Good-morning Lou!

Could you please dissect ERF, they have been on a significant downtrend for a couple of weeks. Is the dividend unsustainable?

Thank you!

Peter

Hey Peter,

This will be the fourth time that I have examined the case for Enerplus Corp. (ERF TSX) since June of 2010. My most recent effort was posted February 15, 2012 on an assignment from James. The shares were trading for $23.55 and the yield was 9.2%. At that time it was observed that there was a downtrend in place and it would be prudent to wait and see if support at $23.00 held.

Unfortunately the shares melted through $23.00 and are currently trading near its long term low of $12.90 which they hit in January of 1999. A review of the current trend will help inform a go forward plan.

The three-year chart tells the tale of woe that has engulfed the shares of ERF since January of 2011 when it was trading over $32.00. The death cross that surfaced in July of 2012, when the pain was limited to a $2.00 retreat, indicated that the punishment was not over.

Resistance along the 200-day and the 50-day moving average was a call to action to investors who valued capital preservation. Rarely do stocks blow up overnight. Often times there is plenty of time to make a decision to sell and take a smaller loss. Trust me, often your first loss is your best loss. After the break below $23.00 it was all over but the crying.

The six month chart has some features worth noting. The RSI is signalling a stock that is deeply oversold and has been for most of the last two months. Long term residency in oversold territory is a classic sign of weakness.

In addition the MACD has yet to make a significant move towards an uptrend. The stock currently offers a 15.3% yield which, as I mentioned in February, can be a distraction to the true objective of generating a positive total return.

As to your question about the dividend, I honestly can’t evaluate the sanctity of the payout. Management has declared that they have no intention of cutting the dividend and nothing has surfaced to suggest otherwise.

Here’s the way you should deal with this stock. It is close to retesting the historical low of 1999. Put ERF on your watch list and lets see if we get capitulation. Once the sellers are washed out there could be a bounce off the lows and a reversal of the downtrend.

Make it a profitable day and happy capitalism!

Hi,

Is it too late to sell BNK ? I bought it at $2.34 three years ago and watched it go up to $9.00 +.

Thanks,

Jim

Hi Jim,

This will my fourth go at the shares of Bankers Petroleum Ltd.(BNK TSX). The first was on an assignment from William when the stock was trading at $8.68 in January of 2011. At that time management had a stated goal of upping production to 20,000 barrels of oil per day by the end of the year. It was observed that the next test for the shares was resistance at $10.00. Unfortunately BNK failed that test.

The second analysis was on a request from Humayun when the shares were trading for $7.87 in May of 2011. It was advised that it was not the best time to buy given that there was a downtrend in place and trading volume was thinning out. Retrospectively that was the right call.

In September of 2011 Al asked me to examine the case for the stock when it was trading for $4.40. It was observed that there was no indication of a shift in momentum to the upside.

Sadly things have gotten worse. A review of the evidence will provide the facts needed to answer your question.

The three-year chart tells a romantically tragic tale for investors who fell in love and got married to the BNK story. Good loving gone bad! The big gap down to the $2.00 range came on May 14, 2012 when the company reported production at 13,297 barrels of oil per day. That is a far cry from the 20,000 management expected as an exit rate for 2011.

The six-month chart illustrates the resistance that the shares encountered along the 200- day moving average in February of 2012. The MACD and RSI also produced sell signals at that time.

To your question if it is too late to sell. I would say that there were plenty of opportunities and signals to capture profits and enjoy the rewards of a great pick at $2.34 back in 2009.

At this point the RSI is indicating that the stock is oversold but the MACD still hasn’t turned higher. With fund managers appearing to have thrown in the towel BNK is in the hands of retail investors. That could provide trading opportunities if you have the tools needed to do so successfully.

Make it a profitable day and happy capitalism!

Hi Lou,

It has been a roller coaster out there as you know, but there is one ride at the park that seems to have only one direction- down. Talisman continues to fall.

Is it because of their heavy gas exposure, market sentiment, both or something else. I heard from some guy many years on TV and radio that you don’t want to catch a falling knife. Ha ha.

Greg

Hey Greg,

I last conducted due diligence on Talisman Energy Inc. (TLM TSX) on June 22, 2009. Haig gave me the assignment when the shares were trading for $16.75. The conclusion was that the stock was setting up for a pull back which it quickly did back to $14.00.

Regarding the company’s production it is a 50/50 split between oil and natural gas. The pain inflicted on investors since early 2011 is not entirely a question of what they have coming out of the ground.

A cycle through the charts will provide some of the information needed to  help you with your investment.

The three-year chart depicts the the trend reversal that began in late January of 2011 followed by a double top in February of the same year. The breach of support at $22.00 signalled to investors who understood the implications that it was time to preserve capital and get off of the ride.

The death cross in June of 2011, when the shares were trading just above $18.00, was another red flag that things were not going to be getting any better very quickly.  For a brief moment in early 2012 there seemed to be a slight glimmer of hope that the downtrend was broken but it was not to be and new lows were plumbed.

The six-month chart illustrates the continued weakness in the shares. We did get small bounce off a double bottom that formed in mid December 2011 and mid January of 2012. The move generated a 23% profit bottom to top, but it didn’t last. The MACD and RSI both indicated that the top was in and it was time to hit the silk.

What is also worth noting is the resistance along the 50-day moving average that started in March and the breach of support at $12.25 that has taken the shares to their current trading value.

At this point TLM may have to retest the five year lows around $9.19. Until there is a trend reversal I wouldn’t be chasing this one.

Make it a profitable day and happy capitalism!

Hi Lou,

I purchased D.UN a while back at $24.90. I’ve been very satisfied with the subsequent unit price appreciation and ongoing distributions. However, I’m wondering if the stock has got a little ahead of itself and is perhaps due for for a pull back. Would be interested in hearing your thoughts on this.

Cheers,

Al

Hey Al,

Congratulations on a great pick! Your choice of Dundee Real Estate Investment Trust (D.UN TSX) has produced a healthy capital gain and a stream of distributions that generates a 5.8% yield. In the current low interest rate environment, where Government of Canada bonds offer substantially less, investors have been buying real estate investment trusts to meet their income requirements.

The real estate investment trust sector was spared the whip that fell on other businesses in the Halloween Massacre of 2006 when the Government of Canada changed how trusts were taxed. The Real Property Association of Canada and the management team led by Michael Brooks did a masterful job of communicating the industry’s position and avoiding the fate that crushed all the other business trusts.

A review of the charts will address your concerns about the units getting ahead of themselves.

The three-year chart does not indicate that the units have gone too far, too fast. Over the course of the entire advance there has been solid support along the 50-day moving average. There is resistance that comes in at $40.00. The all time high for the units is $45.07 which came in July of 2007.

The six-month chart is not generating any signals that the run is coming to an end. The RSI and the MACD are indicating that the trend still has some legs to it. But do keep in mind the resistance at $40.00.

Here’s what I want you to keep in mind. I have always advised that if you are feeling uncertain about an investment, as you seem to be exhibiting, then you should go with your gut and throw to cash. When you are in cash you have taken the concern off the table and perhaps will see the situation more clearly.

You could miss further gains but profits foregone are soon forgotten, losses sustained rarely are.

Make it a profitable day and happy Capitalism!

Just wondering if it is time to pack in Encana?
Regards,
Lou

Hey Lou,

Encana Corp. is the second largest producer of natural gas in North America and as such it has taken a hit from the declining price of the commodity. When you marry a warm winter with expanding supply it is usually good for consumers and bad for producers.

A review of the charts will help pull this picture into focus.

The six-month chart for natural gas indicates that it was in a steep decline and has finally caught a bounce. The RSI and the MACD both signalled a move out of a deeply oversold situation. The question from here is if there is more to this recovery.  There is resistance that comes in at $2.60 putting a caution flag on the track for further gains.

The three-year chart for ECA has some interesting features worth noting. The double top that formed in the April / May period of 2011 indicated that the times they were a changing.

A death cross formed in late July of 2011 and shortly thereafter the stock breached support at $28.00. After that it was all over but the crying. The shares have followed the price of natural gas higher in recent weeks as it retested the January 2012 lows just above $17.00. Clearly staying on this ride top to bottom for a 50% haircut had to give rise to a bad case of vertigo.

The six-month chart for ECA depicts the double bottom that formed in April of 2012 which signalled the aggressive move off the retest of the January lows near $17.00.

Even though the advance has been quite aggressive over a very short period of time there could be more to come. If the stock can move through $22.00 it can run to $24.00 without much resistance.

Regarding packing in your position in ECA, now would not be the best time. It pays a 3.8% dividend, you are invested in a gas giant with long term prospects and skilled management. But keep in mind that capital preservation is central to asset management. The best time to pack in an investment is at the top not the bottom.

Make it a profitable day and happy capitalism!

Hi Lou
Love your work. I have a question on Boston Pizza and its dividend, the payout ratio is over 250%, how long can they sustain the dividend, is it a buy or a sell?
Thanks,

Bruce

Hey Bruce,

Boston Pizza Royalties Income Fund (BHP.UN TSX) has enjoyed a sweet ride off the 2008 lows when it traded at $7.50 a unit. If you look back to the January, 2010 article written by Skot Kortie, who is a contributor to globeinvestor.com, he identified the units as having upside potential when they traded for $12.52. The 45.36% capital gain plus distributions over the last two and a half years since Skot’s call tells you something about the markets appetite for these units.

With regards to the payout ratio, when I examined the Q4 2011 report the ratio was stated as 98.3% for the quarter, and 95.7% for the fiscal year. That compared to 100% for Q4 2010 and 98.1% for fiscal year 2010. Keep in mind that these are trust units, not shares, and when we evaluate the payout ratio the distributions are compared to distributable cash.

An analysis of the charts will help determine how best to proceed with these units.

The three-year chart illustrates the trading pattern of the units which has been a rise to a plateau followed by a pullback. BPF.UN has cycled through the pattern twice and it appears we have come to the beginning of another plateau.

Also worth noting is the RSI moving out of an overbought condition and the MACD turning lower.

The six-month chart provides a close-up of the most recent trading and suggests that it might be time to books some profits ahead of the Q1 2012 results scheduled for release on May 9.

What you can also observe on this chart is that with the recent advance the units have gaped up way over the 50 and the 200-day moving averages. Typically we would want to see the units trading closer to these support levels.  Finally the uptrend line that supported the move has been breached indicating that the prudent investor might want to move to the sidelines.

Make it a profitable day and happy capitalism!

Lou,

Could you please conduct an analysis on Intertape Polymer Group.

Thanks,

Wayne

Hey Wayne,

Intertape Polymer Group (ITP TSX) caught a bounce off a rock bottom in November 2010 at about a buck a share and has taken the escalator to the penthouse of profit for the last eighteen months. Fabrice Taylor, who is a contributor to globeinvestor.com, picked this one as a runner in an article published in July of 2011 when the shares were trading at about $1.50. Sweet!

The company is in the packaging business and makes tape and other film products. ITP went through some hard times having learned that growth in revenue without healthy profit margins is an exercise in trading dollars. Money comes in, then it goes out. Very much like being on a carousel, you are in motion but not making any progress.

A review of the charts will inform us as to the opportunities and risks associated with the shares of ITP.

The three-year chart is an awe inspiring vision of wealth creation for investors who got on the ride at the right time. The pattens worth noting include the solid support along the 50- day moving average throughout the advance. The stock has consistently tested support without breaching it.

In addition there is a golden cross that formed in May of 2011 indicating that there was more gas in the tank. Finally the RSI indicates that the shares have been overbought for most of 2012 which is a sign that investors are very motivated to buy this stock.

The six-month chart provides a text book illustration of a solid advance. The trend is your friend, until it ends!

ITP looks like a case of buy high and sell higher. From the long term charts there is a slight amount of resistance that comes in around $6.00 but from there it runs to $7.30 without much in its way.

Watch this horse but let it run.

Make it a profitable day and happy capitalism!

Lou,

Where is New Gold Inc. (NGD.T or NGD.A) going in the near term? Has
been beaten down over the last few months.

Is it a good time to buy?

Thanking you in advance.

Walter

Hey Walter,

Thanks for the assignment. New Gold Inc (NGD TSX) is a gold producer with a tiger by the tail at the El Morro deposit in Chile. The company expects to produce between 405,000 and 445,000 ounces of gold in 2012 and owns a 30% stake in El Morro which is expected to produce 210,000 ounces a year of gold and 200 million pounds of copper over the projected 17 year life of the proposed mine.

That’s the rub. El Morro is a stunning deposit which is facing some issues. One is the legal tangle between Goldcorp (G TSX) and Barrick Gold Corp( ABX TSX) over ownership of the 70% majority interest in the project. The other is the recent decision by a Chilean court to suspend approval of the environmental permit for the project.

The estimated cost to bring the El Morro deposit into production is $3.9 billion but with delays in the courts I would expect that the cost will move higher. Time is money after all. A review of the charts will help to answer your questions.

The three-year chart for gold is the best place to begin the analysis. It is evident that the price of the metal peaked in September of 2011 and as goes gold so goes NGD.

The three-year chart for NGD is almost an exact duplicate of the gold chart. One of the lessons we can glean from this is that if you are investing in commodity stocks please make it a habit to track the price of the underlying resource.

What we can also observe from this picture is that there is support at $9.00 that goes back to late 2010 and that since March of 2012 there has been resistance at $10.00.  Neither the MACD nor the RSI are indicating that momentum is about to shift towards a buying.

The six-month chart depicts the double top that surfaced in February when the shares were trading above $12.00. The retreat to $9.00 has been a very sobering reality check for investors.

A this point it there is no reason to jump in until we see some buying come into the stock and into the commodity to reverse the selling that has dominated the agenda for the last seven months.

Make it a profitable day and happy capitalism!

Lou,
I was wondering about your thoughts on PSN. They broke out of the gate strongly, but of late they have reversed their share price. The earnings are there and the dividends are great but the stock price is in reverse. What’s your take on this one.

Regards,

Marcel

Hey Marcel,

Thanks for the assignment. This will be the first time I examine the case for Poseidon Concepts Corp. (PSN TSX) as an independent entity. I first became aware of the company on July 29, 2011 when it was an operating unit within Open Range Energy Corp.(ONR TSX). Joe had asked me to run the charts for ONR and it was noted that their fracturing fluid handling systems were growing revenue faster than their exploration and production activities.

In November of 2011 ONR spun out PSN to existing shareholders and it proved quite  bountiful for shareholders. However as we all know trees don’t grow to the sky and there has been as you have noted a pull back in the stock.

A review of the chart will provide new evidence to help you with your investment.

The six- month chart outlines the market reaction since the shares started trading. There was an initial pullback as investors who were in early took profits. The shares caught a bounce off the 52 week low of $10.05 in late November of 2011 than marched their way to $16.90 in February of 2012.

What we can observe in February is that the RSI indicated that the shares were overbought and the MACD signalled a shift in momentum towards a retreat. On a fundamental basis the announcement on February 02, 2012 of a bought deal of 6.3 million shares priced at $13.00 would also have contributed to the selling pressure.

The stock caught a bounce off of $12.25 in April where the RSI indicated it was oversold and has recovered back towards $14.00 where it is meeting resistance. The advance since April 9, 2012 has been on thin volume. On five of the fourteen trading days the volume has been below average.

Here’s what I like about PSN. They offer an 8.26% dividend yield. They offer their clients a better solution to fluid handling problems. They are expanding rapidly to leverage their first mover advantage. They expect to have 400 systems working by June 30 up from 240 on January 1, 2012.

What I don’t like is the downtrend, the resistance at $14.00 and the thin trading volume. However we need to keep in mind that the shares have only been trading for six months and we don’t have access to long term pricing information. I think this is a case of go with the dividend and the growth.

Make it a profitable day and happy capitalism!

Hello Lou,
I’m curious to know what you think about Loblaw. I bought it at (42)knowing that the stores were doing huge store upgrades across Canada believing that they were going to have a large public interest and have seen the stock plummet (32) is there any hope for this one?

Pat

Hey Pat,

Thanks for the assignment. This will be the first time I have posted on the prospects for Loblaw Companies Ltd.(L TSX) and from the research that I have conducted and an analysis of the charts it is difficult to find a silver lining to this dark cloud.

The main thrust of the story for the company is a case of seeing its business consumed by intense competition. When Wal-Mart Canada expanded the footprint of its super center store model in 2006 it went right at the throat of existing grocery retailers. The ten year chart for L indicates that the all time high of $76.34 for the stock came on April 29, 2005 before the battle with the beast from Bentonville began.

Wal-Mart Canada checks the price of over 140,000 items sold by its rivals every single week in an effort to offer their customers lower prices. That puts a lot of pressure on the other grocery retailers.

If that wasn’t enough vicious competition, 2013 is expects to see Target make a big splash in Canada as they convert the Zellers leases they acquired from the Hudson Bay Company in 2011. All these factors have turned a cozy profitable business into a relentless struggle for the once dominant chain.

A review of the charts will provide further details on how best to proceed with your investment.

The three-year chart tells the tale of woe that started in 2010 as the stock began the long decline from $43.00. The downtrend line is solidly in place and all attempts to break above resistance have failed time and time again.

The six-month chart illustrates the failure to break above the 200-day moving average on multiple occasions. Overall this is a weak story accompanied by a less than robust technical profile.

I would strongly suggest that you consider preserving your capital. I don’t think the management team at L is up to the challenge of what is waiting for them when Target comes into the market and as Wal-Mart continues to eat their lunch.

Make it a profitable day and happy capitalism!