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  Contra results 2013

BENJ GALLANDER and BEN STADELMANN

Friday, January 28, 2014

After another year passes into history, it's time to look back at how our picks fared. As usual, the results are somewhat of a mixed bag.

Out of the January starting gate was Dover Downs, a casino operator that also has a hotel and horse racetrack. Trading at $2.25, we mentioned how competition was becoming fiercer in this sector as new casinos opened. And true to form, as they did, DDE's revenues took a beating.

Management reacted promptly and kept the company around break-even, but that was not good enough for shareholders, including us. We took the tax loss at an average price of $1.46. The stock finished the year just below $1.50.

Next up, the divergent paths of two junior gold miners, B2 Gold and San Gold, were examined. Since then, Ben's position in B2Gold has dipped by about 22 percent, but that's not too bad compared to the 57 percent drubbing for San Gold.

The petals fell off the rose in the heart of the recession for 1-800-Flowers, and it crashed to under $2.00. Later, when we set fingers to keyboard, it was trading at $4.97 with a target price of $11.84. Alas, after jumping above $7.00, it wilted to the $5.25 range.

In April, Macatawa Bank, one of Benj's many selections in this sector during the heart of the recession, was trading at $5.35, about double where we had purchased it a number of months before. It has since dropped a tad to $5.10, but our feeling is that this Michigan-based bank could double, especially as the economy in that state improves.

France Telecom, since renamed Orange, is the largest telecom player in France and operates in numerous other countries. Sitting at the $10.50 range in May, it moved up almost 20 percent before the end of the year. Add in the generous dividend, and this investment turned out very nicely. This purchase suited our methodology to a tee, cherry-picking a leader in a woebegone sector.

As the headline observed that "Torstar is trying our patience," the question was whether or not this one should be dumped. Indeed, a slight tax loss was taken at $5.39, as worries about whether the dividend would be sliced were in the air.

Fortunately for those who held, the dividend was maintained, but it would not surprise to see a cut happen in 2014. If it does, the stock price will likely take a haircut.

In June, we compared Exxon Mobil and Apple, with our preference definitely being for the former. Gas just seems like such a necessity, as people will not give up cars. Who would believe it? Meanwhile, Apple has made a number of missteps in our eyes, including a share buyback and offering overly generous compensation.

Since then AAPL has moved from just under $400 to the $536 level. In the meantime, XOM has only moved from $90 to about $100. Hmm, not quite comparable. But gee, Warren Buffett seems to like it, so we will sit back and watch what happens longer term. That gent has a pretty good track record.

Next up, General Electric, which was dancing at the $24.75 level. It then had a nice push to finish 2013 at $28.03. That remains a distance from our initial sell target of $35.24. The dividend has increased a number of times since the purchase at $15.56. It would surprise if it were not amplified again in 2014.

Zargon Gas had us intrigued with an excellent long-term plan, but we kept to the sidelines, feeling it would be a better investment if the dividend were cut. At that point, the share price was $6.26. Since then, it has moved up sharply, now at $8.01. Plus the dividend remains a handsome six cents per month. Unfortunately, from where we are watching, nothing shall be gained.

Benj's piece in August about eliminating REITs made him about as popular as Jim Flaherty when he eliminated income trusts. Just about everyone who emailed disliked the idea. But he'll stick to his guns, believing that they take money from government coffers and that the vast number that have recently been proffered to the public indicate that a bubble might be in the cards, so people would be wise to invest elsewhere.

The next two columns were about junior miners, Excalibur and Opawica. The former, trading at 19 cents at the time, was considered an interesting possibility for those wanting to speculate on a micro-miner. The stock lost about 25 percent of its value before the end of the year (does that now make it a nano-miner?).

Opawica was a prime example of a failure for Benj, and one that unluckily was caught in his RRSP, so taking a tax loss was not possible. Trading at a penny in October, it has since moved up to six cents. Sounds great, until one factors in the one-for-12 stock consolidation that took place in the last week of the year. Talk about a lump of coal in the stocking.

Lastly, we crowed about our investment in Intertape Polymer, which resulted in a stunning 473 percent return. If only that would happen more often . . .

Fortunately, in the two portfolios that we manage, the results have been splendid. The President's Portfolio was up 49.4 percent. That brings the five-year annualized return to 33.5 percent. The Vice-President's Portfolio has also been tooling along nicely, beating the TSX handily every year since it was established in 2010. In 2013, it was up 15.3 percent.

As the saying goes, past returns are not necessarily indicative of future performance. We do hope they will be and feel that we have become smarter investors over the past 20 years or so. Of course, even being better at a game does not necessarily improve results, particularly in the short term.


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