Energy & Elections

We don't intend to dive into politics or political forecasting, but we can say that the election of a potential Republican administration would likely benefit the coal industry, and Westmoreland Coal WLB in particular, by slowing/stopping EPA clean air and climate change-related rules. (We have a Buy rating on WLB.) Any improvement in the regulatory environment will immediately affect the power generation sector, and Westmoreland would enjoy secondary benefits. If utility companies have more flexibility in carbon emissions, they'll slow or even stop the closure of coal-fired power plants. For Westmoreland, the ideal situation would be a federal offer to support investment in emission-scrubbing technology that reduces carbon output and extends the life of existing coal-fired plants. That would be a win-win opportunity for coal companies and green activists, something we rarely see. Westmoreland would obviously be poised for success if the problem of carbon emissions was mitigated by federal government efforts. Clean coal technology, and its widespread acceptance, is the Holy Grail of the industry.

On the other hand, Westmoreland is unlikely to enjoy support from either a Clinton or Sanders administration. Secretary Clinton has made it clear that she'd like to bankrupt the remaining coal companies, but we wonder one question: Is she willing to accept rolling blackouts to get her wish? Again, we're not trying to be political here. It's just a fact of economics that replacing base-load coal-fired power generation in America would be exceedingly expensive and would take years to accomplish. If coal usage was eliminated before the replacement of coal-fired power plants with other sources of energy, this nation's lights wouldn't stay on 24/7. Still, a President Clinton could pressure Westmoreland's top and bottom lines without bankrupting the corporation. That is indeed a political/macro risk. Either she or Senator Sanders would almost certainly continue Obama policies that have weighed on the coal sector. Investments in subsidized wind and solar energy directly undercut the demand for coal. Right now, coal is burned because it's affordable and efficient. Subsidized wind and solar power generation wouldn't cost consumers directly, and windmills and solar panels are seen as the "clean" options. Thus, given a choice between coal and wind/solar power for the same price, consumers would choose the latter. The only common complaint about windmills and solar panels is the Not-In-My-Back-Yard (NIMBY) issue. Almost nobody wants to look at a wind/solar farm from his/her home! Finding suitable environmentally-practical and publicly-acceptable locations for clean energy developments can thus be difficult. By contrast, coal-fired power plants have already been constructed. NIMBY aside, a Democratic administration wouldn't be good news for Westmoreland.

Lumps of coal

We believe that Westmoreland Coal shares remain unnecessarily undervalued because of the company's name: It includes the word "Coal." These days, those four letters represent a burden for a coal business all by themselves. From a financial viewpoint, Westmoreland is also somewhat risky. The company's deleveraging cycle is just beginning, and the coal industry is obviously not the best sector for growth. We think that Westmoreland would be the last major coal company to survive any future political campaign against coal. The firm's sales to base-load power producers offer a degree of security not enjoyed by competitors. In addition, Westmoreland's mine-mouth operations can't be beaten on price. For investors and portfolio managers, Westmoreland's stock represents a solid value/contrarian opportunity. 
It's important to understand that the major bankrupt U.S. coal mining businesses (Alpha Natural Resources, Arch Coal, James River Coal, Peabody Energy and Walter Energy) shared two key similarities but are unlike Westmoreland Coal:

  1. Failed mergers/acquisitions. We'll use Alpha Natural Resources as an example. Alpha Natural Resources purchased Massey Energy in 2011 for $7.1B in cash and stock. At the time, Massey was hemorrhaging cash in the middle of the last great coal boom, a period when losing money in coal was a very difficult feat to "accomplish." Some of Massey's losses can be attributed to the company's expenditures related to the Upper Big Branch mine disaster, but the business was also poorly-managed. We'd call Massey a generally backward company headed toward bankruptcy by the end of 2010. In bankruptcy, Alpha Natural Resources could have acquired the best Massey mines for almost nothing without assuming Massey's debts and legal liabilities. Instead, Alpha paid $7.1B for the pleasure of being sucked under due to a terrible acquisition. By the time of Alpha's own 2015 bankruptcy, most of the ex-Massey mines were closed. Operational inefficiencies and further safety concerns ensured that the Massey deal would be a failure.
  2. Market-based contracts. All of the bankrupt coal companies cited above utilized market-based pricing. Contracts were typically short-term, and much of the coal was sold on the spot market. This business model is very profitable during periods of rising coal prices, but losses will be magnified during times of low coal prices. The only way to succeed long-term with this risky sales and pricing strategy is to have absolutely no debt and unusually flexible operations. Unfortunately for the companies cited above, neither of these conditions applied. They were all inflexible, debt-laden businesses doomed to bankruptcy as soon as their boards signed off on the unwise M&A deals.

By contrast, 90% of Westmoreland Coal's tonnage is sold under cost-protected contracts. Most of these customers' contracts don't expire for years, and the other customers are being contacted to discuss fresh deals. A few of the power generation units currently supplied by Westmoreland will be closed in the next couple of years, but Westmoreland has time to find new buyers for that coal or to slightly reduce production capacity. The 13.8M tons of coal that Westmoreland sold in 1Q16 represents neither the bare minimum tonnage necessary to support the business nor the maximum available capacity. Unlike many coal companies, Westmoreland has some flexibility to adjust production without closing mines or heavily increasing capital expenditures. The mine-mouth surface operations preferred by Westmoreland executives are easier to adapt than traditional underground mines.

In summary, Westmoreland faces many obstacles in the future. Some of these obstacles represent legitimate business threats, including additional increases in burdensome power plant emission regulations that directly affect the demand for coal. Other obstacles for Westmoreland are based in market psychology and the tendency for investors to punish every company in a sector for the financial sins of the majority. Westmoreland isn't similar to most other coal companies, but the firm will face intense scrutiny because it's in a terrible sector of the market. Market psychology has evolved to see coal as yesterday's energy source, and traders treat coal companies as businesses unworthy of investment. Unlike buggy whip manufacturers, though, there remains significant demand for coal. The U.S. is likely to generate at least 30% of the country's electricity supply for the foreseeable future. In addition, new steel production still requires metallurgical coal in most situations. Thus, the need for coal isn't going away. Companies like Westmoreland that have stable cash flows and generally efficient operations are much better prepared to succeed in the contemporary environment than massive, highly-leveraged businesses like pre-bankruptcy Arch Coal and Alpha Natural Resources. The company's future profits also hinge on the political situation in Washington D.C. We have no idea which presidential candidate would be the best or the worst for the coal industry, but we do believe that another Democratic administration would be a negative for Westmoreland's stock price. On the contrary, the election of a Republican administration would be a good sign for Westmoreland and other coal companies. Time will tell who wins the White House but until then, we suggest cautiously buying Westmoreland's shares.

Why We Don't Guess

Here at Forward View, we love data and quantitative models. (Our founder's wonderful math teacher is hopefully smiling right now.) Why are we so attached to numbers? We don't guess. Our work is based on detailed and repeatable methodologies, especially on the research side of the firm. By creating formalized, data-driven procedures, your business can also develop a structure for growth. Let's explain with a couple of examples.

Recently, we presented a valuation of Big 5 Sporting Goods in our initiation report on the stock. As a part of the rigorous mathematical analysis, we calculated the company's value and its cost of financial capital. See below.

Modeling technology courtesy of

Immediately after we published the research, somebody complained, "That WACC [weighted average cost of capital] is quite whack." We asked what type of calculations the complainer would use to determine the cost of capital. The response: "Probably a standard 8, 10, or 12 depending on the firm's risk profile." In essence, he would guess and assume that every company is paying 8%, 10% or 12% for its financing. Assuming that he's correct, Big 5 Sporting Goods, a profitable retailer with 438 stores, would have a negative value. In essence, the business would be bankrupt. We know that's absolutely absurd. When you guess, though, everything goes awry.

One other point worth making is that we would use the same financial modeling process to compute the value of a family-owned restaurant as we would to perform a $100 billion corporate valuation. Other than adjustments for accounting policies and the number of business units in a major corporation, the restaurant and corporate spreadsheets would look alike. We believe that an academically-justified and real-world-tested financial model should be applicable to any company.

By developing flexible, yet defined, business procedures, you can save yourself an incredible amount of time! If, on the other hand, a new process must be created for every budget, forecast, investment or decision, you'll never be able to grow. New employees must enter an organization with a culture of success and proven methods for achieving goals. Creating useful business processes and supporting databases/documents will take time. They should also be refined as your firm changes. Still, there's no excuse for guessing in business!

News from April

We're very happy to have finished the new Town of Clintwood website in April. Click here to see it. Forward View appreciates Mayor Donald Baker and the Town Council for entrusting us with this project. The Clintwood website is so popular that we've been asked to develop a fresh digital presence for another town landmark... the Ralph Stanley Museum! Our team has already begun the museum website planning process, and we're looking forward to presenting a successful design to the public. If you're interested in having Forward View develop your organization's website this summer, please contact us now before our project pipeline is filled. We have room left on the calendar for a few logo design jobs, too.

The Forward View research team initiated formal coverage of Dick's Sporting Goods in April, and we'll initiate on three more companies in May. Look for reports on Sportsman's Warehouse, Hibbett Sports and one other sporting goods firm this month. (We'll keep the third company a secret for now.) We have decided to publicly share the Dick's Sporting Goods initiation report as a way to demonstrate the value of our Sporting Goods Monitor research product.

In May, our equity research clients will be receiving 1Q16 earnings analyses as well as other updates and investment ideas. 68% of our trading calls have generated profits for our clients and readers, so you can trust the quality of Forward View research. One recommendation would have earned you 54.4% this year alone.

Look for us in the news and online in May! Remember that Small Business Week is May 1–7! We'll be engaged with small biz facts, tips and offers all week, so follow us on social media...

Sporting Goods Conversations

This week, I've spoken with the Director of IR for Dick's Sporting Goods (DKS), Nate Gilch, and the CFO of Sportsman's Warehouse (SPWH), Kevan Talbot. Clients have received the notes from the discussions, and you can read them, too, with a trial of the Sporting Goods Monitor research product here on Harvest. Most importantly, these conversations delved deeply into the state of the sporting goods retail sector and its competitive pressures. Where Dick's sees an opportunity to steal market share from the bankrupt Sports Authority, Sportsman's Warehouse is focused on beating the Mom & Pop hunting and fishing retailers. Sportsman's Warehouse doesn't work to best Cabela's (CAB) with destination stores and giant aquariums. Instead, they're all about low prices. Meanwhile, Dick's is trying to elevate the in-store experience, especially with footwear. These two companies are thus pursuing different paths to success in the sporting goods industry. (I'll note, though, that Dick's Sporting Goods only competes directly against Sportsman's Warehouse with the company's Field & Stream brand.)

Initiation reports coming soon!

Proverbial Guidance

When I was initially thinking about opening Forward View, I happened to read a devotional centered on Proverbs 24:3. (See the text below.) After reading this verse, I copied it to my computer for further contemplation. As Forward View began to take shape, I realized that this Proverb essentially described my ideal business. Let me break it down in detail.

Any enterprise is built by wise planning, becomes strong through common sense, and profits wonderfully by keeping abreast of the facts.
— Proverbs 24:3 LB

First of all, Proverbs 24:3 notes that it relates to "any enterprise," not just large businesses, religious organizations or family farms. This Proverb provides universal advice, and that guidance is appropriate for any venture, including Forward View. Secondly, the Proverb states that an enterprise is "built by wise planning." I think the entire Forward View team is dedicated to effective planning. We don't jump into much of anything without having looked ahead. There are very rare occasions when a sudden opportunity or business risk requires an immediate decision, but, 99% of the time, we've taken time to map out future projects, new research methods and fresh strategies. Thus far, Forward View has been built by (hopefully) wise planning.

Proverbs 24:3 also says that an enterprise "becomes strong through common sense." In our complex consulting and research projects, I can admittedly become too immersed in data, math and technology to focus on common sense. That's a mistake because common sense is terribly lacking in business, particularly on Wall Street. (Ask a child if you can squeeze junk together and suddenly have gold. "No!" he/she will yell. Believe it or not, that child has just identified the problem with the collateralized debt obligations that sank the economy in 2007–8.) It's very easy to become overloaded by information in the 21st century, but this Proverb reminds us to step back and ask ourselves, "Does this make sense?" Forward View team members do a great job of using common sense to solve problems, especially when I don't.

Finally, let's focus on the last section of this Proverb, which declares that any enterprise "profits wonderfully by keeping abreast of the facts." Notice that the final word is "facts," not "popular opinion" or "generally-held beliefs." To keep abreast of the facts, Forward View team members gather information from trustworthy sources and engage in our own research. We use facts when creating relevant content for client websites and in our equity research reports. Our willingness to track down information and develop novel sources of facts is, I believe, one of Forward View's greatest strengths. You'd be amazed at how much competitors rely on guessing!

In closing, Forward View was developed to satisfy Proverbs 24:3. We're not perfect, but, overall, I think we successfully follow the Proverb's key elements and words of wisdom. The verse is just as appropriate today as it was 2,000+ years ago!

March News

In March, we initiated the next stage of our growth on the research side of the business. We officially launched the Sporting Goods Monitor research product, and we're pleased to announce that our distribution system has been upgraded with new technology from Harvest. We're one of the first research firms anywhere on Earth to publish research through the incredible Harvest platform, so we're also offering anybody a free three-week trial of the Sporting Goods Monitor. Our initiation report on Big 5 Sporting Goods was just published, and we're finishing up our analysis of Dick's Sporting Goods! On the consulting side of Forward View, we've completed the new website and logo design for Assistive Technology for Education. It's an utterly beautiful website if we do say so ourselves, and team member Jamie Brown truly outdid herself. In addition, the new Town of Clintwood website will be live any day now. You're going to love our take on the digital representation of Small Town USA. Our founder's photos are prevalent on the town's website, too. The Facebook page we created for Clintwood offers a preview of the town website:

Speaking of Facebook, Forward View now has our own company Facebook page: Hurry up and like us for small business insights, stock market commentary and news from Forward View! We promise to never post cat videos, though. Seriously, we have nothing against cats but find the cat video industry too competitive for our efforts to thrive.

Happy April to you!

$0 Small Business Digital Marketing Strategy


Small businesses aren't typically blessed with large promotional budgets, but marketing your company doesn't need to be expensive. In fact, we've created a $0 digital marketing strategy that's adaptable to almost any small business's needs. With our flexible and fee-free plan, you can overhaul your marketing without spending a penny. We'll lay out our guide in five easy steps that you can begin utilizing today!

Step #1: Get on social media

If your small business has no social media pages, you need to begin building your presence as soon as you finish reading this newsletter. In today's world, digital communication is increasingly happening on social media, and companies that don't reach customers (and potential customers) through social media are missing huge opportunities. Ad Week's Shea Bennett notes that 67% of Americans age 12 and older currently use social media.

The good news for small businesses is that social media pages cost nothing to build, but the key isn't to create a dozen social media profiles and never update them. In fact, that's almost as bad as having no profiles at all! Why? People may question the status/quality of a business with outdated pages. Instead of abandoning social media after you create profiles, follow our Social Media Marketing 101 advice. Now, get posting!

Step #2: Create a blog

We know that the joke today is that everybody and their cat is running a blog, but there's a reason people love to blog: exposure! Blogging also creates productive conversations, both online and offline. A free blog on Blogger orWordPress can even serve as a temporary website for your business, although we do suggest having a website designed for your company by Forward View when it's feasible.The key to blogging is to regularly create engaging posts and to share them on social media. Blogs and social media fit together like peanut butter and bread, so use both communication mediums to support each other for maximum benefits. Remember that your blog shouldn't read like a blatant ad for your business. Instead, focus on industry developments, community insights and an occasional news update from your company.

Step #3: Publish a newsletter (like this one!)

MailChimp is a fantastic, and free newsletter service. We absolutely love everything about MailChimp, and our email subscribers frequently comment on the quality of our newsletter. Creating your own newsletter template in MailChimp shouldn't take more than a few hours, but developing regular communication with your business network is exceedingly vital. Like your blog, don't use your newsletter to send tons of ads for your company. The 80/20 rule is appropriate for newsletters: Publish interesting content 80% of the time and direct marketing appeals 20% of the time. If you reverse those numbers, expect to see lots of unsubscribe notices!

Step #4: Control your online presence

If you have any business, try running its name through search engines. Many companies like YelpGoogle and TripAdvisor will let you claim your business page and update it with custom content for free. These pages will then appear on search engines and apps. Add pictures, your own marketing pitch and contact information to create a nice profile on the relevant websites. If you have a restaurant, don't forget to add your menu! Respond to online reviews of your business, too. Yes, even the (obviously untrue) negative reviews deserve a reply!

Step #5: Generate free publicity and media love

This is the final, and most challenging, step of our guide, but success in Step #5 will elevate your marketing strategy to a higher level. We suggest contacting members of your local media organizations and offering to subscribe them to your newsletter. Ask if you could even be an expert industry source for them. Generating positive press is better than advertising because TV/radio commercials are often ignored by the public. For national exposure, contact HARO and sign up to be a source for reporters across the country. We've we've had good success with HARO and have made Forward View known to readers of top-shelf publications like Forbes. Even one quote in a leading newspaper, website or magazine can provide new opportunities for your business!


In closing, marketing your company need not be expensive. By investing a little time and effort into developing a no-budget publicity strategy, you can grow your firm's market share. The internet offers great benefits for free advertising and communication with customers. By utilizing social media, email, blogs and media organizations, your small business can expand beyond all expectations!

February News

February was an exciting month for Forward View. First of all, we're happy to announce that Fred Campbell has joined us as a research analyst. Fred is a wonderful asset to our business, and we're excited to have him aboard. Now that we have a larger team, we can begin offering our newest product, the Sporting Goods Monitor! This research service will provide complete coverage of the sporting goods value chain and every key company in the industry. This is our unique niche, and all of the stocks covered in the Sporting Goods Monitor will be analyzed using the Forward View valuation model. Even if you don't especially care about the sporting goods sector, you'll benefit from our accurate forecasts on almost twenty newly-covered stocks. The Sporting Goods Monitor will be available only to institutional investors, and we'll cap the number of subscribers at fifty in order to create an exclusive group of clients.

On the consulting side of Forward View, we're currently finishing two major projects and have also begun to upgrade a new client's website. In February, we also put the SamShines site online. It's a pleasure to reveal that design to the public. Four of our team members contributed to the SamShines project!

Finally, Forward View enjoyed significant media coverage in January and February. The co-founder of Thinknum (a Forward View business partner) referenced our research on Cabela's in this Bloomberg Radio interview. Benzinga also discussed our Cabela's earnings analysis in this article, as did Paige Yowell of the Omaha World-Herald in this report and this update. Our research on Joy Global and Westmoreland Coal was also cited online.

We wish you a successful March ahead!