Wednesday, January 11, 2012

Winning as I lose: PRQ

This is the last add to this post, which I possibly should rename Losing as I win, or maybe Losing as I lose. Progress Energy has hit $10.55 today. Wow! Didn't see that coming. I am putting in a bid of $10 on some more of the stock. Why?
  • 1 - at $10 the yield is 4%. This is my minimal goal for yield. 
  • 2 - the yield seems stable at this time despite the crashing share price.
  • 3 -  I still believe in a price recovery. I'm betting it will come this year, but maybe next.
  • 4 - If I get more stock at $10, it will lower my future exit point. 
CIBC cuts Progress Energy Resources Corp price target today to C$14 from C$17.25. $14 is more than my purchase price for a lot of my holdings but, in the short term, it is looking very bad for natural gas. Perhaps, if others also cut their target price, the asking price for PRQ will drop some more. I may yet own a few more hundred shares.

This was added a couple of day after my original post. Progress Energy is testing new lows today. I'm watching with interest. I'm a bit of a contrarian. I'm even a contrarian when it comes to the word contrarian. What's contrary about trying to buy low and sell high. You can never buy low if you aren't swimming a bit against the tide.

I believe one can look back an entire decade and not find a time that natural gas was selling for less than today. The bottom has dropped out of this resource play. So why even consider Progress Energy?

The dividend is not great but it almost pulls its weight. Today that dividend represents a yield approaching three and a half percent. That dividend will help support me while I wait for a recovery in Progress Energy stock. I am certain that this stock will recover; It is just a question of when. I'm quite willing to wait a couple of years for a lift, but I'm hoping for a turnaround later this year.

Will I buy more at these prices? I might but probably not. I've got enough exposure. My average price is lower than my exit point. I'm content. But, if the price should drop to an unimaginable low, like $10, making the yield a full four percent, I'm in for more as I believe, at this time, that the dividend is secure.

After writing this post yesterday, I immediately tried to buy the 189 shares. I didn't. I have a small TD Waterhouse WebBroker account and it was with money in that account that I wanted to make my stock purchase. The brokerage fee: almost $30!

I called TD and they told me that they had a way of linking all the accounts held by a husband and wife. Under this approach, my brokerage fee would be based on our total household investment rather than just my one small account. This lowered the fee to just under $10. (Not the greatest, but not get-into-a-tizzy high.)

During the day the Progress Energy price dropped significantly. A check of the natural gas prices this morning shows that the NG price is down and my guess is that Progress Energy may drop a little more as the day goes on. I'll watch. (I got my 189 shares at $12.10 and paid a $9.99 fee. So I saved about $135 by waiting a day to buy and by getting my brokerage fees lowered.)

Now to hold on until the somewhat out-of-favour stock recovers a little. When it climbs above $16, I will begin to consider selling. In the end, I want to lower my exposure to energy stocks and as PRQ does not pay a dividend of at least four percent, it is off my financial radar.

My portfolio is almost back to its all-time high. Yet, some of my investments have done very poorly. Those investments are riding on the backs of my winners. Should I dump the laggards?

One of the disappointing investments is Progress Energy (PRQ). I bought PRQ back in the income trust days. It was a darling with Canadian investors at that time. It is no longer an income trust, the payout has diminished considerably and it is no longer a sparkling jewel in my portfolio.

Few folk are bullish on natural gas. Yesterday, as oil rose natural gas lost ground. Still, the Scotia McLeod Equity Research Daily Edge reports they expect PRQ to hit $20 before the end of the year. It is now around $12.18. (It was about 12.72 when I started writing this post.)

I own 811 shares. I have almost $4000 in dividend cash and could buy enough shares to give myself a nice, round number of shares --- 1000. The yield on PRQ is not as high as I like. It has a yield of about 3.3% today.

I've held PRQ a long time. The oldest shares are down; The newest shares are up. So, I know PRQ could tumble a little in value if it decides to revisit old lows. Yet, PRQ has proven to be amazingly resistant to the downward pull of the bear.

I've got the money to buy some PRQ. The yield is something that I can live with, at least for awhile. The stock offers the potential of offering an exit point that recoups all my investment and then some. It is time to look for some other views on Progress Energy.

Turning to TD Waterhouse WebBroker I learn:

British Columbia shales to boost Progress Energy
Output 5:55 pm ET on Monday Jan 09, 2012 by Thomson Reuters
Jan 9 (Reuters) - Canadian natural gas company Progress Energy Resources said it was targeting to exit the year with about 20 percent higher daily output, as its investment in unconventional shale rock formations in northeast British Columbia spurs production.

A little more digging reveals another target price for PRQ. This one is not quite as optimistic as the Scotia McLeod one. It is $17.32. I also discover that there are 10 analysts saying "buy" and 3 screaming "strong buy." There are 2 muttering "hold" and there are no "sells" or "underperforms" to be heard.

I'm convinced. I'll try and buy 189 shares today and be prepared to sell in the coming year if and when the stock hits $17.00.

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