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Me & My Money

A fan of 'distressed' stocks Add to ...

Andre DesRoches, 38

Occupation

Airline pilot

The portfolio

Agrium, Berkshire Hathaway, Harvest Natural Resources, International Coal Group, HudBay Minerals, Lundin Mining, Citigroup, Bank of America, Manulife, H&R Block, USG Corp., SandRidge Energy, WellCare Health Plans, Canam Group, ZCL Composites, Wells Fargo, Fairfax Financial, WestJet

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The investor

It's only appropriate that stock market fan Andre DesRoches should be working for WestJet, given the airline's pro-employee-ownership stance that sees him contributing a sizable chunk of his salary to purchase stock, with the company making a matching contribution.

But that's where the neat investing fit ends. WestJet is thriving, but Mr. DesRoches generally prefers to put his money behind basket cases, or at least those seen as such.

Low risk, high returns

Take HudBay Minerals. In early 2009, after the market meltdown, he bought HudBay at $7.70. At the time, he says, the company had $7 a share in cash, no debt, a lot of the shares were in strong hands, and the net asset value was $18 a share. The shares last traded at $15.89

The contrarian

For Mr. DesRoches, bad news is good news. "I read the papers for areas of distressed industries. Headlines reflect what's distressed right now. Everybody's in love with Apple and Google and networking and computing stocks. That tells you the herd is liking those sectors, and I probably won't get something really cheap in those sectors."

Where are today's disasters?

For starters, Mr. DesRoches likes the natural gas sector, due to low prices. "People fail to see important events," he says, pointing to Exxon Mobil Corp.'s purchase of XTO Energy for about $30-billion (U.S.) in stock in late 2009. "From that I took away the fact that some of the brightest minds were looking beyond the next year or two and thinking now was the time to buy something really cheap."

Best move

After topping $110 pre-recession, fertilizer producer Agrium fell along with the rest of the recession-hammered market, and in the summer of 2009, Mr. DesRoches loaded up at $47. "It was an example of a company not going out of business and that had great potential going forward," he says. He's still holding the shares - which closed at $86.89 Friday - figuring that, based on its assets and earnings, fully valued, it should be at $115.

Worst move

At just 24, Mr. DesRoches lost every cent - some $7,000 - on Laidlaw, which at the time was expanding in the ambulance, school busing and garbage sectors. "I got the wool pulled over my eyes. The company was leveraged to the hilt, had a spotty record of making money, and had little or no free cash flow."

Advice

"Find a strategy that fits your personality and then learn from the best."



Special to The Globe and Mail

Want to share your strategies? E-mail: tony.martin@sympatico.ca

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