Taxation year for Canada coming to a close

For Canadians, today is the last day to buy and sell stocks and debentures on the TSX and still have it count for the 2013 tax year.

The date for US securities is on the 26th because Boxing Day is not a trading holiday in the USA.

If it is your US tax return you are concerned with, you can sell securities up until December 31 to have the IRS consider it a 2013 tax year transaction.

Regardless of all of this, market movements at this time of year are on computer trading autopilot as most decision-makers with any market influence are away from their main desks.

Merry Christmas everybody.

Some research discards – PDII

PDI, Inc. (Nasdaq: PDII) is a contract pharmaceutical marketing corporation. They managed to make it past my initial screen and I did some subsequent research. On initial glance, it does appear to be relatively cheap from a valuation perspective (revenues in relation to enterprise value is quite inexpensive), but the corporation suffers from significant customer concentration and they are strategically diversifying into partnering with diagnostic companies which creates a different element of investment risk – and valuing these risks from an external investor perspective adds even further complexity.

I generally do not like customer concentration and will pass on this, but will leave this for more enterprising readers out there to figure out if there is value here – my hunch is that the computer traders out there are looking at the low enterprise value in relation to other valuation metrics ($24 million vs. $75 million market cap, and $150 million revenues over the past 12 months), but are not paying enough attention on tangible book ($2.27/share) which means the downside risk is a bit lower (clarification, added December 24, 2013: downside risk referring to a lower price floor) than one would intuitively think.

In other words, without projecting some future external factors out there that would lead to ‘big pharma’ engaging firms such as these, or any intuition that these investments in diagnostics will succeed (there is no way of knowing), PDII is a pass on my books.

Blackberry Q3-2014

It looks like sentiment reached its maximum in mid-December; also just after the earnings release the lowest trade after-hours was at $5.70/share. Clearly the market over-discounted the negative aspect of this quarterly result despite the fact the company’s revenues were well below consensus.

It still remains an interesting business case, whether their existing businesses are viable after shutting down their consumer end. I think their QNX segment has value, but how much is another question. I generally believe their BBM technology is over-hyped and is going to become a “me-too” type product even when ported to other consumer platforms (Android and iOS). It reminds me of what happened to OS/2 when they successfully were able to have Windows 3.1 applications run within the OS/2 operating system – why bother when you can just have Windows 3.1 and not have to mess around other operating systems?

Anyhow, no positions and I will not be taking one. Too many eyeballs are on Blackberry and a lot of those eyeballs are connected to brains a lot smarter than I am.

General comments on the market

I have not written too much lately, but the short-term research focus continues on stocks that are generally trading at 52 week lows. If you are into gold mining companies, let me tell you, there is no shortage of research to be conducted.

Fortunately, I do not focus on the gold mining industry and can let other intelligent people harvest opportunities in that category. One would think, however, that large-scale entities like Barrick (TSX: ABX) and Kinross (TSX: K) would have some sort of value, given that they are trading at lows they haven’t seen in a decade. That said, just because a large corporation has traded at a certain level in the past doesn’t mean they will continue trading at that value forever – the market is full of survivor bias, which is why you don’t see Polaroid or Kodak trading anymore.

There is another focus which I have been slowly shifting my attention to, and this is territory that is generally unexplored for me: international stocks, beyond those in English-speaking jurisdictions. My natural investment aversion to non-English speaking jurisdictions is colliding against the general belief that there seemingly are entities trading out there that are at relatively cheap valuations. I can easily see right now, however, that I am the person around the poker table that everybody wants to take a dollar out of, so I am very wary treading into this direction.

I did find a particular investment candidate in the early part of the quarter which I pounced on with two feet and this unexpectedly has boosted the performance of the portfolio considerably and I hope to find others. I might write a report on this one after year-end.

Timing Blackberry

Blackberry is going to be an interesting business case as they are clearly not going down without a fight.

They are going to report quarterly results on December 20, 2013. I would expect these results to be very sub-optimal simply because if there was some signs of revenue stabilization it is much more likely that they would have found partners in the proposed buyout at US$9/share. Since there were multiple parties out there that were looking at the internals of Blackberry during October and would have received full visibility in two of three months of the fiscal cycle, I very much believe that revenues will be well below the $1.58 billion consensus estimate that I see on Yahoo at the moment.

In addition, with the new CEO cleaning house at the upper management level, it is going to take at least three to six months for them to realign the company and apply resources to the appropriate strategic priorities the company needs to focus on to get back to a profitable setting. However, the fact that he is cleaning house is a positive signal even though you will not be seeing the results of such actions for at least half a year.

That said, with the expectations in the stock market, I would expect rock bottom to be hit at the end of the year. Not only will they likely produce a lower-than-low expectations quarter, but you will also have the avalanche of tax loss selling and portfolio window dressing – which portfolio manager out there except for Prem Watsa would want to see this dog in their portfolio at year-end?

The sentiment regarding this upcoming quarter is quite bad. The question is how much the market has already baked in an upcoming bad quarter. Have they over-discounted?

DISCLOSURE: A friend of mine who I consider to be quite tech savvy, who already owns a Samsung smartphone with one of those giant screens, recently bought a Blackberry Q10. He suffers from a “can’t type on a touchscreen if it could save my life” syndrome. I share the same syndrome and am actually in the market looking for a usable phone with an actual physical keyboard. Other than that, no positions.