Hyperbole is the coin of the realm in teaserdom, of course, but even so — when you headline your emails with a phrase like “best you can buy,” your friendly neighborhood Gumshoe is going to take notice. And some of his favorite readers are, too, if my inbox is any indication.
So it goes today — Dr. Kent Moors, a poli sci professor at Duquesne who runs a couple energy-focused newsletters for the Money Map folks, is telling us that he’s got a stock with projected growth of 11,100% (numbers from analysts, he tells us, not made up out of thin air as with some teasers) and, well, that it’s the “best energy stock you can buy.” And if you want to shell out $695 for his newsletter, he’ll share all the details with you.
You don’t though, right? Well, it’s up to you — maybe you’ll love his newsletter … but let’s figure out what stock he’s teasing first so you can make a thoughtful decision based on facts (or reviews — we don’t have any reviews of his pricier Energy Inner Circle yet, but do have some of his “entry level” Energy Advantage newsletter here), not just to find out his “best energy stock.”
So what is this pick? It’s a play on the “natural gas super shift” — sort of a bigger picture version of the pitch that David Gardner at the Motley Fool has been making for his favorite LNG engine maker lately, the basic idea being that the world is switching from dirty, scarce oil to clean, plentiful natural gas (both being exaggerations, of course … but you get the idea).
And actually, Moors even cites the natural gas bill in the House of Representatives (HR 1380) as a catalyst, just as David Gardner has been doing lately …
“Every single minute America sends $1,388,889 to some of the nastiest people on the planet, in the name of national security.
“That’s a staggering $2 BILLION every single day.
“Has Congress finally had enough? It sure looks like it…
“House Resolution 1380 is about to put the brakes on that ridiculous outflow of YOUR money in one, massive, energy move that could result in the biggest energy/transportation breakthrough since the Model-T.
“Those who play the inside moves behind this “super shift” stand to become wealthy as Texas oil barons
“The 50 or so global power brokers who control 90% of the world’s energy are already licking their chops.
“This elite Inner Circle has zeroed in on one company perfectly poised to siphon off this $2 Billion-Dollar-a-Day cash outflow that the U.S. government is about to redirect their way.”
And that “one company” that’s “perfectly poised?” Don’t worry we get plenty of clues to toss into the ol’ Thinkolator today:
“This company stands to become one of the biggest blockbusters of the decade. According to analysts at Yahoo Finance, this powerful little company is estimated to grow in size by 11,100% this year… ”
So there’s one clue. And what kind of company is it?
“How to grab your share of this $2 Billion/day transfer of wealth
“Many people may read this as a signal to jump on natural gas. The gas itself. But only a fool would do that.
“Natural gas is already cheap. And it’s getting CHEAPER. There’s no way you can make the mammoth gains in that scenario.
“The really big money will be made NOT on the gas… but on the few, elite companies positioned to capitalize on the SHIFT to natural gas.
“These are companies who 1) have the technology to make and convert natural gas engines, or 2) are leaders in transporting and supplying the new demand for natural gas to the masses. And they could soon virtually explode with profits.”
And then some more specifics:
“As the coming super shift to natural gas heats up, the need to economically transport NG to the masses will become essential – and a remarkable investment opportunity.
“The LNG revolution – transforming the gas into a liquid and shipping in tankers, turning it back into a gas on the receiving side, and then injecting it into existing pipeline networks for delivery to retail customers – is already becoming one of the most important developments in hydrocarbons worldwide.
“And it’s poised to grow exponentially with the coming NG super shift as natural gas is transported around the world.
“For that to take place, two unit types are required: 1) tankers and 2) floating storage and regasification units (FSRUs).
“The first is obvious – no tankers, no LNG trade. But the second is just as important.
“To increase efficiency and decrease the likelihood of accidents impacting upon wider populations in shore-based storage facilities, countries are shifting to offshore supply storage and regasification. FSRU is a critical technology for that to happen.
“Along with having its own expanding tanker fleet, one company also happens to be the leader in FSRU technology. In fact, they pioneered it.”
So that’s pretty good — and probably enough to identify the stock. But to make things a bit easier on this lovely sunny Thursday, perhaps to give your friendly neighborhood Gumshoe time to go out and water the apple trees, we get a few more specifics:
“The company’s current fleet consists of 12 tankers, with additional vessels coming online. Its fleet has an overall capacity of more than 1.7 million cubic meters, making it a major factor in a rapidly developing energy sector.
“Most of the company’s revenue stream comes from deploying its tanker fleet on time charters – essentially, long-term contracts – to some of the largest LNG producers in the world.”
So who is it? Toss all that into the waiting maw of the Thinkolator, chew for a moment, and out the other end (gross!) comes … Golar LNG (GLNG)
Golar is an old shipping company, but in its present iteration it was really created by Norwegian shipping magnate John Fredriksen (who also build Frontline into the world’s biggest oil tanker company, and Seadrill into one of the biggest operators of high-spec deepwater rigs) about ten years ago, when he took over control of the company.
It was, at the time, a small LNG shipping fleet, most of which was quite old (1970s and 80s) — and at the time, LNG ocean shipping was a small enough market that there wasn’t really a “hot” spot market for available tankers, so most of them were on long-term charter to big oil companies for specific routes, mostly serving what are still the world’s most important LNG customers, Japan and South Korea (LNG is liquefied natural gas, gas that’s super chilled and pressurized to make it feasible to transport it long distances via specialized tanker, and it’s the source of most of Japan’s natural gas since they have no real resources within pipeline distance).
Now, however, the LNG market has been slowly growing for a while — and there’s even talk of the US, with our huge shale oil resources, becoming an energy exporter for the first time in a very long time (OK, we do export some oil and gas now — but not much, and you need special permission to export). That, along with increasing demand in Southeast Asia and Japan, and particularly with the very large spike in demand following the Japanese earthquakes (they need lots more nat gas if they can’t use their nuclear plants), has brought LNG shippers to the forefront of investor attention again. And since they’ve been playing this game for a while and were pretty well positioned to grow with the industry, Golar specifically has done very well this year.
And yes, if you look in the analyst forecasts in Yahoo Finance, you will find that they are expected to grow earnings by 11,100% this year — that’s because they earned one penny per share last year, but analysts expect them to earn $1.12 in 2011.
Of course, analysts have been wildly off on their Golar estimates for the last four quarters — GLNG has come in well below estimates every quarter — so you need some faith to believe that estimate will turn into reality. And 11,100% earnings growth is not the same a stock that’s likely to go up by 11,100% — after all, GLNG trades in the high $30s right now, certainly investors expect them to earn a lot more than last year’s one penny.
If they do (against all odds) hit the estimate right on the head and earn $1.12, that means the stock is trading at a current year estimated PE of about 33 and an estimated forward PE on 2012 numbers of about 22. So it’s not cheap based on earnings, it’s all about whether you think it will grow fast enough, or pay a high enough dividend, or see book value increase enough (or whatever) to justify the relatively high price, which is in part driven by the the big LNG “story” of the first half of this year (earthquake scary, nukes bad, need more LNG for electricity in Japan and elsewhere).
Like most Fredriksen-affiliated companies, Golar has also delighted in debt, dividends, and financial engineering to increase shareholder value — so they pay a decent dividend, and the company split into two entities in 2009 (Golar and Golar Energy) to provide a stable pick and an aggressive growth pick, but then rejoined the two companies this year and instead has split off some of their Floating Storage and Regasification Units (FSRUs) and LNG Tankers into an MLP, which they control. So if you prefer what is likely to be a higher and more stable yield, you might also prefer to take a look at Golar LNG Partners (GMLP) — though GLNG still holds 2/3 of that MLP and is the operating and general partner, with special incentive distribution rights, so that might be more appealing as you dig into the details (I haven’t).
Golar issued their first quarter earnings release at the end of May and you can see it here — included are some good details about this combination of Golar LNG and Golar LNG Energy and the subsequent IPO of the MLP. The company is optimistic that the rate environment for their equipment will be good going forward, with “improving fundamentals” in the market, and they also have several older LNG tankers available for conversion to FSRUs that might add to the future profits — and like all Fredriksen companies, they are likely to be quite aggressive, which means buying up shipyard slots to expand the newbuilding fleet (they already have a half dozen more tankers coming over the next three years).
I don’t know what the dividend will be for either GLNG or GMLP going forward, but the aim of most of their sister companies in the past (FRO, SFL, SDRL) has been to distribute essentially all of the earnings to shareholders and to use debt for growth — wouldn’t be surprising if that continued to be the case. I have looked at GLNG several times in the last few years and never bought the shares, and frankly I’m not sure I understand the company that well after their two reorganizations and my limited look at the books today … but I do hold shares of Seadrill and continue to think it’s the strongest deepwater drilling stock for aggressive investors.
P.S. Moors teased a second stock in the same ad — here’s a quick excerpt:
“Rake in gains as the world is driven to one company that is already the global leader in NG engine technology
“The main obstacle to the wholesale switch to NG vehicles has been so far… well, how to make that switch… From gasoline to compressed natural gas (CNG) or liquefied petroleum gas (LPG). And how to do it both efficiently and cost-effectively.”
Not to belabor this point, but here he’s teasing the natural gas truck engine builder Westport (WPRT), the same pick touted by David Gardner a couple months ago and by other folks this Spring, and that I’ve written about many times for the Irregulars. So that’s your little bonus for the day.
Full disclosure: as noted above, I own shares of Seadrill personally and have profiled both Seadrill and Westport for the Irregulars. I do not own any of the other stocks mentioned, and won’t trade in any stock mentioned for at least three days after publication of this article.
If not, just click here...