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Copyright © 2010 Gal^Stad Investments Inc. |
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Buys Buys are sent by email/fax to subscribers only. Sells UPDATE April 4, 2007 TSX Sold: Clairvest (CVG)
We're in the midst of working on the upcoming issue, which will be in the mail on April 18th. The following paragraph was to appear as the final entry. We won't give you a clue what was in the preceding six, and they will have to be changed a tad with our sale. Some might even be cut! Clairvest re-values its investments on a quarterly basis, so there are variations in results due to unrealized gains or losses on their investments. The results for the third quarter saw Clairvest's book value roughly unchanged at $13.41 per share, compared with $13.46 in the second quarter. We partially sold our holding (55 percent at $10.00) in June of 2005 and the price did go as high as $11.49. Since the share price trades at a rough discount to book, and the key is to accelerate the growth of said book value, we expect the remainder of our shares to be taken out during a quarter when there is a decent unrealized gain. The most likely scenario is if there is a revival in the gaming sector which Clairvest has a sizable investment stake. That was rather prescient, if we may say so ourselves. Today, the stock went relatively ballistic on the news that there is an offer to buy the company's 28.4 percent interest in Gateway Casinos Inc. and 5.7 percent interest in Gateway Casinos Income Fund from New World Gaming Partners Limited of Australia. Clairvest will receive $130 million, way over the book value of $73 million reported at the end of last year. That news sent the volume from the desultory daily average of about 1,700 up to almost 50,000, and the stock price spiked by over $2.00. That's a typical year's worth of gain in a single day. While Clairvest has about as stable an upticking chart as a company can have over a seven-year hold period, this gyration has taken it off its normal trend line. And with that, taken us out of the remainder of our position. UPDATE February 14, 2007 NYSE Sold: Network Equipment Technologies (NWK)
When purchased at $3.65 in December of 2002, we had no idea that NWK would move rapidly on a dynamic upward trajectory through our target. In February 2004, it touched $14.35. Nor did we perceive that the heavy insider selling at the time indicated that perhaps all was not well with the company. The shares cascaded downwards shortly thereafter. In the last 52 weeks, they touched $2.65, and if we had been wiser, the truck would have been loaded up for more. The recent rebound has also been swift, and this time we'll take the latest bout of insider selling as an indication that the time is ripe to leave this company behind. Course, as often happens to us, the price could continue upwards ignoring our cautious stance. RR Donnelley is currently smiling upon us from above. Shucks! All the numbers are moving in a positive direction for this enterprise. Revenues are increasing and the quarterly loss was pared year over year from $2.4 million down to $599,000. A number of new products have been released and are receiving a positive reception in the marketplace. More are planned. The balance sheet remains strong. So there are lots of reasons to hold this outfit. Evidently though, not enough for us. By the way, if you have any friends or associates who have thought of subscribing, we have less than 1,000 subscribers for the first time in years, currently sitting at 975. This is an optimal moment for them to bypass a waiting list. If and when we reach the magic 1,000 again, the waiting room will be reopened. Happy Valentine's Day to you all. UPDATE February 14, 2007 NYSE Sold: R.R. Donnelley (RRD)
It is hard to know exactly what a classic Contra play is as the scripts always vary somewhat. But R.R. Donnelley, which we purchased as Moore Corporation had one of the key elements: we definitely made our share of mistakes. These included buying early, overpaying, and not averaging down at a propitious moment. And if a takeover at a higher price is announced soon as is rumoured, that will mean another error. Did we mention the eons spent under water before the stock price finally climbed back to our purchase price, let alone making any progress towards the target? Yes, we see long-term subscribers nodding in the back, some who bought their shares at less than half of what we paid. But heck, it is hard to complain. The holding spanned about eight years, which doubles our average. However, with a triple now in the bag, patience proved exceedingly worthwhile. And that does not include the spicy dividend, which of course moved percentage wise with the stock price but was often better than three percent. As often happens with our success stories, Donnelley had swelled in the portfolio, comprising better than nine percent. Therefore with one fell swoop, our risk of holding a high priced stock in precarious times dissipates. It also changes the Canadian - U.S. mix with the northern side now slightly better than 50 percent. It is hard to remember the last time that happened. Now if oil becomes priced in a basket of currencies instead of U.S. dollars ... Old Moore specialized in printing forms, which has to be about as boring and staid as anyone could imagine. It was considered an irrelevant dinosaur in the digital age. But we felt the outfit still had a purpose, even in the paperless society. When purchased, this was definitely a contrarian classic. For those who continue to hold their shares in an account denominated in Canadian dollars, it is worth noting that Toronto provides limited liquidity. The stock is easier to sell in New York. Based on Friday's exchange rate of 1.169, our sale price was equivalent to $43.77 CDN. After this flurry of recent emails, perhaps we'll be quieter now and save our voices for the Financial Forum and MoneySaver events. UPDATE December 12, 2006 TSX Sold: NQL Energy Services (NQL)
National Oilwell Varco (NOV) has been kind enough to pay us $7.60 per share, three weeks shy of two years after we paid $1.11 per share. If you plumb forgot to tender your shares, fear not: the offer has been extended to December 19. UPDATE November 13, 2006 Nasdaq Sold: Fonar (FONR)
Given the severe beating that we have taken here, we're just going to lick our wounds and avoid the MRI jokes. When purchased, this company appeared to us to have lots of potential. But the corporation we purchased with increasing revenues and black ink saw revenues plunge, and with it, the bottom line turned ugly. Sales collapsed from better than $100 million in 2005 to the $33 million range in 2006. The loss was over $30 million. The first quarter of this year "featured" a further year over year revenue decline from $10.2 to $7.7 million and a loss of $6.1 million. We have been in regular contact with the management of this company and the firm's potential for a closer relationship with General Electric, plus some of the recent sales to new clients, gave us reason to pause and not sell this one earlier. If we had been more in tune with the future, this one would have been kicked out when the stock price jumped last June on the supposedly "material" deal with the Department of Defense. At that point we would still have taken a licking, but risen more quickly from the canvas. Since then, talk about the DOD has been conspicuously absent. Our best guess for the immediate future is that Fonar will be delisted and trade over-the-counter. While we have dealt in this hinterland before, it is more difficult and volumes tend to be skinnier and the bid-ask spreads greater. We did not fancy trying to exit a stock like Fonar under these conditions. If the company's plan to increase revenues works, this outfit could mount a comeback. However, in our discussions with them, they showed no desire to chop expenses, which would likely have meant eliminating some jobs. As investor relations VP Daniel Culver told us, Dr. Damadian highly prizes keeping their people in the jobs. It would make for a fascinating university case study: at what point do employees have to be cut to allow a company to remain viable and preserve the remaining jobs. In contrast, Fonar's management recently indicated that the head count would increase to drive sales. The adage, "whistling by the graveyard", comes to mind. Fonar has added to our education. The Contra methodology gives marks for insider buying and substantial ownership, both of which were true in the case of Fonar. As important as that commitment by management is, it is contingent on the quality of management. So though it gives us confidence to see a chef eating his own cooking, a lousy chef may nonetheless be happy to tuck into his own gruel. The price of this lesson has been high, but we'll just have to take this experience with the accompanying tax loss and apply the learning in the future. UPDATE November 2, 2006 Theragenics (TGX)
While our results have been desultory at best this year, a number of stocks have been sold for huge gains. At this point, after analyzing our various options, we decided to take the tax loss on Theragenics. The company reported results yesterday and it was the most successful quarter since 2002. Revenues were up 19 percent year over year and net income was $1.7 million or 5 cents a share. As CEO Christine Jacobs said, "Today we are larger, stronger and more diversified than ever in our history. We have new avenues for growth through both CP Medical and Galt. We intend to continue executing our strategy. That strategy includes continued acquisitions of medical device companies that compliment our current portfolio." If the company continues to move in a positive direction on the bottom line, the stock price should certainly move forward. And we do think that this might indeed be the case. For that reason, it is heading immediately to our Stock Watch List and it is possible that this outfit will be repurchased in the future. However, we'll take the tax loss now as a negative bird in the hand, so to speak. TGX's financial numbers remain excellent. It is selling for less than book value and there is limited debt. They have the kind of balance sheet that is a pleasure to gaze upon. However buying two companies has reduced what used to be a substantial cash cushion to a much thinner wallet. As outlined in our most recent letter, we do believe that the company has been overpaying on acquisitions, particularly the Galt deal. Paying $31 million for a company that had revenues in 2005 of $7.1 million makes no sense to us. Theragenics will have to ramp up sales mightily to make that investment pay off. Given that the tax man will have a better bottom line due to the recent income trust decision, we feel that he can afford to accept less money from us. UPDATE October 4, 2006 Air France-KLM (AKH)
Well, there goes one that was turbulent. Not only was the purchase questioned by the usual suspects, but Benj then went on his cross-Canada media tour for his latest book, The Contrarian Investor's 13. And given that this was 2002 and the world was still reeling from 9/11 and airline stocks were in the crapper, there were lots of reasons for skepticism. Plus, one of the greats of the investing world has sworn off airlines and questions whether anyone can make money in this field. Heck, we did! In reality, this was a classic Contra play, cherry-picking what we believed was the best corporation in a beaten-down field. And there could still be many positives ahead, as on fundamental metrics, AKH still appears cheap, with the company selling at better than a 20 percent discount to book value. Passenger traffic is up, first-quarter profit more than doubled, and even prior to oil prices tumbling, the company predicts a "significant increase" in operating income this year. The current P/E ratio is around six. So lots of reasons why people are buying into this outfit. Still, our perception was that this was an excellent time to take a large profit. One element to the dramatically improved results has been the fortuitous use of fuel hedging. For the 2005-2006 fiscal year, 85 percent of consumption was hedged at $39 per barrel, creating a savings of 1.1 billion euros. Since these hedges have worked so well, the company has continued to hedge fuel out as far as 2009. For the 2006-2007 fiscal year, 77 percent has been hedged at $50 a barrel, at a projected 1.3 billion euro saving based on an assumption of an average oil price of $72 a barrel. Of course, if in reality oil averages below $72, those savings will be lower than anticipated. And if oil should drop below $50, those hedges will start generating losses. That's the thing with derivatives, they are as sweet as a butterscotch sundae when they go in the right direction, but they hold the potential to be as palatable as sour milk when they don't. This deal knocks out more than another 13 percent from a portfolio that has been radically depleted through sales this year. The "residue" leaves less money invested in the market than at any time after the millennium. As always, we will be looking for purchases before the end of the year.
NYSE Sold: Air France-KLM Warrants (AKH-WT) The warrants were received in the Air France-KLM transaction in May 2004
and did not cost us anything, except a lot of fuss at the time. Expiring
in November 2007, there is lots of time for them to rack up additional
gains. For quite a while they were not worth much -- at 41 cents as recently as
the October 2005 issue -- and we did talk about acquiring more.
Unfortunately, that did not happen, and given the lift in the stock price
of Air France-KLM, these have soared. Leverage can be a delightful thing.
If the stock price keeps going up, the ongoing rewards here will be
stellar. Still, it was an excellent bonus that brought our capital return
to a fantastic 317 percent, and that doesn't count the dividends along the
way. So don't cry for us, Paris. UPDATE May 11,
2006 TSX Sold: NQL Energy (NQL) Darn that first sale! It seemed so good at the time, a 395 percent gain in less than a year. And yeah,
there is that thing in Our Philosophies about selling some when the Initial Sell Target is reached. But NQL
continued to defy expectations adding on another 73 percent from our sale price in about six months. Holy
gusher! So, to be prudent, and cash a magnificent gain, we have taken another 30 percent off the table. Obviously if we did not think that there was further upside potential, the whole salami would have been
sold. But management is doing such an excellent job that our confidence in a higher valuation remains. Plus,
none of the multitude of insiders have been selling - not one single share. That is very unusual in situations
like this. Maybe they are contemplating conversion to an income trust and cashing in then? Quarterly results were not in as this missive was being written, but should be out today or tomorrow.
Without needing much of a crystal ball, we believe that they will show a significant improvement from last
year. Oh happy days ... UPDATE April 14,
2006 TSX Sold: Claude Resources (CRJ) When our second chunk of Claude was sold four years ago, we relied on
momentum to take it to the next major level. We have waited long enough
and sold the remainder of our position. That does not mean that it will
not finally push higher, simply that it was time to pack our bags near the
adjusted initial sell target and move on. Part of the rationale was that
so little of Claude was left as a weighting of the portfolio that it felt
appropriate to bail. At the PDAC (Prospectors & Developers Association of Canada) show in
Toronto in March, we had conversations with the CEO and the top
prospector for this outfit. It appeared that things were indeed tickety-boo. Course, that was also the impression that we had last year, and
unfortunately things did not pan out. 2005 registered a loss to the tune of about $3.5 million. As usual, more
shares were issued but as CEO Neil McMillan pointed out, there are still fewer than 80 million fully diluted, not a lot for a company of Claude's
size. Even with higher prices in the resource sector, it seems unlikely
that Claude will have a profit in 2006. 2007, however, will likely be
better. There are indeed positives on the horizon. Gold production at Seabee
should return to around the historical average of 48,000 ounces, up over
10 percent. Unfortunately, to some degree this will be offset by elevated
costs. The decline of oil and gas production should be stemmed to some
degree and the high higher prices likely to be received should help. Plus,
proven and probable reserves were up by 57 percent year over year. And of course this firm is in sectors that are hot, hot, hot. So there are
good reasons to keep it. UPDATE April 4,
2006 NYSE Sold: Franklin Covey (FC) In our January review of Franklin Covey we mused that it might be a wise idea to yield to the temptation of cashing in some of the handsome profit on this company, especially as this holding comprised
a large percentage of the portfolio. With the stock punching out today at a
high not seen since 2000, that weighting topped the 25 percent mark. Though it is rare for us to make a sale before the Initial Sell Target is reached, we felt in this extraordinary case that prudence dictated an exception to the rule,
so our position was trimmed by 33 percent at a price of $8.84. We
have no plans to sell more until at least the Initial Sell Target is
reached. Franklin, after becoming a veritable basket case, has improved
quarter after quarter. Management took the tough steps necessary to
stem the red ink and the results are evident. We'll have more to say
on this in the next issue of Contra, which will be on its way on
April 26th. TSX Tendered: Hudson's Bay Co. (HBC) The deal between HBC and Maple Leaf Heritage Investments is complete and our funds were received in March. You may wish to check your account statement to ensure that you have been correctly paid. UPDATE February 9,
2006 NYSE Sell: Xanser Corp. (XNR) Nothing much new to add here that was not said in the release earlier in the week. The first attempt to sell all of our Xanser failed. Now the process is completed. This means less exposure to oil and gas services and technology. After a very sweet gain. UPDATE February 6, 2006 NYSE Sell: Xanser Corp. (XNR)
Our little orphan has finally found a home. Spun off from our savoury near triple play in Kaneb Services in 2001, the stock has dipsy-doodled such that traders could have enjoyed succulent gains -- or losses. The catalyst to break out of its trading range -- and for our sale -- was the $16 million purchase of a chunk of Flowserve. Flowserve makes fluid-handling equipment, pumps, valves and mechanical seals, and it is the general services business that will be rolled into Xanser's Furmanite division. This would seem to be an excellent fit, and investors were impressed with the $100 million in revenue that the outfit generated in 2004. Xanser has always been this weird amalgam of Xtria's information-technology services and Furmanite's mechanical-engineering services. When tech was in vogue, Xanser tried mightily to push that side of the business. Now with anything remotely tied to energy in the headlines, Furmanite is first violin. Though profitability has been spotty in the past, contracts for plant and pipeline maintenance with such firms as Exxon, Mobil and Shell have increased sales. Revenue for Xanser this past quarter was $40.4 million, compared with $35.8 million for the immediate prior period. Xanser's pre-tax income was $1.3 million for the third quarter 2005, compared with $1.0 million for the third quarter 2004. The company reported net income of $41,000, compared to $205,000 one year ago. For the first nine months the figures are an increase in revenues of $119 million, a solid improvement over $103.6 million last year. But the net loss of $4.0 million compares poorly to $1.2 million worth of black ink in 2004. Blame for the poor bottom line lies with lame duck Xtria. Focused on the healthcare market, revenues increased slightly over the first nine months of the year to $18.1 million, but the operating loss was a staggering $6.8 million. Taking in a dollar and losing better than 33 cents is no way to operate a business. President and CEO Michael Rose stated, "We have continued to address the issues in Xtria, including the resolution of several contracts signed by prior management that were deleterious to the business. This is a year of fixing problems, and after we put those behind us, we will be able to get back to a focus on growing Xtria." That sounds lovely, but those calming words have not salved the impulse of insiders who have dumped shares. Given the pathetic performance of Xtria and the risks associated with integrating a new business that Flowserve seemed a bit too eager to slough off, we are very pleased to sell three-quarters of our position at the target price and further lighten the load on the U.S. side of the portfolio. |
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