$50,058

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Investors,

The All In Portfolio closed at $50,058 last week. For the month of October the portfolio was up 7.16% or $3,344. Since January the portfolio is up 112.85% or $26,540.

I started the All In Portfolio with one single goal in mind: try to compound a portion of my capital as quickly as possible by investing everything in the highest conviction stock I could find with a near term catalyst. Being up 112% in less than a year has been an incredible blessing.

But man, what a wild ride it has been. Having this amount of concentration on one single stock can produce some wild swings. Earlier this week the portfolio was over $53,500 in value with a gain close to 122%. And back in September the portfolio was at $55,000 with a gain of 131%.

I should be upfront and clear. The All In Portfolio is not my entire net worth. It is a small portion of my portfolio. The portfolio is designed to show readers what a heavy concentrated portfolio can do when you invest all of your capital in your single best idea. In the good months you will make a lot of money. In the bad months your gains can be wiped out pretty quickly. The goal is to have more good months than bad months, invest in the long-term and use strong fundamental to pick winning stocks.

The All In Portfolio is 100% invested in a single commodity name. Last Tuesday I penned an article to Alpha Letter Pro members my investment thesis behind this stock. My price target on the commodity stock is $80-100 per share. With the stock currently trading at $60 per share, it represents significant upside.

But why should it be worth $80-100 per share when it is currently trading at $60? I laid out my thought process below.

  • Three different peers have announced 2022 contracts at significantly higher pricing than last year. One peer locked in 2022 contracts at $187 per ton. Another locked in at $196 per ton. And a third locked in pricing for 2022 at $230 per ton. I expect this company to announce their 2022 contracts in the next couple week in the $187-230 per ton range. As a reference, in 2021 contracts were locked in at $87 per ton. This will be pure margin and drop right to the bottom line.

  • If this company locks in pricing at $187 per ton they could generate in excess of $1.5 billion in free cash flow. Locking in pricing at $230 would equate to over $2.0 billion in free cash flow. With an enterprise value of a mere $1.6 billion and a market cap of $1.1 billion, the company could generate its entire value in one year.

  • Even better, one of their peers has been on an absolute tear since announcing 2022 contracts. This peer is now valued at $805 million. What is interesting is this peer only produces 2.5-3.0 million tons of coal. The company I am invested in produces 14-15 million tons of coal. Based on the relative valuation, this company has significant upside should the market act in any rational function.

  • This company is currently over-levered with a significant amount of debt on the balance sheet. However, just 1-2 quarters of pricing in the $180-230 per ton range will put the company in a net cash position, significantly de-risking the entire enterprise. Moreover, a mere six months from now more investors will likely step in and re-rate the company based on the cash heavy balance sheet.

  • Q3 2021 earnings could act as a catalyst. Not only will we know where 2022 contracts land but the company received $70 million back in income taxes which will hit the balance sheet when they report. I am also modeling back-half 2021 free cash flows in the $200-250 million range, which doesn’t take into account the $70 million to be received. By the end of fiscal year 2021 the company could be close to being in a net cash position, meaning all of the cash flows generated in 2022 could be used as a large special dividend.

  • Supply is severely constrained due to a lack of capital spend in the industry for decades. If this super commodity cycle continues for more than a year, this company could become a multi-bagger at the current price.

The entire All In Portfolio is invested in this name. I think the stock has significant upside in the near-term as investors digest key information from the Q3 2021 earning results this coming up Friday. As a sanity check, I am not the only one thinking these free cash flow results are possible…

Get access to the All In Portfolio and all of my prior research for only $20 per month. As a member of Alpha Letter Pro you will join a community of over 1,500 active investors.

Until next time,

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Alpha Letter is not investment advice