We recently published a list of The 10 best stocks to buy according to value investor Oldfield Partners. In this article, we take a look at where Southwest Airlines Co. (NYSE:LUV) stands compared to other stocks recommended by value investor oilfield partners.
Investors generally follow the herd mentality, which causes stock prices to fall too much after bad news and rise too much after good news. This tendency is further exacerbated by momentum investing. Oldfield Partners LLPan owner-operated boutique fund management company, believes that price discrepancies caused by exaggerated news on a particular topic can easily prevent investors from finding potential bargains – low-value stocks that trade at a significant discount to their intrinsic value.
Oldfield Partners was founded in November 2004 by Richard Oldfield. Richard has a BA (Hons) in History from Oxford University and is the author of the investment book Simple, but not easypublished in 2007. He has had a distinguished career in investment management and corporate governance, and was Chairman of the Oxford University Investment Committee and of Oxford University Endowment Management Ltd from 2007 to 2014. He is also a Director of Witan Investment Trust plc and a Trustee of the Royal Marsden Cancer Charity and the Canterbury Cathedral Trust.
Oldfield Partners serves a global client base including foundations, pension funds, charities and family offices. Oldfield Partners pursues a value investing strategy with a focused, diversified portfolio, with no leverage and a long-term approach. The firm pursues several different strategies: Global Equity, EAFE, Global Equity Income, Global Small Cap and Emerging Markets (including EM ex China) through separate accounts or a variety of pooled funds.
An example of Oldfield Partners’ contrarian investment philosophy is South Africa, where political and economic crises can create opportunities to acquire high-quality assets at significant discounts. However, the country’s structural problems stemming from poor policies, weakened institutions, corruption and a hostile business environment make the potential for high returns from low valuations less certain. Over the past decade, South African capital markets have underperformed, delivering negative total returns in dollar terms compared to the S&P’s annualized return of over 12%. The recent elections in May further shook the political status quo and increased uncertainty.
Oldfield Partners’ investment strategy is opportunity-driven, which is why its Emerging Markets Fund contains a single Russian investment – Lukoil, a low-cost oil and gas producer. Before the war, the reason for investing in the stock was its production of a globally traded, dollar-denominated commodity, making the company less vulnerable to the Russian domestic economy. Since the war, however, the stock has hurt the fund’s performance, although it remains one of the better “performers.” While the MSCI Emerging Markets Index has fallen 17% over the past three years, the oil and gas producer is up 62%. Despite this, sanctions have made it impossible for foreign institutions to trade its shares on the Moscow Exchange, forcing the fund to hold them at a “zero” (zero) value. The shares remain in custody, with dividends continuing to accrue, and the fund continues to seek a legal exit strategy.
Oldfield Partners currently sees more attractive bottom-up investment opportunities in other emerging markets. While emerging markets are still generally improving, they represent strong valuation targets. While the firm avoids short-term predictions, its bottom-up valuation models suggest that the fund’s holdings remain attractive both in absolute terms and relative to other opportunities.
Our methodology
The stocks mentioned in this article were selected from Hosking Partners’ investment portfolio at the end of Q2 2024. To give readers a more comprehensive view of the companies, analyst ratings for each company are also mentioned, among other details. A database of around 900 elite hedge funds tracked by Insider Monkey in Q2 2024 was used to quantify the popularity of each stock in the hedge fund universe.
At Insider Monkey, we’re obsessed with the stocks hedge funds invest in. The reason is simple: Our research shows we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (Further details can be found here)
A commercial Boeing 737 aircraft with the well-known SWABIZ logo flies in the sky.
Southwest Airlines Co. (NYSE:LUV)
Value of Oldfield Partners shares: USD 54,218,811
Share in Oldfield Partners’ 13F portfolio: 10.24%
Number of hedge fund owners: 21
Southwest Airlines Co. (NYSE:LUV) is one of the largest global airlines that has faced financial challenges in recent times, including a significant decline in share price and reduced profit margins over the past four years. Despite these pressures, Southwest maintains its operational performance, achieving a 99.5% completion rate even in adverse weather conditions. After Hurricane Beryl, for example, the airline quickly recovered from an 8% cancellation rate to just 0.3% the next day.
Revenue for the second quarter of 2024 declined 3.8% year over year, primarily due to an oversupply of domestic capacity and challenges with a new revenue management system. To address these issues, Southwest is implementing strategic changes, including transitioning from an open seating model to an assigned seating model based on customer preferences and competitive pressures. This transition aims to increase revenue and operational efficiency while retaining key elements of the Southwest experience.
In addition, Southwest Airlines Co. (NYSE:LUV) is adjusting its fleet and capacity strategies, including reducing aircraft deliveries and optimizing flight schedules to better match supply and demand. The airline’s capital spending for 2024 is estimated at around $2.5 billion, lower than previous expectations, and it is focused on maintaining a strong balance sheet with significant liquidity.
Looking ahead, Southwest Airlines Co. (NYSE:LUV) plans to continue its strategic transformation, improve revenue management and increase operational efficiency. The company remains committed to delivering strong financial performance and shareholder returns. Detailed plans will be announced at the Investor Day in September.
Total LUV 5th place on our list of stocks recommended by value investor Oilfield Partners. While we recognize LUV’s potential as an investment, we believe AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than LUV but trades at less than 5x earnings, read our report on the cheapest AI stock.
READ MORE: Analyst sees a new $25 billion “opportunity” for NVIDIA And Jim Cramer recommends these 10 stocks in June.
Disclosure: None. This article was originally published on Insider Monkey.
