Category: Equity

Gold producers

I have no interest in the major gold producers (or minor ones for that matter), but I find it odd that companies like Barrick Gold (TSX: ABX) and Kinross (TSX: K) are hitting lows when they are so wildly profitable.

Kinross is down by about half, but they have geopolitical issues which can justify some of the decrease. However, Barrick is down 20% (which is uncharacteristic of the stock, which is one of the lowest volatility stocks out there) and they continue to rake in the cash – selling prices of $1,700/Oz and total costs of about $740/Oz from their last quarterly report. The market is probably trying to price a significant increase in cash costs over the medium term.

I continue to be leery about commodity-based firms at this time.

RIMM’s quarterly result – analysis

Media are covering this so I’ll write a few words about their last quarterly report (Q1-2013).

As I indicated in my previous post, anybody thinking that RIMM will make a technological comeback is best to wait until expectations have been driven deeply negative. The quarterly result was much more negative than analysts expected (even when backing out the $335M goodwill expense) – about a $132 million loss, or roughly 25 cents a share, which excludes depreciation and amortization.

Analyst estimates averaged roughly a breakeven quarter.

It is very likely that year-end estimates and next year’s estimates are going to go negative, and this is when lower expectations finally baked into the price of the stock. After-hours trading has RIMM down 15%.

Perhaps more damaging was the announcement that their next-generation project (Blackberry 10) will be launched later than they thought, aiming for the first quarter of 2013. While this is obviously not good for them, it would be even more disastrous for the company if they released something incomplete or half-baked (like their playbook). They do have about $2.2 billion in cash to deploy and no debt on the balance sheet, so as long as they can keep the expense side of their ledger lean, they will be buying themselves enough time to get another product out the door.

In terms of risk-reward, the downside to the stock is probably another 50% from current levels. Technology companies with third-ranking products in the marketplace don’t tend to warrant much of a valuation premium.

I have no position in RIMM. Just following.

JC Penney and retail in general

I note with fascination a particular hedge fund investor’s large stake in JC Penney (NYSE: JCP) and them talking up their book massively in their past quarterly report.

First of all, talking up your book is a sign that you don’t want to accumulate any more position – why tell the whole world your investing thesis before you can capitalize fully on it? I follow a similar policy on this site – there are quite a few names I haven’t mentioned until after the point where I simply won’t accumulate any more of a position.

I took a look at JCP for interest sake, simply because I generally do not like investing in S&P 500 components and also I do not like retail companies – it should be perfectly evident to anybody that unless if the retailer is about branding opposed to product (examples: Abercrombie and Fitch, Coach, Limited Brands/Victoria’s Secret, etc.), they will continue to be exterminated by the likes of Walmart, Target and Amazon. JC Penney is in the “extermination” category. This is doubly so with their new “every-day pricing” strategy, which a high school student can figure out will put it at odds against Walmart and Target.

I also note that they brought in some high-profile management formerly from Apple last year to try to turn the operation around, but in my unprofessional estimation, there isn’t a heck of a lot they can do with the hand of cards they were dealt.

My own simplistic view of the retail world also doesn’t explain how companies like Pier 1 Imports (NYSE: PIR) actually manages to exist, but I’ll let smarter people out there explain that one. My sour grapes with Pier 1 was that I was doing some on-the-ground research on the company about 5 years ago and told myself after walking in one of their stores “Who buys this over-priced crap?”. I note that if you put in a big order to buy shares of them during the February-March 2009 economic crisis (which reached a low of $0.10 per share) that you would be a very, very rich person today. So answering my question, apparently plenty of people do buy their over-priced crap.

This leads to my final point when it comes to retail investing: Never assume your own consumer preferences are those of others.

Chesapeake Energy – How long to clean up the mess?

I will not be taking any positions in Chesapeake Energy (NYSE: CHK), but the story behind it is fascinating. The latest revelations from Reuters not surprisingly shows that the corporation has significant structure built around the CEO’s lifestyle.

It makes you wonder how this will all go down when they finally get rid of the board of directors and the CEO is forced to depart. It will be a long and messy restructuring process, and most importantly for shareholders, costly. You can be sure that the lawyers that are working there are structuring the breakup of the CEO from the company to be as long and strung out as possible, baked with non-arms length relationships. This will all likely culminate in some sort of lawsuit whether such agreements were legal.

In other words, the company is going to be in a very messy state of affairs for a very long time. This is reflected in their relatively depressed share price, but the question for any prospective purchasers would be – is all of this bad news baked in, or is there still more bad news out there that needs to be reflected in the share price? One almost forgets that the company’s main business is the production and sale of natural gas.

Sometimes you hit, sometimes you miss – Miranda Technologies

I was relatively close on pulling the purchase trigger on Miranda Technologies (TSX: MT) – my initial accumulation price was set to be a shade under $10 per share, and they got down to $10.26 before they agreed to be purchased for a $17/share cash bid.

So in other words, I had no position when they were taken over for over a 60% premium from the previous day’s close. Yuck.

It’s painful to see a bunch of research get dumped down the drain in such stellar fashion. That said, one could have inferred something may have gone on with respect to a so-called “strategic review” of the company that has been going on for some time. Such reviews may or may not result in takeouts with premiums, so it is always wise to take such information in balance.

I’ve been nibbling on a slight bit of equity over the past week. I’ve added one new name, and added to an existing position, and added a position in a company that I have owned before. I still have 71% cash.