I continued to add to my energy exposure this week. I am trying to be patient but am struggling to do so (this is what the blog is for!).
Long Epsilon Energy EPSEF (EPS.to) - I think that the value of the midstream asset is the current market cap of the company. Conservatively the upstream assets are also worth close to the market cap. This investment will take time but eventually it is a double and probably more.
Short RRC - RRC is drilling great wells, has great acreage and the only reason I am short is because of valuation. When I modeled out RRC on a best case scenario for the next 5 years (includes high pricing) I came up with a valuation of $75. The more likely scenario is $55.
Long GG - Even though the dollar is strong, gold prices have held up. The rest of the world (in their currencies) gold is very strong. I am not sure why but I like the fundamentals of GG , especially with energy as a major input cost.
Long FCX - I wonder who is left to sell here as everyone knows about their high debt, low energy prices (and copper prices), and problems with Indonesia. These problems are all well known by the street and this stock might be dead money for a while. It is cheap on a long term basis, especially with more normalized prices. If gold continues higher, that will help FCX as well.
Short INTC - Intel is a great company but the market has gotten ahead of itself. I have seen a bunch of articles now predicting that INTC will rise to 60, 80, 100 or more. Just as above with FCX, I wonder who is left to buy INTC who hasn't already.
I am starting to short a basket of 'high quality' stocks. With the market near record highs, investors have focused on the Warren Buffett buy high quality stocks, while ignoring at a cheap (or at least a reasonable price). I am short HD, SBUX, UA currently and am looking for additional names. These companies at best will be up 25-50% in the next 5 years and the more likely scenario in my view is down. Quality is overrated when buying at such high multiples.