Josh Young Finds Value in Oil and Gas E&Ps

Josh Young, a portfolio manager with Los Angeles, California-based Young Capital Management, is a value investor on the hunt for undervalued companies in the oil and gas space. He launched his fund in September, has earned enticing returns so far, and in this exclusive interview with The Energy Report, discusses some of his hedge fund’s equity holdings that are poised to get some love in the market.

We’re focused on oil and gas investments, and we make those investments generally through oil and gas (O&G) equities. We focus on companies that are generally under-followed and find companies that are trading at a big discount to their intrinsic value, with identifiable catalysts that are going to unlock that value.

On the short side, we find companies with some sort of fraudulent reporting or with very high valuations that are in fundamentally challenging situations that they are unlikely to work out.

Yes, I am philosophically a value investor. I focus on the oil and gas space because there’s a lot of volatility and there are lots of changes and catalysts. With the right approach to managing the commodity risk, there are regularly opportunities to generate significant returns and invest at the sort of discount to intrinsic value that can’t be found in other sectors these days because there’s so much investment competition.

You mentioned that you buy companies that are trading at a large discount to their intrinsic value and that have identifiable catalysts for further growth. Do you have much trouble finding those companies in the energy space? And what are some catalysts you like to see?

The opportunities are there, but it takes a rigorous investment process to exploit them. It’s an incredibly labor-intensive process to identify those companies, research them and make sure they are, in fact, undervalued and that the market is missing something. The risk-adjusted returns from this space, and that I’ve generated running the strategy, justify the effort.
I identify catalysts as a part of my investment process. I look for companies that have already announced that they’re going to sell assets or that they’re going to do an equity raise that will help them finance substantial growth. Those are some examples of catalysts.