Today, I want to talk about combining our different strategies: cheap assets, cheap earnings, momentum, special situations and, of course, income. These all work on a stand-alone basis, but we’re going to combine two factors today and see if we can catch some lightning in a bottle and produce massive total returns.

We’re going to combine low price-to-earnings (PE) with developing price momentum, and that’s going to tell us what’s cheap and what’s hot right now. In other words, we’re going to look at what’s been out of favor but is now starting to attract institutional attention that’s going to bring in money, create the buying pressure, expand the PE multiple and drive the stock higher over time.

We like stocks with favorable fundamentals, and we want only the best companies at the best prices that are just now starting to see a momentum surge to give us two, three or four times our original purchase price.

Alliance Resource Partners, L.P.

The first is a story that I love because it’s an “unintended consequences” stock.

The global natural gas shortage can’t entirely be blamed on the current administration. Some of it is the economics of the oil and gas business, and Russia also has a huge role in this. The fact is that US producers don’t want to up production because it’s going to decrease the price that they receive, which hurts their cash flows.

They learned a powerful lesson in 2014-2015 when everyone was going full bore and drilling everywhere they could. We were producing so much natural gas back then that we drove prices right down through the floor.

A lot of these companies had borrowed a ton of money to fund their drilling operations. Well, a lot of them went bankrupt. Existing oil producers are sitting back and are happy to produce about what they’re producing now, create tremendous free cash flow, buy back stock and pay dividends. It won’t do much for gas prices, but shareholders will surely love it.

So, all of these are really factors that came together that resulted in the current natural gas shortage. But guess what the natural gas shortage has created? It’s created a huge demand for coal all over the world! Once again, coal is the cheapest way to produce electricity in the US and all over the world. China is buying all the coal they can to get through the winter, which has created tremendous demand.

Alliance Resource Partners, L.P. (ARLP) does business primarily in the eastern US, and they sell most of their product to US utilities. Business is so good and there’s so much cash coming in that management decided it wanted to double the dividend, and the shares now yield about 8%.

They’re the second-largest coal-producer in the US, along with lots of oil and gas royalty interests. They have royalty interests on about 1.5 million acres where they’re collecting royalties on coal as well as oil and gas, which should rise over time.

But today, the stock is trading at just 8.5 times earnings, and institutions have been starting to pay attention. They’re seeing the same thing I am… Europe is starting to import more coal, China is hoarding coal, India is desperate for coal and here in the US, we’re using more and more coal every day. That situation is going to continue.

So, the focus on renewables has had the unintended consequence of dramatically increasing coal demand both in the US and abroad. And ARLP is going to be a massive beneficiary and can make us quite a bit of money because this trend is going to be with us for a while.

OneWater Marine Inc.

Next up is another stock trading at a very low PE multiple and is starting to attract big institutional attention: OneWater Marine Inc. (ONEW).

This company owns 71 boat dealerships in 11 states and has a really cool business model that’s working very well. They sell pretty much everything marine-related, including boats, parts, equipment and accessories, and they even have repair facilities at all of their locations.

They’re going around looking for smaller dealers and suppliers to the boating industry where the founder or owners are ready to retire.

So, ONEW will cut them a deal that allows them to transition away from the day-to-day operations but still have a long-term source of income that lasts for a considerable period of time from the business they built. They’re basically buying these dealerships and giving a long-term payout to the current owners. It works really well and has allowed them to become a very fast-growing company.

Last month, they bought a large boating parts company that makes parts for just about every boat available in the US today, and that should be a big growth driver for the company. So, you’ve got this fantastic business that’s growing by acquisition in a very smart way, as their deals tend to add to the value of the company right away.

And as the economy comes back, interest in boats and boating is going to return to pre-pandemic levels. Boating is one of those addictive lifestyle businesses, as people who are into boating are really into it and are even kind of addicted to it. So, I think we’ll see a quick recovery in demand in the boating industry pretty quickly.

But the stock remains way off of Wall Street’s radar, and it’s trading at just eight times earnings. The couple of analysts who do follow the stock are expecting a massive increase in earnings next year. And already, we’re seeing money flow into the stock and give us the kind of smooth, up-and-to-the-right momentum that we like to see.