Howard Marks - Oaktree Capital Management

Howard Marks - Oaktree Capital Management Q4 2023 Portfolio

Oaktree  Capital, an asset management fund managed by Howard Marks, disclosed 67 security holdings in their SEC 13F filing for the fourth quarter of 2023, with a total portfolio value of $5,388,705,000

 

Top 10 Holdings

 

TRMD – Torm Plc

 

·      Portfolio Allocation: 28.64%.

·      Recent Activity: Reduced holdings by 5.22%.

·      Shares: 51,006,538.

·      Reported Price: $30.26 per share.

·      Value at Reported Price: $1,543,420,000.

 

Potential Reason for Investment: As a shipping company, Torm Plc might offer cyclical investment opportunities.

 

 

CHK – Chesapeake Energy

 

·      Portfolio Allocation: 9.99%.

·      Recent Activity: Stable, with no recent changes reported.

·      Shares: 7,000,067.

·      Reported Price: $76.94 per share.

·      Value at Reported Price: $538,585,000.

 

Potential Reason for Investment: Chesapeake Energy is involved in the exploration and production of oil and natural gas, sectors that can provide significant returns especially when energy prices are rising or when the company has a cost advantage.

 

 

GTX – Garrett Motion Inc.

 

·      Portfolio Allocation: 7.91%.

·      Recent Activity: Stable, with no recent changes reported.

·      Shares: 44,082,816.

·      Reported Price: $9.67 per share.

·      Value at Reported Price: $426,281,000.

 

Potential Reason for Investment: This automotive technology company might be seen as a way to capitalize on trends in vehicle electrification and emissions reduction, possibly offering growth at a reasonable price.

 

 

STR – Sitio Royalties Corp A

 

·      Portfolio Allocation: 5.64%.

·      Recent Activity: Stable, with no recent changes reported.

·      Shares: 12,935,120.

·      Reported Price: $23.51 per share.

·      Value at Reported Price: $304,105,000.

 

Potential Reason for Investment: As a company dealing in mineral and royalty interests in oil and gas properties, Sitio Royalties could be attractive for its potential income from royalties and its exposure to energy prices.

 

 

RWAY – Runway Growth Finance Corp

 

·      Portfolio Allocation: 3.86%.

·      Recent Activity: Reduced holdings by 21.67%.

·      Shares: 16,492,167.

·      Reported Price: $12.62 per share.

·      Value at Reported Price: $208,131,000.

 

Potential Reason for Investment: Runway Growth Finance provides loans to late-stage venture companies. Marks might be attracted to the high-yield debt offerings or the growth potential of the venture market.

 

VALE – Vale SA

 

·      Portfolio Allocation: 2.77%.

·      Recent Activity: Increased holdings by 8.11%.

·      Shares: 9,399,887.

·      Reported Price: $15.86 per share.

·      Value at Reported Price: $149,082,000.

 

Potential Reason for Investment: As one of the world’s largest miners, Vale may offer stability and dividends, with exposure to commodities such as iron ore, which can be appealing during periods of economic growth.

 

 

NMIH – NMI Holdings

 

·      Portfolio Allocation: 2.58%.

·      Recent Activity: Reduced holdings by 4.43%.

·      Shares: 4,682,823.

·      Reported Price: $29.68 per share.

·      Value at Reported Price: $138,986,000.

 

Potential Reason for Investment: As a private mortgage insurer, NMI Holdings could provide a unique angle on the housing market, potentially offering steady growth and profitability.

 

 

SBLK – Star Bulk Carriers Corp.

 

·      Portfolio Allocation: 2.41%.

·      Recent Activity: Reduced holdings by a substantial 61.99%.

·      Shares: 6,107,983.

·      Reported Price: $21.26 per share.

·      Value at Reported Price: $129,856,000.

 

Potential Reason for Investment: Another shipping company, which could be invested in due to its potential to benefit from international trade growth or shipping rate volatility.

 

 

FCX – Freeport-McMoran Inc.

 

·      Portfolio Allocation: 2.31%.

·      Recent Activity: Increased holdings by 7.82%.

·      Shares: 2,917,913.

·      Reported Price: $42.57 per share.

·      Value at Reported Price: $124,216,000.

 

Potential Reason for Investment: A leading international mining company might be an investment target due to its substantial reserves of copper, gold, and molybdenum – commodities with wide industrial uses.

 

 

BBD – Banco Bradesco

 

·      Portfolio Allocation: 2.23%.

·      Recent Activity: Increased holdings by 8.15%.

·      Shares: 34,330,544.

·      Reported Price: $3.50 per share.

·      Value at Reported Price: $120,157,000.

 

Potential Reason for Investment: As one of the largest banks in Brazil, Banco Bradesco may offer exposure to the emerging market’s growth potential and might be seen as undervalued compared to its fundamentals.

Analyzing Chesapeake Energy Corporation (CHK). Why is Howard Marks investing in CHK ?

Howard Marks, known for his value-oriented investment approach, focuses on finding undervalued companies with strong potential for operational and financial improvement. The financial metrics and ratios of Chesapeake Energy Corporation (CHK) reveals several key factors that might have influenced Marks’s investment decision:

 

Valuation Metrics:

 

·      CHK’s trailing PE ratio stands at an exceptionally low 2.07, which is far below the industry average, suggesting the stock could be undervalued. A forward PE of 22.8 indicates expectations of future earnings growth.

·      The PEG ratio of 1.85, below the common threshold of 2, implies the stock’s price is justified by its earnings growth rate, making it attractive to value investors.

 

 

Strong Financial Performance:

 

·      With a net income of $5.36 billion on revenue of $10.90 billion, CHK has demonstrated significant profitability and efficiency in its operations.

·      An impressive EPS of $38.11 suggests robust earnings, which could signal a healthy business capable of sustaining profitability.

 

Debt Management:

 

·      The company’s Debt/Equity ratio of 0.20 and Debt/EBITDA ratio of 0.32 are relatively low, indicating prudent use of leverage and financial stability.

·      The interest coverage ratio of 38.48 showcases CHK’s ability to easily meet its interest obligations, further underlining financial strength.

 

Return Metrics:

 

·      Exceptional ROE of 53.50% and ROIC of 44.84% are indicative of efficient capital use and management’s ability to create value for shareholders.

 

Cash Flow and Liquidity:

 

·      CHK generated a free cash flow of $2.95 billion, emphasizing its ability to generate cash after funding the expansion of its asset base.

·      A current ratio of 1.56 signifies the company’s ability to cover its short-term liabilities, which is a sign of good liquidity.

 

Stock Performance and Analyst Outlook:

 

·      Despite a -6.17% price decrease over the last 52 weeks, analysts maintain a “Buy” rating with a price target of $99.56, suggesting a significant potential upside of 26.46%.

·      A beta of 0.48 indicates that the stock is less volatile than the market, aligning with Marks’s preference for lower-risk investments.

 

Dividend:

 

·      A dividend yield of 2.92% coupled with a payout ratio of 6.04% demonstrates CHK’s commitment to returning value to shareholders while retaining most of its earnings for growth.

 

Tax Position:

 

·      The effective tax rate of -19.05% could be due to tax credits or deductions, reflecting a potentially favorable tax position for the company.

 

In summary, the combination of CHK’s low valuation metrics, strong profitability, prudent debt management, solid returns on equity and capital, and robust cash flow generation likely makes it a compelling investment choice for Howard Marks. These factors align with Marks’s investment philosophy, which focuses on companies that offer both value and quality, with the potential for significant market re-rating.

Who is Howard Marks ?

 

April 23, 1946:

Howard Stanley Marks is born.

 

1967:

Graduates cum laude from the Wharton School of the University of Pennsylvania with a major in finance and a minor in Japanese Studies.

 

1969:

Earns an MBA in Accounting and Marketing from the University of Chicago Booth School of Business, winning the George Hay Brown Prize.

 

1975:

Becomes a CFA charterholder.

 

1969-1978:

Works at Citicorp, initially as an equity research analyst, later becoming the Director of Research.

 

1978-1985:

Serves as Vice President and senior portfolio manager at Citicorp, managing convertible and high-yield debt.

 

1980:

Moves to Los Angeles to manage a high-yield fund for Citibank.

 

1985:

Joins TCW Group, leading investment groups in high-yield debt and convertible securities.

 

1988:

Co-organizes one of the first distressed debt funds with Bruce Karsh at TCW Group.

 

1995:

Co-founds Oaktree Capital Management in Los Angeles after leaving TCW Group.


2000-2010:

Chairs the Trustees’ Investment Board at The University of Pennsylvania.

 

2007-2008:

During the financial crisis, Oaktree raises $10.9 billion for the largest distressed debt fund in history.

 

April 2012:

Oaktree goes public on the NYSE, raising $380 million.

 

March 2019:

Brookfield Asset Management acquires 62% of Oaktree; Marks retains a significant stake and control over day-to-day operations.

 

2011:

Publishes “The Most Important Thing: Uncommon Sense for the Thoughtful Investor.”

 

2012:

Publishes “The Most Important Thing Illuminated: Uncommon Sense for the Thoughtful Investor.”

 

2018:

Publishes “Mastering the Market Cycle: Getting the Odds on Your Side.”

 

2010:

Buys an oceanfront property in East Hampton for $30 million.

 

2012:

Purchases a duplex unit at 740 Park Avenue for $52.5 million.

 

2013:

Sells his mansion in Malibu, California, for $75 million.

 

2015:

Buys a house in Beverly Hills for $23.7 million.

 

2017:

Purchases the house next door to his Beverly Hills residence for $9.7 million.

 

2019:

Acquires parcels in Amagansett, New York, for $35 million.

 

2022:

Ranked No. 1365 on the Forbes list of billionaires with a net worth of $2.2 billion.

 

March 2023:

Along with his wife Nancy, makes a $5 million gift to UCLA to endow a faculty chair in women’s health research.

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