Lakewood Capital Management LP is betting on OAO Lukoil (LUKOY), Russia’s second-largest oil producer, after shares slumped on concern about the nation’s conflict with Ukraine and a selloff in energy stocks.
“Admittedly, few investments sound less appealing right now than Lukoil, a company operating in the market’s worst performing industry (energy) and located in the market’s most detested country (Russia),” Anthony Bozza, founder of the $2.9 billion hedge-fund firm, wrote in a third-quarter letter to investors, a copy of which was obtained by Bloomberg News.
Lukoil American depositary receipts rose 0.7 percent today, paring this year’s decline to 24 percent. Crude oil prices have had the biggest drop since the financial crisis six years ago as shale supplies boosted U.S. output and global demand growth weakened. Russia has experienced the worst clash with the U.S. and Europe since the Cold War after annexing Crimea in March and Lukoil is among five Russian energy firms targeted in sanctions imposed by the U.S. in September.
Lakewood said Lukoil’s “already high” annual dividend yield of about 7 percent is poised to increase, which should drive returns in shares. The Moscow-based company’s billionaire Chief Executive Officer Vagit Alekperov said in May that he would use the $600 million of dividends he expected to receive this year to buy more shares, according to the letter.
Cheapest Stock
Lukoil is the cheapest stock the New York-based firm has owned, according to the letter. Bozza started Lakewood in 2007 with Bill Jackson to make long and short bets on companies. Bozza declined to comment.
The hedge-fund firm has been more active in finding investment opportunities in the past three weeks than any time since the fall of 2011, according to the Oct. 24 letter.
The firm cited Washington Prime Group Inc. (WPG), an owner of malls and shopping centers, and Citizens Financial Group Inc. (CFG), the lender majority-owned by Royal Bank of Scotland Group Plc, as new longs, or bets that the stocks of the companies will rise.
Lakewood also said it was betting against InvenSense Inc. (INVN) because of increased competition and limits to advancements in the technology of motion sensors that the company makes, such as gyroscopes and accelerometers, which are predominantly used in mobile devices.
InvenSense shares dropped 21 percent in post-market trading at 5 p.m. in New York after reporting second-quarter adjusted earnings per share of 5 cents, missing the average analyst estimate of 16 cents. The stock is up 3.4 percent this year through today’s close.
David Almoslino, senior director of marketing and communications at InvenSense, declined to comment on Lakewood’s bet.
