Changing my mind

Getting rid of Mesa Royalty and back into Tessenderlo

After Mesa Royalty trust’s recent 10-Q came out I couldn’t make heads or tails out of it. Another $400k of charges tacked on for their Colorado property, Hugoton seems to be barely generating any income, actual production figures are all over the place. And New Mexico is still generating income based on estimates that are too low. And I get the feeling the trust is getting screwed here. So I sold my entire position for about $6 per share.

Then I bought some JNBY, thinking the recent scandal wasn’t going to be much of an issue. And then I changed my mind again. And I sold a large portion of my Hong Kong stocks. As a value investor you are supposed to ignore macro economics, and usually I do that rather well, but this time the macro trader in me gained the upper hand. Especially since the alternative is simply buying some other cheap stock anyway.

I think we have yet to see how Delta will wreak havoc on China, and now there is the likely more infectious Omicron. If you look at Europe, we are barely holding on with overflowing ICU’s vs Delta, despite very high vaccination rates with vaccines that actually work well. As opposed to Sinovac which has pretty poor protection against the Delta variant:

China is developing an RNA vaccine (as their propaganda efforts have pushed them in a corner where they cannot use Western vaccines without losing face), but that will take a while and likely not as effective against these new variants. And manufacturing capacity is for now only 200 million doses a year.

I just don’t think they can keep up their zero-Covid strategy, but I think they will try. It will be the proverbial unstoppable force vs the immovable object, and I wanted to lower my exposure to the potential resulting economic fall-out. The only mainland China positions I still hold are Consun Pharma and Haier. Since they are both extremely cheap and seem to have been largely immune to lockdowns. Especially Consun, since they will buy back their own shares aggressively if they fall further.

And I kept G & M holdings as well, they will be protected by their large order book.

The US and Europe will be in a much better position this time around. Better more easily tweakable vaccines, very effective anti-virals like Paxlovid, no zero-Covid policies and a much higher natural immunity.

Then some interesting developments in Spanish Broadcasting. Company grew their audio audience by 18% yoy. After growing it last year too. And had a record quarter, outperforming all other radio companies. And will probably have a really good Q4 and 2022 with all the pent up demand from concerts, and 2022 being a political year. And doing events every month. Their TV segment equipment (communications towers and spectrum) will probably be worth $30-50 million alone. They are trying to lowball a Puerto Rico radio station for $6 million to lock down the Puerto Rico market.

I Still think this is a $10-30 stock in the medium to long run. I sold about 25% of my position after it became more than 20% of my portfolio, so still my largest position. I wanted to sell a bit more, but Interactive Brokers has suddenly restricted my trading because they think I am an insider, which I am not. So I will have to keep this large position for now.

I got back into Tessenderlo. Written up here by me a few months ago. Not only were results not worse than expected, they will be significantly better this year, even though H2 is usually their weakest part of the year. This means 2022 will likely be even better. And the stock is trading at 6-8x FCF, while going into a net cash position early in 2022. And a large portion of earnings will be sustainable. I’m surprised the stock isn’t over 40 euro’s yet. I can actually get back in at a lower position than I sold a few months ago. I mean yeah Luck Tack could communicate better and do some buybacks, but come on this is clearly way too cheap. And their business seems to be pretty Covid proof, which is rather nice right now.

USD Partners came out with results a month ago, and the stock sold off as a result. Written up here by me a few months ago. I added some. I’m pretty sure they will get more of those 10 year Drubit contracts. And fill Stroud and Casper back up in the coming year as well. Stock is trading at 3-5x FCF. Sponsor is pretty well incentivized to get distributions above $1.5 per unit because of their IDR’s vs unit price of $5.6. US/Canadian oil spreads just blew out to $25, so clearly there is a need for take away beyond pipelines. So when new Stroud pipeline to Cushing is finished, I would not be surprised to see capacity fill back up again.

Now if I was truly a macro trader, I would probably buy some index puts or something. But I am not, so I will probably put a larger % in some tobacco stocks and special situations instead. At least then I sleep better at night.