How To Invest
In addition, Pat thinks then beginner investors should cultivate two important qualities: a healthy sense of skepticism and patience.
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Investors should approach all investments with a healthy sense of skepticism. This can help keep you out of fraudulent stocks that masquerade as high-quality stocks. It will also keep you out of legally operated, but poorly managed, companies that promise more than they can possibly deliver.
If you are a new investor, you should also realize that losing patience can cause you to sell your best choices right before a big rise. All too often, investors buy a promising stock just as it enters a period of price stagnation. Even the best-performing stocks run into these unpredictable phases from time to time. They move mainly sideways in a wide range for months or years before their next big rise begins. (Stock brokers often refer to these stocks as “dead money.”)
If you lack patience, you run a big risk of selling your best choices in the midst of one of these phases, prior to the next big move upward. If you lose patience and sell, you are particularly likely to do so in the low end of the trading range, when stock prices have weakened and confidence in the stock has waned.
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Cantel Medical Corp., $41.94, symbol CMN on New York (Shares outstanding: 41.5 million; Market cap: $1.8 billion; www.cantelmedical.com), makes products that control and prevent infections. Examples include specialized medical devices for kidney dialysis and looking inside the body, water purification equipment, disinfectants and cleaners, filtration and separation products and specialty specimen packaging. In the three months ended October 31, 2014, Cantel’s revenue rose 15.7%, to $136.8 million from $118.3 million a year earlier. Excluding one-time items, earnings per share rose 9.7%, to $0.34 from $0.31....
Black Hills Corporation, $51.44, symbol BKH on New York (Shares outstanding: 44.7 million; Market cap: $2.3 billion; www.blackhillscorp.com), serves 777,000 natural gas and electric utility customers in Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota and Wyoming. It also produces natural gas, oil and coal. The shares haven’t risen along with those of many U.S. electricity producers over the last year (such as Ameren Corp., symbol AEE on New York, up 27%; or Alliant Energy, symbol LNT on New York, up 31%—both recommendations of Wall Street Stock Forecaster). In contrast, Black Hills is up just slightly. That’s because of its exposure to falling oil prices through its oil and gas production interests....
iShares S&P/TSX Capped Energy Index ETF, $12.97, symbol XEG on Toronto (Shares outstanding: 70.3 million; Market cap: $911.8 million; ca.ishares.com), aims to mirror the performance of the S&P/TSX Capped Energy Index, which is made up of the largest-capitalization energy stocks on the Toronto exchange. The weight of any one company is capped at 25% of the index’s market capitalization. The fund’s MER is 0.60%, and it yields 1.8%. The ETF’s top 10 holdings are Suncor Energy, 21.3%; Canadian Natural Resources, 15.6%; Cenovus Energy, 7.2%; Imperial Oil, 5.1%; Crescent Point Energy, 4.9%; Encana Corp., 4.7%; Talisman Energy, 3.5%; ARC Resources, 3.3%; Husky Energy, 3.2%; and Tourmaline Oil, 2.6%. We still think most investors are better off investing in individual companies as part of a well-balanced, diversified portfolio rather than in funds that focus on narrow market sectors. As well, indexes that cap their holdings at a certain level can cut your return by reducing top performers’ contributions if they rise to make up more than the capped limit....
We haven’t found any industrial REITs we recommend as buys, but some are okay to hold as part of a well-balanced portfolio. Here’s a look at the three you asked about:
- WPT Industrial REIT, $10.80, symbol WIR.U on Toronto (Units outstanding: 29.4 million; Market cap: $317.5 million; www.wptreit.com), is a Canadian REIT that owns and manages industrial properties in the U.S. Right now, WPT has 42 properties in 12 states. In all, they include 12.8 million square feet of leasable area....
Trican Well Service, $5.33, symbol TCW on Toronto (Shares outstanding: 149.7 million; Market cap: $827.3 million; www.trican.ca), sells products, equipment and services for exploring and developing oil and gas reserves. Its offerings include hydraulic fracturing and cementing, as well as tools for working in a well or borehole. The Calgary-based company operates in Canada, the U.S., Russia, Kazakhstan, Algeria, Australia, Saudi Arabia, Colombia and Norway. In the three months ended September 30, 2014, Trican’s revenue rose 40.5%, to $770.6 million from $548.3 million a year earlier. Earnings per share jumped to $0.29 from $0.07. Higher fracturing demand in Canada was a major reason for the gains....
Currency Exchange International Corp., $23.89, symbol CXI on Toronto (Shares outstanding: 5.4 million; Market cap: $129.0 million; www.ceifx.com), exchanges currency and offers other financial products and services in North America. The company first sold shares to the public at $6.65 each and began trading on Toronto in March 2012. In addition to exchanging currency, its offerings include wire transfers, travellers’ cheques, foreign bank drafts and international cheque clearing. Clients include financial institutions, companies and individuals....
Owens-Illinois, $24.89, symbol OI on New York (Shares outstanding: 164.9 million; Market cap: $4.2 billion; www.o-i.com), is the largest producer of glass containers in North America, South America, New Zealand and Europe.
The company has 77 plants in the U.S., Europe and South America. Customers include brewers, food producers and distillers.
The stock is down from over $31 in mid-September, after Owens-Illinois reported that its earnings per share fell 5.0%, to $0.75, in the latest quarter. Weakness in North America and the Asia-Pacific region offset improvements in South America and Europe.
The company’s long-term outlook is positive, but its growth will likely remain sluggish in the near term, as low profitability in the Asia-Pacific region and North America continues to hold back results. The falling value of foreign currencies against the U.S. dollar will also keep hurting contributions from its international operations.
The stock trades at 9.3 times next year’s forecast earnings of $2.69 a share. But the company’s total debt of $3.5 billion is a very high 83% of its $4.2-billion market cap. That adds a lot of risk.
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The company has 77 plants in the U.S., Europe and South America. Customers include brewers, food producers and distillers.
The stock is down from over $31 in mid-September, after Owens-Illinois reported that its earnings per share fell 5.0%, to $0.75, in the latest quarter. Weakness in North America and the Asia-Pacific region offset improvements in South America and Europe.
The company’s long-term outlook is positive, but its growth will likely remain sluggish in the near term, as low profitability in the Asia-Pacific region and North America continues to hold back results. The falling value of foreign currencies against the U.S. dollar will also keep hurting contributions from its international operations.
The stock trades at 9.3 times next year’s forecast earnings of $2.69 a share. But the company’s total debt of $3.5 billion is a very high 83% of its $4.2-billion market cap. That adds a lot of risk.
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This will be our last Inner Circle Q&A for 2014. Our next issue will go out on Tuesday, January 6, 2015. Now is a good time for me to say “Thanks!” to all our Inner Circle members. It’s a pleasure to read and answer your questions. I take great pleasure and pride from the many compliments and expressions of gratitude you send every week. That’s especially true when I hear from a member who I recognize from decades ago—from the early days after the 1994 launch of The Successful Investor, or from the two prior decades that I spent at The Investment Reporter and MPL Communications....
Approach Resources, $7.13, symbol AREX on Nasdaq (Shares outstanding: 39.6 million; Market cap: $267.0 million; www.approachresources.com), develops, produces, acquires and explores for shale oil and gas reserves in the Midland Basin, part of West Texas’s Permian Basin. In the three months ended September 30, 2014, the company’s production rose 61.4%, to an average of 14.2 million barrels of oil equivalent a day from 8.8 million a year earlier. Its production is 69% oil and 31% gas. Cash flow per share rose 70.6%, to $1.16 from $0.68. Approach’s $339.5 million of debt is a high 127% of its $267.0-million market cap, but that’s mostly because its market cap has dropped lately, along with those of most oil and gas stocks....
KKR & Co. LP (formerly Kohlberg Kravis Roberts & Co. LP), $22.65, symbol KKR on New York (Shares outstanding: 428.6 million; Market cap: $18.3 billion; www.kkr.com), is an asset manager with 14 offices across North America, Europe, the Middle East, Asia and Australia. The company serves three main markets: private (investment funds); public (leveraged loans, high-yield bonds, special situation assets, distressed assets and rescue, debtor-in-possession and exit financings); and capital (debt/equity financing). As of September 30, 2014, KKR had $96.0 billion of assets under administration. It continues to take advantage of strong financial markets to sell some of its investments at a profit. In the latest quarter alone, it made 10 sales, the largest being Visma, Modern Dairy and Ipreo. It still has a number of pending deals, including US Foods, Biomet and Alliance Boots....