Buy 1,000 shares of StealthGas then go to church
Published: January 7, 2011
Time posted: 7:45 am
Dear Mr. Berko: My broker has a good tip on a stock called StealthGas and thinks this stock could double in the next 12 months.
He owns 7,800 shares (he showed me his account) and wants me to buy 5,000 shares. He knows one of the analysts of this company and also spoke to the CEO in Greek in Greece.
My broker is positive about this stock, and management is buying the stock because they believe it should sell for $13.
Please tell me what you know about this company and if you would approve of a 5,000-share purchase. I’m not usually a risk-taker but my broker is really excited about this company. — M.E., Springfield, Ill.
Dear M.E.: StealthGas (GASS, 52-week high of $8.50 as of Jan. 3) owns 39 liquefied petroleum gas carriers.
These LPG carriers — with 175,000-cubic-meter capacity — transport petroleum gas products, propane, butane, butadiene, propylene and vinyl chloride monomers, all byproducts of crude oil and natural gas.
GASS also charters four carriers to deliver refined petroleum, jet fuel, diesel fuel, gasoline, stinky chemicals and edible soils. And like many companies in this business, GASS is home-ported in Greece, home of Apollo, Echo, Deo and Plato, none of whom had any idea that this once-great nation might have to consider bankruptcy.
GASS had revenues in 2010 of $110 million. Big deal. Next year, GASS also expects to book revenues of $110 million. Big deal two.
But while earnings last year were 42 cents, earnings for 2011 are expected to come in at 65 cents. And the Greeks are learning to do business like American companies: make more money with the same revenues and fewer employees.
Still, GASS has a negative return on equity, a niggardly return on assets of 1.7 percent and a scary debt-to-equity ration of 122.
GASS doesn’t pay a dividend. I don’t expect it to pay a dividend and, even if it could, management needs to use that money to pay down its enormous debt.
Did you ever hear of a shipping company, especially a Greek shipping company, without enormous debt?
There are two brokerages that have a “strong buy” on GASS and, for the life of me, I don’t know why.
I spoke with one analyst (who shall remain nameless) and expressed my disagreement with his positive opinion on the company. I think we must have crossed swords in another life because he used some rather unkind words in his reply to my comments.
But there’s a remote possibility that this fellow and Reuters research may be right. The fundamental outlook for oil and gas storage is positive. While U.S. petroleum consumption declined in 2009, it was up 1.6 percent last year and is expected to increase about 1.2 percent in 2011. Meanwhile, natural gas consumption grew by 4.6 percent in 2010 and is expected to grow by 2.1 percent this year.
The longer term looks good, and the price talk among those who are bullish on GASS is $10.75 per share, which is a 35 percent move in the coming 12 to 16 months. And 12 mutual funds — none of which I recognize — own 20 percent of the company’s 21 million shares, but that may be window dressing for the creditors.
Still, I wouldn’t buy 5,000 shares, certainly not in an IRA. But in the unlikely case that I’m wrong, I have no objection to a purchase of 1,000 shares. Then as soon as you buy it, quick as a bunny, sprint to the “amen” corner of your church and have a conversation with God. You may need his/her help.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at firstname.lastname@example.org.