In This Issue

JANUARY WAS A DOWNER

By Gordon Pape, Editor and Publisher

The Economist has named Toronto as the best city in the world in which to live, with Montreal second. That was about the only good news we received in January, The rest of the month was a downer, big-time. It’s now gone, and good riddance.

January is a bleak enough month to begin with. We didn’t need a ton of bad economic news on top of the lousy weather. Here are just a few of the blows that hit us.

Oil continued to drop. At first it was believed that $60 a barrel (West Texas Intermediate, figures in U.S. dollars) would be the floor. Then $50 a barrel. Now we’re about $48 a barrel and that only thanks to a late-day rally on Friday. There’s even talk the price could drop below $40. The OPEC countries are actually increasing production, pumping out about 30.4 million barrels a day in January. That has helped to push U.S. inventories to their highest point since the 1930s.

This is bad news for Canada, which JPMorgan Chase analyst Kevin Hebner dramatized with his widely reported comment: “There will be blood”. Mr. Hebner may be guilty of hyperbole, but there’s no escaping the reality that the dramatic price drop has already resulted in hundreds of job cuts, slashed capital expenditure budgets, and hammered government budgets in the oil producing provinces and Ottawa. Federal finance minister Joe Oliver was so confounded by the rapidly changing landscape that he had to postpone his budget speech until April.

The Bank of Canada cut its overnight rate. An interest rate cut right now was the last thing the country needed. With household debt at record levels and continuing to climb, cheaper borrowing costs raise the risk that the debt time bomb will eventually explode. That raises the spectre of a U.S.-style housing and unemployment disaster, such as we saw in 2008-09. But the central bank clearly felt it had no option when faced with impact of the oil plunge. “The oil price shock increases both downside risks to the inflation profile and financial stability risks,” the BoC statement said, predicting that real GDP growth will sink to only 1.5% in the first half of this year.

The loonie cratered. We haven’t seen our dollar this low since early in 2009. Some people believed we’d never hit those levels again. It turns out we didn’t realize how fragile our currency is. Many people scoffed at the idea of the loonie being a petro-currency but that’s how much of the world sees it. As oil goes, so goes our dollar.

A low currency is being touted as a boon to exporters, although we have yet to see concrete evidence of that. What is certain is that it will raise the price of imported goods from the U.S. so expect to shell out more for everything from orange juice to canned goods. As for travel, think Mexico or Europe if you need to get away. The loonie hasn’t depreciated as much against those currencies.

Growth stalled. Just to show how bad things are, Statistics Canada reported on Friday that our GDP fell 0.2% in November, even before the oil price collapse really took hold. Especially worrisome was the decline in manufacturing, which was supposed to offset some of the slack in the energy sector. Statscan said output dropped 1.9% during the month, with durable goods off by 1.8%. “Decreases were most notable in the manufacturing of machinery, fabricated metal products and primary metal,” the agency said.

In the light of all this grim news, perhaps we should be thankful that stocks didn’t do even worse than they did. The S&P/TSX Composite Index finished the month with a fractional gain of 3.3%, thanks largely to a strong performance from the gold stock, which were up 33.2%. Believe it or not, that miniscule advance was better than the Dow and the S&P 500, which were down 3.7% and 3.1% respectively for the month.

If you’re a believer in stock market myths, the New York results are especially worrisome. According to the January effect theory, stock prices are supposed to rise in the first month of the year. Historically, the effect is felt most strongly in third year of a presidential term, which this is.

It didn’t happen in 2015. That’s not a good sign for the coming months. Stay conservative in your portfolio and make sure you have some bonds.

 

Gordon Pape’s new book, RRSPs: The Ultimate Wealth Builder, is now available in both paperback and Kindle editions. Go to: http://astore.amazon.ca/buildicaquizm-20

 

MINI-PORTFOLIOS REVIEWED

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One of our most popular features is the portfolios we offer for all types of investors, from very conservative to aggressive. Most include anywhere from eight to ten securities, which requires an investment of at least $25,000 and usually more.

However, some of our readers don’t want to commit that much money. So in November 2012 I launched a mini portfolio for small investors with limited resources. This was done after two readers wrote to complain about the interest rate they would get by rolling over maturing GICs and to ask for alternative suggestions.

GICs are a useful option if preservation of capital is the number one priority. But the returns they offer are even lower now than back in 2012. As of mid-week, Scotiabank was offering only 1.75% on a five-year term while Royal Bank was down to 1.65%.

By taking a little risk, I felt our readers could improve their returns significantly by cashing in the GICs and redeploying the money into a small portfolio of stocks and preferred shares or corporate bonds.

The portfolio I originally created for Canada included three securities: the common stock of BCE Inc. and Scotiabank, plus preferred shares from Laurentian Bank of Canada. The original book value was $14,984.55.

The Laurentian Bank preferreds were subsequently redeemed. In their place, I substituted the 5.75% convertible debentures from Firm Capital Mortgage Investment Corporation.

The portfolio was last reviewed in August, at which time it was showing an average annual compound rate of return of 13.57%. Here is how the three securities have fared in the six months since then.

BCE Inc. (TSX, NYSE: BCE). BCE shares have made a big move since the last update, rising by almost $10. We also received two dividends of $0.6175 each, which brings our total return over the six months to 23%. That’s a welcome boost for the portfolio, but don’t expect this stock to keep performing at that rate. For purposes of this portfolio, an annual return in the 6% range, including dividends, would be quite satisfactory.

Bank of Nova Scotia (TSX, NYSE: BNS). Scotiabank went in exactly the opposite direction, losing almost $10 a share as banking stocks weakened across the board. Scotiabank had been the star performer in this portfolio but a loss of 11% since the last review ended that. However, even with that setback, the shares have returned 17.6% since the portfolio was started.

Firm Capital Mortgage 5.75% Convertible Debentures (TSX: FC.DB.A). We bought these at $101.50 and they are now at $100.20 so we have a small capital loss. However, the real attraction of these convertibles is the high 5.75% interest rate. Interest is paid twice yearly, on April 30 and Oct. 31. We received a semi-annual interest payment of $28.75 for each $1,000 debenture in October.

We also received interest of $2.53 from the cash invested in a high-interest savings account at 1.3%.

Here is how the Canadian Mini-Portfolio stood based on prices at mid-day on Jan. 28.

IWB Canadian Mini Portfolio (a/o Jan. 28)

Stock

Shares

Average

Price

 

Book

Value

Market

Price

Market

Value

Cash

 

Gain/

Loss

%

BCE

130

$42.53

$5,528.60

$58.17

$7,562.10

$173.85

+39.9

BNS

95

$55.36

$5,258.95

$62.97

$5,982.15

$204.35

+17.6

FC.DB.A

50

$101.50

$5,075.00

$100.20

$5,010.00

$431.25

+ 7.2

Interest

 

 

 

 

$11.28

 

 

Totals

 

 

$15,862.55

 

$18,565.53

$809.45

+22.1

Inception

 

 

$14,984.55

 

 

 

+29.3

 

Comments: Since inception, the total return on this mini-portfolio is 29.3%, which works out to a compound annual growth rate of 12.57%. That’s down slightly from the last review but well ahead of the returns offered by GICs.

I am not recommending any changes in the portfolio at this time. We will invest our total cash of $820.73 in a high-interest savings account paying 1.3%, the current rate being offer by Scotiabank’s Tangerine on-line service.

U.S. portfolio

A year ago at this time I received a reader request for a U.S. dollar equivalent to the Canadian Mini-Portfolio. In this case, the goal was to improve on the return from a certificate of deposit (CD, the American equivalent of a GIC) while keeping risk to a minimum. The average rate for a five-year CD as of Jan. 22 was 0.87%, according to Bankrate.com, although you could find better returns by shopping around.

In order to make the two portfolios as similar as possible, I chose a U.S. telecom stock, a big American bank, and a fixed-income ETF. The value of the portfolio at inception was $14,954.

Here are the securities with comments on how they have done since my last review in August. All figures are in U.S. dollars.

AT&T (NYSE: T). The share price dropped more than $1 in the past six months as the company fights to maintain share in a highly competitive market. However, the quarterly dividend has been increased by a penny to $0.47 per share.

Wells Fargo & Company (NYSE: WFC). Wells Fargo stock had a good six months, gaining almost $3 per share. We also received one dividend of $0.35 during the period, bringing our total return in the year since we bought the position to 18.3%.

PIMCO Income Opportunity Fund (NYSE: PKO). Our fixed-income ETF is not doing well. The share price is down more than $3 since our last review and by $4.16 since we made the purchase. Part of that was covered by the large year-end distribution of $1.59 we received at the end of December and the fund continues to pay $0.19 per unit each month. However, even with that great cash flow, PKO is showing a total return of -1.6% after one year.

Here is how the portfolio looked on the afternoon of Jan. 28.

IWB U.S. Dollar Mini-Portfolio (a/o Jan. 28)

Stock
Shares
Average

Price
Book

Value
Market

Price
Market

Value
Cash

 
Gain/

Loss

%
T
150
$33.22
$4,983.00
$33.14
$4,951.00
$277.50
+ 4.9
WFC
110
$45.58
$5,013.80
$52.87
$5,815.70
$115.50
+18.3
PKO
170
$29.16
$4,957.20
$25.00
$4,250.00
$625.60
– 1.6
Totals
$14,954.00
$15,016.70
$1,018.60
+ 7.2

Comments: The U.S. portfolio is not doing as well as its Canadian counterpart and is really being carried by Wells Fargo. However, a 7.2% return over the first year is very acceptable and much more than investors could earn from CDs.

Changes: I am not happy with PKO’s performance. Bonds generally performed quite well in 2014 so a loss on this security is not acceptable. Therefore we will liquidate the position. Including accumulated distributions, we have $4,875.60 to reinvest.

We will replace it with units of the iShares Core U.S. Aggregate Bond ETF, which trades under the symbol AGG. This fund tracks the performance of the total U.S. investment grade bond market and is widely held with almost $24 billion in net assets. Monthly distributions vary but generally run about $0.20 per unit. The fund showed a total return of 6% in 2014.

The price at the time of writing was $111.97 per unit. We will buy 40 units for a total cost of $4,478.80, leaving us with $396.80 for future investments.

Here is the revised portfolio.

IWB U.S. Dollar Mini-Portfolio (revised Jan. 28)

Stock
Shares
Average

Price
Book

Value
Market

Price
Market

Value
Dividends

 
T
150
$33.22
$4,983.00
$33.14
$4,951.00
$277.50
WFC
110
$45.58
$5,013.80
$52.87
$5,815.70
$115.50
AGG
40
$111.97
$4,478.80
$111.97
$4,478.80
0
Cash
$396.80
$396.80
Totals
$14,872.40
$15,642.30
$393.00
Inception
$14,954.00

 

I will revisit both portfolios in about six months. – G.P.

 

VENTURE INVESTING NEEDS FUNDAMENTAL CHANGES

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That’s theTSX-Venture Exchange – the ugly stepbrother to Canada’s main stock exchange. Born in late 1999 out of the combination of the Vancouver Stock Exchange, the Alberta Stock Exchange, the Canadian Dealer Network, and the Montreal Stock Exchange, the TSX-Venture recently celebrated its 15th birthday – if “celebrated” is the right word in this context.

The exchange is supposed to be a place where exciting growing businesses from a diverse set of industries meet with growth oriented investors to fund their promising new ventures. Instead, it has become an embarrassment with its composite index setting new all-time lows recently. And this is against a backdrop that has seen almost all North American indices hit all-time highs over the past 12 months.

TSX-Venture Composite Index Chart




Source: TradingView.com. Please use the ‘All’ or ‘5 yr’ buttons above to view different time periods.

The Venture exchange focuses heavily on highly speculative and very cyclical resource stocks. Yes, Canada is rich in natural resources and, in theory, the Venture exchange should be an excellent place for smart entrepreneurs to access capital and responsibly develop our country?s vast resources. But the theory has diverged widely from what is actually happening. Smart resource-based entrepreneurs are drowned out by poorly run exploration shells that do nothing but fatten the pockets of a few snake oil salesmen. The proof, as they say, is in the results. As the TSX-V continues to facilitate the deployment of capital in highly speculative resource exploration ventures, the exchange continues to destroy capital and sink further to new lows.

Looking back, 2014 was another terrible year for the mining sector in particular and resources in general. Even in a dire year for this segment, 36% of more than $5 billion in capital raised on the TSX-Venture was strictly related to the mining sector and largely to junior exploration companies – most of which never produce an ounce of economic profit. Add in the cyclical oil and gas segment and 67% of the capital raised on TSX-Venture was solely resource related.

The culture of risk capital investing in Canada needs a good smack on the head. To the boutique brokers and promoters who continue to churn out these money making (for them) and money destroying (for you) exploration shells, we say shame on them. Can they not become slightly more innovative and look at funding ABC Technology Corp. or XYZ Manufacturing Co. rather than trotting out the same old CRAP Shell Mining Corp.

The blame also lies squarely in the laps of the individual Canadian investors who keep funding these pieces of garbage. Since my late teens (in the early ’90s) when I learned a quick and painful lesson with a couple of classic Canadian exploration companies I have not put a dime of my hard earned investment dollars towards this segment and that has served me very well.

The solution is very simple – just stay away. If Canadians stop funding these capital-destroying shells they will die and the questionable TSX-Venture players running them will disappear. Brokers and bankers will finally get the message and hopefully look to fund a more diverse set of ventures – perhaps actual businesses that create cash rather than destroy it.

Change will come to the TSX-Venture when Canadians stop funding exploration shells and demand more from their risk capital – diverse businesses with strong growing fundamentals.

Ironically, with blood on the floor of the Venture exchange, now should be a time to pick up some long-term bargains with strong fundamentals in the mining sector. But there are very few worth considering and it is almost impossible for the average investor to sort the wheat from the chaff. Over the long term, we endeavour to stay less exposed to resources in general than the average Canadian investor, due to the significantly cyclical nature of the businesses.

Let’s start funding some actual businesses through our Venture Exchange. The key is to fund a diverse set of industries including knowledge based sectors such as technology and biotechnology or some basic manufacturing businesses that make real products and employ real people. Canada will never become Silicon North but we have some great entrepreneurs in this country and a little diversification outside of our commodity sector would do a world of good.

This would also help diversify our economy and give Canadian investors far more choice in their investment decisions on the home front.

So the next time your broker tries to sell you on the latest exploration play with a moose pasture in Saskatchewan or a huge potential gold mine in Botswana just say no thanks and walk away.

RYAN IRVINE LIKES ESPIAL GROUP

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Espial Group Inc. (TSX: ESP, OTC: ESPAF) is a leading developer and marketer of TV Browser and TV Everywhere software solutions to consumer electronics manufacturers and telecommunications service providers. Espial has shipped over 10 million licenses of its software to these industries.

The company’s primary service drivers are the Espial Media Service Platform and Espial MediaBase Platform, which enable the delivery of TV Everywhere and IPTV services over Internet Protocol broadband networks. Espial’s products allow communications service providers, including telecommunications operators, cable TV, satellite TV, and Internet service providers (ISPs) to deploy TV Everywhere and IPTV services to their subscribers.

Incumbent cable, satellite, and telecom service providers are facing subscriber erosion. Consumers are accessing media (movies, TV shows, and music) differently today. They want on demand services quickly and to pick and choose viewing options with social media integration.

While the incumbents typically have huge amounts of content, their delivery platforms are antiquated, closed systems which stifle innovation, have high operations costs, and are tied to expensive hardware. The competitive threat is coming from new consumer providers including NetFlix, YouTube, and Amazon which have open web platforms that allow rapid innovation, can be operated at low costs, and are hardware agnostic.

Essentially, while the incumbent providers have the content, their delivery systems are largely out of date, slow, antiquated, and nothing close to what today’s consumers demand in terms of user experience and choice. As subscribers erode, they are pressed to implement new user-friendly experiences under modified models – enter Espial.

The opportunity

Espial’s HTML5 platform enables HTML5 (a core technology markup language of the Internet used for structuring and presenting content for the World Wide Web) high performance, cloud user experience, and services. The company’s platform allows for rapid service velocity through the simplified creation of new services, business models, and revenues streams. It is integrated with Comcast’s RDK platform, which was founded by Comcast (the largest broadcasting and cable company in the world by revenue). RDK is an open source operating system for set-top boxes, which is supported by top global operators like Comcast, Liberty Global, Vodafone, and Time Warner. There are currently 180+ licensees.

In discussions with 25 of top 60 global operators, Espial has attracted attention from world’s largest TV operators, and many have called the company’s solution a best in class product. Espial has already announced one Tier 1 North America cable customer and one Tier 1 European cable customer (earlier this month) and is currently negotiating with approximately eight more.

Recently, Espial reported its revenue increased 71% to $14.75 million in the nine months ended Sept. 30, from $8.65 million in the same period of 2013. For the first nine months of the 2014 fiscal year, EBITDA income increased to $2.6 million compared to a loss of $3.5 million last year. Net income increased to $1.34 million ($0.06 per share) from a loss of $5.68 million in the same period of the prior year.

Espial continues to post positive cash flow and conducted a smart financing in June of this year when the company’s shares had jumped ahead of current fundamentals. The firm issued about four million new shares at a price of $2.85 for gross proceeds of $11.5 million. As a result, the company has an excellent balance sheet with $15.8 million ($0.57 per share) in cash and no debt. Management has successfully made strategic acquisitions in the past and we expect the company to continue this trend in the future with a prudent eye towards long-term cash flow growth.

Management remains confident that telecommunication service providers around the world believe that the delivery of video content is critical to their future business successes. In addition, customer feedback continues to suggest that cable television service providers have begun to assess the value of IPTV to their businesses much sooner than the industry had anticipated and this also bodes well for the future growth of the market. Finally, Espial is optimistic that consumer electronics manufacturers will continue to invest in next-generation TV and TV devices requiring a full web browsing experience.

Conclusion

While Espial’s current earnings on a trailing basis make the company moderately attractive, the company’s growth rate, potential addressable market, and cash rich balance sheet make it more attractive for those investors who can stomach quarterly volatility with an eye to potentially solid earnings weighted more towards the second half of 2015.

Given Espial’s size (relatively small), decision period, and length of individual contract awards, we expect the company to post uneven quarterly numbers. We do not see this as unusual for an early stage industry, in which the company is operating. As such, we caution readers that quarter-to-quarter comparisons of operating results are not necessarily meaningful and should not be relied upon as indications of likely future performance or annual operating results. The company’s growth story will be driven by the signing of additional Tier 1 contracts.

In this vein, early in 2015 Espial reported that a European Tier 1 cable operator with 1.5 million pay TV subscribers selected it as their primary RDK system integrator and software vendor for their next generation 4K Hybrid DVB-IP set-top boxes. This contract represents a major European customer win that reinforces Espial’s product leadership in delivering world class RDK and HTML5 solutions. The company’s open platform allows rapid innovation, and the ability to aggregate new Internet apps like YouTube and Netflix, which are important attributes for pay TV service providers to remain competitive.

While Espial itself is not providing guidance for the European Tier 1 cable operator contract, it has been estimated that a major Tier 1 North American cable operator contract could be worth $15-$20 million over the first three to five years as the solution is rolled out to customers. As such, while the current deal could reach these heights, $15 million could be a decent near-term estimate until other factors are revealed. In addition, Espial could see an incremental $2-$3 million in recurring maintenance revenue once the solution is fully implemented across the entire customer base. As such, the contract win is very significant in terms of added revenue for a company with a market cap in the range of $60 million and it serves as further confirmation of the quality offering Espial provides to other potential Tier 1 clients.

Currently, Espial has one remaining proof-of-concept (POC) project for customers that are evaluating its IPTV solution as part of their next-generation TV offering. At this stage, a positive or negative result of this POC is unknown but a decision should come by the end of this year’s second quarter, providing another strong “potential” catalyst. Espial is also in negotiations with eight service providers vs. six in the previous quarter, with some of these not requiring a POC to sign a contract. These are solid “potential” catalysts.

Espial’s shares surged have surged approximately 60% this year already, largely in response to the contract win, and we believe the optimism is justified. With Espial trading at an enterprise value/EBITDA ratio of just under 12, the company is at a discount to peers, which currently trade at close to 14.

While not incredibly cheap, the company’s technology leadership, strong growth, balance sheet, and prudent management team combine to make it attractive for investors with above average risk tolerance and a one to three year outlook as Espial is able to prove out its business model over time.

Action now: Espial is a Buy for aggressive investors. The shares closed Friday at C$2.52, US$1.92. Note that this is a small company so the risk factor is above average.

– end Ryan Irvine

 

UPDATES

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Shaw Communications (TSX: SJR.B, NYSE: SJR)

Originally recommended by Gordon Pape on Feb. 3/08 (#2805) at C$20.53, US$20.64. Closed Friday at C$29.34, US$23.14.

First, the good news. On Jan. 14, the Calgary-based telecommunications company announced an 8% dividend increase, bringing the monthly payment to $0.09875 or $1.185 annually. The increase is effective with the March 30 payout.

Now, the not-so-good news. Net income for the first quarter of fiscal 2015 (to Nov. 30) was $227 million ($0.46 per share). That was well below analysts’ expectations of $0.53 per share and down from $245 million ($0.51 per share) in the same period a year ago. Management said the decline was due to higher amortization costs and an equity loss on a joint venture but commentators noted that the company’s media business and consumer and business network services were both weak. On the positive side, free cash flow came in at $193 million compared to $157 million the year before. Revenue was $1.39 billion, up 2%.

CEO Brad Shaw characterized the results as representing a “solid start” to the new fiscal year. He noted that during the quarter the company expanded its WiFi hotspots, one of its major initiatives, to a total of 55,000 and launched a video on demand service.

As well, the company completed its acquisition of ViaWest, one of the largest privately held providers of data centre infrastructure, cloud technology, and managed IT solutions in North America. Through the acquisition Shaw gained significant capabilities, scale, and immediate expertise in the growing marketplace for enterprise data services.

Despite the dividend increase, Shaw’s shares are down from the all-time high of C$31.93, reached on Dec. 29.

Action now: Shaw remains a hold for cash flow and modest capital growth potential. – G.P.

J.B. Hunt Transport (NDQ: JBHT)

Originally recommended by Tom Slee on May 18/14 (#21419) at $76.56. Closed Friday at $79.61. Updated by Gordon Pape. (All figures in U.S. dollars.)

This is one of the four U.S. stocks that former contributing editor Tom Slee named as his top picks for 2015. It hasn’t done anything spectacular so far but the stock has managed to hold its own in an extremely volatile market.

Readers will recall that the company is in the freight transportation business, providing truckload, intermodal, and contract carriage facilities to customers across a diverse set of industries in the U.S., Canada, and Mexico. It has been in business more than 35 years and specializes in handling imports through its “shore to door” service. Its intermodal segment represents approximately 60% of revenues and 75% of operating income in a solid, growing market. Major customers include the Burlington Northern and Norfolk Southern railways.

The company reported fourth-quarter and year-end results on Jan. 22 that came in ahead of analysts’ expectations. Fourth-quarter net earnings were $110 million ($0.93 per share, fully diluted) compared to $92 million ($0.77 per share) in the same period last year. That was $0.09 a share better than consensus estimates. Operating revenue was $1.6 billion, compared with about $1.5 billion for the fourth quarter of fiscal 2013.

For the full year, the company reported operating revenue of $6.2 billion, up from $5.6 billion in 2013. Net earnings were $374.8 million ($3.16 per share) compared to $342.4 million ($2.87 per share) the year before.

Despite the good results and the fact this is a company that stands to benefit greatly from the decline in oil prices, Deutsche Bank downgraded the stock from buy to hold on the day after the results were released, saying the share price is on the high side for its sector and that a deceleration in the growth rate for intermodal transport has “weakened modestly” the fundamentals. However, Deutsche Bank maintained a $91 target on the share price (Tom Slee’s target was $92).

The company has an active share buyback program and purchased approximately 615,000 shares of common stock for $50 million in the fourth quarter. The stock pays a small quarterly dividend of $0.20 per share ($0.80 annually) to yield 1%.

Action now: Buy under $80. – G.P.

 

YOUR QUESTIONS

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Badger Daylighting

Q – I recently purchased Badger Daylight (TSX: BAD). Do you know any reason for its steep decline? What percentage of their income is related to the oil industry? – Joe K.

A – Badger does not break out its revenue by industry sector but a significant portion comes from energy companies. In an operations update released on Jan. 26, the company said that demand for its services will decline in areas of oil and natural gas production including northern Alberta, North Dakota, and some parts of the U.S. Rocky Mountain region.

“In these areas Badger will carefully manage operations by controlling costs and redeploying underutilized hydrovacs as required,” the statement said. “Badger has plans to aggressively grow in several areas where the economy is strengthening including Eastern Canada, and the North East, Midwest, South East, and Pacific regions of the United States.” 

We won’t be able to begin assessing the full impact of the oil decline on Badger until the fourth-quarter and year-end results are released. At that time I will provide a full update on the stock. In the meantime, I suggest maintaining positions but not adding more until the picture becomes clearer. – G.P.

 

That’s all for this week. We’ll be back on Feb. 9.

Best regards,

Gordon Pape

In This Issue

JANUARY WAS A DOWNER

By Gordon Pape, Editor and Publisher

The Economist has named Toronto as the best city in the world in which to live, with Montreal second. That was about the only good news we received in January, The rest of the month was a downer, big-time. It’s now gone, and good riddance.

January is a bleak enough month to begin with. We didn’t need a ton of bad economic news on top of the lousy weather. Here are just a few of the blows that hit us.

Oil continued to drop. At first it was believed that $60 a barrel (West Texas Intermediate, figures in U.S. dollars) would be the floor. Then $50 a barrel. Now we’re about $48 a barrel and that only thanks to a late-day rally on Friday. There’s even talk the price could drop below $40. The OPEC countries are actually increasing production, pumping out about 30.4 million barrels a day in January. That has helped to push U.S. inventories to their highest point since the 1930s.

This is bad news for Canada, which JPMorgan Chase analyst Kevin Hebner dramatized with his widely reported comment: “There will be blood”. Mr. Hebner may be guilty of hyperbole, but there’s no escaping the reality that the dramatic price drop has already resulted in hundreds of job cuts, slashed capital expenditure budgets, and hammered government budgets in the oil producing provinces and Ottawa. Federal finance minister Joe Oliver was so confounded by the rapidly changing landscape that he had to postpone his budget speech until April.

The Bank of Canada cut its overnight rate. An interest rate cut right now was the last thing the country needed. With household debt at record levels and continuing to climb, cheaper borrowing costs raise the risk that the debt time bomb will eventually explode. That raises the spectre of a U.S.-style housing and unemployment disaster, such as we saw in 2008-09. But the central bank clearly felt it had no option when faced with impact of the oil plunge. “The oil price shock increases both downside risks to the inflation profile and financial stability risks,” the BoC statement said, predicting that real GDP growth will sink to only 1.5% in the first half of this year.

The loonie cratered. We haven’t seen our dollar this low since early in 2009. Some people believed we’d never hit those levels again. It turns out we didn’t realize how fragile our currency is. Many people scoffed at the idea of the loonie being a petro-currency but that’s how much of the world sees it. As oil goes, so goes our dollar.

A low currency is being touted as a boon to exporters, although we have yet to see concrete evidence of that. What is certain is that it will raise the price of imported goods from the U.S. so expect to shell out more for everything from orange juice to canned goods. As for travel, think Mexico or Europe if you need to get away. The loonie hasn’t depreciated as much against those currencies.

Growth stalled. Just to show how bad things are, Statistics Canada reported on Friday that our GDP fell 0.2% in November, even before the oil price collapse really took hold. Especially worrisome was the decline in manufacturing, which was supposed to offset some of the slack in the energy sector. Statscan said output dropped 1.9% during the month, with durable goods off by 1.8%. “Decreases were most notable in the manufacturing of machinery, fabricated metal products and primary metal,” the agency said.

In the light of all this grim news, perhaps we should be thankful that stocks didn’t do even worse than they did. The S&P/TSX Composite Index finished the month with a fractional gain of 3.3%, thanks largely to a strong performance from the gold stock, which were up 33.2%. Believe it or not, that miniscule advance was better than the Dow and the S&P 500, which were down 3.7% and 3.1% respectively for the month.

If you’re a believer in stock market myths, the New York results are especially worrisome. According to the January effect theory, stock prices are supposed to rise in the first month of the year. Historically, the effect is felt most strongly in third year of a presidential term, which this is.

It didn’t happen in 2015. That’s not a good sign for the coming months. Stay conservative in your portfolio and make sure you have some bonds.

 

Gordon Pape’s new book, RRSPs: The Ultimate Wealth Builder, is now available in both paperback and Kindle editions. Go to: http://astore.amazon.ca/buildicaquizm-20

 

MINI-PORTFOLIOS REVIEWED

One of our most popular features is the portfolios we offer for all types of investors, from very conservative to aggressive. Most include anywhere from eight to ten securities, which requires an investment of at least $25,000 and usually more.

However, some of our readers don’t want to commit that much money. So in November 2012 I launched a mini portfolio for small investors with limited resources. This was done after two readers wrote to complain about the interest rate they would get by rolling over maturing GICs and to ask for alternative suggestions.

GICs are a useful option if preservation of capital is the number one priority. But the returns they offer are even lower now than back in 2012. As of mid-week, Scotiabank was offering only 1.75% on a five-year term while Royal Bank was down to 1.65%.

By taking a little risk, I felt our readers could improve their returns significantly by cashing in the GICs and redeploying the money into a small portfolio of stocks and preferred shares or corporate bonds.

The portfolio I originally created for Canada included three securities: the common stock of BCE Inc. and Scotiabank, plus preferred shares from Laurentian Bank of Canada. The original book value was $14,984.55.

The Laurentian Bank preferreds were subsequently redeemed. In their place, I substituted the 5.75% convertible debentures from Firm Capital Mortgage Investment Corporation.

The portfolio was last reviewed in August, at which time it was showing an average annual compound rate of return of 13.57%. Here is how the three securities have fared in the six months since then.

BCE Inc. (TSX, NYSE: BCE). BCE shares have made a big move since the last update, rising by almost $10. We also received two dividends of $0.6175 each, which brings our total return over the six months to 23%. That’s a welcome boost for the portfolio, but don’t expect this stock to keep performing at that rate. For purposes of this portfolio, an annual return in the 6% range, including dividends, would be quite satisfactory.

Bank of Nova Scotia (TSX, NYSE: BNS). Scotiabank went in exactly the opposite direction, losing almost $10 a share as banking stocks weakened across the board. Scotiabank had been the star performer in this portfolio but a loss of 11% since the last review ended that. However, even with that setback, the shares have returned 17.6% since the portfolio was started.

Firm Capital Mortgage 5.75% Convertible Debentures (TSX: FC.DB.A). We bought these at $101.50 and they are now at $100.20 so we have a small capital loss. However, the real attraction of these convertibles is the high 5.75% interest rate. Interest is paid twice yearly, on April 30 and Oct. 31. We received a semi-annual interest payment of $28.75 for each $1,000 debenture in October.

We also received interest of $2.53 from the cash invested in a high-interest savings account at 1.3%.

Here is how the Canadian Mini-Portfolio stood based on prices at mid-day on Jan. 28.

IWB Canadian Mini Portfolio (a/o Jan. 28)

Stock

Shares

Average

Price

 

Book

Value

Market

Price

Market

Value

Cash

 

Gain/

Loss

%

BCE

130

$42.53

$5,528.60

$58.17

$7,562.10

$173.85

+39.9

BNS

95

$55.36

$5,258.95

$62.97

$5,982.15

$204.35

+17.6

FC.DB.A

50

$101.50

$5,075.00

$100.20

$5,010.00

$431.25

+ 7.2

Interest

 

 

 

 

$11.28

 

 

Totals

 

 

$15,862.55

 

$18,565.53

$809.45

+22.1

Inception

 

 

$14,984.55

 

 

 

+29.3

 

Comments: Since inception, the total return on this mini-portfolio is 29.3%, which works out to a compound annual growth rate of 12.57%. That’s down slightly from the last review but well ahead of the returns offered by GICs.

I am not recommending any changes in the portfolio at this time. We will invest our total cash of $820.73 in a high-interest savings account paying 1.3%, the current rate being offer by Scotiabank’s Tangerine on-line service.

U.S. portfolio

A year ago at this time I received a reader request for a U.S. dollar equivalent to the Canadian Mini-Portfolio. In this case, the goal was to improve on the return from a certificate of deposit (CD, the American equivalent of a GIC) while keeping risk to a minimum. The average rate for a five-year CD as of Jan. 22 was 0.87%, according to Bankrate.com, although you could find better returns by shopping around.

In order to make the two portfolios as similar as possible, I chose a U.S. telecom stock, a big American bank, and a fixed-income ETF. The value of the portfolio at inception was $14,954.

Here are the securities with comments on how they have done since my last review in August. All figures are in U.S. dollars.

AT&T (NYSE: T). The share price dropped more than $1 in the past six months as the company fights to maintain share in a highly competitive market. However, the quarterly dividend has been increased by a penny to $0.47 per share.

Wells Fargo & Company (NYSE: WFC). Wells Fargo stock had a good six months, gaining almost $3 per share. We also received one dividend of $0.35 during the period, bringing our total return in the year since we bought the position to 18.3%.

PIMCO Income Opportunity Fund (NYSE: PKO). Our fixed-income ETF is not doing well. The share price is down more than $3 since our last review and by $4.16 since we made the purchase. Part of that was covered by the large year-end distribution of $1.59 we received at the end of December and the fund continues to pay $0.19 per unit each month. However, even with that great cash flow, PKO is showing a total return of -1.6% after one year.

Here is how the portfolio looked on the afternoon of Jan. 28.

IWB U.S. Dollar Mini-Portfolio (a/o Jan. 28)

Stock
Shares
Average

Price
Book

Value
Market

Price
Market

Value
Cash

 
Gain/

Loss

%
T
150
$33.22
$4,983.00
$33.14
$4,951.00
$277.50
+ 4.9
WFC
110
$45.58
$5,013.80
$52.87
$5,815.70
$115.50
+18.3
PKO
170
$29.16
$4,957.20
$25.00
$4,250.00
$625.60
– 1.6
Totals
$14,954.00
$15,016.70
$1,018.60
+ 7.2

Comments: The U.S. portfolio is not doing as well as its Canadian counterpart and is really being carried by Wells Fargo. However, a 7.2% return over the first year is very acceptable and much more than investors could earn from CDs.

Changes: I am not happy with PKO’s performance. Bonds generally performed quite well in 2014 so a loss on this security is not acceptable. Therefore we will liquidate the position. Including accumulated distributions, we have $4,875.60 to reinvest.

We will replace it with units of the iShares Core U.S. Aggregate Bond ETF, which trades under the symbol AGG. This fund tracks the performance of the total U.S. investment grade bond market and is widely held with almost $24 billion in net assets. Monthly distributions vary but generally run about $0.20 per unit. The fund showed a total return of 6% in 2014.

The price at the time of writing was $111.97 per unit. We will buy 40 units for a total cost of $4,478.80, leaving us with $396.80 for future investments.

Here is the revised portfolio.

IWB U.S. Dollar Mini-Portfolio (revised Jan. 28)

Stock
Shares
Average

Price
Book

Value
Market

Price
Market

Value
Dividends

 
T
150
$33.22
$4,983.00
$33.14
$4,951.00
$277.50
WFC
110
$45.58
$5,013.80
$52.87
$5,815.70
$115.50
AGG
40
$111.97
$4,478.80
$111.97
$4,478.80
0
Cash
$396.80
$396.80
Totals
$14,872.40
$15,642.30
$393.00
Inception
$14,954.00

 

I will revisit both portfolios in about six months. – G.P.

 

VENTURE INVESTING NEEDS FUNDAMENTAL CHANGES

That’s theTSX-Venture Exchange – the ugly stepbrother to Canada’s main stock exchange. Born in late 1999 out of the combination of the Vancouver Stock Exchange, the Alberta Stock Exchange, the Canadian Dealer Network, and the Montreal Stock Exchange, the TSX-Venture recently celebrated its 15th birthday – if “celebrated” is the right word in this context.

The exchange is supposed to be a place where exciting growing businesses from a diverse set of industries meet with growth oriented investors to fund their promising new ventures. Instead, it has become an embarrassment with its composite index setting new all-time lows recently. And this is against a backdrop that has seen almost all North American indices hit all-time highs over the past 12 months.

TSX-Venture Composite Index Chart




Source: TradingView.com. Please use the ‘All’ or ‘5 yr’ buttons above to view different time periods.

The Venture exchange focuses heavily on highly speculative and very cyclical resource stocks. Yes, Canada is rich in natural resources and, in theory, the Venture exchange should be an excellent place for smart entrepreneurs to access capital and responsibly develop our country?s vast resources. But the theory has diverged widely from what is actually happening. Smart resource-based entrepreneurs are drowned out by poorly run exploration shells that do nothing but fatten the pockets of a few snake oil salesmen. The proof, as they say, is in the results. As the TSX-V continues to facilitate the deployment of capital in highly speculative resource exploration ventures, the exchange continues to destroy capital and sink further to new lows.

Looking back, 2014 was another terrible year for the mining sector in particular and resources in general. Even in a dire year for this segment, 36% of more than $5 billion in capital raised on the TSX-Venture was strictly related to the mining sector and largely to junior exploration companies – most of which never produce an ounce of economic profit. Add in the cyclical oil and gas segment and 67% of the capital raised on TSX-Venture was solely resource related.

The culture of risk capital investing in Canada needs a good smack on the head. To the boutique brokers and promoters who continue to churn out these money making (for them) and money destroying (for you) exploration shells, we say shame on them. Can they not become slightly more innovative and look at funding ABC Technology Corp. or XYZ Manufacturing Co. rather than trotting out the same old CRAP Shell Mining Corp.

The blame also lies squarely in the laps of the individual Canadian investors who keep funding these pieces of garbage. Since my late teens (in the early ’90s) when I learned a quick and painful lesson with a couple of classic Canadian exploration companies I have not put a dime of my hard earned investment dollars towards this segment and that has served me very well.

The solution is very simple – just stay away. If Canadians stop funding these capital-destroying shells they will die and the questionable TSX-Venture players running them will disappear. Brokers and bankers will finally get the message and hopefully look to fund a more diverse set of ventures – perhaps actual businesses that create cash rather than destroy it.

Change will come to the TSX-Venture when Canadians stop funding exploration shells and demand more from their risk capital – diverse businesses with strong growing fundamentals.

Ironically, with blood on the floor of the Venture exchange, now should be a time to pick up some long-term bargains with strong fundamentals in the mining sector. But there are very few worth considering and it is almost impossible for the average investor to sort the wheat from the chaff. Over the long term, we endeavour to stay less exposed to resources in general than the average Canadian investor, due to the significantly cyclical nature of the businesses.

Let’s start funding some actual businesses through our Venture Exchange. The key is to fund a diverse set of industries including knowledge based sectors such as technology and biotechnology or some basic manufacturing businesses that make real products and employ real people. Canada will never become Silicon North but we have some great entrepreneurs in this country and a little diversification outside of our commodity sector would do a world of good.

This would also help diversify our economy and give Canadian investors far more choice in their investment decisions on the home front.

So the next time your broker tries to sell you on the latest exploration play with a moose pasture in Saskatchewan or a huge potential gold mine in Botswana just say no thanks and walk away.

RYAN IRVINE LIKES ESPIAL GROUP

Espial Group Inc. (TSX: ESP, OTC: ESPAF) is a leading developer and marketer of TV Browser and TV Everywhere software solutions to consumer electronics manufacturers and telecommunications service providers. Espial has shipped over 10 million licenses of its software to these industries.

The company’s primary service drivers are the Espial Media Service Platform and Espial MediaBase Platform, which enable the delivery of TV Everywhere and IPTV services over Internet Protocol broadband networks. Espial’s products allow communications service providers, including telecommunications operators, cable TV, satellite TV, and Internet service providers (ISPs) to deploy TV Everywhere and IPTV services to their subscribers.

Incumbent cable, satellite, and telecom service providers are facing subscriber erosion. Consumers are accessing media (movies, TV shows, and music) differently today. They want on demand services quickly and to pick and choose viewing options with social media integration.

While the incumbents typically have huge amounts of content, their delivery platforms are antiquated, closed systems which stifle innovation, have high operations costs, and are tied to expensive hardware. The competitive threat is coming from new consumer providers including NetFlix, YouTube, and Amazon which have open web platforms that allow rapid innovation, can be operated at low costs, and are hardware agnostic.

Essentially, while the incumbent providers have the content, their delivery systems are largely out of date, slow, antiquated, and nothing close to what today’s consumers demand in terms of user experience and choice. As subscribers erode, they are pressed to implement new user-friendly experiences under modified models – enter Espial.

The opportunity

Espial’s HTML5 platform enables HTML5 (a core technology markup language of the Internet used for structuring and presenting content for the World Wide Web) high performance, cloud user experience, and services. The company’s platform allows for rapid service velocity through the simplified creation of new services, business models, and revenues streams. It is integrated with Comcast’s RDK platform, which was founded by Comcast (the largest broadcasting and cable company in the world by revenue). RDK is an open source operating system for set-top boxes, which is supported by top global operators like Comcast, Liberty Global, Vodafone, and Time Warner. There are currently 180+ licensees.

In discussions with 25 of top 60 global operators, Espial has attracted attention from world’s largest TV operators, and many have called the company’s solution a best in class product. Espial has already announced one Tier 1 North America cable customer and one Tier 1 European cable customer (earlier this month) and is currently negotiating with approximately eight more.

Recently, Espial reported its revenue increased 71% to $14.75 million in the nine months ended Sept. 30, from $8.65 million in the same period of 2013. For the first nine months of the 2014 fiscal year, EBITDA income increased to $2.6 million compared to a loss of $3.5 million last year. Net income increased to $1.34 million ($0.06 per share) from a loss of $5.68 million in the same period of the prior year.

Espial continues to post positive cash flow and conducted a smart financing in June of this year when the company’s shares had jumped ahead of current fundamentals. The firm issued about four million new shares at a price of $2.85 for gross proceeds of $11.5 million. As a result, the company has an excellent balance sheet with $15.8 million ($0.57 per share) in cash and no debt. Management has successfully made strategic acquisitions in the past and we expect the company to continue this trend in the future with a prudent eye towards long-term cash flow growth.

Management remains confident that telecommunication service providers around the world believe that the delivery of video content is critical to their future business successes. In addition, customer feedback continues to suggest that cable television service providers have begun to assess the value of IPTV to their businesses much sooner than the industry had anticipated and this also bodes well for the future growth of the market. Finally, Espial is optimistic that consumer electronics manufacturers will continue to invest in next-generation TV and TV devices requiring a full web browsing experience.

Conclusion

While Espial’s current earnings on a trailing basis make the company moderately attractive, the company’s growth rate, potential addressable market, and cash rich balance sheet make it more attractive for those investors who can stomach quarterly volatility with an eye to potentially solid earnings weighted more towards the second half of 2015.

Given Espial’s size (relatively small), decision period, and length of individual contract awards, we expect the company to post uneven quarterly numbers. We do not see this as unusual for an early stage industry, in which the company is operating. As such, we caution readers that quarter-to-quarter comparisons of operating results are not necessarily meaningful and should not be relied upon as indications of likely future performance or annual operating results. The company’s growth story will be driven by the signing of additional Tier 1 contracts.

In this vein, early in 2015 Espial reported that a European Tier 1 cable operator with 1.5 million pay TV subscribers selected it as their primary RDK system integrator and software vendor for their next generation 4K Hybrid DVB-IP set-top boxes. This contract represents a major European customer win that reinforces Espial’s product leadership in delivering world class RDK and HTML5 solutions. The company’s open platform allows rapid innovation, and the ability to aggregate new Internet apps like YouTube and Netflix, which are important attributes for pay TV service providers to remain competitive.

While Espial itself is not providing guidance for the European Tier 1 cable operator contract, it has been estimated that a major Tier 1 North American cable operator contract could be worth $15-$20 million over the first three to five years as the solution is rolled out to customers. As such, while the current deal could reach these heights, $15 million could be a decent near-term estimate until other factors are revealed. In addition, Espial could see an incremental $2-$3 million in recurring maintenance revenue once the solution is fully implemented across the entire customer base. As such, the contract win is very significant in terms of added revenue for a company with a market cap in the range of $60 million and it serves as further confirmation of the quality offering Espial provides to other potential Tier 1 clients.

Currently, Espial has one remaining proof-of-concept (POC) project for customers that are evaluating its IPTV solution as part of their next-generation TV offering. At this stage, a positive or negative result of this POC is unknown but a decision should come by the end of this year’s second quarter, providing another strong “potential” catalyst. Espial is also in negotiations with eight service providers vs. six in the previous quarter, with some of these not requiring a POC to sign a contract. These are solid “potential” catalysts.

Espial’s shares surged have surged approximately 60% this year already, largely in response to the contract win, and we believe the optimism is justified. With Espial trading at an enterprise value/EBITDA ratio of just under 12, the company is at a discount to peers, which currently trade at close to 14.

While not incredibly cheap, the company’s technology leadership, strong growth, balance sheet, and prudent management team combine to make it attractive for investors with above average risk tolerance and a one to three year outlook as Espial is able to prove out its business model over time.

Action now: Espial is a Buy for aggressive investors. The shares closed Friday at C$2.52, US$1.92. Note that this is a small company so the risk factor is above average.

– end Ryan Irvine

 

UPDATES

Shaw Communications (TSX: SJR.B, NYSE: SJR)

Originally recommended by Gordon Pape on Feb. 3/08 (#2805) at C$20.53, US$20.64. Closed Friday at C$29.34, US$23.14.

First, the good news. On Jan. 14, the Calgary-based telecommunications company announced an 8% dividend increase, bringing the monthly payment to $0.09875 or $1.185 annually. The increase is effective with the March 30 payout.

Now, the not-so-good news. Net income for the first quarter of fiscal 2015 (to Nov. 30) was $227 million ($0.46 per share). That was well below analysts’ expectations of $0.53 per share and down from $245 million ($0.51 per share) in the same period a year ago. Management said the decline was due to higher amortization costs and an equity loss on a joint venture but commentators noted that the company’s media business and consumer and business network services were both weak. On the positive side, free cash flow came in at $193 million compared to $157 million the year before. Revenue was $1.39 billion, up 2%.

CEO Brad Shaw characterized the results as representing a “solid start” to the new fiscal year. He noted that during the quarter the company expanded its WiFi hotspots, one of its major initiatives, to a total of 55,000 and launched a video on demand service.

As well, the company completed its acquisition of ViaWest, one of the largest privately held providers of data centre infrastructure, cloud technology, and managed IT solutions in North America. Through the acquisition Shaw gained significant capabilities, scale, and immediate expertise in the growing marketplace for enterprise data services.

Despite the dividend increase, Shaw’s shares are down from the all-time high of C$31.93, reached on Dec. 29.

Action now: Shaw remains a hold for cash flow and modest capital growth potential. – G.P.

J.B. Hunt Transport (NDQ: JBHT)

Originally recommended by Tom Slee on May 18/14 (#21419) at $76.56. Closed Friday at $79.61. Updated by Gordon Pape. (All figures in U.S. dollars.)

This is one of the four U.S. stocks that former contributing editor Tom Slee named as his top picks for 2015. It hasn’t done anything spectacular so far but the stock has managed to hold its own in an extremely volatile market.

Readers will recall that the company is in the freight transportation business, providing truckload, intermodal, and contract carriage facilities to customers across a diverse set of industries in the U.S., Canada, and Mexico. It has been in business more than 35 years and specializes in handling imports through its “shore to door” service. Its intermodal segment represents approximately 60% of revenues and 75% of operating income in a solid, growing market. Major customers include the Burlington Northern and Norfolk Southern railways.

The company reported fourth-quarter and year-end results on Jan. 22 that came in ahead of analysts’ expectations. Fourth-quarter net earnings were $110 million ($0.93 per share, fully diluted) compared to $92 million ($0.77 per share) in the same period last year. That was $0.09 a share better than consensus estimates. Operating revenue was $1.6 billion, compared with about $1.5 billion for the fourth quarter of fiscal 2013.

For the full year, the company reported operating revenue of $6.2 billion, up from $5.6 billion in 2013. Net earnings were $374.8 million ($3.16 per share) compared to $342.4 million ($2.87 per share) the year before.

Despite the good results and the fact this is a company that stands to benefit greatly from the decline in oil prices, Deutsche Bank downgraded the stock from buy to hold on the day after the results were released, saying the share price is on the high side for its sector and that a deceleration in the growth rate for intermodal transport has “weakened modestly” the fundamentals. However, Deutsche Bank maintained a $91 target on the share price (Tom Slee’s target was $92).

The company has an active share buyback program and purchased approximately 615,000 shares of common stock for $50 million in the fourth quarter. The stock pays a small quarterly dividend of $0.20 per share ($0.80 annually) to yield 1%.

Action now: Buy under $80. – G.P.

 

YOUR QUESTIONS

Badger Daylighting

Q – I recently purchased Badger Daylight (TSX: BAD). Do you know any reason for its steep decline? What percentage of their income is related to the oil industry? – Joe K.

A – Badger does not break out its revenue by industry sector but a significant portion comes from energy companies. In an operations update released on Jan. 26, the company said that demand for its services will decline in areas of oil and natural gas production including northern Alberta, North Dakota, and some parts of the U.S. Rocky Mountain region.

“In these areas Badger will carefully manage operations by controlling costs and redeploying underutilized hydrovacs as required,” the statement said. “Badger has plans to aggressively grow in several areas where the economy is strengthening including Eastern Canada, and the North East, Midwest, South East, and Pacific regions of the United States.” 

We won’t be able to begin assessing the full impact of the oil decline on Badger until the fourth-quarter and year-end results are released. At that time I will provide a full update on the stock. In the meantime, I suggest maintaining positions but not adding more until the picture becomes clearer. – G.P.

 

That’s all for this week. We’ll be back on Feb. 9.

Best regards,

Gordon Pape