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A Power Pop / Oil-by-rail from Canada is going to be huge



June 25, 2014 – Comments (3) | RELATED TICKERS: POWR.DL , CNI , CXUSF

I have two interesting tidbits to share today.  First is a huge pop in a company that I have established a tiny real life position in.  The company is called PowerSecure International (POWR).  Here's what I had to say about POWER back in May:

"This one is very interesting. I found it in the 13F section of this week's Barron's. PowerSecure International, Inc. (POWR) was absolutely crushed to the tune of 60%+ on a poor earnings announcement a few weeks ago. The drop attracted the interest of a small cap activist investor called Becker Drapkin. I'm not all that familiar with them but according to the article, their record is impressive. Is anyone familiar with POWR. I'm definitely going to look into this one more closely when I'm done doing fun weekend stuff.

Stock Market Value: $191 million ($8.58/share)
What's Happening: Becker Drapkin Management intends to discuss with management the need for discipline and focus in resource allocation, and may nominate directors to serve on the board.

Key Numbers:
74.77%: average return on Becker Drapkin's 18 previous 13D filings (versus 23.55% for the S&P 500 during the same spans)
108.99%: Becker Drapkin's average return on the 11 previous 13D investments where it had a board seat (versus 27.78% for the S&P 500 during the same spans)

Behind the Scenes: Becker Drapkin is an activist investor that focuses on companies with market caps below $1 billion. It has received board seats on over half of the companies on which it has filed 13Ds.

PowerSecure has three businesses: 1) distributed generation products and services—the crown jewel, with the highest margins and recently losing money; 2) utility infrastructure—a lot of competition and lower margins; and 3) energy efficiency products—a good business that accounts for less than 20% of company revenues.

Becker Drapkin would like to see management focus on the distributed-generation-products business and fix the utility-infrastructure business, as opposed to engaging in undisciplined growth initiatives. It will likely give the company an opportunity to refocus, but if management continues down the same road, Becker Drapkin could go for a board seat or urge the board to sell the company in whole or parts."

Well that certainly didn't take long. POWR's stock was so beaten down that it was almost like a coiled spring waiting for any tiny bit of positive news to set it off. Today PowerSecure announced that it had renegotiated a contract with a major utility company to make it more profitable. The stock is off to the races on the news, up 23%+.

As I mentioned, I started a tiny real-life position in it a little while ago. It was some spare funds that I had sitting in Peritus High Yield (HYLD) in a SEP IRA that I established for consulting income a while ago that I wasn't doing anything with. I always feel like I should have bought more when things go up :).

PowerSecure And Major Utility Customer Successfully Improve Terms Of Service

On a somewhat related note, what's with all of these class action lawsuits by law firms that come crawling out of the woodwork every time a company's stock drops significantly? They're absurd. Sometimes stocks fall. You knew that, or at least you should have, when you bought stocks. If a company's shares drop in value and nothing illegal happened it shouldn't justify a lawsuit. Ridiculous.


The other item that I wanted to talk about is the fact that I believe oil-by-rail from Canada's oil sands is going to be huge. I have been reading a lot on the subject lately and it certainly seems to me as though opposition to new pipelines like Keystone XL and new ones to Canada's West Coast has created a tremendous runway for growth of oil-by-rail as a means to transport product from Canada's oil sands to refineries in the United States.  

Here's an article on the subject that was written more from an environmental perspective, but it actually serves to illustrate what a huge investment opportunity this is:

Tar Sands on the Tracks: Railbit, Dilbit and U.S. Export Terminals

I came across an interesting article in the New York times about a Pulitzer Prize winning author who was commissioned to write a book about the Keystone XL Pipeline for an Australian newspaper only to have the paper go bankrupt right before he was scheduled to publish it. Undaunted, he signed up with an eBook publisher to get his work out, only to have the eBook published run into financial difficulty right around the time his book was published.

I was so intrigued by the story and liked Tony Horwitz's writing style in the NYT piece that I bought the book for $2.99. I'm almost halfway through and I would say that it was money well spent. Keep in mind though that I am a big fan of all things pipeline and MLP-related ;).

Here's the article:

I Was a Digital Best Seller!

Here's the book:

BOOM: Oil, Money, Cowboys, Strippers, and the Energy Rush That Could Change America Forever. A Long, Strange Journey Along the Keystone XL Pipeline

Purchasing stock in Canadian National Railway (CNI) is one way to play this trend, though its shares arn't exactly cheap right now.  My favorite way to get in on the oil-by-rail from Canada trade is to buy Canexus (CXUSF) and get paid a solid dividend to wait until the upgrades to its oil-by-rail terminal are completed.  I wrote about Canexus in greater detail last month here: Expanding the universe of potential winning investments .

I am long CXUSF, but have no position in CNI other than here in CAPS.

Thanks for reading everyone.  Have a great day!


3 Comments – Post Your Own

#1) On June 27, 2014 at 9:45 AM, lemoneater (56.61) wrote:

Interesting! I have a small position in CNI already.

Also I bought American Railcar Industries (ARII) recently. Railroads must have railcars.

Have a great weekend! 

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#2) On June 27, 2014 at 5:00 PM, TMFDeej (97.45) wrote:

Thanks lemon. Railcars have been really hot. Trinity's stock has been on fire. Good luck with your CNI and ARII

You have a great weekend too.


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#3) On July 01, 2014 at 1:32 PM, lemoneater (56.61) wrote:

Thanks! It is great when a stock shows positive momentum within the first week of purchase like ARII has.

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