Recently Murray Stahl (Trades, Portfolio) talked to a group of Horizon Kinetics clients, and the recording was posted on soundcloud. I’m a big fan and tend to listen or read anything Stahl puts out there. Stahl has been quite bearish for a few years. This recording is a real gem with discussions of four stocks. In addition, there is discussion ranging from politics to cryptocurrency.
Texas Pacific Land Trust
Texas Pacific Land Trust (TPL, Financial) is a trust that was created in 1881 from the bankruptcy of Texas Pacific Railroad. At that time, it was granted land by the U.S. government. It leased it for cattle, and occasionally there were some minerals mined on its land. The trust took that cash and bought back stock. Over time, it bought back 98-97% of stock.
Fast forward to today. Texas Pacific Land Trust owns a checkerboard of land in the Permian and unfortunately there isn’t much oil on their land. However, you need to traverse Texas Pacific Land Trust’s land to get to certain oil patches. Texas Pacific Land Trust also has a lot of brackish water on its land. There are billions and billions of barrels of water brackish water used. Fracking uses a lot of water. This business is just starting to get going.
Related to indexation
Texas Pacific is not in any index. Proponents of indexation tell us most of the U.S. stock market is indexed. They are probably about right. Indexes, however, need a lot of float. If indexes include a lot of a certain stock, their float is practically going down. Indexes, unlike regular owners, only sell on cash outflows. There are few other reasons why they ever sell. Insiders whose holdings are considered non-float trade under a much more diverse set of circumstances. Indexes have no price discipline.
CBOE Holdings
CBOE Holdings (CBOE, Financial) is a big options exchange. It has something unique: It trades the VIX. The VIX index is the weighted average of near-term option indexes. When volatility spiked last month, the XIV ETF got wiped out. People thought the use of the VIX would rapidly deteriorate. But it didn’t. CBOE is actually held in various indexes. It is not as cheap as Stahl would like, but it is growing so fast Stahl thinks it is worth it.Â
Chicago Mercantile Exchange
Chicago Mercantile Exchange (CME, Financial) is similar to CBOE. It is best known for its interest rate futures. It also has exposure to stocks through S&P 500 futures and other stock indexes. It also derives revenue from commodity and currency contracts. Like CBOE, it is also trading a Bitcoin future, but it derives almost no revenue from it.
Civeo
Civeo (CVEO, Financial) is a spin-off from Oil States International (OIS). The company provides lodging for workers in mining and drilling in remote areas. Back in 2013, it was a very robust business. It has a lot of exposure to Australia and Canada. The price of oil collapsed and the stock got cut in half. So 90% of the business it had in 2013, it lost. The market premise seems to be that the world isn’t reproducing hydrocarbons. According to Stahl, you can only hold on to that premise for so long.
If the 2013 level of profit were ever equaled again and Civeo’s type of business deserves a 12x multiple, that would make it a $24 stock. It is trading at $3.75 per share.
Why is Civeo trading so low?
A conventional oil servicing company like Schlumberger (SLMB)'s share price did not slump commensurate with Civeo's. Most oil servicing companies did not slump like Civeo. According to Stahl, the difference is due to indexation. Schlumberger is in indexes but Civeo isn’t.
Disclosure: Author has no positions in any stock mentioned.
