Long Term Bets

I like buying things at a discount.  The stock market is funny because most of the high flying buying action takes place when things seem to be trending upward.  I tend to work against that flow and wait for down days, weeks and months, then attempt to swoop in for my purchases.

Of course by that point I typically know what I want.  Being an investor, rather than a trader, I make long term plans, swallow as much good information as I can, make a plan, and stick to it.  It seems to work well.  Being an investor, time is on my side – I can beat up any trader as long as I have a long time horizon.

Which brings me to a couple of sectors that have been beaten to hell lately, biotech and energy.

My biotech plan was relatively simple.  These companies mostly operate in spaces that I don’t have any knowledge in, so I went searching for a CEF to do what I wanted.  My FA found what I think is a good one in TLF.  It is run by a bunch of PhD’s, many of which are MD’s as well.  Doctors should know as well as anyone if these biotech companies are on the right track or not.  I jumped in.  This CEF has a nice yield and I got in with a NAV discount of about 10%.  As our population ages, many of the companies in the fund will do well.

Natural gas is another beaten up space that I have recently piled into.  Prices on NG have plummeted to a three year low (as of this writing).  But there are a few factors that I feel make these long term bets profit centers in the future.

In the short term, there is a hurricane getting ready to completely destroy parts of Mexico.  That is no lie.  Patricia is the strongest hurricane EVER MEASURED.  That is going to tighten up supplies a bit for the short term and I would expect to see prices jump in the short term.

Longer term, there are many countries that are looking to gas for the future.  After Fukushima, Japan will be looking to gas for power and they are already importing LNG.  The US is getting ready to start exporting gas to the East and many other markets.

But my method of cashing in isn’t exactly price dependent.  I am piling into the shippers of LNG.  My list:

GLOG (Gaslog)
GLOP (Gaslog Partners)

COP (Conoco Phillips)

GLNG (Golar LNG)

GMLP (Golar LNG Partners)

PAA (Plains All American)

TGP (Teekay LNG Partners)

Gaslog and Golar are basically logistics companies.  The partners are the companies that they “drop down” the LNG ships into.  So as you can see this method, along with Teekay, gives (hopefully) good results no matter the NG price.  The top line will suffer, however margins should stay.  The ships themselves are amazing technical marvels in and of themselves and make for great reading if you have a few moments.  All of these shipping companies have fantastic yields.

Plains All American is a straight up pipeline company in the US.  It was beaten to hell recently and their yield made it too attractive to pass up.   Their stock price suffers along with the Nat Gas price, however again, their margins stay firm as they are a delivery company.

COP is an integrated company that is involved in many markets, however they are firmly entrenched in the gas markets as well.  They have some technological plays that are going to come to fruition in the coming years and are fully involved in the nat gas market.

I can’t see gas prices going too much lower, even with the mild winter that is forecasted.  Yes, supply is increasing and we have a massive amount of gas stored, but global demand will ramp up (one example is the LNG terminal in Lithuania, which will help break their dependence on Gazprom – there are many others) and when the US starts exporting that may affect the Henry Hub price in an upward direction as well.

I don’t have the cahones to make the ultimate bet on LNG, which of course is Cheniere.  Their massive amount of debt scares me a bit, however some of my plays here are sort of a side play on Cheniere (I have to admit) as these companies work with Cheniere on different projects.

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1 thought on “Long Term Bets”

  1. Thanks for the post and glad to have you back!

    These are definitely interesting picks. Natural gas companies have been tarred with the general commodities brush while their economics are far different, as you note.

    It is good timing will put at least one of these on the list for stock selections that are coming up soon.

    Like

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