Category: Finance

I will predict the company with a market capitalization of at least $1 billion that will exhibit the largest percentage increase in market valuation on December 22. I am pretty certain of my conviction.

Unfortunately, the company is not publicly traded. It is very likely to be publicly traded one day.

The company is called SpaceX, run by the same genius that runs Tesla Motors (Elon Musk).

Yesterday, they launched a rocket into space. They have done this before and being a private firm, this was no small feat as it was only done before by government-funded/operated space agencies.

The next step in their cost-optimization is being able to get the first stage rocket back to earth in one piece. Since the first stage probably costs around a low 3-digit million amount to construct, you would save a lot of money recovering this piece instead of having it dumped in the ocean.

They managed to do this less than 24 hours ago. Watching this video (the re-entry of the first stage rocket starts around 32 minutes in) is amazing. You can read about their initial attempts here.

My university degree was majoring in physics. I do not believe most people can appreciate how truly difficult this is to get correct.

They still have to figure out some other non-trivial matters, such as how much metal fatigue becomes a factor when reusing rockets, and how to deal with various atmospheric and variable factors that inevitably will come into play when it concerns rocketry, but for the most part, they are very well on their way to total domination of the low-cost space launch market.

After this successful re-entry, if SpaceX was publicly traded, I would guess their market capitalization would be up by 50% in a single day, which will likely top the charts on an ordinarily boring Christmas-time trading day.

Very interesting things happens to markets at bottoms and tops – there are typically panic spikes down and up.

My market instincts suggest that we’re approaching some sort of local maximum for fear in terms of the energy markets. All doom and gloom, and usually you hear about the opposite arguments (demand is rising, geopolitical risk, etc, etc.) but none of this is present.

Probably a reasonable time to shop for assets in entities that will be able to survive the trough.

Every year at around this time I scour the list of year-to-date losers because they are more prone to being jettisoned for two reasons:

1. They can crystallize a loss for income tax purposes; and
2. A fund manager does not have to be embarrassed by the presence of that security in their portfolio.

One can debate whether reason #1 or #2 is more powerful.

When looking at a very simple screen of Canadian stocks, it is evidently clear that anything energy and resource related has been disproportionately hammered. There are obvious reasons why this is the case – commodity prices – so these companies don’t require much further research. There are likely a couple golden needles to be picked out of the haystack. Those that can pick them out will be handsomely rewarded with a disproportionate out-performance whenever the underlying commodity recovers. Finding these golden needles will never be an easy process – if it was, other investors would likely be able to identify the opportunity which will impact your returns.

However, when scouring the list of non-energy and non-resource stocks, I get the following, in rank order of greatest loss year-to-date to least, with some very superficial remarks:

1. BBD.B – Bombardier – I’ve written about them in the past on this site. Their common shares are down 70% year to date! Preferred shares seem to be the sweet spot of risk/reward.
2. TTH – Transition Therapeutics – One look at their yearly stock chart can tell you when their clinical trial of their lead development candidate failed.
3. CPH – Cipher Pharmaceuticals – Will need to do some research.
4. SW – Sierra Wireless – January 1, 2015 seemed to be a peak in their stock price which is why they made this list. Perils of technology investing.
5. WIN – Wi-Lan – Patent company that is seeing the business model not be as promising as originally hoped. Not interested.
6. CJR.B – Corus Entertainment Group – Media company with various television and radio interests, facing too much internet competition.
7. TS.B – Torstar – Toronto Star. Print Media. Enough said.
8. AFN – Ag Growth International – An obscure but easy-to-analyze company selling grain equipment to farms across the world. 2015 was a fairly poor year for sales compared to 2014 and they’re going through a management transition, also distributing more cash than they are generating. They might have taken a little too much debt.
9. GVC – Glacier Media – Print Media. Enough said.
10. RET.A – Reitmans – Women’s fashion retailer. Will they go back in style? Were they ever in style? Their balance sheet is in shockingly good position ($165 million cash/marketable securities minus debt or $2.58/share!), and if the company ever learns how to make money with its marketing, the stock has very good potential. They’re not bleeding a huge amount of cash at present. I’m not smart enough to figure out whether management will figure out a winning formula – if they do, it could easily double from present prices.
11. LIQ – Liquor Stores – Razor-thin margins, coupled with acquisition-related debt, leaves an entity that makes some money but is highly susceptible to regulatory actions of the entities it operates in, coupled with their ability to maintain credit (albeit their existing facility is dirt-cheap as it is secured by an inventory that will not depreciate and can easily be liquidated – liquor!). They are paying dividends well in excess of their capacity to generate cash, so be warned that the 12% stated yield is an illusion.

This week is the US Thanksgiving, where non-discriminating consumers go crazy purchasing tangible objects under the perception that they are discounted.

It is quite apparent, however, that floor retail is getting smashed by online retailing. This has been my underlying theory for quite some time and leads me to the theory that avoiding retail-heavy REITs such as Riocan will be a money-saving procedure. If you can’t compete with Amazon, then the entire structure of your business should be examined.

What’s going to be interesting is if this Amazon-ification of retail will impact corporations like Walmart – certainly their equity is being eroded by Amazon, but I think there is a limit to the erosion where people will simply want to look at tangible stuff in a consolidated warehouse environment. The success of Costco is an example of this – eroding Costco would be the holy grail for Amazon and Walmart, but even Walmart couldn’t pull it off with Sam’s Club.

I have been looking for distressed entities and right now anything resource-based (especially energy) is clearly stressed. I still do not find a lot of value in this sector, but there are ancillary businesses that seem to be a case of throwing the baby out with the bathwater. Anything related to bulk dry shipping is also getting killed, but most corporate entities that are publicly traded come from Greece, and this is a country I do not want my money invested in for a lot of reasons.

I still remain relatively defensively positioned. It is odd how my normal investment patterns is to go for capital gains and growth, but every component in my portfolio right now is giving off a substantial amount of income. There will probably be a time to shift to growth but it doesn’t appear that now is that time.