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Posts from the ‘Arcan Resources (ARN)’ Category

Out of Arcan

I sold out of the rest of my Arcan position this week.  I took the rest off at $1.18.  This was after I had sold the majority of my position a couple weeks ago (September 11th) at $1.25.

I had difficulty making up my mind on the stock.  The company could,  get taken over any day for a premium, and if that happens I will be kicking myself.  But I could also be sitting around for a long time waiting for that day.

I bought Arcan at $1.50 in July.  Thus, I’m taking a loss of about 20% on the sale.

The deciding factor for me was this chart, from a BMO research note on the company released two weeks ago.

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Week 55: Skittish

Portfolio Performance

Portfolio Composition

Click here for last two weeks of trades.

Portfolio Summary

I have reluctantly added some risk over the last couple of weeks  My cash position is down to $27,839 from $35,893 two weeks ago, which is a drop to 23% of total assets in my tracking portfolio.

The stocks I have bought have been added because I believe they are cheap.  I think that there is a reasonable chance that they will be worth significantly more over time.  But I do not add them with complete conviction.

The problem remains Europe.  And I remain wary of when the next shoe will drop.    Until Friday, the market had forgotten about Europe for the time being, but we have seen this happen before, and always with the same ending. Europe comes back and again trumps all else.  With Spanish yields rising to a new high on Friday (7.267%)  I am already questioning whether I have made a mistake by purchasing rather than selling stock.  I have already considered an about face.

You can see just how skittish I am by looking at how many trades I am second guessing myself on.  Three times in the last two weeks I bought a position only to sell it later the same day.  These weren’t planned “trades”.  I don’t play the day-trade game.  These were cases where I took the position and couldn’t handle the weight of it, and decided to sell instead of worrying about whether I had made a mistake by buying.

I am typically not so wishy-washy.  That the market has me going through convulsions speaks volumes to the uncertainty that exists at the moment.

As for the stocks I bought, those that I kept that is, I am confident that I got them at a decent price which, in the absence of more macro-malaise, will lead to eventual profits.  More on the individual position updates in the post below:

Company Updates

Radian Group (RDN), MGIC (MTG), MBIA (MBI): here

Arcan Resources (ARN): here

Phillips 66 (PSX):  here

 

Week 55 Update: Arcan Resource

I’ve owned Arcan before, but I have always had trouble holding onto it.  I think that in the aggregate I have probably lost a few dollars on the stock.  Yet here I am again to take another stab at it.

Arcan is an excellent example of why I follow the rules of:

  1. Never add to a losing position
  2. Do more of what’s working and less of what isn’t

With Arcan, I eventually sold out for good on March 23rd at $4.75.  At the time there wasn’t anything in particular that you could pinpoint that would suggest the stock was about to fall by more than two-thirds.  But what concerned me was that the stock wasn’t doing what it should be doing if things were going well. That is, it wasn’t going up.

And then there was the CAPEX.  My skittishness with Arcan and most other oil juniors has always been based on their level of capital expenditures in relation to their cash flow.   As I outlined in this post back in February, Arcan has been spending multiples more money than its been taking in.  You can’t just keep doing that forever.  It will work as long as the market sees you as a “growth stock”, but as soon as that music stops, well so do your funding sources.

Arcan has gotten themselves in over their head with funding and now they are going to have difficulty meeting their growth expectations.  The near-term outlook for the company is not terribly clear.

So why buy?  Well the stock is off 75% from its highs.  I think its all price in.

As well the company appears to be changing (perhaps by necessity) its spendthrift ways.  President, Doug Penner, said the following in the first quarter press release:

“I am excited about implementing Arcan’s next stage of development.  Having expanded rapidly in our first nine years of operation, we are maturing as a company, ensuring that our continued growth also delivers value for our shareholders over time. We are focused on reducing down‐time, operating costs and G&A expenses as we work to bring our capital spending more in line with our cash flow. We are also looking at all of our assets  strategically, and we will consider divesting non‐core assets as opportunities arise.”

Of course, with reduced spending will come reduced growth, and that is one of the reasons the stock has been decimated.  At $1.50 per share, which is about what it cost me on average to buy a position, we are getting awful close to the value stock territory.  The company has a $7+ NPV of its reserves.   Their production numbers haven’t been stellar, but they are showing stability and they should be getting past the initial flush declines and into more stable exponential declines on most of their wells.  AS well, the company should begin to benefit from the infrastructure spending of the last year, as the pipeline from Ethel brings down operating costs and we begin to see the fruits of the waterflood at Ethel in the second half of this year.   As I pointed out in that same article earlier this year, there is a clear difference between the Ethel decline curves and that of Deer Mountain Unit, where there is waterflood.

Arcan is simply a bet that the stock has gone down too far.  A move back to $2 would be a 35% gain and I could see it happening with nothing more than a bit of improved sentiment.

Week 38: Waiting on a move

Portfolio Performance

Portfolio Composition

Portfolio Trades

So first of all . . . .

I don’t know what happened with the AUM trade

I think there is a gliche with the RBC Practice Account because somehow I sold Golden Minerals (AUM) on Wednesday and ended up with a long AUM in Canadian dollars and a short AUM for the same amount of shares in US dollars on Thursday.  I am hoping the trade resolves itself (in my actual accounts this sort of matched trade in the wrong currency would automatically resolve) but if it doesn’t I will attempt to clean it up myself.  I wanted to point it out because my current portfolio composition looks a little odd as a result.

Buy more banks . . . .

I’m still buying financials and I am actively looking for more to buy.  I got a few more ideas from a new website that I have signed up to called stocktwits (its like twitter for stocks).  The names are: ORRF, FFNW, SNBC, and GBNK.  I haven’t done enough research on any of these names to make an assessment of them.

This week I added to both Shore Bancshares and to Rurban Financial.  I looked at both in more detail this weekend and I am happy with what I see.  I’ll try to put together a post on each shortly.  I’ve already seen a double in Community Bankers Trust, and I’m up 40% since my original purchase of Bank of Commerce Holdings but I have no plans to sell either.

This week I also noticed that one of the banks I held but sold, Xenith Bankshares, popped.  I may buy that one on weakness.  I’m also watching the newswire for anything on Atlantic Coast Financial.  ACFC has a brutal loan book and could very well kick the can at some point, but the stock also has a book value of over $19 (yes that is right, it is a $2 stock with a $19 book value) so it is imaginable that if the banks continue to be on fire the stock could move up rather substantially.

. . . .Less oil

I sold out of Arcan Resources this week.

Why did I sell? Three reasons.

  1. The company ran into some operational problems (again) that cut back production for a time
  2. Spring break up is upon us and while I’m not certain of the extent that Arcan is impacted I do know that the junior oil investment community tends to go on leave from April until June.
  3. I want to put my money in the best opportunities and right now the best opportunity is in the regional and community banks and in the mortgage servicers.

Maybe I am selling at the bottom.  I’m sure there are a few that would scoff at me selling after a 20% drop.  Stupid retail.  So be it.  The banks are going up right now and Arcan is not.  So I would rather own the banks.

To give you a taste of just how impressive the bank performance has been, consider these charts:

A couple new positions

I also have initiated a couple of new positions that I consider myself “restricted” in talking about, at least for the time being.  The first is Cal-Maine Foods, which is a large egg producer.  If you want to get an idea of my reasons behind the purchase, take a look at my recent tweets ( I also signed up for Twitter this week).

A second position that I started was Golden Standard Ventures.  Golden Standard is drilling in Nevada and they may have hit gold in the way of a Carline style deposit.  A real spec here, but one that from what I hear has a reasonable chance of working.