HEY! Growing Earnings Don’t Matter

NVGS“I think you have to be very humble about your ability to be smart enough to exploit other people’s stupidity.”

nvgs stock

Navigator’s stock price declines while its earnings rise over the past two years. See page 14  here: Capital-Link-Conference-Mar-21-2016

Wilbur Ross owns a majority position http://whalewisdom.com/stock/nvgs

I am not suggesting this as an investment for YOU, but seek out disconnects like this.   Despite rising earnings, the market may be worried about lower oil prices because lower oil prices may affect the demand for the products that NVGS ships and/or the capex that NVGS is bearing with delivery of new ships.  The question for an investor would be: “Has the market over-discounted the fears of low oil prices or over-supply of ships?”   This company is VERY different than a standard dry-bulk shipper.   These are highly-specialized/expensive ships. Knowledge reduces risk, so really understand the management and its goals.

5 responses to “HEY! Growing Earnings Don’t Matter

  1. Would you consider using LEAPS to invest in shipping? Or do you consider they potential time frames until they are in a favorably part of the cycle too long?

    • Leaps are a loan that you don’t have to pay back, but you have to pay interest. You have to make a grid and see the risk reward pyoffs depending on your estimation of where the stock can go. These stocks are already heavily leveraged due to their capital structure.

      No one really knows when the cycle will turn–it is a supply/demand game but mostly on the supply side. I barely own the shippers because the opportunities in the gold/silver miners are so good. Perhaps in a year or two.

  2. Thanks for your thoughtful reply, John.

    I have not specifically looked at LEAPS for the shippers. But in the past I’ve seen the pricing on LEAPS provide some interesting results, where the time cost (interest) is negligible due to low “volatility”.

    I’ll be interested t0 see what you do with the mining stocks. If I owned mining stocks, I would be trying to figure out what price of gold is reflected in their share prices. I am going to guess the point when I would exchange out of miners and into physical gold or shippers might be much sooner than your’s. Which explains why I am here learning.

    All the best wishes in your continued recovery,

    • I certainly think owning some phycial gold (I have owned gold coins since 1998) makes sense since it is money that can’t be debased nor has debt attached to it. Our world is drowning in debt that is non-productive (going to fund entitlements).

      But I own miners for different reasons. First, the capital cycle has turned. the industry has been starved of capital for five years, managements have turned over and are more focued on capital returns than more ounces at any price, and there is and will be a severe shortage of gold/silver discoveries and quality properties over the next decade. It takes years to shut down a mine and to reopen a mine. The cycle is a long one, but along the way there will be price declines of up to 50%! We have just gone through the worst bear market in gold/silver mining stocks of the past 90 years due to bad management, perpetual QE, and the prior boom (2007 for spec. miners and 2010 for majors). Even though the rally over the past five months has been fierce, it will take several years to attract capital back to the miners. My typical time frame is five to seven years. I have held the miners more or less for the past three years–2014 and 2015 were ugly.

      I have a hard time selling gold until the market discounts negative REAL interest rates, problems with european banks and central bank lunacy. Or short Euro bonds. The trend for gold vs. the dollar has been up since 1971. I personally hate gold. I prefer compounders.

      So with gold euphoria near a high with Brexit, I expect a sell-off in gold/the miners over the next few months, but my time-frame is two to five years from now–always prepared to sell depending upon overvaluation or better opportunities elsewhere.

      The point of all this is for YOU to figure out the best timeframe given your resources and timeframe. Miners have moved from extremely depressed valuations to depressed valuations–now there will be more anxiety for people who own the miners–sell and move on/ bear market rally, etc. The shippers are in Death Valley but it may take years for over supply to work itself out. Embrace uncertainty. No one knows!

  3. Thanks.

    In concept, I like shorting Euro bonds. But to steal a poker analogy (hey, you keep posting videos from Rounders): central banks have an infinite stack. Buying LEAPS only puts me out 2.5 years. I think they can outlast me.

    But to short a bundle of insurance companies may work, and may pan out in a time frame that I find reasonable. (I’ve not looked at a single European insurer, but I will investigate.)

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