This $6 Stock Delivered a 64% Gain in Five Weeks
This "Pullback Play" handed us a windfall ...
Here at Stock Picker’s Corner (SPC), we’re planners — not “knee-jerk reactors.”
We look forward … we plan ahead … and we look for the “ultimate bullseye” — the winning, storyline-centered strategy known as “The Long Game.”
Back in July — seeing that stocks may be ready to wobble — I came up with a list of “Pullback Plays” … a list of five stocks worth grabbing if their share prices hit the skids.
One of those stocks was especially interesting — the “utility-in-the-making” company called Hallador Energy Co. HNRG 0.00%↑. The stock was at $8.41. And I said if it got to $6 or less, it was worth grabbing. On Aug. 21, Hallador closed at $5.90 — and in a report the next day, I told you folks that the buying window I had ID’d had arrived.
For folks who acted, it’s worked out great.
On Friday, Hallador shares closed at $9.70 — a 64.4% surge in 26 trading days.
For some context, that’s 5.86 times the 11% annual average of the S&P 500 over the last 10 years — all in just five trading weeks.
Play with the numbers a bit more and you see this works out to an annualized equivalent of about 625% (64.4% gain divided by 26 trading days multiplied by the 252 trading days in a year).
Here’s the thing. You folks know that I’m a Wealth Builder at heart. I tell folks that:
The “long game” is the only game that matters.
That short-term trading is for suckers.
And that big gains reaped in super-short time frames are — more often than not — nothing but pure luck. And, in all candor, that’s part of what we have here.
So why am I sharing all this?
Simple: This is one of those stories that screams for “what does it mean?” and “what comes next?” updates.
And I’m bringing you that update here today ….
WHY I LIKE THIS
Hallador is the kind of company that appeals to my Contrarian nature — for a trio of good reasons. I like it because:
It follows several powerful storylines — including the massive looming commodities supply shortfall and the massive approaching U.S. energy transition — which gives it long-term potential.
It’s a company in transition, meaning it’s likely misunderstood by most investors — creating an early-entry opportunity for us.
And a pullback purchase could give us a low-cost starting point for a long-term gain.
The windfall reaped from Hallador is absolutely due, in part, to the good fortune of fortuitous timing — a fancy way of saying “we got lucky.”
But that “luck” was augmented by two pieces of the SPC “Be a Wealth Builder” strategy — which boosted our odds of success.
First, if you look at why I like Hallador, you realize I’m really talking about a “special-situation” opportunity — needing only that “right moment” to get us started.
As we said to our SPC Premium members when we delivered our “Super 10 List of Special Situation Stocks” a few weeks back, special-situation stocks occupy that “intermediate” ground between speculative trading (which we avoid with every fiber of our very being) and long-term investments (which we aim to hold for three, five, seven years … or longer). Really great special situations are tougher to find, and carry more risk, but the payoff can happen quicker than with long-term wealth plays. (But, just being honest, even I wasn’t expecting Hallador to pay off this fast.)
And, second, this stands as a real-world example — a “proof point,” if you will — of a key building block: The “Accumulate Strategy.”
For folks really looking to build wealth, we tell them to find strong storylines, find the best beneficiaries, establish “foundational” positions, and then use additional cash — or hefty pullbacks — to add to their holdings.
So what’s next for Hallador?
LINING UP THE ”LONG GAME”
You can cash out here — and pocket your profit.
Or you can continue to “Accumulate” the stock since the long-term narrative remains intriguing.
Folks who’ve followed me for long stretches know of my love for old maxims — because they’re usually based on valuable (and actionable) truisms and because they’re true to my interest in keeping things simple
The old maxim “with change comes opportunity” definitely fits the bill here: Change also creates confusion — a synonym for “misunderstanding” — which creates windows of opportunity for savvy Wealth Builders like us.
Especially when we play that “long game.”
Here, that “long game” lines up nicely with Hallador, whose market value right now stands at a tiny $413 million. The earlier pullback dropped that value down to the $250 million range — a move that took it under the $300 million limbo poll that separates micro- and small-cap companies.
Hallador is a “thermal-coal” player — meaning coal for power and heat. And it’s a “utility in the making” — meaning it uses its own “stuff.”
And it’s making moves to achieve a razor-sharpness.
In February, the company streamlined its Sunrise Coal Division to slash costs and boost margins. It cut production at its higher-cost Freelandville and Prosperity Mines, throttled its 2024 capital outlays by $10 million and refocused its energy on its lower-cost properties.
Here’s where it gets interesting.
My good friend Matt Warder — publisher of The Coal Trader here on Substack and perhaps the most prominent independent coal analyst in the market today — has talked often about the need for a “reasonable energy transition.”
Enter Hallador …
The company’s Hallador Power Co. unit runs the Merom Generating Station, a two-unit, coal-fired power plant that’s rated at 1,080 megawatts. The Sullivan County, Ind.-situated plant has been running since 1982 and will sell electricity to Hoosier Energy customers — and back into the Midwest power grid.
“A strong America requires a reliable energy grid,” Hallador says. “Power generating is a natural next step for our evolving company [and for America’s shift to] renewable energy solutions. Hallador Power is the pragmatic approach to that transition … Hallador Energy believes that there is no one solution to our energy needs but takes a practical, reliable approach to ensure America’s economy is plugged in and working at full power.”
Hallador’s “pragmatic” transition … and Matt’s “reasonable” transition: Two ways of saying the same thing.
And they’re both correct.
During that transition — and over the long haul — there's a huge opportunity: The U.S. energy grid of today won’t be modern enough, powerful enough or reliable enough to meet the country’s future electricity demand
Small-cap specialist Cove Street Capital sees it as I do:
“We don’t pretend that the coal business and the coal power generation business is not cyclical, but [the precipitous, near-term drop in coal demand] was past the north-end of our expectations,” Cove Street wrote in a recent report. “A warm winter and low gas prices were the simple double whammy. We see the opposite this summer. Underneath short-term movement, the U.S. remains in a dance between the desire for Green and the necessity of consistently keeping the lights on. These assets get more valuable every day in our opinion."
Indeed, on that last point, the U.S. Energy Information Administration (EIA) says global electricity demand could surge by 33% to 75% by 2050, when as much as two-thirds of the world’s electricity production could come from nuclear and renewables. Both the “stickiness” of carbon fuels (check out our report on coal here) and the shift toward renewables will benefit Hallador.
In the near term, the coal market (and coal prices) will whipsaw investors — although, longer term, I like coal very much.
AI AND CRYPTO CATALYSTS
There are other “triggers,” too.
Here in the Artificial Intelligence (AI) Era, the explosive demand for data centers will amp up the need for power (I know … I know … a bad “power pun”). And the appetite for power, land, water and workers could lead to new data center projects being sprinkled about the country — perhaps close to existing power plants, or even prompting custom “mini-plants” to be built.
Another niche opportunity is with Bitcoin “miners.” U.S. coal producer Alliance Resource Partners LP ARLP 0.00%↑ has diversified into mining the bellwether cryptocurrency as its roster of coal customers shrinks.
The Tulsa-based Alliance originally did this as a corporate “pilot project” — one that would monetize the excess power load from its River View Mine in Kentucky into some form of cash. It reported a cache of $30.3 million in Bitcoin at the end of the first quarter — up from $9.6 million at the end of last year.
Hallador and AboutBit, a Kentucky-based private venture, are planning a crypto-mining venture adjacent to the Meron power plant.
Bitcoin is a bit adrift right now. But there’s a rebound in the offing — which I detailed in a special report with my “Platinum Rolodex” crypto expert David Zeiler. So that, too, could provide a revenue stream to Hallador.
One last point: Special-situation companies often end up as buyout plays. And with the power shortfalls I’ve outlined here, if Hallador gets up and running, it could easily end up as a takeover target, too.
INSIDER BUYING
One thing my co-author and I detailed in our 1998 book Contrarian Investing was the allure of insider buying on a beaten-down stock.
We have that here.
As I told you in our last report, independent Hallador Director Charles Ray Wesley in March bought 46,100 shares of Hallador on the open market — at a range of $5.21 to $5.25 — spending $240,100 to do so. That left him with 245,570 shares at the end of that reporting period — a 23% increase in his holdings.
This is significant for a couple of reasons.
First, open-market buying is a bullish signal. Corporate insiders get shares in a lot of ways these days — via options, through bonuses, and even with tracking rights. So when they spend their own money to buy shares in the open market, that’s often significant.
After all, who can better see the all-important “what comes next” for a company?
And the price there was also worth noting: About $5.25 a share — or close to the $6 buy level I identified.
Since then, there’s been more action.
Wesley bought another 5,000 shares in August (at an average of $5.77 a share) and an additional 25,000 shares (at $5.97 a share) here in September, spending an aggregate $180,000 to do so and bringing his stake to 275,572 shares.
And he wasn’t alone.
Director Darrell Thomas Gray has also been shopping. He bought 4,000 shares in June ($6.94), 20,000 shares in mid-August ($5.70) and 14,000 shares in late August ($6.36), bringing his total holdings to 51,000 shares.
Most of those purchases were in the $6 range I identified for you.
THE “WHAT’S NEXT” BLUEPRINT
Make no mistake: This is a super-high-risk stock, one that demands the following special-situation strategy — and that afore-mentioned longish time horizon.
Where can the stock go from here?
Modeling “under-the-radar” stocks like this one can be tough — especially when companies are dancing along inflection points like Hallador’s.
So let’s look for some guidance.
In late May, B. Riley Analyst Lucas Pipes boosted the stock from a “Neutral” to a “Buy” and raised his target price from $8 to $9 a share. I don’t typically put much stock in Wall Street ratings. But this one tracks a bit: Hallador was in the $9 range not that long ago.
And for the long term, there’s even more potential.
I’ll keep watching this one for you.
See you next time;
This was quite thorough. I really appreciate the in-depth follow-up here after such a sharp rise. As always, I learned a lot. Thank you.
It's now a 79% gain ... but even with this as a special situation, there's an element of of luck in such a near-term return ...
https://substack.com/@stockpickerscorner/note/c-71451715?utm_source=notes-share-action&r=3ftiph