How to invest in energy stocks as oil prices soar: Kupperman

  • Hedge fund manager Harris Kupperman has seen his fund grow 535% since the start of 2019.
  • His 142.9% gain last year, after fees, was partly due to his bets on energy stocks.
  • Here are two of Kupperman’s favorite energy stocks — and why he says ESG funds are a sham.

Work is going well for Harris Kupperman — or “Kuppy” for his friends. The chairman of Praetorian Capital Management recorded a Gain of 142.9% in 2021 and a gain of 127.5% in 2020, after adjusting for fees.

In fact, Kupperman’s flagship fund was up 535% since its creation in early 2019 through 2021, while the S&P 500 is up around 80% over the same period.

One of the main reasons for the success of the Praetorian Capital Fund is Kupperman’s exposure to the energy sector, which is up to 45% in 2022. This outperformance comes as oil and gas prices have soared and fuel demand dramatically outstrips supply, especially as the invasion of Ukraine puts pressure on countries to stop importing energy from Russia.

Oil’s feverish rally is likely just beginning, Kupperman told Insider in a recent interview. The hedge fund manager said years of massive underinvestment in fossil fuel infrastructure after campaigning by conservationists has – ironically – seemed to have sparked a revival for the industry, to the point that a oil super cycle where prices soar indefinitely, may now be unavoidable.

“The price of oil is going up because the world needs one or two million more barrels every year,” Kupperman said. “And they don’t increase production – so oil goes higher.”

Oil demand will remain robust as the world’s population grows and living standards continue to rise, Kupperman said — regardless of what happens to the economy.

“If there is a


, well, oil demand will slow down a bit, but oil demand is increasing every year,” Kupperman said. “Even some of the worst recessions have seen demand for oil increase. I don’t think a recession will impact my view of oil supply and demand. In the end, demand is growing faster than supply, and there is already a shortfall of around two million barrels a day.”

Granted, oil is a cyclical commodity that is doomed to ups and downs, Kupperman said. Naturally, utilities invest in infrastructure when it is most profitable to do so, even though such investments inevitably lead to supply gluts which then push oil prices into a

bear market

. But such a slowdown might not happen for three, five or even 10 years, Kupperman said.

And even when this oil cycle ends, the long-term price average will be permanently higher, the hedge fund manager said. Like countless other goods and services, the cost of operating an oil well is higher than it has been in years and will not fall, Kupperman said, adding that the equilibrium price oil companies was revised upwards to around $100 a barrel.

ESG is a big hoax

As a stalwart defender of the oil industry, Kupperman is – unsurprisingly – a vocal critic of government anti-fossil fuel policies, as well as Environment, Social and Governance funds (ESG) which aim to invest only in companies that managers deem Socially responsible.

The hedge fund manager’s criticism of the restrictions on fossil fuels is that they, he says, hinder economic and job growth while thwarting energy independence.

Nations that do not produce their own oil and cannot make up the difference with green energy are doomed to depend on other oil-producing nations. It is well known that the dependence of European countries on Russian energy could be the main reason why the war in Ukraine has not been resolved. And besides, whether it is produced at home or abroad, oil is always produced.

These achievements, and the fact that the world is not yet ready to rely entirely on green energy, will lead to a resurgence in oil investment, according to Kupperman.

“Countries are going to realize that sometimes there’s no sun, sometimes there’s no wind,” Kupperman said. “And sometimes the guy next door becomes your enemy.”

And it’s not just the government that has made it difficult for oil companies to access capital, Kupperman said. ESG funds, which have exploded in popularity as companies capitalize on the trendwere quickly dismissed by the hedge fund manager as “propaganda” and “a scam”.

“Anyone who has an ESG fund is plundering their clients,” Kupperman said. “You can quote me on that – please quote me on that.”

Kupperman added, “It’s just a way for people to earn fees and don’t do society any good.”

It should be noted that Kupperman’s anti-ESG stance is not shared by everyone on Wall Street. As the world becomes increasingly aware of the need for action to reverse environmental damage, BlackRock has called the sustainable investing trend one of today’s biggest investing themes. today, and Insider reported that “demand for ESG expertise exceeds supply.” talent” in the world of finance.

While it’s become clear in recent months that renewables aren’t ready to take over from fossil fuels just yet, Kupperman said he’s not against green technologies. In fact, he thinks the fledgling industry will slowly take market share from older energy companies over the next decade, even if green energy isn’t the only energy provider in the world anytime soon.

How to invest in the sizzling energy sector

Kupperman has two energy stocks he is currently bullish on: Valaris (VAL) and Tide (TDW). The Praetorian Capital Fund has positions in both, and Valaris is one of the fund’s five largest positions, the hedge fund manager said.

“What I do is focus on buying good companies that have strong macroeconomic tailwinds, and I ignore recessions,” Kupperman said. “If a business is doing well, it will also do well in a recession.”

Valaris is the world’s largest owner of drilling equipment, Kupperman said, adding that he liked the company emerged from bankruptcy with more money than debt. And although the stock has risen 38.5% in 2022 to around $50 per share, the hedge fund manager still sees plenty of potential.

“If it traded for the value of the equipment, the stock price would be a few hundred dollars,” Kupperman said.

Tidewater, meanwhile, is the largest operator of offshore support vessels (OSVs), Kupperman said, adding the company has an “excellent track record” and will add to its 97% year-to-date rally if offshore drilling activity continues to rebound. .

Sometimes, says Kupperman, the best theses are the simplest.

“I’m not making it very complicated here,” Kupperman said. “Simple and easy thesis; focus on the right macro trend. And then buy good companies with strong balance sheets.”

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Felix J. Dixon