One of the reasons – probably the biggest – that I haven’t reshuffled my portfolio since last year is, if I were outside the oil and gas sector when this blowup happened, I’d be buying everything in view right now.
It’s always pretty rough when it’s your carcass getting chewed on, but that realization is pretty important to my overall strategy right now.
I’ve been keeping a close eye on the positions I’ve been keeping and their balance sheets.
Take HCLP:
Net cash from operations has actually increased to $58.0 million from $53.6 million. The increase has come from growth of accounts receivables, which sets up a discussion about what future business for HCLP might look like. The company is under hardship, yet they have more customer money on deposit than ever?
Yes, they are offering concessions to customers. The whole sector has to do their part to survive. But the company is clearly not going anywhere, and much of the growth they experienced in late 2013 and early 2014 is here to stay. When will the market price that in?
I also see that HCLP has quadrupled investments into property, plant, and equipment from where they were last year. Again, hardly the mark of a business readying itself for a long winter.
I’m estimating HCLP’s intrinsic value at around $2.30 a share. That puts price to book at 6.5X (admittedly a little pricey) but at current rolling 3 months of earnings, that still leaves a risk threshold of the company at about 10 years (completely reasonable absent any growth).
So we have a company which was growing like a weed up until about 6 months ago, which is seeing cash deposits for future business soar, and which is reinvesting at an attractive rate. Why would earnings continue to stagnate? Even without new drilling, HCLP sand is going to be in high demand to maintain existing wells.
So tell me, if I fled now after the fire is smoldering, where would I go that’s better?
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Thanks, I’m closing my eyes, and waiting until 2017 on HCLP
I got back into HCLP about a month ago. Am now consideing adding to position.
As someone who doesn’t own any HCLP, I’d need a better idea of what the Dividend will be at a year from before I’d invest. My guess would be .25 – .30 quarterly considering the amount of debt issued last quarter to pay the dividend.
Also, I have no idea what a reasonable gross margin would be for their product going forward.
I think ARLP and NRP look interesting. Both are yielding 10%+ on well covered dividends (NRP has a mountain of debt to pay down, however).
NRP has been yielding 10% over 80% of downside. That one is a trap.
I’m glad I escaped before that imploded.
Isn’t NRP trading close to liquidation value now though?
I’d expect partners to get at least $2.00 a share if liquidated, which doesn’t imply much risk at what NRP is trading for right now.
The thing about liquidations is, you never know how much you’ll get really.
I still like the idea of buying coal. But it’s going to have to be in the form of assets that have left these defunct structure’s possessions.