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Canexus has an emerging business loading crude oil onto rail cars.

J.P. MOCZULSKI/Reuters

Hi Lou,

What's your take on Canexus Corp? It has fallen below $5 so is it a right time to step in BIG?

Thanks!

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David

Hey David,

Thanks for the assignment.

This will be the second time that I inspect the situation at Canexus Corporation. The last analysis was undertaken on Aug. 1, 2012, on a request from Robert. The shares were trading for $7.88 and Robert wanted my thoughts on the shares. The research indicated that the stock was meeting resistance along the 50-day moving average and it was cited that there wasn't a lot to suggest that CUS was a growth stock. However, given the generous dividend yield and the reasonably stable business prospects for the company it was advised to hold the shares with the proviso to maintain surveillance of the MACD and the RSI.

The stock did run to a 52-week high of $9.53 within a year but that was the end of the good times. The uptrend line was breached in July of 2013 and investors have had to suffer through a trend reversal which took the shares down to a 52-week low of $4.61. The major cause of the decline has been problems with the expansion of their North American Transfer Operations in Alberta. The facility will serve the crude by rail market when completed but cost overruns have played havoc with the stock. With a current dividend yield of 10.99 per cent, investors are concerned that a cut may be in the offing.

An examination of the charts will identify if this is a good time to get on the ride.

The three-year chart provides a disconcerting image of wealth destruction that started in the summer of the 2013. The MACD and the RSI generated a sell signal in July of 2013 which was followed by a breach of the uptrend line. A rapid collapse below support along the 50- and 200-day moving averages and the formation of a death cross by the end of August set the stage for aggressive selling. There was an rapid move higher in November of 2013 but it came to a halt by January of 2014 and was followed by another bout of selling that took the shares to their 52-week low.

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The six-month chart shows the buy signal that the MACD and the RSI generated in November and then the sell signal that surfaced in January. Note the resistance along the 200-day moving average. What is also evident is the resistance along the 50-day moving average that has met every attempt to break out of the downtrend.

There is not a huge amount of evidence that CUS is about to establish a new uptrend. Investors have to consider that there is an established downtrend, and advances are meeting resistance along the moving averages. The operational issues in Alberta have seen a shuffle in the executive suite and the threat of a dividend cut lingers. The next quarterly report is scheduled for early May which will provide more evidence to add to the analysis.

If you are going to be a buyer at these levels I wouldn't suggest going in big at this time.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it in to lou@happycapitalism.com.

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