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Turbulent picks reflect another turbulent year

BENJ GALLANDER, BEN STADELMANN, and PHILIP MACKELLAR


Tuesday December 14, 2021

Last year the title for our year-end summary column was “Contra Guys: Our Picks Really Panned Out in a Turbulent Year.” We went an unbelievable 13 for 13, which had never happened before and which we do not expect to occur ever again. Or won’t it?

This year, our first pick was the largest Spanish bank, Banco Santander, which operates in numerous countries besides Spain. In January, the stock was trading at about US$3.30; it’s currently at about US$3. Nothing to write home about there. Still, our confidence remains unsullied, and the initial sell target is $8.24. The dividend yield is just under 3 percent.

Next up was Artis Real Estate Investment Trust. REITs had rebounded from their early-pandemic lows, but the feeling in this corner was that more would be in store. This company had acted prudently, cutting the distribution by about half.

The stock traded at around $11.25 when the column appeared in March, and noodles around there now. The payout, fortunately, is north of 5 percent. Our sell goal remains $15.24. Insiders appear optimistic, as they have been buying like there is no tomorrow.

Next up was another REIT, Cominar. At the time of the article in late March, its price was $9.30, and we wrote that a key reason to like it was the company was doing a strategic review. This is often code for “We are looking to be acquired.”

Lo and behold, in October, a consortium put forward a bid at $11.75. That seems low to us, especially since the book value is more than $14.50. Benj has voted against the deal, as have some of the major shareholders.

If the transaction falls off the table, the stock price will likely decline. A risk, indeed. But there is still the possibility that the group will sweeten its offer or that another suitor will arrive. Benj is sitting tight and collecting the distribution of better than 3 percent.

US financials are a sector where we have often made scads of money. In May, we looked at our laggard in the sector, First US Bancshares. This small Alabama-based enterprise, which has been profitable in eight of the past 10 years, was trading at US$10.25 when the article appeared — less than half of our sell target.

It has moved up a tad since, to about US$11.60. Currently, the company is retrenching, closing 20 branches of a subsidiary and four bank branches. It has already earmarked US$550,000 for expenses, and there will be further costs of about US$500,000. Once this is done, perhaps the current quarterly dividend of 3 US cents will rise. In 2009, owing to the banking crisis, the payout was reduced from 27 US cents quarterly.

Mobile TeleSystems, the largest telecommunications outfit in Russia, with additional operations in Armenia and Belarus, is engaged in a bevy of related businesses such as cloud computing, cybersecurity, e-sports clubs, the internet and pay TV. Were we playing Russian roulette with this entity, an ADR that traded in mid-July at US$8.65?

Time will tell, but the stock price is now under $8. Unlike many North American corporations, the dividend is normally paid twice a year, but sometimes a third one is snuck in. The initial sell goal is $18.74. This one adds geographical and currency diversification. It also has lots of geopolitical risk in a country notorious for high levels of corruption.

We covered McCoy Global, a small provider to the energy industry, in early August. Founded in 1914, this company’s revenues were hammered to the tune of 35 percent with the drop in oil and gas prices. The company is examining strategic alternatives, and it would come as no surprise if it were taken over at a premium.

Insiders own about 48 percent, so they are particularly motivated to sell at a high price if they do not buy it themselves. The enterprise traded at 75 cents when we covered it in early August, and now trades at a smidgeon less, far from our objective of $2.24. A takeover would almost certainly be for far less than our target price.

Lastly, not counting our most recent picks, which are too fresh to count, was Greek shipper Seanergy Maritime Holdings, with an appropriate ticker symbol of SHIP on the Nasdaq. This corporation seems to specialize in reverse stock splits — not something that is attractive — but seems to be getting its house in order.

This is a notoriously fickle arena for investors, and too often companies in this sector take on water, so to speak. At US$1.20 when the article came out in mid-September, it now sits at around a buck. The goal is to sell around US$4.24.

The overall tally? More losers than winners, but none that lost much, nor any that gained a lot. Not great, to be sure. Fortunately, five of the seven pay healthy dividends, supplementing returns.

The result is far below the performance of the two portfolios we manage at Contra the Heard investment letter, with the President’s Portfolio up 37 percent year to date and the Vice-President’s Portfolio ahead 22 percent. (Note the long-term bias in those portfolios: the President’s Portfolio has 16 stocks, of which 11 have been held for more than five years. The Vice-President’s Portfolio holds 25 positions, and 13 have been in the portfolio for more than five years.)

Those outcomes will help us buy some fine beverages and nibbles during the holiday. All the best to you for a healthy, happy 2022.



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