Brush With Brilliance: Ideas With Wings

 | Apr 09, 2012 | 11:00 AM EDT
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All our great contributors tap their "cabals" for stock ideas, and I do this often as well, reporting back under the heading "Brush With Brilliance." There is nothing like asking smart people what their single best idea is at any moment. The answers can sometimes surprise you and often lead to satisfactory returns.

Last week, I had lunch with three extremely smart fund managers, whom I will call the Stock PICkers. Our group meets regularly at a buffalo wing joint in Pasadena, where we munch hot wings and trade hot stock ideas. We discussed a number of ideas, but each of our dining companions had one in particular that tickled my fancy.

Geology Jim, who has deep roots in the rare-earths industry, was bullish on agriculture names and called out Titan International (TWI) in particular, which makes parts for agricultural equipment. Prospective plantings for 2012 are up modestly for corn and wheat and down for soybeans. Long-term demand will be driven by rising living standards in emerging markets and the trend toward diverting more crops to renewable energy and chemical feedstocks. The whole group agreed that inflation is more likely to accelerate than decelerate, and that should also help drive commodity prices higher. Titan makes parts for agriculture equipment, principally wheels and tires, which are less durable and more often replaced than the equipment made by a Deere (DE).

John the Eldest highlighted an interesting opportunity in the natural-gas space, which of course is fascinating for us all. He noted that the economics are changing for some of the publicly traded companies that are general partners to energy-related master limited partnerships (MLPs). For instance, Kinder Morgan (KMI) is the general partner for Kinder Morgan Energy Partners (KMP) among other entities. Some of these general-partner management contracts include acceleration clauses, in which their fees for managing the limited partnership are set to grow as a percentage of cash flow in the quarters ahead. The earnings power for these GPs could be underestimated significantly. John said the phenomenon was recognized in Kinder Morgan but not in Williams Companies (WMB). I need to study this a bit more, but I trust John's work, and I believe this is a fruitful avenue for further research.

Finally, as we continued to riff on that theme, "The Donald" chimed in with another intriguing energy name. He likes the small-cap play Crimson Exploration (CXPO), a Houston-based exploration-and-production name that's working nat gas and crude oil in the southeast and Texas. Since Crimson has proven reserves of 163 billion cubic feet of gas and 6 million barrels of crude, the stock is feeling undervalued at a market cap of $178 million. Insiders are buying like crazy, and revenue is set to grow 60% in the next two years. While you would not buying this only for a take-out, it seems like a reasonable possibility for a small but fast-growing exploration-and-production name like this.


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