Expanding the universe of potential winning investments
Recently I have been making an effort to expand my universe of potential special situations and interesting investment opportunities by trying to learn more about investing in other countries. I have decided to go the easiest route and focus on Canada first. I have spent the past two days (no not all day of course, just tiny pieces) getting my Global trading account operational and converting my U.S. dollars into Canadian dollars, so I'm ready to roll.
I decided to start with Canada in my foray into foreign-listed stocks for a number of reasons, including the fact that I already hold stock in two TSX-listed companies, albeit in U.S. listed OTC shares rather than in their home market. Those companies are Extendicare (EXETF) and Canexus (CXUSF).
Furthermore, while Canada really was not previously on my investment radar, business news for Canada is readily available and better yet... usually in a language that I actually speak. I just bookmarked the business sections of the Globe and Mail and the Financial Post and have already found some great articles there.
I noticed some unusual trading activity with Canexus recently, it was up 5% yesterday, so I decided to do some research on it this morning. As a refresher for anyone who is not familiar with the company:
Canexus Corporation is a Canadian chemical company that produces a number of what seem to me as fairly commoditized chemicals, sodium chlorate and chlor-alkali. What's interesting about the company is that it us in the middle if expanding one of its Canadian terminals so it will be able to accept and transport oil and other liquids from drilling operations in the area. There as been a log jam in Canada created by the delay in approval of the Keystone pipeline project. A lot of the oil from drilling has to be transported by rail. Canexus can significantly expand its EBIDTA when the project is complete. Issues with this rail terminal expansion have crushed Canexus' stock. By purchasing shares, I placed a bet that the company will eventually get the situation straightened out. As a bonus, I'm getting paid a 7.8% dividend to wait for them to do so.
This morning I came across an article in the Financial Post on Canexus that was likely the cause of the recent move in the stock.
Canexus Corp assets would attract plenty of buyers
CIBC World Markets recently published a report stating that Canexus should consider selling its assets. Specifically they said:
"'While the stock lost almost 50% over the course of the last year as a result of cost overruns at its North American Terminal Operations (NATO) near Bruderheim, lowered expectations and subpar earnings results, we still believe Canexus has significant potential in the right hands,' Mr. Bout told clients, reiterating a market weight recommendation and $6 price target on the stock."
CIBC's sum-of-the-parts analysis, which I always love, pegs the value of Canexus at $4.40 to $8.80, versus a current share price of around $5. That's 12% downside versus 66% upside. I like those odds.
A Canexus' Bruderheim truck-to-rail terminal
Thanks for reading everyone and if you have any interesting special situaiton ideas for the U.S. or abroad I'd love to hear about them.
Have a great day!