- Oil Price Down / Oil Stock Prices Up Theory
- Soluna Growth rate out Paces Inflation
- Osprey Bitcoin Trust (OBTC)* added to Ten Under $10 for the Double.
Rick Rule, former CEO of Sprott Inc, now retired and founder of Rule Media, has presented an interesting theory that relates to the conundrum of life at the present time. Perhaps there is a lesson we can benefit from, more importantly a way to profit from it.
His theory goes something like this
- There are two prices of oil. One is the global price of oil which is at about $122 a barrel. The second is the Price of oil if bought from Russia in Rubles or Gold, is priced closer to $90 a barrel.
If a country does not care about sanctions placed on buying Russian oil or if one has figured out a work-around to covering up where the oil comes from (common practice) why would a country but $122 oil?
Countries as large as India, and China have no issue with buying Russian oil, other than how it impacts them around the edges on blow back from violating Western sanctions. Eastern European countries like Hungary, Bulgaria, perhaps even Germany have no choice but to buy Russian oil or gas. It is the majority of their energy supply. In this sense, American sanctions have failed miserably. The conclusion is oil is over-priced and will fall because oil is available at lower pricing. Countries, like China and India, which have far bigger populations, than Western EU and North America, will buy Russian oil.
Oil stocks however are priced as if oil is at $70.00 and gas at $4 per MMcf . Cash flows are exploding for them due to the higher prices of Oil and Natural Gas they are now selling. What are companies doing with this cash flow? They are buying back stock, paying down debt and distributing growing dividends. What they are not doing, is investing in more exploration to find new sources of oil and gas. Their governments (United States as example) wants to shut them down and put them out of business, so why invest money into the risky business of oil and gas exploration?
Life is complicated. There are unintended consequences. If or when oil prices fall, initially, oil stocks will likely fall from the emotional reaction to falling oil and gas prices. Oil and gas stocks will likely continue to have strong cash flow because they paid down debt, bought back stock, reducing shares outstanding and increased dividends. Oil at $70 to $90 a barrel is still a really good business. The stocks could stabilize and recover their prices – especially the dividend paying companies.
Bottomline, buy fossil fuel companies on weakness, especially if you are seeking a growing dividend.
“Investing Sentiment” will change
Because of inflation, “Investing Sentiment” will change in the next year to two years. Money will run from bonds into anything that is connected to investment that gives them a benefit from inflation. That is the next phase of this decade being the Decade of Commodities. You will “have to be” invested in something that benefits from rising inflation. There is a lot of money in the bond market.
What is at greatest risk in the Decade of Commodities?
- The buying power of people on fixed incomes
- The value of bond prices
If you are a dividend buyer, one of your checkmark requirements for dividends, must be knowing that revenue from which those dividends come from, is positively correlated to inflation.
Growth Investing will return to popularity.
Growth Investing will return to popularity. Not well discussed but you will hear this in the future. How do you beat inflation? Grow your revenue faster than the “unofficial’ inflation rate and keep your expenses low.
Look for companies that are able to grow revenue faster than the “unofficial” inflation rate. It is anyone’s guess on what that is, but 20% isn’t too high a number. Consider what three-to-five years of compounded 10% to 15% inflation rate does to your purchasing power? Hint: It isn’t pretty.
Example Stock Idea for looking at growth metrics:
Last quarter Soluna Holdings (SLNH)* grew revenue 300% above the prior year’s quarter revenue. This link is to the stats page at Finviz. Look at the entry in the third column for Soluna:
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304.30% |
For Soluna, my revenue projection for growth is 100% annually, or more, for the next three years.
Unfortunately, I cannot tell you the stock will not go lower. I have a high probability of confidence in saying, the visibility of revenue growth is high, the debt level is low, the book value is higher than the share price and management is excellent in watching numbers and expenses. I think shareholders of Soluna will be just fine, given time.
- Note: Shares of Osprey Bitcoin Trust (OBTC)* were added to Ten Under $10 for the Double at a price of $5.75 today.
Written by Tom Linzmeier, LOTM.
LOTM Research & Consulting Service
* An account related to LOTM holds a position in this security.
Neither LOTM nor Tom Linzmeier is a Registered Investment Advisor.
Please refer to our web site for full disclosure at www.LivingOffTheMarket.com ZTA Capital Group, Inc.
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