1. EV less than replacement cost by a decent margin
2. $BORR day rates, despite the current price of oil, generate decent FCF and are fairly locked in for 2025, removing near term uncertainty.
3. On the other hand, JU day rates aren't good enough to warrant other rigs coming into the market in the next few years. And if day rates really do rip, BORR will have a few years head start to monitize their current ops.
4. Many jack ups currently in service are old AF and may come out of service over the next few years, further supporting day rates. $BORR has one of the youngest fleets of premium jack ups.
5. 7.4% dividend, recently raised!
In short: unless we see a massive global depression this name is at least a double in the next 3 years. And you get paid to wait!
Good perspective. A very plausible explanation: we are seeing an AI investment related boom (which is not credit dependent) against the backdrop of a) high real interest rates, which are hurting small cap and b) a deflationary bust in china.
Ok. I will admit to adding to $OXY on Thursday and Friday. I also bought a little $CVX and a small Canadian O & G company, I believe is undervalued. However, I am trying to pick my spots and not trying to be a hero.
I'll throw this out for posterity. I know people will think I belong in the looney bin. But, and I know I am reading too much "X", but I am in the multi decade depression camp. I know it's crazy. I have never wished more that I will be wrong. But, maybe the market is starting to agree. I don't know.
Oilfield services stocks. OFS is historically the worst industry on the planet but is structurally better than it has been in more than a decade (consolidation, capital flight, capital restraint, commitment to return capital to shareholders). Oil really only makes sense to buy/short at the extremes, seeing first signs of fear/capitulation in current market. Look at Patterson UTI, they’re playing a role in consolidating the equipment supply for rigs and pressure pumpers, and as top operator they stand to benefit from the consolidation of producers in the lower 48 states. They have promised to only return FCF to shareholders. Share count down 6% in nine months, $3B mkt cap, $500M of mid-cycle FCF with oil in $70’s, $1B with oil in the $90’s. If ME war breaks out, US shale answers the call, then these guys are one of the biggest beneficiaries.
The structurally challenged (likely cyclical challenges too) tier 1 auto parts companies cheaper than they’ve ever been at a time when the EV bull thesis is showing cracks. GTX/Magna both trading at mid-high teens FCF yields. The GTX turbo story is interesting (guessing you know this one) because they have comparable or higher content in PHEV’s vs. ICE’s, turbo’s are effectively a duopoly between GTX and BWA (Toyota does it internally, but there are historical examples for failed attempted market entries), $300M of FCF on $1.6B mkt cap yields 19% FCF yield.
Duckhorn Portfolio - trading at 25% discount to book, 9x earnings with credible growth story predicated on penetration of wholesale distributors. Recently deepened the BoD bench adding former Boston Beer CEO and two directors from Brown Foreman (who own 20% stake now after controversial Sonoma Cutrer deal). This is a relationship business, so adding personnel that can open doors to get distributor access is actual value add.
These are not my original ideas but I agree with them. In terms of cyclical names that still seem cheap.
Homebuilders/Suppliers (TOL, DHI, BLDR, BLD): look cheap w/ long term tailwinds. The thesis here was identified before 2020 (many VIC writeups) and is still the same - there is an undersupply of single-family homes (and rentals) in many areas of the country.
There has been recent weakness in new home prices, new permits, and multifamily starts but this seems to be turning with anticipated Fed cuts. Public sentiment and anger at shelter inflation seems to be shifting with both Democrats and Republicans starting to talk about undersupply - could lead to political will to build more housing units.
Industrials (OSK, CAT, URI): some of these industrial stocks related to big machinery/transports seem undervalued and ready to outperform if the Fed starts cutting. There are also multiple VIC writeups here.
Semiconductors (NVDA, ASML, TSM). - Yes, none of these companies are typical value stocks but I would say that the selloff over the past 2 months has made some of these names attractive. The Semis cycle typically lasts 3-3.5 years and the last bottom we had was around early 2023-mid 2023 (figure 6: https://yardeni.com/charts/semiconductors-fundamentals/). At a price of 105, NVDA is trading at ~28-30x forward P/E multiple so its actually cheaper than names like Costco or TSLA. The 3 companies I listed above have near monopolies in their section of the AI Chip value chain so I find value in these names.
$BORR is my favorite cyclical here:
1. EV less than replacement cost by a decent margin
2. $BORR day rates, despite the current price of oil, generate decent FCF and are fairly locked in for 2025, removing near term uncertainty.
3. On the other hand, JU day rates aren't good enough to warrant other rigs coming into the market in the next few years. And if day rates really do rip, BORR will have a few years head start to monitize their current ops.
4. Many jack ups currently in service are old AF and may come out of service over the next few years, further supporting day rates. $BORR has one of the youngest fleets of premium jack ups.
5. 7.4% dividend, recently raised!
In short: unless we see a massive global depression this name is at least a double in the next 3 years. And you get paid to wait!
Short term market movements are random numbers ... there is no meaning or rationale.
Good perspective. A very plausible explanation: we are seeing an AI investment related boom (which is not credit dependent) against the backdrop of a) high real interest rates, which are hurting small cap and b) a deflationary bust in china.
Ok. I will admit to adding to $OXY on Thursday and Friday. I also bought a little $CVX and a small Canadian O & G company, I believe is undervalued. However, I am trying to pick my spots and not trying to be a hero.
I'll throw this out for posterity. I know people will think I belong in the looney bin. But, and I know I am reading too much "X", but I am in the multi decade depression camp. I know it's crazy. I have never wished more that I will be wrong. But, maybe the market is starting to agree. I don't know.
Here's three: $PTEN, $GTX, $NAPA
Oilfield services stocks. OFS is historically the worst industry on the planet but is structurally better than it has been in more than a decade (consolidation, capital flight, capital restraint, commitment to return capital to shareholders). Oil really only makes sense to buy/short at the extremes, seeing first signs of fear/capitulation in current market. Look at Patterson UTI, they’re playing a role in consolidating the equipment supply for rigs and pressure pumpers, and as top operator they stand to benefit from the consolidation of producers in the lower 48 states. They have promised to only return FCF to shareholders. Share count down 6% in nine months, $3B mkt cap, $500M of mid-cycle FCF with oil in $70’s, $1B with oil in the $90’s. If ME war breaks out, US shale answers the call, then these guys are one of the biggest beneficiaries.
The structurally challenged (likely cyclical challenges too) tier 1 auto parts companies cheaper than they’ve ever been at a time when the EV bull thesis is showing cracks. GTX/Magna both trading at mid-high teens FCF yields. The GTX turbo story is interesting (guessing you know this one) because they have comparable or higher content in PHEV’s vs. ICE’s, turbo’s are effectively a duopoly between GTX and BWA (Toyota does it internally, but there are historical examples for failed attempted market entries), $300M of FCF on $1.6B mkt cap yields 19% FCF yield.
Duckhorn Portfolio - trading at 25% discount to book, 9x earnings with credible growth story predicated on penetration of wholesale distributors. Recently deepened the BoD bench adding former Boston Beer CEO and two directors from Brown Foreman (who own 20% stake now after controversial Sonoma Cutrer deal). This is a relationship business, so adding personnel that can open doors to get distributor access is actual value add.
The OXY observation rings extremely true. Incredibly crowded trade and uncle Warren would never backstop anyone if he could help it.
These are not my original ideas but I agree with them. In terms of cyclical names that still seem cheap.
Homebuilders/Suppliers (TOL, DHI, BLDR, BLD): look cheap w/ long term tailwinds. The thesis here was identified before 2020 (many VIC writeups) and is still the same - there is an undersupply of single-family homes (and rentals) in many areas of the country.
There has been recent weakness in new home prices, new permits, and multifamily starts but this seems to be turning with anticipated Fed cuts. Public sentiment and anger at shelter inflation seems to be shifting with both Democrats and Republicans starting to talk about undersupply - could lead to political will to build more housing units.
Industrials (OSK, CAT, URI): some of these industrial stocks related to big machinery/transports seem undervalued and ready to outperform if the Fed starts cutting. There are also multiple VIC writeups here.
Semiconductors (NVDA, ASML, TSM). - Yes, none of these companies are typical value stocks but I would say that the selloff over the past 2 months has made some of these names attractive. The Semis cycle typically lasts 3-3.5 years and the last bottom we had was around early 2023-mid 2023 (figure 6: https://yardeni.com/charts/semiconductors-fundamentals/). At a price of 105, NVDA is trading at ~28-30x forward P/E multiple so its actually cheaper than names like Costco or TSLA. The 3 companies I listed above have near monopolies in their section of the AI Chip value chain so I find value in these names.