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Buy This Energy Small Cap That’s Outperforming in a Tough Market

Actions to Take:

  • Buy-to-open Dorian LPG Ltd. (LPG) for $32.50 or less. Plan on exiting the position if LPG trades down to $25.28.
  • If you want a more speculative version of the recommendation, buy-to-open LPG March 15, 2023 $29/$30 Call Spread for $0.45 or less. Plan on exiting the position for a 100% profit – or if shares of LPG trade through our published stop.
  • If you haven’t already done so, sell-to-close your IWC December 15, 2023 $101/$102 Call Spread.

As I write this, all of the major indices are down on the day after Alphabet (GOOGL) missed analyst estimates for its cloud business and the yield on 10-year U.S. Treasuries spiked above 4.9% once again.

Regarding the former, shares of GOOGL are down nearly 9% on the day, even though the company posted Q3/203 revenue of (excluding traffic acquisition costs) of $64.1 billion, which not only was higher than estimates of $63 billion, but it also represented a 11.86% increase over the same period a year ago.

Considering one of the biggest companies in the world can lose nearly 9% after beating on the top and bottom lines, indicates just how fickle the market is right now.

That being said, there are still industries and specific stocks that are performing well – even in the face of fickle investors.

Case in point, Dorian LPG Ltd. (LPG), the Stamford, Connecticut-based liquefied petroleum gas shipping company.

Incorporated in 2013, the company is a leading owner and operator of modern very large gas carriers (VLGC), with 29 vessels and co-manager of the Helios LPG Pool, which operates 27 vessels total and is jointly owned with Phoenix Tankers.

Nearly all of the company’s fleet are built utilizing fuel efficient “ECO” designs which lowers fuel cost. That caught my attention because lower fuel costs translate into higher profit margins when compared to less-efficient competitors.

In case you’re not familiar with liquefied petroleum gas, it is a fossil fuel made during natural gas processing and refining. It’s primarily comprising of propane and butane and its clean burning properties and high energy content.

Those last two points (clean burning properties and high energy content) are important and one of the reasons I like Dorian LPG.

The company’s fleet mainly moves LPG from North America and the Middle East to Asia. That’s important because fast-growing Asian nations are much more concerned with sustainability, so a fuel source such as LPG is in demand – and that’s good for Dorian LPG Ltd!

All you need to do is take a look at the company’s financials and you’ll see the demand for their LPG shipments.

At the end of 2022, the company posted $274.221 million in revenue, but over the trailing twelve months that number has jumped 54.8%, to $424.488 million. And on the bottom line, net income over that same period, exploded 178.4%, from $71.93 million to $199.32 million.

With numbers like that, it’s no surprise the stock has been absolutely destroying the broad market – and even the energy sector, as measured by Energy Select Sector SPDR Fund (XLE).

Over the last year, shares of LPG have gained 123.64%, compared to the S&P500 and XLE which have gained 9.26% and 0.18%, respectively.

It’s impressive that LPG could launch considerably higher in the face of market headwinds that have created a lot of pain for small cap stocks.

And, considering the stock’s rise, you’d think that shares of LPG would be trading at a super-rich valuation, but they’re not.  The trailing PE ratio is just 6.29 and the Forward PE is even less at 4.57.

Last but not least, we get to ring the bonus bell with LPG because the stock delivers a whopping 12.84% yield on a very reasonable payout ratio of 80.81%.

Here’s how we’re going to play it!

Actions to take:

  • Buy-to-open Dorian LPG Ltd. (LPG) for $32.50 or less. Plan on exiting the position if LPG trades down to $25.28.
  • If you want a more speculative version of the recommendation, buy-to-open LPG March 15, 2023 $29/$30 Call Spread for $0.45 or less. Plan on exiting the position for a 100% profit – or if shares of LPG trade through our published stop.

Now let’s take a moment to check in on our outstanding positions, profit targets, and protective stops.

This week, we’re going to update our instructions on the following two recommendations: Recursion Pharmaceuticals (RXRX) and Evolv Technologies Holdings Inc. (EVLV).

Stocks:

  • Innovative Solutions and Support, Inc. (ISSC): Use a protective stop at $6.10.
  • Vector Group Ltd. (VGR); Use a protective stop at $9.03.
  • Recursion Pharmaceuticals (RXRX): Use a protective stop at $4.45.
  • Evolv Technologies Holdings Inc. (EVLV): Use a protective stop at $3.45.
  • Arm Holdings plc (ARM): HOLD
  • Innoviva Inc. (INVA): HOLD

Options:

  • TBT December 15, 2023 $33/$32 Put Spread: Plan on exiting the position at $0.50 or more.

Limit Orders:

  • Plan on adding the remaining half of the Arm Holdings plc (ARM) recommendation at $43.35.
  • Plan on adding the remaining half of the Innoviva Inc. (INVA) recommendation at $12.00.

 

Cheers,

Shah