Thursday, November 8, 2018

Watching: STEP Energy Services



This stock is getting absolutely throttled today for no good reason. If they hadn't added a quarter-billion in debt last quarter (!!) I'd probably be buying. Nevertheless I think there are worse places to invest your spare doubloons if you don't mind a little in-flight turbulence.


Wednesday, November 7, 2018

New buy: TAG Oil Ltd.

Fifty cents for 36 cents is not a terrible deal.
Hot diggity. I've been trying to liquidate my Canadian positions so that I can start from scratch in 2019 and share my trades as I go, but sometimes an opportunity comes along that I cannot refuse. Today is one of those days.

TAG Oil has many excellent things going for it. Price to tangible book of 0.3, no debt, 5 percent insider ownership. And, despite trading on the TSX, it is not affected by Canadian pipeline capacity because its operations are largely in New Zealand.

Or were.

Yesterday TAG announced that it was selling all of its NZ operations to Tamarind Resources in a deal that will bring in US$30 million at closing:

"Following completion of the Transaction, TAG expects to have over C$0.50 per share in cash and working capital, continued exposure to the current operations and upside of the NZ Assets."

There are some risks, of course. Shareholders could reject the deal (it represents a loss for long-term shareholders) or it could fall apart for other reasons. The company doesn't pay a dividend, so I could potentially baghold without income. (Memories of the eBay fiasco of 2008-2010 dancing through my head).

Other risks are the general aversion to the energy sector right now and the sort of mild antipathy that some investors feel for companies that cross hemispheres to finance their ventures.

But there are other upsides too. The deal comes with a 2.5 percent royalty on the sold properties, which could theoretically free up the company to further explore its Australian lease. We shall see what the future holds.

EDIT: Added 6000 more on November 8 at 32 cents.


Thursday, November 1, 2018

Sleep Country Canada


Why buy a mattress anywhere else? If you're anything like me, you may have been put off by Christine Magee's hollow sales pitches. I always imagined her as a zombie queen preaching to a flock of lobotomized sheep. Even they seemed disinterested.

Mattresses have never been hard to come by. And with the internet revolution, you can now buy mattresses online. I don't know if you've heard of Amazon or not, but they sell them.

I was shocked when I learned that ZZZ trades at 3.5 times book value. I bought my last mattress at Canadian Tire (3.4), and the one before that was Wal-Mart (4.1). I realize p/b isn't the end-all, but I think you'll agree that one of these names is not like the others. On what grounds does it trade at such a high multiple? (Some Canadian value investors like Reitmans in the retail sector because it has no debt; it trades at 0.7)

I suppose some people might enjoy the service that ZZZ offers. You know, walking into a mostly empty store and being stared down by a commissioned sales person who sees you as a meal. Whorls of dust rising in the columns of light slanting in the window. Still air. Sweat. Confusion. Silence except for the $28 Oxfords galloping towards you.

True, ZZZ owns about a quarter of the market today. How does that improve when you can buy a cheaper bed online? Who wakes up and decides that they want to spend their day off visiting mattress stores?

Other considerations include the notion that we may be approaching a recession, when people don't buy as many mattresses. And that with the rise of passive investing, stocks outside the indexes are going to get hurt. ZZZ is not in the S&P/TSX 60.

Shorting, especially for retail investors, is generally a loser's game. But this one is tempting. (I looked at writing naked calls but the options market for this company is tepid.)







Wednesday, October 17, 2018

Happy Marijuana Day


Today is a great day in Canada for everyone except drug dealers and marijuana investors. 
Smoke if you got 'em.

Thursday, October 11, 2018

Smell test


Arguably one of the most important considerations in any investment is the smell test. This is something that the numbers can't tell you. No matter how tantalizing a company may appear, no matter how covered its dividend is, no matter its earnings, buybacks, insider buying or cash position, if a company isn't going to remain a going concern you just can't buy it.

Torstar continually comes up in my scans as a company that should be worth consideration. No debt. Big dividend. Prem Watsa bought 10 million shares last year. Its traditional media business actually makes money. It appears better positioned than any other media company in Canada to survive. But will it?

It has a history of terrible digital investments. Its recent acquisition of the iPolitics site doesn't inspire confidence. Have you ever heard of this site? Me neither. It looks like any other media site from 2006 except that it's got social sharing buttons. If the comments sections are any indication, there doesn't seem to be much of that going on.  

Despite the survival of print channels until now, I don't see how they last much longer. I don't know anybody who buys newspapers, nor do I know anybody who knows anybody. Do you? Are they under 80 years of age? 

Pristine balance sheet and all, I can't picture a happy ending for Torstar. I hope that changes because the death of newspapers isn't good for anyone except the 45th POTUS. 






Tuesday, October 9, 2018

New feature in 2019: live portfolio


Many of my favourite investors talk about their stock picks publicly but don't share their actual portfolios. There are a lot of good reasons for this, including a lack of tools to do so.

I read Stockchase for ideas. One recent series of posts that particularly annoyed me was a big-time manager pumping a smaller stock. He was the only one talking about it. First at $20, then at $15, then $10. Finally the stock is at less than $5, and his comments are something like, "It's not a good time to be in this name. I used to be in it but got out."

Just like that, eh. This thing is all roses and now suddenly you don't have time for it. At what point did you exit exactly? $16? $7.50? We're talking a potentially massive loss here and now the guy is waving it off like it's air.

Which makes a person wonder: maybe it was air. Maybe it was just something he talked about, for years, without ever taking a position.

Starting in 2019 I'm going to share my Canadian equity portfolio. I don't know how I'm going to do this yet, so if you know of a method please share it.

My plan, for now, is to liquidate my current Canadian holdings and start with just cash. The universe of stocks will include anything traded in Canada.

Rules:

  • New positions not to exceed 12.5% of NAV
  • No shorts
  • No miners

The goal will be a book of 8-12 long positions with as little trading as possible.





Thursday, September 20, 2018

Slim pickins: Alamos Gold

Estimated reading time: 17 seconds

This is one of the leanest periods I can remember since the financial crisis. The closest thing out there to a bargain right now, in my view, is Alamos Gold: low p/b, recent insider buying, no debt, small dividend. I don't buy gold companies though because I use a variant of the permanent portfolio in my TFSA: one third broad equities, one third bonds, one third physical gold. (Six percent annualized return with no negative years in the last 20, in case you were wondering.)

In other news I exited my position in Brookfield Property Partners. I've seen it mentioned as a value pick of late but it's not for me. I hate everything they're doing: increasing debt, the foray into U.S. malls, and Brookfield's complicated corporate structure. It was an old investment from a different time.