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Why I like Air Canada in two tables

I missed out on the big move in the airline companies last year because I never bothered to look at them.  And the reason I never looked at them is because I have been conditioned to be skeptical about airline stocks.   The mantra chimes away about high capital costs and low hurdles to entry, profits on the horizon that will be never quite there.

But things have changed and with only three major carriers in the United States (down from around 10 a decade ago) price-wars and seat sales have been replaced by full planes and higher profits.

One thing the airline industry has going for it that is rarely mentioned is that once you pass the hurdle of covering your cost, every incremental passenger is at an 80% margin (give or take, depending on the airline).

This provides a lot of leverage if things start to go well.  With 5 years of improving profitability (coming off the disastrous bottom of 2008-2009) things are going well right now.  The moves last year was a recognition of this.

So when I got a second chance to invest in a couple of airlines, fresh from a beat down caused by the transitory effects of the falling Canadian dollar and exacerbated by the sheer size of the moves to the upside, I added not one but two stocks to my portfolio.  Both are out-sized as starter positions for me. Here were my tweets at the time: Read more

What to do with Pacific Ethanol

Being invested in Pacific Ethanol (PEIX) is like riding a yo-yo.  Up and down, up and down.  It can get a bit nauseating.

As I tweeted earlier this week, I got tired of the motion sickness and reduced my position in Pacific Ethanol considerably.


Since that time I’ve sold a bit more and it’s now about 25% of my original position.  It’s still a reasonable size but its not going to hurt me (I will remind you that as of my last portfolio update, when Pacific Ethanol was at about $14, the stock was a 16% position for me.  That number jumped closed to 20% as the stock rose, but now sits at about 4% with my sales last week and the current price).

As the tweet explains, I didn’t like that the stock was going up because of rising ethanol prices while at the same time corn prices were creeping higher.  This wasn’t the dynamic I had invested upon.  I wanted sustainable ethanol prices and low corn prices.  Ethanol can’t trade at nearly a dollar above RBOB gasoline and you saw that on Wednesday when the weekly EIA statistics showed imports of ethanol.  The market was suitably spooked and the price of ethanol has since tanked.  More on the ethanol price dynamic in a minute, but first let’s talk about Pacific Ethanol. Read more

Lojack (LOJN) – Speculating on a step-change from Fleet

I’ve been watching Lojack (LOJN) for a while, almost bought into it a couple of times but I’ve never been able to get comfortable until a few weeks ago.

The irony is that if I had waited a bit longer, I could have gotten in at about 15% less.  Oh well.  I always dislike writing up a stock that has already moved to the upside (I am in the process of doing just that with Air Canada right now).  So here I get to do the opposite; tell you why I liked the stock at $6.20, and must really like it here at $5.40.

Why I bought Lojack in the $6′s

I decided to take a position after I reviewed the fourth quarter results.  My reasons were:

  1. The existing stolen vehicle recovery business appears to have reached an inflection where further increases in revenues should make a larger contribution to the bottom line
  2. The outlook the company provided on Fleet was very positive
  3. The stock price (around $6 at the time) priced in a modest improvement in the stolen vehicle recovery business but none of the upside of Fleet.

Read more

Week 141: Portfolio Allocation

Portfolio 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’ve been on vacation and so am a couple weeks late getting an update out.

My portfolio had a big move up, thanks mostly to the movement of Pacific Ethanol and MagicJack. Pacific Ethanol had a one day gain of 67% last Thursday, and is nearly a 4-bagger since I bought in. MagicJack is nearly a double.

But what has really helped is that even before the run-up Pacific Ethanol was my largest position. MagicJack was my fourth largest position.

One of the ironies of writing about the stocks I own, is that what I write about most is often not what I have the biggest position in.  The stocks I have the most to say about are the one’s that are on the cusp, where I am constantly debating whether to hold on to them or not.  My biggest positions; Pacific Ethanol, Yellow Media and MagicJack, for example, I have written only a single post about.  That post states the thesis, and as long as that thesis is valid I don’t have much else to say.

Yet the stocks in my portfolio are far from being of equal weighting.   I usually have a lot of stocks. Unless the market is going down, the stocks number at least 30 and has recently approached 40. But most of the positions are quite small, in the 1-2% range.  These as starter positions; enough to keep me interested and following the company, but not enough to hurt me too much. If my thesis for these companies plays out, or if, as I learn more I become more comfortable with the idea, I add.  If not, if the company materially lags or sometimes if time simply passes and I lose interest in the idea, I drop the position and move on. Read more

I think the Market has it wrong with Jones Energy (JONE)

The most frustrating thing that has happened in the last few weeks has been to watch Jones Energy get clobbered from $18 to $14.  Frustrating because I think the market has it wrong.

The drop has been precipitated by Jones cautious comments about the test of a new frac design.  To recap, Jones initiated a 20 well program that increased the cluster density per frac and the amount of proppant used (which resulted in a bigger frac per stage).  The program was done to evaluate whether this would increase production and EUR’s enough to justify the increased cost (about $900,000 per well).  The company provided progress when they released their February 14th company update.  They basically said that the evidence so far is not strong enough to justify moving to the new completion technique and that more data is required:

Of the 14 wells with 30 or more days of production, 12 have produced at or above historical type curve. Over the next two quarters, the Company will monitor production data on the test wells and undertake additional optimization techniques, prior to making a decision on whether the level of production is significant enough to justify the incremental capital investment per well, and which design to utilize going forward. In the interim, Jones Energy will be employing its traditional open-hole completion technique in the Cleveland, which is the basis for its guidance for the balance of 2014. Going forward, the Company expects its average Cleveland AFE to remain at a best-in-class $3.1 million, which we expect will allow us to continue to generate compelling rates of return in our core play. Read more

Empire Industries: investing in its hodgepodge of interesting businesses

Empire Industries is the next in a series of TSX Venture-like companies that I have found and made a basket bet with.  Like ADF Group, Empire actually trades on the senior exchange, but as its share price (11c) suggests, its a Venture company in disguise.

When I set out to scour the TSX and Venture for companies worthy of an investment, I did not limit my criteria in any way.  What is interesting though is that the first three names I have talked about (ADF Group, Avcorp and now Empire) all fit neatly into another theme; Canadian manufacturing companies that will benefit from the lower Canadian dollar.  I think it will be a strong tailwind for all these names.

But as I have warned in my other post, these are all very small illiquid stocks and so I have been very careful to keep my positions small, regardless of how tempted I am to take advantage of the opportunity they present.

On to Empire Industries

Empire Industries (EIL) is a structural steel fabricator that has diversified into a couple of unique but profitable businesses out of necessity.

Before 2008 the company was a rather generic steel fabricator with facilities all over Western Canada.   They got hit hard by the collapse in 2008 and by the subsequent rise in the Canadian dollar that began in 2009.  In response they shuttered a lot of their operations and opened a fabrication facility in China.  They focused on their existing businesses; manufacturing amusement rides and Hydrovac trucks.  They also have a telescope business, which appears to have some interesting potential but that is very lumpy in its revenue generation (these aren’t stick it in your window telescopes, they are big domey looking observatory telescopes that cost $100’s of millions of dollars). Read more

Terra Energy as a bet on gas

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

Tracing out Nordion

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

Week 135: Retail Changes

Portfolio Performance


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


Recent Developments

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

An LNG Venture: Macro Enterprises

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


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