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TheBaron VI: Active February Brings New Strategy

Mar. 06, 2018 8:24 AM ETCNI, CSEAF, OSB, MGRUF, WFG, CNR:CA, WFG:CA, MRT.UN:CA6 Comments
TheBaron Investing profile picture
TheBaron Investing


  • As the portfolio grows, I have begun to modify my investment criteria to initiate new holdings within low and medium yield companies to complement my high yield holdings.
  • Some new investment portfolio moves, including exiting two major high yield holdings prompted by a recent short-seller article.
  • New focus on companies I am equal parts familiar with, and confident in, including companies that are relatively high priced.
  • Long-term focus is key to ensuring investor success, and diversification is key to consistent success.

We are quickly approaching the one-month mark between updates. Although I would very much like to continue to update twice-monthly, it would appear, at this point in the year, that once-monthly might be more realistic. Within this update, we will explore some of the portfolio changes I have made and introduce readers to a new suite of companies I have very recently added.

In order to prevent followers from being inundated with individual investment updates last week (when I did most of the portfolio maneuvering), this update will be the main disclosure for all February purchases, all sales were disclosed as they were done.

Portfolio Returns: Growth Through Net Cash Additions, Not Share Price Appreciation

My portfolio continues to grow well on the back of continued investment via the addition of new funds. With that in mind, I have been actively debating adding new holdings that will increase my portfolio's diversification. As it stands, my portfolio remains very aggressively invested into my high yield and highest conviction ideas.

As we move forward, I plan to lessen those holdings percentage of my total holdings through new additions to the portfolio, but not actively reduce the holdings sizes. The portfolio's returns over February is negative five percent (-5%) with a small reduction of -0.10% from my previous update.

Major Sale: Preferred Apartment Communities

The relatively weak return for February is a reflection of a poorly timed entry and exit of my investment in Preferred Apartment REIT (APTS) which has a strategy I like, but its high leverage and some of the larger dynamics in the industry proved concerning to investors across the REIT industry (and between the two apartment REIT picks of mine, I preferred the Morguard Residential REIT discussed in the next paragraph).

The largest change of the portfolio was allocating

This article was written by

TheBaron Investing profile picture
TheBaron Investing is a long-only writer for Seeking Alpha with a focus on financial institutions, private equity firms, real estate investment trusts and other companies/fields of interest. Published articles are intended to give readers a thorough understanding of the analyzed company, and bring investor attention to little-known companies with upcoming catalysts, or under-appreciated operational excellence, that allows purchases within a margin of safety. Articles are intended to raise awareness of quality companies, and are for investor interest only. For actual investment advice, please consult a qualified financial adviser. TheBaron Investing strongly recommends diversified, ETF-focused investing for the majority of retail investors.

Analyst’s Disclosure: I am/we are long PORTFOLIO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am long all products disclosed through Canadian exchanges. Please keep in mind most companies discussed are relatively small and trade with better liquidity on the Canadian exchanges.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (6)

Spockster profile picture
Canadian National Railway

In the wake of the sudden departure of Canadian National Railway (CNR-T;CNI-N) chief executive officer, RBC Capital Markets is cutting its price target on the railway.

"We attribute the company's operating issues as a result of too much growth, too quickly; culminating in the Board decision to replace the CEO. The focus now will be on rebuilding executive leadership and grinding through congestion issues. We advise investors be opportunistic as we maintain our positive view on the company's core asset base and the attractive dynamic of the industry in which it operates," said analyst Walter Spracklin.

" CN's Board announced the immediate departure of Luc Jobin and has appointed JJ Ruest as Interim President and CEO. The move comes as a result of significant congestion-related operating challenges that began in H2/17," he said.

" We believe that following years of successful cost cutting, the company (appropriately) shifted focus to customer service improvement and growth. Unfortunately, in 2017 that growth went into overdrive, leading to volume increases that were above what the company could manage. This in turn led to severe congestion and a deterioration in customer service. Correcting the issue would not prove cheap: more workers, more locomotives, more capex. Unfortunately this has been aggravated by high levels of customer dissatisfaction as YTD volumes trended down -6 per cent (versus industry average of +2 per cent)," he said.

"Two key areas of investor focus are now important. First will be rebuilding the leadership team through the selection of a new CEO. Second will be the company plan to address the near term issues of congestion and disrupted service. In the meantime, we expect the company's profitability growth to be interrupted and we see both the company's 2018 and long-term guidance as likely to come under review," the analyst said.

"CN has incurred volume declines YTD of -6 per cent, which is below the +4 per cent that we had forecast and worse than the level anticipated under management's full-year +3 per cent to +5 per cent guidance level. We believe higher than anticipated costs have also come into play, resulting in a hit to near-term earnings. Accordingly we are bringing down our 2018E EPS growth to +1 per cent (from our previous 8 per cent and the 5 per cent to 8 per cent guidance). We are assuming that the worst comes in the near term and that the company does begin to realign itself to resume growth in 2019."

He cut his price target on the railway's TSX-listed stock to $105 from $112 on the back of the lower estimates. He maintained his outperform rating. The median price target is $108.82, according to Zack's Investment Research.

"The issues currently facing the company in our view are not systemic. We continue to view the company positively for its high quality asset base, operating in a very attractive competitive environment. We believe value investors should take advantage of any near term weakness."
Spockster profile picture
Baron: just an update from some analysts on a couple of the stocks you mentioned:


After Clearwater Seafoods Inc. (CLR-T) reported disappointing quarterly results yet again, Beacon Securities Ltd. cut its price target for the stock.

"Clearwater reported another disappointing quarterly result yesterday. While fourth quarter revenue was in-line with expectations at $174.8-million, EBITDA (shareholder) [earnings before interest, taxes, depreciation and amortization] was lower than expected at $22.9-million – the weakest Q4 result since the acquisition of Macduff. For the year, this translated into revenue of $621-million with shareholder EBITDA of $89.1-million. The last two years have been painful for CLR shareholders (to say the least) with the stock down 70 per cent. The company's 'guidance' for FY18 doesn't paint a picture that it will get better anytime soon," said analyst Doug Cooper.

He cut his target price to $8 from $12 but kept his "buy" rating on the stock. The median target price is $9.88. The stock is currently trading at about $4.25.

"Clearwater listed a litany of headwinds in FY18 including: a) The expropriation of 25 per cent of its clam license. While the situation certainly seems "fishy" and the Clearwater has plans to litigate, as it stands now, revenue will be down about $25-million in FY18; b) Scallop revenue will likely be down about $15-million given the potential for TAC [total allowable catches] cuts and increased U.S. supply (pressuring prices); c) The shrimp TAC cut in March, 2017 will likely result in lower y/y revenue in Q1 and FY18."

"Given the expected lower revenue y/y in FY18, we have revised our forecast. We now model $577-million in revenue (was $602-million) with consolidated and shareholder EBITDA of $95-million and $76-million respectively (were $118-million and $95-million). "
TheBaron Investing profile picture
Thanks Spokster, I appreciate the information. I was familiar with Clearwater Foods issues, but I maintain that they are one of the best positioned for the future growth in the industry with one of the youngest fleet's around. Their capex should decline quite a bit, freeing up capital while they navigate a tough 2018.

The big question will be how well they can manage their costs while they wait for pricing and TAC to improve. The long-term fundamentals in the industry are still intact, and I don't see any reason to believe that they should be priced in the $4.00 range with all of the positive changes they've made to their business, including a very well timed upgrade to their fleet that finished just in time for weak prices.

Some might be concerned with a dividend cut, trade war style issues with this largely export focused business or some other drastic change, but I don't see any of those issues affecting them long-term. Although I will admit my research is not completed.
Orphan Brigade profile picture
Great article. Thank you. Was curious about Clearwater and there daily volume and price. Both don't seem to budge much, was curious if you had any input about that ?
TheBaron Investing profile picture
They are a relatively small company in a specialty industry, so there is not much action on any given day. Today they were down as lower realized prices and lower margin product-mix sent them their income negative (quarterly report came out today).

I will probably try to pen an article in the next while about the company, help me refine the idea for other investors. My purchase was ill-timed as a weak quarter was expected, but the price action today makes me think many investors in the company did not see such a weak quarter coming... The efficient market hypothesis is always funny to watch in practice.
Orphan Brigade profile picture
I almost jumped in but held off, I am going to wait and see where it goes. Take a look at Grieg Seafood out of Norway. Hard to find any information on them but seem to be a fairly decent company ..
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