PBF Energy: An Even Better Capital Gain Prospect Than Chesapeake

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This article’s superior attraction is connected PBF Energy Inc. (NYSE:PBF).

Investment Thesis

We look to nan hedging actions of Market-Makers to protect their at-risk superior endangerment required by nan automation achieved by markets successful serving a continuing travel of individual investor mini trades while besides accomplishing irregular huge-value “institutional” transactions.

The pricing and building of specified hedges uncover nan coming-price expectations of some nan MM protection-buyers and that of nan MM manufacture protection-sellers.

Our comparison of Chesapeake Energy Corporation (CHK) pinch PBF Energy Inc. is prompted by their currently-attractive banal pricings coupled by ample followings of Seeking Alpha readers.

Descriptions of nan Subject Companies’ Activities

“Chesapeake Energy Corporation, an independent exploration and accumulation company, engages successful nan acquisition, exploration, and improvement of properties for nan accumulation of oil, earthy gas, and earthy state liquids from underground reservoirs successful nan United States. The institution holds interests successful earthy state assets plays successful nan Marcellus Shale successful nan bluish Appalachian Basin successful Pennsylvania and nan Haynesville/Bossier Shales successful northwestern Louisiana; and nan liquids-rich assets play successful nan Eagle Ford Shale successful South Texas. As of December 31, 2021, it owned interests successful astir 8,200 gross productive wells, including 6,500 wells pinch moving liking and 1,700 wells pinch an overriding aliases royalty interest; and had estimated proved reserves of 661 cardinal barrels of lipid equivalent. The institution was founded successful 1989 and is headquartered successful Oklahoma City, Oklahoma.”

“PBF Energy Inc., together pinch its subsidiaries, engages successful refining and supplying petroleum products. The institution operates successful 2 segments, Refining and Logistics. The institution sells its products successful Northeast, Midwest, Gulf Coast, and West Coast of nan United States, arsenic good arsenic successful different regions of nan United States, Canada, and Mexico. It besides offers various rail, truck, and marine terminaling services, arsenic good arsenic pipeline proscription and retention services. As of December 31, 2021, nan institution owned and operated six lipid refineries and related assets. PBF Energy Inc. was founded successful 2008 and is based successful Parsippany, New Jersey.”

Source: Yahoo Finance.

Yahoo Finance

Yahoo Finance

These maturation estimates person been made by and are collected from Wall Street analysts to propose what accepted methodology presently produces. Here location was ample expert coverage. The emblematic variations crossed forecast horizons of different clip periods exemplify nan trouble of making worth comparisons erstwhile nan forecast sky is not intelligibly defined.

A main quality betwixt Active and Passive Investment Portfolio guidance strategies is successful really clip is utilized successful dealing pinch nan trade-offs betwixt Risk and Reward.

The traditional, wide utilized and advocated passive strategy is “Buy & Hold” wherever multi-year (even decades) forecast clip horizons are encouraged. This worked passably-well successful nan 20th period erstwhile nan USA ran nan competitory rules of nan world pursuing its triumph successful World War Two.

But has not proven truthful beneficial successful this 21st period arsenic technological advances person sped up rates of alteration successful galore aspects of Global competition. Retirements built connected buys of IBM, GE, PRD, EK, GM and respective others won risks alternatively than rewards erstwhile held, not actively sold for replacement pinch amended competitory choices. Those mislaid dollars were accompanied by mislaid years which could ne'er beryllium re-earned.

Risk~Reward Comparisons of Portfolio Investment Candidates

Figure 1

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(Used pinch anterior permission.)

The trade-offs present are betwixt near-term upside value gains (green horizontal scale) seen worthy protecting against by Market-makers pinch short positions successful each of nan stocks, and nan anterior existent value draw-downs knowledgeable during holdings of those stocks (red vertical scale). Both scales are of percent alteration from zero to 25%. More favorable relationships are located down and to nan right.

The intersection of those coordinates by nan numbered positions is identified by nan banal symbols successful nan bluish section to nan right.

The dotted diagonal statement marks nan points of adjacent upside value alteration forecasts derived from Market-Maker [MM] hedging actions and nan existent worst-case value draw-downs from positions that could person been taken pursuing anterior MM forecasts for illustration today's.

Our main interests are successful CHK astatine location [4] and PBF astatine [12]. A "market index" norm of reward~risk trade-offs is offered by SPDR S&P500 scale ETF astatine [6] successful unusually mediocre competitory marketplace circumstances.

Those forecasts are implied by nan self-protective behaviors of MMs who must usually put patient superior astatine impermanent consequence to equilibrium purchaser and seller interests successful helping big-money portfolio managers make measurement adjustments to multi-billion-dollar portfolios. The protective actions taken pinch real-money bets further specify regular nan grade of apt expected value changes for thousands of stocks and ETFs.

This representation is simply a bully starting point, but it tin only screen immoderate of nan finance characteristics that often should power an investor's prime of wherever to put his/her superior to work. The array successful Figure 2 covers nan supra considerations and respective others.

Comparing Alternative Investments

Figure 2

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(Used pinch permission.)

Column headers for Figure 2 specify elements for each statement banal whose awesome appears astatine nan near successful file [A]. The elements are derived aliases calculated separately for each stock, based connected nan specifics of its business and current-day MM price-range forecasts. Data successful reddish numerals are negative, usually undesirable to “long” holding positions. Table cells pinch pinkish inheritance “fills” opposition CHK attributes of value pinch those of PBF instantly above. Yellow fills are of information for PBF, nan banal of main interest, and of each issues astatine nan ranking column, [R].

Readers acquainted pinch our study methods whitethorn wish to skip to nan adjacent conception viewing value scope forecast trends for CHK and for PBF.

Figure 2’s intent is to effort universally comparable answers, banal by stock, of: a) How BIG nan value summation payoff whitethorn be; b) really LIKELY nan payoff will beryllium a profitable experience; c) really SOON it whitethorn happen; and d) what value draw-down RISK whitethorn beryllium encountered during its holding period.

The price-range forecast limits of columns [B] and [C] get defined by MM hedging actions taken to protect patient superior required to beryllium put astatine consequence of value changes from measurement waste and acquisition orders placed by big-$ "institutional" clients.

[E] measures imaginable upside risks for MM short positions created to capable specified orders, and reward potentials for nan buy-side positions truthful created. Prior forecasts for illustration nan coming supply a history of relevant value draw-down risks for buyers. The astir terrible ones really encountered are successful [F], during holding periods successful effort to scope [E] gains. Those are wherever buyers are astir apt to judge losses.

[H] tells what proportionality of nan [L] sample of anterior for illustration forecasts person earned gains by either having value scope its [B] target aliases beryllium supra its [D] introduction costs astatine nan extremity of a 3-month max-patience holding play limit. [ I ] gives nan nett gains-losses of those [L] experiences and [N] suggests really reliable [E] whitethorn beryllium compared to [ I ].

Further Reward~Risk trade-offs impact utilizing nan [H] likelihood for gains pinch nan 100 - H nonaccomplishment likelihood arsenic weights for N-conditioned [E] and for [F], for a combined-return people [Q]. The emblematic position holding play [J] connected [Q] provides a figure of merit [fom] ranking measurement [R] useful successful portfolio position preferencing. Figure 2 is row-ranked connected [R] among campaigner securities, pinch PBF yellow-row identified.

The cardinal facet of attraction successful favour of PBF successful comparison pinch CHK is file [J] which tells nan mean holding periods (in marketplace days) of each banal identified successful nan past 5 years erstwhile anterior balances betwixt [E] and [F] were for illustration what they are today. The quality of PBF’s 23 marketplace days to CHK’s 47 is only half arsenic agelong a superior committedness astatine consequence and unavailable for productive finance elsewhere. (btw-- In marketplace days a almanac period is only 21 days long.)

For immoderate payoff is progressive successful immoderate position, that benignant of clip quality efficaciously doubles nan productive powerfulness of nan superior committed. The [I] of PBF astatine +14% becomes for illustration +28% earned connected superior successful comparison to CHK’s +20% payoff realization. The effect of this operational leverage is magnified by “compounding” arsenic nan wave of its re-commitment is multiplied. This is suggested successful Figure 2 arsenic CAGR yearly rates of reward pinch PBF astatine +324% and CHK astatine +160%.

That effect becomes evident successful [R] erstwhile some clip and profitability likelihood [H] enactment to effect comparisons for each nan stocks successful Figure 2. Now PBF becomes nan most-favored capital-building campaigner for portfolio involvement.

Along pinch nan candidate-specific stocks these action considerations are provided for nan averages of complete 3000 stocks for which MM price-range forecasts are disposable today, and 20 of nan best-ranked (by fom) of those forecasts, arsenic good arsenic nan forecast for S&P 500 Index ETF (SPY) arsenic an equity marketplace proxy.

Recent Trends successful MM Price-Range Forecasts for CHK, PBF

Figure 3

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(Used pinch permission.)

This image is not a “technical chart” of past prices for CHK. Instead, it is nan past 6 months of regular price scope forecasts of marketplace actions yet to come successful nan adjacent fewer months. The only past accusation location is nan closing banal value connected nan time of each forecast.

That information splits nan value range’s other forecasts into upside and downside prospects. Their trends complete clip supply further insights into coming potentials, and helps support position connected what whitethorn beryllium coming.

The mini image astatine nan bottommost of Figure 3 is simply a frequency distribution of nan Range Index’s quality regular during nan past 5 years of regular forecasts. The Range Index [RI] tells really overmuch nan downside of nan forecast scope occupies of that percent of nan full scope each day, and its wave suggests what whitethorn look “normal” for that stock, successful nan expectations of its evaluators’ eyes.

Here nan coming level is adjacent its slightest frequent, lowest-cost presence, encouraging nan acceptance that we are looking astatine a realistic information for CHK. With astir each past RIs supra than beneath nan coming RI location is much room for an moreover much affirmative outlook.

Figure 4

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(Used pinch permission.)

Figure 4 helps make PBF’s value volatility and wider value scope (Figure 2, file [S] of 46% vs. 23%) a recognized portion of nan price-forecasting analysis. They are incorporated successful nan [R] fom measures successful nan effort to make realistic comparisons of what to expect betwixt each of these finance alternatives.

Conclusion

Among these replacement investments explicitly compared, PBF Energy Inc. appears to beryllium a logical bargain penchant now for investors seeking near-term superior gains.

The attractiveness of CHK remains un-sullied successful comparison to each nan different candidates.

Peter Way Associates provides regular updated, near-term (3-month) value scope forecasts for complete 2,500 widely-held and actively-traded stocks, ETFs and marketplace Indexes. Comprehensive results are disposable connected nan SA blog of my name.__These forecasts are derived from nan measurement marketplace professionals protect their ain superior placed astatine consequence while helping big-money portfolio managers set their holdings successful multi-million-dollar "block" transactions.__ They cannot beryllium recovered elsewhere.__Having these price-change prospects disposable connected a continuous ground encourages individual investors to actively and economically build up nan values of their ain smaller portfolios. PWA only provides accusation for individual investors; it nary longer manages investments for others.__Rates of portfolio superior maturation being achieved by subscribers are astatine MULTIPLES of nan maturation successful marketplace averages, owed to nan businesslike usage of holding play clip and nan compounding of gains a number of times each year.__Risks of superior nonaccomplishment are protected against by insightful action guidance and holding-period-limit disciplines. The advantages of bully action and observant timing amply screen a overmuch smaller information of unavoidable losses.__These Market-maker forecasts person respective decades of demonstrated productivity. Earlier successful nan 20th period they were utilized by ample organization portfolios, and now successful nan 21st period they are disposable only to individual investor wealth-building portfolios. Thousands of day-by-day identifications of circumstantial securities having consistent, odds-on profitable results norm retired immoderate likelihood of their exceptional outcomes being owed to chance. Peter F. Way is simply a seasoned Chartered Financial Analyst, having taken and passed nan CFA Institute’s required 3 examinations successful nan first years they were given, 50+ years ago. Armed pinch BS successful Economics from nan Wharton School and an MBA grade from Harvard Business School, he has managed staffs of dozens of Investment Researchers and Quantitative Analysts for nan nation’s largest bank, arbitraged scale options for NYSE Specialists, and managed portfolios of hundred-million-dollar equity investments for Fortune 100 firm pension costs and non-profit endowments. He has been elected President of master Investment Analyst Societies successful San Diego and New York City and has served connected nan editorial boards of nan Financial Analysts Journal and nan CFA Digest.