Apis Capital Advisors, an investment management company, released its “Apis Global Discovery Fund” third-quarter investor letter. A copy of the letter can be downloaded here. The fund rose 3.7% net in Q3 2024 and is up 11.6% YTD. The MSCI ACWI SMID-Cap benchmark index was up 9.4% and up 12.5%, respectively, over the same period. Overweight positioning in Asia – particularly Korea, Japan, and Taiwan – drove the portfolio to underperform in the quarter relative to benchmarks. A copy of the letter can be downloaded here. In addition, you can check the fund’s top 5 holdings to find out its best picks for 2024.
Apis Global Discovery Fund highlighted stocks like Hallador Energy Company (NASDAQ:HNRG) in its Q3 2024 investor letter. Headquartered in Terre Haute, Indiana, Hallador Energy Company (NASDAQ:HNRG) engages in the production of steam coal. The one-month return of Hallador Energy Company (NASDAQ:HNRG) was 34.76%, and its shares lost 3.30% of their value over the last 52 weeks. On November 21, 2024, Hallador Energy Company (NASDAQ:HNRG) stock closed at $12.91 per share with a market capitalization of $550.187 million.
Apis Global Discovery Fund stated the following regarding Hallador Energy Company (NASDAQ:HNRG) in its Q3 2024 investor letter:
“The top performer in the quarter was Talen Energy, which we feature below, along with Hallador Energy Company (NASDAQ:HNRG). Both companies are cheap and well-positioned to benefit from selling power to AI data centers. Hallador Energy is a legacy coal mining company in Indiana that is transitioning to a vertically integrated independent power producer (IPP). During the ESG craze a few years ago, Hallador acquired the grid interconnection rights from its customer Hoosier Energy to build a solar plant on the location of Hoosier’s soon-to-be-closed coal plant. The idea was that coal was dead, and Hallador would reimagine itself as a more ESG-friendly solar company. However, when the power market tightened in 2022, the grid operator requested the plant remain in operation. Hoosier was forced to sell the plant at a discount to the only logical buyer – Hallador – who owned the grid interconnection rights. The plant is 40 years old and will be fully depreciated over the next 10 years, but management believes it can operate for at least another 15 years. Today, the power generation segment accounts for only about 45% of Hallador’s revenue yet nearly all of its profit.
Hallador’s power plant sits in the MISO region which, according to the North American Electric Reliability Corporation’s 2023 Long-Term Reliability Assessment, is one of the two regions designated as high risk for power shortages in the coming years. MISO has many old coal plants like Hallador’s that are slated to be retired, and the replacement capacity is solely coming from intermittent power generation like wind and solar. Even with this backdrop, hyperscalers such as Amazon and Google continue to announce new data center projects in the area, in part drawn by the region’s lower power prices compared to neighboring regions like PJM. While generation prices have yet to rise, the capacity market is already responding, as seen by the growth in Hallador’s capacity revenue, which is expected to be approximately $65mm this year vs $10mm last year and $1.5mm just a few years ago. Hallador currently has an RFP out to data center operators and management and has said that it is in discussions over a 10-year PPA to contract for the majority of its capacity. It expects an announcement later this year or early next.
While time will tell what the pricing from the data center PPA will be, simply using MISO forward pricing as a proxy, we believe that Hallador could generate over $2.50 in FCF per share in 2026. This would price Hallador shares at less than 4x P/FCF, compared to IPP peers that are all trading above 10x. As seen by Talen’s Amazon deal, there is a good chance that the data center PPA will likely be priced significantly above forward prices.”
A continuous supply of coal streaming out of the entrance of the underground mine.
Hallador Energy Company (NASDAQ:HNRG) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 21 hedge fund portfolios held Hallador Energy Company (NASDAQ:HNRG) at the end of the third quarter which was 20 in the previous quarter. On a consolidated basis, Hallador Energy Company (NASDAQ:HNRG) generated $105 million of sales for Q3 compared to $165.8 million in the prior year period. While we acknowledge the potential of Hallador Energy Company (NASDAQ:HNRG) as an investment, our conviction lies in the belief that 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 as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
In another article, we discussed Hallador Energy Company (NASDAQ:HNRG) and shared the list of best coal stocks to buy according to short sellers. In addition, please check out our hedge fund investor letters Q3 2024 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.