I remember back in 2009 when I had a broker recommend Terra Energy (TT) to me. He thought it was a great play on an improving economy and what was known to be infinite demand for natural gas.
I didn’t quite see it that way and I passed on the opportunity. Soon after that I passed on the broker. AECO gas prices were well above $5/mcf at the time (I wouldn’t be surprised if the number was closer to $7 or $8) and I figured there was no way gas prices could stay up there. The stock was at around $1.50.
Fast forward a few years and I bought the stock about a month ago between 28-30c. As usual I am slow getting around to a write-up and unfortunately the price has increased somewhat in that time. Nevertheless, even at the current price I think Terra represents a good risk/reward with the main element of that risk/reward being the future price of natural gas. Read more
I’m going to start this post with a short summary of why I took a position in Nordion. I tweeted the following at the beginning of January after establishing a position in the stock.
As I briefly explain in the tweet, Nordion has about $323mm of cash and another $40mm of restricted cash on their balance sheet. They have $41 million of debt. There are 61.9 million of shares outstanding. I bought the stock at a little over $10, so at an enterprise value of a little under $300 million. Read more
See the end of the post for the current make up of my portfolio and the last four weeks of trades.
During the Christmas break I began to focus my attention on the Canadian market, searching out stocks that had not yet participated in the bull market or that had further room to run. I started to call these stocks my “Venture” ventures but that is not really accurate; I’ve actually only invested in a couple of companies that trade on the Venture exchange. But they do tend to be small and micro and even nano cap companies, so many of them are Venture in spirit if not name.
My thesis was based upon a few pillars. First, the Canadian markets severely underperformed the US markets in 2013 and given the tie between the trade of the two countries I didn’t think this disconnect could continue forever. Second, The Canadian markets were dragged down by a rout in commodity stocks, particularly gold, and I wondered how much of the general downdraft had resulted in non-commodity businesses being dragged down unfairly. Third, the Canadian dollar had fallen 10% and I had to think that this made any kind of export based business much more attractive.
The fall of the Canadian dollar also provided me with another reason to return to my home-country market. I have done really well in the past year owning stocks in American dollars. Its been a 10% gain across the board, even if a individual stock did nothing. But this force can work two ways and I am wary of a 5% correction to the upside that causes my portfolio to take a hit. Read more
Back in the summer I bought a company called Entrec whose business was to provides large cranes and heavy load transport services. My purchase was based on the thesis that there would be increased demand for these kind of services as the liquefied natural gas terminals began to be built along the BC coast.
Well I still believe that this thesis plays out over the next couple of years and Macro Enterprises (MCR) is my second endeavor under its umbrella. Macro provides pipeline and facilities construction services in Northern Alberta and British Columbia.
Macro should benefit from the construction of the LNG facilities anticipated over the next few years. There were a couple of good articles written by ARC Energy’s Peter Terzakian with respect to the opportunity presented by LNG development (here and here). Terzakian quantified the magnitude of the impact of LNG spending as follows:
If three projects get the green light, the implied wave of capital crests at $16 billion per year in 2017. Let’s consider some comparative perspectives. Spending by oil and gas companies in BC is typically only $6 billion a year, so the magnitude of what’s to come could be nearly triple at the peak. How about the speed of the wave? What happened during Alberta’s early oil sands development provides a comparative vignette: Three LNG projects will generate a steeper spending swell than what the Fort McMurray area experienced a decade ago. Read more
I spent my free time during the last couple of days reviewing Sherritt International. I wanted to get some more clarity on my investment and come to a conclusion about the size of the position that I should have. As I have talked about in the past, my free time is limited and so my upfront research on names can be less than complete. I usually take small starter positions, between 1-3%, and then increase the size of those positions once I have had time to digest and review the idea in more detail.
As I tweeted last week, there were a number of catalysts that led me to take a position in Sherritt:
After digging deeper into the name, the conclusion that I came to is that Sherritt is really a play on nickel. I think that as goes the price of nickel, so goes Sherritt. Read more
This is my second in a series of posts I am writing about smaller Canadian stocks which are either on the Venture exchange or should be, and that I have taken a bit of a bucket approach with. I am buying small positions with the hope of taking advantage of the individual company dynamics as well as the larger theses that the Canadian dollar that will benefit their competitiveness and that there is an improving speculative investment atmosphere for Canadian stocks.
For those of you not very interested in stocks with a market cap in the double digit millions, I apologize. I do not plan to become a penny stock guru, it just seems to be a place where some opportunities lie right now. I did make a couple of tweets over the last week of two larger company’s that I have added in the last couple of weeks; Sherritt International and Nordion. I’ll try to come up with more extensive write-ups on both of these positions at some point, but because they are reasonably large well known entities I felt that the tweets were sufficient explanations of my rationale, whereas these micro names required further delineation. Its worth noting that my positions in Nordion and especially Sherritt are significantly larger than what I am putting into something like Avcorp.
On to Avcorp
Avcorp (AVP) is an interesting little story that I have a small (less than 1%) position in. Before I go too far into it, a word of warning; this is a stock that certainly might not work out and it may just languish at these levels indefinitely. However there is a chance it breaks out to significantly higher levels if the stars align just right, and that’s why I have a position. Read more
One of my themes for 2014 is investments in the TSX Venture exchange. I post the Venture performance every month when I compare it, along with the S&P 500 and the TSX, to my own performance. Since I started this blog, the Venture has been in a steady slide down and now is only a little more than half the value it was in 2011.
Now some of this move is of course due to an end (or lull if you so prefer) of the commodity boom, and many of the stocks associated with that boom aren’t coming back. But I think there are also a number of names that have been dragged down with the ship, and that there are opportunities within small Canadian stocks that reside on the Venture.
So far I’ve got five names that I’ve taken a position in. The company’s I am investing in are all quite small, so I am keeping my positions small and I’m not going to broadcast these posts all over twitter because my intent here is not to pump them as I think they will do just fine on their own merits. In this post I am going to start with a discussion of ADF Group. Read more
I wrote up my position in Hovnanian preferreds (HOVNP) in April 2013, so a little over 9 months ago. During that time the preferreds have went on a round trip to nowhere, peaking out at $18 in the summer before falling back to $14 in the last few weeks of the year.
I waited patiently through most of the year, not adding to my position but not reducing it either. When the preferred shares touched the $14′s though, I decided to add with the rationale that we are another year closer to the housing recovery.
I didn’t, however, put in any new work before my purchase. I took the lazy way out, falling back on the thesis of choppy but improving fundamentals of the housing market and my work from nine months earlier that suggested that by 2014 Hovnanian should cross the fixed interest coverage restriction that has kept them from paying interest on their preferreds.
This week I filled the void and did some work on the progress made by Hovnanian. In the table below I have calculated the interest coverage ratio that restricts dividends on the preferreds. If you want the language of the preferred document you can go back and read my original comment but in simple terms it is a ratio of consolidated cash flow from operations (so cash flows that do not include cash from unconsolidated subsidiarie) to the interest paid during the period. That ratio has to be above 2.0 for the previous 12 months before Hovnanian can reinstate payments on the preferreds. Read more
I took starter positions in a couple stocks in the last month. The descriptions I wrote below took up a bit more space than I expected so I’ve relegated them to their own posts rather than include them in the monthly update. In both of cases the stocks are micro-caps and not without their flaws, so I expect to be following my usual wait and see approach; take a small position, watch the story play out, and add to that position if it does.
The idea for Supercom came by way of this SeekingAlpha article, which does a pretty good job of describing the idea. I say pretty good because I think the article exaggerates the thesis somewhat. And given the market’s own tendency to exaggerate when it comes to SeekingAlpha thesis with small cap stocks, that might be a reason not to chase this one. I bought the stock at $4.68 and only 3 days later I’m up over 10%.
Supercom produces RFID’s for and electronic ID’s for public safety, healthcare and homecare, animal and livestock management. They also produce electronic ID’s, used by countries to manage citizen identities. The company recently acquired a close competitor, the Smart ID division of On Track Innovations. The stock shot up in the summer after news of the transaction because of the expectation of synergies which should result in improved financials. Below is a table that I stole from another SeekingAlpha report. It demonstrates the degree to which the combined company will benefit. Read more
See the end of the post for the current make up of my portfolio and the last four weeks of trades.
Its been a very quiet month and you can count the number of trades that I made on both hands. I was away for some time, there were holidays, and I was laid up with back problems for over a week.
Being laid up and not able to do much of anything reminded me of the importance of giving myself time to think. There are so many ideas to chase down, so many angles to look at, its easy to spend all one’s time doing and no time thinking about what else you might be doing.
It was that thinking that brought me to the idea about Pacific Ethanol, which I wrote about here. Pacific Ethanol was a story that I had been reading posts on the Investorshub message boards for a while, but because I hadn’t really stopped to think about the idea, it remained just a stock that I didn’t understand that kept going up. Read more