The Ultimate AI stock - BTU??
Should you be thinking about coal stocks?
This review starts with Helmerich & Payne - HP - $40 - reporting a decent quarter, but also making a medium size acquisition. HP used their pristine balance sheet to buy a British based land driller operating in the Middle East. HP paid less than 6x EBITDA, and the deal is quickly accretive. I would have preferred a big stock buyback, but I am a grumpy old man.
HP is making $3.00/share with 1/3 of their US capacity sitting idle. Could some of these idle rigs be moved? It seems like a longshot, but I like to bet on crazy horses. Maybe Wall Street will buy the “rigs to Saudi” story.
Before the deal I was 100% satisfied with HP as my energy stock. Expectations are low, only 6 buys and 14 hold/sells. My satisfaction drops to 75% after the deal, so I am thinking about alternatives. The top three are serious competitors for my Top 20 model portfolio:
Peabody Energy - BTU - What could be sexier than coal? I think there might be a real company here. The balance sheet is cleaned up, and they are starting to buy back stock. 70% of global steel production will always need metallurgical coal. Met coal is a high margin product for BTU. If electricity demand does ramp up quickly, we will still need the Powder River Basin coal in the US. China exposure is an issue. Black lung liabilities seem manageable. BTU was a bankruptcy in 2016, and had hedging problems in 2020, but they seem to have found “financial religion”. Let’s listen to the quarter and make a decision.
Civitas - CIVI - $71 - This is the stock I want to own. CIVI could be the “next Pioneer” (which Exxon bought last year). They seem to have great approach to capital allocation. CIVI recently sold surplus assets at a price well above their current valuation. There are issues about drilling in Colorado, but there seems to be peace with regulators until at least 2027. I was skeptical CIVI would succeed in the Permian, but so far so good. One of my favorite value investors, Don Smith & Co., owns a big chunk. Victory Sycamore has also stepped up.
Halliburton - HAL - $34 - At first I was bored, but then I got suspicious. How many other $30 billion market cap companies have so little financial disclosure (no presentations or conference visits) ? HAL is slowly executing their plan, and keeping their mouth shut. It looks like they will make $3.00 in 2024, at what looks like the bottom of the cycle. The balance sheet is strong, and the little guys are struggling. There is quite a bit of technology here in the fracking business. HAL is quietly buying back $250 million every quarter. There are 27 buys and only 3 sell/holds, yet the stock is near its non-pandemic lows. I hate to buy the hype, but a high quality company at 10x a cyclical low is interesting.
CONSOL Energy - CEIX - $98 - Has run too far, cannot chase. The other coal company.
Devon - DVN - $46 - Good assets, but I worry about them doing something stupid.
Occidental - OXY - $61 - not thrilled by the balance sheet, prefer others
Schlumberger - SLB - $39 - I just hate SLB using stock to make acquisitions. Never trust the French.
RPC, Inc - RES - $7 - Small pressure pumper with 20% cash. Talking too much about acquisitions for my taste. Monitor
Oceaneering International - OII - $30 - my favorite offshore drilling stock, just too expensive
Cameco - CCJ - $45 - I want to cry every time I type the ticker. This was the easiest 5-bagger of all time. All you had to do was buy the the stock the day CCJ announced they were completely halting all production.
This group does not include the pipelines or refiners which have been covered in previous posts.