I don’t know about you, but I’m in line to have another very successful year on the stock market. Last year, my RRSP account showed a 21.7% jump (50% in Cdn stocks and 50% in US). This year, I’m already at 15.7% and counting! But it’s not a reason to stop looking at my portfolio. After all, in the middle of October I was only +9%… The wind changes direction in short order these days! This is why I made a small change in my portfolio last week; since I don’t have cash on hand, I sold a less performing stock and bought an amazing opportunity. Buy when there is blood on the street they say…
Where There Was Blood – Bought 188 Shares of Black Diamond Group (TSE:BDI)
There was a lot of blood last week in the oil industry. The price of a barrel dropped by 25% since its peak this past summer. Most oil companies dropped accordingly. I bought Helmerich & Payne (NYSE:HP) earlier this year and the stock is now down 20% in my portfolio. HP is specialized in drilling oil & gas wells. If oil prices drop, chances of having new exploration contracts go down along the way.
A similar phenomenon had hit Black Diamond Group (TSE:BDI) this year. After an awesome ride in 2012-2013, the stock plunged like a rock since this summer:
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The stock price has fallen by 46% since July 1st 2014. Why is that? BDI is specialized in providing temporary and permanent modular buildings. Its biggest market is oil sand exploration in northern Alberta. If the oil sticks around $75 a barrel, there won’t be many new projects out there as the oil sand operations are very expensive.
BDI not only meets my investing principles but shows a great growth opportunity. This is not a stock that would qualify in my core portfolio (as I don’t think I want to hold this position for 10+ years) but this is definitely a great time to buy the stock. I bought my 188 shares at $17.73 on Tuesday November 4th while the stock took an 11% hit on that day. The company is now trading under a 15 PE ratio and pays over 5% in dividend yield.
The management team made two important moves showing they believe in this company. On November 5th, they published their quarterly report announcing a dividend increase from $0.075/share to $0.08/share (dividends are distributed monthly). On top of this 6.67% dividend increase, the management team also bought back $30M worth of shares lately seeing the same opportunity I do.
What Can You Do When You Want to Buy a Stock but don’t Have Cash on Hand?
I had spotted BDI a while ago and was following its every move. I knew it was the right time to buy it last Tuesday after the announcement that Saudi Arabia reported they would maintain their current production level to keep oil price low (in order to retain their market share). The problem is that I didn’t have new money to inject in my account.
So I took an hour and looked at my portfolio. I reviewed each company I hold and see if there was an opportunity to sell a stock. My first analysis led me to think: I only hold good companies… there is nothing to sell right now. This is why I had to go further. I started to look at the short term potential of each company. My goal was to buy BDI for a 12-18 month horizon so I had to see which stock would probably be “underperform” during this period. This is often the case with stocks included in my core portfolio. They are very strong companies paying an increasing dividend but from time to time, they can be dormant for a year or two when they go through a tougher period. This is exactly the case with McDonald’s (MCD).
The stock isn’t going anywhere right now as the company struggles with margin pressures, China’s problems and sales stagnation. It won’t hurt my portfolio if I get rid of MCD now and buy it back later. After all, I’m trading a 3% dividend stock for a 5% yielding stock with great upside potential.
I know most of you didn’t like MCD that much anyways, what do you think of my new acquisition?
You know Mike,I’ve been holding mcd for a while now and thinking the same thing. I wanted mcd when it was trading over $100, but u waited for a dip, but was a bit slow when it hit $88 and I got in at 95. Its now showing a small loss for 2014 but I feel your reasoning is sound. I generally don’t buy much oil or oil related companies, so am trying to decide if i should add to my positions in intc or qcom, or if I should replace with a similar consumer stock to maintain diversity?
Syd.
NICE MOVE,MIKE I DID THE SAME WHEN I BOUGHT
DHX.B AT $ 3.09 AND NOW $ 9.50
Looks like a good move. BDI has been good to me too. Note that the dividend increase was actually announced in August with the Q2 results: http://web.tmxmoney.com/article.php?newsid=69658033&qm_symbol=BDI
I have a half position in BDI & full position in MCD. I bought both for dividend growth in my RRSP. Their DG has slowed somewhat but I see no reason to sell. MCD has recovered from challenges in the past, they’ll regroup over time & be fine. BDI is down along with the whole sector. They’re a more speculative play, hence my half position.
I’m not parting with MCD. I am a dividend / dividend growth investor, not a trader, so MCD fits my portfolio rather well.
Hey Syd,
I don’t know what your portfolio looks like. I like consumer stocks as they offer a great core for a dividend portfolio. Unfortunately, MCD might stagnate for a few years before coming back (if they do!). I hold my shares of WMT instead :-). I’ve recently took a look at QCOM, it looks like a good pick too!
Hello Bernie,
I would have kept MCD in my portfolio if I could, but it was simply a matter of asset allocation as I didn’t have additional money to invest. I already sit on a +6% with BDI since the trade… I got lucky 🙂
Mike,
Hope your luck doesn’t run out 🙂
FYI…the “Notify me of followup comments via email” doesn’t seem to work.
Did you happen to look at Horizon North Logistics?
Hi I bought the big brother of BDI last week ACO.X for 44.35. I sold a bit of my FTS which has had a nice run up since the summer. Atco usually raises there dividend early in the new year.So I hope to make a few bucks in a short period of time. All this is in my TFSA.
Hey Bernie, I’ll take a look at that, thx for letting me know!
@Joe,
I’m a dividend investor too ;-). I don’t think dividend investing means not trading companies either. I make about 3-4 trades per year (including 1 or 2 buy with new money). I don’t think this makes me a trader. I think I am more a dividend growth investor (looking for both dividend and growth!). At the moment, I’m definitely not sure if MCD will be able to generate interesting growth in the future; burgers are not selling as they used too.
@Brian,
good move, ACO is defnitely a bigger player than BDI and also have good resources to “survive” the drop of oil price.
Ouch. Rough day for BDI.
indeed! it was a good thing I bought it at a low price. Believe it or not, I’m still showing +0.77% on my trade as of this morning. I knew it was a speculative pick. I just have to be patient a bit 🙂
Been a rough month with BDI. Since your sale and purchase, BDI is -19.2%, while MCD over the same period is +2.2%.
Has your thesis on the company changed? Oil may stay at these levels, or decline further deep into 2015.
Has your thesis changed on BDI since purchase?
From Nov 4, BDI is down -19.6%…..same time frame and MCD is up +2.2%.
Petronas deferring the LNG project in BC is going to be a big hit to BDI and it’s competitors.
Hello Sarj,
My thesis hasn’t changed. I’m not looking at the first three weeks after I make a trade, I’m looking for the next 12-24 months. As soon as the oil price bounce back, BDI will be up again. The company is strong and this situation will push it to explore other opportunities. After all, they are not tied to the oil industry; they offer modular equipment. It’s time for them to seek other industries as well.
We’ll discuss this trade in a year from now 🙂
A similar situation happened when I purchase JNJ a few years ago, the stock was down about 10% after a few months and now… the stock is up by more than 40% in my portfolio. It’s a matter of patience!
Hello,
I d like to know why you do not see this stock staying on your portfolio for 20/30 years but only about 10 years.
I see a lot of growing potential and, hence, dividend growth.
Un saludo
Hello Al,
It might be part of my portfolio for several years, it will depends on how the company will react to the present crisis. I think it’s a short term play in order to make good money, but I could hold it for a longer period. It’s just that BDI is not a company that you buy and forget about it, you have to follow their moves closely.
cheers,
Mike