Some Picks Into The 14' New Year (Part 2)

Dec. 11, 2013 9:00 AM ETTGA, XPO
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Long Only, Value, Growth At A Reasonable Price, Medium-Term Horizon

Contributor Since 2012

Retail investor of eight years, fundamentally oriented, long mostly. Probably characterize my own investing style as aggressive value investing, concentration in a small number of stocks is not an issue in my thinking.

Here are some more stories that I believe have sufficient catalysts to propel them higher into and through out 2014.

Transglobe Energy (TGA) - It has certainly been a turbulent year for this name, operating primarily in Egypt and to a lesser extent Yemen (yikes.) Their BPD goals have not been fully realized this year, barely producing more than they were last year, but they are committed to attaining their 40,000 BPD within 5 years goal which they stated in late 12, early 13. It is notable they did actually increase their BPD without most of their Yemen assets, which they are phasing out. Exploration has been strong and mostly successful and the land rights they have shall provide enough drilling activity for the 5-year time frame.

Combine this with a cooling off of Egyptian turmoil, a willingness of the Egyptian government to make good on back payments they owe foreign oil companies to encourage FDI, and an intensely cheap valuation profile, it may be time for TGA to finally shine in 2014. Though it would have been nice to pick up TGA in the $6.00-$7.00 range, current PPS is still compelling, especially if future growth is modeled in.

Price Target - $15 by beginning of 2017, if not sooner. The company will need to deliver on BPD numbers in 2014 (which it has guided 20k BPD throughout 2014 so essentially no significant increase has really been felt since 2012 relative to their stated goals) and it's quite possible this will get a volatile geopolitical region discount in it's valuation in a 10-year time frame. Still though, if 35-40k BPD can be achieved within 5 years I'd expect EPS to be north of $2.00 and even a discounted valuation should command $15 PPS.

Express Logistics Inc. (XPO) - Bradley Jacobs and company have delivered a blockbuster year and are only beginning to ramp up the revenue to achieve the 4-5 billion number which they stated back in 2012. 3PD was the biggest acquisition of the year by far and will be one of the key pieces going forward in their structure. The stock even with dilution has outperformed the market and EBITDA should be finally slightly positive in Q4, so this may only be the beginning of the story.

Price Target - $55 by start of 2017. The valuation of this company going forward is slightly puzzling since the stated EBITDA objective is between 300-500 million, there's a lot of room for a price range there. Ultimately I think a company should be worth a price only relative to it's ability to produce real profit, but I'm only one person. The fact is there are other companies like XPO that can be looked at for guidance for a future valuation of XPO. The share count should probably not exceed 75 million shares, and if the P/S remains constant with a company like CHRW, XPO should find itself north of $50.

Disclosure: I am long XPO, TGA.

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