VALUE: After Hours (S08 E14): Oil Prices, Iran War & Airline Stocks: How Chris Bloomstran Is Investing the Crisis

During their recent episode, Taylor, Carlisle, and Chris Bloomstran discussed Oil Prices, Iran War & Airline Stocks: How Chris Bloomstran Is Investing the Crisis. Here’s an excerpt from the episode:

[Chris] I don’t know. We have clients that trade oil and energy that until Iran couldn’t make much of a long-term bull case for oil. We do have steadily growing 1% a year increase in demand for oil.

I mean, the world thought a few years ago you wouldn’t have the global consumption of north of a hundred million barrels and you’re seven or eight million barrels north of that. My working assumption is we get through this Iran thing sooner rather than later. You’ve got an awful lot of disruption in the meantime, but here’s another place where I think we’re taking great advantage of this short-term pain.

Airlines are gonna just lose money because they hadn’t hedged out this immediate spike in fuel costs. So you’ll see in our 13F that gets filed tomorrow, we’ve made Alaska air despite airlines being terrible industries. Alaska is really well run.

They’re working off a merger. They historically have run kind of net cash on the balance sheet, which is very aberrant, but they’re more exposed to the surge in jet fuel prices than some of their competitors. They’ve added international routes.

Now they’re flying to Asia. They’ve got some longer haul. They fly to Mexico, they fly to Hawaii, but the stock traded into the low 30s and it’s worth a heck of a lot more.

And so with oil having come back down the last few days on the apparent peace negotiations underway, oil’s declined, the energy stocks that we’ve been selling have declined, and Alaska, it’s up like, it’s up 7% this morning before we jumped on the call. So we’re delicately long some places that I think will benefit from oil reverting, kind of mean reverting back to where you were, but if you get a protracted war and if you don’t run refining and energy assets, yeah, you start to have problems, but I think we’re a long way from that. What about the destruction that seems to have gone on through the Middle East?

Yeah, I don’t know. Qatar had some of their LNG terminal assets harmed, something like 20% of their assets. I don’t know how durable that’ll be.

I think you’ve got enough ability to turn the crank, even from the U.S. perspective. I mean, we can send more LNG. We’re putting a rope around the Chinese at the moment.

We’ve gone after their proxies, I mean, going after Venezuela, going after Iran, most likely Cuba next, rightly or wrongly. I’ve done a lot of reading. I don’t think we’ve durably harmed energy assets, but if we take out a million or a million and a half barrels of Iranian capacity to refine and export, I mean, they import things like jet fuel.

Their refining capacity is not the complex variety that Valero and Holley have here in the U.S. I don’t think we’ve done much damage, but if we or the Israelis bomb Karg Island and some of these more durable energy assets, yeah, you could definitely have a problem. You could see oil price a heck of a lot higher, and if that’s the case, we’re not gonna make money, at least in the short or intermediate term on something like an Alaska Air, but I don’t know. I think we’re close enough to the end that if we get through it, you’ll have oil back at 60 in pretty short order, I think, but who knows?

[Tobias] I mean, it’s always the challenge of value, right? You gotta buy it in the middle of the crisis, not knowing when the crisis passes, but knowing that eventually it does.

[Chris] Yeah, you didn’t know, we had no idea how quickly we would clear COVID and the lockdowns, but at one and a half to cash flow, we were buying Valero and Holley, and right after we bought Holley, they bought a refinery in Washington State for 350 million, 250 million net of inventory, finished product and raw crude, and in the hands of the management team, it’s a better asset than it was when Royal Dutch Shell ran it and so they basically paid one time’s cash flow and stole the asset.

California, I mean, Valero’s closing one of the refineries, Phillips is closing a refinery. I mean, there are places in the world that have very irrational energy policy, and we can take advantage of that, Holley can take advantage of that by distributing via rail to California. I don’t know, I’m not sophisticated enough on geopolitics or on pandemics to know the outcome, but I mean, generally these things in my 35 years investing, whatever the imminent crisis is, front and centre, tends to resolve itself, and when it resolves itself, oil will be lower and airlines will be higher.

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VALUE: After Hours (S08 E14): Oil Prices, Iran War & Airline Stocks: How Chris Bloomstran Is Investing the Crisis

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