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Value Insight – November 2008:

With another month of market turmoil coming to an end I thought I would take a few moments to give readers a look into what I’ve been up to in the month of November with my two portfolios.

Yield, yield and more yield was one major theme for the month as stock prices came down even further than I expected them to after a horrible September and disastrous October in equity markets. What’s become immediately apparent to me while watching the markets the past few months has been the glaring distance of spreads between the bid & ask prices for equities. Investors looking for immediate liquidity have been more than happy to unload their shares at very attractive valuations for the long-term investor. Opportunities have been surprisingly swift; especially in the preferred share market with valuations of highly regarded issues yielding at times well above historical spreads. While an income investor won’t want to overload their portfolio with preferred shares these equities provide a meaningful source of additional income to help fuel further purchases of common equities and are highly tax efficient.

Stocks Bought:

DivG:

Newalta Income Fund (NAL.UN): Management recently announced their intention to convert back to a dividend paying corporation with a targeted annual payout of $0.80 per share. The moneygardener had brought this to my intention earlier in the month and after further review of the company I determined that their operations and prospects for growth in waste management services was a solid long-term opportunity from a risk/reward standpoint. Their market remains highly fragmented with relatively smaller competitors and the company is diversified adequately from its oil & gas operations with landfill and alternative revenues. While I expect continued volatility in this stock over the short-term I expect this company to conservatively grow its portfolio of services and operations and raise its dividend in the future.

Canadian Pacific (CP) & Canadian National Railway (CNR): After getting on the Dividend Express in October I again added to my position in CP and further lowered my ACB in CNR at $42. While both are economically sensitive the price of energy has decreased recently adding to their profitability. Bulk commodities and products will continue to be moved across the continent in large quantities by the only cost-effective method as rail offers producers a fast and efficient method of transporting inventory across borders and to ports. My exposure to these industrial companies is adequate for the moment and I expect them to be successful investments over the long-term with strong dividend growth.

Manulife Financial (MFC): After publishing Confessions of a Value Investor II, I found myself staring at Manulife with the option of topping up my weighting in the company to 5%. After reviewing my analysis on the company and considering the current risks I added to my position at $21.50.

Power Financial (PWF & PWF.PR.H): PWF is a unique stock as it owns controlling interests in Great-West Life GWO) and IGM Financial (IGM) as well as some attractive European industrial assets through Pargesa Holding S.A. I was looking to add to my position to balance my position in IGM and after purchasing more common shares in PWF I looked through my watchlist of preferred shares and suddenly noticed an issue trading at a YTW (yield-to-worst) of 9.58% (13.4% pre-tax equivalent). While I normally would avoid purchasing a preferred in the same company I hold common equity of the investor willing to part with their shares at the price I paid was a difficult investment to ignore.

Westcoast Energy (W.PR.J): this preferred gem comes with a tax-advantaged yield of nearly 9.5% and has cumulative dividends to boot. This is another non-financial perpetual preferred that I’ve added to my portfolio for additional income. In 2002 US based Duke Energy bought Westcoast Energy and left their preferred share issues (H & J series) in the open market and remain rated at Pfd-2 (low) by DBRS.

RSP:

SPDR Technology ETF (XLK): This is an ETF I’ve been waiting to initiate a position in for quite some time during this market decline. Technology is a sector I want exposure to over the long-term and rather than buying individual positions in large-cap software and hardware companies I get very cheap exposure to some of the best technology companies out there. XLK’s top 10 holdings can be found here.

Berkshire Hathaway (BRK.B): Although I only purchased a single share of this company you would have to go back to 2003 to get a better price under $2600. The holding company guided by Warren Buffett and Charlie Munger has recently come under pressure as its derivatives come into question. Although I hold many of the same equities in my RSP (KO, JNJ, KFT, PG, SNY, WMT & WFC) Buffett is an investor able to take advantage of opportunities not offered to other investors such as his recent GE, GS and USG investments. Despite concerns over succession of the company when either Buffett or Munger step down I believe that there are enough competent managers running the businesses under the umbrella of BRK to provide meaningful value in the future. The market tends to discount Buffett on numerous occasions and as a student of his investing method I trust the old man still knows a lot more than me about value.

Becton Dickinson (BDX): This medical device, supply and systems company was removed from my Healthcare portfolio when it closed shop in 2007 and was something I eyed very closely in the recent market tumble. At $60 I couldn’t resist adding it into my RSP to compliment my holdings in BAX and JNJ. With the recent increase in the dividend of 15.8% and authorization for additional share repurchases (a rare move in recent months) the company is poised to grow over the long-term. I work directly with this company’s products daily and management in a top-down format are eager to receive constructive criticism on product development to improve patient care.

Whirlpool (WHR): I provided a stock analysis of WHR earlier in 2008 and nothing fundamentally has changed with this company as global growth slows. The company is well positioned in multiple markets to take advantage of an emerging middle class. They are focused on cost reductions, have a high level of goodwill, but an otherwise strong balance sheet. Paying over a 5% dividend and under 10x forward earnings when I purchased my second round of shares WHR offers excellent value for a company I intend to hold for the long-term.

Seaspan (SSW): This company has been completely trashed along with other global shipping stocks as credit concerns, shipping rates and the BDI (Baltic Dry Index) has plummeted. SSW is a company that owns and charters containerships through long-term fixed-rate leases to shipping companies. The company has secured financing on all current assets in development and has adequate protection from losses through contractual abilities. The current dividend yield on the company is stunning and through my analysis of the company has no material evidence of being cut. I have recognized the potential for a cut in my valuation, but have added to my position under $5 as I view this as a conservative long-term investment on emerging markets and globalization.

Stocks Sold:

Reitmans (RET.A): I will be discussing this in further detail with Confessions of a Value Investor III shortly.

December is Interview Month at TMWTFS
Tune in each Monday for the first three weeks in December for interviews with two dividend investors and Sramana Mitra, author of Entrepreneur Journeys (Volume One)

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{ 3 comments… add one }
  • Anonymous November 28, 2008, 11:48 pm

    Hey Nurse,

    I have a request for a potential post for your ‘New Investor Index’ section.

    You see, recently I’ve been hearing a lot of talk about deflation and hyper inflation. I get the gist about what these mean for the economy, but not so much for my portfolio.

    Particularly what hyper inflation in the US will do to my portfolio(US, Can, Int index funds).

    Maybe even a Part 2 explaining what you feel are good options available for investor’s who want to protect themselves against it.

  • Nurseb911 November 29, 2008, 3:19 pm

    Anon,

    I've placed your request on a list of future posts for 2009.
    What I'll likely do is a series on inflation, deflation, stagflation & hyperinflation with potential investing strategies for each one.

  • Anonymous November 29, 2008, 3:24 pm

    Awesome! thanks. Apologies for mentioning it randomly in this post of yours.

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