Friday, December 30, 2005

Starting 2006 With Some (Hopefully) Interesting Ideas

It was interesting few months for the picks in our fledging blog. Not much activity since SAL's post in mid-November. There have been some great calls. Tony was right on (almost scary how good his call was) with PCA and ECA trading down before he would consider getting in. They hit his entry targets almost bang on! I continue to hold both. SAL's Newmont has made a nice move. And TX, how about VIA.TO! Nice call chief! As for me, maybe I should have stayed away from retail. But I still like SHLD. PIR on the other hand got clobbered. They are still struggling and things don't look so great. But I still think they will turn it around. It will be interesting to see if Buffett held on to the remainder of his shares after he dumped a bunch last quarter.

I thought I would get '06 started with a few picks that may be of interest.

Value - Tyco (NYSE: TYC)
Price: &28.86

This stock has been battered and still remains a turnaround story after the scandal. But the new CEO has had some success and has shed some non-core businesses. The sum of the parts seems worth more than what the stock is trading at. Buffett has taken a large position. TYC is also Legg Mason's Bill Miller's largest holding in his Value Trust fund.

GARP (Growth at a Reasonable Price) - Morningstar (Nasdaq: MORN)
Price: $34.64

You may have heard of MORN. They are the company that gives mutual funds their star ratings. They are well-respected and have a good brand. With calls for more independent research, they are well positioned to leverage their expertise to serve investors. What you may not know is that MORN also has some assets under management through Morningstar Retirement Manager as well as Morningstar Managed Portfolios. These assets are growing quickly and may be the hidden gem here. I also like the fact that the founder owns a huge chunk of shares and their customer service is top notch. Plus, nobody on Wall Street follows the stock yet.

Spin-off - Chaparral Steel (Nasdaq: CHAP)
Price: $30.25

Sound familiar? Yes, we did a case on these guys. I suppose at some point they must have been acquired by Texas Industries. But earlier this year, TXI decided to spin CHAP off and distributed shares to existing TXI shareholders. Unfortunately I missed this news. Since then, the stock is up 50%. But I think there is more upside. First, we know how this company is run. They have an awesome culture and all employees are shareholders. Second, the fact that they have remained solidly profitable through a downturn in non-residential construction shows how resilient this company is. Management is pretty much signaling that they see a turnaround coming. Hey, there is even talk of a few new office towers here in Toronto! By the way, in general, let's keep our eyes open for spin-offs. These can be quite lucrative if we cherry pick. Examples include GNW, HSP, AMP and FTI.

Financials/Insurance - Canadian Western Bank (CWB.TO) and ING Canada (IIC.LV.TO)
Price: $35.81 and ~ $51

You will see CWB branches if you travel to Western Canada. They are thriving. The bank doesn't pay much of a dividend. But they are extremely conservative when setting aside reserves for bad loans. Maybe too conservative. So you could say this is a value play. They continue to execute well and I think there is more growth to come. I don't think there is much downside at these levels. As for ING Canada, I missed this one too. Maybe you guys had noticed their IPO last year? Anyway, the stock has doubled in that time. My brother noticed Fidelity Canada has added significant position of ING Canada to its top 10 holdings in various funds. I am looking to accumulate positions in both these companies.

Hope to see you guys in the New Year.

Ali.

3 comments:

Stephen Leach said...

Great start to the year, Ali! I am behind in my analysis; so working from previous research I agree with Ali that international E&Ps, such as Petrobas, represent value in the market. TX is right though, UTS is a long term hold - the option is to either buy Petro Canada as Ali, or UTS directly.

If anyone has a call on junior oil/gas companies let us know! A recent trip to Calgary made me green with envy, but confirmed that unless your boots are in the muck you don't have enough information on juniors - I can say this - any junior with at least 5,000 Boe is in play!

IveyTraders said...

Happy New Year SAL!

Tony and TX are small-cap gurus. Any ideas on juniors boys?

I had told TX about a drilling company called Smith International at convocation (NYSE: SII). Drillers are expected to do well because there is severe shortage of rigs. The valuation has caught up on this one. But my brother owns a 'junior' driller by the name of Parker Drilling (NYSE: PKD). The stock has been on a tear and it may be undervalued compared to the big boys.

Ali.

Tony said...
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