My grandmother-in-law doesn’t have internet access (or air conditioning) so I am thumbing this on my phone at one of the few cafes in town which has wifi.

It will be two more days before I can sit in front of a computer and type out my thoughts regarding the Abacus Global Management Investor Day. Thank you again to management for inviting me.

Regarding, What I’m Buying This Week, the market is currently in a bit of an AI counter trend pullback. These tech pullbacks over the last twenty years have a median duration of 78 days and we are already a few weeks into it.

Consumer Discretionary and non mortgage Financials have held up well, but almost everything else has been taken out to the woodshed.

Within a couple of months, the bullish AI narrative will likely return, driven by some new drug discovery or earnings calls of companies that are using AI well, as opposed to the current news articles about companies who overspent.

I think it’s finally about time for electricity constraints to make a splash, and uranium stocks have been disproportionately wrecked this past month. In the near term, the only lever to pull is coal with a 43% utilization rate, so BW should stand to benefit. I had mentioned before that I had sold covered calls on my BW, and now they have expired worthless, so just this once I seem to have traded around the position well.

I find it interesting that all the Hormuz blockade stocks are back to where they started, ASIX & TROX.

All materials stocks are down, precious metals the most, but copper seems to have been taken down with gold. I could see myself adding to TGB for the first time in a while.

Oil services stocks have been decimated, despite the fact that AI is going to burn natural gas like never before. ACDC is very cheap, and I could even see starting to add to RIG soon.

The trucking supercycle is still going strong, so my number one add this week is ULH. I still need to do a thunderdome with ULH vs PAMT.

Beyond ULH, I still want to position myself for the peptide revolution, so I am trying to slowly build up a LFMD position. ALTG and ACDC are both compelling at these prices, but the technicals are hard here. I’m not sure what will give a V-shaped bounce and what needs a few months of consolidation.

I had previously written that my ABX position was full, but I am rethinking my self-imposed position size limits. I’m probably going to restart adding to ABX as well.

That’s about all I can manage with my thumbs on a phone at a cafe. I’ll probably be able to write something more substantial on Thursday.

Best regards,

The PEG Ratio (Price to Earnings divided by Growth) is an odd sort of metric. To get a PEG of 1, for example, it could be a business with a PE of 10 and an annual growth rate of 10%, or it could be a business with a PE of 40 and an annual growth rate of 40%. And it isn’t immediately obvious which of the two would outperform in the years ahead. Looking out three years, the company with the 10% growth rate would be 33% larger, while the one with the 40% growth rate would be 174% larger. But if the market re-rated the PE 10 company to a PE of 15 or 20 due to its acceptance as a quality compounder, and diminished the future prospects of the PE 40 company down to a PE of 30 or even 20, then the tortoise really could beat the hare.

If each company started with a stock price of $10, after three years the 10% growth rate company could have a $22.63 share price due to a re-rating from a PE of 10 to 17. But the 40% growth rate company could have a share price of $20.58 after falling from a PE of 40 to 30, or worse. The ultimate share price destination would be based on the future growth prospects of the businesses three years from today, which companies had saturated their markets, and which still had a growth runway. And those hypothetical companies currently have identical PEG scores.

Accepting that PEG is flawed, it’s still useful. The convention is that a company with a PEG below 1 is cheap, between 1 and 2 is somewhat fairly valued, and above 2 is expensive. Imagine a company with a PE ratio of 10 and a 20% annual growth rate, that would give a PEG of 0.5. Meanwhile, a company with a PE of 15 and a 10% growth rate would give a PEG of 1.5. And a company with a PE of 15 and a 5% growth rate would give a PEG of 3. Even with those scores in hand, it’s still important to consider what their competitive positions would look like in three years, otherwise multiple compression can destroy returns.

Moving from Price to Earnings to Price to Sales, I’m shifting the decimal over by one place so that the values can be mapped from PEG to PSG. For example, a price to sales ratio of 1 and a 20% growth rate would give a PSG score of 0.5x and I would consider it to be cheap. A price to sales of 1.5x and a 10% growth rate would give a PSG score of 1.5x and be somewhat fairly valued. And a price to sales ratio of 1.5x and a 5% growth rate would give a PSG score of 3x and be expensive.

In Part 1 of this series, from 21st to 16th place all of the companies had a PSG score over 2.0x, falling into the overvalued category. Today’s companies have a PSG score between 1.0x and 2.0x, making them somewhat fairly valued.

In Part 1, the only company I was actively adding to was BMNR due to two embedded and somewhat unique lottery tickets that I wanted in my portfolio. But here in Part 2, there are plenty of reasons why someone might want to buy a fairly valued company instead of being a value degen and trying to buy dips. If retirement is decades away and you are cathartically squirreling away nuts for your winter years, buying high quality companies at reasonable prices is an admirable strategy. Alternatively, if you believe that the market is wrong about future growth, it might be fairly valued by historical growth metrics, but be cheap by your own estimated future growth estimates. Companies in this Part 2 are not as easy to pass on compared to Part 1, but they aren’t screaming buys either.

Finance of America Companies (FOA) 15th place:

I am very fond of FOA, they were the second component of my silver tsunami thesis, and a reverse mortgage will still likely be critical for the median Baby Boomer. But I believe that FOA’s management botched the M&A integration, and I can only diagnose it in hindsight. By consolidating brands, 42% market share fell to 24% market share, although it has since rebounded to somewhere around 29%. I suspect that financial advisors selling a reverse mortgage get three quotes for their clients, and they are somewhat indifferent which originator the client chooses. Before brand integration, FOA controlled two out of the three market leaders. But by consolidating brands they became one out of three and Mutual of Omaha swooped in to fill the vacuum.

I am somewhat optimistic about FOA’s partnership with Onity Financial (ONIT), essentially white labeling FOA’s reverse mortgages so that Onity can sell them. This allows FOA’s products to potentially cover two quotes again in the sales process, although ONIT was never a top three originator, it will take time to regain lost market share, and Mutual of Omaha won’t go gently into that good night. Meanwhile capital allocation policy is to retire debt, even while the share price is so depressed that a little bit of share buybacks would go a long way.

FOA is a great example of a company that isn’t cheap, and it isn’t expensive. You can buy it here if you want, it will probably do well over the next few years, but it isn’t degen value according to my new PSG ratio. Personally, I am trying to get into the habit of rewarding management teams that don’t make mistakes. Should I really wait around to see if the team at FOA bungles some other initiative, or should I just give more of my money to the folks at ABX, OPEN, or even SOFI who seem to wake up every morning, eat their wheaties, and push the ball farther down the field?

Sezzle Inc (SEZL) 14th place:

I really enjoyed learning about the Buy Now Pay Later space, and I really enjoyed finding SEZL. I had heard enough bears call it “buy now pay never,” that I had some trepidation. When I found out that the loans are only for six weeks, unlike credit cards which keep on rolling, I was shocked but not that shocked that the talking heads on television didn’t know what the heck they were talking about.

I bought a bit of SEZL, but the valuation never quite seemed compelling enough to size up aggressively. Their 50% annualized growth rate is impressive, but it’s already somewhat priced in, as I would expect from a company that is a bit of a Twitter darling. Since I bought a small amount, it has more than doubled, and it highlights the strategy that some investors use, which is to only buy stocks that other investors like, because other investors’ buying causes the stock to go up. It’s an investing thesis that works in moderation, but can be taken too far once valuations get silly. SEZL’s valuation hasn’t gotten silly yet.

The problem with buying companies that are fairly valued at a 50% growth rate, is that if they were to decline to only a 30% growth rate, which is still aggressive, the valuation would collapse from multiple compression. The analyst consensus seems to be that the growth rate will drop to around 30%, but SOFI and NU have been able to maintain their 40% and 50% annual growth rates for more years than I had thought possible, maybe SEZL can too, despite aggressive competition from Paypal, Klarna, and the others.

Even among companies that have the same PEG or PSG score, if I am not confident about future growth prospects, it’s hard for me to buy the company with the trailing PE ratio of 40. In my bones I am not a growth investor by nature. For me, SEZL just isn’t cheap enough to get excited about, I didn’t buy enough, but I haven’t sold the little bit that I bought, it’s too early to get off this rollercoaster.

Jackson Financial (JXN) 13th place:

Jackson Financial was one of my early successes, even from before I started this Substack. My wife has some shares in her Roth IRA with a $26 cost basis, they represent her largest single unrealized gain. I still think JXN is on its way to $300 a share within the next five years. It isn’t expensive here, but it isn’t cheap either, it’s in that sort of middle valuation area.

I even like the management team, although I like them more in the sense that I trust them not to make mistakes, which is different than trusting them to conquer new worlds. Compared to FOA’s mishandling of their M&A, JXN hasn’t bungled anything. And FOA is at a PSG score of 1.68 compared to JXN’s 1.36, if I were in the mood to stack fairly valued companies, I would choose JXN over FOA easily. I wouldn’t fault anyone who takes a little money out of every paycheck and buys some JXN for their retirement.

Their capital allocation policy is excellent as well, buying back as much stock as they can get their hands on. From a valuation / quality tradeoff, JXN is an amazing company for anyone who isn’t as degenerate as myself. But when I think about adding more shares to my 13th best idea, the marginal dollar always runs out before I make it this far down the list.

SoFi Technologies (SOFI) 12th place:

I have finally arrived at the spot in the ranking where I am actively buying. At 12th place with a PSG score of 1.17, SOFI has grown at a 40% rate for the last five years, and it isn’t as expensive as a typical company with that growth rate. The CEO, Anthony Noto, is targeting 40% growth for the year ahead, although doesn’t give guidance more than one year forward. There is still a growth runway due to the “land and expand” strategy, where new clients can make use of newly rolled out services such as home equity loans. Customer Acquisition Cost is calculated off of one loan transaction, refinancing student debt, for example. If clients then use SOFI for their mortgage as well, internal rate of return numbers on customer acquisition go absolutely bananas, and banking clients are sticky once direct deposit is established.

Also of note is that SOFI has two very interesting potential catalysts. Their stablecoin, SOFIUSD, is being used by Mastercard to facilitate 24/7 settlements for the first time in Mastercard’s history. There are many stablecoins, but SOFI is the only chartered bank to issue one, which allows them to access FDIC insurance, and to deposit the funds at the Federal Reserve in order to pay a money market interest rate instead of manually going to the treasury market and taking duration risk like their competitors.

If SOFIUSD becomes the dominant stablecoin, then $20 billion is too cheap for the company. But it’s very hard to predict which competitor will win the network. But with a 40% growth rate outside of their stablecoin, the stock price doesn’t really reflect the lottery ticket opportunity here at all.

The other potential catalyst is direct exposure to home equity loans. I suspect that the Federal Reserve is going to cut the overnight rate, even if the 10-year treasury rate stays mostly flat. That wouldn’t stimulate the 30 year mortgage, but it would stimulate home equity loans. I scoured the mortgage origination companies looking for exposure to home equity loans, but I was never happy with the exposure that I could find. But now SOFI has launched new home equity loan products, and stands to be one of the most direct beneficiaries of a cut to the overnight rate.

The incentive alignment is good as well, Anthony Noto has been aggressively buying SOFI stock in the open marketplace, although he was buying closer to $13 a share, and the stock price has recently been closer to $17.

Conclusion:

There are only these four companies in the “fair value” range according to the new PSG metric, and only one that I am actively adding to, SOFI. But I wouldn’t throw stones at anyone who found themselves drawn to JXN, FOA, or SEZL either. Over time I find myself being drawn to management teams that win, and are dominated by entrepreneurs over bureaucrats. FOA’s management team flubbed something major, so they are in my penalty box. JXN’s management team are bureaucrats, but they are the good sort of bureaucrats who take pride in managing the company well as opposed to fleecing the shareholders dry. SEZL’s management team does have entrepreneurs, and it ticks a lot of boxes on my checklist, but something I can’t describe still held me back from adding more aggressively. It took me a while to warm up to SOFI, but after following the company for long enough, I finally recognized that the CEO has a grand strategy and is executing on that strategy very well, all while buying more stock in the open market. It’s hard to ask for more than that.

We might be in a two to three month period of a rotation away from Artificial Intelligence beneficiaries and toward value. Several sectors are positioned to benefit, Consumer Discretionary, Healthcare, etc., but I always have a soft spot for Financials. Financials aren’t quite as explosive as software with zero marginal cost, but they do typically have a very low marginal cost. Once the systems are in place, most Financials can accept new clients without too much additional headcount, and AI might even eventually increase their operating leverage with labor cost reductions.

One characteristic of small cap stocks is that they are often sub-scale, and growing toward a flip to GAAP net income profitability. Other times they are very cyclical, and oscillate between periods of positive and negative GAAP net income. In both of those situations, the price to earnings ratio (PE ratio) isn’t very insightful, which is a tragedy, because after adjusting for growth, the PEG ratio is very useful for rank ordering companies within a sector.

For small cap stocks, I have found the price to sales ratio is often more useful than price to earnings, but I haven’t seen anyone else adjust the price to sales ratio for growth. I’m probably not the first one to create a PSG ratio (Price to Sales divided by the Growth Rate), but I have never encountered it in the wild. Rank ordering all the Financials that I am following was a very insightful process, and it had a few surprises for me.

So without further ado, the results of my PSG ratio for all the financials I’ve written about recently, from worst to best with part 3 behind the paywall for paying subscribers.

BitMine Immersion Technologies (BMNR) 21st place:

With a Price to Sales of 561x, even with aggressive growth, BMNR comes in with the highest PSG ratio on my list. Unlike the other top scores, however, I am slowly adding to my BMNR position, selling weekly puts and using the cash to buy a few shares. There is a real possibility that Etherium becomes the backbone of tokenized financial transactions, Blackrock’s BUIDL, JPMorgan’s MONY and JLTXX, Franklin Templeton’s FOBXX, UBS’ uMINT, and Goldman Sachs, State Street SocGen have also launched some sort of Etherium based product or plan to in the near future.

Most Financials are Customer Acquisition Cost (CAC) businesses, but money itself is a network good with a self-reinforcing feedback loop. The dominant money chases out the competition and it becomes a winner-take-all system. Getting in on the ground floor of a network that goes on to be the winner, with even 2% of your portfolio, can be a life-changing experience. Here’s hoping Tom Lee is correct and Etherium doesn’t lose out to Solana. I have a limited expertise with crypto, but I have asked experts, even experts who hate Etherium in favor of Bitcoin, and they reluctantly agree that Etherium has a very decent shot at winning.

And on top of all of that, BitMine has a tiny equity stake in Beast Industries who just bought a neobank. If Jimmy Donaldson figures out how to make sure that all contestants on his show are drawn only from the pool of people that have direct deposit with Beast Bank, then he’ll become a top 5 global bank within 15 to 20 years. Those are two attractive lottery tickets which I believe have a very decent chance of paying out, and so I choose to participate, even if the immediate valuation doesn’t rank high by my new PSG metric.

Legacy Housing Corp (LEGH) 20th place:

I really like the two co-founders of LEGH, but unfortunately, by rolling all profits into their loan book, they dramatically limit the torque of a cyclical business. Because of the limited upside, I just don’t find myself adding to the position, although I do own a tiny bit out of pure admiration for old codgers who dance to the beat of their own drums. From the perspective of a risk / reward tradeoff, LEGH is one of the best lower-risk stocks out there, but I find myself a bit more degenerate during this AI industrial revolution.

One of the drawbacks of including growth as a metric is that future growth might not resemble past growth. The two co-founders fired the old management team who weren’t growing, and are searching for a new management team who are supposed to bring LEGH back to growth. If growth were to return, LEGH wouldn’t be in 20th place, although it still wouldn’t break into the top ten.

LEGH has the tailwind of the data center buildout in Texas and the need for workforce dormitories, and they have fantastic incentive alignment with management. But at 3.5x price to sales, and a 5% growth rate over the last five years, the PSG ratio doesn’t favor them. Even looking at a price to book metric they are only at around 1.03x, with a best case scenario of approaching 1.5x - 2.0x. I like LEGH, I like their loan book, and I own a few shares to keep an eye on them, but I just don’t like them enough to be adding here.

Neptune Insurance Holdings (NP) 19th place:

In my search for AI beneficiaries with proprietary data sets, I stumbled across the recent flood insurance IPO Neptune Holdings. But even with the insurance sector performing poorly for most of 2026, they aren’t terribly cheap, with a 21x price to sales and revenue that hasn’t quite doubled in three years. One of the drawbacks of the price to sales ratio is that it isn’t a great comparison for middleman type businesses with small revenue and large margins, which Neptune is. This metric is for rank ordering within a sector, under the implicit assumption that businesses within a sector are similar enough, and often that assumption breaks down. This isn’t a fair placement for Neptune, but insurance buts up against my own circle of competence.

The market is pricing in an accelerating growth rate that is possible, but doesn’t seem plausible as an insurance amateur. Neptune is expanding into earthquake insurance, they have about 7% US market penetration today, the domestic US market could grow, and management has talked about expanding internationally as well. So the growth potential is real, but how many years do they have before they invite competition? This is a great company to watch over the next couple of years, hoping for a dip to buy, but with no guarantee that the market will provide one. The problem with paying up for future growth today is that sometimes the growth doesn’t materialize, and without confidence in an aggressive growth trajectory, Neptune isn’t cheap.

Rocket Companies (RKT) 18th place:

With a price to sales of 4.4x and a three year sales growth of 21%, Rocket Companies comes in on the expensive side of this new PSG ratio. And worst of all, some of that growth is through dilutive acquisitions, on a per share basis the growth rate looks even lower. Mortgage origination is very cyclical, in 2020 revenue was over $15 billion compared to $3.6 billion in 2023, so sales could 3x if we hit a housing boom. The trailing twelve month revenue of $8.3 billion could easily be less than half of 2028 revenue.

The Mr. Cooper acquisition should stabilize net income, removing cyclicality and improving the quality of Rocket Companies. The mortgage origination cycle is likely turning in their favor, but slowly. Mortgage purchase applications are the highest in three years, but by a very thin degree. The real cycle is somewhat stalled out until we get some change to interest rate policy.

I have been using RKT as a vehicle for selling weekly options to raise cash, and hopefully as a magic money machine as it bounces aggressively in a channel the way that Peabody Energy did for several years. RKT has a larger market cap than my usual preference, but I still listen to earnings calls because they are the largest mortgage originator and following them gives me insight into the larger economy. They are a stealth fintech, outside of the Silicon Valley ecosystem, but their platform is unique and hard to replicate. I am not adding here, but I am still selling a few puts for income.

StoneCo (STNE) 17th place vs PagSeguro (PAGS) 9th place vs NuBank (NU) 8th place:

When I looked into Brazilian fintech platforms, I eventually chose PAGS over STNE and NU. The three have a lot in common, but what I really like about PAGS is that they almost exclusively focus on collateralized debt. I want exposure to the Brazilian economy, but I don’t need to take unsecured Brazilian lending risk to do so. Since my original choice to buy PAGS, STNE and NU has outperformed it. Sometimes it makes sense to buy the leader, but the valuation difference is so wide here, I still want to buy laggard. I can’t see myself buying STNE at 4.4x price to sales with unsecured credit risk when I could have PAGS at 0.67x price to sales. Also, PAGS’ growth is underestimated because they voluntarily fired their smallest customers. The core business has been growing the whole time, and their profitability has improved without serving microvendors.

I avoided NuBank because they seemed expensive at the time, and they were, but all Financials have since sold off. Revenue growth of PAGS and STNE is masked by a rapidly depreciating Brazilian currency, and odds are rising that the next election goes capitalist. A capitalist Brazil would find itself with a strengthening Brazilian Real, at which point the dollar denominated growth of PAGS and STNE would be manifested.

However the big surprise to me is that this new PSG ratio helps me to see NuBank with fresh eyes. Trading at a price to sales of 3.97x seems expensive, but adjusted for growth, the PSG ratio comes out a bit cheaper than PAGS at a price to sales of 0.67x. The management team of NU has been able to maintain a 57% revenue CAGR for five years, and while some of their markets are becoming more mature, there are still worlds left to conquer, and there is a lot of room to deepen relationships with clients and expand ancillary services. I have an enormous admiration for NU’s management team after what they pulled off in Brazil, capturing 50% of the market with a single raffle to attend the FIFA world cup in Dubai. I do believe that one of the biggest constraints is true genius, and when a leadership team demonstrates such enormous competence, it’s worth allocating a small percentage of the portfolio, especially on such a large pullback in stock price. I am going to start a new position in NU next week. And I’m not selling my PAGS, but I likely won’t add any more either.

Burford Capital (BUR) 16th place:

Burford Capital has a lot in common with Abacus Global Management or Opendoor, all are market leaders trying to create an entire ecosystem around their niche. But Burford Capital’s performance highlights to me that most often a CFO doesn’t make a good CEO, even with good incentive alignment What Burford Capital has done well is lock down their supply chain by selling small equity stakes to major law firms, and to gain access to unlimited capital for growth by managing a portfolio for a Gulf State’s sovereign wealth fund, all great accomplishments of a founder / CEO with a strong financial background. But what Burford has failed to do is to execute operationally anywhere near as well as ABX has done under Jay Jackson’s leadership, and what OPEN appears to be doing under Kaz Nejatian’s leadership. It really might be the case that the founder of BUR should step aside and hire a CEO who can really take the business where it deserves to go operationally. I still like BUR, especially as AI transitions from the data center buildout to AI beneficiaries, I believe BUR’s proprietary data set is very unique and very valuable. Lawsuit settlements are always locked behind non-disclosure agreements, so large databases of lawsuit details, including eventual outcomes and settlement amounts, are very rare.

With the recent ruling against BUR on the YPF case of Argentina, BUR lost about 10% of deployed capital, but the stock price was cut in half. This probably marks a buying opportunity, odds are good that the stock has bottomed and will be higher a year from now. Measuring price to sales growth is tricky due to the lumpiness of their business, but 2025 revenue was $390 million compared to 2021’s $220 million. I am not currently deploying more capital to BUR, it has enormous potential, but has been a huge disappointment.

Conclusion:

In this first part of the series, there aren’t many things that I am adding to, there are very few narratives that outweigh expensive valuation, I am after all, still a value degen. But there are a couple of interesting lottery tickets to consider. I am selling weekly puts on RKT for income, the mortgage origination cycle still hasn’t quite achieved liftoff, but it probably will soon enough. Crypto is one of the most hated sectors right now, and after a decade and a half, we are finally seeing use cases roll out at exactly the moment nobody wants to invest in it. I own shares of all companies mentioned above, except of StoneCo, but I am not adding to many.

Part 2 of this rank ordering is coming soon, and that is where a lot of valuations start to become much more compelling.

I have been AWOL for a several weeks, but I am happy to say that I am settled into the new house, and the old house is sold. There was a lot of work to do cleaning up the old property, and traffic back into Tampa was a monster. I will be traveling to New York for a few days for Abacus Global Management’s investor day, I was invited by Jay Jackson, and I will be happy to attend. I will also be gone for three weeks starting at the second half of July for a trip to my wife’s native country, but odds are good that I will still be able to write while away. To all subscribers who didn’t cancel during this period, thank you for your understanding!

I will be keeping these behind the paywall, thank you for being a subscriber!

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In this era of high torque AI bottlenecks, where some people are doubling their money in a week buying calls on Korean memory chipmakers, it feels a little anticlimactic to find a US based aluminum roofing manufacturer that will likely 2.5x over the next 24-36 months. It also isn’t particularly uncorrelated to a large portion of my portfolio, metal roofing is going to be interest rate sensitive along with my mortgage originators, consumer cyclical stocks, industrials, and any small cap with SOFR+ debt. But when the AI bottlenecks overshoot and pull back, whether that happens this year or in 2028, it doesn’t hurt having something boring in the portfolio. So without further ado, I present Gibraltar Industries (ROCK), an aluminum roofing manufacturer from Buffalo, New York.

I have three cousins that install metal roofing; I even spent a summer when I was 18 working as a roofer with them, although at that time my uncle was still doing asphalt shingles. The big value proposition for the homeowner is that metal roofs can last forty, seventy, or a hundred years if you’re lucky. Traditional asphalt shingles only last fifteen to thirty years, but cost about 40% less than a metal roof. This longevity is very attractive to homeowners that are approaching retirement age, after people are living on a fixed income, a surprise $15,000 bill is much harder to stomach. A 55 year old with a high income is happier buying a metal roof that will last the rest of his life than to set himself up for a sudden expense when he’s in his late 70’s.

Gibraltar also sells aluminum for greenhouses and solar panel structures, but residential roofing is 80% of their business. Gibraltar doesn’t offer financing directly, but if you buy the materials at Home Depot or Lowe’s you can often get 0% interest for 24 months on their credit card. Large roofing contractors partner with third parties to offer financing to customers as well, often in the form of an unsecured home improvement loan with a promotional 0% for 12 months, and over 9% for an average of ten years, but possibly up to fifteen years. Some homeowners use a HELOC to fund a new roof as well. Those third party lenders have a cost of funds that is tied to SOFR, and HELOCs are also tied to SOFR, so it would be changes in the overnight rate which affects metal roofing sales. I believe that we will see cuts to the overnight interest rate, even if the 10 year treasury stays around 4% to 4.5% for a very long time. The historical spread between the overnight rate and the 10 year treasury was 1.5% after the Global Financial Crisis, and 2.5% before it. Today that spread is around 0.9%, so the overnight rate is likely to be cut two to six times over the first two years of the Kevin Warsh Fed.

Gibraltar’s stock price is down today partially due to a recent acquisition, $1.335 billion at 12x EBITDA (8.5x EBITDA post synergies allegedly) for OmniMax International, a market leader in gutters and drainage systems which closed in February of 2026. The acquisition was completely debt funded with five and seven years notes at SOFR + 2.25%, an attractive rate for a small cap, and shareholders were not diluted. There does appear to be some cross selling opportunities between metal roofs and rain gutters. Just as we saw with Titan International (TWI), debt funded acquisitions are punished by the current market just as much as stock based acquisition, even if the new debt load is manageable.

The acquisition brought ROCK’s leverage up to 3.9x debt to EBITDA, and now management plans on focusing all cash flow toward debt repayment for the next two years to bring that number back down to 2.5x or below. Management is giving full year guidance for the combined entity of over $310 million of EBITDA on sales of more than $1.76 billion. At a current market capitalization of $1.17 billion, that results in 3.7x price to EBITDA or 0.66x price to sales. Gibraltar has routinely traded above 1.5x price to sales, so when their leverage is under control, this $40 stock could be a $100 stock in about two years.

Trailing twelve month net income appears negative due to accounting consequences of the acquisition, non cash mark to market effects. The quarters ahead should start to show SG&A cost savings as the acquisition is digested. One of my favorite signals is insider buying from the most pessimistic people in the company, and for Gibraltar, both the CFO and the General Counsel bought a few shares when the stock price was close to $35. This is the best indicator possible that the people with all the inside information believe the stock is too cheap, and not too risky. Insiders are often wrong on their timing, so it wouldn’t surprise me if it takes six months or longer for the stock price to start to inflect higher, but I have found a lot of opportunity buying alongside those rare inside purchases from CFOs and GCs.

One of the biggest threats to Gibraltar is aluminum prices, so it wouldn’t be a bad pair alongside an aluminum company. There are a lot of enthusiasts for CENX or KALU, but they’ve already doubled or tripled in the last twelve months. Personally, I have a position in Cleveland Cliffs (CLF), which to me seems to still be undervalued relative to other base metals companies. Aluminum and Steel tend to be strongly historically correllated, so ROCK and CLF do make a very decent hedged pair at this time.

The lower end of management’s guidance results in about $60 of revenue per share. Returning to a historical 1.5x price to sales would give a stock price of $90. The cyclicality of falling interest rates and organic growth should push the final price target well over $100 over the next two to three years. There is the possibility of an upside surprise through their solar panel structure business, if the Texas data center buildout really ignores the physics and costs of battery storage, and Google really insists on solar for their next forty data centers, then ROCK could end up being an AI beneficiary. The current data center economics have a 1GW data center costing $60 billion to build and generating $15 billion in revenue wholesale, or $30 billion in revenue retail. Electricity costs from our currently 43% utilized coal capacity would be less than $1 billion annually, but amortized solar could run closer to $5 billion annually. But that would still leave a $25 billion annual gross profit on a $60 billion investment, so yes, Google can afford to pay triple the electricity costs, and still sell cloud compute very profitably at today’s economics.

Gibraltar Industries (ROCK) $39.50: $100 by mid 2028

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I wasn’t planning on writing about a Costa Rican breast implant research lab, and yet, here we are. Healthcare is one of the worst performing sectors year to date; it’s due for some multi-year sector inflows, but I don’t want exposure to anything related to insurance providers as I strongly suspect Healthcare Reform is going to be on the President’s agenda after the midterms. Also, one of my former university students became an analyst at an investment bank, and he occasionally gets back to me with the answer to the best question to ask his fellow analysts, “if you weren’t prohibited from investing in the sector you cover, what’s the number one stock you would buy right now.” Well, there is a healthcare analyst out there who wishes he could invest in Establishment Labs Holdings (ESTA), but the compliance department won’t allow it.

Breast implants generally are not only part of the K-shaped economy thesis, but they are also part of the Ozempic revolution. Semaglutide costs have fallen from $1,000 a month to $150 for certain brands, and they are available in pill form for people who have an aversion to needles, which is a substantial proportion of the population (I’ve seen estimates as high as 50%). The average GLP-1 user is a female millenial, they lose around one cup size on average, although results vary significantly between users, and women tend to be quite fond of their breasts. Not to brag, but I knew a lot of chubby girls in college, and big breasts are fat chicks’ best friends, they were her best attribute when she was at her lowest, and she isn’t happy to find the twins looking “saggy”, or “deflated.” In the age of Ozempic, breast implants are less of a cosmetic enhancement, and more of a corrective surgery.

With secular tailwinds of the K-shaped economy and Ozempic, it’s time to look at Establishment Labs specifically. ESTA has pioneered their Motiva breast implant, has over 200 patents, and received FDA approval for augmentation in the US in September of 2024. Approval is still pending for use in reconstruction. The Motiva implant has a more natural feeling softer texture, which allows the surgery to be significantly less invasive, doesn’t require general anesthesia, leaves minimal scarring, the implant has a nano-textured surface which results in less inflammation post surgery, and changes shape dynamically to be round while lying down, and teardrop shape while upright.

I don’t really want to get too far into the weeds on the medical aspects, but the nano-textured surface reduces the rate at which scar tissue attaches to the implants. That scar tissue attachment makes implants hard, eventually misshapen, and eventually results in requiring surgery to remove the implant. Motiva’s incidence rate at 3 years is less than 1%, meanwhile, their best competitor currently is closer to 3.6%. Older technologies had rates as high as 8% after three years and 18.9% after ten years.

According to ESTA management, however, the value proposition which really resonates with the client is that Motiva doesn’t require general anesthesia; in the patients’ minds, that is the difference between breast implants being a major decision or a minor decision.

Marketing is a mix of social media driven, and cosmetic surgeon driven. Either influencers talk about their experiences with Motiva and provide a special offer code, or the cosmetic surgeons are given a junket to the state of the art breast implant research facility in Costa Rica, and go on to recommend Motiva to their clients. The enthusiasm of the surgeons toward Motiva have led to an increase in breast implant customers who were not considering breast implants before their plastic surgeon recommended it.

The US breast implant market is dominated by AbbVie, Johnson & Johnson, and Tiger Biosciences with 23%, 21%, and 14% market share respectively. North America has about 35% of the roughly $3 billion global breast implant market, estimated to be around $5 billion by 2030. Establishment Labs currently has about $229 million of trailing twelve month revenue, implying about 7% global market share, and the question remains how much market share they can take before being acquired by one of their larger competitors.

Looking forward, management expects continued revenue growth from the rollout of higher end options, and continued market share capture. One possible impending catalyst is a flip to GAAP Net Income profitability. And with the increase in Ozempic usage, there is a potential for the global breast implant market to grow more quickly than expected.

I didn’t catch ESTA at the bottom, the last insider buy was from the CEO in August of last year at around $35 a share. It currently trades closer to $70, and the company isn’t finished diluting to fund their innovation.

A $2 billion market capitalization for $229 million of trailing twelve month revenue isn’t my normal hunting grounds for value. But valuations are anchored by their sectors, and in healthcare, I am out of my circle of competence. The analyst who wishes they could buy ESTA believes it has room to be a four bagger, that would be a price target of somewhere around $280. That is based on pretty aggressive market share capture, but channel checks to plastic surgeons find that the doctors are raving about the product.

This isn’t my typical sort of company, and I wouldn’t feel comfortable having a large percentage of my portfolio here. I do want more exposure to Healthcare, and right now, my only positions are LFMD, AUNA, and AIDR.CN. Having already doubled in price since August, I wouldn’t be surprised if ESTA gives a buyable dip. With pending FDA approval for reconstruction (as opposed to augmentation), a negative news headline could send the stock price down. I would probably open a starter position, a tiny nibble, while waiting for a better entry, but aware of the possibility that a better entry might never come. I wouldn’t kick myself for missing out if the stock price runs away from me, because I don’t have the competence here to be aggressive. But I can still have a little fun.

Thank you for bearing with me as I have been publishing less due to moving. I should be back to a faster writing pace soon, we are mostly all unpacked and settled in. There were a lot of earnings calls worth mentioning these last two weeks, some good (ACDC & ALTG) and some bad (PTLO).

Macro (skip if not interested):

The big worry overhanging the stock market right now is interest rates. On Friday the 10 year treasury spiked 0.138% percentage points from 4.461% to 4.597%. There are several research analysts who have noted that 4.5% is the threshold where the stock market starts to feel the pressure of interest rates. Others argue that 5.0% is the red line, and we might visit it shortly.

Tom Lee of Fundstrat has been arguing for several weeks that the market will test the new Fed Chair, Kevin Warsh. I didn’t take that warning too seriously at the time, and yet here we are, Tom Lee appears to have been correct.

Ever since January, I have been focusing on accumulating shares of mortgage originators. And this current interest rate behavior has led to sharp selloffs in financials broadly and mortgage originators specifically. This has proven me very wrong in the short term, but it remains to be seen if I will stay wrong in the medium to longer term. The mortgage purchase applications index shows a housing market that is slowly thawing due to rising real wages, home prices flat to slightly falling, and some interest rate relief in the form of mortgage spreads narrowing to 1.9% from a 2023 high of 3.1%.

Despite the overwhelming chorus of people who believe that the Federal Reserve will increase interest rates to combat inflation, I still believe that the Fed will attempt to cut. First, unless the Fed is implementing Yield Curve Control, their focus is on the overnight rate, which remains historically high around 3.6%, and the spread between the overnight rate and the 10 year treasury remains historically low around 0.84% versus a longer run average of 1.5% during the Zero Interest Rate Policy (ZIRP) period after the Global Financial Crisis (GFC) or 2.5% before the GFC. If we have really left behind ZIRP, then we should expect spreads to go much higher. Part of that return to normal could be the 10 year treasury going higher, but a lot of it will probably be the overnight rate going lower. Post GFC, it is unusual for the overnight rate to have a positive real return compared to inflation, ignoring all the criticisms with how inflation is measured.

I believe that Fed policy is leaving ZIRP behind, but I don’t believe that Fed policy is leaving negative real overnight yields behind. That is, current policy makers don’t believe that investors should be paid an amount above inflation for money that is invested without duration risk. Based on current inflation measures, that would mean that as of February, there was room to cut the Fed Funds rate by between 1.0% and 1.25%. However, with the oil spike from the Iran War, inflation concerns are rising again. The big question is to what extent will the Fed “look through” the “transitory” Strait of Hormuz effects.

The overnight rate can still be cut if the Iran War resolves after Trump’s visit to China is over, the Fed looks through the temporary effects of the oil price shock, or AI unemployment concerns outweigh inflation concerns. When asked about the prices of fuel and fertilizer on April 21st by Senator Kim in the Senate Banking Committee, Warsh responded “Senator, if my reform agenda, if confirmed, stands for anything, it’s for the central bank, especially the Fed chairman, to stay in its lane.” This implies that for Kevin Warsh, rate cuts are still on the table.

And it does make some sense, there is a difference between prices rising because of an increased money supply, and prices rising due to a supply shock such as a crop failure. Does it make sense for the central bank to increase interest rates and reduce the money supply if the US corn crop failed, for example? At exactly the time when farmers would need to borrow money for the next year’s planting, higher interest rates would dampen the farmers’ replanting efforts to fix the supply shock. Just because Volcker did it in the 1980’s, doesn’t mean it was ever the correct thing to do.

We are about to find out how the Federal Reserve works, does the committee hold the power, or does the Chairman? Warsh wants to cut the overnight rate, and if he holds the power, he will do so immediately. If the committee holds the power, rate cuts might be pushed out until 2027 when we have a better line of sight on oil prices. Historically, the Federal Reserve Bank was originally set up with the appearance of diffused power in order to satisfy congress, but the reality of dictatorial rule. Does the Fed’s dictatorial rule only benefit Democrat presidents? Academic literature from ten years ago found a consistent bias favoring Democrats, more recent academic literature claims a consistent bias favoring Republicans. I think odds are good that the market is wrong about the probability of rate cuts.

There are two reasons why the overnight rate is so impactful at this moment. The first is that large percent of the US government debt has been rotated into short duration treasuries. With 34% of the marketable Federal Debt with a duration less than 1 year, a 1% cut to the overnight rate would save over a $100 billion on the annual deficit. While Trump reduced the deficit for 2025 by $426 billion over 2024, the last four months of 2026 have seen a deficit increase of $13 billion over 2025. I believe it is Trump’s plan to use rate cuts as a way to continue shrinking the deficit. An improving Federal fiscal situation would help relieve market fears about a debt spiral, and therefore long run inflation concerns.

The second reason why the overnight rate is important is because a significant part of the economy is tied to overnight rates. Home Equity loans, dealership floor plan financing, small cap SOFR+ debt, etc. can all respond to cuts to the overnight rate even if the 10 year treasury stays between 4.0% and 5.0% for the next decade. If the overnight rate is cut low enough, home buyers might even start to choose the 5/1 Adjustable Rate Mortgage over the 30 year fixed, which could help to unfreeze the housing market. Of course there are risks to the 5/1 ARM, but the frozen housing market has been a drag on the US economy and the US consumer since Jerome Powell’s rate hikes of 2022.

Finally Getting to Opendoor (OPEN) and Beeline Holdings (BLNE):

Besides continued narrowing of mortgage spreads, another way that mortgage rates can come down is by innovation from mortgage originators removing structural costs. About 0.85% of the interest rate of a typical $400,000 30 year mortgage is the cost of originating that mortgage, if it were paid fully upfront in points, it would be about $25,000 on a $400,000 home instead of a 0.85% interest rate difference. About 60% of that amount is the labor costs associated with a traditional mortgage origination, and about 40% is gross profit to the mortgage originator.

As an online mortgage originator, BLNE was able to beat traditional lenders by 0.25%, which is why we chose them for our new home. The experience was pleasant and efficient, but still required a lot more human intervention than I was expecting. Beeline is still somewhat earlier in their AI cost cutting journey than I had anticipated. The stock price was destroyed after the last earnings call, falling from $1.74 to $1.05 as the growth came in slower than investors had anticipated, and the path to profitability is farther away. I believe the primary concern that led to this selloff is the amount of dilution that will take place with operating cash flow at over negative $3 million per quarter. BLNE does have some borrowing capacity, but investors don’t seem to believe that growth will outpace expenses in the short term. Management is guiding toward a 10x of revenue within seven quarters, but with 7% quarter over quarter growth, it seems the market doesn’t believe management.

OPEN, in their mortgage pilot program in Colorado was able to undercut mortgage rates by the full 0.85%, with a plan to eventually forgo not only labor costs with AI, but also the gross profit of mortgage origination. By choosing to take only one bite at the apple, OPEN has the strategy of passing the full cost savings directly to the homebuyer. This is a strategy for overwhelming market domination. For existing home buyers, if a traditionally listed home comes with a 5.85% mortgage, and Opendoor home comes with a 5.00% mortgage, then the Opendoor homes will be prioritized by homebuyers in this current market atmosphere with more sellers than buyers.

If someone is buying through Opendoor, they also get some benefits if they choose to sell their old home through Opendoor as well. Again, management is focusing on taking only one bite at the apple and passing savings onto the customer. This significantly simplifies the process of buying a home, as there is no need to go under contingency and risk the home sale falling apart while waiting to sign the closing paperwork on buying the new home. Very few buyers can qualify for two mortgages simultaneously and sell their old home at their own pace. By tying up both ends of the process, OPEN is able to create a reinforcing feedback loop that mirrors what Uber has in the taxi market, creating a winner-take-most outcome. Unlike Uber, who had negative cashflow of $30 billion to capture their market, it looks like OPEN will likely take their market with only about $5 billion of negative cash flow.

The biggest surprise for me with Opendoor was management’s decision to attempt to pay more for homes. I had detailed in 2024 when I first wrote about OPEN the problem of adverse selection, people with bad homes are more likely to take OPEN’s offer. Opendoor is able to use AI to predict the probability of a lemon, and they are able to offer more for a home that is easier to predict. I did not end up choosing to sell my home through Opendoor, my home is from 1946, and has a high probability of being a lemon. The OPEN offer was 30% below the Zillow estimate. But there is customer feedback that when the probability of being a lemon is low, OPEN is paying somewhere closer to 5% to 10% below the Zestimate. Keep in mind that the sellers agent and buyers agent typically cost around 5% to 5.5%, so an offer 5% below the Zillow quote is absolutely amazing. Visually, this is a classic scenario where as variance decreases, the average can increase, it looks a bit like the chart below:

Most of the improvement that has taken place at OPEN is directly due to this differentiation of how much to pay for homes based on their probability of being a lemon. Since this policy was implemented, the gross profit of different cohorts no longer decays over time, and has remained stable at around a 10% gross margin. Where once, lemons dragged on profitability as they were discovered over time, now, homes that need more repairs are getting lower offers, and homes that need fewer repairs are getting higher offers.

It takes a significant amount of time for each vintage to mature, so even as OPEN improves under the surface, we still have scant evidence, only three cohorts more than 60% sold. The new CEO only started at the end of September last year. But this one change has fundamentally altered the business model, and now it’s only a matter of volumes at scale, and further efficiency gains. With the rollout of national mortgage origination and title services, and probably eventually insurance origination as well, Opendoor is going to aggressively take market share, and after market share, and then transition to increased fee-based revenue streams.

Volumes have been significantly above guidance although guidance has been changing over time. The original idea was to fix systems and cut costs for at least the first six months, and then focus on ramping up volumes through advertising spend. But possibly due to the free advertising that comes from being a meme stock, volumes started increasing well in advance of management’s guidance, or even their plan. With the catalyst of a flip to quarterly positive EBITDA within the next few quarters, there is continued room for the free meme advertising to drive continued volume growth. A GAAP net income profitable Opendoor will be talked about, and again, when mortgages roll out nationwide, being almost a full percentage point below competition will be talked about.

Despite increasing evidence of excellent execution, the stock price has fallen from $10.70 last September to $4.28 today. The disconnect between fundamental improvement and stock price continues to amaze me. While I had previously stated that my OPEN position was full, it was 15% of my portfolio in September, I have room and conviction to start adding more. I don’t have the cash to start adding more, as a handful of puts that I sell for income have been assigned recently, but barring any more assignments, I’ll be back to buying on Monday.

A typical turnaround takes years, and it can be painful to be patient with new management while waiting for evidence of improving fundamentals, especially with macro and sector headwinds. But an innovative management team swims upstream against the headwinds, and this is exactly what OPEN has been doing. There are a lot of great companies that are looking through the cycle, or navigating the cycle, but there are precious few innovating, improving, and growing through the cycle. So many tech companies stay private until they use the public markets for exit liquidity, it is truly rare to have access to a management team of this quality in such a small company.

Over the next few quarters, as we see the rollout of an AI driven nationwide mortgage underwriting program, I believe the results will be shocking. Already, the percentage of homes on the market for more than 120 days has fallen from 51% to 10%. Also, financial results from the last two quarters have been marred with liquidating old inventory, so gross profit has been significantly below 10% for the last two quarters. In the next six to nine months we should be transitioning to seeing financial metrics where all houses sold were acquired under the new pricing scheme, and we should see positive GAAP EBITDA if not positive Net Income.

I don’t know how long it will take for the market to wake up to Opendoor, but I like adding to positions that deliver fundamental improvements despite headwinds, have a clear path to profitability, and where management is doing all the right things. Price targets on Opendoor have become controversial, but it does have a distinct possibility of becoming the network that overlays the US housing market first, and then expanding internationally. It sounds absurd to claim that OPEN could grow from a $4 billion market capitalization to $200 billion, or even a $1 trillion market capitalization, over the next ten to fifteen years, but here we are. Of course management has large stock based performance plans, but I also expect at some point free cash flow to be funneled into share buybacks. In the short term, 3x price to sales is very reasonable when OPEN flips to positive EBITDA, that would be a share price close to $13 within the next nine months.

This past quarterly earnings call for Abacus Global Management (ABX) was a bit like being taken out for dinner and having a two pound lobster, but last year you were taken to the same restaurant and had a three pound lobster. You know full well that there isn’t anything to complain about, but comparison is the thief of joy. The market reaction to the earnings call was initially a selloff, but over the last two days, the stock price has rebounded just about to where it started. This makes some sense, the growth this quarter was masked by temporary headwinds, and the timing of the next securitization was pushed back possibly into early Q3.

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Thank you for your understanding for any typographical errors, these hands are not accustomed to laptop keyboards. We are three UHaul loads deep into this move, and I need to buy a new computer desk before I get my work station up and running.

But I wanted to point out that this earnings season is very unforgiving, misses result in huge selloffs. This behavior is unusual for a bull market reaching new all time highs. It seems that the AI disruption uncertainty still has market participants looking for opportunities to short. While I do believe the path forward for the market is higher, I am always looking for data points that point the other direction. The disproportionate punishment of earnins misses is one of those inconvenient data points.

Two stocks in my portfolio were hammered on Monday, Cogent Communications (CCOI) and United Logistics (ULH). I took the opportunity to add to both, I even dipped into margin a bit because they weren’t what I was planning on buying this week.

The next day, CCOI bounced back hard, which is a good indication that the bottom is in. ULH, on the other hand, continued to sell off. From a one year perspective, ULH could bounce here forming a double bottom, but from a 10 year perspective, it could easily fall toward $10.50. The RSI is extremely oversold at 23, anything could happen over the next few days, but over the weeks and months, I think buying ULH at $12.28 and 0.21x price to sales is a smart move.

Meanwhile, trucking volumes and rates have exploded higher, especially in flatbeds, which is about 35% of ULH’s revenue. The recent earnings call wasn’t what the market wanted to hear, but the big selloff came with the announcement that Amazon would start selling logistics services to third parties. While Amazon is a juggernaut, logistics is a market where XPO split itself up into four pieces in order to unlock efficiencies. I won’t get shaken out of a trucking company just because Amazon will participate. ULH routinely trades at a price to sales ratio of 0.4x, and at peaks, trades up to 0.6x. On higher revenues, it’s probably a three bagger from here.

Regarding Cogent Communications, all three business segments are growing for the first time since the longhaul fiber acquisition and the three year process of firing legacy customers began. Management has only captured about 3% of the data center market, but they still guide toward taking 25% market share over time, which is their market share for their traditional business. One of the reasons I am so confident is that with data centers, they aren’t choosing one provider in the same way that a suburban household chooses between Frontier or Spectrum, in a world where data centers need 99.999% uptime, they choose all providers. The data centers won’t allow a multi billion dollar facility to go offline because an idiot with a backhoe severed a conduit in Sheyboygan. Instead, they hook up their data center to all providers. I am confident that Cogent will take market share and reach their stated goal.

Over the longer term, it seems implausible that the AI revolution won’t benefit data traffic volumes over time. And the threat of disruption seems nil because laid fiber is already traveling at the speed of light without packet loss, so not even Starlink can compete. Keep in mind that we are currently operating with data centers that were started before the fall of 2024, because they take 18 months to build. Data center capex has only accelerated, and token prices and Anthropic throttling Claude Mythos tells me that we are still relatively early in the cycle.

Someday, CCOI could be recognized as an AI beneficiary, and when that day comes, it could trade at absurd multiples along with AAOI and BW. I have the value disease, I prefer to buy dips instead of chasing new highs. That probably guarantees underperformance, all the smart people seem to be buying Nokia (NOK) right now. But I am who I am, a value degen, and when good companies sell off hard, I have to add a bit more.

Also, on the last earnings call, CCOI did say that they had a nonbinding letter of intent to sell 10 of their 24 excess data centers, with the transaction expected to close in the early summer. A little bit of deleveraging would certainly be welcome, but the price action on Tuesday makes me think that the worst is behind CCOI either way. I could be wrong of course.

Best regards,
Steve Farrington aka The Unemployed Value Degen

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Hello all, I am in the middle of moving. My whole life is in a giant pile of boxes. Thank you for your forbearance during this time.

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Publishing volumes are slow as we are moving into the new home. I am grateful as always for every subscriber.

Among my many vices is adding more and more financials to my portfolio. They tug on my heart strings like stray dogs at the shelter, and I just have to take them home with me. It’s not even an argument for circle of competence at this point, it’s just a crutch or a filthy habit. But in my defense, second to software, financials can scale up with minimal cost, often either being capital light or using other people’s capital. And unlike industrials or real estate, the capital doesn’t depreciate and need repair.

It’s also probably timely to be buying more financials right now, with the Department of Justice dropping their investigation into Jerome Powell’s mishandling of a multibillion dollar construction budget, Senator Tillis has agreed not to block Kevin Warsh’s nomination. With Senator Fetterman agreeing to cross the aisle, Polymarket is giving Warsh a 92% chance of being confirmed by May 15th.

With a new Fed Chair comes a new interest rate policy, and we are currently in a historically shallow yield curve regime. There is usually between a 1.5% and a 2.5% spread between the overnight rate and the 10 year treasury, but today that spread is only around 0.5%. This means that Kevin Warsh could cut interest rates four times to get back to historical norms, and the market is pricing in a 70% chance of zero rate cuts this year. I think the market might be surprised to learn that financials are a dark horse, about to sprint toward the front of the pack.

There is another aspect of financials that tech investors might perceive as a flaw, but small cap investors might perceive as an opportunity. The only moats in financials are switching costs and reputation. They are Customer Acquisition Cost (CAC) businesses, where there typically isn’t a network effect or a self-reinforcing feedback loop. You don’t need your mortgage or your checking account at the same place as your friends and family. This means that there is always room for innovative upstarts to come along and take market share, and for stodgy old bureaucracies to fade away. Nobody’s market position is insurmountable.

There is one category of financials that I haven’t written about yet, brokerages. I have seen the pitch several times for Webull (BULL), but the company and the valuation never seemed compelling to me. The US brokerage market is a knife fight, the CAC is high, and the competition is fierce. I have written about XP Inc (XP) in Brazil, but to me it seems like the market leader has market share to lose as competition heats up for their valued clients.

But in Asia, I think it might be a different story. You may have heard about China’s real estate bubble, and the ensuing fallout which is still being digested today. The Chinese had a cultural attraction toward investing in real estate, and with the rise of a massive middle class, it became mathematically impossible for everyone to own their own home, and rental homes as well. A middle class cannot sustain itself in retirement on rental properties, but it can sustain itself on the income from public business ownership. China, despite being commerce friendly, has long been a low-trust society where scams and bribes are still common, and finance is fundamentally built on trust. It is going to be a slow process to teach the middle class in Asia to invest in the stock market, and for Asian stock markets to police themselves, but it is probably an inevitable trend. Where approximately 60% of US adults own stocks in some form, those numbers are closer to 10% or 15% for Singapore and Hong Kong. And if you aren’t sold on the adoption of the middle class investing in the public stock market perhaps you will be persuaded by Asia’s love of gambling, and the fact that options contracts are the most lucrative part of the brokerage business.

UP Fintech Holdings (TIGR) is one of the more popular mobile brokerage apps in Singapore and Hong Kong, with about 1.25 million funded accounts at the end of 2025, handling a little over $60 billion in AUM, and with about 26 million options and futures contracts changing hands last year. Those funded accounts are up 15% year over year, AUM is up 45% year over year, and options contract volumes are up 41% year over year.

For comparison, Webull (BULL) has five million funded accounts, but only grew at about an 8% rate last year. BULL only has about $24 billion AUM to TIGR’s $60 billion, but BULL grew AUM faster in 2025. BULL grew options volumes at a 19% rate in 2025 compared to TIGR’s 41%. While BULL has five times the funded accounts, TIGR has better and more profitable accounts.

For TIGR, full year 2025 revenues increased 56% over 2024 to $612 million. Full year net income for 2025 rose to $170 million vs $60 million the year before, and the whole company only trades for $1.13 billion, implying a price to sales ratio of 1.84x compared to Webull’s 6.36x, FUTU’s 5.05x, or Interactive Brokers’ 3.29x. The trailing twelve month price to earnings ratio is a little over 7x, Webull isn’t profitable, FUTU’s is 15x, and IBKR’s is 34x.

With a bit of a temporary revenue spike in the mania of 2021, revenue has been steadily increasing. Economies of scale were reached in the last few years, and GAAP net income profitability has inflected. Dilution is manageable with the usual amount of stock based compensation, and an equity raise in 2024 which has been used as working capital in the business. Revenue per share has increased from $0.58 in 2019 to $3.29 in 2025, a 33.55% cumulative growth rate.

It’s not clear when a return of capital to shareholders would be likely given the rapid growth of the business. Management’s priorities are organic growth, targeting 150,000 new funded accounts in 2026, and continuing to expand product offerings, margin, crypto, etc. TIGR has a relatively large cash war chest of around $750 million that could be used for acquisitions, returning capital to shareholders, or, as is popular in Asia, they could just sit on a giant pile of coins like Scrooge McDuck or Smaug.

UP Fintech holdings is still controlled by its founder, Tianhua Wu, with over 12% of economic ownership, and voting control with class B shares that have 20x voting rights. There are also strategic ownership stakes held by Xiaomi, the mobile phone / automobile manufacturer, and Interactive Brokers. When looking at the Interactive Brokers’ ownership stake in particular, it qualifies as a “toehold” a small ownership stake by a larger competitor. This is usually accompanied by technology and expertise transfers, indicating a bright future for the smaller company, and sometimes foreshadows an eventual acquisition. Sure enough, Interactive Brokers assisted TIGR with the US compliance and Know Your Client rules. The last time I bought a stock with a toehold, it was VitaCoco at $9, and today it trades at $65. Toeholds were a primary area of research of my former PhD advisor, and whenever I stumble across one, it immediately catches my attention.

I do have a strong home country bias, it isn’t often that I get excited about international stocks. I have also preferred to focus on South America, given the capitalist domino effect and commodity super-cycle. But the transition of the Asian middle class from investing in real estate to investing in capital markets is a very interesting tailwind to try and catch. As far as rule of law goes, Singapore is a very reasonable jurisdiction, and TIGR should be relatively insulated from the rising tensions between the US and China. There is a large Asian competitor, FUTU, but again, financials do not need to be a winner-take-all market, they are CAC markets, and a well-run, well-incentivized competitor can still take market share or grow along with the growth of the market.

I know that I have taken in too many stray financials. But find me another capital light company with two thirds of their market capitalization in cash, growing at a 33% CAGR, and trading at a price to earnings ratio of 7x. Oh, and TIGR has relatively liquid weekly options, so I have already begun selling puts and using the income to buy some shares.

TIGR would also make an interesting acquisition target for a number of larger financial firms, but with supervoting shares, it would only be at the pleasure of the founder, Mr. Tianhua Wu, who I believe is only around 41 years old. I’m not always fortunate enough to catch a stock price at the bottom, but it’s hard for me to see TIGR’s price falling much further from here.

Putting a price target on TIGR is more difficult, it’s hard to know if a foreign ADR will re-rate to the multiples of their US domiciled peers. But there is room for multiples to more than double while the earnings are likely to grow at near a 40% annual rate. That makes TIGR a very likely three bagger or better over the next 24 months. And with interest rate cuts and a frothy market, how many Asian traders want to buy some call options on the upcoming SpaceX and Anthropic IPOs? TIGR could enjoy a cyclical upswing in the middle of a secular tailwind.

UP Fintech Holdings (TIGR) $6.60: Over $20 by the end of 2028

I will be keeping these behind the paywall, thank you for being a subscriber!

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If you can talk with activists and keep your virtue,

Or walk with bankers—nor lose the common touch,

If neither foes nor shareholder lawsuits can hurt you,

If all investors count on you, but none too much;

If you can fill the unforgiving dry van

With thirty pallets’ worth of run,

Yours is the Forward Air and everything that’s in it,

And—which is more—you’ll survive the Omni Acquisition, my son.

• Rudyard Kipling probably

We are in a trucking super-cycle, and with the recent earnings results from J.B. Hunt, the market is finally starting to wake up to it. The data center buildout is accounting for around 7% of the freight market, higher oil prices are increasing demand as well as the US scrambles to boost exports, and we haven’t even had the new Fed Chair cut rates and unfreeze the housing market yet. I want more exposure to trucking, I like companies with torque, either through operating leverage, financial leverage, or both.

I don’t often get the entry and exit right, but in the case of Forward Air (FWRD), I did alright. In 2023 FWRD announced a transformative acquisition, (management always calls it transformative when they overpay), of Omni Logistics. The stock sold off on the news, the valuation was rich, and we were in the middle of a rate hiking cycle. Freight was strong during Covid, so Forward Air was setting up for a drop in revenue and a multiple compression at the same time, but management engaged in a cluster of insider buying to calm the markets and as a gesture of confidence that there were synergies to be found. I started a small position somewhere around $70, it had fallen from over $100.

You can find my initial writeup here:

The strategic acquisition was so large that it crossed the 20% dilution threshold to require a shareholder vote in Tennessee. In order to intentionally bypass shareholders, Forward structured the Omni acquisition half in stock and half in preferred stock which quickly converted to common. Lawyers saw through this charade quickly, and lawsuits were filed. But Forward management had already agreed to acquire Omni, which sued to enforce the acquisition agreement. The CEOs of both Forward and Omni resigned in disgrace. Under the noise of all these lawsuits, the stock price fell from $70 to around $15, where I 5x’d my position size.

A few months later, Forward received an acquisition offer, and the stock rallied to around $41, where I sold my entire position. It’s rare, but in this one instance, I made money on this total trainwreck of a situation. The acquisition offer was later rescinded, 2025 was a tough year for freight, and the stock fell as low as $15. It’s currently rallying to $21.79 as the news of the trucking supercycle is slowly permeating the marketplace.

I always felt that the fit and the synergies of the Omni acquisition weren’t terrible. It’s fair to criticize the price, but there was a path where Forward would upsell Omni’s very sticky business relationships. Unfortunately, during the chaos of having management changes during a business integration, Forward did lose some of those Omni clients.

But I think the bigger picture overall is that freight has been dead for three years, but now it’s suddenly bouncing back stronger than ever. Forward Air is a multifaceted logistics company, but the primary focus is Less Than Truckload (LTL) shipping. If companies need to ship something that isn’t big enough for a full container, it goes on an LTL, mixed with other loads going the same direction, if volumes are strong enough. Forward’s market position is that they endeavor to be the quality leader with the fewest lost, damaged, or late deliveries. And despite how slow things were in 2025, FWRD was free cash flow positive by about $30 million.

The types of things that get shipped LTL include specialized equipment for our current industrial renaissance, but a large percentage is luxury appliances for clients that are renovating their homes and aren’t satisfied with the models in stock at Home Depot. Unlike Flatbeds, LTL is much less of a pure exposure to this booming industrial renaissance. But unlike Universal Logistics, Forward Air is trading very cheaply, it routinely traded around 2.5x Enterprise Value to Sales, and it sits around 1.0x today.

With such a heavy debt burden from the Omni acquisition, $725 million at 9.5% and $1.045 billion at SOFR +4.5%, even without a multiple rerating, the stock could easily go up 20% in a year just from paying down debt with historic free cash flow. But with increased volumes from a freight recovery, operating leverage, debt paydown, and a multiple re-rating, Forward Air could easily be a multi-bagger over two or three years. FWRD has trailing twelve month EBITDA around $300 million, a strong year should be closer to $400 million, and interest expense is around $180 million annually.

The key thing about LTL is volumes, trucks shipped partially full are much less profitable than those that are completely full. With the industrial renaissance and reshoring, is there going to be an increase in high-value equipment that needs to be moved around by the carrier with the lowest loss ratio? With the data center buildout and the AI revolution, will there be an increase in cables, racks, servers/components, spare parts, electrical gear, HVAC pieces, etc. that need to be moved around in a hurry by the company with the lowest loss ratio? Even with a management transition, the quality continues to increase and the claims ratio continues to fall.

If the freight market is strong for the next two years, by the end of 2027, FWRD will have paid down $200 million of debt, revenues will probably grow from $2.5 billion to $2.8 billion, and multiples could expand from 1.0x EV/Sales, then the stock price could go from $16.71 today to between $32 and $80. The big prize remains upselling to LTL volumes to Omni’s business relationships, but winning business clients takes time. In the meanwhile, US trucking volumes continues to increase, and we haven’t had the new Fed Chair to cut rates and unfreeze the housing market. As more homes transact, more luxury appliances need to be moved around. The debt burden is high, but FWRD was free cash flow positive even during 2025, which should be the trough of the cycle.

Forward Air (FWRD) $21.72: $32 by the end of 2027 base case

Forward Air (FWRD) $21.72: $80 by the end of 2027 bull case

I’m more than a little overweight Financials. Circle of Competence is one thing, but it’s easy to take it too far. They aren’t quite as capital light as Tech, but they typically have high operating leverage, and can grow in their niche without the fear of a winner-take-all market. I feel sorry for those SaaS bros living under the fear that Masayoshi Son will give their competitor $500 million and squeeze them out. The current Artificial Intelligence zeitgeist has cast some doubt on the terminal value of many Financials, but I have a suspicion that at least some of these obsolescence fears are misplaced.

I have always liked Burford Capital (BUR), the market leading litigation finance company. Litigation finance can sound somewhat devious, the same is true for life settlements and reverse mortgages. But public companies receive practically no benefit to their stock price for pending litigation, so why not rely on the division of labor to outsource that job to a third party? A lawsuit can be frivolous, or it can bring our precedent-based legal system closer to a better approximation of justice. With their proprietary data set regarding which cases are more likely to succeed, Burford Capital can help firms choose which lawsuits to pursue and which to drop, without the incentive misalignment of law firms which are paid by the hour.

It is true that the US loses about 2.1% of GDP to lawsuits, more than triple the average of other developed nations. But that isn’t Burford Capital’s fault, the blame rests with State and Federal governments who spend their days redistributing wealth instead of legislating. And since the worship of power is humanity’s oldest religion, governments seem almost always able to pass the stigma away from themselves and onto private enterprise. But the threat always remains that congress will try to pass some sort of law banning litigation finance, or taxing it punitively, and the sycophantic media will convince petty and envious people to applaud the act.

My original writeup on Burford can be found here:

I never built a huge position in Burford Capital, I wanted to, but I was prioritizing other financials such as Abacus Global Management (ABX), Beeline Holdings (BLNE), Finance of America Corporation (FOA), and Jackson Financial (JXN). When the time comes to take some profits in those positions, I hope Burford Capital is still cheap enough for me to want to buy.

The recent stock price collapse is due to the dismissal of the largest lawsuit on Burford’s balance sheet, a lawsuit against the sovereign nation of Argentina because they failed to offer to buyout all shareholders of YPF when they acquired a significant minority stake. I had originally thought that the government of Argentina would want to settle the lawsuit. But the IMF, who is happy to give money to any genocidal socialist dictator, refused to extend credit to Argentina. I realized that Javier Milei had no incentive to settle this affair. If settling the lawsuit doesn’t improve your credit rating, then why pay it? Sovereign nations can’t be compelled anyway. I don’t know if I ever typed that opinion out, but I shared it on one of the podcasts with , Ben Demase.

Without the uncertainty of such a large lawsuit on their balance sheet, I like Burford Capital a lot more. Just like any business, having a concentrated client portfolio brings additional risk, the business is healthier overall without the YPF lawsuit.

Buford Capital has a lot of advantages:

They are founder led with significant insider buying, although stock based compensation remains a bit high.

Their core business is still growing at a good pace.

They still have the largest proprietary data set in their industry, and that proprietary data is likely to remain unavailable to others as settlements almost always come with some sort of non-disclosure agreement.

They have smartly sold minority stakes to major law firms to align incentives so that they keep referring a pipeline of new lawsuits.

They have secured a partnership with a large Gulf State sovereign wealth fund to provide capital whenever an opportunity comes along that they can’t afford.

The disadvantages remains similar to a lot of other niche financial services companies:

A negative stigma surrounding the layman’s inability to appreciate the value added, which is common since Aristotle failed to recognize the value of time.

The lack of transparency surrounding Buford’s mark to market process, adjusting book value as certain legal milestones are achieved.

The upcoming possible mark to market loss that will come from marking down the YPF case.

The large stock based compensation.

The slow pace of working through the Covid backlog.

What remains?

What do you get for $1 billion with Burford trading at $4.72 per share? From a net income perspective, things don’t look great, a $62 million profit in 2025, down from $146 million in 2024. There is the overall growth story, acquiring $872 million worth of new case commitments in 2025, up from $627 million in 2024. But from a price to book perspective, before the collapse of the YPF lawsuit, at the end of 2025, Burford’s internal adjusted estimate of the value of their lawsuit book had risen from $4.5 billion in 2024 to $5.2 billion in 2025. The good news, Burford had excluded the Argentinian lawsuit from those book value figures.

The modeled realization estimate has grown with Burford’s book of lawsuits, rising from $3.4 billion at the end of 2021, to $5.2 billion today, and management is guiding for it to double by 2030. This represents a constant reinvesting of capital into the portfolio of the business, which masks a steady state earnings power. One would have to trust them on their marks, but if one does, being the market leader and taking the market before any serious competition gets organized only increases the moat of the proprietary data. If the market leader can model lawsuits more accurately, they should continue to get more business.

If you don’t want to look at modeled book value, you can look at capital deployed and future commitments to deploy capital. At the end of 2025, Burford had deployed over $1.7 billion, with another $1.1 billion committed. Around $117 million of this deployed capital is related to the YPF lawsuit, so Burford lost approximately 6.7% of their book value, and the market cut the stock price in half. This mark to cost book value hass a 17% compound growth rate, with a recent inflection higher. Using this metric still requires trust, is their proprietary data set worthwhile, are they good at choosing winning lawsuits?

Burford has a net lifetime loss rate of 10.2%, but full year 2025 only had a loss rate of 8%. This is a strong and tangible signal that they are getting better at choosing winning lawsuits. The ratio of cases that settle early has changed significantly with Covid, so it’s hard to compare apples to apples. Still, there is evidence of an improving and growing company for those with eyes to look for it.

If you want to rely on a metric that requires much less trust, you can track cash received from lawsuits over time. Burford can mark their book in a black box, but cash is cash. Realizations are down in 2025 vs 2024, but again, Covid created a pig in a python problem which made 2024 abnormally large. Management is obviously trying to give the most optimistic picture by displaying a rolling three year cumulative figure, but that figure is still compounding at a 19% cumulative annual growth rate over the last 11 years. The average duration from deploying capital to a settlement is 2.5 years, and to a verdict is over three years. The inflection in the growth of the book should result in an inflection in this realization value eventually as well.

The market has lost confidence in Burford, and it takes a lot of trust to invest in an opaque niche financial who marks their own books. But I like them, there are a lot of signs that management is being prudent, the smart thing to do is to aggressively take more market share before competition gets organized. Some of the biggest criticisms surround capital allocation, why not buy back stock? The two cofounders, the CEO and CIO, own around 8.5% of the company, so their incentives are reasonably well aligned. I look forward to share buybacks, and the current valuation might prompt management to start pulling that trigger, but the lifetime Internal Rate of Return on litigation investments remains 26%. With such a high internal rate of return, I don’t blame Burford for not slamming the buyback button, but I also wouldn’t be surprised if that changes very soon.

Burford currently trades at less than half of tangible book, and growing niche financial services companies can easily trade at twice tangible book. There is room for a multiple re-rating to a four bagger, and continued aggressive growth. Twice tangible book would give a share price of $21 a share, but if it takes three years to re-rate to that valuation, the share price target will have grown to $33.63 by 2029.

Buford Capital (BUR) $4.72: $33.63 by mid 2029

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There are a handful of companies that I’ve written about which didn’t go according to plan, two have wiped out shareholders completely, Conn’s and The Container Store. I was very early on the Consumer Discretionary rebound, I didn’t expect Jerome Powell to keep his boot on the neck of the economy for such a long time. I might still be early on Consumer Discretionary, but I am accumulating several Consumer Discretionary names now; Portillo’s, Lovesac, Dine Brands, Gamestop, Newell Brands, American Eagle, Kohl’s, approximately in that order of enthusiasm. Time will tell if I’m still early.

One of my bigger mistakes was New Fortress Energy (NFE). In hindsight, the smart move would have been to sell when they first breached their debt covenants. The 12% interest rate was a burden that the company couldn’t get out from underneath. There were other unfortunate events, the battle with the Puerto Rican government, the surprisingly low price for the Jamaica sale, FEMA funds that never showed up. But I should have had the presence of mind to recognize that the debt burden was too much, and the assets would go to the bondholders. You can find some of my past NFE writeups here:

One of the components of the NFE thesis was that founder and CEO Wes Edens, the bond king of Fortress Investments, would be skilled at maneuvering the company through the capital markets. It’s small comfort that he also misjudged the interest rate environment as well, the current debt restructuring could have been avoided with a $1 billion equity raise when the stock was still $25 a share. But he did pull through with a small victory, by structuring the debt through the UK, he was able to secure a relatively favorable debt restructuring. If the bankruptcy had been in the US, it’s almost certain that shareholders would have been zeroed out. Through the UK, NFE took a 65% equity dilution, plus a $2.5 billion preferred stock which converts into commons at the end of three years. The worst case dilution for current equity investors, if the preferreds were completely converted to commons at the end of three years would be a 95.45% dilution.

After the carving out of the Brazilian assets, what remains for NFE are Puerto Rico, Nicaragua, Mexico, and the offshore FLNG1. Those assets have somewhere around a $3.5 billion book value, offset against a remaining $527 million of debt. Management is guiding toward a 2026 $400 million of adjusted EBITDA, with the potential for finding some operating costs to cut, and maybe even a bit of growth. What enterprise value should an international utility trade at with $400 million of adjusted EBITDA? It could settle anywhere between 6x to 10x Enterprise Value to EBITDA depending on how the market feels about their long term contracts and growth prospects. That would put an Enterprise Value for NFE somewhere between $2.4 billion and $4.0 billion.

The current share price is $0.668, on 284 million shares. That represents 35% of the newly restructured entity’s float, ignoring the preferred’s for now, plus $527 million in debt. Again, ignoring the preferreds which automatically convert to common and dilute in three years, the common stock and debt come out to about $1.3 billion. The interest expense of the new entity is very moderate, and so is maintenance capex. That $400 million of adjusted EBITDA should pass through to approximately $300 million of true free cash flow.

But the $2.5 billion preferred stock is a sword of Damocles that is hanging over the heads of common shareholders, it’s hard to put a stock price target without knowing just what Wes Edens will do next. There’s a big difference between owning 35% of the company and 4.55% of the company.

But the CEO is savvy in capital markets and properly incentivized. He could, for example, raise $2.5 billion of senior secured debt, which at 7.5% would take another $190 million out of that annual free cash flow. But then at least the current equity owners would still have 35%. There is also the $300 million of annual free cash flow over the next three years as the preferred stock grows slowly with a PIK structure. If all NFE did was direct $300 million of annual cash flow into buying back preferred stock, the ultimate dilution wouldn’t leave equity holders with 4.55%, they would have around 14.35%. The final solution might be a bit of both, some new debt, and a lot of cashflow and possibly even some equity issuance. If my math works out, the stock price is currently above the breakeven where an SEO would be less dilutive than the preferreds maturing. That would still be dilution, but it would be accretive to use an SEO instead.

Given a potential Enterprise Value between $2.4 billion and $4 billion, in the most dilutive outcome, there would be 6.2 billion shares outstanding. This would imply a share price of between $0.38 and $0.64, about where NFE’s stock trades today, $0.668 per share.

But if NFE is able to refinance those preferreds through issuing new bonds and directing $900 million of free cash flow toward the preferred’s retirement, the share count would only be around 811 million. With the Enterprise Value between $2.4 billion and $4.0 billion, but with perhaps $2 billion of debt, that would give a share price estimate of between $0.49 and $2.46.

To get a higher share price target, it would require Wes Edens pulling a rabbit out of his hat, which he has done before, for example factoring receivables from long term ship charters. The existing contracts also have room to grow over time. As the low cost option, natural gas can continue to take market share in NFE’s markets. A New Fortress Energy with $500 million adjusted EBITDA in 2028 could have an enterprise value between $3 billion and $5 billion. At the most optimistic, the equity today could represent 20%-35% of that enterprise. What today has a market capitalization of $190 million could be a five bagger or better, if Wes Edens manages the capital markets well. But without much debt after the restructuring, the downside risk is significantly reduced. The worst case scenario, a $2.4 billion enterprise value, three years of free cash flow, and significant additional dilution still leads to a share price that isn’t far from the current level.

With only $527 million of debt outstanding, even at a relatively high SOFR +6.145%, the major risks to NFE remain cooperating with third world governments. The exaggerated back and forth with Puerto Rico is still fresh in our memories, and it isn’t entirely clear what the problem is in Nicaragua, but on the other hand, the long term contracts provide a lot of earnings stability.

I bought a few shares of NFE at $25 when I first wrote about it. I have averaged down a bit over time. Without the growth opportunities from Brazil, it’s a much less attractive company. I’m probably holding onto those shares out of a combination of morbid curiosity and continuing education. The finance literature believes that people don’t sell losers because of some sort of psychological pain, but in this instance, I just want to see how the story comes to an end. If I didn’t own any, would I buy New Fortress Energy today at the current price? I probably would, but I wouldn’t make it a large position. I own some Legacy Housing (LEGH) after all, not every position needs to be a potential ten bagger. With the reduced debt level and long term fixed contracts, this newly restructured NFE has a relatively low risk for the potential return. The stock price could be $3 in three years, that’s a potential five bagger with a Debt to EBITDA ratio of around 1.25x.

Of course I can’t be certain that the market has already bottomed out, but the odds are good that the worst is over. There are reports that in the last twenty four hours, fifteen ships have passed through the Strait of Hormuz. Fifteen is still a fraction of normal volumes, but it seems like we are getting closer to a resolution, and the resolution is not a worst case scenario.

Things could still get worse, of course, I was surprised by the missile salvo launched against Kuwait’s desalination plant over the weekend, but the Iranian regime’s ability to cause economic harm seems to be diminishing. Between Saudi Arabia’s bypass pipeline carrying 7 million barrels a day, and Iran allowing Iraq’s 4 million barrels a day to pass, the oil market is much closer to balance than to disaster. Some risk still remains, a successful assault on the Saudi pipeline or continued Ukraine “kinetic sanctions” against Russian energy infrastructure could still drive oil prices higher, but it doesn’t appear that oil prices will get high enough to plunge the world into a global recession. The consensus relationship between oil prices and recession seems over reliant on data from the 1970’s, the global economy has more substitutability today than fifty years ago.

For me, this is the time to buy long dated call options, or LEAPS (Long-Term Equity Anticipations Securities). I don’t really enjoy buying calls, buying stocks that should work eventually is a bit of a security blanket for a value investor. I don’t always have to have an opinion if an idea is going to work within the next year, it isn’t a virtue to ignore timing entirely. But when some individual stocks have sold off to this extent, despite their overall sectors enjoying massive secular tailwinds, I’ll have to make an exception.

Below is a list of the trades I plan to place on Monday, assuming that Saudi pipeline isn’t bombed.

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