In the latest installment of Yahoo Finance's Good Buy or Goodbye, Kace Capital Advisors Managing Partner Kenny Polcari joins Julie Hyman to discuss which energy stocks he is — and isn't — seeing opportunities in.
Polcari names CONSOL Energy (CEIX) as his Good Buy, on the coal mining and producer's growth potential and its strong earnings and stock buybacks.
"They're in this buyback mode and it trades at a four times multiple. Its industry is trading closer to an eight times multiple, so... if it earns $14-15 per share, we're talking about $120 in this stock..." Polcari explains. CONSOL is currently trading at upwards of $90 over the past week.
Polcari goes on to name Chevron (CVX) as his Goodbye, stipulating it could potentially convert into a Buy on its positioning in renewable energies.
Catch more of Good Buy or Goodbye here, or watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Luke Carberry Mogan.
Video Transcript
[MUSIC PLAYING]
JULIE HYMAN: It's a big, noisy universe of stocks out there. Welcome to Good Buy or Goodbye. Our goal, to help cut through that noise to navigate the best moves for your portfolio. Today we're focusing on the energy sector, with oil prices rising, mega-mergers taking place, and the demand on the grid in focus. As the AI industry picks up pace, there are plenty of investment areas opening up. What's the best way to play it right here, right now? I'm here with Kenny Polcari, Kace Capital Advisor's managing partner. And may I just say I've known Kenny for a long time. And it is a real pleasure--
KENNY POLCARI: Julie.
JULIE HYMAN: It's --to have you in here to do this today.
KENNY POLCARI: --it is such a pleasure to do this. I'm--
JULIE HYMAN: So much fun.
KENNY POLCARI: --i'm so happy to be here.
JULIE HYMAN: Going back to my days back down on the floor of the New York Stock Exchange. So let's get to your buy stock here. It is Consol Energy, the coal company here. And you can see the stock has gone up more or less over the past year. So let's get to your case here. First of all, you say strong earnings.
KENNY POLCARI: So they've got strong-- well, they've got strong earnings, and they're going to have stronger earnings in 2024, expected to be $14 to $15 a share, which I think actually is a little bit low. So I think they could come in even better than that.
JULIE HYMAN: Interesting. All right, and we're also looking, as you say, at the growth potential. Not only that-- yeah.
KENNY POLCARI: During this buyback, right, they're in this buyback mode. And it trades at a four times multiple. It's industry is trading closer to an 8-times multiple. So if this thing trades to an 8-times multiple in it and it earns 14 or $15 a share, we're talking $120 in the stock, which currently, I think, it's trading about 85 at the moment.
JULIE HYMAN: Right. And then, also there's the idea that there is a big new sucker of energy, if you will.
KENNY POLCARI: There is a huge sucker of energy in these AI chips and these data centers that are all over the place. They just suck the energy in off the grid. I said, so we, we as a nation, are going to have to come up with all sorts of energy we can. And so this is a coal and thermal metallurgical producer, they're going to-- this is not going away, right? As much as they're saying it's coal, it's fossil fuels. it is not going away because we need the energy.
JULIE HYMAN: Well, it's not going away except there is the transition, right? So that would be the risk to your bull case here is that we definitely have seen an attempted policy pivot away from coal.
KENNY POLCARI: Right. But you may have a policy pivot. But if the alternative energy is not going to produce enough energy, then we're going to go right back to what does produce energy, right? But that is a risk, so if there's more regulation, or if they force it out, or if you get, the more climate change pressures, then you could see this story back off a little bit.
JULIE HYMAN: Gotcha. All right, so let's get to your stock that you don't like. This one is big old oil and gas company, Chevron.
KENNY POLCARI: Chevron, which is a great blue chip name. I get it. It's not so much that I don't like it. But when we're talking about where the opportunity is, I think that's--
JULIE HYMAN: That's so in Chevron.
KENNY POLCARI: Right, that's really what we're talking about.
JULIE HYMAN: All right, let's run through it then. You're talking about 10% profit margin for this company.
KENNY POLCARI: So this has a 10% profit margin. Versus CEIX, they have a 25% profit margin. Chevron has a 13% return on equity, CEIX has a 50% return on equity, so there's-- just mathematically, those numbers are different, right? And so, if you're talking about a trade, one to buy, and one maybe to avoid, that's why this seems apparent to me.
JULIE HYMAN: Yeah, and another way to value it here is EBITDA to market cap.
KENNY POLCARI: Right, to market cap. So there it's seven times. CEIX is the two times. And even if they-- CEIX buys back, they continue to buy back their stock, it's still going to be cheaper on a relative basis than Chevron. So I think that's the opportunity.
JULIE HYMAN: Yeah. I mean, Chevron is also trying to make a monster acquisition, so we could see-- if it succeeds.
KENNY POLCARI: So a lot could change. But the risk to this, once again, is regulation, right, If my numbers if my analysis is wrong, or there's a push for renewables. But look, Chevron has a big presence in renewables. So it actually could end up being good for Chevron. That would be the risk of why I'm wrong.
JULIE HYMAN: Gotcha. If they are diversifying their revenue streams and bring in more money.
KENNY POLCARI: Which they are, on the alternative platforms. But I think, from an investment trading perspective, that short-term theory that I come up with, I think, works.
JULIE HYMAN: And do you like energy, sort of, writ large? Do you think it's a good area to be in?
KENNY POLCARI: I like energy. I particularly like energy going into 2024 and 2025. And look, if there's a change of leadership at the top, a Republican administration, I think energy I think energy is really in play if there's a Republican administration.
JULIE HYMAN: OK, so let's summarize what you're telling people here with this particular play here. Buy Consol Energy based on those strong financials and future demand. On the other side, you say avoid Chevron, the return on investment is too low, as are the profit margins.
KENNY POLCARI: Correct.
JULIE HYMAN: One other thing that I wanted to discuss while you're here. You are well known, not just for putting out a daily market note, but you always include a recipe in that note.
KENNY POLCARI: Because food and finance, it kind of works, right? Because finance can be so unnerving for people. But yet, food can be so nourishing, right? And I like to cook. And I like to-- I don't cook fancy, I cook homestyle. And so today I gave you zucchini Surprise.
JULIE HYMAN: Zucchini Surprise, what is the zucchini surprise?
KENNY POLCARI: Which is you got to go buy the zucchini. You trim the edges, you slice them on a mandolin so they're long, right? You need olive oil, you need breadcrumbs, fresh grated Parmesan cheese, salt and pepper. So then you slice the zucchini you dip them in the oil. Then you dip them in the breadcrumbs that you mixed with the cheese and the salt and pepper. Then you put a slice of either prosciutto or ham, provolone cheese or Swiss cheese, whatever really want, roll them. And then just put them in a baking dish, right? Don't do anything else. Put them in a baking dish. Put them in your oven for 350 degrees for about 25 or 30 minutes. Take them out. They're all nice and brown and melty inside. They're delicious.
JULIE HYMAN: Perfect. I love that.
KENNY POLCARI: And it's easy. You can have it as dinner. You can have it as an appetizer.
JULIE HYMAN: That's my good buy today, I think, is the zucchini surprise.
