SELLING INTO PANIC

BME

The market is euphoric, giddy and a bit of panic, particularly in the oil pitch. I sold my entire position of BME into this rally. 3.0 is my 12-month target and it was over in about few days (31.5%). I should have sold more, but I am having a hard time to let other energy stocks go. It's so hard to sell.

FORTE-TUTE

FRZ

Nibbled a bit of FRZ today. It provided an update on Jan. 26, and that took it to $4.0 level (approximately 25%). It appears to me that it nagged its production level up a bit today and the market ignored it completely. I also note that its assumption for crude oil is fairly low. In any event, it appears to be reasonably valued here (about 4.0X of CF05, and about $40K of EV/boe) with an acceptable RLI (4.5). If I read today’s announcement correctly, its Q4/04 production level should be above expectation and its 05 production level may be further raised, or at least the range narrowed. A decent multiple expansion will take it to 5.0 level, which will still be traded below 6X of its CF05. It will announce its Q4/04 results and update its 05 guidance on March 18, 2005. Keep my figures crossed.

CCL

Put a bid for some CCL, and surprise, it got filled. The company appears to show some life after five years of doing absolutely nothing. So far it had pretty good 2nd half of 2004, and 2004 results would have been much stronger had it not for currency translation. Going into 2005, the currency issue should become less severe given the appreciation of C$ during 2004 and the company should continue to show decent growth (10%) in both top and bottom lines. It is free cash flow positive and debt level should continue to fall. It is very reasonably valued, trade at 12X of its 2004 EPS and approximately 4X of its 2004 EBITDA. Using 10% growth rate, it would be trade at approximately 11X of its 05EPS. I would argue a very cheap valuation if it could manage a 10% growth in 2005. It also pays a 1.8% dividends. On the other hand, this is going to be a real sleeper. There is no analyst coverage, and the stock has not moved for about five years. This will really test my patience. (25 in 12 months).

STOP SHOPPERS

SC

SC stopped out at 41.50. I still like the company, but I put the stop due to its high valuation (24X of its EPS05). Also, with SC, I am a tad over-weighting in the retail space and I am a bit concerned. I may buy back this one in the future.

PKZ

I also picked some PKZ ($50.55) finally. I have been following this one since it was at 20s. Oh, well, better late than ever. This is the cheapest energy stock you can find (for a reason) and I believe there is a chance for multiple to expand if the company continues to deliver. Initial target $60.

KFS

KFS also stopped out at 19.50. Oh well, it probably was not a good decision to pick this one any. It was a lousy industry with a lot of pressure from consumers and government, and it gets no respect from nobody!

INSURANCE?

IIC

Nibbled some IIC (33.50) this morning. I was half-hearted and did not expect my bid to fill. Surprise, it was filled! The report was very strong, and numbers are revised upward. However, the market shows very little enthusiasm, likely because the outlook for P&C insurance sector remains lukewarm, and IIC is traded at a slight premium. Having said that, with the earning momentum, I think this one could reach $38-$40 in 12 month, plus about 2% dividend, not a bad return.

SELL-OUT

CEY

This is just terrible. Pengrowth just took CEY out, with a shocking 13% discount off yesterday’s closing! How could management and directors allow this to happen? Where is their fiduciary duty? I am an awful unhappy investor today.

MORE ENERGY

BME

Opened a position on BME today (2.30). The company recently provided an update and upped its 2005 production and cash flow guidance. At this level, it is traded at 4.6 of its 05CF, and approximately $35K of E/boe/d. BME’s production growth has been impressive and very consistent, and valuation appears to be relatively cheap. It is a rather small even among juniors and so far I have not see anyone covering it. I am looking for a $3.0 exit in a 12-month period, which will provide about 30% return. This is a good replacement for RSE.

I'LL BELIEVE WHEN I SEE IT

CYT

Sold CYT (5.7). Terrible results. There is almost nothing positive to show, against rather haughty expectation. The management again is promoting next quarter. I will believe when I see it. I also cut a couple of small speculative positions.

Also sold the balance of RSE (6.25, 40%) and PSD (2.0). RSE is ahead of my target and I thought it starts getting expensive; PSD has been a frustrating story. It has great earnings, cash flow, quarter after quarter, but the stock has done nothing. So this is really a frustrating quit, although I did achieve about 13% return for about a year.

TEMPEST IN TEAPORT

TMY

I sold my entire TMY position this morning. Originally, I thought the stock is under valued (it still is), and an update of its production and guidance would provide a near term catalyst. It did update its winter drilling operations and provided 2005 guidance, except the guidance is a touch lower than its guidance provided in November in its Q3/05 announcement. Although the guidance is only marginally lower, and valuation remains compelling, it has not participated in the most recent rally at all and oil is closer to $50 than $40. If the oil corrects here, where would the stock be? Moreover, I am alarmed by a couple of short term operational issues, and from the update, it appears that its Q4/04 could be a little disappointing as well. The company has had a few problems, management turnover, operational issues, minor miss of production target, lower guidance for both production and cash flow. Even though it probably has the lowest valuation in the junior space, could it be so for reasons? In any event, there are many other juniors to pick, many of which have upward revisions of its production and cash flow forecast, why bothered with a loser (perceived or actual)?

BUYING BETTER EARNINGS

SC

SC reported strong results (what else is new). I have been looking at this one for so long and I never pulled trigger due to valuation. I guess there is a reason for premium. The company is nothing but consistent. Consistent growth (EPS 15%), strong cash flow, clean balance sheet, strong management, dominate market position. There are not many weaknesses. Reluctant as I might be, I may nibble some today. Picked some at 40.80.

KFS

I put a bid at 20.75 and let see if it gets filled. Although I am positive of the stock (positive earning surprise, numbers increased, dividend), I do have a couple of concerns. One is the industry. I hate the auto insurance industry. Revenues (premiums) are heavily regulated, while expenses (claims) are hard to control, not to mention fraudulent claims, plus bad weather (in Canada), and on top of it, competition is fierce. KFS is also very inconsistent. These negatives are partially mitigated by its relatively lower valuation.

TMY

TMY provided an update last night and I do not like it. It appears it has lowered its production guidance (from 5000 to 4500-5000), cash flow guidance (from 2.0 to 1.7-1.9) for 2005. Also it had a couple of operational problems. Is this a cockroach-story?

ATD

ATD fell of the cliff over the past few sessions, with above average volume. This appears rather ominous.

DEFENSIVE

DAX

I thrown a low-ball bid for some DAX yesterday and did not get filled, which was fine as I was half-hearted anyway, not because I do not like the stock, I would rather not step in front of the earning report. It reported this morning and results are in line and guidance is lifted slightly (a penny). So I opened a small position. The stock is traded at approximately 20X of its 05E, and it is growing at approximately 35%, a reasonable multiple, in my view. I am having a hard time to find stocks and rather reluctant to add exposures in materials and energy (as a matter of fact, I have been reducing in the past week). The tone of the market is not encouraging to me, and the inverted yield curve concerns me a bit. With the lower yield of the long bond, I would like to add some financials, but I am procrastinating. DAX appears to be in a rather defensive sector, reasonable valuation, good earning results, and positive guidance. There are potential for some positive surprise if management executes. It appears just breaking its long trading range and my target of 7.5 seems achievable.


KFS

KFS reported strong result, initiated dividend. I have been pondering about insurance companies for a while in order to balance my material and energy exposures. KFS appears to be a good candidate. It is still reasonable comparatively. I guess I have to wait to see how much it will gap up tomorrow morning. If the gap is not too significant, I may nibble some.

LGI

LGI reported Q1/05 results. Top-line is bit of light, but EBITDA, OP, EBT and EPS are all pretty strong. While I do like this stock, for growth, profitability, clean balance sheet, it is another stock which have very little volume and it is very difficult to pick it up on a reasonable price. I would like to nibble it at about 7.0. I guess I just have to be patient.

WARNING SHOTS IGNORED

AL

This is a terrible report. It warned, missed, declined to provide guidance, EPS reduced. I also don’t like management’s tone on the conference call. I thought management sounds arrogant and indifferent. On top of it, base metal stocks are not behaving. Everything is pointing a loud "SELL". It requires courage to admit mistakes, and this is definitely one of the them. To take a position on Al was not a major mistakes. However, I had two opportunities to get out: (1) AA missed due to higher input costs, which clearly, in hindsight, should have the same implications to Al; and (2) Al warned. Despite all these warning signs, I amateurishly HOPED. One thing definitely influenced me is that all analysts, both buy and sell sides, loved this stock. But then they have been loving this ever since Al announced the Pechiney merger and they had been deadly wrong. Sold at opening (47, down 7.7%).

RFC

Trim some RFC (0.87) here. I don’t like the tone of the market and again I am looking at close to 50% return. Even though I continue to like this stock and believe it goes up much high ($3.0 in two years), I decide to take some profit off the table.

RSE

Trim some RSE here. Boy, I have been busy today in trimming my positions. I really do not like the tone of the market. The original target of RSE is a 20% return, given the significant run-up of juniors. This target is essentially achieved (approximately 26%, not too bad for such a short period, purchased in Dec. 17). I am holding the remaining balance for the winter drilling results.

TAKE SOME DRILLERS OFF THE EARTH

PSI

Trim a little of PSI (42) today. This is another stock that I hate to sell, but have to, given the 60% return. This is the strong season for drillers and I plan to sell most of them by the early spring anyway. I still have a small position and I would like to take a look of Q4/04 and Q1/05 earnings before let them go as well. I have raised quite bit of cash now and I will need to add some positions, unfortunately, I really do not have a lot of ideas at this point. I would like to add some large cap financials (banks, insurance) to counter balance exposures in the material and energy sectors. So far, I am having a hard time to pick one.

HOME SWEET HOME

HCG

Trimmed some HCG at 33.65. This is a stock I hate to sell. I love the management, consistency, growth, ROE, balance sheet, innovation. However, I am looking at more than 50% of return, and regardless how much I love it, I have to trim some. I still have some position and I do not have any intention to sell, unless it fails to deliver Q4/04 (that would be the first HCG for). Moreover, despite a decent start for 2005, I am not too sure where the market is going in the next few months. Therefore, better to raise some cash and take some off the table.

MATERIAL "TEK"

TEK

TEK announced last night and it was monstrous. EPS of 1.44 for the quarter, vs. consensus of 0.84. Even after striping all non-operating stuff, it still earned 1.25. Over one billion cash flow for the year. Outlook strong with production up and pricing for most commodities firm. Can’t see any weaknesses. The 05 EPS consensus number of 4.37 would have to be raised, perhaps over 5.0, and I would not be surprised to see target raised to above 50. If this market does not respond positively to this monstrous report, I think I should sell everything and roll them all into GIC.

SPECULATE OR NOT SPECULATE?

DY and NDM

Reduced some DY. This is one of those "NOT-CUTTING-LOSS-EARLY" leftovers. Well, better later than never. In the meantime, I added some NDM (5.18). This is very, very speculative (no production, no earnings, no cash flow), so my position is relatively small.

TEMPEST

TMY

Picked some TMY (6.4) today. I have been looking pretty hard to add some position, but I could not find anything, other than in the energy sector, which I was rather reluctant to add on, particularly when the oil price is hanging around $50/bbl. TMY (and BDE) are two of the cheapest juniors as far as I could see, and its price has declined somewhat due to negativity related to recent management changes. I still expect a decent production growth in the coming two quarters, which will serve as a catalyst for the stock. Having said that, I would like to be more vigilant about exposure in the energy sector.