Intrepid Potash (IPI:NYSE) — FY19 Q2 Update

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Intrepid Potash (IPI) reported results for Q2’19 on Tuesday morning. While headline results were somewhat mixed, investors’ reaction to the news was decidedly negative, taking shares down almost 10% to around $3.25. While the cause for concern is not entirely wrong, it does feel misguided, as Intrepid’s story is one that remains both highly misunderstood and of enormous potential. Realizing that potential is never a guarantee, but there are reasons to feel confident in the company’s intrinsic value materializing, as its long-term narrative has only just begun to take hold. Opportunities of this magnitude rarely come along and it is why Intrepid remains one of the largest positions in Bumbershoot Holdings LP, with the fund beneficially controlling more than 250k+ shares. …

Intrepid Potash (IPI:NYSE) — FY19 Q1 Update & Financial Model

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Intrepid Potash (IPI) reported results for FY’19 Q1 on May-7th and I thought it might be useful to offer investors a quick update on performance. So, I’m putting on my old “sell-side hat” to write a brief “companion piece” to Betting on Blue! – a lengthy, in-depth report about the company’s opportunity in the Permian Basin, published in February…

Intrepid Potash (IPI:NYSE) — Betting On Blue!

Full Report

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In summary, it appears to me that shares of Intrepid Potash are massively undervalued due to a disconnect in fundamentals. The issues driving that opportunity are complex, though; and have not yet been bridged by analysts and investors.

First there was the issue of distress—the Bet on Bob— which at this point is over. Finished. Complete. Dunzo! But for some reason, investors still don’t seem to fully believe it. The company’s core potash business is cash flow generative at current price levels and the balance sheet is nearly back to a net cash position. Intrepid is a company that will survive and compound capitallong into the future.

Next up was the issue of overcapacity—the Bet on Joc—which was depressing potash prices around the world. The sector pursued a price over volume strategy which has led to price stabilization and recovery. Agricultural commodity companies are trading near 52-week highs on expectations of continued momentum, yet Intrepid is not fully participating due to the drag from Trio and given misperception of its MOP production cash costs (GAAP vs. non-GAAP). While this makes sense, it has resulted in Intrepid trading at a significant discount to its fair value of $1b+, which I expect it to reach sooner rather than later.

And now there is the issue of water—the Bet on Blue—which has helped reignite excitement among investors, but has not yet fully materialized. Investors are going to be reading about the Permian basin for the next 50 years; and water may be the single, largest unresolved question among major producers in the region. There have been billions of dollars invested and billions more already allocated to ensure decades of production that may ultimately set the “marginal barrel” to control the entire industry. Demand for water could be staggering and Intrepid will be monetizing the value of water right assets for years to come. Whether this helps to “protect downside” or whether it provides a meaningful avenue for growth remains uncertain. But cash flow is real and on a discounted basis it is likely worth more than the entire current enterprise value of the company.

Something doesn’t add up, but it might just be that IPI is being priced far too low. This is the beauty of small-cap. Ephemeral moments of inefficiency that can lead to outsize returns. I expect 200-300%+ upside over the next few years, because by the time it becomes obvious it will be far too late.

That usually makes for a very good bet.

Viking Therapeutics (VKTX:NGS) — Hallmark Moment

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Moves of Sympathy…

On the final day of May, Viking Therapeutics’s (VKTX) stock increased by 100% in a single session. Investors were quick to point out, though, that the move was just “in sympathy” to another company. Madrigal Pharmaceuticals (MDGL) had released important biopsy/histological data from a 36-week assessment of patients dosed with MGL-3196 as part of a Phase II trial for the compound; and Viking shareholders were happy to just go along for the ride, piggy-backing off of the results.

Yes, indeed. Viking hadn’t even needed to say a word that day in order to see a doubling in its share price! There is a natural inclination to view this type of move as “too fast, too soon.” That sentiment makes sense on the surface, and I wouldn’t fault anyone for assuming the stock must come back to earth.

But it is not for nothing that the move occurred. It was no accident.

Shares of Viking traded materially higher based on a very specific rationale – that the data which Madrigal had just released was in a word, phenomenal. The results provide significant validation to the THR-ß agonist class as a key mechanism of action in the potential treatment of NASH. That is BIG news; and in fact, Madrigal’s own shares were higher by some 200% in the past week, prior to placing a secondary offering at $305/share.

So, the move “in sympathy” makes a lot more sense when put into context of investors’ recognition that Viking’s second lead molecular candidate, VK2809, works in much the same way as MGL-3196. Both share the same mechanism of action in targeting NASH.

This is why in a lengthy write-up published late last year and titled, Welcome To The Glorious House of Gains, I had described VK2809 as follows:

VK2809 for example is the molecule most investors are probably most focused on. The drug has shown some extremely promising results in vivo for statistically significant reductions in expression of multiple genes associated with non-alcoholic steatohepatitis (NASH) [and] to the extent it can demonstrate similar effect in humans […] it could prove extremely valuable, particularly given how “hot” an area NASH has become from an investment perspective over the past 1-2 years.

So, before being quick to dismiss – perhaps it is better to understand…








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