Make Big Oil Pay You… By Becoming Their Landlord!
Welcome to the booming Permian Basin, located six hours west of Dallas, Texas.
If you have a pulse and a driver’s license, you can make $100,000 per year here.
The Permian is home to what is by far the most active oil field on the planet — a basin that the oil industry is drilling so many horizontal holes into that you would swear they are trying to turn it into Swiss cheese.
Oil producers have turned this dusty, desert landscape into one giant industrial park. Tiny little towns that were previously almost asleep are now exploding with activity.
But the Permian is not just the largest oil basin in the world, it is also by far the most profitable (and least risky) place to drill for oil.
Horizontal drilling has unlocked billions of barrels of Permian oil and there are decades of wells left to be drilled.
And these wells of course can’t drill themselves. It takes a lot of manpower to keep the Permian engine running at the current speed.
Midland-Odessa is the heart of the Permian. Last year it had the fastest job growth in the country and one of the lowest unemployment rates at 2.3%.1
With $100,000 jobs plentiful, workers have been flocking to the Permian in droves, which has created a problem…
There isn’t enough space for all these people!
As a result, there are four- to five-month waiting lists for apartments.
An RV spot can run you up to $800 per night.
A one-bedroom apartment is typically renting for $1,500 per month.
We are talking about windfall-like profits for Permian landlords.
So why not become one?
Our Way to Profit — Target Hospitality (TH)
To profit like a Permian landlord, we aren’t going to buy a house in the Permian… nor would we want to with how property prices in the region have skyrocketed.
A much better option are the very attractively priced shares of Target Hospitality (TH).
Target Hospitality is the single largest vertically integrated rental and hospitality services company in the United States.
What that means is that the company is in the business of providing work camps for employees of Target’s customers to live in.
These work camps are first-class. We’re talking about shiny and clean modular homes equipped with restaurants, entertainment, fitness facilities, security and much more.
In total, the company has 22 different relocatable sites that contain over 13,000 beds. More than 10,000 of those beds are located in the Permian, where the company continues to grow quickly.
The economics of this business are excellent for Target. After incurring the up-front cost of building out the work-site, there is very little maintenance spending required by the company.
That means the business generates lots of high-margin cash flow.
The business is also a winner for Target’s oil producer customers. It takes away the major headache of constantly scrambling to find accommodations for workers and does so with a guaranteed level of quality and cost certainty.
Why This Stock is Cheap — An Underfollowed SPAC
Despite sitting in the sweet spot of the Permian, shares of Target Hospitality are currently surprisingly cheap.
The reason for that is the company has just freshly commenced trading as a public company.
The way that Target came public was through a SPAC (Special Purpose Acquisition Corp).
SPACs are commonly referred to as “blank check” companies.
You don’t need to understand the mechanics of a SPAC. What you need to understand is that institutional investors for the most part can’t own them.
But now that this business is trading as Target Hospitality, the institutions can.
That means there is going to be A LOT more money chasing shares of Target Hospitality in the coming weeks and months.
When that happens, the share price is going to head higher.
Today though, Target shares are surprisingly inexpensive relative to the enviable position of the business.
Management just revised EBITDA (which is basically cash flow from business operations) guidance for this year up to $180 million. At the current share price that means Target Hospitality is trading for just 7 times EBITDA versus the 11-12 times EBITDA that similar companies trade at.
Once the institutions start gobbling up shares of this Permian Basin housing provider, it’s not hard to see upside of at least 60% from the current price — with more to follow in the years to come as the business continues to grow.
So what do you say… Want to become a Permian Basin landlord?
Here’s to looking through the windshield,
Financial Analyst, The Daily Edge