Barnwell Industries stock

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scintillator
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Barnwell Industries stock

Post by scintillator »

I realize that investing in individual stocks is anathema to this forum, but I'm trying to gain an understanding of what drives portfolio value, and this stock seems like it could be illustrative to that end. (Most of my money is in index funds—at their current ~30 Shiller P/E...) I'm trying to figure out why a small investment of one's portfolio into something like Barnwell would have less upside than just VTI. Feel free to look up the data on BRN, but I'll give a brief synopsis:

•They operate three segments: oil and gas E&P in Alberta and Oklahoma, water well drilling and maintenance in Hawaii, and real estate assets in Hawaii.
•Microcap, only $27 million market cap, so not worth hedge funds' or big-bank analysts' time to make sure it's efficiently priced.
•Current P/E under 8. Maybe they're overearning with the oil segment, but maybe not, since effects from soaring oil and gas should show up more in subsequent quarters.
•$11m in working capital, including $9.6 in cash (a third of the market cap).
•Negligible debt and pension liabilities.
•$42m in NOLs (more than the entire market cap).
•Listed on the NYSE, not OTC. Has been publicly listed for decades.
•The BoD and execs seem legit; it isn't some family-run affair.

So what am I missing on a stock like this? I can't find the compensation figures for the board (granted, I didn't try very hard), but unless they're totally ripping off shareholders in spite of their auditors (Enron was public and audited, after all), I don't really understand how opportunities like this exist. To be clear, I'm not advocating people buy this stock—the point of this post is that hopefully someone who used to work in equity analysis could tell me how this is worse than half the stuff that you get in VTI.
retiringwhen
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Re: Barnwell Industries stock

Post by retiringwhen »

how are you going to get return from this stock?

BNR has been around since the 1950s and the stock prices has moved between $1 and $4 for all of the history since 1985 except for a brief massive runup in the mid-2000s and a very odd blip in March where a huge amount of insider shares were dumped. It doesn't pay a dividend.

It also sees daily turnover of nearly 15% of the outstanding float. This is clearly a favorite of the penny stock crowd. There can be massive moves within the $1 to $4 range that benefit manipulators and day traders. This is the kind of stock they hold for 30 seconds to 2 days. Roulette on a legal platform.

Also, looks to me like a small insider held company (only 50% of shares float) that doesn't grow, and the insiders are dumping shares whenever the stock goes up. Another way to read the insider trading is that the company uses stock options as a form of compensation and there is a lot of new shares created every year for those who are on the inside and they turn around and dump them into the market diluting other shareholders economic benefit. Frankly, without digging through EDGAR, I don't know what the insiders are doing, but the last 12 mos. reported on marketwatch tell me that you better have a pretty good idea before plunking any money on the stock for any long-term investment.

Sounds like a hole to throw money into, common shareholders are not benefiting from this stock. This is for insiders and day traders...
retiringwhen
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Re: Barnwell Industries stock

Post by retiringwhen »

For kicks and giggles, I looked up BRN in the CRSP Total Stock Market Index (crsp.org).

BRN is the 4,029th largest company in the TSM index out of 4,119 companies included in the index. That means if you hold VTSAX you own a bit of the Barnwell stock.

In particular, using the March 31st constituents list, if you owned $1,000,000 of VTSAX (say that in your best Dr. Evil voice :twisted:), you would own approximately $0.26 worth of Barnwell industries!
z3r0c00l
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Re: Barnwell Industries stock

Post by z3r0c00l »

I could easily see this be a meme stock and go to $200 a share. The fact that you are randomly asking about it makes that seem more likely than before. But I could also see it go to 42 cents a share again.
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Doctor Rhythm
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Re: Barnwell Industries stock

Post by Doctor Rhythm »

If you take a concentrated position in a stock, you increase the risk and volatility of your portfolio. That’s generally not desirable unless you’re compensated by greater expected returns. However, you don’t know whether this stock (or any other) will outperform the market. Most stocks don’t, so the odds aren’t good.

Keep in mind that you are (like the rest of us) a nobody in this game: an inconsequential, low-stakes amateur without special knowledge or experience. If this were such an obvious good bet that even you could see it, why haven’t the real players snatched it up and pushed up its price?
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nisiprius
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Re: Barnwell Industries stock

Post by nisiprius »

scintillator wrote: Wed May 25, 2022 5:36 am...So what am I missing on a stock like this?...
You are missing the idiosyncratic risk involved in putting, say, 5% of your portfolio into a stock that represents 0.00005625% of the market ($27 million / $48 trillion), creating an 80,000X concentrated position.

On a stock this small, you may even be missing some risk of possible shenanigans.

I think potential upside for BRN is higher than the potential upside for VTI, but potential upside is not a good basis for decision. If potential upside is the rationale, note that the potential upside of a state lottery ticket is higher still.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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nisiprius
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Re: Barnwell Industries stock

Post by nisiprius »

https://www.etf.com/stock/BRN

Curious: BRN is held by VXF (the Vanguard extended market index fund) and ITOT (iShares Core S&P Total US Stock Market ETF) but not by VTI.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
retiringwhen
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Re: Barnwell Industries stock

Post by retiringwhen »

nisiprius wrote: Wed May 25, 2022 6:08 pm https://www.etf.com/stock/BRN

Curious: BRN is held by VXF (the Vanguard extended market index fund) and ITOT (iShares Core S&P Total US Stock Market ETF) but not by VTI.
It is in the CRSP constituents list though. Interesting, Vanguard lists 4081 names, but the index has 4119 as of 3/3/22. I guess they are missing roughly 38 names including this is one.

I did a spot check of a few smaller companies than BRN and about half of them are in the Vanguard portfolio. There is clearly some level of sampling going on at the very very bottom of the list.
mega317
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Re: Barnwell Industries stock

Post by mega317 »

Perhaps more upside than VTI. But how much of your portfolio are you proposing to put into this stock? Even massive upside isn't that big a deal if you're putting small amounts of money on it. And of course the company could go bankrupt tomorrow you don't know anything about it at all.
gougou
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Re: Barnwell Industries stock

Post by gougou »

What am I missing here? What opportunities are you talking about?

Is the stock undervalued? That’s not clear to me. Even if they make all that money, do shareholders get anything through dividends/buybacks? If you buy this stock, how many years does it take for you to get your investment back?
The sillier the market’s behavior, the greater the opportunity for the business like investor.
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Nate79
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Re: Barnwell Industries stock

Post by Nate79 »

What do you know that the market professions do not know?
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scintillator
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Re: Barnwell Industries stock

Post by scintillator »

retiringwhen wrote: Wed May 25, 2022 6:02 am how are you going to get return from this stock?
That's what I'm asking. They have paid a dividend in the past, but now it seems they're investing in new wells and sitting on cash. Your reason not to invest seems to fall mainly into the category of the board fleecing investors via dilution and SBC. That may be the right answer.
gougou wrote: Wed May 25, 2022 10:23 pm What am I missing here? What opportunities are you talking about?

Is the stock undervalued? That’s not clear to me. Even if they make all that money, do shareholders get anything through dividends/buybacks? If you buy this stock, how many years does it take for you to get your investment back?
So I guess this is another vote for "board fleecing investors."
Doctor Rhythm wrote: Wed May 25, 2022 4:55 pm If you take a concentrated position in a stock, you increase the risk and volatility of your portfolio. That’s generally not desirable unless you’re compensated by greater expected returns. However, you don’t know whether this stock (or any other) will outperform the market. Most stocks don’t, so the odds aren’t good.

Keep in mind that you are (like the rest of us) a nobody in this game: an inconsequential, low-stakes amateur without special knowledge or experience. If this were such an obvious good bet that even you could see it, why haven’t the real players snatched it up and pushed up its price?
Nate79 wrote: Thu May 26, 2022 7:41 am What do you know that the market professions do not know?
Doc and Nate, big-name investors will tell you that the alpha to be found in investing is in the small- and micro-cap companies that aren't worth big funds' time to invest in. A stock like this certainly fits that criterion. Compare this company with TSLA (at 95 P/E) and TWTR (at >100 P/E)—you own both of those if you own VTI. Both of those are down ~40% from their prices that the professionals determined via their "efficient market" a few months ago, and both are still priced to execute to perfection while issuing tons of stock-based comp to dilute your shares, and none has ever paid a dividend or done a buyback. Like it or not, you are betting (with 1.64% of your portfolio, in TSLA's case) that TSLA outperforms BRN going forward. So is it irresponsible for you to decide you'd rather put 1% of your portfolio in a company trading at 8 P/E that owns tangible real-estate and energy assets, has a third of its market cap in cash, and has more than its market cap in NOLs? It's not clear to me that you have the better end of that bet. Maybe these guys running Barnwell are total crooks and they'll never return money to shareholders, and maybe TSLA and TWTR will start doing buybacks and dividends in the near future. But I'm very skeptical of that, hence this thread.
mary1492
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Re: Barnwell Industries stock

Post by mary1492 »

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Last edited by mary1492 on Fri Sep 30, 2022 4:29 am, edited 1 time in total.
veggivet
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Re: Barnwell Industries stock

Post by veggivet »

The company's name sounds like one that George would have made up on Seinfeld. :happy
sureshoe
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Re: Barnwell Industries stock

Post by sureshoe »

scintillator wrote: Wed May 25, 2022 5:36 am I'm trying to figure out why a small investment of one's portfolio into something like Barnwell would have less upside than just VTI. Feel free to look up the data on BRN, but I'll give a brief synopsis:
Nitpicking your words, but only because it really matters.
Investing in single stocks usually has significantly MORE UPSIDE than investing in a broad index. It's the DOWNSIDE that kills you.

Think about Gamestop. If you bought it at $20, you say a 15x return at one point. It's virtually impossible a broad index would do that. You then saw a subsequent 60% decline while the market was trucking along. If you have large portions of your portfolio in something like this, you ride and die with the single company. If you own several, the ride is evened out. The index gets you greater stability.

The Efficient Market Theory talks about 2 types of risk:
Systemic Risk and Market Risk.
Whenever you invest, you're taking on "Market Risk" - that CANNOT be avoided, and that is where investors are "rewarded" for risk.
"Systemic Risk" is things that can be mitigated through diversification. Like Company Fraud or Bad Press Releases or whatever. You are NOT rewarded for "Systemic Risk" (or lack of diversification). What this means is that Barwell is PROBABLY going to have the same return as VTI. PROBABLY. But, it might be 5x better. It also might go to 0. Owning that single stock, you're taking on more risk, but have no reason to expect outsized returns over the long run.
So what am I missing on a stock like this? I can't find the compensation figures for the board (granted, I didn't try very hard)
Snipped all the details. They honestly don't matter unless you believe you can spot things the millions of other investors and professionals can't. I don't believe that's possible.
Doc and Nate, big-name investors will tell you that the alpha to be found in investing is in the small- and micro-cap companies that aren't worth big funds' time to invest in. A stock like this certainly fits that criterion.
The world is full of people willing to tell you they're smarter than everyone else and you should prove it with your money.
mega317
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Re: Barnwell Industries stock

Post by mega317 »

scintillator wrote: Fri May 27, 2022 5:53 am Doc and Nate, big-name investors will tell you that the alpha to be found in investing is in the small- and micro-cap companies that aren't worth big funds' time to invest in. A stock like this certainly fits that criterion. Compare this company with TSLA (at 95 P/E) and TWTR (at >100 P/E)—you own both of those if you own VTI. Both of those are down ~40% from their prices that the professionals determined via their "efficient market" a few months ago, and both are still priced to execute to perfection while issuing tons of stock-based comp to dilute your shares, and none has ever paid a dividend or done a buyback. Like it or not, you are betting (with 1.64% of your portfolio, in TSLA's case) that TSLA outperforms BRN going forward. So is it irresponsible for you to decide you'd rather put 1% of your portfolio in a company trading at 8 P/E that owns tangible real-estate and energy assets, has a third of its market cap in cash, and has more than its market cap in NOLs? It's not clear to me that you have the better end of that bet. Maybe these guys running Barnwell are total crooks and they'll never return money to shareholders, and maybe TSLA and TWTR will start doing buybacks and dividends in the near future. But I'm very skeptical of that, hence this thread.
It's clear OP is focused on upside and is not interested in thinking about or at least discussing downside. Not sure how many more responses will be required to expand the conversation, but it doesn't matter.

Also, 1% of your portfolio? Did you say that earlier? Who cares what you do with 1% of your portfolio. Send me a check, it will have equal impact on your retirement.
Doctor Rhythm
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Re: Barnwell Industries stock

Post by Doctor Rhythm »

1% of my portfolio regularly disappears on a typical trading day of late, so knock yourself out with this bet. Next time, though, if you think you know which stock will be hot, you’re not supposed to tell us about it until after you’ve bought it. :twisted:
Tellurius
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Re: Barnwell Industries stock

Post by Tellurius »

Are Doc and Nate the kind of people who convert "your money and our experience into our money and your experience"?
“And how shall I think of you?' He considered a moment and then laughed. 'Think of me with my nose in a book!” | ― Susanna Clarke, Jonathan Strange & Mr Norrell
Doctor Rhythm
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Re: Barnwell Industries stock

Post by Doctor Rhythm »

Tellurius wrote: Sat May 28, 2022 5:36 am Are Doc and Nate the kind of people who convert "your money and our experience into our money and your experience"?
I believe OP was addressing me and Nate79. That said, I’m happy to convert a finite sum of your money into invaluable experience.
Tellurius
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Re: Barnwell Industries stock

Post by Tellurius »

Doctor Rhythm wrote: Sat May 28, 2022 2:15 pm
Tellurius wrote: Sat May 28, 2022 5:36 am Are Doc and Nate the kind of people who convert "your money and our experience into our money and your experience"?
I believe OP was addressing me and Nate79. That said, I’m happy to convert a finite sum of your money into invaluable experience.
Haha, I’m sorry, I totally missed that. I thought he meant some professional investors. Sounds like a nice name for a newspaper column - Doc and Nate Teach Investing
“And how shall I think of you?' He considered a moment and then laughed. 'Think of me with my nose in a book!” | ― Susanna Clarke, Jonathan Strange & Mr Norrell
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Re: Barnwell Industries stock

Post by fisher0815 »

scintillator wrote: Wed May 25, 2022 5:36 am So what am I missing on a stock like this?
It's too much risk. It would be just luck to make money with this stock. The value of the stock has an extreme bandwidth, depending how the business will going forward. It's a cyclical business model.
And if it's really a bargain, it doesn't help you, when the market never realize it.

Don't try to pick stocks. Even Warren Buffett said in his 2013 annual letter: "The goal of the non-professional should not be to pick winners – neither he nor his “helpers” can do that – but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal."
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Re: Barnwell Industries stock

Post by David Jay »

nisiprius wrote: Wed May 25, 2022 6:00 pmI think potential upside for BRN is higher than the potential upside for VTI, but potential upside is not a good basis for decision. If potential upside is the rationale, note that the potential upside of a state lottery ticket is higher still.
This says it all. Potential upside is not an adequate metric.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
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quantAndHold
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Re: Barnwell Industries stock

Post by quantAndHold »

What do you know about this company that the person selling the stock to you doesn’t know?

It looks like a cyclical (oil) that’s currently trading at the higher end of its range. The company may be sitting on a lot of cash and assets, but they haven’t issued a dividend since 2008, and unless there’s an activist investor who convinces them to disgorge some of that cash, they will probably sit on the cash until the day they spend it themselves.

It isn’t a falling knife, but it’s a value stock that isn’t going anywhere, either.
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Re: Barnwell Industries stock

Post by financeperchance »

Looking at their recent SEC filings, I am concerned at the constant issuance of new shares to fund capital expenditures, which is diluting your share ownership. At the end of their FY2021 for example, share based compensation plus proceeds from issuance of stock were about $3.8 million. This represents 15% of the current market cap.

In the 6 months since then, the company has issued $2.8 million in shares, which represents 11% of the market cap. So this is 26% of the current market cap, issued as new shares in the past year and a half.

Is this dilution a concern for you, particularly when being done at such a low P/E level?
fisher0815
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Re: Barnwell Industries stock

Post by fisher0815 »

The P/E ratio is meaningless for cyclical companies. And often a low P/E could be a warning sign, that the company is on the top of a cycle. The price to book ratio makes more sense on cyclicals, but it also comes with flaws.
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Re: Barnwell Industries stock

Post by Tanelorn »

Nate79 wrote: Thu May 26, 2022 7:41 am What do you know that the market professions do not know?
Market professionals don’t look at $25M market cap stocks since they can’t invest a meaningful amount in them. You’re on your own when it comes to microcaps, for good or ill.
Tanelorn
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Re: Barnwell Industries stock

Post by Tanelorn »

financeperchance wrote: Sun May 29, 2022 10:27 am Looking at their recent SEC filings, I am concerned at the constant issuance of new shares to fund capital expenditures, which is diluting your share ownership. At the end of their FY2021 for example, share based compensation plus proceeds from issuance of stock were about $3.8 million. This represents 15% of the current market cap.

In the 6 months since then, the company has issued $2.8 million in shares, which represents 11% of the market cap. So this is 26% of the current market cap, issued as new shares in the past year and a half.

Is this dilution a concern for you, particularly when being done at such a low P/E level?
Good post.

In addition to the dilution, it also doesn’t bode well that the stock has been “promoted” by various shady stock touting services earlier this year. Caveat Emptor.
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