Superior Plus Corp. has been inferior plus for investors

Nov 12th, 2010 – Comment

After warning caution for investors interested in SPB on September 17 and seeing it lose another $2.00 a share it is difficult for me to get excited about the prospects of hanging around to collect the dividend.


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I have been taking a beating on SPB lately and wonder if I should hang on and just collect the yield or perhaps add more to get my cost down? What is going on with them? I guess the old adage of if the yield is this high one should be super careful. I didn’t listen to myself!! 
Thanks
 John
 
 
Hi John,
 
I last covered Superior Plus Corp. ( SPB TSX) on September 17, 2010 and at the time the case for investing in the company was not very strong from a technical point of view. Lets consult the charts and evaluate what has happened over the last number of weeks.
 
 
 
 
The three year chart tells the tale of woe that has destroyed wealth for investors. The big drop in November of 2010 emerged after the company reported its second consecutive quarterly loss and cut its cash flow guidance for the fifth time. Not good.
 
SPB caught a bounce off of support at $10.60 after selling off for five days after the announcement. At current prices the stock offers a dividend yield of 15.1% which may seem attractive but as you have stated it has to raise caution flags. You don’t get higher returns without assuming higher risks.
 
In general when I see a chart like this I ask myself what is wrong with the picture. Clearly the trend is down and there is lots of resistance to any advance. Typically these are stock to avoid until they can reverse the trend and start going up again.
 
   
The six month chart depicts the sell off in November after the announcement.  The bounce off support at $10.60 has the RSI is indicating that the stock is oversold and the MACD looks to be starting to round at the bottom and turn higher. There might be a trade here but you had better be fleet of foot to capture gains when they are available. I wouldn’t say that the current down trend is broken. More likely we are seeing some technical buying from an oversold situation.
 
After warning caution for investors interested in SPB on September 17 and seeing it lose another $2.00 a share it is difficult for me to get excited about the prospects of hanging around to collect the dividend. I would only add to my holdings of a stock that has been so hard hit if I intended to trade the new capital in an effort to get my total position out of a loss.  
 
The ongoing effort in the markets is to find good opportunities where the risk reward equation is in our favor. One simple rule that I use and advocate is to look for stocks that are in a solid uptrend and avoid stocks where the charts look like those for SPB.
 
Happy Capitalism!
 
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