Thoughts on Westshore Terminals Investment Corporation

Disclosure: I own the stock. 

Westshore is the single busiest coal export terminal in North America. They have a good balance sheet, predictable earnings and a dominate leadership position in coal exporting, basically a monopoly. They are uniquely positioned to benefit from macro trends in coal, mainly involving China. They operate in a repulsive business, which I prefer; it's much cooler to invest in alternative energy and biofuels than dirty coal, but they don't make the steady cash like Westshore does. Growth comes from periodic equipment upgrades to handle larger volumes of coal over time - they did 2 upgrades this year which should lead to record volumes moved next year. The macro logic matches the company fundamentals.

Consider Denmark, one of the world leaders in clean energy and environmental conservation, yet over half of their power is still generated from coal burning power plants. There is also China and India which continue to grow and drive consumption on a grand scale. The logical thing would be to think that ‘coal is bad’ because it’s dirty, not good for the environment and has a negative stigma attached to it. However, reality says that coal is still widely used for generating electricity even in the more environmentally friendly countries and it continues to be the most economical means of feeding the power grid. It would be too easy to underestimate Westshore with the “coal is bad” type of approach but good investments tend to prove conventional wisdom wrong.

I would expect solar, wind and alternative sources of energy to become more prominent over the next 20 years, but coal will be there as well over the long term and Westshore Terminals will be a tremendous way to benefit from it.

I believe Westshore Terminals could be that great long term buy and hold stock. I wouldn’t expect any phenomenal returns, but the certainty of the business is what attracts me. No matter what, tomorrow people in China, India or anywhere else where coal is used, are going to turn their lights on, log on to the internet and use the power grid. There are cyclical elements that have to be considered and monitored, such as steel making coal, but all things considered I see there being a need for coal over the next 50-100 years. Westshore is basically an intermediary and benefactor of people turning their lights on every day – the Tollbooth of coal producing electricity.

Could I be wrong? It is possible that there could be a miraculous breakthrough in technology and economic feasibility for solar power. I think solar will be the future, but I don’t see any sudden changes on the horizon especially with the oil/ coal lobbyist contingency. If anything, cleaner forms of energy become a large part of our energy needs over time, along with a portion still coming from coal. There doesn’t even have to be tremendous growth in coal consumption for Westshore to continue to thrive. They are uniquely positioned to benefit from a low growth industry.

I don’t like to focus on numbers. I’m not any good at math. As long as the basic fundamentals are met (good balance sheet, low debt, steady long term earnings), I prefer to think about a business in a logical, objective way. I like to ask myself, ‘Do I think this business will still be thriving in 20 years?’, ‘What makes this business special?’, ‘Do I easily understand how this business will make money over the next 20 years?’ With Westshore, I can confidently answer those questions with a great deal of certainty, which is why I have a position.