We came across a bullish thesis on Cool Company Ltd. (CLCO) on Substack by Unemployed Value Degen. In this article, we will summarize the bulls’ thesis on CLCO. Cool Company Ltd. (CLCO)’s share was trading at $7.16 as of Dec 12th. CLCO’s trailing and forward P/E were 4.15 and 7.69 respectively according to Yahoo Finance.
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The shipping industry has recently experienced a dramatic decline in stock prices, creating a rare opportunity for savvy investors. While shipping stocks had been somewhat unattractive due to moderate pricing, a sudden market downturn in mid-October caused a widespread selloff. This was possibly linked to geopolitical developments, such as expectations of a Trump-brokered peace deal in the Red Sea, which could reopen the Suez Canal. The canal’s reopening would significantly reduce the demand for global ton miles, driving down spot day rates. Although the market has reacted preemptively, this decline has disproportionately impacted companies with fixed long-term contracts, whose earnings remain insulated from spot rate fluctuations. These companies, unjustly dragged down with the broader market, now present compelling buying opportunities.
Despite falling stock prices, firms with locked-in contracts for five years or more maintain strong earnings visibility, ensuring stability amid volatile spot rates. For investors willing to hold through a recovery period that may last six to nine months or longer, these stocks offer exceptional value. The market’s indiscriminate selloff has also opened the door to companies with modern fleets, which stand to benefit when rates rebound. However, the locked-contract approach is particularly appealing for its defensive qualities in uncertain times.
Cool Company Ltd (CLCO), a prime example of this dislocation, has seen its stock fall nearly 38% from $12.24 in July 2024 to $7.61 in December 2024. As an LNG shipping operator, CLCO boasts a contracted backlog averaging 3.1 years (or 4.3 years with extensions), providing a solid revenue base. Despite this, management opted to cut the dividend from $0.41 to $0.15 per quarter, which still yields a respectable 7.8% at current prices. The dividend cut allowed the company to launch a $40 million share buyback program, a strategic move for a stock trading at just 0.55x tangible book value and a price-to-earnings ratio of 4.4x. While a portion of its fleet remains exposed to spot prices, the company’s young fleet and long-term contracts position it well for a recovery.
With a mix of fixed-contract stability and attractive valuation metrics, CLCO exemplifies the kind of overlooked opportunity ripe for inclusion in long-term investment portfolios. Whether rates recover soon or not, the combination of a secure revenue base, disciplined capital allocation, and undervaluation makes this a pound-the-table buy for patient investors.
Cool Company Ltd. (CLCO) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 4 hedge fund portfolios held CLCO at the end of the third quarter which was 6 in the previous quarter. While we acknowledge the risk and potential of CLCO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CLCO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
