In a punk year, four stocks with a current market value of $1 billion or more have tripled or better. None of them are household names, and it’s a good bet that you haven’t heard of some of them.
The biggest gainer is PBF Energy
A friend of mine in the oil business once told me that refining is a bad business. Out of every ten years, he said, refiners will have one great year, one good year and eight mediocre or bad years.
When I look at PBF’s earnings history from 2011 through 2021, I think my friend’s description fits pretty well. PBF had a great year in 2011, and a very good year in 2017. The rest were nothing to write home about.
But PBF is having a heck of a year now. It has earned $19.23 per share over the past four quarters, which is a whale of a profit for a stock trading at about $46 a share. Analysts expect earnings to tail off next year. But I think the stock is fine as a six-month to one-year play.
The next best gainer is Target Hospitality
I dislike several things about this stock. Debt is 285% of stockholders’ equity. I feel uncomfortable with levels above 100%. The stock trades for 9 times book value (corporate net worth). I prefer a ratio of 2 or less, and worry about price-to-book ratios above five.
Probably the best known stock in this group is Tidewater
Offshore drilling makes economic sense when—and only when—oil prices are high. I expect the price to be above $80 a barrel for most of the next three years. Therefore, this stock, selling at 1.7 times book value, makes sense to me.
It’s risky. Tidewater has lost money seven years in a row. Losses are narrowing, but analysts don’t expect the red ink to change to black until 2024. But I think the company has staying power. It’s done a good job of keeping its debt level under control.
The fourth outsized gainer, up 208%, is International Seaways. Based in New York City, the company owns and operates a fleet of 78 oil tankers, including 13 VLCCs (very large crude carriers).
The company was spun off in 2016 from Overseas Shipholding Group
Analysts expect it to turn profitable this year (estimated earnings $6.97 a share) and to do slightly better in 2023. The stock sells for only six times estimated earnings, which is tempting.
Maybe it’s because I was burned in OSG stock years ago, but I don’t have an appetite for oil-tanker stocks. I think the big oil companies and big oil-producing countries have a lot of power to bargain down oil-transport prices.
A year ago, when I discussed the biggest winners for the first ten months of 2021, I said, “I pretty much hate them all.” Many of them were meme stocks, pushed up by Internet hype.
I was right. The five stocks I discussed fell an average of 58%, while the Standard & Poor’s 500 Total Return Index was down about 15%. Most notably, Theralink Technologies Inc. dropped more than 99%, Ocugen Inc. fell about 88%, and AMC Entertainment Holdings Inc. declined 83%.
Longer-term, I’ve tended to be too skeptical of the year’s big winners. In nine years, the stocks I said to avoid have averaged a 26% return.
Bear in mind that my column results are hypothetical and shouldn’t be confused with results I obtain for clients. Also, past performance doesn’t predict the future.
Disclosure: A hedge fund I manage (and invest in) has a short position in AMC Entertainment, betting on a decline.