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Week 159: Blog Days of Summer

Portfolio Performance

week-159-yoyperformance

week-159-Performance

See the end of the post for the current make up of my portfolio and the last four weeks of trades.

Recent Developments

I haven’t done a lot of writing since my last portfolio update four weeks ago. I have made only a couple changes to my portfolio, and added only one new position, Midway Gold, which I wrote about last week.

I remain reluctant to add positions.  As I stated previously (here and here) I remain wary of the market reaction to the post-QE era.  So far nobody seems to care, tapering has had no negative impact on stock prices, and we continue to march to higher highs.  Nevertheless I’m not convinced.  I don’t have a lot of insights into the specific mechanism by which quantitative easing leads to higher stock prices or how the end of it will cause them to go lower  but I know from experience that you can’t overstate the importance of liquidity, particularly where small and micro caps are concerned.  Now we’re in the process of draining a bunch of it and I just don’t think that is a great time to be too far out on the ledge.  Why take the chance when you don’t have to?

I’m also not having an easy time finding stocks that I want to buy.  I’ve spent the last four weeks rather diligently investigating new ideas.  I’ve probably gone through 100 names.  Nothing I have looked at has stood out as something I have to own.

In fact, I’ve come back to old names.  In particular, I’m currently betting the farm on Pacific Ethanol. Below is a list of my top ten positions.  Pacific Ethanol was a 20% position that has grown to 24% because of price appreciation.

07-21-14 topholdings Read more

Pan-ning for Midway Gold

I originally intended this post as a weekly update where, among other things, I would talk about my new position in Midway Gold and about my large increase in my Pacific Ethanol position.  But my description of Midway has turned into a post of its own, so I will leave the details about Pacific Ethanol until later, and only say here that I think the stock presents a good near-term risk/reward and that my current position (20% of my portfolio) reflects my enthusiasm.

As I remarked in my last portfolio update, the only new positions that I have taken of late have been gold stocks.  This has turned out to be a well timed endeavor.  My first three positions, Argonaut Gold, Endeavour Mining and Rio Alto Mining, are all up 30%+ in only a little over a month.

I continued my move into the miners by adding another (soon to be) producer shortly after my last post.  I took a position in Midway Gold (MDW).  As I tweeted at the time:

Midway has three deposits in various stages of development in Nevada as well as other prospective lands.  Midway’s 3 deposits are Pan, Gold Rock, and Spring Valley.  At the current price its market capitalization is a little more than $150 million.  The company has $48 million in preferred share debt and $70 million in cash.  Much of its cash will be spent over the next 6 months as the company brings its Pan deposit into production.  Read more

Week 155: Still Cautious

 Portfolio Performance

week-155-yoyperformance

week-155-Performance

See the end of the post for the current make up of my portfolio and the last four weeks of trades.

Recent Developments

In my last update I stated that I had about a 20% cash position and wanted to increase that position heading into the summer.  We are now one month further along and my cash position stands at something less than 5%.

Nevertheless I do remain somewhat uneasy about what happens to the market post QE.   As I wrote about in my last update:

Twice the quantitative easing policies of the Federal Reserve have ended and twice the market has gone into a tailspin.

I came across what I thought was a very good interview of Richard Duncan on the website Valuewalk.  I read his first book, The Dollar Crisis, a number of years ago and I still pull the book out every year or so to go through the concepts another time.  I have followed Duncan ever since.  The video rather long, but in my opinion Duncan describes what current drives the market right now and summarizes why I am uneasy.

 

I view a number of the stocks I own right now as shorter term trades with (hopefully) immediate catalysts.  I have been reducing positions that I would consider likely to have a lower bottom in an event of a correction.  And I have been buying gold stocks.  So even though I have added a few positions and reduced my overall cash position, I feel like I am continuing to reduce risk.   I tweeted the following about my purchases of gold shares: Read more

Taking advantage of the disappointment with Bellatrix

This is a company I should have owned 12 months ago when I was looking around the Canadian oil and gas universe but instead pissed around trying to buy the cheapest thing.  When investing in an oil and gas company buying the cheapest thing is simply not the way to make money.  I’ve been investing in the sector for 10 years now; every time I walk away and return I have to learn that lesson again.  Hopefully that will end now.

Bellatrix Exploration (BXE) is simply a company with lots of land in very prospective areas and a history of being able to grow production on a consistent basis. The stock is on sale because of a bungled private placement and I think that presents an opportunity.

Background about the company

Bellatrix owns one of the largest positions in the Cardium (in Alberta) in the industry.

 

land_holdings

 

They’ve proven they can develop that land in an efficient manner.  The company has grown its production the last 4 years and expects another strong year of growth in 2014 (note though that the 2014 production number is being buoyed by the acquisition of Angle Energy, which closed late last year). Read more

A New Bet on Hercules Offshore

I have owned Hercules Offshore (HERO) for a couple of weeks now.  I tweeted about my position right after I bought the stock.  I think the stock has been hit too hard on concerns about drilling rig supply/demand and that a change in sentiment could send the stock back up to the $6 to $8 range.

Hercules performs drilling services in the offshore market.  Their focus is shallow water drilling; their marketed fleet consists of 27 jackup rigs and 23 liftboats.  Fifteen of their jackup rigs are contracted in the Gulf of Mexico with the rest located internationally in the Middle East, Southeast Asia and Africa.  In 2013 jackups made up 83% of revenue, with the liftboats taking the rest.

Why I took a position

I took a position in Hercules based on the following:

  1. The stock was hit pretty hard at the beginning of the year because of concerns about supply/demand of new build jackup rigs and the impact this could have on Gulf of Mexico day rates
  2. Those concerns have some validity but are not immediate.  For 2014 the new supply (32 rigs total, 24 rigs that aren’t contracted) will be absorbed by the market.
  3. Looking out to 2015 there is significant supply of new builds but much of the supply is being ordered on spec and by buyers who are not established operators.  It remains to be seen how much is built or who will operate it if it is built.
  4. The Gulf of Mexico is also not the most profitable destination for a new build, which should help insulate Hercules from the new builds to some degree
  5. The current price of the stock (I add at $4.50 but its now a bit higher at $4.80) reflects the concern about supply/demand and very little optimism that day rates will remain strong in 2014 and continue to hold up for 2015
  6. Hercules is quite levered (their market capitalization is around $700 million and they have $1 billion of net debt) so a small change in sentiment about the company (either via a reappraisal of the Gulf of Mexico situation or one of the other catalysts I will get to shortly) can have a big effect on the stock.
  7. Based on the first quarter results the stock is trading at a reasonable 4.5x EV/EBITDA multiple

Read more

Week 153 Update: Investing by a Thread

This is not a full update of my portfolio so I will not be providing all the details of my current positions and trades over the last few weeks.  I’ll do that again in the next week or two. Below are my current top 10 holdings and their percentage weighting in the portfolio.

06-07-14 topholdings

In this post I want to write about the tenuous nature of most of the stocks I hold.   While I make many purchases based in part on the judgment that an undervaluation exists, I’m not really a value investor in any strict sense of the definition.  I don’t really look for stocks that are simply cheap to their intrinsic/discounted/net asset value and then wait for something to happen to change that.

In addition to cheap I’m always looking for a catalyst.  Something that will change perception of the stock and where the stock has enough leverage to the change to make for meaningful upside.

Because of these two criteria I find that I am drawn into an inordinate number of cyclical, indebted, tenuous or heavily capital dependent businesses.  They are not great businesses over the long-run.  Their true value is usually wildly erratic depending on the assumptions used.  While this characteristic represents the opportunity it also means I have to continually re-evaluate the thesis and sometimes admit that I am wrong and give up. Read more

The upside is not reflected in King Digital

I added a new position in King Digital Entertainment (KING) this week.

I discovered the company while perusing through 13-F filings.   I search for hedge funds that have performed well in the last few years and look for tickers of either large or growing positions in those funds.  I found King via a fund called Steadfast Advisors.

King Digital is out of my usual area of competence.  The company is a video game developer and I have never invested in a video game developer before.  I’m not much of a gamer.  Nevertheless the company is extremely well-priced for scenarios outside of a collapse of the business, and I am an avid opportunist of market inefficiencies.

King is also a busted IPO.  The stock priced at $22 in March and is now $16.  The timing of the IPO was bad, both in terms of the market and the business.  It was a bad time for the market because tech has taken a pounding.  It was a bad time for the business because the biggest grossing game (by far) in the history of the company, Candy Crush, was beginning to go into decline. Read more

Week 150: Stepping Back a little

Portfolio Performance

week-150-yoyperformanceweek-150-Performance

See the end of the post for the current make up of my portfolio and the last four weeks of trades.

Recent Developments

For the last number of months I have been increasingly uncomfortable about being fully invested.  Throughout the amazing rally that we’ve had since the beginning of 2012 I have been haunted by the idea that the rally is a liquidity induced euphoria .  In particular, I am given humility by this chart. Read more

Week 149: Earnings Update on a few companies

This isn’t a complete portfolio update. I won’t be posting my performance or trades; I will leave that for another week.  I just want to give a short update on some of the earnings reports that have come out or are still to come out while the thoughts are still fresh in my mind.  Here is a quick snapshot of the top positions in my portfolio as of Friday’s close.

05-10-14 topholdings

MagicJack

MagicJack earnings come out Monday after the market close.  I’m nervous about them, because the stocks action has been poor, it is a large position for me and because I’m not convinced the numbers will be great.

The company lowered advertising spend significantly in the quarter in anticipation of the release of the new version of the device and the app.  That will help costs, but it will also probably hurt revenue. On the fourth quarter call the company said that they expected the first half of the year to be “soft”. Read more

Yet another airline stock: Transat AT

I made a number of portfolio changes today, reducing positions in a few stocks that haven’t been working out as I had hoped.  I sold the last of Pacific Ethanol, sold out of Syncora and reduced my position in Chipmos.  In part I made these changes to raise cash because I have been adding to my position in Transat A.T.

I first bought Transat A.T (TRZ.B) on March 19th and have added to it a few times since then.  I made the following tweets at the time (read from bottom to top):

tweet

What they do

Transat provides both chartered and scheduled flights originating in Canada and France.  They operate three main service routes.

  1. Charter flights to Sun destinations for Canadian vacationers
  2. Transatlantic flights from Canada to Europe
  3. Vacation destination flights in France

Read more

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