On 11/24/2015, I bought shares in $TRSWF. There are two ways to look at a strong USD versus weak every other currency. One is that the dollar is a safer currency. The other is that the rest of the world isn't going to collapse, so now is a good time to use USD to buy equity in foreign countries. Short term, most foreign stocks are going to have smaller currency adjusted returns. However, as a long-term investor, I can be patient.
So why $TRSWF? I'm young enough that losing capital could set me back a significant amount of time, so caution is needed. I don't trust a lot of foreign countries and markets. There is a zero percent chance that I would invest in Brazil right now. Outside of Russia, which I might gamble on - but fully admit it is a gamble, I have no interest in taking on the risk of investing in an underdeveloped countries that aren't close U.S. allies. That limits my acceptable direct foreign exposure to Europe, Japan, South Korea, Australia/New Zealand, South Africa, and Canada - America's cap!
The problem with investing in Canada is the only reason that country exists is so that they can exploit their natural resources for America's advantage. While they do have some companies, for the most part:
- They lack consumer staples and cyclicals.
- They lack tech companies.
- They lack manufacturing.
I already have enough exposure through healthy dividend paying $RY and $TD for me to have any interest in further exposing myself to Canada's financial businesses. Their real estate is overvalued, so I have little interest in Canadian REITs right now. I see no immediate turnaround in commodities, and I have enough exposure through my Energy Recovery thesis stocks that I don't see a compelling reason to invest in Canadian commodity stocks. So that left the Canadian industries that I felt confident investing in to utilities and telecom - staples that every Canadian needs.
The dividend yield on Canadian telecom stocks is lower than $T and $VZ. I know nothing about what telecom companies Canadians like. So Canadian telecoms doesn't excite me.
This leaves Canadian utilities. But the Canadian utility market is completely different than the American utility market. Most Canadian utilities are government owned. As a result, there is no way to invest.
But, luckily not all Canadian utilities are government owned. TransAlta is one of the few. And through some hopeful luck on my part for identifying the stock while there was a USD/CAD discrepancy, as well as the amazingly curious case of how TransAlta Renewables exists, provided me with an opportunity to invest a moderate risk-adjusted amount in this company.
TransAlta Renewables is a renewable energy spin-off from TransAlta, a major publicly traded utility company in Canada. What makes it so unique is that TransAlta remains the largest shareholder, with the agency responsible for managing Alberta's government pension fund as the second largest shareholder. How amazing is that for majority ownership? A mid-cap utility and a municipal government?
Management states that TransAlta Renewables is a high yield, lower growth company than TransAlta. Not only that, but it pays monthly dividends. This fits me well as if my thesis is wrong, I recover more of my capital. If my thesis is correct, then as the CAD eventually gains more parity with the USD, my investment is rewarded until I sell the shares.
Another great aspect is that their assets are diversified. They own power generation facilities not just in Canada, but in the U.S. and Australia as well.
TransAlta Renewables' primary assets in Canada are hydro and wind based. As far as renewable energy sources go, they haven't advanced at the same rate as solar. However, Canada isn't an ideal location for solar. Thus, their assets should have a longer shelf life as opposed to if they were located in the southwest United States.
But the special sauce on this is that Alberta is proactive in reducing their carbon footprint, overly optimistically targeting to be coal free by 2030. This has significantly hurt the share price of the parent company, and helped bring TransAlta Renewables down with it.
Sounds too good to be true, right? And it is. The risks I identified are:
- It is a small cap company. See my greatest and tehn stupidest investment ever in $GTAT/$GTATQ. Small cap stocks are not heavily covered, so if management lies their asses off in press releases, they have an exponentially larger chance of nobody catching it. Remember that even a large cap stock like $KMI was able to convince the entire DGI crowd on SeekingAlpha that it was one of the greatest investments ever.
- The stock isn't an ADR stock. It trades on the Toronto Stock Exchange. Many US brokers will not let you buy the stock. The ones that will (i.e. Fidelity) will charge you a $50 transaction fee. Liquidity could be an issue.
- The company is foreign and dividends are paid in a foreign currency. This means that you will pay a tax upfront (which should be able to be deducted in a taxable account), as well as a currency exchange fee that reduces dividend yield.
An alternate shorter term play would be to consider the parent company, $TAC. The window appears to be shrinking (and I only have so much capital to deploy across ideas), but I feel they were, probably are next market panic, oversold due to Alberta's declaration to be coal free by 2030. Right now, Canada isn't in the financial position to be able to dictate that all energy should be clean and that coal should be abolished. But even if they were, there is a 15 year window for which the existing coal power generation plants will operate, helping fund a recovery. $TAC pays a healthy dividend, so even if that thesis doesn't pan out, it helps provide a reasonable window for which the simple act of the CAD recovering the value it lost against the USD would prove to be profitable.
I seriously thought about writing this up as an actual article, providing a lot of detailed analysis that I am too lazy to write up in a blog. But "TransAlta Renewables' dividend yield and sustainable infrastructure offers an acceptable risk-adjusted yield" lacks the sexy click-bait that most articles on SeekingAlpha troll readers with. And I don't have it in me to try to justify that TransAlta Renewables should buy GoPro. So, anyone reading this needs to do their own homework.
Okay. That, and I'm still annoyed that they censored by "Should Buzzfeed buy SeekingAlpha?" blog post.
On 12/9/2015, I sold shares of $VLO and $PSX. Both are great companies. My thesis here was that I had a significant profit that I hadn't realized, and I had been burned by not taking advantage of situations like that before. The WTI-Brent spread was moving in a not so favorable way, so I sold under the thought process that I likely could re-enter after next earnings. But then the U.S. Crude Export Ban was overturned, adding further pressure on U.S. refiners. We'll see how it pans out, but I'm not an oil insider, so I'm fine cashing out while I was ahead.
On 12/9/2015, I purchased shares of $KHC. This is a consumer staple stock with a decent dividend yield that I can hold onto for decades. Boring, but my whole goal in investing is to build a portfolio of exactly these type of stocks. So when they enter an acceptable price range, I need to focus on buying these types of stocks and not gambling on lower quality or higher risk companies.
On 12/11/2015, I purchased shares of $XIV. I followed OceanMan. I don't like gambling on short-term ETN trades, but $XIV is one of the best to do so if you are bullish about the stock market overall. I had a strong hunch that volatility would correct itself within a month and a half due to a decrease in tax loss harvesting, and felt that a Santa Claus rally (which the last two days have had happen) was a distinct possibility given the overall mediocre gains the market has had this year.
On 12/16/2015 and 12/23/2015, I sold my shares of $XIV. Both were sold at over 10% gains if you don't count taxes and transaction fees. But I have to, so my mixture of strategy and luck just helped pay for Christmas presents, which in turn hopefully helped boost profits for other companies, which helps benefit everyone.
So what is Serious Cat looking at? If I had to buy now - honestly, nothing. $DIS at under $105 today seemed like an overreaction, but $DIS at $105 long term is only fair value. I'd like it as a short to medium term trade where if it failed, worst case I'm stuck owning $DIS stock long-term. But best case, next quarter's earnings show that breaking block-buster records is still a good thing, and people still like sports.
I was really looking into $BRGYY to add to my Energy Recovery Thesis, as it was trading at its original price prior to the $RDS.A/$RDS.B merger. So worst case, it is a large cap speculative energy stock that I hold hoping that within three years, the energy market recovers. Best case, I get cash and additional shares of Shell at a discount. But $BRGYY was up 7.31% today alone, with $RDS.A up 5.83%, showing how oversold those companies were, and I might have missed the window to take advantage of this thesis.
$RAD is on my rad-ar. I hate myself for making that pun. But like $BRGYY, $RAD is an acquisition target, providing an arbitrage opportunity.