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Week 163: Knowing when you are not at an advantage

Portfolio Performance

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week-163-Performance

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

Recent Developments

Note that this update is as of Friday, August 15th.  I have been a few days delinquent in getting it out.

I have strayed from my bread my butter of late, away from the tiny micro-caps that pass everyone else by and into the world of still small but not so obscure caps.  These are stocks like Air Canada, AerCap and Bellatrix among others, still far from being large caps, but big enough to receive the attention of analysts and funds.

I am not so sure of my own advantage with these stocks. I may be overstepping my own abilities to think that I can see something here the market is not.  I am under no misconceptions about my research. There is simply no way that I, as an individual investor with a couple of hours of free time every day, can match the depth and scope of the research that the institutions have. Read more

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I added MGP Ingredients because their ingredients are primarily corn and wheat

Sometimes you latch on to a good idea but can’t find a stock that fits it.  That’s what happened to me as I scoured through 10-K’s looking for a way to play the fall in corn, wheat and bean prices.

I spent about a week looking and not having much luck.  Fortunately one of my twitter acquaintances came to the rescue, as @17thStrCap introduced me to MGP Ingredients (MGPI).

The Business

MGP Ingredients looks like a very good way to bet on lower grain prices.  The company operates three businesses, all of which stand to benefit from the decline in the grains:

  1. Distillery Products: via plants in Atchison Kansas and Lawrensburg, Indiana, corn, barley and rye are turned into beverage alcohol and industrial food grade alcohol.  The residue from the process is sold as distillers feed.  A small amount of fuel grade alcohol (not ethanol) is also produced
  2. Ingredient Solutions: specialty and commodity wheat starches and wheat proteins are produced from wheat flour
  3. Illinois Corn Processing (ICP): a 30% ownership in an ethanol plant in Pekins Illinois that produces around 90 million gallons of ethanol per year.  SEACOR owns the other 70% of the plant

Read more

More Quarterly Results: Sherritt Thesis Intact

I’ve owned Sherritt International since January, when I posted about the idea here. The timing of my stock purchase coincided with the start of the Indonesian export ban on ferrous nickel and nickel in pig iron.  I bought Sherritt throughout the low to the mid $3’s (my average cost is $3.48) and did pretty well on with it until the last couple of weeks when the stock has dropped back to the $4 range.

About half of that drop occurred after the release of the second quarter results.  The stock pulled back because nickel production from the Moa joint venture was a bit weak in the first half and because full year guidance for the Ambatovy joint venture was reduced (from the range of 44,000-50,000 tonnes to 37,000 – 41,000 tonnes).  The Cuban oil business saw production in-line with what I had expected and the company has recently signed an extension on its oil production sharing contract with the Cuban government and expects to expand that agreement to include new exploration targets.

The Ambatovy Ramp

The slow ramp at Ambatovy comes as no surprise.  Its been slowly ramping for almost two years now.  The mine has seen one hiccup after another.  Yet there is progress being made towards positive cash flow.  By the first quarter of 2015 Sherritt is expecting the mine to operate at 90% capacity (its currently in the mid-70’s) and when it does cash costs are expected to drop to the $3-$5 per pound range. Read more

Looking at more quarterly results: Air Canada’s miss

Air Canada is a fairly large position for me so I’ve spent a lot of time on their quarterly results in the last two days.  The short story here is that the stock stock got hit because revenue per average seat mile (RASM) was below expectations and because of this, earnings were also below estimates.

There was an expectation among analysts that because load factors (how full the aircraft is) were strong in the second quarter, and because there was anecdotal evidence that ticket price checks showed improvement, Air Canada would pull off a decent year-over-year RASM increase in addition to its cost savings.

Because they didn’t the company missed earnings estimates and, on Thursday, the stock did what the stock did.  The average estimate for earnings per share for the quarter was 51c.  I saw that BMO was as high as 57c.  The actual number came in at 47c.

First, let me say that I added to position on Thursday afternoon.  I actually pretty much picked the short-term bottom on this one, a rare occurrence indeed, getting in at $8.50.   I added because while the stock was down hard on the RASM miss, I thought that once everyone wrapped their heads around why, we would see it quickly move back up. Read more

Week 161: Earnings so far – Pacific Ethanol and my other ethanol plays

I agreed to this deal with Seeking Alpha where they post my articles from the blog and I don’t have to do anything. Its a pretty fair deal; the reason I never published them before had more to do with me being lazy then anything else. The only downside is that everything I write will get posted and I don’t want everything I write to get posted because much of what I write is blog-worthy but not publishing-worthy.  Sometimes I just want to post my thoughts here, and not have to reference and review every data point to make sure I have all my t’s crossed.  Therefore I created a simple rule whereby if I put the words Week XX in the title of my post they do not get published on Seeking Alpha.  And that is the long winded, paragraphical description of why I continually make the rather banal observation of how many weeks I have been writing this blog  in the title of so many posts.

With that out of the way, lots of earnings reports for companies I own came out this week and I am going to give my thoughts on a few of them.  We will start with the biggest of the bunch, at least in terms of my own P&L: Pacific Ethanol and my other ethanol plays.

Pacific Ethanol

This is a very large position for me and so obviously I was paying close attention to their report on Thursday.  I was a little surprised that the earnings per share number was below a buck.  It turns out that I had missed a couple things.

First, I didn’t realize that the company wasn’t able to utilize their net operating losses (NOLs) in the second quarter and would therefore have to pay tax.  This was mentioned in the Q1 10-Q but I didn’t read through the details carefully enough.  So the company was taxed at 30% and that was a big reason the earnings per share number did not hit the magic $1 mark that I had expected. Read more