Tsakos Energy Navigation Ltd. (TNP)

Saw BullishBabo green thumb this one and started investigating. Looks like a good buy to me under $20

Net tangible assets alone are worth about $24 per share. Even after I adjust that figure with a $410 million write-down of their "Vessels' Net Book Value", which is about 20% of the total, I still come up with an adjusted equity figure of $13.50 per share.

Earnings and operating cash flows have historically been quite strong. EPS has been in the $4.50 - $5.50 range over the past three fiscal years. While that will probably drop for the current fiscal year, I don't know that it's going to completely fall off a cliff and turn negative, as the share price seems to indicate. Operating cash flows have been comparable to earnings for TNP.

The only bad thing I can see in their past performance is that Free Cash Flows haven't been overly impressive. This was largely because the entire industry was upgrading capacity during the boom years. We are now at the end of that era and free cash flows should improve in the future. In fact, for FY '08, free cash flows were around $2.25 per share, which definitely isn't bad when you consider the stock's current selling price.

As for valuation, even if I assume a 20% vessel write-down, a 12% cost of capital, and steady-state free cash flows of only $1.00 per share (which is well below historical standards) with a 3% growth rate, I still come up with a valuation of around $25 per share. More realistically speaking, using the above figures, with $2.25 per share in FCFs, I come up with a valuation of $38 per share.

Hence, my probable valuation is about $38, which would be more than a 150% increase over the stock's current price. My downside probable valuation is $25 and my upside probable is about $50. It may take awhile for it to rebound, but I definitely like TNP at $16.