Explain why LNG is worth buying

Cheniere (LNG) or liquified natural gas?

Is it a Nat gas hedge because the equity is worthless, but they hold a ton of NG in their tanks, creating giant trading profits? Or is it just how the stock moves because the spot price of NG changes future profitability that much?

My dad bought in at a little over a dollar and I convince him to get out at 10. After it went to 5, in order to cover my arse, I told him that if he wanted to continue to play the stock, he could use some of his profits to buy back in, but I still didn't like it (because they don't make money, have negative book value, had their business model turned upside down on them, etc.).

Now that it's at 15, I kind of feel bad and I still just don't understand the valuation (or the ownership structure, for that matter). I would like to sound moderatley intelligent if he ever asks about it again.

Conventional investing wisdom just goes completely out the window IMO when evaluating a speculative company that doesn't produce profits. EPS, P/E, BV, TEV/FCF- meaningless. Forget everything you know about and should apply to financial analysis. Focus on:
1. Catalyst (gotta be a big one)
2. Unique/game changing product
3. First mover advantage? And competition
4. How when they get their revenue
5. Don't worry about leverage

For those of us who understand the investing world, our knoweldge filled minds disadvantage us in a way. We think negative EPS, huge debt, etc, stay away. But the story has to trump all this stuff. And that's what people with an outside perspective are sometimes better at spotting. Does your dad have investmental knowledge? I'm guessing no, my parents don't. But they saw SIRI and F trading at pennies on the dollar during 2009 and bought at .37 and 2.10 respectively. They've killed my returns (and I get paid and spend more than 40hrs a week doing this). Frustrating.

You have to make an educated speculation and It's a buy on rumor sell on news sort of thing. but sometimes it's amazing how things fall into place. I was just about to sell in the 12's before Blackrock came in. I said unfunded CAPEX, I'll take my 80%+ gain in a few months and call it good luck on an educated guess. But then financingn came, company issued equity, and the leverage doesn't look quite as bad. I'm not expecting them to turn a profit soon, but right now the reason I own them still exists and I'm not selling till that reason seems like its in jeopardy.

Cut losers, let winner run, on spec plays I only need 6 out of 10 to win big. I'll cut losers fast

And yes they aren't tied to Nat gases prices as much as people think. That's why I'm in them. I'll get NG commodity exposure in about 3-5 years while other sit and hope.

solid post

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And yes they aren't tied to Nat gases prices as much as people think. That's why I'm in them. I'll get NG commodity exposure in about 3-5 years while other sit and hope.

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yep - that's when natty gas prices should be higher than current levels (they can't drop much further than they already have!), more LNG ports will have been installed by then, and there'll be increased demand for natty gas in Asia & Europe, And with liquid/gas conversion costs expected to slightly decrease over the next five years, the transatlantic arbitrage should be lot more attractive...

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Does your dad have investmental knowledge?

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Minimal

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But they saw SIRI and F trading at pennies on the dollar during 2009 and bought at .37 and 2.10 respectively. They've killed my returns (and I get paid and spend more than 40hrs a week doing this). Frustrating.

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My dad also bought F in the low 2's as well. It has given him the idea that he's a lot better at stocks than he actually is. I wish he would read "fooled by randomness", or something of the like.

Appreciate the comments on my last post! Investing in speculative stocks is not easy but it's damn sexy and interesting when you find a good story/catalyst and knock it out the park! I'll devote about 20% to speculative growth companies. You win some you loose some. I just lost big in ERII and I cut it. Thought the story was there, and think it still is, but it's not going to manifest to anything soon like NG as a commodity. But like I said I only need 6/10 winners to make money.

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My Dad

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Obviously employing outsiders perspective can be a bit dangerous and can be taken too far. But they can really help you take a step back, get your nose out of the financials and valuation and see things from the broader perspective. I'm obviously not advocating a good product equals a good stock, but at times there is a solid correlation.

from a casual point of view my parents saw a great growth story and value in F and SIRI at that time, and bought what they thought we're good products. Throw AAPL in there at a cost basis of $75 and my parents portfolio would kill probably any institutional managers returns in the last 3 years.

Now that being said I've helped them along the way analyze the financials. So the best help you could probably provide to your dad would be some basic financial analysis not worrying yourself too much with debt. When you go up big trim your cost basis, i'll gamble all day on the house. And run fast for the hills when the reason you bought the stock appears to be in jeopardy. When I feel like LNG's export plans are in danger, I'm out!

Excellent information

That's pretty broad brother, just O&G? Upstream? Down stream?

I like SDRL( not at these levels), Gasfrac, Ezion, but I think right now your better off in bigger

Well, IMO it should move inversely with the price of nat gas, but that has not been historically true.