Yet Another Value Podcast - Tim Weber updates $AMPY and talks the double dogs

Episode Date: March 21, 2022

Tim Weber, a private investor, returns to the podcast to provide an update on the $AMPY thesis and then discuss his double dog index, why it's been crushing the market so far this year, and his outlook for the dogs from here.Twebs double dog post: https://twebs.substack.com/p/introducing-the-double-dog-index?r=f389n&utm_campaign=post&utm_medium=web&s=rNote that there was a slight delay on Tim's end with the audio; I don't think it's a huge issue but wanted to assure you you are not going crazy if you hear a slight delay!Chapters0:00 Intro1:55 AMPY Update12:15 AMPY going forward19:15 The potential Eagle Ford sale and what it means of AMPY's PV-1024:05 AMPY's "generalist risk"26:45 Beta's California risk30:30 AMPY closing thoughts33:50 Discussing the double dogs index36:30 The United Steel (X) example42:10 What double dogs does Tim think are most attractive right now?47:20 Does the rush into the commodity space worry Tim?51:00 Should we be looking at broken growth instead of deep value right now?

All right. Hello, welcome to you get another value podcast. I'm your host, Andrew Walker. And with me today, I'm happy to have Tim Weber, my friend, second time on the podcast. Tim is a private investor. Tim, how's it going? Hey, Andrew, thanks for having me. You know, I, the real reason I'm on today is because I'm just trying to catch up to Jeremy Raper. And so I really appreciate it. I know I have a lot of work to do, but you never know I could get there someday. Yeah, I think, I think Jeremy's at six or seven. and this is two for you. So you've got a lot of work to catch up if you want to catch up to him. But hey, let me start this podcast. That's okay. I'm the tortoise and he's the hair. Let me start this podcast the way I do every podcast.

First, a disclaimer to remind everyone, nothing on this podcast of investing advice. I'll use the same disclaimer we use for Tim's first podcast. That disclaimer is particularly true today. We're going to be talking about a heavily leveraged microcap oil and gas stock and some heavily leveraged commodity names later in the podcast. So everyone should remember that these are more. much higher risk names than normal. Please do your own work. Consult a financial advisor, not financial advice. Second quick disclaimer, Tim, Tim's having, Tim and I had a little bit of

technical difficulties. I think he's on a slight lag. So if you're watching on YouTube or, you know, to slight pause, it's just because of that. But I don't think it's going to cause any issues today. And third pitch for you, you know, people can go listen to the first podcast we did, but you're a great guy, a super sharp investor. You know, Ampe has been just an absolute killer. You nailed that thesis in the fog of war. When I go back and listen to all the stuff we talked about that, and I'm always like, oh, man, we really nailed this. Why weren't we, you know, five thousand times bigger when the stock was trading at three? Because right now it's tapping at the door of $6 per share. But this was great. The double dogs, which we're going to talk about has been

fantastic. But look, I'm just really excited to talk podcast. So all that out the way. Today, we're going to talk double dogs and an update on Ampe. I think it makes the most sense to start with the update on Ampe. So I'll turn it over to you. Since our last podcast, which was in the fog of war right after the oil spill. What's been going on with Ampe? Yeah, Andrew, I think so the incident was October 1st, and I think we did it within one week of the incident. So we were really just trying to take any information

we could get our hands on and just frame the incident. And so there's been a lot that has transpired since then. So I'm going to try and give you what I feel is the most important, but if I miss anything, just come right back to it. So, look, we, you know, and I've written about this on my substack, but really, which I tried to frame the incident, whether it was the size of the incident, the insurance coverage, comparing it to precedent incidents in the past. And I just tried to frame it, you know, when we were in the fog of war and just say, okay, you know, is this going to kill the company? I mean, it was that bad at first, right? You couldn't quantify the gross liability.

you were just starting to understand what insurance might look like. The sides of the incident were still a little bit in question. And for sure, the culpability of the incident was a total unknown. A lot of that has changed. So I'm just going to go through a few of the things that have happened since the incident. So first, December 15th federal grand jury brings one misdemeanor charge against Ampe for negligent discharge of oil. which to me was a huge win. We did a lot of comparing to the Plains All-American incident.

I believe that case, there were. When they put out the press release or whatever that said one misdemeanor, I was like, oh, my first time was, oh, no, I was hoping they'd get away. And Tim was texting me, LFG, LFG, to the moon. I don't remember that, but I'm sure I did it. It wasn't quite that, but it was pretty much. So in that Plains All-American incident, there were 46 charges brought, of which four were felonies, right? So just as a first pass, and there are some differences.

For example, a lot of those charges were brought by the state of California, whereas this was a federal grand jury. But, look, it just gives you a good sense of kind of the differences in the incidents here. And we'll get to why these incidents were so different when we talk about the lawsuit, which Ampe just filed a few weeks ago. So 46, you know, 46 charges versus one. That was your first real, I mean, look, we had a lot, there were a lot of speculation that things were going to work out here and that this incident could be contained and that there would be great insurance coverage and that sort of thing. But that was one of the first things in print where you started to, you know, kind of have a sigh of relief. So recently, March 2nd, Amplified found a lawsuit against three parties. MSC, which was the owner of the Danit vessel in question, that likely drug its anchor on their pipeline.

Costco, which is the owner of the Beijing vessel, and then also Marine Exchange, which you actually mentioned in your podcast, which is essentially the air traffic controller in the region. All of these parties in the complaint, you know, had knowledge of the incident and did not notify, amplify, all three parties. So they filed this lawsuit. You can go and find it. If you're super interested in reading, it's actually pretty, pretty interesting and entertaining. Some of the details in the lawsuit made me very bullish. So the P&I clubs for both MSC and Costco posted what in the maritime industry is known as a letter of undertaking. So this is when your P&I club post on your behalf, basically a letter of credit, you know, stating that in exchange for you, the aggrieved party, in this case amplified, not arresting the vessels, which would be a huge problem if you think about how much money. container shipping is making on a, you know, on a trip-by-trip basis right now. So in exchange for Ante not arresting the vessel, the P&I Club for MSC posted and it was quantified a $97.5 million

letter of undertaking, which essentially says, you know, if we are found liable for these damages and your claim was indeed, you know, real, here's a letter of undertaking for up the $97.5 million. Costco posted a letter of undertaking as well. Sorry, Costco's P&I Club also posted a similar letter of undertaking, but it was not quantified in the lawsuit for what, I'm not sure exactly why. But if we assume that it's approximately the same value as the MSC letter of undertaking, we're talking about nearly $200 million of letters that have been posted to, Amplify, which is well in excess of what Amplify in its recent 10K estimates the total

value of the incident. Now, of course, the total value is almost a moot point. Am I remembering correctly, the estimate was $99 million? I think that's right, or was it? Yeah, 99 million. Okay, just to give readers. So it's two-x coverage. Right.

But again, the 99 is somewhat a moot point to the stock itself, just because. insurance coverage, which I'll talk about next, has come in so favorable in print. So basically, you've got these two letters of undertaking. You read this suit, and it feels like Amplify has an incredibly strong case against both ship owners, as well as the, you know, as I call them, the air traffic control. Their name is Marine Exchange. My guess is that what happens is there's some sort of reasonable settlement here. However, I would say there is that probability that if this gets litigated, Amplify is, of course, you know, they're, they're suing for both the damages, which is more of a matter for their insurance company, frankly.

But it's damage and reputation, right? And so there is this, and it's funny because you asked me this question on the first podcast, and I laughed when you asked it. you said, hey, Tim, is there any chance if this, if this, you know, anchor scenario is true, is there any chance that there was zero net liability or even positive? And I sort of laughed, right? Now it seems like that is actually an option on the tape. So, so that's kind of, right, when, you know, my guess is that, you know, we have a really good estimate of what the incident is going to cost and the insurance coverage

extremely high. I mean, we're talking 90% or more. And even the leakage will be, you know, the leakage will be essentially what Amplify is asking for in the settlement, I would guess. Yep. But again, if you litigate and you get to the point of reputational damage, that's where you could be in this zone of even positivity. My guess is that the way that it plays out is that there's some sort of settlement, which just care of all the leakage, you know, the deductible, the things that just, for whatever reason, the insurance did not cover, plus amplifies loss of production income insurance, you know, you kind of re-sign that insurance each year, and they had basically locked their loss of production income at a really low oil price

in the end of 2020. Yep. So you could argue that, you know, when they lock loss of production in the high 40s, yet oil, you know, goes $30, $40 higher in the next year, my guess is that that would be something on the table if we're sitting around the table trying to come up with a settlement. So, you know, we're talking, it seems to me to be getting more clear each day that this is a zero net liability issue. Now, of course, the next big question is okay, but when will the pipeline operate again? And before I go there, there's, you know, this loss of production income

insurance will cover 18 months. And so we're, you know, we are not even six months, both in incident right now, and the time to fix the pipeline was measured in weeks, not months. It's actually a very straightforward fix. So let me pause you there, because I think we're going to start talking about beta coming back online and everything in a second, which is kind of upside case at this point, right? But I just want to pause there. When we talk last, you know, I think it was a popular podcast. Listeners should go back and listen to it if they want to.

But when we talked last, we were worried that, you know, Ampie was going to be on the hook. We were trying to size the liability. We didn't know because of fog of war. At this point, we do know the liability, right? The max liability is kind of $100 million. Maybe beta never restarts. Probably does. I mean, we're going to talk about that in a second.

But we can size the liability. So we know the max liabilities, $100 million. And most of that would get covered by insurance. And our hope here is that, you know, insurance will reclaw a lot of that from the shipping company, whatever insurance doesn't cover. Ampe will reclaw it from the shipping company in the suit. And maybe, maybe you laughed at me when I'm not. mentioned it, but now it doesn't seem so silly. Maybe we get a little reputational damages

and Ampe actually makes money off that. But was that a good summary of kind of where we are with the legal liabilities that clean up and everything at that point? Yeah, I think that's fair. I was just going to mention that, you know, in the interim since we did the first podcast, there has been a 10Q and a 10K filed. The first 10Q gave you the big glimmer of hope. That insurance coverage was looking great. And the second report, and the 10K gave you, you know, you never used the word certainty, but, you know, gave you a lot of confidence that the insurance coverage was, was more than sufficient. Perfect.

So that brings us today. As we talk, Ampie Stock is, you know, it is March, is it March 16th? It's St. Patrick's, St. Patrick's, May. How could you say that on St. Paddy's Day? I know, I know. Look, I'm wearing white. Somebody's probably going to have to pinch me, but March 17th. Ampe stock is around $5.70 per share.

And I mentioned that because I want to talk about why it's right here, right? Because people can go look at Ampe's investor deck and they put out, hey, here's how much free cash. So we think we're going to generate over the next couple of years. Hey, here's our PV10 at the end of year 2021 strip. And here's our PV10 at current strip, which, by the way, current strip is a lot higher than end of year 2021. And they say, hey, we think beta is going to restart in the next. next couple of months and we build some of that into our model. And I don't think the market really believes that. So I want to talk through all of those things and why, you know, kind of Ampy is where it is

right now. Yeah. So, and it's funny because Amplify was at almost exactly the same stock price the day before the incident. So if I mess up my 575, it's only because, you know, the stock was exactly there before the incident. So the day before the incident, Let's just, let's rewind. So when I wrote this up, and I actually wrote it up a few weeks before the incident, so I mean, I'm sure the oil market moved, oil and gas moved a little bit, but probably not much. But I was essentially saying, okay, here's what I know. This is assuming every asset is operating, right?

And I said, in 2023, because they have some below market hedges in 21 and 22. And I said, if I look out to 2023 and I simply just put. three to four times EBITDA on what I expect them to do, at current strip, including all the hedges, because there's still a little bit of hedging in 23. I said, I think this stock can be worth $10 to $13 per share. At that time, the oil 23 strip was $62, gas was $350, and NGLs were around,

I think I had $25 in my model for $20. If I mark these to market now, First of all, marking to market the 23 strip right now, my EBITDA, my EBITDA in that prior scenario was $123 million on all assets. Again, this assumes beta is operating. It is now $212 million. Now, look, there's going to be $10 million of restart costs, I'm sure, for data, but just put that aside for a moment.

Which, again, EBITDA has gone. 10 million of dollars, which probably gets covered by insurance or the ships in the lawsuit, right? Probably the settlement. I would say more to the, probably more the settlement. you would go for that than insurance. But, but, you know, let's see. So again, EBITDA markings market has gone from 123 to 210. So that's 90 million increase in EBITDA on a company that has a market cap today of 220 million. The new range at three to four times EBITDA, rather than that $10 to $13,

is 19 to 23. So you could say, okay, okay, Tim, The stock was at 575. Who cares? It was at a huge discount or made up three times EBITDA multiple in 23, right? To which I would say, sure, it was at a 40% discount, you know, to the three times EBITDA number in 23. That same 40% discount is now $11. And to me, what closes the gap to that $11 are two things. And it's going to preview what we're going to talk about next.

What could close that gap is, of course, getting your permit, which Amplify needs in order to do the, you know, let's call it two to six week fix that will be required to get data operating again. And the other one is actually crystallizing some of the value through a sale, which is a whole different topic that we can kind of move to next. But again, the equivalent of Ampli being at 575 when they're three times EBITDA, which is a, by the way, that's three to four times EBITDA is a somewhat decent approximation for what they say their PV-10 is. The equivalent today is an $11 stock on a company that's trading at $580 today. So to me, you've got this really big upside catalyst that will be, you know, will start to be crystallized, I think. when you get your permits to do your work on beta, and then if you sell an asset. Yep. Which leads me to my next point, which is that as Amplify reported and started doing investor

presentations again and did a conference call again because they had skipped last quarter just as they were in the fog of war, one of, to me, the most important disclosure possibly in that release is that they're selling their non-operated Eagleford asset. Now, this is the smallest of five assets. It only has a $50 million PV-10 compared to a PV-10 for the whole company that's approaching a billion dollars. So it's a relatively small asset in the grand scheme of things. But symbolically, by the way, you'll use the proceeds to pay down debt. They have a reserve-based lending facility, which is too large.

And which just introduces kind of, I would argue, stakeholder conflict, shareholders versus banks, which will be a good thing to wind down over time. But so Amplify is actively marketing this non-operating asset, non-operated asset, and it should be a relatively straightforward sale, right? I mean, you know, a financial buyer could look at it or the majority operator could look at it, which in this case is Murphy. And this is a big positive, right? Because any stock can be at a huge discount for fair value.

It does not matter if there's not a path to close, you know, if there's not a path that closes this current trading price versus, you know, versus what you have in your model or versus what Amplify has in their deck, if you're relevant, right? But if they go and trade an asset at PV-11, let's say, then that implies that the whole company is worth $20, right? And, you know, I would argue if you pick apart each one of their assets, you can make a really strong case for why each one could trade at PV-10 right now. Yeah. And again, that PV-10 is, that PV-10 has a two-antle on it. right now. And 2-0. And this is a $5.80 stock, right? So to me, again, there's a little bit of,

this is somewhat symbolic. This is somewhat about just reducing the size of the RBL. But to me, what's really important is that if this asset trades and trades that, you know, PV10 to PV-12, this really does. It's a lot harder to make that argument that, who cares, it's just a theoretical value. in your spreadsheet. Let me give you the most, the pushback on that, right? So I hear you, you know, I'm bull. You know I'm with you here. But Eagleford, as you said, is a non-operated asset. I believe Eagleford's their only non-operated asset, right? So I think you and I as generalists generally get their face rates off in oil and gas. I think our first thought was Eagleford is their worst asset because it's a non-operated asset. And I believe we've heard

a little bit of scuttle blurb since the thing came out that we are actually wrong, right? They're like, no, Eagleford's probably your best asset on a PB 10 because anyone can buy it. It's really simple, right? There's lots of, you can have financial buyers. They can just come in and say, oh, cool, we'll just cash those checks. You can have the majority producer buy it. You can have somebody who's just looking for a little asset diversification and to get kind of into southern Texas if they don't have oil and gas exposure there, right? So it's small.

It's probably really easy to just flip it to a variety of buyers, whereas everything else they have, I believe is operated by them. So buyers have to do a lot more due diligence. There are fewer buyers. They have to make a lot more assumptions on that. There's kind of no one, you know, in this case, Murphy, who's the majority owner on Eagleford, is kind of backstopping a lot of the assumptions there. So I think my first pushback would be, you know, if I saw a press release tomorrow that said Eagleford sold for about PV10, I would be like, oh, yes, stock to the moon. But some people might say, oh, well, you know, everything else, you can't value everything else at PV10 because it's so different. How would you respond to that pushback?

So I would just say, you know, each asset is going to have its own peculiarities. You know, the fact that it's not operated means definitionally there's no paying up for any incremental development opportunities or any idiosyncratic, you know, benefits to that asset. So let me just give you two examples. The Rangley assets, to the Colorado assets, they have this. angle where, you know, it's, it's, uh, enhance oil recovery using CO2, ESG positive, 45 Q tax credits, which, which amplify is not currently receiving. I believe the way that it works is that Exxon receives the, the credits right now. But what if somebody had, what if somebody had a strategy, um, you know, to, to use the CO2 and to get the 45 Q credit, let's say, for as one

example. The East Texas assets do have incremental drilling opportunities, right? And so, and so, you know, there is to spend KAPX there at, obviously, with today's natural gas strip, incredibly high IRRs. So I would say each asset has, you know, its own peculiarities, which, which, you know, certain buyers might see as a positive. So look, we just, we obviously listed what the positive on Eagleford is, it's just a financial transaction, right? I mean, you know, if I'm Murphy, it's, hey, $50 million on my revolver cost me a million dollars a year of interest expense, right? So, you know, pretty straightforward transaction. This doesn't apply to Amplify in particular, but I've been really into, or I've spent a lot of time looking at recently all the

controlled MLPs from the giant company. So a great one right now is Shell is talking about Shellix, which I've talked about to know Matt Turk, who's been on the podcast, talked about, they're looking to take them out, right? They filed a thing that said, hey, we own 70% of you, we'll flip you. And all the MLPs have been doing this because, look, the MLPs yield to the equity, 10%, right? They own these great pipelines. They yield 10%.

And I think Shell and all these guys are looking and say, well, with oil prices where there are, we need to start drilling some more. We need to control our infrastructure. And by the way, that equity yields 10%. We can go buy it and we can issue debt. at 40-year debt at 3% to buy it. Like, it's super accretive for us to go buy it anyway. So with exactly what you're saying with Murphy,

they can look and say, oh, well, amplifies cost of equity, cost of capital right now is probably 15% implied by the market. Our cost of capital is 4%. We can split the difference that's at 10% and everybody's going to be super happy with that. Right. And to me, there's a lot of financial buyers that could actually, you know, if you're a financial buyer,

there's no reason that you wouldn't look at the same, opportunity and say, oh, with no sweat off my back and no work, I can make this sort of IRR, right, which is also meaningful. Because, you know, you're not operating the asset. So I do think that one, you know, it could be interesting. And again, I mean, I don't think the market's ready for this company selling an asset or two at PV10 for sure. Otherwise, the stock would not be here. I want to talk beta, but you just said this stock would not be here. So let's talk a couple other pushbacks. You know, I think the other pushback I get is Tim, Andrew, you guys are generalists. Y'all are interested to amplify because it trades at this huge

discounts of BV10. Now there's these really sexy catalysts with beta coming back online or winning a lawsuit or selling Eagle 4-deck close to PB10. Well, you were here before the spill, but a lot of people would say, look, before the spill, PV-10 was $12 per share on the stock traded at 5. Today, PV-10's probably 20 and the stock trades at almost 6, but the PV-10, you know, there's beta risk, there's all sorts of other concerns. There's probably some concern that, you know, The trend path for oil and gas prices is probably lower, not higher, if you assume geopolitical tensions, cool down just a little bit. There's probably a little bit geopolitical premium.

Not to say it couldn't go higher, but there's probably a little geopolitical premium in there. I don't know what I'm saying on that. But I think a lot of people would say, hey, you're just interested in this because of these situations, but the best oil and gas investors have looked at this. And for years, they've said, these are awful assets. We don't want to have them. Like, it should trade for a huge discounts to PV10. And the current share price kind of implies the same discount to PV10 as it did before beta.

So how would you respond to that pushback? I mean, I think the oil and gas investors can't really invest in a $150 million market cap special situation. So it's almost a moot point. They've all gotten so rich over the past 18 months that this is too small for them. I mean, you could make a similar argument for, you know, the small cap. Canadian E&Ps make just as little sense in terms of they've got shallow decline curves. They're trading at crazy, crazy, you know, call it free cash loan EV yields. And those don't make a lot of sense either, right?

And a lot of incredibly smart oil and gas folks are making great, great money on, you know, Canadian small caps. I would argue that there's a little bit of kind of the same energy here. Look, on the beta California risk specifically, you can't roll out that California won't try to intervene here, of course. The way that I'm framing it is, look, I'm sure they could figure out some way to file an injunction. And I'm sure if they do this, you know, a federal judge would have to overturn that. By the way, I have a lot of confidence that it would be overturned because jurisdictionally, this happened in federal waters. Can I pause you for one second, Tim?

Yeah, go ahead. I think you jumped ahead to where I was going next. You knew where I was going. But the beta California risk is a lot of people are concerned, beta, as Tim was saying, is in federal waters. But a lot of people have been concerned that California, because beta spilled off the coast of California, California will somehow try to stop beta,

the asset that Amplified owns that caused this oil spill. They'll try to stop beta from restarting, even though the jurisdiction should be with Federals because this is a federal water. So please continue. I just wanted to give that background. Oh, yeah. No, that's fair. So look, I think I can't rule out the California risk here.

And it's obviously not the most friendly jurisdiction in the world. Now, one could argue that that's probably going to be changing a lot right now. I would argue that oil and gas production, you know, is a few more geopolitical incidents away from being a patriotic positive. which is a total, total sentiment shift from one thing I've been thinking about is I know a lot of people, especially institutional firms who would not touch anything defense or guns and ammo related. And all of a sudden a month ago, here we are today after Russia and invasion Ukraine, the EU just made guns and defense stocks investing, whatever. They made them ESG friendly.

And I have been thinking like things that were politically unacceptable, like as times change, oil and gas, in six months, it could be ESG. friendly to say, hey, in the short term, we need to do this. And, you know, I'm sure on long term, like, we still need to go green and everything. But in the short term, these could be ESG-friendly moves. Yeah. And look, and so the way that I'm framing it is you just compare, you know, you compare what some other spills have looked like versus what this one looks like. And, you know, just given what's going on with, with oil prices right now and how much of a hot button political issue this has become. Are you really going to shoot your bullet here if you're

California on a lawsuit that, by the way, has an enormous uphill battle? So look, but could something be, could an injunction be filed? Of course. Will the stock go down 10, 15% that day? Of course, right? All that will, I mean, my base case is that what that will do is simply just point out to get beta operating again. I mean, look, all of this math we've been doing is on 23 anyways, right? You know, so it would push your time frame out. They have loss of production income insurance for 18 months, and we're only six months into the incident right now. We're only six months post-incidence right now. And so, you know, but you can't roll it out, of course. But again, you know, if this was a state really trying to fire a bullet, one misdemeanor is what

they came up with. And by the way, this any spotlight on this whole issue, you know, really highlights a lot of malfeasance on the traffic that was allowed to congregate outside of the port of Long Beach. And so this is not so straightforward. It's a losing political issue. There's no question about it. You know, anything restraining American oil production right now is it's just not the moment. So, look, that's me playing political analysts, which you should, you know, that in a quarter, we'll get you, we'll get you, we'll get you nothing these days.

Yeah. So, that's my question. I think we've covered most of this stuff. I wanted to talk about Amplify here. I mean, like, this is, it's funny, it's an under $400 million, it's about a $400 million EV company, but there's so many different things, assets, angle. to talk about. Are there any angles you wanted to, I mean, I think both of those are agreed. It trades at a huge discount of PV10. I think both of us think beta is coming online. Even if it doesn't, I think the stock works pretty well from here, to be honest, just given

that big discount in the free cash flow going through. But anything else you want to talk about on Amplify before we maybe quickly hit the double dogs? Just two things. Number one, it's just always important to step back. And what this was before the incident and what it is today has not changed. This is the most leveraged U.S.-based expression of high oil prices. There's operational leverage because they're higher cost oil, for example. There's financial leverage because they have debt. And then there's a tremendous potential for valuation expansion because of where they trade. The three of those, you know, synergistically interacting,

make this the best way to express a higher oil and gas deck. You know, and that's just the math generally. But, you know, there's a little bit of qualitative judgment within that statement, but largely that's just the math. So that's one point. And then the other point, I would just say this management team has handled this incredibly well. They've been level-headed.

They are talking to shareholders. They're taking shareholder input. I would argue that shareholder input is part of the reason why Eagleford is being marketed right now. And look, shareholders don't love having this major other stakeholder in the RBL, which might not always act in the best interest of stockholders. And so I would argue that management are doing the right thing in terms of Look, they're getting a lot of feedback from a lot of different stakeholders right now,

but they're not blocking out shareholders in the way that some companies do when they kind of go into hiding in the middle of a crisis. I would argue that the CEO and CFO has handled this really well from a shareholder perspective, which is what obviously my lens is. Perfect, perfect. Yeah, I think the only other thing I'll just briefly mention, I know both that you and I, well, you're the one who pointed out, but I had been thinking, we were worried because this is a company that hedges a lot. We were worried about the

alpha, the beta hedges because, you know, they had been put on in 2021 and beta isn't exactly producing now. We've been worried about that or we've been worried about what I'll call the Peabody risk where your hedges go so deep out of the money, you have to post collateral and you have to raise equity to post that collateral, even though you're going to produce that stuff, right? And both of those are off the table, right? The company wisely took off all of the beta hedges when beta shut down, which saved them, I think, like 20 to 30.

million dollars. So that was great. And now if beta comes online, they'll be able, they'll be minting money off beta that that's completely on hedge. And then B, I look through their 10K and they also confirmed on the earnings call. I don't believe that these, not that they confirmed, but you can see because they haven't had to, they don't have to post collateral on their hedges as well. So on both those cases, I think those are two tail risks that have been removed or we can feel reasonably good about. Let's turn to the double dogs. Tim is the one who interest the double dogs. I think both of us were kind of thinking along the same lines because my 2022 prediction said deep value stocks outperform. I cited a couple cyclicals. Tim went even harder.

He found 10 or 15 cyclicals across the board that traded super cheaply. But I shouldn't be talking. I should turn it over to the founder of the double dogs. Tim, can you explain the double dogs why you came up with it, how it's performed, and we can talk about a couple of names. Yeah, for sure. So all throughout last year, you know, I look at new names and hear different pitches. And I kept coming back to this question that I was asking myself, but also that I would frequently hear from others as, for example, I was doing a lot of work on Arch. And the question was always, wait a second, if your numbers are even in the right ballpark, in the right stadium, how can this trade exist? It makes no sense. And so I was doing all this soul searching on that question. And a lot of folks were

talking about it and posting about it, with their own language, you know, and I'm running everything down. So in the case of Arch, it's misplaced ESG aggression. Is it because macro is just going to implode and I just don't know about it? Maybe it's the spotted path of, you know, coal management teams. But what I really started to realize is that there was no sense in running this down from an idiosyncratic perspective, you know, with coal, let's say, because the same setup existed in U.S. Steel, and then the same setup existed in the shipping names, and the same setup existed in the lumber names, and some copper names. And what I finally realized, and why I wanted to write a post about it, is that the common thread that runs through all of these setups

was sort of this historically accurate market maxim that you never pay a little multiple for a cyclical. It's been a great market maximum. It's worked well. It saved you a lot of money, right? It's sound logic most of the time. But as we're learning with the last couple of years, most of the time keeps getting run over, right? Your things that used to work most of the time are no longer holding when we've just

had the biggest economic disruption of the last century, you know, which was the biggest economic disruption followed by the most impressive, you know, synchronized global government response to a market disruption of the last century as well. Go ahead, Andrew. Yeah, can I just add, I'll just add a tangible example. You mentioned United Steel. I did a post at the beginning of the year. United Steel was 20 or 21, and I said, look, this is a company, tangible book value is

28. It's trading for like one or two times EBAA, two times unlevered free cash flow, like everything you're saying. I was like steel at the time had come down from the peaks of kind of like summer 2021, but steel was still way above mid cycle levels. I was like, look, this company is saying we're going to print money, print EBITA, we're buying back shares like crazy. We don't get it. And I posted that and everyone said exactly what you said. The time to buy cyclicals is not when the multiple is low because that's the peak, the time is when it's high. And I was like, I get that, but the, you know, it's low because they've been minting money for nine months. They're not, it's not going to fall off a cliff overnight. And they're buying back shares like crazy. And by the way,

it's trading below tangible book value. And, you know, my only wish is, now, my only wish is I'd leaned into it harder because the stocks gone from 24 to 35 right now. But, and I sold it at around tangible book. But I do want to ask you one question. So the strategies work great. I want to ask you why all these, why no one believed in these multiples would be my first question. And then my second question would be, you know, all of these have really taken off since Russia invaded Ukraine and the markets for everything commodity went parabolic. And we can talk about why they went parabolic. But I want to ask, do you think these were going to work if Russia didn't invade Ukraine? Because that's what got U.S. steel working. That's what got a lot of these working.

Oh, for sure. Yeah. So I think that the, look, the average, I put 12 names into this index. By the way, it could have been 20. It was funny when I first posted this thread asking for input on names. Folks were getting really emotional about which ones were in or out. And I just said, look, the whole point is just to tell a story anyways, right? It's not that big of a deal, which names are in or out. So, yeah, I mean, look, that the average stock was up, I think, 20% pre-Russia and now it's a little over 40%. So yes, I think it was working. Look, it was a trade that was already working before I wrote the article, I was looking for terminology to explain it because it was just such a, it was such a unique point in time. And there were so many different

folks on, you know, talking about this trade, but everybody had their own language. So I was just actually just trying to create, you know, kind of a shortcut to, hey, what are we all talking about? Oh, we're talking about the same thing. Look, I mean, to your first question, commodities have a way of viciously mean reverting, right? And so if you're paying a four-time EBITDA multiple, which would historically would have been that low multiple that you, quote, shouldn't pay on a cyclical, right? That can go to 10 times EBITDA in a flash, you know, if commodity prices get cut in half, which, by the way, is almost certainly going to happen in a broad basket of commodities right now

because we've got everything from, I don't know, aluminum is probably 50% up above its marginal cost to product to coke and coal is 300% above the marginal cost of production, right? And so these prices are coming down for sure. But look, so, you know, you've got that issue where four times EBITDA can turn into 10. That's why that was a great thing, a great market maximum. Growth CAPEX has a way of being both destructive to the company. and the industry. And so another reason why that's been a great market maxim, M&A has a very spotted track record. You have industries that have had rounds of bankruptcy. So the reason why

that market maximum exists is very sound logically. The issue is just that at our current point in time, it just got stretched way, way, way too far. And so if that's four times is 1.2, that's different, right? And again, I talked about this before. That's like Chief's Jags last year, if you want to bet on the Chief laying 14 points at the 50-50 bet. If you want to bet on the chief laying 32 points, you know, you should probably take the Jacks, right? I mean, 0.2 times EBITDA versus 4 changes the odds of the trade working by a lot. And I think another thing was it wasn't just, I agree with you on the multiples. And it wasn't just like the multiples at one point in time. It happened for like six to nine months, right? So at that point,

it wasn't like they were trading super cheaply on some hugely levered bet, right? They made so much money and printed so much free cash flow that by the end of it, they, you know, they had all this cash. U.S. Steel basically paid down all their net debt and they were generating all this cash. So it was much different than, oh, it's two times EV to EBDA, but 75% of the EV is debt. So you're kind of trading a levered equity stuff. It just went on for so long that it really de-risk the position. And I am laughing because on Bloomberg, somebody just messaged me and said, who is T-Webs? What a brilliant guy. So I'm just laughing. There's no way there's confirmation bias in that statement. No way. But let me ask, so double dogs. Double dogs has worked great. You know,

some of the cold names have just been screamers. There have been a couple of yards. The steel names have ended up working great. Like a lot of them have worked great. which ones do you think are the best positioned right now? And I'll include a link to the Double Dogs post in the show notes if you can go read the original. Which ones do you think, you know, if I wanted to jump in on Double Dogs and say it's not too late, where do you think people should be looking?

Don't do that to me. You know, so two of the bottom performers of these 12 names, number 12 is Resolute Forest Products and number nine. is Green First, although Green First is up 31% and it's number nine. So, you know, it's a little, it feels, it feels a little embarrassing to say that it's been a laggard up 31% year to date. But both of those still have a one-handle EBITDA multiple. And Lumber, Lumber does have some really big structural demand drivers and some really scary, restructly constraints. And so I would argue, look, there's so many different commodities where I get it. It's the scariest thing in the

world when the spot price is 100% above the marginal cost of production. It's actually probably 150% for lumber right now. You know, that's scary, right? Because you know the spot is going lower and you know these equities are, you know, these equities aren't PhDs. They're more like high school students, right? These equities are going down and the spot goes down. Let's, you know, let's be honest with ourselves. But, you know, you have one-handle ebathon multiples. In the case of, let's say, green first, they did have some net debt post-acquisition, which is going to get rapidly paid down.

Then you're going to be talking about kind of a net cash, small cap, in an industry that's rapidly consolidating. So there's probably an M&A bid under the company, either that or the company should be buying back a ton of stock by the second half of this year. And I would argue, of course, lumber's not going to stay at $1,200, but I mean, I did a write-up on Green First, and I essentially said, hey, if you believe that there's a one-year super spike, but that normalized lumber is $500, versus if you believe there's a one-year super spike, but normalized prices are $600, it kind of changes everything, right? I mean, you go up and to the right in terms of what the equity might do. And, you know, there's been a little bit of cost push, so you might want to, you know, take those numbers a bit higher. in terms of, okay, you've got to believe that normalized it's 650, let's say, right?

But if you revert back to 800, let's say, because of these, you know, there's such a structural supply and demand issue in lumber if U.S. housing remains strong that you're not going back onto the marginal cost of cost, you're not going back onto the marginal cost curve for potentially a couple of years. And, you know, when that's happened in coal right now, you have thermal 220 to 250% above its marginal cost curve and cocaine coal is almost 300% above. And so could that happen in lumber for a couple of years? 100%. We're in that commodity zone right now where you're in this kind of shortage mentality.

I'm just laughing because you said lumber down to 800, right? And I agree with everything you said on the super cycle, on everything. I'm just laughing because I did a lot of work on Green First when they did the rights offering. I participated. I still own a little stock if anybody wants that disclosure. But I remember in their deck, I'm doing this for memory. I'm trying to pull it up as I say. But I remember in their deck, they were like, hey, you know, lumber is high right now.

But here's our models with lumber at 650, right? They were kind of running that as like a little bit good bullcase. And like right now lumber, I think it was 13 or 1400 last I check. And you're saying if it reversed back to 800, which is way above the levers they were talking about. And actually, I can't remember exactly, but I think they closed like end of August and they had a market valuation on the lumber when they closed. And that's when lumber went from like 12 to 8 and out to back to 13. So they closed on very advantaged timing. But that's interesting. Yeah, I haven't looked at RFP in a while. Are they buying back shares actively? Yeah, I believe they did a big special dividend last year. I think they're in the market, but I'm pretty sure that the dividend was bigger. But don't quote me on that. Yeah, I'll have to go look at it. They're returning capital. But put this way, they're returning capital actively.

And, you know, this used to be a company with, like their balance sheet was a little scary, right? There was some pretty big post-retirement obligations, that sort of thing. Same with this deal companies, right? And again, like, a lot of these other companies. Yep. Yeah, yeah, totally. Like, the balance sheets are so clean versus what they used to be,

which is why this trade doesn't make any sense, right? I mean, there's 10 reasons we could keep going. But you just keep coming back to, well, that doesn't make sense. That doesn't make sense. Because, again, you know, if you had a scary, balance sheet right now. And, you know, you were looking at a super spike and you were looking at a spot price way above the marginal cost of production. That's really scary, right? Because if you revert back, there's a lot of left tail risk and you can lose a lot of money. I mean, in some of these

cases, it's, oh, boy, if that left tail risk plays out, I'm still net cash and, you know, EBITDA will go down by a lot. So it's just, it's just the cleaning of the balance sheets is another reason why this trade doesn't make a ton of that. My only worry here, across all these commodities, And this is actually the same worry I had at the beginning of the year. So everyone can take it with a huge grain of salt. But like my worry right now is a year ago, if you and I had pitched a commodity company, we would have just been laughed out, right? Like everybody would have said, hey, let's go buy some SPACs trading 50% above trust value or something. I'm being a little. Nobody wanted commodity companies. But you know, right now in my conversation with investors, most people are talking commodity companies. And it just feels, I mean, I was in college in 2007. So I can't click it. It just feels to me what I imagine like when people. we're talking oil super spike. And remember Buffett, Buffett right now is buying Oxy. And Buffett back in 2007 bought a lot of Conoco Philips

and he ended up selling that at a big loss. And it just like everyone I talk about it feels like they're saying, things can't go wrong. These things are so cheap. It does feel a little different where it feels like everyone's looking at them. And, you know, yeah, these things are trading at one and a half times EBITA right now. And that is different than four times, I'm with you. But, you know, it just feels like so many people are saying you can't lose,

you can't lose. It comes, the price comes back down to, you know, from 1,300 to 500 and all of a sudden, one and a half times EBITDA is eight times EBITL, which isn't that crazy expensive, but these are commodity business. The DNA is real. And I'm just worried it feels like everybody's looking in this space right now, you know? I don't know any real bears in the space. I think everybody's looking.

There's this great Twitter follow, aggressive value that I would recommend everybody follow. He's just, he's my Zen Buddha. I think of crazy daily moves. And he made this point a couple weeks ago that until, you know, I forget which stock it was, but, you know, there was probably a peace headline, Russia, Ukraine, and, you know, whatever stock, of course, knee-jerk down 10%. And he said, until you stop seeing this kind of action, it's just proof that you've got a lot of Johnny come lately money in these names and no true believers.

And I think there was a lot of wisdom in that statement. there's not a lot of true believers in this sector yet. There was, I hope I don't mess up his name, but I think Eric Mandelblatt did an interview with Patrick O'Shaughnessy a couple weeks ago, and he pulled every single 13F for, I think what he defined as it's 30 or 40 top single manager hedge fund peer. And he pulled all the 13Fs that it was probably December 31st. and they had a 20 basis point allocation to energy and materials.

And, you know, right now in the S&P, I think they're 5%. I think they peaked at 17, something like that. But isn't that a stat that just tells you, hey, do you think we're getting a little crowded yet? I mean, until you see that cohort of folks hiring, you know, analysts that, you know, they cover energy and materials. or pulling teams from other funds, that sort of thing, I think I did it where we're a little hot money crowded, but I really don't think we're anywhere near real money crowded. Well, let me ask you one question. I want you to play psychologist for me for a second, because I think you and I have

reasonably similar views of the investing world. You know, I wish my views lean more towards commodity than retailers at the start of the year, but, you know, I do worry investors fight the last world, right? 2020, tech stocks go parabolic because it's the best environment ever for them. Nobody can do anything in person. Everything's online. You know, tech stocks go parabolic. That runs through about mid-2020.

And you mentioned invest like the best, right? Every invest like the best episode is a tech founder or a tech investor or something pitching a tech company. That's a mid-2020. And then the bottom slowly starts fall off. And then from November to today, I mean, the bottom fell out quick, right? And now everybody wants to be long commodities. And these commodities are trading, they're still very cheap. As you said, I don't know if there's a lot of true believers.

There are some. We had Josh Young on the podcast. That's a true believer who's done fantastic in this cycle, right? But, you know, I've been thinking to myself, hey, Andrew, why were you looking at things, even cable, right? Cable, 10 times EBITA, great compounder buys back. Why are you looking at those when you could go look at things that are trading at two times EBITA? And it doesn't even have to be commodities. But, you know, the really cheap stuff that worked recently. And I'm wondering, hey, are we leaning too far one way or the other by focusing on cheap stuff now? Like, should be looking at the broken down growth these times? right, like a Peloton that trades at a pretty cheap subscription revenue or, you know, Pinterest. I don't know where it's trading right now, but in the past year, PayPal and Microsoft both tried to buy them for a lot higher than the current stock price. So like, are we fighting the last war by still looking at low multiple stuff or should be looking at beating down growth or something right now? So can I tell you where it could get really scary on the upside? I feel like my, I feel like most conversations I'm having right now are all about the left tail and nobody's talking about the

right tail. So what took those COVID and work from home winners two to three X higher than they should have gone? I would argue that it's this cocktail of passive money, the momentum factor always working, and the momentum factor working on growth for about a decade, right? So if you think about which factors did you want to be long? It was momentum and then grow. Then you had this huge wave of path of money accelerating all these themes. But the most important factor that most true believers always want to be long is momentum, right? Forget about the growth as the secondary factor. So all these themes that we're discussing now are, I'm sure, screening first death. short-term momentum, but are going to go first-desile long-term momentum before long.

And of course, every quant define long-term momentum differently. So I don't see why, you know, this momentum factor plus passive flows going from nothing to something couldn't potentially accelerate this trade in a way, in the same way that the work from home went further than they should have ever gone. But now we're talking about stocks that started at one-time EBITDA to find what is further than they should have gone to four-time EBITDA. You know what I mean? Again, that's me talking right tail.

That's not me talking my base case. But could that happen, given everything that we know about, you know, passive flows and factor investing? 100%. It's not the growth factor that everybody is obsessed. with over a 50-year time frame. It's the momentum factor. Yeah.

So, again, I just throw that out as one right-tail scenario that we could look back in a year, and it wouldn't be shocking that I said that, and it wouldn't be shocking if it played out, and it would take these things way higher than you ever expected. You know, I'm sitting here getting white knuckles because I pitched Arch and rode up arch, you know, and it's gone from 80 to, you know, it's in London, there's not probably 145 or something like that. And so I'm doing my typical value investor thing where I think I'm being a pig and blah, blah, blah.

And I'm sitting here questioning myself when, by the way, the fundamentals have prostrations since then. Metcol, which I thought was a dream was at 400, is now spot 650. And I'm sitting here, when should I sell it? When should I sell it? When should I sell it? Oh, my God, it's a two and a half time he could die. What if that name goes to five?

And once that EBIT's on 50% higher than I was expecting because of what just happened with Russia, these are on the table, right? You know, and that's why, look, each commodity subsector is going to have its own nuance, right? I mean, Met coal right now just happens to be in a crazy shortage. So maybe that's the one that ends up being a multi-bagger, you know, but who knows, maybe it's lumber as well, which is why I wanted to create this index in the first place, It's just, I want to tell this story. It's going to be different.

There's going to be nuances, but I just want to tell the story. I'm just looking. And look, I know things change and the asset base is different and everything. But like, just to show that there's not a lot of kind of, I mean, I think they're shorts from bullishness, but it hasn't rant yet. Like ExxonMobil, it's trading under $80 per share today. It was trading over $80 per share back in 2018. And oil then was about 60.

And oil today is about 100. and I know how future curves work and everything. But I'm just saying like these oil oil is way tighter oil prices are way higher right now. I think the share counts lower because I'm pretty sure they bought back stock in the mean term. I don't know. I know they did a lot of funky things. But you know, you look at the long term charts of these and I get the commodity prices really high now. But the share prices for a lot of these guys, it's not crazy.

Again, it's still, even after big runs, a lot of them are still one or two times EBITA. Cool. Well, Tim, this was great. Anything else you want to chat before we wrap this up? No, I just want to thank you again because, you know, when I first came on and did and did your podcast, I was a total unknown and you made this joke to me, I think, offline, but you said, oh, you're going to get obsessed with, you know, you're going to get obsessed with Twitter, you'll get a bunch of follows because of my show and that sort of thing.

And the amount of positive, you know, feedback that I've, received in terms of people willing to help you think through a stock or a team or a trend because I was, you know, because I was on your show where I published something, that sort of thing, has just blown me away in ways that I could have never predicted. So you were exactly right. And, you know, you took a, you took a chance on interviewing kind of a random Twitter that had like 200 followers. So I really appreciate it. Hey, that really warms my heart. I'm so glad to hear that.

And you know what? It's worth it because I invested in a amp. You had $3 per share, and a lot of that was because you were there holding my hands. So, Tim, I really appreciate it. Tim Weber, founder of the Double Dog Index. He's back on the show for the second time. I'm hoping we can have them on for a third time for,

would it be the Triple Dog Index? I'm going to think of something that has two T's in it. But, Tim, thanks for coming on and looking forward to chatting soon. Thanks, my name.