Supplying Under Served Markets

Jun 29th, 2009 – 1 Comment

Lou, Can I impose on you for an opinion on The North West Company. They have little competition in a healthy region, lots of govt. support for their customers—but the price keeps dropping. Good dividend, but is this stock worth holding or buying more? Would appreciate your opinion. Morton Hi Morton, You are right the […]


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nwLou,
Can I impose on you for an opinion on The North West Company. They have little competition in a healthy region, lots of govt. support for their customers—but the price keeps dropping. Good dividend, but is this stock worth holding or buying more? Would appreciate your opinion.

Morton

Hi Morton,
You are right the North West Company ( NWF.UN TSX)  has a nice business servicing rural communities in Canada, Alaska, the Caribbean and South Pacific, with food and general merchandise. Food makes up 75% – 80% of the business. The company sees growth in fuel and financial services.

The best explanation of what has happened to the trading value of NWF is that it has been, like everyone else,rocked by a host of external issues beyond its control. Development activities by the mining industry in Canada’s North and Alaska have been on hold since the beginning of the financial crisis. Mining companies, particularly the juniors, which depend on financing to fund their activities have seen their source of funding dry up over the last 18 months.
nwf
The chart for NWF shows a steep sell off for most of 2008 with range bound trading between support at $15.00  and resistance at $17.oo from the fall of 2008 through this point in 2009.

The units have cycled through the range three times in the last 9 months rewarding traders with a 13.33% return on a one way ticket.nwf2The MACD on the three month chart seems to be flattening out from the downtrend that started in mid April. There was better than average volume on Friday suggesting that traders were buyers as the units traded below $15.00.

The best strategy for the North West Company if you like the story and the fundamentals is to establish a core position in the company and enjoy the 8.9% dividend yield. Then establish a trading position with new money to trade the units within its range. Profits from your trading will help lower your adjusted cost basis on your core position.

Happy Capitalism!

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