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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

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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