Yellow Corporation (NAS:YELL) — mrkt cap $175mm; Price $3.4; trailing P/E NA
EXITED. We closed out of our tactical trade and the position is up 243% since our post in July. Many think Yellow was getting short squeezed but to us the price more accurately reflects the value of net assets and the BK was the catalyst for revaluation. Doesn’t hurt when a hedge fund (MFN Partners) buys up 42% of the outstanding shares in a week. BK plays are not normally in our playbook but this situation was unique. Almost always in a BK, the equity holders are wiped out (like they basically were for Yellow in 2009) but our estimates of the recovery value of the net assets (12,000 tractors, 33,000 trailers and 167 terminals) along with the UST owning 30% of the common gave us enough confidence that equity holders would get a fair shake to warrant 1% of our portfolio in the trade.
Argan (NYSE:AGX) — mrkt cap $512mm; Price $38.2; trailing P/E 14.6
MORE RESEARCH NEEDED. Argan has roughly half its market cap in cash and the majority of revenues come from converting coal power plants into natural gas ones. Coal fired generation makes up about 20% of energy generation although it is forecasted to go to 5% by 2030. Natural gas fired generation fuels about 35% of the energy needs of the USA and is set to decline about 1% per year as energy from renewable becomes more widespread. AGX could see an inflection from the retiring of coal plants over the next decade however being that a large part of the value of is in cash, capital allocation is paramount. We will be talking with management next week to discuss this further.
Northwest Pipe (NAS:NWPX) — mrkt cap $337mm; Price $32.57; trailing P/E 40
MORE RESEARCH NEEDED. NWPX manufactures steel and concrete pipes. It has 55% market share in steel pipes and about 4% market share in the concrete pipe industry. NWPX is a direct beneficiary of the IIJA that is almost tripling the funding for water infrastructure beginning with removal of lead pipes. NWPX’s backlog sits at a record 370mm, an increase of 30% from 2022. However despite this tailwind, gross margins have been anemic at around 12%. More work needs to be done to determine if this is a structural or temporary condition. Fun fact of the day is that the average person in the US uses about 100 gallons per day!
Western Union (NYS:WU) — mrkt cap $337mm; Price $12.18; trailing P/E 6.2
EXIT. We initiated a starter position on 4/19/2023 at $11.00 a share. After conducting a comprehensive analysis, we’ve determined that forecasting Western Union’s market share in the medium to long term is uncertain. Despite retaining some cost advantages, digital-native rivals have effectively duplicated Western Union’s traditional strength – its widespread retail presence. While Western Union still holds a significant position in cash-to-cash transfers, this market is slowly shrinking. Consequently, we have exited our starter position and believe the stock is accurately priced.