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Buys Buys are sent by email to subscribers only. Sells UPDATE April 26, 2010 Vice-President's Portfolio NYSE Sold: Wabash National (WNC)
As the April issue just went out, there isn't much new to say about Wabash. No reports of new orders, no analyst upgrades, no announcement of a breakthrough in solar-powered refrigerated trailers. So the question is, What is driving the stock higher? It could be anticipation of much-improved first-quarter results, but that is a little way off still, probably around mid-May. As mentioned in our review of Integrated Silicon in the April Contra, the $10 mark is important because that level wins more attention from pension funds and other institutional investors. In the past few years, we've noticed an increase of software packages that create trade signals based on technical analysis. Perhaps these programs are persuading some people to jump on the bandwagon. A more pedestrian explanation is that this is a good, old short squeeze. Those with a predilection for slumming it may have noticed that Wabash is colourfully and consistently bashed on the Yahoo message boards. As a source of information, this venue presents lots of noise, but the smokescreen can still point to fire. At the beginning of 2010, short interest was 481,193 shares. This moved up steadily, then accelerated sharply in tandem with the surging stock price. By the end of March, short interest had climbed to more than 1.8 million shares. With the amplitude of the run-up, the margin calls on these short positions must be horrendous. Given how this stock can jump if another substantial order is announced, it would not be surprising if shorts are electing to take their beating now, rather than risk worse later. The top end of the target range is $14, still a fair distance away. With a tidy profit salted away, the intention is to hold off on further sales until the shape of the turnaround rests on solid evidence rather than pure conjecture. UPDATE April 7, 2010 Vice-President's Portfolio NYSE Sold: Wabash National (WNC)
When the ice-President's portfolio was started on January 21, no sales were envisaged for at least a couple of years. A partial sale in just two and half months is therefore a huge surprise. In the first few weeks, there was no hint that Wabash was readying itself for takeoff. The stock drifted sluggishly, hitting a low of $2.58 on February 5. On March 5, it inexplicably popped as high as $4.62 on unusual volume of 1.7 million shares. On March 9 the mystery was solved when it was revealed that Wabash had received a much needed order for 3,100 trailer units from Swift Transportation. Do you reckon the office needs a little more security around the shredding machine? Be that as it may, this chunk of new business has been a game changer. It has meant 100 jobs in the depressed heartland of Indiana, with 90 more expected in the quarter. At this point, these positions are considered temporary. But the announcement today of another significant order from Prime Inc. for 4,000 refrigerated units will give these workers encouragement. As for investors, they are going hog wild. They have been willing to bid up the stock aggressively, assuming that it is smooth sailing from here. These orders are indeed excellent grounds for optimism, especially in the context of some pretty good economic data recently coming out of the U.S. But how quickly will Wabash's overall business improve? Just what the margins will be with this new work remains to be seen. Given the landscape of the trucking industry, it would be reasonable to assume that Swift and Prime held the high ground in negotiations. How efficiently these orders get filled depends on how effectively the company has reorganized operations. We won't know that for a long time. Shareholders would also be wise to recall that the real monster winner so far has been the Lincolnshire hedge fund, which owns 24.7 million shares. The cost base on this windfall is zero, they were a party favour granted for providing Wabash with desperately needed cash. These folks seem to know how to take the wheel of a speeding rig, but any way you cut it, these shares represent massive dilution. The target range of $10-$14 was predicated on the estimate of a holding period of about 3-5 years. Given the degree of progress towards the target in a tiny fraction of that time, it was deemed prudent to sell 25 percent of the position and cash some profits. Also, it is anticipated that the next couple of quarters will show some nasty results. It would not be surprising to see a splash of reality cool off the speculative fervour about Wabash's future. We previously wrote that with two portfolios, you would hear more from us. Hopefully, not too much though. UPDATE April 7, 2010 President's Portfolio NYSE Sold: Franklin Covey (FC)
This is a bit of a roll of the dice. We sold during the day before Franklin reported results. If they turned out to be very good, the stock price could continue the smart upward march it has recently performed. If they are bad, the stock could easily drop. One thing for sure is that we still have over 20 percent of our original position and hopefully that will be jettisoned at a higher price. It is also true that the stock does sometimes peak right around now, more often than probability would dictate. So how were the results? Chairman/CEO Bob Whitman stated, "Our second quarter results reflected the continued positive momentum that we began to experience during the latter part of the last fiscal year. Revenues were slightly ahead of our expectations due to broad-based strength across most of our major channels, including our domestic direct offices, international licensees, and practices. Excluding our self-funded marketing programs, our revenue increased nearly 10 percent, which marks the highest revenue growth we have achieved since the fourth quarter of fiscal 2007. We also achieved further improvements in our gross margin and, given our meaningfully reduced cost structure, we were able to achieve another significant improvement in Adjusted EBITDA. Our bookings continue to be solid, which we believe will result in continued improvement in our third quarter and fourth quarter results. During March, we booked more than 700 days of training for future delivery, up considerably from 397 days booked during March 2009. Our solutions-oriented practice offerings, which address problems such as trust, customer loyalty, and execution, are gaining significant traction with a number of our organizational clients. "We also have been particularly encouraged to see our field offices and facilitator business resume growth after declining in fiscal 2009. With positive revenue trends, a growing pipeline of future business, and a streamlined cost structure, we continue to believe that we are well positioned to achieve a significant increase in profitability this fiscal year and beyond." Sounds good, certainly. In terms of numbers, sales increased year over year by 6.2 percent to $31.8 million. However, the company that we purchased in 2003 used to have revenues of better than double that, before selling off a division in the summer of 2008. The net loss was $1.4 million, an improvement of $2.5 million. Still, a loss. So to our minds, some good, some bad. The stock market has had an absolutely amazing, and for us, unforseen run over the past year. Forecasting where it will go from this point is difficult. Benj is pleased to take some money from an excellent gain off the table. UPDATE January 13, 2008 TSX Sold: Viterra (VT)
Towards the end of last year, Viterra broke through our Initial Sell Target but we did not sell for two reasons. First, we wanted to defer paying capital gains tax. Second, the October to May period, more often than not, is a favourable time for stocks so we reasoned that a higher exit price was reasonable. Well we definitely achieved the first and also the second. However, it is still up in the air whether this will prove a good period for stocks, but given our sale price, that is less of an issue. When purchased, we stated that agriculture was going to be a place to be and our analysis has been dead-on. Longer term, our view has not changed. However, given the difficulties in the global economy, it seems prudent to take some money off the table. Viterra«s recent financial results were excellent. The company continues to move in the right direction. A major caveat going forward though is the debt on the books. The takeover of Agricore was expensive and the funds owing will have to be refinanced. We are confident enough in this dominant sector player to let the remainder of our position run. At the end of the day, this sale takes about 7.5 percent of the Contra portfolio off the table. This is the second time we have played The Pool for excellent gains. In our minds, grain rocks! 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. |
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