Pitching an Energy Industry stock

I recommend pitching a short idea, if permissible. If not, try finding equities that appear initially unappealing to anyone able to read financial statements. Those stocks will subsequently be cheap. Examples would be over-leverage, low margin, slow to no growth, low ROIC relative to its peers and its own past.

Here is how the basic research process on the sell-side works: Use proprietary reports (10-Ks, proxies) to understand how the underlying business works, its growth drivers, its history, its risks, etc. Then, go read analyst reports to try to grasp why the market values the stock the way it does. Build a case against the arguments dictating the stock's valuation. Always fully understand the argument first, then begin highlighting potential errors. Its imperative for buy-side reports to not only outline the flaws behind the market's arguments, but also give explanations of how it should be. Next, find points that the market may have overlook but should be factored into the company's valuation. The majority of the time, a stock will be efficiently valued, so tread lightly and avoid confirmation bias (using arguments only supporting your POV while neglecting opposing arguments). If the research defending the stock's valuation is compelling, odds are the stock is efficiently priced. If you have a compelling case indicating the market's rationale is wrong and that it misses a few points detrimental to the stock's intrinsic value, perform valuation analysis in accordance to your research.

Here is an over-simplified hypothetical example of the process I explained above: Stock XYZ is an automotive OEM valued at 4x EBITDA. Sell-side analysts assign our hypothetical company a low valuation because 1) the company is way over-leveraged, 2) is over-exposed to one client, YYY and 3) this company underwent chapter 11; thus, a grain of salt is taken by our analysts when valuing this business. The sell-side analysts are wrong because 1) management indicates a likely divestiture, with cash proceeds adequate enough to pay down 1/3 of debt, 2) management statements, recent increases in R&D, raw materials and marketing are consistent with a company trying to attract new clients; XYZ's competitive advantages/track record indicate they will be successful in doing so in that it increases decreases its sales exposure to YYY by 1/3, 3) the company plans to divest its low margin legacy segment primarily responsible for the bankruptcy, and re-position itself in a manner that would not have resulted in a bankruptcy in the first place. The market is missing (or under-weighing) the following: 1) a management whose recent track record is under-appreciated and have given many indications of a divestiture, 2) its remaining 2 segments are extremely attractive economically, overshadowed by its legacy business and once the divestiture occurs, fundamental changes will occur. Based on our analysis and financial projections, this is a more accurate valuation for XYZ Catalysts include when the divestiture occurs and the market is more appreciative of earnings Risks include the divestiture being a costly and lengthy process, cyclical, etc

Here's how the pitch should be structured: Overview of XYZ's business XYZ's story Misunderstood by Sell-side: -1. XYZ's valuation is a function of: -Leverage -Probable divestiture will play down debt -Overexposure to one client -Evidence indicates the company is a trying to attract new clients and will be successful -Bad taste of a company emerging from bankruptcy -XYZ will divest its legacy segment leading to a new business less likely to go bankrupt moving forward Thesis -2. Managed by owners who have always done what they've stated, thus a divestiture is likely -3. This is how XYZ's underlying fundamentals look after the divestiture, warranting a higher multiple -4. Based on our due diligence, this is how the stock should be valued Catalysts Risks

Your pitch should tell a clear and concise story in a few points. Hope this helps! Feel free to PM me for any questions or if you would like to see one of my reports.