Good morning investors,
Hope you all are having a great Q2 earnings season. We are halfway through this busy time of the year and ready to keep rolling as additional incremental information is released.
Going to take the time today to give an overview of the companies in my portfolio and what has happened so far in Q2. But before we get to that, first a word from our sponsor.
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Q2 2021 Update
For subscribers of the premium letter here is a quick overview of what has happened so far. If you are not yet subscribed to the Alpha Letter, you can subscribe using the link below.
Use the links in each bullet point to see the original research if you don’t know what company I am writing about.
Company One: Earnings were pretty much inline with my estimates. Revenues have improved dramatically from 2020 lows and continue to increase going into Q3 (from management’s guidance). The dividend was recently reinstated, giving us a forward yield just shy of 3%. I think the company increases the dividend back to pre-2020 levels over the next couple of quarters, putting the yield closer to 6%. Cash on the balance sheet continues to grow. I think we get back to 2019 revenue and EBITDA levels by the end of 2021. Enterprise value is $80 million with potential to generate $15-20 million in free cash flow per year. Low risk, decent upside idea. Be patient if you are a buyer. The stock is highly illiquid.
Company Two: Earnings were a little disappointing here. Most investors were expecting a $5-7/unit distribution given increased price in fertilizers. But pricing apparently didn’t hit the income statement until later in the quarter, dragging down operating performance. The distribution was still a respectable $1.72/unit and I expect this to grow going into the back half. I reduced my position to add to my new top idea as I think the risk/reward is much more favorable in this new idea.
Company Three: This management team continues to impress me as they have been executing on their strategy. The stock is up over 200% since going public despite all of their peers trading lower. Balance sheet is pristine and the monthly dividend (5.6% yield) is great to receive. The stock is fairly valued at the current price but if additional gold reserves are discovered there is option upside as the terminal value of the company will be extended. I am happy to hold this company at the current price and get paid to wait. In addition, I think of this as a decent inflationary trade given the business they are in.
Company Four: Results were a little better than I had them at but still not back to 2019 levels. The company should be EBITDA positive going into Q3 (first time since the pandemic). In addition, the management team continues to monetize excess real estate and now some life insurance assets which will continue to bolster the balance sheet. Management team is Class A and will continue to create shareholder value. This company’s assets continue to outperform their peers which will be beneficial over the long-term. Happy to hold for at the current price and will continue to buy on any material weakness.
Company Five: This company outperformed my estimates by a wide margin. The market ran the great earnings report and the stock is now up over 60% from my original research report. Fair value is $10-12/share over the mid-term and could possibly go higher over the long-term depending on how management allocates capital in the future. I took this good news and sold my entire position to add to their peer which I wrote up recently. I think their peer is extremely undervalued and should continue to re-rate as positive macro conditions persist.
Company Six: This is my new top idea that I have recently been purchasing and was talking about in the Company Five and Company Two bullet points. I wrote the stock up last Wednesday telling subscribers I was buying the stock hand over fist. The stock is now up over 20%. This is a fairly risky investment as there is a significant amount of debt on the balance sheet, but if I am right and pricing continues to hold over the next few months I think the stock could go to $50/share. As an incremental piece of information, steel producers surged today as the Senate passed its $1 trillion infrastructure bill. This should largely benefit this company due to their close ties to the steel industry.
I am still waiting on the last two companies to report their earnings which is usually at the end of August (please see the research here and here). I think both should post decent results as they are both reopening plays and their peers have reported good results. Will keep you all updated when these earning reports come out.