Divergent Capital
Private Investor & Writer, Capital-Light Businesses & Special Situations
EROK looks like a low-risk buy as a debt-free, land-owning royalty business with little representation in major indexes, so it adds no meaningful systemic risk. The case only breaks if the world stops needing oil, the basins run dry, or AI no longer needs land, water and natural gas, all of which seem unlikely. x.comÂ
ERock's coming inflection should force the market to reprice it, supporting a $25 target by the end of 2027. It has a $1.7 billion backlog, is expected to grow revenue more than 200% in 2027 to over $1 billion, and is on a path to about $100 million of free cash flow. The shares have fallen 15% since the call, but the thesis is unchanged; if the 2027 numbers arrive, a higher valuation is only a matter of time. x.comÂ
Energy stocks remain undervalued because shale depletion is real and AI needs natural gas, and the market is underpricing both. Diamondback Energy has quietly been doing tender offers ahead of its May 4 earnings, and EQT's 3.84% drop does not change the thesis. Value takes time. x.comÂ
SandRidge Energy has the best risk-reward among small-cap E&Ps: it is profitable, pays a dividend, holds net cash and closed below tangible book value. Companies with bad balance sheets are not worth owning here, as the opportunity cost is too high. x.com x.com x.comÂ
IREN and Hut 8 look like buying opportunities because they just locked in multi-billion-dollar contracts while the market keeps pushing them lower. That selloff is a gift, not a red flag. The AI infrastructure trade rests on a power shortage that has persisted for over a year, and more energy is needed. x.comÂ
Data-center stocks are the most asymmetric bet in the market, with Bitdeer and IREN the top picks, because access to power is becoming the AI boom's next bottleneck. Berkshire Hathaway CEO Greg Abel said the firm sees a significant opportunity in powering AI data centers. After roughly 50% drawdowns and Jim Cramer urging an exit, pessimism looks near a peak. The risks are real, but a potential 5x in five years, with little chance of going to zero, makes it asymmetric. x.comÂ
Texas Pacific Land gets a tailwind for its royalty stream as oil spikes on renewed Iran tensions. The stock fell from about $450 to $375 on fear tied to a headline about a major shareholder, not anything fundamental. Its water-treatment business is a growth story most investors are not yet pricing, with a national-security angle on top. A pullback near $400 would be a buying opportunity. x.com x.comÂ
Imperial Petroleum and StealthGas should do well as natural gas demand increases. Both are so cheap that they are low risk, though there may be better ways to play the theme. x.comÂ
EQT has convexity because low investment in natural gas collides with rising LNG and datacenter demand. The gas basin isn't that deep. x.comÂ
Canadian Natural Resources' slowly declining oil and gas reserves will last many years and give it very steady production. It generates a lot of cash even when markets are tough, has raised its dividend for 26 years in a row, and plans to return 100% of free cash flow to shareholders through dividends and buybacks. x.comÂ
Occidental Petroleum is mispriced at about 8.4x trailing earnings and an 8.7% free cash flow yield during an oil shock. Eight times earnings in an oil shock is not a valuation but a clerical error with a ticker symbol. Iran cannot beat the US Navy, so it is waiting out America's vote in 49 days, since Iran does not vote until 2028; owning Occidental beats hiding in Treasuries. x.comÂ
