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George Fisher
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  • What to do now? Buy, Sell, or Hold? Review of Past Articles. 3 comments
    Jun 10, 2010 6:18 PM | about stocks: RYN, POPE, SNOFF, VTRAF, RICK, HEINY, CPRT, DMLP, GLNYF, CBI, SU, ATPAQ, CME, MQBKY, ABB, ERII, MIL, AQUNF, EGAS
    Since Feb of this year, Seeking Alpha has published reviews of twenty different, mainly small cap companies, of which some may have been new to the readers. Industrial sectors represented included energy (5), consumer (4), industrial (4), basic materials (3), utility (2), and financials (2).   As we all should know, since Jan the S&P 500 rallied and then retreated, and it may be useful to pause and see how these companies have fared.   For some, their story has not changed much with current shares prices providing possibly better capital gains potential than when first discussed. For others, adjustments in their specific businesses/markets may have negatively impacted investor expectations.
     
    These small cap companies usually have higher betas and react with more volatility. In down markets, investors flee risk and many growth / turnaround companies move lower faster than the overall indexes.    Further market weakness coupled with a continuing investor’s risk adverse posture may create even lower share prices, providing better capital gains potential.   As small businesses, there are aspects with each company that may cause specific investor concerns. 
     
    Basic Materials:
    Long-term, timber remains a favorite asset. Rayonier (NYSE:RYN), Pope Resources (NASDAQ:POPE) and Sino-Forest (OTC:SNOFF) still provide good long-term valuations. Due to its size and 4.6% dividend yield, RYN offers a bit more potential and safety than POPE at current prices. While there may be a slowdown in the Chinese urban housing markets, there is consistent demand for timber in the development of rural areas.   Pulp and industrial uses may experience a slowing of overall growth, but there should be adequate gains YOY. Sino-Forest should be on the list for researching Chinese stocks.  
     
    Consumers:
    The consumer is slowly returning to previous ways, albeit with fewer dollars, and there is anticipated continuing improvement this year and next. Agri-business Vittera (OTC:VTRAF) reported quarterly profits that were below expectations, and the stock got hammered. There is also concern about above-average global grain harvests that may put pressure on Canadian export volumes. VTRAF has been acquiring small food processing firms, further integrating its business. At its current price, most of bad news should be priced in, and the medium-term opportunity is basically unchanged. Rick’s (NASDAQ:RICK) decided not to buyout its next largest competitor and has returned to the successful roll-up business model. Business is still slow in Las Vegas, partially due to a reduction in high-cost marketing. While revs are down, gross margins should improve. The market has taken shares price down by 40%. The run up to $16 a few months ago foretells of the opportunity when earnings rise above $1.20 to $1.50. The driver will be a turn-around in Las Vegas and the acquisition/integration of more clubs. Heineken (HINKY.PK) has the added risks of being based in Europe and a large part of its market is undergoing more economic stress. Share price weakness could be viewed as providing a good entry point with a 24 to 36 month horizon. Copart (NASDAQ:CPRT) was just reviewed.  
     
    Energy
    The Gulf of Mexico spill has greatly impacted valuations and investor preferences in the energy sector. As an alternative to GOM oil, Suncor’s (NYSE:SU) oil sands assets become a bit more intriguing, although they may have their own environmental issues.   Dorchester Minerals (NASDAQ:DMLP) raised its dividend last quarter, and the stock responded accordingly. As an unhedged natural gas royalty income investment, distributions and share prices are directly tied to the price of natty gas. While DMLP has done well so far this year, there are higher earnings and dividends on the way. Galleon (OTC:GLNYF) threw in the towel and put itself up for sale. After an appropriate amount of time, it seems interested parties want pieces of the assets and not the whole company. While book value is around C$7, the long-term opportunities have changed dramatically, and share prices have declined. There are better potentials elsewhere. Chicago Bridge and Iron (NYSE:CBI) has been a victim of the market and sector downdraft. The investment thesis of their growing energy infrastructure business remains intact, and the company has $7 billion in backlog of orders. Current valuations are cheap. ATP Oil and Gas (APTG) remains one of the more controversial GOM companies, generating passionate, yet polarized, investors.    If you believe in the production opportunities offered by ATPG’s assets and the acumen of management to navigate the next 18 months of uncertainty, the current share valuations could be considered quite inexpensive. On the other hand, ATPG has high debt and capital expenditure needs just as the future of its GOM production comes into question. 
     
    Financials
    Non-banking financial services valuations have come down as the impact of pending legislation still weighs on the sector. The “laws of unintended consequences” will be a factor for a while. CME Group (NASDAQ:CME) is still fighting off upstart competitors to its core business. In the medium-term, CME’s strengths in expanding its business vertically and overseas should provide improving shareholder value. Macquarie Group (OTCPK:MQBKY) has fallen on concerns in its home country, Australia. The Aussie gov’t wants to slap a large tax on mining profits above a certain threshold.  As with any major tax increase, this raises the possibility of reduced mining activity, a major sector for domestic employment and exports. The Aussie Central Bank has increased interest rates five times over the past six months.  Macquarie’s medium term growth opportunities still remain, although EPS estimates may be revised down slightly. At its current price, MQBKY’s dividend of $1.72 yields 4.9%, offering a floor to valuations.
     
    Industrials
    An improving domestic economy will create the needed rising tide for industrials to regain their footing. Some will continue to improve this year, while other will be delayed until next. Thomas & Betts (TNB) offers an attractive investment based on the economic recovery. Terra Nova (NYSEARCA:TTT) is gaining some added attention, with most new comments focused on low current valuations. TTT is still in the process of restructuring with its spin-off, rights offering of this month, and investment selections for its large hoard of cash. While still a bit opaque and early in the process, TTT may provide interesting opportunities from here. Energy Recovery (NASDAQ:ERII) continues to push out its revenues/shipments as several projects with outstanding bids are still on hold. After losing ten straight projects to ERII, a large competitor, with higher product maintenance costs and lower efficiencies, has taken a major bid away for ERII. Their tactic was to offer a 25-year product warranty, but thie move greatly reduces long-term installation profitability. While difficult to compete with these terms, the competitor probably can’t offer this as standard bid terms on all contracts. In addition, the new in-house production facility provides better flexibility in developing new products. ERII’s share price has been crushed, falling almost 50%. The business opportunities remain intact, but the headwinds have increased and  ERII is more of a 2011 recovery prospect.  While ERII has a nice cash balance and little debt, it remains higher risk / higher reward.   Layne Christensen (NASDAQ:LAYN) was recently reviewed.
     
    Utilities
    Natural gas utility Energy Inc (NYSEMKT:EGAS) posted great 1st qtr results that should continue through the end of the year. An increase in its dividend should be on its way over the next few months and its current yield is 4.6%. Canadian-based Algonquin Power (OTCQB:AQUNF) experienced a nice run-up to $4.60, but has fallen back with the market. Based on the pending acquisition of the California utility and pending rate cases, EBITDA could increase by low double digits in 2011. The current yield of 5.9% provides a nice addition to its capital gains opportunities.  
     
    For more information on each of these, follow the link to the article index: http://seekingalpha.com/author/george-fisher/articles
     
    As with most equity investments, company-specific events coupled with overall market direction plays heavily on share valuations. Where the investment thesis remains intact, current share weakness should provide good buying points. Below is a table outlining the short-term performance of each of these companies:  the article date, price as of 6/10/10, price as of the article date, closing price for the S&P 500 on the article date, and returns for both the stock and the S&P 500.
     
    As always, investors should conduct their own due diligence, should develop their own understanding of these potential opportunities, and should determine how it may fit their current financial situation. 
     
     
    Stock
    Article Date
    Price 6/10
    Article Price
    S&P Article Date
    Stock Return
    S&P Return
    RYN
    23-Apr
    $45.21
    $49.00
    1217
    -7.7%
    -10.8%
    POPE
    2-May
    $28.01
    $28.00
    1202
    0.0%
    -9.7%
    SNOFF
    29-Mar
    $16.09
    $18.77
    1173
    -14.3%
    -7.4%
    VTRAF
    9-Feb
    $7.95
    $8.78
    1070
    -9.5%
    1.5%
    RICK
    14-Feb
    $7.88
    $12.50
    1075
    -37.0%
    1.0%
    HINKY.PK
    6-May
    $21.80
    $22.00
    1128
    -0.9%
    -3.7%
    CPRT
    9-Jun
    $36.76
    $36.00
    1062
    2.1%
    2.3%
    DMLP
    11-Feb
    $25.50
    $21.00
    1060
    21.4%
    2.5%
    GLNYF.PK
    16-Feb
    $5.01
    $6.06
    1094
    -17.3%
    -0.7%
    CBI
    24-Feb
    $17.92
    $21.00
    1105
    -14.7%
    -1.7%
    SU
    17-May
    $32.42
    $31.00
    1136
    4.6%
    -4.4%
    ATPG
    28-May
    $9.07
    $12.05
    1089
    -24.7%
    -0.3%
    CME
    9-Mar
    $303.59
    $310.00
    1140
    -2.1%
    -4.7%
    MQBKY.PK
    26-Apr
    $36.87
    $46.00
    1212
    -19.8%
    -10.4%
    TNB
    12-Feb
    $38.24
    $33.00
    1075
    15.9%
    1.0%
    ERII
    19-Apr
    $3.27
    $6.34
    1197
    -48.4%
    -9.3%
    TTT
    18-May
    $9.52
    $10.38
    1117
    -8.3%
    -2.8%
    LAYN
    4-Jun
    $26.12
    $27.00
    1064
    -3.3%
    2.1%
    AQUNF.PK
    5-Mar
    $3.93
    $4.08
    1138
    -3.7%
    -4.6%
    EGAS
    16-Apr
    $11.87
    $10.94
    1192
    8.5%
    -8.9%
    S&P 500
    10-Jun
    1086


    Disclosure: Long all the above except no position in CPRT
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Comments (3)
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  • sethmcs
    , contributor
    Comments (3426) | Send Message
     
    EGAS has held up amazingly well. Almost wished it would go back to $9.00 to buy some more.

     

    George,

     

    What do you think about UVE?
    12 Jun 2010, 12:38 AM Reply Like
  • George Fisher
    , contributor
    Comments (1708) | Send Message
     
    Author’s reply » seth - thanks for your comments. I agree that EGAS is on a roll, and should continue to garnish more attention. I don't follow UVE, and don't have an opinion. It seems they underwrite about 500,000 homeowners insurance policies in FL, and coastal areas are prone to large losses. Offsetting this could be larger "profit" margins in non-catastrophic loss years. I would research their ability to pay a # of catastrophic claims and still survive.
    13 Jun 2010, 08:00 PM Reply Like
  • sethmcs
    , contributor
    Comments (3426) | Send Message
     
    Thank you. UVE seems to have very sharp management and reinsures losses. UVE has high dividend and high growth rate. Insurance is a highly regulated business so they would have to have at least enough capital to be licensed to do business. Crossing my fingers this hurricane season. Long UVE.
    14 Jun 2010, 06:34 PM Reply Like
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