Is Antero Midstream Corporation (AM) a Smart Long-Term Buy?

Jose Karlo Mari Tottoc
·4 min read

Bonhoeffer Capital Management, a value-oriented investment management firm, published its fourth-quarter 2020 Investor Letter – a copy of which can be downloaded here. A net return of 20% was recorded by the fund for the fourth quarter of 2020, outperforming its MSCI World benchmark that delivered a 15.9% return. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

Bonhoeffer Capital Management, in their Q4 2020 investor letter, said that, as natural gas prices are rebounding, Antero Midstream Corporation (NYSE: AM)’s cash flows become more secured. Antero Midstream Corporation, based in Denver, Colorado, operates and develops midstream energy assets to service Antero Resources' production of natural gas. It currently has a $4.5 billion market capitalization. Since the beginning of the year, AM delivered a 22.70% return, impressively extending its 12-month gains to 126.32%. As of March 5, the stock closed at $9.46 per share.

Here is what Bonhoeffer Capital Management has to say about Antero Midstream Corporation in their Q4 2020 investor letter:

"Public LBOs (32% of Portfolio; Quarterly Average Performance +25%)

This includes our broadcast TV franchises, leasing and roll-on/roll-off (RORO) shipping, and our natural gas pipeline firm. One trend in these levered firms is the increasing spread between bond yields and the firms’ free cash flow yield.

An example is Antero Midstream, whose FCF yield was 15% as of December 31, 2020, with a debt yield of 6% with the bond/equity FCF spread of 9%. This is a large spread given that Antero Midstream has completed its backbone infrastructure and gathering investment and capital expenditures should be small going forward. With natural gas prices rebounding, Antero Midstream cash flows become more secured as Antero Resources has more cash flow cushion in making payments to Antero Midstream. The recovery in natural gas prices is expected to continue as the economy opens up and low oil prices have shut down Permian oil wells that were generating almost-free associated natural gas. Antero Midstream’s FCF yield of 15% is also higher than similarly secured Antero subordinated debt with a yield of 7.8%."

Alaska Oil Pipeline stocks WMB KMI EPD ETP SLX ENB
Alaska Oil Pipeline stocks WMB KMI EPD ETP SLX ENB

Jonathan Nafzger / shutterstock.com

In January 2021, we published an article about the 12 Best MLP and Pipeline Stocks To Buy Now, and Antero Midstream Corporation (NYSE: AM) is part of it. AM delivered a 25.13% return in the past 3 months.

Our calculations show that Antero Midstream Corporation (NYSE: AM) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, Antero Midstream Corporation was in 19 hedge fund portfolios.

The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

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Disclosure: None. This article is originally published at Insider Monkey.