Skip to content

Week 146: Some thoughts on agility

Portfolio Performance

week-145-yoyperformanceweek-145-Performance

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

Recent Developments

Four weeks ago I wrote:

I think an important pillar of my strategy to take advantage of the concentration that I can have.  I don’t have anyone pressuring me to be diversified or questioning my risk level or anyone to answer to if something goes wrong.  So I don’t hesitate to have a large percentage of my portfolio tied to the names I think will perform the best.

With that said, the names that I am currently of the heaviest weight are, of course, Pacific Ethanol, which remains my largest position by far

Today Pacific Ethanol represents a 2% position for me. Read more

Aercap – full value of ILFC acquisition is not in the stock

I got the idea for Aercap (AER) after listening to a Bloomberg Taking Stock podcast with Martin Sass.  Sass recommended Aercap along with American Airlines (another company I am in the process of looking at) as he’s gone from hate to love on the airline industry.  He called Aercap’s deal to acquire ILFC “transformative”, pointing out that it “will make Aercap Holdings the #1 aircraft leasing company in the world”, and yet that “it’s trading at only 8x earnings.”

On Thursday I tweeted a few reasons justifying my position in Aercap.  You want to read these from the bottom up.

reasons

In this post I am going to follow up on that tweet with a more detailed description of my investment thesis. Read more

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with only three major carriers in the United States (down from around 10 a decade ago) price-wars and seat sales have been replaced by full planes and higher profits.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

week-141-yoyperformance

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

week-141-Performance

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.

ndztweet

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

Follow

Get every new post delivered to your Inbox.

Join 261 other followers