December Investment Update

Thoughts on energy, ZIM, and buying falling knives

We are only 18 days from the year 2025 which seems hard to believe, and I wanted to publish at least one more investment updates before the calendar flips. With no time to waste, let’s dive right in.

#1: Why I Remain Invested in Energy But Will Be More Selective for 2025

• Energy has been a frustrating sector since 2022, treading water while the US stock index has soared to record highs.

• I can’t change the past however, and looking forward I remain overweight energy (both oil and gas) for the following reasons:

  • US shale including the mighty Permian is finally looking to plateau and decline with increasing gas production (which is a tell-tale sign that you are about to enter the decline phase for an oil basin)

  • Consolidation in the oil patch is leading to more rational and cash-flow maximizing production decisions rather than smaller players drilling to prove acreage and flip to a bigger player which we saw in the past decade

  • OPEC remains disciplined, and spare capacity can be easily absorbed in the next few years if US shale production is plateauing (which is the new agreed-upon plan by OPEC)

  • Non-OPEC, non-shale supply is also continuing to disappoint (e.g. Petrobras significantly reducing medium-term production forecasts)

  • Global oil/product inventories are continuing to slowly draw despite the narrative that the market is flooded with too much oil

• With prices likely range bound between $65 and $85 per barrel for next year by OPEC spare capacity and Trump’s willingness to talk down price spikes, I am being more selective within the energy space.

• My main focus is on offshore drilling space (TDW, VAL, SDRL, NE, BORR, FTI) as offshore remains well in the money with low breakeven oil costs, and there will be absolutely no new drilling vessels / rigs built for many years to come.

• Highly regarded value investor Bob Robotti recently shared a video highlighting why his firm is bullish offshore stocks such as Tidewater. Check it out here:

#2: I’m Buying ZIM Dips with Both Hands

• I wrote up ZIM a couple times recently and it remains one of my favorite long ideas.

• It’s been a wild ride for ZIM, with the stock hitting $30 after reporting stellar Q3 earnings, and then giving up all of those gains especially with news that major stock holder Kenon will be selling down most of its ZIM shares.

• I view the Kenon sales as a temporary hurdle for ZIM, and am buying any major dips under $20/share with both hands.

• Fast forward 12 months into the future and I think you will likely see:

  • Kenon has exited ZIM and temporary price dips from the block sales are in the rearview mirror

  • Stock has earned $10+ per share in earnings for 2024, and can easily replicate that number in 2025 as long as we don’t see a global trade recession. This would mean ZIM would have earned more than its entire market cap during this 2-year period!

  • Management is committed to returning 30-50% of earnings in the form of dividends, which would imply a 15-25% dividend yield if the stock remains at $20 (which I think it won’t if I believe in a rational market)

• Technicals for ZIM also look supportive (see below), with the stock price holding above its 200 DMA which itself is in a strong uptrend, and the 50 DMA holding above the 200 DMA.

• For long-time subscribers this might be the first time you saw me mention technical analysis, which brings me to my next point…

Source: Robin Hood

#3: Incorporating Technical Analysis When Buying Falling Knives

This year’s biggest winners for me have been stocks like PYPL, RMAX, and WBD. My cumulative gains on coal stocks such as AMR and CEIX are still higher because they absolutely crushed in 2022-23, but if you strictly consider just 2024 those three stocks have been my best picks.

• PYPL is up 46% YTD as its turnaround under new CEO Alex Chriss gains steam and the company continues to return cash to shareholders via massive buybacks.

• RMAX is up 45% in the past 6 months which is where we roughly bought it, as the real estate market is slowly thawing and RMAX business has remained resilient as one of the strongest real estate brokerage players.

• WBD is up 60% in the past 6 months with a big surge this week on news that it will be restructuring to separate out the legacy linear business from its “new” business of streaming and studios. Debt continues to be paid down at a rapid pace by WBD’s prodigious cash flow generation.

Despite these impressive recent performances, an investor who tried to catch the falling knife on these 3 stocks too soon would still be down overall. So it’s clear that you can’t just identify a compelling turnaround opportunity, but must also enter with the right timing to make profits

For all 3 stocks mentioned, I have been noticing that the technicals were indicating good entry points, where we have passed the absolute bottom in stock price, but there was still plenty of money to be made.

Incorporating technical analysis would have also helped investors to avoid much of the long down trends in the stock price which makes it almost impossible to make money, let alone break even, on these falling knives.

Source: Robin Hood

• For PYPL, the 50 DMA crossed the 200 DMA (Golden Cross) in March 2024 which marked an excellent entry point, and bounced off the 200 DMA again in July 2024 which was another good buying opportunity before the stock took off like a rocket.

• For RMAX, the 50 DMA crossed the 200 DMA (Golden Cross) in August 2024. If you had invested in the stock at this time, you would still be up 30%+ even if you missed the absolute low in April. You would have also avoided the crushing and extended drawdown that RMAX stock saw since 2021.

• For WBD, the 50 DMA crossed the 200 DMA much more recently in November. If you had invested at that time, you would be up a cool 50% in just over a month! And like with RMAX you would have avoided a multi-year drawdown in the stock.

For 2025, I want to still focus on fundamentals and contrarian value investing which is my bread and butter. But pairing this with a new lens of technical analysis may help refine my approach, avoid brutal drawdowns, and time entry points better especially when trying to catch falling knives.

This podcast with Purple Drink Capital was definitely one of my inspirations to explore technical analysis in more detail:

In investing and in life, I believe you have to remain humble, teachable, and willing to learn / grow / evolve in order to suceed!