Jayant Bhandari – The Contrarian Investment Thesis In Coal Companies With Attractive Valuations
Jayant Bhandari, Private Investor, joins us to focus on the macro picture in both thermal coal and metallurgical coal, as well as a few companies he is reviewing that are offering compelling value propositions. We start off discussing some of the misconceptions about where the energy generation for EVs and the electrification narratives from policy makers is actually coming from, and going to continue to come from. For the foreseeable future that will still involve thermal coal. Then we review that despite one’s preference for power generation, that the demonization of met coal makes no sense as it is crucial for steel manufacturers, and this will come even more into focus as the Chinese economy reopens
Then we have Jayant share some of the coal companies he is reviewing as investable ideas where he is drawn to the low P/E ratios, high cash balances, and solid underpinning of pricing and production.
> The companies he mentions for investors to research are:
- Peabody Energy (NYSE.BTU; US$26): 25% metallurgical coal and 75% thermal coal; P/E of 2; dividend yield ~0%
- Coronado Global (ASX.CRN; A$1.92): Metallurgical coal; P/E of 5; dividend yield 12%
- Whitehaven Coal (ASX.WHC; A$7.30): 5% metallurgical coal and 95% thermal coal; P/E of 2; dividend yield 10%
- Warrior Met Coal (NYSE.HCC; US$38): Metallurgical coal; P/E of 5; dividend yield ~0%
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Bipartisan Legislation Would Increase US Uranium Production To Promote Nuclear Energy
Stephen Singer – Feb. 21, 2023
“Three U.S. senators, including the two leaders of the Senate’s Energy and Natural Resources Committee, have introduced bipartisan legislation directing the U.S. Department of Energy to establish a nuclear fuel program to strengthen domestic production.”
“The legislation would make a priority of increasing U.S. production of low-enriched uranium and accelerating efforts to establish a high-assay, low-enriched uranium, or HALEU, capability. Lawmakers want to ensure that a disruption in Russian uranium supply would not affect the development of advanced reactors or operation of the U.S. light-water reactor fleet.”
Hi Ex, I have a question for you, what trends in the stock market do you look for in order to get positioned ahead of the curve. The uranium market is a relativity easy one at this point in time but sometimes, a sector that is totally under the radar starts to move really fast and catches almost everyone by surprise and by the time most investors have figured it out it is too late. I’m speaking from the point of view of a trader and not a buy and hold investor. DT
Hi DT. I don’t have an exact strategy, but in general, I like to first identify macro trends that seem very likely to unfold but that the masses have not piled into yet, and then look for a very oversold technical situation to start accumulating.
So for example, with Lithium, I’d been in the sector trading around positions since 2011, and by 2016/2017 it seemed more and more obvious that the lithium stocks were way undervalued compared to where things were going so I started accumulating more each time things pulled back in 2018, 2019, and especially during the pandemic crash of early 2020. My thoughts were, these Lithium stocks are going to happen, so it is not a question of “if?” but rather “when?” As they surged higher for most of 2020 and then into 2021, it turned out to be more insane than expected so I cashed out of the sector in late 2021 (which was the right call in most of the new producers and larger developers I was positioned in).
Uranium is the same thing only pre-mania stage still at this point. I mentioned repeatedly in late 2016 and late 2017 when the spot pricing and term pricing was in the $17-$18 range that it was comical and irrational and that people were nuts if they didn’t start accumulating there. It was as obvious as anything I’ve ever seen. There were some good Q1 runs in early 2017 after the last 2016 dip, and early 2018 after the late 2017 dip, but nothing earth-shattering and still on very little interest. After that, when there were corrective periods in 2018, 2019, and again during the pandemic crash, where I loaded up on U stocks figuring it was going to eventually happen.
During that time period of the pandemic crash in particular, I kept asking myself, what stocks are almost guaranteed to go up when all the covid mania finally blows over, and Uranium stocks, just like Lithium stocks were an obvious choice. I also got into the more liquid PM stocks and Base Metals stocks during that period, electing to buy quality over optionality, figuring sanity would eventually take them back up to more fair valuations.
Back to Uranium stocks though — While they did make a nice run for the balance of 2020 and 2021, I also felt they got a bit ahead of themselves by later 2021, and sold out of 85% of my exposure. That felt weird, as I didn’t think we’d see the top by a long shot, but it just felt like too much too fast. Many proclaimed that was it for the sector though, but I don’t buy that one bit, because I’ve studied the macro fundamentals intently and there is much higher to go still.
However, in early 2022, the Uranium stocks really corrected hard so fast, that I started buying them back again intensely faster than I was planning on, and then just traded them throughout 2022. I did add a bit more in late 2022 and a smidgeon this year to positions, but am fully allocated to the exposure I want in Uranium stocks. In my opinion, buying the U stocks here is still very much being positioned ahead of the curve and before the real mania begins in this sector.
With Palladium, I had noted repeatedly a few years back that it would make a nice substitution for Platinum in auto catalysts, and that I was looking for companies with good palladium and platinum exposure, and so when we saw that big run in 2020 into the first half of 2021, when palladium went parabolic in pricing, then I was already in position and had a number of multi-baggers, because of getting positioned ahead of the curve when it seemed obvious there’d be a catchup, but honestly that one surprised me with how wild it got so fast.
It was similar with Copper when it was trading in the low to mid $2s and yet all the macro information was pointing to a huge amount of demand coming in, so I decided like any commodity, that the biggest movers would be the producers first, so I got into COPX, and a handful of smaller producers and advanced developers, along with a few explorers peppered in. When we saw Copper rerate and go from the $2’s to the $3s and then the $4s in 2020 – 2021, then my portfolio was already in position. I sold most of that copper exposure in early to mid 2021, and have been mostly biding my time the last 2 years, with only a few positions in Dr. Copper. If I feel a short-term trend is afoot then I just trade the sector using COPX as it responds to the price movements much better than junior explorers or developers, and is diversified across many names, taking away individual company risk. I still think it is a bit early to position in too many names, but my plan is to make some good gains in the PMs over the next 12-18 months, and rotate profits into more copper and nickel stocks.
I’d submit that the Precious Metals are one of the better places to be positioning at present because they are extremely out of favor, and last year I was vocally adding to positions in July and Sept/Oct when many were still screaming about the sky falling, and as a result, I caught the move higher in the sector from Q4 into January. Once February rolled around, the charts were looking overbought and a bit stretched, so I trimmed back some gainers, and added a JDST position to hedge my portfolio, and that gave me some funds to take advantage of the recent downdraft. I added to a half dozen PM positions in the last 2 days when I see very few people talking about adding or buying. That is how it always is during corrective moves, and very few actually like buying when there is truly blood in the streets.
I think Oil & Nat Gas stocks are starting to look compelling again down here, and I’d love to see them get spanked for another few weeks and for the stocks to get hammered a bit more, and then I’ll likely add in a few energy stocks into the mix. Oil and Nat Gas stocks move in extreme swings, like mining stocks, and so they are excellent to trade. I’m most animated by the Nat Gas stocks right now, because the sector went from beloved when we saw US nat gas prices above $9 last year, to despised now that it is down in the low $2’s . That makes it seem very ripe for getting in soon ahead of the curve, and I don’t believe for a minute that Nat Gas prices will stay this low. I see prices in the $5-$7 range as more likely 12 months out, but right now that isn’t obvious to most, as they suffer from recency bias, and can only see the $2 handle. Getting into the gassers soon (next 2 months) will be getting positioned ahead of the curve.
As for individual stocks, I really do methodically follow a large watchlist and there are companies I’ve been waiting to get into for a long time, that I just bide my time with and then when the sector or individual stock just gets creamed, then I start accumulating. Somewhat recently I’ve finally got a position started in AbraSilver and Probe Metals after watching them for about 2-3 years. I also finally got back into Argonaut Gold after watching it implode for over a year, because it looks ripe for a rerate now. Some of those decisions were also influenced by solid fundamental developments at those companies that I don’t think the market has properly valued or even noticed, and so despite the fall in their share prices, they look more compelling to me now than when they had higher prices and valuations.
I’d say that is my main strategy… watching and tracking a quality company for a long time, and waiting for market inefficiencies where the valuation doesn’t make sense. Sometimes that is a sector-wide phenomenon, like at present, or other times it is in relation to peer companies, where a company just seems sorely mispriced. There are also times where it just seems clear that a company is a likely takeover candidate, and so I start getting positioned for that eventuality and exit strategy, and it is why I’m in about a half dozen takeovers each year. That falls into the idea of getting positioned ahead of the curve as well.
Well, I’ve ranted enough here, but hopefully that helps with a few ideas. I’m open to your ideas as well mate, and anyone else on how they get positioned ahead of the curve in companies, sectors, or developing trends.
In terms of uranium plays, I’ve sank my allocated U-funds into only two plays this past 1.5 years and remain a holder in Denison.
Ex, I do agree with you on natty gas. I’ve been thinking about taking 2-3 long positions, but am a bit hesitant because I’m wondering if I should wait until mid-Summer.
In terms of something different, with all of my readings on the # of excess deaths, maybe you have a suggestion of two regarding some funeral home-related tickers to consider?
Hi there Canuckski. No ideas on funeral-home related stocks… but yeah, eyeing some of the Nat Gas stocks could put one in the market…. as trading it’s volatile nature has earned it the nickname “the widow maker.”
As for Uranium, I’ve been in about a dozen different stocks over the last few years, but since 2021 I’ve mostly focused on 7 names, and Denison that you mentioned is one of them. There is nothing very exotic on the 6 others I’ve got in my portfolio as they are household names…. Energy Fuels, Ur-Energy, Uranium Energy Corp, NexGen, enCore Energy, and Uranium Royalty Corp. I used to be in a few of the smaller explorers, but have decided just to stick with the more established names at this poin.
Hi Ex, there are a lot of people that I like listening to for ideas on investing, Jayant Bhandari fits that bill because he tells people what he is doing in a straightforward fashion without telling them what they want to hear. Lately I have been listening more to John Rubino, and I like James Grant when I come across one of his articles.
I try to stay away from reading articles that I know I will like because I have this habit like so many others of falling into a rut which can be suicide for an investor. That includes buying stocks when they are going down, this is a hard one for almost all investors. Breaking the conditioning of being one of the boys but appearing to be part of the group, you don’t make money following the herd.
Then you have to learn to sell that involves separating signal from noise and learning that it is much better to make a fast nickel than a slow dime. Above all else try to listen to as many sources as you can so you can challenge your own thinking. DT
Great points DT. Yes Jayant Bhandari and John Rubino are out of the box thinkers and both good friends of the show and nice gentlemen. Also, yes, it is nice to get exposed to a range of ideas, sources of info, and some that will challenge one’s premise or present other ideas to broaden one’s horizons.
Teck’s Attempt at ESG Money Laundering – Spin off of Elk Valley Resources
The Coal Trader – Feb 21, 2023
“Teck Resources, a Canadian mining company, has announced plans to spin off its coal business and simplify its share structure. The move will result in the creation of two independent, publicly-listed companies: Teck Metals, which will focus on metals necessary for the transition to green energy, and Elk Valley Resources, which will operate the coal assets. The company will also wind down the dual-class share structure through which Canada’s Keevil family controls the company. Teck’s assets will include copper and zinc mines across the Americas, including the Quebrada Blanca 2 copper project in Chile.”
“While I acknowledge that this move is an intelligent way to structure the spin off, the new TECK will not be ‘green’ or environmentally friendly, despite the company’s claim to pursue sustainability, since a large portion of it’s revenue will still be derived from coal. So despite the fact they won’t technically ‘own’ coal, they still get access to virtually all of the coal cash flows in an attempt to ‘greenwash’ the revenue.”
“This is basically ESG money laundering.”
“We’ll know whether it works or not if TECK re-rates higher, in-line with copper producer peers. Either way, it will be fascinating to watch as the ESG grift continues to grow and companies attempt to navigate their way through it. Personally, I would not want to own EVR anytime in the near future. Owning TECK is better for the potential re-rate and you still get access to most of the met coal upside to boot.”
https://thecoaltrader.substack.com/p/tecks-attempt-at-esg-money-laundering