Trip7

Energy Prices are predicated on the Supply/Demand curve. Business fundamentals are predicated on Free Cash Flows discounted to the present value. Right now all my price targets for each of my energy picks are based off substantially lower pricing than is currently out there. For example, EGY's Free Cashflows based on $75 oil at a 10% discount rate to results in a a $30/share valuation. The stock is currently under $7. That's a margin of Safety you can drive a bus thru. $BTU is a similar story. 2018 level coal gives you gives you a $32 valuation. Coal prices are 2-4x higher than that depending on the type.




Not sure what you mean here. Energy company balance sheets have more cash and less debt because in recent years Energy companies have been disciplined in restraining capital expenditures because the return on invested capital was high enough so they paid off debt or returned cash to shareholders.

I have some BTU shares but my conviction in BTU is so great most of my position are LEAPS. I agree with Jerry Jones that we have are just in the 1st quarter of the Energy Bull Market



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thrust

Any sector ETFs/etc you’d recommend vs these individual equities? Yep, too lazy to do my own homework, and you seem knowledgeable/passionate about the sector…

mispoken

No debate about how commodity prices are determined. That’s not my point. You said the following;

”After evaluating those businesses one can easily come to the conclusion that even if the Russian conflict ends Energy prices will remain elevated”

If I’m reading this correctly, you’re saying by evaluating an energy companies fundamentals, you can deduce that energy prices will remain elevated. My question is, how?

Your second response as to the value of the company as it relates to the price of a barrel of oil actually answers my question. Your entire formula is predicated on the price of oil, for example $75, so I think we agree that the value of these energy companies is driven by commodity prices and not the other way around.

You and Jerry may very well be right. This could go on for years. Then again, this could end at any time.

Mesabah

Green energy policy is what is keeping prices high, that policy also started, and is keeping the war going. China, and Russia are pumping maximum greenhouse gasses in order to melt the arctic ice so they can claim the resources under it. Meanwhile we are trying to stop that warming by paying super high prices in order to reduce demand. Until we see major policy changes,(I suggest voting out every Dem in the midterms), pain will continue. I would love a clean environment, but you would have to nuke China, otherwise we are wasting our time.

Trip7

There's no "could" about the energy supply and pricing. Unless another COVID or similar Black Swan appears that forces folks to stay inside their home for a couple of years and social distance, the energy supply will remain constrained for years. It would have happened without the Ukraine war. That whole situation just amplified the problem. The thesis is very very simple. Supply is constrained, demand is nearing pre-Covid levels and it takes at least 2-3 years to meaningfully increase supply. Price will remain elevated. Combine that with deleveraged Energy companies due to years of capital discipline and now you have energy companies that are producing 25%+ free cash flow yields. Invest $1 in an energy company and in a year it will give you at least 25 cents back plus your investment if you sell. And that's on the low end. Plenty of small caps projecting 50%+ free cash flow yields. It's no surprise Buffett keeps gobbling up OXY. Energy stocks right now are literally free money laying on the ground. One just has to go pick it up

Trip7

XLE

https://www.cnbc.com/quotes/XLE

mispoken

All fine and well; your theory is that energy prices will remain elevated for some time. You can’t really know for certain. Your assumptions are reasonable but only time will tell.

My main point was that you said if you look at the fundamentals of energy companies, this is where you will find that energy prices will remain elevated. I don’t think that’s what you mean. I must say, your statement that energy companies are “free money” is pretty dramatic, even for you. The price of energy companies is the price of energy companies. That’s what the market has decided. Maybe the next couple years the market will see nice quarterly numbers and they’ll continue an upward trend in stock price, but maybe not.

My other point was that energy is in a bubble and it will come crashing down.

And that BTU was $1.05 2 years ago.

mispoken

How come you don’t post when inflation beats BTUs daily performance? This is just in jest, of course.

Gspeed

Your energy posts are just as humorous as fanciful as your COVID posts were.

Trip7

Bubble? BTU’s Enterprise value is $3.4B. At current coal prices BTU is projected to make $1.75B. BTU is trading at less than 2x earnings. With demand for coal skyrocketing and no supply increases in sight for years. In this past era where companies like TSLA, PLTN, SHOP, GME, AMC etc trade or traded for ludicrously high (50x+) multiples surely you can’t be serious when you say energy is in a bubble. If BTU hits $80 I might send a post agreeing with you from a yacht off the Almafi Coast