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  Reflections on 2015

BENJ GALLANDER and BEN STADELMANN

Friday January 8, 2016

When looking back at the previous year, it normally appears as though a lot has happened.

Sometimes hyperbole is used to make it seem so. But 2015 was indeed a year full of economic craziness, and the stock markets of the world reacted in a strong fashion.

Many of our stock picks last year did also.

The headline of our February article was “Patience is a Virtue with Penn West Petroleum.” Oy, we had no idea just how much fortitude would be necessary when this piece was penned.

At that time, the stock traded at about $3, a blessing from the current value of around $1.20. The question is whether PWT will survive? Though there is no guarantee that it will, especially if oil prices remain in the cellar, we think that management has a pretty good blueprint for the future. Score it: upside potential huge, risk palpable.

Also in February, Alacer Gold was a topic when it was trading just under $3.00. The company has all-in sustaining costs of $672 (U.S.) per ounce, way below the beaten-down price of the shiny metal, is profitable and has $369-million in cash. A credit facility of $250-million is available to expand the Copler mine. The process will take a number of years to be sure. Those thinking of investing in this outfit should be aware that it is located in Turkey, not the most stable part of the globe right now. This entity remains on our Buy list and a double in share price seems feasible from the current level of $2.50.

The first line in our March article on Diana Shipping was “Dry bulk shipping has entered turbulent waters.” Indeed, all shipping has and with it the stock price of DSX has sunk from $6.55 (U.S.) when published to around $4.35. One thing that we like to do is cherry pick when a whole sector is hit, as is the case here. That increases the odds of doing well. Still a major concern is the debt level, which is high like DSX's brethren in the field.

In March, Hartco was featured as Benj did something rare and hit the ask price of $2.69 when the Chairman Harry Hart put in a takeover bid of $3.25. Gallander thought the deal would fly and felt playing the arbitrage spread was wise. Indeed, it turned out that way as Harry ended up offering $3.40 to entice shareholders. This turned into a 26 percent gain in a matter of months.

United Security Bancshares is the holding company for First US Bank, a small 19 branch network in Alabama. Trading at $8.30 (USD) in April, the stock price was pretty much stagnant for the year. That seems to belie the potential for this entity that trades well below the book value of $12.64 and has excellent capitalization ratios. A triple is not out of the question, especially if the minor-league quarterly dividend of 2 cents returns closer to the 27-cent level of 2007.

TransAlta was at $11 in May and has been badly beaten since then, now in the $5.00 range. Premier Notley of Alberta has been making her agenda clearer, which is allowing for investors to understand better the future of this company. The majority stake in subsidiary TransAlta Renewables appears to have quite a bit of value and could be critical to a turnaround for this outfit.

Dutch insurer Aegon is another enterprise that turned south after we wrote about it in June. At that point it traded around $7.50 (USD); now at about $5.70. This does remain one of our favourites though and a better bottom line and improvement in the Euro should help. We still believe that this one could turn into a $20+ stock.

Kitchener, Ont.-based Brick Brewing settled at about $1.65 in July when the topic for our piece. Since then it has foamed to $2, out of season according to the stock chart. Better times could be ahead for those looking to quaff this sudsy. Our initial sell target is $2.34.

In July, we suggested playing the National Bank of Greece for anything but a trade could lead to negative consequences. Indeed, the stock plummeted after recapitalization caused massive dilution of shareholders. This was definitely a good one to stay away from.

Those attracted to penny mining plays probably found our column on Yukon miner Strategic Metals of interest. It is the largest claim holder in the territory and has positions in numerous other miners. Still gaining traction and pushing into the 40-cent range is proving difficult. Higher commodity prices would naturally help.

The best pick for this column last year was GSE Systems, trading at $1.35 (U.S.) in September. In less than four months, it has jumped to $2.40, and our feeling is much more is in store as the sell target is $5.74. This enterprise focuses on staffing and training, and the nuclear field is one of their bastions. That seems to be coming back into favour.

We'll ignore our musings since October as they are too recent. But we do suspect that 2016 will offer us some great picks, better than last annum which had the worst short-term record in this column since we appeared in 2001. Hey, it happens, just hopefully not too often.


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