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The ADF Group Inc. of Laval, Que., is building the 10-storey high Smithsonian Institution's National Air and Space Museum in Washington shown in an artist drawing. Steel trusses arching ten stories high are a signature architectural feature of the CenterÕs design. (CP)
The ADF Group Inc. of Laval, Que., is building the 10-storey high Smithsonian Institution's National Air and Space Museum in Washington shown in an artist drawing. Steel trusses arching ten stories high are a signature architectural feature of the CenterÕs design. (CP)

Schizas’ Mailbag

Investor sentiment is turning against this steel maker Add to ...

Hi Lou,

Can you review ADF Group please. The recent rise has provided me a nice gain. Is there more to come?

Thanks,

Tony

Hey Tony,

Thanks for the assignment.

This will be the second time that I examine the case for ADF Group Inc. The first was on Dec. 10, 2010, on a request from George who had bought the shares at $3.50 in 2008.

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The shares were trading for $1.60 and it was advised that he should consider a tax loss sale and then review his opportunities as tax selling came to an end. It was noted that there was support that came in at $1.50 but that there was resistance along the 50-day moving average. The stock did advance once tax loss selling season was complete and investors got back in, taking the stock higher near $2.00 by early February. However that was as good as it got. The shares then started a new retreat that saw it hit rock bottom near $1.10 by July of 2012.

What you need to consider when examining the opportunities associated with DRX is that it is a small cap player with a total market capitalization of $70.75-million and average daily volume over the last three months of 17,836 shares. A low market cap and thin trading volume indicate that this has a higher risk profile that should not be ignored.

An inspection of the charts will help identify if the stock could potentially have more gas left in the tank.

The three-year chart depicts a rising trend that started in February of 2013 as a golden cross formed and the MACD and the RSI both signalled that buyers were taking an interest in DRX. The shares hit resistance at $1.50 and pulled back catching a bounce off the 200-day moving average at $1.30 sending it back for a retest of $1.50. The break above $1.50 in July of 2013 started an aggressive move to the 52-week high of $2.32 on Sept. 9, 2013.

The six-month chart illustrates a base being built at $2.10 with resistance coming in at $2.20. The MACD and the RSI are both signalling that the momentum is shifting towards selling on profit taking. Also worth mentioning is that the shares have gotten somewhat ahead of their moving averages which puts a caution flag on the track from my perspective.

Given the higher risk profile of DRX and the fact that you are in the money on your position you should book some profits while they are available and see how you want to proceed.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it in to lschizas@globeandmail.com.

 

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