True Contrarian Investors Love This Sector

Christian DeHaemer

Written By Christian DeHaemer

Posted April 1, 2024

The wind blew a stiff twenty knots and was gusting to thirty-five – a near gale on the Beaufort Scale.  We had two reefs in the main, and the jib was shortened to about 8 feet and still, we were going as fast as she could give.  Cold Chesapeake Bay water was crashing over the bow, and it was the most fun I’d had all year.

We were “heavy weather” training.  There wasn’t another pleasure boat in view — we were the only folks foolish enough to be out there on such a cold and blustery day.

We left Galesville aiming for Thomas Point Lighthouse and the Bay Bridge which connects Route 50 from Annapolis to the Eastern Shore of Maryland.  

There were six huge commercial ships at anchor.  Five were dry bulk ships for coal and the last was a roll-on/roll-off car carrier.  One of the guys on our sailboat told me there were twelve ships there yesterday.  

As you know the Francis Scott Key bridge collapsed last week. The twisted spans now block Baltimore Harbor, preventing 27% of U.S. coal exports from leaving.  Baltimore is also a large port for the importation of European cars.

The six boats that left must have made for other ports in New Jersey or Savannah. The general consensus, among the old salts, was that the Baltimore channel would be open in about a month.

Electricity Shortage

Last week I told you about the looming shortages of electricity.  Due to AI, Crypto, new Fabs being built, and the push for EVs, it is expected that electricity demand will skyrocket.  There is no way that solar and wind can accommodate all the new electric power demand.  Some people are even saying we will have rolling blackouts by 2026.

The only solution will be nuclear, but there is little chance that enough nuclear power plants can be built over the next two to five years to cover it.  Coal is still the baseline power source around the world, especially in China and India – the two countries that are building the most new plants.

Last week I mentioned that coal companies were flying.  One even had a better year than market darling Nvidia (NVDA).  Today I’d like to tell you about Whitehaven Coal Limited (WHGITF).  Whitehaven is an Australian coal company with exports to Asia.

Here is the three-year chart:

true contrarian image one chart 04012024 editorial

The chart shows a “coiled spring” formation with a doji turnaround signal just above $6.

Here’s the Deal:

Back in October 2023, Whitehaven bought BHP’s Duania and Blackwater coal assets.  These assets are metallurgic coal used to make steel which broadens WHITF’s coal products.  At first, the market liked the deal and drove the stock above $8 a share.  However, over the past few months, the stock started to sell off to the point where you can now buy the company at a little over the price where the deal was announced.

The new acquisition will be completed on April 2, 2024.  WHITF is paying $2.1 billion upfront and $1.1 billion in deferred money over the next three years.   The upfront money will be paid with cash on the balance sheet.  The $1.1 billion will use 17 private lenders and one bank.

Furthermore, Whitehaven is in talks with India’s JSW Steel Ltd. to sell 20% of the assets for $500 million up to $1 billion.  This essentially removes the risk from Whitehaven and the company won’t have to issue more shares.

Currently, Whitehaven has a price-to-earnings ratio of 5.22, which is below the industry average. The dividend yield of 7.16% is 50% more than you can get on a T-bill.   Furthermore, insiders have been buying shares all year at as much as $7.59.

If you think that China will continue to bounce back and that India is entering a demographic-driven boom then you could do a lot worse than to own Whitehaven for the next few years.

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All the best,

Christian DeHaemer
Outsider Club

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