The year 2017 has morphed into 2018 and the results are in from last year's picks. Though stock markets cruised to record levels, our results were nothing to write home about. It could be because so much money went into major indexes and most of our choices were smaller fry, or perhaps because a year is a relatively short period of time and that period can easily sway results in a positive or negative direction.
Certainly worth noting is that when we trail market averages, it often signals that a market blow-off is not too far down the line. That was our experience both prior to 2000 and 2008. Food for thought.
In 2017, we led off with woebegone Bellatrix Exploration Ltd. (BXE-T) and concluded the article with, "While the old adage 'high-risk, high-reward' is overused, it captures the nature of this situation nicely." The corporate state of affairs today remains in a state of flux but the circumstances have stabilized to some degree. While the company is not out of the woods, it is moving in the right direction. Debt has been pared back smartly, expenses have been reduced and the Spirit River gas play has outperformed expectations. The major negative is the bottom line with a loss of $32-million this past quarter. That is mucho dinero. The stock price has been rocked by a 1-for-5 stock consolidation, losing over half of its value since our article.
In March, WiLan Inc. was featured. It has morphed from a one-horse patent pony into an enterprise that has also embraced the Internet of Things. Emphasizing the reinvention, there was a name change to Quarterhill Inc. (QTRH-T) and the acquisition of two companies of substantial size along with some smaller fry. Revenue of $93-million for all of 2016 was dwarfed by the most recent quarter of $86-million and net income of $26-million. More could be in store with new CEO/President Douglas Parker at the helm. He worked magic at OpenText with over $2.5-billion in takeovers. The stock price skyrocketed. Here is hoping that he can repeat that feat. Quarterhill's stock price has pretty much flatlined since our article. Fortunately, a dividend is being collected.
April featured CDI Corp., which was examining strategic alternatives while trading around $8 (U.S.). It appeared that the company was being shopped around and suitor AE Industrial Partners did close the deal at $8.25. Adios CDI.
Restaurant Brands International (QSR-T), home to Burger King, Popeye's and Tim Hortons, was up next. We were cool to this stock given the high debt load, the low book value relative to the trading price and the dissatisfaction of Tim's franchisees, a situation that appears to have deteriorated further. Plus, being consumers at the latter, our experience is that the quality has diminished. The stock price has had an uneventful year and trades around the same price as when the article was published.
Banks have been very kind to us for almost a decade. Ben decided to attempt to parlay that success for his personal portfolio with a purchase of Lloyds Banking Group (LYG-N). We pointed out that, "The recovery has been slow and torturous, but after years of restructuring and withering fines for an insurance product scandal, the bank's profit is accelerating sharply." The improvement allowed the bank to boost their August dividend by 18 per cent over 2016's level, but concerns about Brexit have kept the stock trading sideways. Perhaps the 68.8 billion shares is also a factor. Ho hum as compared to Ho Ho!
Alacer Gold (ASR-T) was portrayed in June as a gold miner that could triple. We still believe that it could, although once again this stock trades remarkably close to the $2.13 when we wrote the piece. The announcement of a "70-per-cent increase in the Measured and Indicated Mineral Resource for the Çakmaktepe" was greeted by the market like another day at the office. And not an exciting day to boot.
Alpha Pro Tech (APT-A) was just above $3 (U.S.) when featured in July. It has moved up sharply to over $4 in the last six months. This stock can be incredibly volatile when it appears that a pandemic might arrive and trading volumes can erupt. The company makes disposable protective clothing and infection control products. As management pointed out to us, some people just buy when the stock is out-of-favour and wait for a scare to arrive. It will.
The fading summer glow was on Harley-Davidson (HOG-N) and the problems facing the company, which seemed to be bumping along on a number of flat tires. Our feeling was that taking a pass on this one was the best route. The drop in quarterly earnings by about one-third year over year and the lackluster stock price over the past couple of months indicate that this view had merit.
There you have it, a hit, a miss, and just about everything else was a wash. So-so to be sure and way below our normal batting average. Looking forward, we have a sackful of ideas for new stock picks. Stay tuned.
Benj Gallander and Ben Stadelmann are co-editors of Contra the Heard Investment Letter.