oils, transmixes and off-specification commercial chemicals. Shares soared after the company agreed to buy an Alabama refinery from Royal Dutch Shell for $ 75 million. According to CEO Benjamin Cowart’s comments in the deal announcement, this is “the largest and most significant transaction ever completed by Vertex, a transaction that positions us to become a leading regional supplier of renewable and conventional products “. After another $ 85 million investment to convert the hydrocracker to produce renewable diesel, Cowart believes the Alabama refinery could generate $ 3 billion in revenue and $ 400 million in gross profit as early as 2023. While we admire Mr. Cowart’s optimism, we believe the stock price has outstripped the company’s fundamentals, in part due to an excess of exuberance regarding “green energy” , and we sold our position in Vertex. “
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Based on our calculations, Vertex Energy, Inc. (NASDAQ: VTNR) was unable to secure a spot in our list of 30 most popular stocks among hedge funds. VTNR was in 13 hedge fund portfolios at the end of the first half of 2021, compared to 5 funds in the previous quarter. Vertex Energy, Inc. (NASDAQ: VTNR) has generated a return of -18.15% in the past 3 months.
The reputation of hedge funds as savvy investors has been tarnished over the past decade, as their hedged returns could not keep up with the unhedged returns of stock indices. Our research has shown that small cap hedge fund stock selection managed to beat the market by double digits every year between 1999 and 2016, but the margin for outperformance has shrunk in recent years. Nonetheless, we were still able to identify in advance a select group of hedge funds that have outperformed S&P 500 ETFs by 115 percentage points since March 2017 (see details here). We were also able to identify in advance a select group of hedge funds that underperformed the market by 10 percentage points per year between 2006 and 2017. Interestingly, the margin of underperformance of these stocks has increased in recent years. Investors who are long in the market and short on these stocks would have reported more than 27% per year between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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Disclosure: none. This article was originally published on Monkey initiate.