Finding a Fortress in the Markets
Alpesh Patel|October 9, 2023
The energy sector has been screaming “Undervaluation!” for a long time.
That’s partly because investors are expecting some kind of global recession… thanks to inflation, declining consumption, high interest rates around the world, war, conflict, etc.
And that has led many to believe that energy companies might not be good bets.
But they’re wrong…
This week’s Stock of the Week is the biggest energy player you’ve likely never heard of. Its operations span everything from shipping to infrastructure… and it has a $6.7 billion market cap.
It is dirt cheap, with a forecast P/E of just 7… and the stock is undervalued by almost 70%.
Yet earnings have grown by a whopping 88% over the past year!
And when we look at the chart… we see it’s clear momentum is on the upswing.
For all the details on the stock – including its ticker – check out my latest video.
Click on the image below to watch it.
Hi, friends. It’s Stock of the Week time. Now, as you know, I try to make these videos both informative and educational. So it’s not necessarily just about the stock… it’s about the broader market and my insights as a hedge fund manager.
My name, as you know, is Alpesh Patel. I’m the founder of a hedge fund, a venture capital firm and GVI Investor.
Now, the Stock of the Week this week is New Fortress Energy (NFE).
And you know, the energy sector has been screaming “Undervaluation!” for a long time. And you can imagine why those stocks are largely undervalued. It’s partly because we’re expecting some kind of global recession – because of higher inflation, lower consumption, higher interest rates around the world, war, conflict, etc. And that has led people to think that energy companies might not be a good bet.
But we want to be specific at the micro level and look at individual companies and look at their numbers and judge them on their merits, not broad-brush statements.
New Fortress Energy was founded only in 1998 and is based in New York. It spans everything from production and delivery to natural gas procurement and liquefaction, all the way to logistics, shipping, terminals, and the conversion or development of natural gas-fired generation.
So it’s got the whole shebang.
The company trades on the Nasdaq, so it’s been benefiting generally from the tailwinds that Nasdaq flotation has been giving companies this year.
The market cap is $6.7 billion. I know… the multibillion-dollar energy company you and I hadn’t really heard of.
The company operates in terminals, infrastructure and shipping as well.
So let’s just have a look at some of the numbers that attracted my team to the company. They put it on my desk alongside another list of companies. And this is the number that we came up with.
So what did we find?
The Growth-Value-Income rating – based on my proprietary algorithm which measures companies by valuation, by revenue growth, by dividend yields – is a score of 9. Now, anything with a 7, 8, 9 or 10 meets my minimum criteria in terms of valuation, in terms of growth, and so on.
The forecast P/E ratio is 8. That’s relatively cheap because it means shares are trading at a multiple of only 8 times future profitability. That’s cheap.
CROCI, or cash return on capital invested – you can see why that’s important right here – I’m fine with that number. The higher the better, of course. But I’m okay with the CROCI number.
And similar with the Sortino. It’s, well, Sortino is a little bit low, but I’m happy with the number in this case.
The volatility is above 20%. I’d rather it was lower. I’d rather alpha was positive, but obviously with the Stock of the Week, sometimes they don’t quite meet all my criteria that I’d want for a GVI Investor recommendation. But nevertheless, for a Stock of the Week, it’s a good, solid play.
And you can see the upward trend when you look at the price chart. I think, on a momentum basis, it should start resuming upward again.
Now, the caveats are still there. November doesn’t tend to be a good month for it, but October is not bad at all. And, as I said, the momentum is in place.
As well as valuation, one of the things which attracted me was that on a discounted cash flow basis, the stock is almost 70% undervalued… yet earnings grew by a whopping 88% over the past year.
So there you have it. There are a multitude of reasons to like this stock – albeit some cautions too, as there always are with these things. And, of course, when we make recommendations in GVI Investor, we dive a lot deeper into each of these aspects of stocks, and we make sure we tighten the screw on the filters that we want as well.
But hopefully you found that informative and educational, with some context to what’s happening in the macro economy as well.
Thank you very much, friends.