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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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