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Penn West CEO Bill Andrew (Dave Olecko)
Penn West CEO Bill Andrew (Dave Olecko)

Schizas' Mailbag

Penn West Exploration a hold Add to ...

Good morning,

I have owned Penn West since 1999. It is down to almost a third of the price it was at its peak in 2006.

They have also decreased their dividend from 34 cents to 9 cents during that time. Do you think I should hang on awhile longer or sell and take my losses? Some of the shares are within my RRSP.

More related to this story

Thanks,

Pam





Hi Pam,

The first time I ran the charts for Penn West Exploration was on May 24, 2009 for Colleen. The units were trading for $13.99 and it was advised that the company had solid management and a large land base it could exploit. In addition, with an attractive yield investors were being well paid to be patient. In retrospect buyers and holders were well rewarded especially if they sold at the right time.

The second time I looked under the hood at PWT was in July of 2011. It was suggested that it would be worth putting the stock on a watch list for the right signals to line up for a buy. That happened in October of 2011.

Let’s investigate the current status of the shares and how best to proceed.

The three-year chart depicts the advance that started in September of 2009 at $14.00 and ran to a high of $28.20 on February 28, 2011. Also evident is the golden cross that formed in September of 2009 signalling that the game was afoot!

Unfortunately after the peak a double top surfaced which signalled a reversal of the uptrend. By June of 2011 a death cross appeared confirming that there was more selling to come. The shares then broke support at $22.00 and ran to the October 04, 2011 low of $13.22. The shares have moved off the lows and are now holding support along the 50-day moving average.

The MACD and the RSI on the six-month chart both signalled a buy in October and are again suggesting that PWT has more in the tank. There is resistance at $19.00 that has to be overcome but after that its fairly clear run to $21.00.

It's hard to advise someone to sell a stock they bought in 1999 at what looks like a decade long low. What I can tell from the long-term charts you must have been buying at about $5.00 a share back then. If you were to sell at today’s prices you would still have a hefty capital gain and would have to pay tax on it.

Another factor to keep in mind is the yield on your orignal investment. The annual dividend assuming you paid close to $5.00 a share in 1999 is producing a yield over 20 per cent. It will be hard to find that kind of return with a similar risk profile. Given your specific situation I think that PWT is a hold not a sell.

Make it a profitable day and happy capitalism!



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