Adam O’Dell is pitching his 10X Stocks service for Money and Markets, which these days is a small publisher that seems to be an offshoot of Banyan Hill. This is his “upgrade” service, he says it has a $10,000 list price, though it seems unlikely they’ll ever actually get anyone to pay that — right now, it’s being pitched at a “90% discount” at $995, with future renewals at $1,995.

The general idea is to look for trends, and pick what he sees as appealing smaller-capitaliization stocks that will profit from those trends. Nothing terribly earth-shaking there, he’s been pitching “hot trend” stocks for years now, and many newsletters try to do something similar (O’Dell’s big pitches have generally been more in the tech and biotech space recently — his “Imperium Machine” pitch of Twist Biosciences (TWST) for his lower-cost Green Zone Fortunes letter has been one of the most popular and least successful teaser picks of recent years).

This time, the trend is “rising oil prices” — here’s a little snippet from the ad:

“OIL is prime for a resurgence. And it’s coming back with a BOOM.

“Which is why we’re holding this special event for YOU today.

“Because all my research shows there’s a NEW bull market in energy taking off…

“That will shoot oil up to $500 a barrel…

“10X the size of the energy market over the next decade…

“And send one U.S. oil stock soaring 100% in the next 100 days.”

And Gumshoe readers, naturally, wanna know what that “one U.S. oil stock” might be… so let’s dig in.

More from the ad:

“Energy stocks across the board are seeing double- and even triple-digit gains as well over the last year.

“Stocks like Hess Corp., the energy exploration company, hit an all-time high up 94%.”

He lists a bunch of other examples of large oil companies that have soared higher in 2022, that’s essentially the nature of a commodity business — there are better and worse companies at any given moment in time, some have better management or balance sheets than others, or more exploration success, but for the most part they go up when the commodity price goes up, and they go down when the commodity price falls.

And then he starts hinting about his favorite oil stock…

“I believe the oil stock I’ll tell you about today, is primed to hit 100% in the next 100 days. And then skyrocket to the top of what will become energy’s $10 trillion industry over the next decade.”

Other clues?

“This North Dakota-based oil stock I have my eye on, IS NOT some questionable IPO. It’s not a complicated option trade. And you don’t need to use any kind of risky leverage either. It’s a simpler and far more profitable opportunity that you can take advantage of right away.”

He throws out several reasons why he thinks oil will be a big winner… including this:

“Wells Fargo recently did a study where they looked at 15 major asset classes and studied how each one did during high inflationary periods. Going all the way back to the year 2000.

“What they discovered is, crude oil outperformed all other asset classes, jumping as much as 40% during high inflationary periods.”

I would say that we haven’t HAD any high inflationary periods in the last 22 years — inflation bumped up a bit as the housing bubble inflated from 2006-2008 or so, but other than that inflation has been well below historical averages for almost all of the last 20 years. Oil did very well during that 2005-2008 inflationary period, and did well in the inflation that came after the COVID collapse in 2020, though it also collapsed in 2014 and effectively caused a crash in inflation in 2015. This is the 22-year chart of the CPI inflation rate and WTI Crude prices, in case you’re curious — it does remind us, at least, that energy prices are one of the most volatile inputs for inflation, they go up and down a lot faster than rents or salaries, and there’s a reason why Wall Street traders focus on trading oil as a play on inflation:

So yes, oil prices generally rise during periods of inflation. And on the flip side, rising oil prices are usually a meaningful driver of inflation. Likewise, when inflation has fallen meaningfully in the past, like from the mid-1980 peak to 1986, when the inflation rate dropped by 90%, the US oil price is typically also falling — oil bottomed out in the mid-1980s with roughly a 60% drop.

Does that mean anything about the future? Well, only if you know that inflation is going to go up or down… or that oil prices will go up or down. My assumption is that China’s continuing reopening will lead to pretty high demand for basic materials, and therefore probably higher energy and commodity prices, but it could also be that we’ll see peace in Ukraine in 2023, everyone will happily start buying Russian oil and gas again, and prices will fall… or we could have another recession that crushes global demand. We don’t get to know the future.

Oil most recently peaked about six months ago, and has already fallen 25% from those levels… which, not coincidentally, has helped the CPI inflation rate to fall about 17% as of the December update (and probably fall a bit more when the January numbers come out on Thursday).

But anyway, back to the script — what is Adam O’Dell pitching?

“Bank of America says oil could hit $200…

“JPMorgan is projecting oil at $380…

“And Reuters reports hedge funds and money managers are betting big time on even higher oil prices.

“With reports that some experts already see the possibility of oil reaching $500 a barrel.

“That’s why Goldman Sachs is calling for a 10-year bull market that will send oil prices to the moon….

“All my research shows we could see at least, another 10X increase from 2020’s lows, just like what happened in the most recent boom from 1998 to 2008 … and what happened in the oil boom of the 1970s.

“Which means oil will shoot up to $500 a barrel…

“And the total market cap of energy stocks will DWARF the current size of Apple.

“Easily reaching $10 trillion over the next decade.”

And as almost every energy pitch has done over the past year, this one also highlights Warren Buffett’s recent interest in oil stocks…

“After not buying stocks for years, Buffett just recently started scooping up stocks again. And he’s buying them hand over fist, bringing his current investments up to…

“$9 billion in Occidental Petroleum…

“$2.7 billion in Dominion Energy…

“And almost $24 billion in Chevron.”

That dates this ad a bit, since Berkshire Hathaway’s current total holdings are $12.5 billion plus warrants on Occidental (OXY) and $29.8 billion in Chevron (CVX), and Berkshire has not been a meaningful investor in Dominion Energy in my recollection (though they did buy a big chunk of Dominion’s infrastructure assets, mostly oil pipelines and a part of the Cove Point LNG plant, back in 2020). Buffett did dramatically increase his investments in oil companies over the past year, though much of that was in the first few months of 2022.

And we get this interesting nugget:

“I know Buffett would love to get in on the oil stock I’ll tell our viewers about today, but here’s the thing — he CAN’T.”

How Adam O’Dell knows Buffett’s deepest desires, I don’t know. Mostly he probably just means that Buffett doesn’t usually invest in smaller companies (it’s too hard for him to buy a meaningful stake, and it’s therefore not worth his time). Here’s more from Adam:

“We’re able to invest in strong, healthy energy companies that are just too small to be on the radar of these big hedge funds. This is the second step at the heart of my strategy.

“Because, it’s against their policy for many of these massive hedge funds, like Buffett’s Berkshire Hathaway, to invest in some of the small, yet high-quality energy stocks my system finds”

He also cites some other big and famous investors who are buying into oil, including David Tepper with his 2.7 million shares of Constellation Energy and 2.8 million shares of EQT, so that means this data was pulled after the second quarter 13F filings were made (August 15), and before the third quarter (November 15), since those positions have changed a little since (Tepper sold a slice of essentially all of his top holdings in the third quarter, though CEG, EQT, Antero resources (AR) and pipeline company Energy Transfer (ET) are all still his fund’s top ten holdings as of the third quarter — we won’t know what the fourth quarter positions were until February 15).

And then they re-run what they say was an analyst meeting between O’Dell and his colleagues, and that gives us some more clues about this favorite name. We’re told it has a market cap under $5 billion, that Adam O’Dell thinks it will be the “future of North American oil” and become a household name “during this new super bull.”

Other hints:

“This stock’s earnings per share have absolutely BOOMED. It’s up more than 1,600% from a year ago…

“on its most rcent earnings call, the company’s leadership announced they’ve once again increased their production — up 15% from the last quarter… As well as a new 10% dividend increase for investors….

“… this company just announced a nearly $200 million sale of its foreign mining assets. So, it can force more on the development of its North Dakota facilities… this sale is expected to close within days… I’m expecting this stock will see an immediate bump…. At least 100% in the next 100 days.”

We get a few other clues, too… from the ad:

“… this company has great positioning and it has been continually innovating itself for more than a decade. And really, the CEO is a rock star. He’s the X-factor. This guy is homegrown from within the company and has proven himself for putting shareholder value first… he’s also served in numerous federal appointments in the oil and petroleum industry.”

“Rock star” is obviously a qualitative judgement, but we at least know the company has been around for more than ten years.

And O’Dell also tells us that this is a “$20 oil stock,” so the price must be somewhere in that neighborhood. Another decent clue, in combination with the hint that this stock has a market cap of roughly $5 billion.

So what is it? This is, sez the Thinkolator, our old friend Enerplus (ERF). This was a stock I wrote about a fair amount in the early days of Stock Gumshoe, it was one of the large and popular Canadian Royalty Trusts 15 years ago, and they bet pretty big on the Bakken during the early days of that North Dakota oil boom… and now, though it’s still headquartered in Calgary, it’s really a Bakken-focused US oil company that also owns some shale gas properties in the Marcellus. As O’Dell hints at in the tease, they sold off the remaining stub of their Canadian assets late last year for about $200 million.

O’Dell’s “most recent quarter” comments about the company are from the third quarter, which was reported on November 3 — and yes, they did increase their dividend by 10% (though that’s in Canadian dollars, and that currency weakened a bit this year so the increase is less substantial once it makes the journey across the border), and announce that production had increased by 15% in that quarter. They’ve also been buying back a good chunk of stock. Their guidance for production in the fourth quarter was roughly flat with the third quarter, so the production growth is not necessarily steady or consistent quarter to quarter.

Enerplus has been a nice beneficiary of the huge leap in oil prices this year — that surge in earnings, which roughly tripled from mid-2021 to mid-2022, helped them to significantly clean up their balance sheet by paying down debt, and the closure of their Canadian asset sales should make things even cleaner (if oil prices stay relatively high, it won’t matter, they can easily service their debt and pay it down over time — but if oil prices collapse, that story changes quickly).

Right now, they’re trading at pretty much bargain-basement valuations — though that’s common in the oil patch. High oil prices have created record earnings, and investors are cautious about paying high multiples of record earnings for cyclical companies, since, as we have seen many times in the past, we know that their earnings will fall considerably if oil prices fall. Right now, Enerplus at about $16.50 has a PE ratio of 5 whether you use actual 2022 numbers or 2023 estimates — analysts think they’ll earn something in the $3-3.50 range for both 2022 and 2023, assuming oil prices remain somewhere near where they are now. If they continue to pay their quarterly dividend at the current rate (5.5 cents/quarter, in Canadian dollars), that would provide investors with almost exactly a 1% dividend yield. They could afford to increase that dividend pretty dramatically, but they seem to be more focused on share buybacks as their shareholder-reward strategy at the moment.

As for whether Enerplus CEO Ian Dundas is a “rock star,” I’ll let you make that judgement. He’s been at the company for 20 years, and has served as CEO for the last ten of those. The company was a very different entity in the early 2000s, when the Canadian Royalty Trusts were popular yield investments, and it soared back in those days, up 500%+ in the decade leading into what investors sometimes call the “Halloween Massacre,” when Canada changed its rules to get rid of those trusts in a surprise move on October 31, 2006. If we give them a couple years to react to that shock and start after they recovered from the 2008 collapse, this is the performance of Enerplus compared to some other oil players over the past dozen years… that’s Chevron (CVX) in pink, ExxonMobil (XOM) in blue, Hess (HES) in green, the actual WTI Crude oil spot price in orange… and down near the bottom of the chart, Enerplus in purple and Northern Oil & Gas (NOG) in brown.

And I include Northern Oil & Gas for a reason — that’s another Bakken play, and the Bakken oil boom was a wild surge from roughly 2006-2012… but the Bakken stocks were more reliant on relatively high oil prices back then, with pretty high costs, and they all fared horribly when oil crashed in 2014 and everyone pulled back, with focus returning to the somewhat safer and lower cost Permian Basin in Texas. Overall production in the Bakken has actually continued to be quite strong — it pulled back in 2020, when oil prices again collapsed, but it has mostly come back now, production in the state is now similar to what it was from 2016-2018… it’s just that it hasn’t been growing nearly as dramatically as it did in that first flush of discovery.

The infrastructure has been built up to deal with that level of production, so Enerplus has been able to move their light oil to the Gulf Coast refineries and sell it at premium prices in recent years, and they’ve certainly enjoyed the high oil prices in 2022. They seem to be doing just fine. And my guess is that Adam O’Dell put his presentation and his predictions together sometime in mid-November, when the stock was in the $18-19 range, so if you’re looking for that “100% in 100 days” excitement, well, I guess the optimistic case here is that you haven’t missed it yet (ERF is around $16.50 today in US trading, so roughly a 10% loss in 50 days).

Short-term predictions are a fool’s game most of the time, though, so we’re probably better off thinking about whether Enerplus can keep making money and growing earnings over the next few years. Will that continue?

Well, it’s probably a reasonable bet. As long as oil prices don’t collapse.

They’ve been getting better production from their North Dakota wells this year, the balance sheet should be in great shape when they report their end-of-year numbers (mostly because of those asset sales), they’ve been disciplined in using their windfall this year to pay down debt, and they say they’ll continue on this path, using at least 60% of free cash flow for “returns to shareholders” (probably mostly share buybacks).

Their vision of the five-year outlook in the Bakken, with pretty modest production increases, includes an expectation that they’ll generate $3 billion of free cash flow — though that’s dependent on WTI oil prices staying around $80/barrel — and they do believe that they have enough “drilling inventory” to make that feasible. You’re still betting on oil prices, and there are, of course, no guarantees until those wells are drilled and the production comes online, but if oil stays high they seem to be well-situated. You can get their optimistic take on that outlook from the latest Investor Presentation.

The downside risk, of course, beyond anything bad happening with one of their wells or something company-specific like that, is that oil prices are currently at $76, down from a high of about $115 in July and $85 when they released that presentation in November, so as of today they’re below that $80/barrel “forecast” price and falling. Which is why the stock trades at 5X earnings: Implicit in that kind of valuation is that the majority of traders right now think Enerplus earnings are likely to fall, mostly because oil prices are falling. There are some oil companies that trade at more “premium” valuations, like Hess (HES), but that’s generally because of a high probability of substantial production increases (in the case of Hess, that’s because of their participation in the big new ExxonMobil oilfield in Guyana). When it comes to oil prices, if the big banks are still predicting windfall oil gains and $200 WTI crude prices, well, they haven’t told their analysts yet — those kinds of numbers don’t seem to be in the 2023 earnings estimates for Enerplus (or any other big oil companies, for that matter).

So with production likely to be fairly steady from here for Enerplus, growing slowly but conservatively as they aren’t planning on massive capital spending projects, success or failure for ERF is likely to be mostly driven by where oil prices go from here. If you’re predicting a massive surge for oil, like Adam O’Dell is with his bet that it will rise to $200-500/barrel in the years to come, then Enerplus will probably be a great investment. It won’t be as dramatic as the best oil stocks who might end up having better-timed increases to their production, or have marginal oil fields that are seen as worthless today but would be hugely profitable with oil at $200, but it will go up a lot. If oil falls to $40, on the other hand, you might be able to buy Enerplus for $5 a year from now.

I know, a shocker — an oil company whose fortunes will be determined by oil prices. Seems I wasted a lot of words getting to that conclusion… sorry.

And Adam O’Dell teases two other stocks, too, let’s see what the Thinkolator can do with those…

Hints, please!

“The second stock is a little smaller than the first, with a market cap of only $3 billion. So again, there’s plenty of room to grow as this new bull market in energy takes off.

“But the CEO started the company 20 years ago to serve a pretty unique part of the energy sector. And again, just like the first company’s CEO, this guy is also a rock star.

“He has a Ph.D. in material sciences and a masters in physics. Plus, his parents were university professors in China back in the 1980s.

“So, with his multicultural background, this CEO has been able to grow his company’s operations in the U.S. and around the globe. With facilities in Japan, Australia, South Africa, Germany, Italy and Mexico….

“With operations in 23 countries and offices on 6 continents, this company is the largest energy company you’ve never heard of. It’s totally under the radar. But won’t be for long.

“Because this company has increased its year-over-year revenue by 62%. And has recently generated nearly $500 million in working capital to further expand its production….

“And here’s the kicker, the reason why I believe this stock will see 100% in the next 100 days… It’s because this company has a new operation planned in China that is on track to be approved by the Chinese Securities Regulatory Commission any day now. And when this approval hits, I expect the stock price to increase dramatically.”

OK, so again, using second quarter numbers and assuming that the data for this ad was put together sometime around early November, matching what we found with Enerplus above… Thinkolator sez this must be, in a bit of a surprise twist, Canadian Solar (CSIQ).

Which, of course, is sort of an “energy stock” … but doesn’t really care what oil prices are.

The match is quite perfect, O’Dell’s comments about the CEO match Shawn Qu’s bio perfectly, and revenue growth at Canadian Solar was indeed 62% year over year in the second quarter (it was 57% in the third quarter, in case you’re curious). Here’s how they describe themselves:

“Canadian Solar was founded in 2001 in Canada and is one of the world’s largest solar technology and renewable energy companies. It is a leading manufacturer of solar photovoltaic modules, provider of solar energy and battery storage solutions, and developer of utility-scale solar power and battery storage projects with a geographically diversified pipeline in various stages of development. Over the past 21 years, Canadian Solar has successfully delivered around 71 GW of premium-quality, solar photovoltaic modules to customers across the world. Likewise, since entering the project development business in 2010, Canadian Solar has developed, built and connected over 6.6 GWp in over 20 countries across the world. Currently, the Company has 800 MWp of projects in operation, 5.3 GWp of projects under construction or in backlog (late-stage), and an additional 18.5 GWp of projects in pipeline (mid- to early- stage).”

The development of utility-scale solar projects seems to be their primary focus these days, with the goal being to get these projects built and sell off majority ownership to investment vehicles to replenish their growth capital, and earn a stream of revenue from those installations in the future by continuing hold a minority interest. They’re also making progress, they say, on building a battery storage business to integrate with their solar projects, and everything seems to be growing well right now — they expect their module shipments to grow about 50% next year, and they should have roughly 40% revenue growth when 2022 numbers are finalized. Analysts think they’ll end 2022 with $2.60 in earnings per share, and grow almost 50% in 2023 to $4.11 as their revenue climbs close to 30%.

And yes, they are also trying to spin off their Chinese subsidiary to be publicly listed in China, which is that catalyst Adam O’Dell hinted at — six months ago they were pretty sure this listing would be done by the end of 2022, but now the guess is that it will happen this quarter. They got approval from the Shanghai Stock Exchange about a month ago, so it seems likely that IPO will happen, which will probably give them some more capital for their expansion plans, particularly for their planned polysilicon plant in China. I spent just a few minutes looking at this one, so I’m not entirely clear on how the CSI Solar business that’s listed in China will be separate from the Canadian Solar parent, but they are clearly doing pretty well right now, and still trying to expand pretty aggressively. Canadian Solar has been through a bunch of ups and downs over the years as solar subsidies have ebbed and flowed in various countries, and as panel production costs have similarly had ups and downs.

Coincidentally, their history as a public company (they had their IPO in November of 2006) has brought us to a point today where they have grown their earnings per share by 270%, and the stock has gone up by 280%, which is how it’s supposed to work — it’s just that it hasn’t exactly been a smooth ride, with earnings fluctuating wildly from year to year. Like a lot of aggressive growth companies who don’t seem entirely profit-focused, including a lot of Chinese companies in hyper-competitive industries (like solar panels or electronics) who look from the outside that they’re more interested in building an empire than in making a profit, the company has grown dramatically over those 15 years, revenue is now up by well over 2,000%… but shareholders haven’t really seen any of that growth reflected in their brokerage statements. That’s the S&P 500 in blue, for comparison, so you can see that as of today, the stock has done fine if you bought in 2006 and held all the way through the panics and bubbles along the way.

And we get one more…

“.. the third stock I outline in the special report is pretty extraordinary. It’s been a leader in the mining of natural resources for more than 100 years….

“And this company has done it all over the last century … from mining gold and oil sands, to copper and coal for making steel. And again, the leadership is top-notch. The financials are strong. And the company just got regulatory approval for a share buyback program that should give an immediate boost to the stock.”

Pretty light on the clues, so that’s not enough for the Thinkolator to be definitive with our answer today… but I’ll throw out a guess: This could easily be Teck Resources (TECK), the Canadian natural resources leader that has indeed been in all of those businesses, and been chugging along for 100+ years in one form or another. And TECK did indeed get approval from the Toronto Stock Exchagne for its latest buyback program in early November, which seems to be the timeframe for Adam O’Dell putting the data for this ad together. They’ve been doing substantial buybacks all year, and raising their dividend as well, to the consternation of those who would prefer to see mining companies reinvest in exploration and production growth.

But you can probably find another one that matches those limited clues, if you look hard enough, and TECK is a big company, with a $20 billion market cap that’s higher than O’Dell’s target range for this particular service — perhaps TECK is just top of mind because I wrote about it last month, when I concluded that Whitney Tilson was likely teasing it as his “Gold 2.0” stock for the “SWAB Revolution”.

Teck is heavily reliant on metallurgical coal and copper, which means that its fortunes are going to be driven, in large part, by how fast the world grows and electrifies and demands more steel — which means that the “China reopening” story is probably bigger for them, in the near term, than anything else. Like most mature and diversified miners (and, indeed, like the large oil stocks), it’s trading at a pretty low multiple of what might be cyclically high earnings — analysts expect TECK’s earnings to come down next year, so it’s trading at a trailing PE of about 6 and at a forward PE of 8, with a dividend yield of roughly 1%.

And that’s all I’ve got for you today, dear friends — a decently profitable and pretty steady smallish Bakken oil stock, a longtime pioneer in the solar farm development space that has never really gotten big earnings growth going, and a guess at a diversified miner. Anything strike your fancy? Have other favorites that you think are more deserving of a portfolio slot than Enerplus, Canadian Solar and Teck Resources? Let us know with a comment below. Thanks for reading!

Disclosure: Of the companies mentioned above, I own shares of and/or call options on Berkshire Hathaway and EQT. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.