My 2020 Seeking Alpha Year In Review
- 2020 was my second year writing for Seeking Alpha.
- Introspection and reflection are key tenets to invest by.
- To that end, here is a review of my 2020 Seeking Alpha write-ups and how the companies assessed have performed.
Over the course of 2020, I published eight Seeking Alpha articles highlighting aspects of how we invest here at Contra the Heard. Of those eight write-ups, six were detailed company or ETF assessments. Appropriate questions at this time of year are: How did they do? Do you still own them? What are their prospects now? Answering these questions and reflecting are critical to investing success. Just as a professional athlete should review their games, investors should review their trades, positions, and the accuracy of past projections.
Alpha Pro Tech:
Alpha Pro Tech (APT), my first write-up for 2020, was published in January, and can be read here. The name was up 225.1% in 2020, while the S&P 500 total return was 18.4%. The massive return is a direct result of the Covid-19 crisis, as the company manufactures face masks, face shields, and other personal protective equipment. Here at Contra the Heard Investment Letter, we purchased the stock in 2012 at $1.17, and our thesis argued the stock should take off during pandemics, outbreaks, and health scares. In other words, we thought it was antifragile and gained from healthcare disorder.
This thesis has now been validated twice. The first validation was in 2014 during the Ebola epidemic when we unloaded most of our position at $3.34 and $6.96. The second validation was this year with Covid-19, when we sold the remainder of our position at $7.65. Though this generated a significant return, in retrospect we could have done so much better that it is laughable. Today the stock is trading at $11.15, and hit a high of $41.59 in February. Therefore, what would technically be considered a win is actually a loss because we missed out on so much of the upside.
Year to date sales and net profits have soared and the outlook for 2021 is strong thanks to a solid backlog for personal protective equipment. Going forward Alpha Pro Tech looks well-positioned and their summer inclusion in the Russell 2000 and 3000 appears justified.
The lesson learned here is to sell down in more batches to take advantage of momentum while locking in good gains along the way. While hard to do, such a strategy would have allowed us to make the best of both worlds. Unfortunately, in this case we did not do so, and what was a good gain could have (and should have) been an outstanding gain.
I wrote about XBiotech Inc. (XBIT) in February. At the time, the organization was completing a tender offer to buy back 14 million in stock at $30.00 per share, for a total cost of $420 million. The tender concluded on time and generated a decent return for those who could purchase odd-lot positions, thereby eliminating the impact of proration. In the aftermath of the tender, the stock fell to under $10.00, and we issued a “neutral” outlook for the stock at $12.73. At the time of this writeup, the stock has rallied to $15.65, which surpasses the return generated for the S&P. It seems that my neutral rating was too bearish. The company’s outlook appears promising for 2021 and they have launched a new Influenza-Covid-19 antibody treatment.
Strategic Metals Ltd. (OTCPK:SMDZF) on the Toronto Venture Exchange was reviewed in May; those interested in this prospect generator can read my analysis here. Since May, the stock has fallen 10.2% while the GDXJ has rallied 18.4%. My thesis suggested that this lagger may outperform its gold peers but clearly that has not come to pass at it has continued to underperform. The thesis for owning the company has not changed however, but the latest drill results in November were disappointing. Nevertheless, the organization is cheap, well-capitalized, and is less risky compared to most junior minors given its prospect generator model and concentration inside the mineral-rich Yukon Territory. Since my article in May, I have maintained my position as the prospects for the organization still look promising despite the lackluster November drill results.
Two notes here. First, Strategic Metals Ltd. is too small to be considered for Contra the Heard Investment Letter, so this stock is only held in my personal accounts. Hand in hand with its micro-cap status is its low average daily volumes. Investors interested in this company need to recognize it is illiquid and small, so buyers beware!
First US Bancshares:
First US Bancshares (FUSB) is a small regional bank headquartered in Birmingham, Alabama. I wrote about the company in June when it was trading at $7.22. Since then, it has rallied 24.9%, while the S&P 500 has returned 22.5%. The bank has also provided a dividend yield of 1.33%. This stock has performed well versus the index, but banking in general remains in the doldrums for good reason. Covid-19 has devastated the economy and there are many questions regarding consumer and business credit quality. Nevertheless, I have actually increased my stake in the name. In my analysis, I noted that after the 2008 financial crisis we invested heavily in US regional banks and that experience generated a few key lessons.
The biggest lesson is to try and avoid blow-ups. There is no foolproof way to do this but assessing capital ratios and leverage is a good starting point. In addition to company disclosures, Deposit Accounts is a great resource to help with this. Investors need to accept volatility as well. Shortly after I purchased a few banks in 2009-10, for example, they fell by roughly half very quickly, and languished for some time before going on multi-year rallies. This brings me to the next important lesson – be patient! It may take a long time for dividends to roll in or grow, and even longer for capital gains to materialize. To that end, we will be patient with FUSB, and will likely hold it long into the future.
Guyana Goldfields (OTCPK:GUYFF) was the second special situation reviewed during 2020. Unlike XBiotech, which was a tender offer, the Guyana Goldfields special situation was an acquisition. After a protracted bidding war in the spring, China-based Zijin Mining Group (OTCPK:ZIJMY or OTCPK:ZIJMF) acquired Guyana Goldfields for CAD $1.85 per share in cash. I took a position at CAD $1.73 in mid-June, and the deal closed as anticipated in the third quarter. This generated a respectable 6.9% return.
Buying into companies being acquired is just one of many ways to play M&A. While in this case the purchase worked out as anticipated, the strategy is risky because the possible upside is often much smaller than the potential downside should the deal fail. I try to reduce the risks by carefully assessing the terms of the takeover, taking small positions relative to my overall portfolio, and biasing towards names I wouldn’t mind owning should the deal fall through. These risk reduction methods are far from foolproof though, and blowouts can and do occur. In this strategy you need to have many winners to offset the losses incurred by one loser.
Corby Spirit and Wine:
I reviewed Corby Spirit and Wine Limited (OTCPK:CBYDF) and (OTC:CRBBF) in October. The stock has run 8% since then and provided a quarterly dividend. The latest earnings saw strong top and bottom-line growth, as well as a 10% dividend increase. The thesis here is simple – the balance sheet is consistently in good shape, the top line is stable, and margins are strong, which in turn results in generous dividend payments. Moreover, the organization is 51.6% owned by French-headquartered Pernod Ricard (OTCPK:PDRDF) and (OTCPK:PDRDY); this means Corby has access to desirable brands and stable distribution agreements. Finally, the valuations remain low versus their historic average. Over time, I anticipate the valuations will regress towards their mean, providing shareholders with capital gains and dividends. Since the article was written, I have increased my own stake personally.
2020 was my second year writing for Seeking Alpha. Of the year’s eight write-ups, six were company specific. I believe that introspection and reflection are key tenets to invest by, and that assessing past performance may fine-tune one’s investment process and improve future results. At this time of year, appropriate questions to ask during a review are: How did the companies perform? Do you still own them? What are their prospects now?
I hope this article has answered these questions. Upon reflection, two of the write-ups pertained to special situations, both of which concluded as intended (one was a merger and the other was a tender offer). Of the remaining four companies reviewed, three are up since the time of writing, but that does not paint the entire picture as one stock in particular continued to outperform after we had sold it. Therefore, our “win” with that name was a shadow of what it could have been.
Aside from my company-specific reflections, I feel that 2020 showed investors the importance of going against the prevailing trend. Those who had the gumption to buy in February and March have done very well and those locking in gains now may be rewarded with better valuations later. The past wild year also demonstrated that outlooks are uncertain and markets are volatile, and the best remedy is to have a clear game plan developed and then to stick to it through the volatility.
A big thanks to everyone who has subscribed or read my articles this year. Your support, questions, and feedback are much appreciated. Next year, I hope to write more here at Seeking Alpha, and of course we will continue our usual analysis and publications over at Contra the Heard Investment Letter. All the best in 2021.
The opinions expressed – imperfect and often subject to change – are not intended nor should be taken as advice or guidance. Contra the Heard Investment Newsletter is not an investment advisor or financial advisor. Contra the Heard Investment Newsletter provides research, it does not advise. The information enclosed in this article is deemed to be accurate and reliable, but is not guaranteed by the author.
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Analyst’s Disclosure: I am/we are long SMDZF, FUSB, CBYDF. 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.
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