YB new stock pitches (Thu, Jul 2)

PG&E Corporation ($PCG) is a compelling long, trading below $17/share (about 10x 2026 EPS estimates and 9x 2027 estimates)—a 50% discount to peers despite being the fastest-growing US regulated utility with 9-10% earnings growth through 2030 and beyond, driven by best-in-class rate base growth, Northern California data center tailwinds, a nuclear opportunity at Diablo Canyon, and a high-quality gas utility. Remarkably, PCG is actively lowering retail rates (now 13% below January 2024 bills) using data center growth, an execution feat few utilities can match. The 50% 'California discount' stems from wildfire liability fears since 2017 (Sonoma/Tubbs, Paradise, and the recent Palisades/Edison-caused Eaton fires), though wildfire risk is now much lower—no meaningful fires in 5 years—thanks to SB254 (passed last summer, which created a shareholder-funded wildfire fund and changed the CPUC prudency standard) and PCG's transformation into a wildfire-prevention machine with 24-hour AI-camera monitoring, drones, tens of thousands of wind monitors, aggressive power shutoffs, and thousands of miles of undergrounded lines. Two summer catalysts could resolve the discount: (1) the California Earthquake Authority's April 7 report proposing permanent wildfire solutions ranging from Option 1 (prudency safe harbor if utilities follow their plans), Option 2 (liability caps, no insurance subrogation, socialized wildfire-fund costs—reducing risk to near zero and boosting earnings), to Option 3 (full state backstop, a '$30 stock' outcome), with legislation expected August 2026 and Newsom committed to solving the issue; and (2) the June 2026 gubernatorial primary, where PCG antagonist Tom Steyer (who has spent $100m+ and wants to break up PCG) may fade—current polling shows Hilton 17%, Bianco 14%, Steyer 13%, Becerra 11% (recently leading, with likely Newsom/Obama/Harris endorsement and momentum), Porter 11%, Mahan 5%—and Becerra's rate-freeze stance is fine for PCG. Bear case: a Steyer win would be an overhang, though largely bluster and mostly priced in at 10x EPS. Resolution of wildfire liability and a favorable governor could produce 70%+ upside with a $30 target (versus north of $30 if it were in any other state), and the author expects the market to recognize reduced risk and earnings growth regardless as more fire seasons pass.

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Integral Corporation ($5842.T), a Japanese publicly-traded private equity firm, is a long at ¥2,720 per share and worth 2x that price (¥5,000, +85%), offering one of the most compelling ways to invest in Japan's undervalued equity market and its wave of corporate governance reforms. At the current ¥93B market cap, investors receive >¥85B of investments (compounding at 20%+) plus an asset management franchise worth ¥85B, totaling ¥170B or ¥5,000/share. Integral is distinctive in Japanese PE for making principal investments alongside its funds (¥58B in 1Q26), holding ~¥25B cash against only ¥9B debt (~¥68.5B net investments), plus >¥17B of unrealized after-tax carry. The firm has run a 25%+ ROE with its portfolio compounding at 29% annually over 4 years, and Economic Net Worth (ENI, effective book value including unrealized carry) has compounded ~23% annually since 2021, standing at ~¥85.5B in 1Q26 (92% of market cap, implying investors pay just ¥7B for the AM business). Japanese PE is in a strong secular expansion (deal value +22% annually over the past decade), driven by governance reform and succession needs, as ~25% of SME owners are aged 70+, with succession-related deals up ~2.4x over 5 years—a bucket Integral squarely targets. It runs 6 active funds with ¥368B fee-paying assets generating 200bps management fees, targeting 10-20% annual AUM growth (AUM has CAGR'd 16% since 2021 and 36% since IPO, with ~half raised in the last two years), and funds have delivered 30%+ gross IRRs since inception despite no in-house fundraising department. Management targets 30-40% operating margins on the fee business and shares carry ~50% with employees; on ¥8B base management fees plus ¥5.5B annualized carry (assuming a conservative 15% return, half the historical rate), operating profit is ¥8.5B, worth ¥85B at 10x pretax (10.9x pretax at current price, with balance sheet assets free), and the stock trades at ~6-7x EPS including investment returns while offering value-stock downside protection. Integral resembles KKR circa 2018 (an 8-bagger over 6 years) but is more attractive—higher net investments as % of market cap (90% vs 65%), faster book value growth (20%+ vs 17%), faster fee-paying AUM growth (30% vs 20%), and a lower multiple of fee-paying AUM—with the key differentiator being that its net assets are actively managed by value maximizers capable of compounding at high rates rather than underearning balance sheet assets.

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Total Energy Services ($TOT.TO), a Calgary-based diversified oilfield services provider led by top-tier CEO Dan Halyk (owns 8.5% of shares, mostly bought in the open market), operates four segments—contract drilling, natural gas compression, equipment rentals, and well servicing (~75% of EBITDA from drilling and compression)—with a growing footprint beyond the WCSB into Australia and the U.S. The Canadian drilling market has structurally improved via consolidation, with the top three players (PD, ESI, TOT) controlling ~70% of the market, while the small Australian market (~30% of EBITDA) is a duopoly where TOT holds ~66% share (10 active rigs) alongside Ensign, benefiting from high barriers to entry and inelastic, LNG-linked gas demand (Wallumbilla benchmark ~US$8/Mcf in 2025 vs. ~US$2.50 in early 2010s). The lower-quality but tailwind-rich compression business has a record $447M backlog (+136% y/y) driven by ~10 Bcf/d of North American LNG demand growth by 2028, potential ~10 Bcf/d of data center demand, and rising gas-oil ratios. Despite an industry known for capital destruction, TOT has compounded equity value at an 18% CAGR since its 1996 IPO, never impaired assets, carries only $4M goodwill, and reduced share count 21% since the 2017 Savanna acquisition; its recent ~$50M Saxon acquisition was done at sub-3x EBITDA (~10% FCF/sh accretive) with no dilution or goodwill. TOT exited 2025 with a ~$5M net cash position, a $175M credit facility, and is expected to generate ~$125M (~$3.21/sh, ~14% yield) in 2026E equity FCF, enabling buybacks of up to 10% of shares alongside a 2.1% dividend. Valuation via a purely organic DCF (10% WACC, 5.5x terminal EBITDA, modest 3.5% organic growth CAGR) yields a fair value of ~$35/sh (+51% upside), which understates M&A optionality and potential upside from elevated commodity prices tied to the Iran conflict; ~50% of EBITDA (Australia, well servicing, leased compression) is defensive in a downturn. Catalysts include accretive M&A (re-levering the balance sheet), aggressive share repurchases, and natural gas volume growth. Key risks include cyclicality (~50% of EBITDA from North American drilling, rentals, and compression is commodity-sensitive), potential obsolescence of TOT's mid-tier teledouble rig fleet, and further drilling efficiency gains reducing rig counts.

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