Last year the title for our year-end summary column was Contra Guys: Our Picks Really Panned Out in a Turbulent Year. We went an unbelievable 13 for 13 and had never had that happen before and do not expect it to occur ever again.
Or will it?
This year our first pick was the largest Spanish bank, Banco Santander SA (SAN-N), which also operates in numerous other countries. In January the stock was trading at about US$3.30; it’s currently at about US$3. Nothing to write home about there. Still, our confidence remains unsullied, and the initial sell target is $8.24. The dividend is just under 3 per cent.
Next up was Artis Real Estate Investment Trust (AX.UN-T). REITs had rebounded from their early pandemic lows, but it was felt in this corner that more would be in store. The company had acted prudently, cutting the distribution by about half. The stock traded at around $11.25 when the column appeared in March, and noodles around there now. The payout, fortunately, is north of 5 per cent. Our sell goal remains $15.24. Insiders appear optimistic as they have been buying like there is no tomorrow.
Next up was another REIT, Cominar (CUF.UN-T). At the time of the article in late March its price was $9.30, and we wrote that a key reason to like it was the company was doing a strategic review. This is often code for, “We are looking to be acquired.” Lo and behold, in October, a consortium of companies put forward a bid at $11.75. That seems low to us, especially since the book value is more than $14.50. Benj has voted against the deal, as have some of the major shareholders. If the transaction falls off the table, the stock price will likely decline. A risk indeed. But there is still the possibility that the group will sweeten its offer, or another suitor will arrive. Benj is sitting tight and collecting the distribution of better than 3 per cent.
U.S. financials, a sector where we have often made scads of money, was next, featuring our laggard in the banking sector, First US Bancshares Inc. (FUSB-Q). This small Alabama-based enterprise that has been profitable in eight of the past 10 years was trading at US$10.25 when the article appeared in May, less than half of our sell target. It has moved up a tad since to about US$11.60. Currently the company is retrenching, closing 20 branches of a subsidiary and four banking branches. It has already earmarked US$550,000 for expenses and there will be further costs of about US$500,000. Once this is done, perhaps the current quarterly dividend of 3 US cents will rise. In 2009, owing to the banking crisis, it was reduced from 27 US cents quarterly.
Mobile TeleSystems Public Joint Stock Co. (MBT-N), the largest telecommunications outfit in Russia, with additional operations in Armenia and Belarus, was up next. It is in a bevy of related businesses such as cloud computing, cybersecurity, e-sports clubs, the internet and pay TV. Were we playing Russian roulette with this entity, an American depositary receipt that traded in mid-July at US$8.65? Time will tell, but the stock price is now under US$8. Unlike many North American corporations, the dividend is normally paid twice a year, but sometimes a third one is snuck in. The initial sell goal is US$18.74. This one adds geographical and currency diversification. It also has lots of geopolitical risk in a country with high levels of corruption.
McCoy Global Inc. (MCB-T), a small provider to the energy industry, attracted our ardour next. Founded in 1914, this company’s revenues were hammered to the tune of 35 per cent with the drop in oil and gas prices. The company is examining strategic alternatives and it would not surprise to see it taken over at a premium. Insiders own about 48 per cent, so they are particularly motivated to sell at a high price if they do not buy it themselves. The enterprise traded at 75 cents when we covered it in early August, and now trades at a smidgeon less, far from our objective of $2.24. If it is taken over, the price would almost certainly be far less than our target price.
Lastly, not counting our most recent picks, which are too fresh to count, was Greek shipper Seanergy Maritime Holdings Corp., with the appropriate trading symbol of SHIP on the Nasdaq. This corporation seems to specialize in reverse stock splits – not something that is attractive – but seems to be getting its house in order. Worth noting is that this is a notorious fickle arena for investors and too often companies in this sector take on water, so to speak. At US$1.20 when the article came out in mid-September, it now sits at around a buck. The goal is to sell around US$4.24.
The overall tally? More losers than winners, but not one that lost much, nor one that gained a lot. Not great, to be sure. Fortunately, five of the seven pay healthy dividends supplementing returns.
The result is far below the two portfolios we manage at Contra the Heard Investment Letter, with the President’s Portfolio up 37 per cent year to date and the Vice-President’s Portfolio ahead 22 per cent. (Note the long-term bias in those portfolios: The President’s Portfolio has 16 stocks, of which 11 have been held for more than five years. The Vice-President’s Portfolio holds 25 positions, and 13 have been in the portfolio for more than five years.)
Those outcomes will help us buy some fine beverages and nibbles during the holiday. All the best to you for a healthy, happy 2022.
Benj Gallander and Ben Stadelmann are co-editors of Contra the Heard Investment Letter
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