Postcards: Why is the Cork on the Fork?

You can't open a bottle of wine with a fork; doing so isn't safe. Also, let me show you one of my favorite stocks of the year... with a massive upside (it's fun... and it's free.)                                                                                                                                                                                                                                                                                                                                                                                                                 Forwarded this email? [Subscribe here]() for more You are a free subscriber to Postcards from the Florida Republic. To upgrade to paid and receive the daily Republic Risk Letter, [subscribe here](. --------------------------------------------------------------- [Postcards: Why is the Cork on the Fork?]( You can't open a bottle of wine with a fork; doing so isn't safe. Also, let me show you one of my favorite stocks of the year... with a massive upside (it's fun... and it's free.) [Garrett {NAME}]( Jan 7   [READ IN APP](   Dear Fellow Expat: In the film Dirty Rotten Scoundrels, Steve Martin plays an American con man - Freddie Benson - who teams up with Michael Caine (his character is Lawrence Jamieson) to usurp money from wealthy women. At one point, “Freddie” portrays a character named “Ruprict.” Ruprict is the “challenged” brother of Caine’s pretend character, a freedom-fighting prince. During dinner with one of the wealthy targets, Ruprict uses a fork with a wine cork on it to eat apple sauce. “Why is the cork on the fork?” asks an unsuspecting woman... “To prevent him from hurting himself... and others," Caine boasts. The Ruprict sequence is one of the best five minutes of Steve Martin in any film. I’ve watched it four times just writing this article. All that said… there’s a point. My wife picked up some wine last night for our stay at the Gramercy Mansion in Lutherville, MD. We lacked a wine key in the room, so I tried to open it with a fork. It didn’t pan out. This is the result of those efforts. Don’t try to uncork with a fork. That said, (changing movies) in the words of Maximus Decimus Meridius… Let’s discuss a stock for 2024 that is conservative, well-managed, and has a distinct upside. Buying this stock is like putting a cork on a fork - to prevent you from hurting your portfolio… And others. [Upgrade to paid]( Let’s Get Shipping On January 5, 2023, I recommended a stock that most people hadn’t heard of… An airline company operates puddle jumpers between smaller U.S. airports for much larger players. In January 2023, this stock traded at roughly $18. Today, it’s trading at $51.21. Yeah, that’s a nice 184% run… Don’t Do It!!! Keep the fork away from the cork! The recommendation wasn’t some high-flying tech company. It wasn’t a Zombie stock with a high short interest. It was… SkyWest (SKYW), a North American regional airline that partners with major carriers. [I even wrote a letter to my future self about it](. That week, [I also recommended]( Panagea (PANL), a global shipping company that moves dry bulk through the Arctic sea passages. Shares are up nearly 53% since early January 2023. So what’s the secret here? [Well, I’ve already covered this in our conversations with Tim Melvin](. --------------------------------------------------------------- ([Be sure to sign up for Tim’s Substack]( Also - here’s me talking about all of our approaches. Our Founders got access to this first - last week. If you want to know what we do… and how we do it… enjoy [this 80-minute spectacular being an absolute market nerd](. --------------------------------------------------------------- We combine the excellent analysis of Joseph Piotroski and Ben Graham. We use intelligent insights to give us our next “no-brainer stock.” And as you may have expected, we’re back in the shipping sector. [Upgrade to paid]( Here’s My No. 1 Stock This Year The stock I’m about to describe will not be the top-performing company in the market. When I say “No. 1” I qualify it under the risk management principles that we practice here at the Florida Republic. It’s probably not delivering the breakneck performance of Microsoft (MSFT) when the Federal Reserve is pumping capital into the market and every hedge fund is crowding into the tech sector. This is a defensive stock. A company with a near 8% dividend… mixed with a downside of about 15% and an upside of 65%. This stock fits the exact profile of PANL and SKYW (my top performers of 2023). And it’s in the logistics business… like both. It owns tangible assets. It’s cheap. It is a great 2024 reversion momentum candidate. A week ago, I released this pick to Republic Risk Letter readers. But I want you to know about it because you can have the chance to tap into one of the most critical macroeconomic stories of the next decade. Maybe you’ll join us for a month as I’ll keep discussing it and how to trade and invest in it. But I’ll give you the ticker in a moment. Many investors don’t know this, but there’s a massive challenge on the horizon with the number of available ships for global shipping by 2028. The entire global shipping fleet is getting older than ever. By my calculations, by 2028, about 40% of all freight ships could be over 20 years old, typically when companies sell these ships for scrap or retire them outright. Yet, industry analysts suggest that orders only come in for about 10% of the global fleet. Shipyards are at capacity, or they are disappearing. This is a significant reason why the U.S. continues to see its number of Jones Act Compliant ships drop yearly – and there’s no real plan to rebuild the U.S. fleet. That doesn’t change the fact that consumers need products… products must be shipped… Plus, products must be made first as well. That’s why we are focusing on a specialty shipping company that has a unique story. This company specializes in transporting specialty chemicals in a largely Korean-built fleet that averages just 9.5 years of age. So, they have an advantage over competition in the 2020s on the prospect of aging ships. Of course, this isn’t just about shipping. This is about finding great opportunities when the numbers align. This is a Quantitative approach to locating great ideas like PANL and SKYW. So, let me blow the doors off… in the interest of full transparency. This isn’t a weird trick. This isn’t a “back door way to invest in X…” There’s no gimmick here. I am telling you - straight up - the most potent investment approach that exists. We want low price-to-Graham numbers, strong Z scores, high Piotroski F figures, high safety margins, and strong ROIC. We will qualify everything else. And that’s what I do. I spend hours wondering why this opportunity has presented itself. That’s the difference between Florida Republic Capital… and everyone else. So, here’s the ticker. Ardmore Shipping (ASC). The stock is up 6% since I recommended it last week. It has a lot more upside. It’s now burst above its fair value and holds an score of 8](. Please take a look at the chart below. Everything here is what you want in a leadership team. Year over year, they’re increasing their return on assets (that gets a point…) They’re increasing gross margins (another point). Asset turnover… Up. (a point). Paying down debt… gets them a point. Positive ROA - a point. The only place they didn’t get a point for was… stock buybacks. And guess what? They just announced [a $50 million buyback program in September](. Next up - this metric that [Tim Melvin won’t stop talking about](. The Altman Z score. When you’ve had too much turkey with Tim, you start talking about random scores with letter names. I like the Beneish M Score to look at accounting irregularities. We both like the F score to focus on management doing their job. But Tim also lobs the most important grenade for these times, which is the Z score. The Altman Z-score is a financial formula used to predict the likelihood of a company going bankrupt, considering factors like profitability, leverage, liquidity, solvency, and activity ratios. Higher scores suggest lower bankruptcy risk. Tim advocates for anything over 2.99. Ardmore has a 4.46 score. Then, there’s the Price to Graham number. The Price to Graham Number ratio is a valuation metric that measures a stock's investment merit. It allows us to compare a stock’s current price to its “Graham Number” - a conservative estimate of a company’s fair value tied to earnings and book value. A lower ratio suggests that the stock may be undervalued. Ardmore’s P/G metric is 0.48. That’s CHEAP. Let’s do one more. I will shout out to [Ross Hendricks]( Porter & Company.]( Ross and Porter swear by capital-efficient companies. A great metric to uncover them is the Return on Invested Capital. This metric measures the company's efficiency in allocating controllable capital to profitable investments. We calculate ROIC by dividing a company's after-tax operating profit by its invested capital. The higher the ROIC, the more efficient a company deploys its capital. An ROIC of 10% or more is considered “strong.” Ardmore’s ROIC is 24.5%. Oh… one last thing. Even though it’s a shipping company that has largely paid special dividends - the yield sits north of 7.5%. So… again… The numbers. - F score: 8 - Z score: 4.46 - Price-to-Graham: 0.48 - ROIC: 24.5% You can look at all the other metrics that I don’t care about… and it’s still cheap. The PE Ratio, which tells you nothing, by the way… is at 4.44x. But the EV/EBIT is almost the same. And it’s some of the cheapest cash flow you can buy in the markets today. On the qualification side… I look at shipping with a contrarian approach to what we saw in 2023 with housing and logistics. The world needs chemicals. The world is experiencing a shortage of ships. The day-rate levels for shipping are going up… not down. Its competition lacks ships… It operates in a niche business (which fit the profile of SKYW and PANL last year). Regulations favor the company. Its latest company presentation shows it will benefit from the current winter months. There’s an upside of $18 by April… and a downside of $13.50 depending on global liquidity. Regardless, this is a buy-and-hold play through the start of 2026. My 50% exit target is $21.50. I’ll have to write myself a letter from the future. Finally, I’ll say this… if Tim Melvin and I are talking about companies like this… and I’m giving away THIS ticker… Imagine what I don’t give away for free. There’s an entire portfolio that just went live last week - and ASC is one of four shipping names that fall into the portfolio. The downside is much smaller than the upside. That’s how we like to target reversion stock opportunities that we hope to catch momentum - much like PANL and SKYW did last year. That’s all. Stay positive, Garrett {NAME} Secretary of Defense Disclaimer Nothing in this email should be considered personalized financial advice. While we may answer your general customer questions, we are not licensed under securities laws to guide your investment situation. Do not consider any communication between you and Florida Republic employees as financial advice. Under company rules, editors and writers cannot recommend their positions. The communication in this letter is for information and educational purposes unless otherwise strictly worded as a recommendation. Model portfolios are tracked to showcase a variety of academic, fundamental, and technical tools, and insight is provided to help readers gain knowledge and experience. Readers should not trade if they cannot handle a loss and should not trade more than they can afford to lose. There are large amounts of risk in the equity markets. Consider consulting with a professional before making decisions with your money.   [Like]( [Comment]( [Restack](   © 2024 Garrett {NAME} 548 Market Street PMB 72296, San Francisco, CA 94104 [Unsubscribe]() [Get the app]( writing]()