Archive for the ‘LTS’ category

Lightstream (LTS) – When The Market Freaks Out, Rejoice

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Lightstream (which I’ve covered in-depth here and here) reported results last week (here). Included in those results was a downward revision to 2014 production volume, from 44k boe / d to 42k boe / d. The market did not take too kindly to the Company’s lower forecast, sending the stock down 10%.

But the market isn’t paying attention to the right things. And investors that know better should rejoice because acquiring ownership in LTS just became a lot cheaper. It’s a mantra that needs to be hung on every investor’s wall:

When the market freaks out and you know better, rejoice.

To the informed investors of Lightstream, this is what matters:

What’s interesting – and a point the market has clearly ignored – is that funds flow (operating cash flow after interest expense) is still expected to meet guidance. I repeat: there was no change to projected cash flow.

Lightstream (LTS) – 3x. Eventually.

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Say you own a house. And your neighbor across the street owns a similar house. Heck, let’s just say the entire neighborhood is made up of similar homes.

Last weekend, the neighbor across the street sells her home for $150k. Zillow’s Zestimate also values everyone’s house at $150k – everyone, that is, except yours. Your home, although nearly identical, is inexplicably valued on Zillow for $50k. You’re confused, but it doesn’t really matter because you’re never going to sell it for $50k. When you go to sell, you’re going to get what every comparable home in your neighborhood gets. That’s how the real estate market works.

That’s how every (mostly) efficient market works. Eventually.

But in-between today and “eventually”, anomalies can pop up. And these anomalies create fantastic investment opportunities.

Case in point: Lightstream (LTS; previous note here).

Lightstream (LTS) – A Multi-Bagger in the Making

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Note: This is the final piece of my 3 part Unconventional Oil theme. In Part 1 (here), I described why $90 is the new “floor” for WTI. In Part 2 (here), I explained why I believe North American unconventional oil companies are the perfect conduit to implement a bullish oil view. And in this note, I cover a specific idea within this theme that I suspect will make investors a lot of money over the coming years.

I am bullish oil. It’s my highest conviction trade (you can read why here). But implementing a bullish oil view isn’t easy; the options are many. What part of the capital structure do you invest in? Is it through equity in oil services companies? Debt in pipelines? Companies focused on deepwater drilling? Deepwater exploration? The ultradeep? Oil sands? Conventional producers? Where? In Brazil? Poland? Russia? What about monocrystalline sand producers? Chemicals suppliers? The list goes on.

For the reasons outlined in Part 2 (here), I believe implementing a bullish oil view via equity in North American unconventional oil producers is the best place to deploy capital. My plan is simple: get exposure to as many barrels of oil in the ground as possible and ride the dual tailwinds of (1) higher future oil prices, and (2) improved extraction technologies. Both of these trends will dramatically increase profit per barrel and firm cash flow.

But investing isn’t blind; success is determined by the price you pay. For North American unconventional oil producers, the key is to find a company trading at a reasonable valuation based on current production and reserves and get cheap / free optionality on the undeveloped land. If you find a company with those characteristics, you should pull the trigger. Immediately.

And with that backdrop, I present my highest conviction trade in my highest conviction theme:

Meet Lightstream Resources (LTS).