I have some shares in ADF Group I bought at $3.50  almost two years ago. Should I cut my loses and cash in or keep it for a bit longer?

Lou,
Can you provide a little insight into Aecon. ARE.TO
Lots of back log work and I understand that the money will be booked later.Period of seasonal strength I believe starts in the fall but come on a $340 million contract to stop the drop ??
Must be more to it.

Regards,and recently new to your site so thanks for all offered.

Rob

Hi Rob,

I agree Aecon Group Inc. ( ARE TSX) didn’t make the turn on the announcement of a $340M contract which represents their 20% interest in the joint venture awarded a $1.7B contact by Ontario Power Generation on June the 8th 2010. It had much more to do with the stock hitting a support level that triggered technical buying.

Some investors have questioned my use of technical analysis as the basis for decision making. A few have likened it to astrology to which I say,” if you have an astrological system that helps you reduce risk and make profits lets have a look! “. Another thing to keep in mind is that more money trades on technical parameters than on fundamental analysis.

Don’t let the story obscure the trend.  If you look at the analyst ratings on ARE there are no sell recommendations that I could find, only buy and hold. I’m not sure if that’s astrology but it does make me wonder, how do those stars line up?

The three year chart illustrates a great double tap off a rock hard bottom in late October and November of 2008. A double bottom is a reversal pattern that usually signals a move to the upside.

As with most things, even a great ride can’t last forever with ARE topping out in late 2009. The trend line that supported the advance has been breached and the stock is now trading below its 50 and 200 day moving averages.

What you can see is that the stock caught a bounce off of $10.00 where it has some support. That’s the technical buying I was referring to earlier. The RSI indicated that the stock was oversold and that it was likely that traders would pick up on the signal and start buying. The MACD also indicated that the selling momentum was dissipating.

The six month chart provides a closeup of the recent action. There is lots of resistance to the upside currently at $11.50. There has also been resistance all along the 50 day moving average since the beginning of 2010 with a death cross forming in May.

The best case scenario for ARE is that it retests support at $10.00 and then makes a move to regain some traction to the upside.

Happy Capitalism!

Lou ,

What are your thoughts about EMPIRE INDUSTRIES (EIL-X)?  I purchased at 50 cents, thinking this is infrastructure related and they had a big project in BC on the go.

Bill

Hi Bill,

Your buy of Empire Industries Ltd. ( EIL TSX) at $0.50 is currently underwater so at this point its a question of whether you can get even. EIL has been undertaking an aggressive restructuring given that their revenues have tanked over the last year.

The three year chart tells the tale of a huge retreat in the stock as the recession took the winds out of the economy. 2009 was a bad year across the country with gross domestic product falling by approximately 2.9%. Having bought the stock at $0.50 you probably got in during 2008 . The B.C. deal  you mentioned was announced in February of 2008.

What you can see from the chart is at least the downtrend has been broken with EIL getting a bounce off the $0.06 rock bottom in late December of 2009. One thing to keep in mind is that volume has been light. Yesterday 59,000 shares traded yesterday while average daily volume for the last 3 months has been 57,131. I would like to see more volume to  more strongly confirm the move up.

The chart also indicates that there is resistance at $0.20 and its going to take announcements of new contracts to get the stock above these levels.

The Company reported its Q3 results for the period ended September 30, 2009 on November 30th. The top line says it all. Revenue down 64.6% to $20.3M. No matter how you slice it cash is the lifeblood of every organization and EIL is bleeding out. I am sure there are those that want to lay the blame at the feet of management, which may have some merit, but you would have to agree many companies got side swiped in the last two years.

The six month chart provides a closer look at the bounce off the rock bottom and the thin volume that has accompanied the rise. 

EIL has taken some positive steps towards restructuring its affairs by selling assets and cutting costs but what they really need is to sign some new contracts and increase the volume of cash flowing through the company.

Next time you own a stock that is taking a bath try to sell earlier and preserve  more of your capital. At this point you may as well let this horse run and see if there are new contracts in the barn.

Happy Capitalism!

Lou,

Any thoughts on this stock Magma Energy Corp.
I was looking for another stock & by mistake opened up this page.
Should I continue to research this company?

Thanks,

Jim

Hi Jim,

Thanks for bringing Magma Energy Corp. (MXY TSX) to my attention! You have to love it when you are in the habit of doing research and you come across an interesting opportunity by chance. Another case of the harder you work the luckier you get!

I like the story from a number of different angles. Magma is in the business of tapping into the heat generated by the molten core of the earth and is a pure play geothermal energy company. If you recall your high school science class there was always a section on the geology of the earth including the molten core.

The key to exploiting this resource is to locate areas where the molten core of the earth is close to the surface of the planet. MXY has since 2008 raised $162m to develop their business plan and has made some good early moves.

They have acquired a stake in a private geothermal company in Iceland. Iceland is a country that has exploited its geothermal potential aggressively over the last 70 years. Strategically you have to like the acquistion if for no other reason that it gives the mangement at MXY a window into a long term industrial development cycle.

The company also acquired an operating plant in Nevada where it plans to expand production and it also has an active exploration program to identify new opportunities in the Western Hemisphere.

MXY just went public in July at $1.5o per share and has produced a nice pop for those who got in on the issue.

The three month chart shows that the uptrend from July has been broken and that there is support at $1.90 and resistance at $2.05.

As a longer term play I like the story and really like the management. When an investor asks me to look at a company I always look at the people involved to see who is driving the bus. In researching MXY I found that Altagas Income Trust owns 5% of the company and that David Cornhill who created lots of wealth at ALA.UN is on the board of MXY.

A company that generates electricity without burning any fuel, a seasoned management team, and a plan to consolidate the geothermal sector though acquisitions. Thanks for bringing MXY to my attention.

Happy Capitalism!

Hello Lou,

I would very much appreciate your analysis and outlook for Stantec Inc. (STN), especially in light of the following. Firstly, both the CEO and CFO’s sudden departure from the company earlier this year – both at a relatively young age. Secondly, and what may be related to the first, Goodwill and Intangible Assets on the Balance Sheet nearly equate to Total Shareholder Equity — and growing. At some stage, will this not have to be written down, and if so, appears that could go on for years to come.

Thank you Lou. Your ongoing analysis of companies is very much appreciated.

 Don
Ottawa, ON

Hi Don,

Thanks for the assignment. I havent looked at Stantec Inc ( STN TSX) in a while and with the infrastructure spending scheduled to wash through the engineering, design, construction industries in the next several years its a good time to look under the hood.

Let me first address your concerns about the departure of President and CEO Tony Franceschini at age 57. Tony had been with the company since 1978 and worked his way up the ranks over a 30 year stint. That looks more like a planned exit after a lifetime of accomplishment that a sudden bolt for the exit.

CFO Don Wilson star with the company s and is 52.  Again a long tenure and lots of accomplishments over an 18 year period. Franceschini and Wilson were part of a management team that grew the company from $100M in revenue to just over $1B. They also closed something like 65 acquisitions to get that growth and that’s the where the good will and intangible assets come into play.

When you acquire design, engineering, construction companies what you are buying is brain power, some number of drafting tables and computers. Its also part of the culture of these types of organizations that you have to make room for the young cadre of men and women who will take the organization into the future. When you buy shares in STN you are buying a team of capable people generating free cash flow that has been used to grow through acquisitions.

The three year chart shows that the stock has met resistance at $29 and has not been able to breakthrough the barrier.

The chart also indicates support at $25.

The three month chart illustrates  the range bound pattern with the MACD flattening and looking like it is turning higher.

I think the best approach to STN is to trade it in the range and put a stop in below $25 to preserve capital.

Happy Capitalism!