Sell-offs are always interesting to this trader. You learn your best lessons and gain the most insight when markets sell off. Oh, they are painful and certainly hurt the gains, but in the end one must take the new smarts and move forward. Our fund has three stocks that if sold now would virtually wipe out all the 2012 gains to date. Add in one other stock in a personal account and you got lots of losses.
Through all of this I am reminded of a comment from Jim Powers, who was a smart Lumberton banker who told me one time, "just when you think you got it figured out the market will humble you fast". That advice is as good now as it was when I received it over 26 years ago.
ERF.. We are highly leveraged in this stock and with good reason. It is a Canadian oil and gas producer that has everything we want in a security. Good monthly dividend, good political situation, and in a business that is not going out of business. That last one is the one that makes the sell off in this stock silly. Short sellers have taken this stock almost 40% in the last month because of worry about the dividend. There is good worry about the dividend, but examination of the cash flow tells us this stock is an outright steal at the current below $16 price. Even with a 50% dividend cut you still get over 5% payout in a business that is going to do nothing but grow as long as the extreme environmentalists keep us from the oil that is available. As with any falling stock when the short sellers step in and you see the bargain no one knows where the pain gets so great many long term holders start selling from fear of lower prices. So this makes the downtrend even more pronounced. If you are a long term holder right now this stock is a huge bargain, just buy and hold.
FTR...Again the short sellers have had no mercy on this stock driving it now to below $4 per share. We too are highly leveraged in this security and wonder in amazement what a bargain FTR is at this price. This legacy telecom is not going out of business, is starting to grow it's business and broadband end, and sooner or later someone will see that the current above 12% payout is sustainable for many years forward. At below $3.30 price right now this is worth some portion of anyone's portfolio just for the dividend and frankly I would be blown away if the price reaches a 2 handle. The only question is if the silliness will continue to that level. It will if the short sellers continue to sell it.
GG.. This gold producer has taken a pounding from the downturn in gold prices in the last month. As the dollar got stronger traders fled gold. Maybe I have reached stupid status, but if anyone thinks the dollar is so wonderful long term with trillion dollar deficits as far as the eye can see then I really am stupid. Right now the only reason the dollar is stronger is that the US is the best house in a bad neighborhood and our house is just plain ugly too. GG offers to some upside capital gains potential here at below $35 and a 1.5% monthly dividend on a gold stock which is silly high in itself.
WIN...Another legacy telecom that was notably upgraded to buy by Stifel Nicolaus this morning. This company like FTR is not going out of business and been savaged by sellers the last four days due to the small, and do mean small miss on revenue. If you actually take time to examine the miss on revenue you will find that the reason is that the company suspended sales of a new item due to some technicality with the US Justice Dept. I would expect that issue to be resolved and sales start anew sometime this next quarter. This company continues to pay down debt and like FTR has lots of rural exposure where competition is weak and should have a solid future.
We are long and hold options on all four stocks in this posting.
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