Today's Most Lopsided Investment
The widow maker is showing some life.
Earlier this year I wrote two articles about one of the most hated, ignored, and low risk investments currently available in the market: natural gas.
I won’t repeat what I previously explained. You can go back and check out the full thesis that I laid out here:
and here:
Since I wrote these two articles, the situation has only gotten more compelling.
For example, the correlation between oil and natural gas has gotten even more extreme:
And that’s just one tiny indicator that we could still be very early.
The Natural Gas Interview
Yesterday, a podcast interview about natural gas went viral. You can watch it here.
In summary, the interviewee argues that we are walking towards a massive crisis with natural gas which could send prices way, way higher.
What’s most interesting about this interview are the comments from hundreds of novice investors and natural gas industry experts. Overwhelmingly they disagree.
Everyone from public company CEOs to reply-guy-keyboard-warriors rip the interview apart. They all think that natural gas, especially in the US, is extremely abundant and will only increase in supply as more oil wells are drilled.
It’s a scenario which highlights my previously shared quote from Howard Marks:
“Not only should the lonely and uncomfortable position be tolerated, it should be celebrated.”
Natural Gas Companies Report
Yesterday, one of the largest US natural gas companies ( EQT 0.00%↑ ) reported earnings which were basically in line with expectations.
Today, the stock is soaring by ~8% and still trades near a single digit multiple.
Other US natural gas companies are set to report their earnings in the coming weeks, which will either reinforce the extremely undervalued sector or send valuations even lower. ( AR 0.00%↑ , EXE 0.00%↑ , and several others report next week.)
But while we wait for the traditionally organized stock market to discover prices, the macro environment is only getting tighter.
Yelling at Clouds
For the past several weeks professional oil and gas traders have been publicly melting down about current prices.
How can prices be so low with the war in Iran, the draining of SPR’s, the overall underinvestment in the industry, and ever increasing demand for energy?
I sympathize with their frustration. It all seems like an impossible scenario.
But I remind myself that even though I agree with them, I’m not on the same timeline.
The traders are panicking that the inevitable won’t happen fast enough. Their leveraged portfolios have expiry dates the require things to happen now.
For patient investors, it’s pretty clear what’s going to happen here: The natural gas bears and bulls will BOTH probably be wrong. Instead, we’ll end up somewhere in the middle of these two groups, which is still a lot higher than where we currently are.
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If you’re an accredited investor and you’re interested in my fund, where I pursue these exact opportunities, contact me here: