The BIG PICTURE - Nov 21

dan_s · Post by **dan_s** » Sat Nov 21, 2020 9:21 am

Commodities in general are grossly under-valued compared to the S&P 500, crude oil is the most extremely under-valued. < This is why the roll-out of a Covid-19 vaccine that works will cause Wall Street to rotate a lot of money into oil & gas upstream companies.

“We have survived this (pandemic) because of enormous fiscal and monetary stimulus. I’ve got to believe this will lead to devaluation of currencies and that hard assets will increase in value in currency terms.” – John Malone, Liberty Media Chairman.

“The imminent danger is not the collapse of fossil fuel use; the imminent danger is an oil supply shortage and oil price shock. Energy, right now, is one of the few “once-in-a-lifetime” investment opportunities.” – Jesse Felder, Founder of The Felder Report.

"Global oil markets are now in structural deficit. Few people agreed with us when we argued crude markets would begin dramatically tightening by mid-year despite the demand impacts of COVID-19. Since our last quarterly letter, inventories are now drawing rapidly, suggesting extreme tightness will soon emerge in physical crude balances." - Goehring & Rozencwajg Natural Resource Market Commentary from their Q3 newsletter.

10 of our Sweet 16 Growth Portfolio companies were trading below book value based on the November 20th closing prices and their 9-30-2020 balance sheets. All 16 companies have survived the worst of the pandemic (Q2) and are now generating solid cash flow from operations. Keep in mind that their balance sheets have absorbed record high impairment charges. Natural gas and NGL prices are much higher today than they were on September 30 and oil prices appear to have gotten over a key resistance level, which means their balance sheets are understated. Most of the Sweet 16 are using free cash flow to pay down their debt, which will also increase net book value. The Sweet 16 is up 69.5% since Good Friday, April 10 (the date that I picked as the bottom of this cycle), but the group is still trading at a 64.3% discount to my valuation.