Boaz Weinstein is the founder of Saba Capital Management. According to Forbes, he is ranked 28th in the list of 40 highest earning hedge fund managers. According to TipRanks, in the last three years, his hedge fund has earned an annualized return of +14.86 percent, which many find surprising because Weinstein has several investments in oil, specifically in Seadrill Ltd (NYSE:SDRL), Transocean LTD. (NYSE:RIG) and Petroleo Brasileiro SA – Petrobras (ADR) (NYSE:PBR).
To give a background, for more than one year global oil prices have fallen sharply. Between 2010 and mid-2014, global oil prices were quite stable around $110 per barrel. However, starting from June 2014, prices have almost halved. Presently, brent crude oil (spot) is around $47.54 per barrel. There are two main reasons behind this drop: surging oil production in the US and weak demand in several countries due to poor economic growth.
This year, Weinstein added Transocean to his portfolio, starting off with over 75,000 shares worth more than $1 million. The company, which is one of the largest offshore drilling service providers in the world, has recently been in news related to a multi-billion dollar corruption scandal in Brazil. A former executive of Petrobas, oil giant run by the Brazil government, has claimed to receive payments from someone who claimed to be Transocean’s agent, in return for a drilling rig contract.
However, if you look at the TipRanks’ statistics for Transocean, analysts don’t share the bullish sentiments of Weinstein. Of the 7 analysts who have recently rated the stock, none of the analysts have recommended to Buy the stock. While 3 have given a Hold rating, 4 have rated the stock as Sell. The average consensus price target for the stock is $10.83, a downside of -28.23% from current levels.
Aside from Transocian, Weinstein also added Petrobas as a new holding to his portfolio, with his current holdings in the company valued at $921.20K. Apart from dropping oil prices and the recent scandal involving Petrobas and Transocean, one of the concerns facing Petrobas is a drop in production. In September, the Brazilian oil giant saw a decline in its average global oil and gas production. The company’s production of 2.72 million barrels of oil equivalent per day is a reduction from the 2.88 million barrels in August. Among other concerns, Petrobas has a debt of $130 billion, which is more than the debt of any oil company in the world.
According to TipRanks, out of 4 analysts who have recently rated Petrobas’ stock, 2 have rated it as Hold and 2 have rated it as Sell; none of the analysts have recommended to Buy the stock. The average price target for the stock is $5.7, an upside of 15.85% from current levels.
Lastly, Weinstein added Seadrill, the offshore drilling company, to his portfolio. Presently, his stake in the company is valued at $545.94K. As of October 18, Seadrill’s stock had dropped nearly 68% over the last year, and 84% over the last 2 years. Crashing oil prices and weak investor sentiment for the sector are key reasons behind this drop.