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Best Resources Pick of 2014?


mcliu

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I'm going to make the case that dry bulkers are the best resource play for 2014. 

 

China is still growing rapidly even if at a somewhat lower rate of growth.  That means more shipments and longer distance transits.  China now accounts for than half of worldwide demand in a number of commodities.  All this benefits shipments.

 

At the same time there has been a supply response notably in iron ore and other commodities that favors shippers, even while prices are under pressure hurting miners.  I like BALT and SB.  All ships rise with the tide in shipping.  Its a macro play that requires minimum effort to separate the ones you want to own from the rest of the pack.

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I am curious why suddenly everyone is comfortable with LTS 's plan ;

Seems it still has no plan to deleverage, be conservative and realize value

So it's just b/c it's cheap enough now ?

 

LTS

 

They do have a plan but some think it's not aggressive enough or not hitting the right problem.

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I'm going to make the case that dry bulkers are the best resource play for 2014. 

 

China is still growing rapidly even if at a somewhat lower rate of growth.  That means more shipments and longer distance transits.  China now accounts for than half of worldwide demand in a number of commodities.  All this benefits shipments.

 

At the same time there has been a supply response notably in iron ore and other commodities that favors shippers, even while prices are under pressure hurting miners.  I like BALT and SB.  All ships rise with the tide in shipping.  Its a macro play that requires minimum effort to separate the ones you want to own from the rest of the pack.

 

I think the easy money was made in Dry Bulk. Buying it months ago when they traded at fractions of book value and low single digit earnings multiples made sense. Buying them now at high single/low double digit multiples and right around book makes less. At this point,  rates HAVE to rise for you to earn a return in the near term and you're risking money up front if that isn't the case. I got into SB at 5.50 and filed down at $3.20. I've sold most of the position now that it's above 10. I could go higher but it seems possible that ot could also go a lot lower in the short term.

 

My pick is Altius. Have been particularity impressed with this board idea and was able to build a full position just under 10% before it started moving.  Hoping for big news in '14.

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I'm going to make the case that dry bulkers are the best resource play for 2014. 

 

China is still growing rapidly even if at a somewhat lower rate of growth.  That means more shipments and longer distance transits.  China now accounts for than half of worldwide demand in a number of commodities.  All this benefits shipments.

 

At the same time there has been a supply response notably in iron ore and other commodities that favors shippers, even while prices are under pressure hurting miners.  I like BALT and SB.  All ships rise with the tide in shipping.  Its a macro play that requires minimum effort to separate the ones you want to own from the rest of the pack.

 

I think the easy money was made in Dry Bulk. Buying it months ago when they traded at fractions of book value and low single digit earnings multiples made sense. Buying them now at high single/low double digit multiples and right around book makes less. At this point,  rates HAVE to rise for you to earn a return in the near term and you're risking money up front if that isn't the case. I got into SB at 5.50 and filed down at $3.20. I've sold most of the position now that it's above 10. I could go higher but it seems possible that ot could also go a lot lower in the short term.

 

My pick is Altius. Have been particularity impressed with this board idea and was able to build a full position just under 10% before it started moving.  Hoping for big news in '14.

 

You make some good points that are hard to disagree with.  I believe that BDI spot and time charter and BVs rates are driven by Chinese demand and the 2+ year building cycle.  so it essentially comes down to a matter of opinion on the Chinese economy and how you understand the iron ore market and whether you believe that 2+ solid years are enough to move the stock a lot higher.

 

I do, but recognize that it is a very subjective judgment.  But I'm happy to have my side of the trade right now.

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Two ideas I find interesting: MVN (TSX-V) and EOX

 

The first idea is not for the faint of heart and is not as cheap as it was a month or two ago, but still has a lot of "potential" upside. Madalena is a Canadian based E&P that has acreage in Canada and Argentina. The company is currently reworking a lot of its Canadian acreage (applying horiztonal drilling and modern fracking techniques). The current stock price 0.68 is mostly covered by the value of their Canadian production (which should continue to grow at a very fast clip).  The reason the stock is cheap is because of its exposure to Argentina's Neuquen Basin (where it owns 135k total acres). Because of the YPF/Repsol debacle the market is assiging little to no value here. This gives you a cheap call option on their ability to sell that land or find a partner in Argentina. There are a lot of reports out there about how Argentina screwed itself over, because the country does not have the capital it needs to internally develop this field. The went from being somewhat energy independent to dependent. If they infact take a less nationalistic approach than maybe this call option is worth some money. 

 

This is not a sexy pick, but I like EOX... it is a Bakken E&P that trades cheap relative to its acreage holdings. The company does not look cheap on a per flowing barrel basis (unless compared to pure Bakken comps). That said, production is ramping nicely and I think mgmt's guidance is low-balled (thanks to Dedwards for doing the heavy lifting)

 

Dedwards did a great writeup on his blog and the company presenation is also helpful.

 

1. http://dedwardssays.wordpress.com/2013/10/19/emerald-oil/

2. http://content.stockpr.com/vyog/media/8106a25206d1d477060b3101ed2779ba.pdf

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I have got BP, NOV and Altius. All >5% positions. BP because it is depressed, NOV because it is almost a monopoly selling shovels and pipes and Altius because it is cheap, unique business model and good management. Still building Altius position, but it is definitely running away the last few days. Maybe it is a recency bias, but I am excited about Altius the most.

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MTG (MGIC Investment Corp)

 

Resources are commodities, & they rise/fall with economic demand. So does mortgage insurance ......

 

Tapering is occurring because the main street US economy is improving ... & hence the risk attached to a mortgage defaulting must be getting smaller - reducing both the size & probability of write-offs, & raising the odds on seeing positive net income. And if you have a big market share of all insured mortgages in the US ....

 

At todays prices .... It will not take much to move the dial ;)

 

SD

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Does Lukoil have a similar or lower cost for its reserve compared with BP ?

I heard BP has some of the lowest cost reserves

 

I think Lukoil is a strong competitor.  A great company in a hated country.  If the company was valued at $9.00 per BoE (the same valuation as BP) this is more than a 3x upside.  There is a good thread on this in the Stocks section.

 

Packer

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Re MTG upside; we are looking at the business case, not the BV metric ..

 

They broke even during Q3 2013, & reduced 9M YOY losses by 372,591 to (159,548); a little over $1.00/share, & during a period when green shoots were not as evident as they are today. With loss reduction of around 124,197/quarter (372,591/3) they should come out at essentially break-even for the year. Sentiment changer.

 

Most would expect some quid-pro-quo over the Dodd-Frank negotiation; an additional equity injection to below 20:1, & a firm trend-line; for a limited hands off period. To inject equity under these conditions is a very strong insider buying signal, then add in cheap refinancing of the expensive debt coming due over the next 1-2 years; fuel for the fire. Recovery related improvements in asset quality & valuation are additional.

 

At $8.40 a $2.10 increase is a 25% gain. Simply break even & they will demonstrate around $1.40 of earnings in sh1te economic conditions. Improve those conditions, change sentiment, & start putting out strong buy signals - & it may well be that a $2.10 change is on the light end.

 

It does not mean that it will actually happen, or within the anticipated timeframe, but it does at least seem a reasonable proposition. Of course if you think the US/global recovery is just illusion, you will have a different view.

 

Probably not in the circle of most folks ....

 

SD

 

 

 

 

 

 

 

 

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Guest 50centdollars

I am curious why suddenly everyone is comfortable with LTS 's plan ;

Seems it still has no plan to deleverage, be conservative and realize value

So it's just b/c it's cheap enough now ?

 

LTS

 

I think its significantly undervalued at today's prices. I'm getting an 8% div. yield and it's reserves have a net present value of roughly $10/share. Also, I'm not even taking into consideration its unproven reserves. One issue I have with LTS is Mr. Wright and his management team. I think they are atrocious. Anyway, the stock should be trading at least at $10. The downside is limited here imo.

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We are implying that MTG has an off BS call on the underlying bonds that caused the write-downs, and that they are really being held to maturity; but indirectly. Essentially a sale at MV (to the Fed) and a conditional later repurchase; but as repurchase is not certain they are required to take a MTM write-down. The derivative arises as the payouts were under insurance claims, & as a result -  MTG will have subrogation rights on any/all future recovery on the underlying assets.

 

Total 2012 loss was 532M; if they break-even in 2013 they must have earned this. Share count of 338M. $1.57 is 532/338; assume 10% estimation error & you get $1.41.

 

SD

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