Category: Investment thesis

Navigator Holdings (NVGS)

~ Travis Wiedower ~ 7 Comments

Navigator Holdings (NVGS, $19.13) is in the liquefied petroleum gas (LPG) shipping industry. The liquids they ship are by-products of oil and gas production and refining. Their stock appears fairly valued based on the current industry dynamics, but the LPG shipping industry is expanding rapidly over the next few years. I believe the market is underestimating how much cash Navigator will generate in 2017 forward which creates a significant opportunity for investors willing to hold NVGS that long.

Business overview

Navigator operates a fleet of 28 liquefied gas carriers (plus 10 more ships to be delivered through 2017). A liquefied gas carrier is a generic term for a vessel that carries LPGs (such as propane and butane), petrochemical gases (such as ethylene, propylene and butadiene) and ammonia. Collectively I’ll refer to these liquefied gases as natural gas liquids (NGLs). Navigator currently only owns medium-sized (i.e. handysize) vessels, though they are getting into larger ships in the future. Handysize vessels are great because they can handle both medium and long distance routes and are able to access all ports unlike very large gas carriers (VLGCs). Both the liquefied gas carrier industry as a whole and the handysize niche within it are very fragmented. Navigator’s 26% market share in the handysize market is far ahead of their second largest competitor, Ultragas, with 10% of the market.
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Khan Resources (KRI)

~ Travis Wiedower

Khan Resources (KRI, $0.43) is a small mining company based in Canada with a market cap of $32 million. Two months ago the company was awarded over $100 million in an international arbitration case. At this point you’re probably tempted to stop reading, open your online broker and start buying shares. While that isn’t the worst idea in the world, this investment certainly isn’t for everybody.

To summarize how Khan got to this point, in 1995 they entered into a joint venture (JV) to develop a uranium mine in Mongolia. The JV consisted of Khan as a 58% owner, a Mongolian state owned company owning 21% and a company majority owned by the Russian government with the other 21%. Importantly, Khan owned 100% of the corresponding exploration license and, through the JV, owned 58% of the mining license. In 2010, the governments of Mongolia and Russia decided to develop the mine themselves and expropriated Khan. Along with this, Mongolia cancelled Khan’s mining and exploration licenses.
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LGI Homes (LGIH)

~ Travis Wiedower ~ 1 Comment

LGI Homes (LGIH, $16.69) is a little known homebuilder that is a good example of the baby being thrown out with the bathwater. LGI derives around 60% of its revenue from Texas and anything related to oil has been crushed in the past nine months. Since touching $21 last July, LGI is down 20% despite great results and very positive guidance for 2015. Homebuilding is a fairly crappy industry (commodity, high debt loads and heavily dependent on the economy) but LGI is both one of the fastest growing and cheapest homebuilders out there. LGI is in a great position to soar over the next few years as the housing recovery continues and mortgages are easier to get.

Business overview
LGI was founded in 2003 and IPOed in November of 2013 so they just released their first full year of results being a public company. They specialize in building move-in ready homes for first-time buyers (mainly young renters looking to buy) and their average sales price is $166k which is substantially less than the next closest public homebuilder (AVHI in the $250s). Maintaining a growing inventory of move-in ready homes is, in my eyes, much riskier than many builders that only construct homes after receipt of a signed contract and deposit. In good times (like right now) they are able to immediately sell homes though, so it cuts both ways.
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Hornbeck Offshore Services (HOS)

~ Travis Wiedower

According to Baron Rothschild, the key to making money is to “buy when there’s blood in the streets.” This quote, and more importantly the concept of contrarian investing, has been immortalized by Warren Buffett and many investors following him. Well right now, there’s a whole lot of blood in the streets of the oil industry and Hornbeck Offshore Services (HOS, $19.58) is the best combination of downside protection and long-term upside I’ve seen.

Business overview
Hornbeck manages offshore vessels (OSVs) that supply drilling rigs. 75% of their revenue is domestic (primarily Gulf of Mexico) with the rest mostly in Mexico and Brazil. The beautiful thing about operating supply vessels in the Gulf of Mexico (GoM) is the Jones Act which creates a significant barrier to entry. Essentially, vessels that transport merchandise and passengers in US waters must be owned and managed by US citizens and the vessels must have been built in the US. Foreign vessels can’t just show up and start taking work away from Hornbeck and the other operators. This has obviously created an oligopoly in the GoM and Hornbeck is either the #1 or #2 vessel operator in the Gulf depending on how you measure.
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