These past two weeks have been very busy and productive. Unfortunately, I haven’t had the time to check out the GH board and haven’t even checked GH’s stock price since this morning.
This is why I use the services of Nukester. You see, in addition to being an oil and gas baron – he now owns 9.9% of Peyto and is attempting to have the Company change its name to Nukester Inc. – he is a master at digging up facts and his subscription rates are very reasonable.
Nukester informs me that Georgie the wonder dog has informed Malx1 that he wants oil stocks for Christmas. Apparently Georgie thinks of himself as an oil whisperer. All of this started the day Georgie was digging a hole in the backyard to bury his bone and struck oil. He now goes by the name of J.R. - as in J.R. Ewing.
When Malx1 asked J.R. which particular oil stock he should buy for him, J.R. apparently responded: “CPG or MEG or TVE, you choose Malx1”.
While J.R. says he owns the oil because it was his digging that found it, Malx1 points out that he is the owner of the land and so the oil does not belong to J.R. It is apparently going to court where judge Kasking will rule on the outcome.
Nukester also informs me that there is a big ruckus in New Brunswick. I am told that Cpeczek is attempting to acquire Irving Oil. Cpeczek has been seen working on adding a seventh refinery next to the six refineries that each have a letter of Irving’s name. Apparently Cpeczek then plans to erase the I – R – V –I – N – G on each refinery and replace it with C – P – E – C – Z – E – K. He says he can make a mint with diesel refining.
Nukester further informs me that Sage has been acquiring GH stock like there is no tomorrow. A wily CPA – Sage now only accepts GH stock as payment for his services and is now approaching the 1,000,000 share ownership level. When asked if he plans to stop acquiring stock, he replied “Yes, when I reach 100%”.
Nukester has also been keeping close tabs on Bridge who also has been snapping up GH stock in a race against Sage. I am told that Bridge now owns close to 8% of GH stock and can’t find enough stock buy and so is shifting his focus to Las Vegas where it is rumoured that he is buying a casino.
I asked Nukester, what is Kasking up to? I am informed that Kasking is busy running his empire in Alberta. When I asked Nukester for more details about what Kasking owns in Alberta, Nukester replied “well – Kasking owns Alberta – the province”.
Other than having Peyto change its name to Nukester Inc., Nukester is also working on OPEC+ changing its name to OPEC++. The second + is for the addition of Nukester to the collection of oil nations. He says that as an oil baron he owns more oil than some OPEC nations that can’t meet their quotas and so he should be included. Good point!
Now onto something less serious.
Finishing research these past 2 weeks Selling is not something I do frequently and this week saw a flurry of activity from TLV as I sold three holdings. Prior to this week, the last time I sold was back in August of 2020 – AAPL and ENGH – to generate cash to buy oil stocks.
While I always keep cash available for buying opportunities, I was tapped out at that time due to having put all of my dry powder to work in the COVID fire sale and so I had to sell something. The stock prices of AAPL and ENGH were doing very well and were beneficiaries of COVID and so it was a no brainer to sell them to buy oil stocks.
Oil stocks were that compelling to me and I did the majority of my oil purchases in the period of August to October 2020. I’d have to look up in my records to see the last time I sold a stock prior to 2020 as I can’t remember in what year that occurred. So when I sell three stocks in the same week and two on the same day – you know the reason has to be good. I only sell when I have a big idea and want to buy a good amount.
Thoughts on holding cash I always have a lot of cash on hand. Typically cash represents anywhere from 5% to 30% of my portfolio. I’ve even been as high as 70%. If I don’t have a great idea – I stay in cash and wait. I do a lot of buying when investors are panicking. You need to be very patient and the wait can be very, very long. Generally, I wait for the big market meltdowns when you can pick up amazing companies at bargain basement prices. This is where the real gains are. Patience is critical. The other key point is that I constantly study companies and industries and so I know what I am interested in if a buying opportunity occurs.
Sales and purchases Even though I have dry powder, I sold FB, RECP and SU. My own investment philosophy requires that I own a minimum of 6 stocks and never more than 12. No exceptions. Since I already owned 12 stocks, I had to sell 2 if I wanted to buy 2 but I decided to sell 3 and keep a higher cash level. I am now approximately 40% in cash and own 11 stocks – 4 of which are either oil or natural gas.
I still like the 3 stocks I sold but what I purchased was way more compelling and total no-brainers. RECP and FB have not been held long – maybe two months only – and the gains were small: 9% for RECP and 3% for FB – but I needed the cash for 2 new purchases. In the case of SU the gain was 188% excluding dividends. Interesting to point out that the dividend that I was getting on SU at the time that I sold the stock was 10.4% based on my average purchase price of $18.10.
The first stock I purchased, I have been researching for over 3 months and I was working very hard on it these past 2 weeks to finish my analysis. It is totally misunderstood by the market and because of this I was able to get it very cheaply. I won’t mention the name because I want to buy more of it at lower prices.
Just to give you an idea of how cheap it is, it is trading at a 10-year normalized free cash flow multiple of 4.7X (over 21% free cash flow yield), and is growing its free cash flow and it has a strong competitive advantage. Yes, it pays to dig and to think.
The second stock I purchased is a small oil stock. My SU sale got rolled into this purchase.
Are we in a bear market? I think the next 5 months or so will present a lot of opportunities for the market as there are a lot of challenges out there. Even though the challenges will last longer, the market is forward looking and will start to rise well before investors even think of brighter days. I am patiently waiting and ready to buy.
As I was as a baseball player, I am prepared and have done my homework on the pitcher. The count is 2 – 0 and I know he can’t miss and so will likely see a fastball. If I get it waist high and on the inside or center of the plate I will take a big swing. If not, I will let it go by. Being prepared and patient are the keys.
In my humble opinion, we are in a bear market and I think it will be a deep bear market. There are a lot of reasons why I believe this – too many to talk about here – but one of them is that there are a lot of new investors out there that were not around in 2000 and 2008 and you know panic will come and panic is contagious.
Be patient and wait for your pitch. It will come. Eventually it always does.
The 3 keys for GH investors should focus on - Oil
- Population growth
- Inflation
Oil Back in 2020 I knew oil was going to be a good investment but it was in 2021 that it really became apparent to me how high oil was going to go. We are not yet at those high levels. Oil will go much higher.
As I have pointed out before, there is a structural issue with supply that
cannot be fixed in the short-term. It will take a minimum of 4 years to be fixed at the very least.
Going forward, oil prices will see higher highs and higher lows. This is a reality. Oil is always volatile and this is because there is a difference between the financial demand for oil and the physical demand for oil.
The paper market for a commodity matures at 3 – 5 times the size of that commodity’s demand. Example: if the world uses 10M lbs of sugar per day then a mature commodities futures market will trade 30M lbs – 50M lbs of sugar per day.
Currently when you add the energy futures market, the options market and the unregulated OTC market, the financial demand for oil is trading not at 3 – 5 times the size of that commodity’s demand but at
50 times. This is why you get very volatile swings and this will continue.
We can debate all we want about what is the highest price oil can attain before demand destruction sets in. It is not the same price in every city, province or country. It depends on a lot of factors. Mike Rothman of Cornerstone Analytics (an oil think tank) whom I very much respect and who has been attending OPEC meetings since 1986 and is the founder of Cornerstone says it is somewhere between $130 - $181. At $130 you start tapping on the breaks and at $181 it is a dead stop. So in his very educated opinion, it must be at least at $130 and not for only one day. No, he says it must be at least at $130 and average this price for a
full year. This level is seconded by Amrita Sen of Energy Aspects (another very well respected oil think tank based in the U.K and founded by Amrita Sen in 2012).
The issue is supply. There is a lack of it and it won’t come back for a minimum of 4 years. It takes the supermajors 4 – 6 years for an oil project to come onstream and then it takes 4 more years for payout to occur.
You can check out this post that I put up on January 25, 2022:
Why oil prices can be sustainably high for years - oil 101 This will be a gigantic wind at GH’s back for at least 4 years.
Population growth Alberta’s population can and will grow faster that what Alberta has projected in their 25-year plan. Why? Because that plan was made a few years ago when nobody thought oil would have the future it now has and so the jobs that will be created will attract a lot of newbies to Alberta.
Inflation Eventually people’s pensions and salary rise due to inflation. Eventually people get used to the new normal prices and spend more everywhere.
Did people spend more in casinos in 2017 vs 2007? Yes.
Did people spend more in casinos in 2007 vs 1997? Yes.
Dis people spend more in casinos in 1997 vs 1987? Yes.
You get the picture.
Keep in mind that GH’s expenses are obviously much less than their revenues and so both sides increase but since revenues are higher we come out ahead (not necessarily the margin but the nominal dollars).
Conclusion Please read my post of January 25, 2022 and you will see why there is nothing to stop oil for at least the next 4 years. If you believe otherwise it is just denying reality.
GH will be a huge beneficiary of these three big macro factors: oil, population growth, inflation.
Recessions are only temporary. They come and go. When they go, these three macro factors will still be there and GH will thrive.
Intrinsic value of GH is $12.50 - $14.29. It can be higher if management has better capital allocation going forward. Time will tell.
I have a new industry I will be studying and so will not be able to post before July.
Keep cash handy and wait for the fat pitch. It is coming!