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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Rock Energy, $6.49, symbol RE on Toronto (Shares outstanding: 39.9 million; Market cap: $259.0 million; www.rockenergy.ca), produces oil and gas in Western Canada, with a focus on the greater Lloydminster area, along the Alberta/Saskatchewan border. Its output is 94% oil and 6% gas. In the three months ended March 31, 2014, the company produced 4,899 barrels of oil equivalent a day, up 52.4% from 3,214 barrels a year earlier. Rock’s cash flow per share jumped to $0.39 from $0.08. The company’s total debt of $17.8 million is just 6.9% of its $259.0-million market cap. That, plus its rising cash flow, gives it the funds to keep drilling and increasing its output. The stock trades at 4.3 times the company’s forecast 2014 cash flow of $1.52 a share....
Arrowhead Research, $13.43, symbol ARWR, on Nasdaq (Shares outstanding: 51.9 million; Market cap: $697.0 million; www.arrowheadresearch.com), is a biopharmaceutical firm that focuses on RNAi therapeutics. RNAi therapeutics has the potential to treat a number of human diseases by “silencing” disease-causing genes. The discoverers of RNAi, a gene-silencing mechanism that all cells use, were awarded the 2006 Nobel Prize in the physiology-or-medicine category. Arrowhead’s shares have been volatile this year. They jumped as high as $27.63 in early April after the company said that it had begun a Phase 2A study involving its most promising drug candidate, hepatitis B treatment ARC-520....
Redknee Solutions Inc. $5.51, symbol RKN on Toronto (Shares outstanding: 108.9 million; Market cap: $600.0 million; www.redknee.com), sells software and services that help wireless and wireline (or traditional telephone) providers manage and bill for voice, messaging and data services. Redknee has over 200 clients in 90 countries. In March 2013, the company acquired the Nokia Siemens Networks’ Business Support Systems unit, which provides billing and customer service to over 130 telecom firms. In the three months ended March 31, 2014, Redknee’s revenue jumped to $72.4 million from $11.8 million a year earlier, in large part due to the Nokia Siemens acquisition (all amounts except share price and market cap in U.S. dollars). Without one-time items, the company earned $0.05 a share, compared to a loss of $0.03....
Skyworks Solutions Inc., $47.59, symbol SWKS on Nasdaq (Shares outstanding: 189.6 million; Market cap: $9.0 billion; www.skyworksinc.com), makes a variety of chips and other electronic components for cellphones, tablet computers and other wireless devices. Samsung and Foxconn, which makes Apple’s iPhone and iPad, account for about half of Skyworks’ sales. The company is also developing chips for other applications beyond mobile devices, including smart meters that help electrical utilities cut fraud and make their grids more efficient. Skyworks continues to benefit as more people use mobile devices, such as smartphones, to communicate and access the Internet....
Clean Energy Fuels Corp., $11.69, symbol CLNE on Nasdaq (Shares outstanding: 89.9 million; Market cap: $1.1 billion; www.cleanenergyfuels.com), is a North American seller of compressed natural gas (CNG) and liquefied natural gas (LNG). Its customers operate natural-gas-powered vehicles in the refuse, transit, ports, shuttle, taxi, regional trucking, airport and municipal fleet markets. California-based Clean Energy first sold shares to the public for $12 each and began trading on Nasdaq in May 2007. Billionaire financier and hedge fund operator T. Boone Pickens owns 20% of Clean Energy’s shares. The company provides natural gas to over 650 fleet customers with over 30,600 vehicles through 224 natural gas fuelling stations across Canada and the U.S....
DragonWave Inc., $2.19, symbol DWI on Toronto (Shares outstanding: 58.5 million; Market cap: $128.1 million; www.dragonwaveinc.com), makes equipment that wirelessly transmits broadband voice, video and other data. That lets customers send and receive data in places that fibre optic networks haven’t yet reached. The company’s clients are mainly high-speed Internet and wireless providers. It also sells to organizations that operate their own networks, such as universities, hospitals, cities and businesses. DragonWave prefers to focus on product design and support; it outsources most of its manufacturing to other firms....
There’s a revolution brewing in Canada’s brokerage industry. Canada’s provincial securities commissions are looking at three longstanding practices that help the brokerage industry and securities salespeople, but represent a steady drain on the finances of many investors. Trailer fees and other “embedded” fees. Mutual fund buyers now pay a yearly fee or Management Expense Ratio (MER) of perhaps 2.5% of the value of most mutual funds they invest in. One and a half percentage points generally stays with the fund company, to pay for management of the funds, record-keeping, administration and so on; one percentage point goes to the securities firm where the investor bought the fund, to be shared between the firm and the salesperson. The idea is that this fee goes to pay for continuing advice to the investor. The fund company continues to charge the 1% to the investor, and pay it to the brokerage firm, every year for as long as the investor owns the fund....
Tourmaline Oil, $56.78, symbol TOU on Toronto (Shares outstanding: 199.9 million; Market cap: $11.5 billion; www.tourmalineoil.com), has identified over 7,200 oil and gas drilling locations in Western Canada and has the funds for exploration. That should let it keep raising its production. Tourmaline’s daily output averaged a record 111,200 barrels of oil equivalent (including natural gas) in the first quarter of 2014, up 49.4% from 68,636 a year earlier. Cash flow per share doubled, to $1.28 from $0.64, mostly due to higher gas prices. About 85% of Tourmaline’s output is natural gas. The company continues to benefit from higher gas prices, while its steadily rising production pushes up its share price....
EZChip Semiconductor Ltd., $25.08, symbol EZCH on Nasdaq (Shares outstanding: 29.1 million; Market cap: $740.4 million; www.ezchip.com), is an Israel-based company that specializes in chips that regulate and speed up the flow of data within computer networks. It focuses on design and outsources production to other chipmakers. The company gets nearly 75% of its revenue from three main customers: Cisco Systems, ZTE Corp. and Juniper Networks. (Cisco Systems is a recommendation of Wall Street Stock Forecaster.) This heavy reliance on just a few clients is a significant risk factor. For example, in September 2013, EZChip’s shares dropped from $31 to below $22 on news that Cisco is now developing its own networking chips....
BB&T Corp., $39.23, symbol BBT on New York (Shares outstanding: 718.5 million; Market cap: $28.2 billion; www.bbt.com), owns Branch Banking and Trust Company, the ninth-largest U.S. bank by deposits. It has 1,825 offices in 12 southeastern U.S. states and Washington. D.C. Aside from banking, it operates in the brokerage, asset management, mortgage and insurance businesses. The bank is starting to see higher demand for loans from buyers of income-generating real estate (up 10.6% in the 2014 first quarter from the 2013 fourth quarter) and improvement in key markets like Florida and Texas. BB&T’s focus on lending to oil and gas companies and equipment finance is also paying off with higher loan volumes. It needs a continued rise in loan demand to offset a higher cost of funds and a number of less-profitable loans it obtained through acquisitions....