Saturday, February 23, 2013

Itching to buy: CET

March 7, 2013

Addendum:

Not wanting to grab the classic falling knife, I held off on my purchase of CET. The stock hit a low, as of now, of 3.69 today. I never imagined such a collapse in price. But CET released its earnings report, or lack of earnings report, and the market took notice.

I still like CET and decided to get off the sidelines and get into play. I bought 600 shares. I picked up some for $3.90, more at $3.75 and I had to settle for $4.00 for the last purchase. From everything I know about the company it still seems a good bet at the right price. The question is: What is the right price? Only time will tell if I have acted wisely.
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I like Cathedral Energy. I picked up a little at $5.15 some months ago and now with CET almost back to my entry point, I may buy some more. Let me tell you why.

  • It has a nice dividend of almost six percent which seems fairly secure at this time.
  • Some analysts see CET hitting a target price of $7.00 within a year.
  • I can pick up a hundred shares for just more than $500.
  • Scotia McLeod rates CET a focus stock, albeit carrying high risk.
  • A Google search turned up no big red flag warnings but the stuff I found told me caution is warranted.

If you haven't come across the term "focus stock" before, here is how Scotia McLeod defines a focus stock:

The stock represents an analyst’s best idea(s); stocks in this category are expected to significantly outperform the average 12-month total return of the analyst’s coverage universe or an index identified by the analyst that includes, but is not limited to, stocks covered by the analyst.

If CET continues to lose value, I will probably try and pick up a few shares next week. I won't pick up too many though, I don't want to be overexposed to this technically high risk investment.

2 comments:

  1. Sorry, I missed the reason you like this stock? Is it just because it has a 6% dividend and someone at Scotia believes it to be a good stock choice. I truly would have expected a better reason from someone who seems understanding of investments.

    The answer I would have expected is... something like (I have no idea if this is true). I like CET because they have a solid management team lead by Mr Smith who use to run XYZ company and has a long history (see previous companies like ABC, DEF) that he has lead with great success. In fact Mr Smith has successfully gotten XYZ and DEF company ready for a merger and it seems that is usually his mandate. Also I see there dividends as solid as their free cash flow yearly is $X/share on earning of $Y. Their competitive advantage is they are market leader (or low cost producers) and the demand for their product will continue to grow because of ....

    As market leaders or niche players I see Cathedral going to $X dollars and at that point I'll re-evaluate.

    Now that would be a good reason to hold a stock (or buy-in)

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    Replies
    1. Good comment. I am not a stock adviser. I hesitate to say too much. I appreciate it when someone, like yourself, adds some needed additional perspective on stock picking.

      I take note of stock suggestions I encounter on the two platforms I use for managing my portfolio. I do not buy on that info alone but run some quick searches using Google. (Why? Think Yellow Pages. Once a darling of Scotia McLeod analysts.)

      I liked the fact that CEO Mark Bentsen has a history in the drilling business going back a couple of decades. A drilling company with which he was involved early in his career is still listed on the TSX. But all is not perfect, I'm a little concerned by a recent link but it seems totally separate from CET and so I am not overly concerned.

      The biggest thing I look for is a positive balance sheet. I always question investing in companies operating in the red even when they come highly recommended.

      I believe that CET had a ROE (Return on Equity) of 19 percent and and ROA (Return on Total assets) of eight percent. But I encourage every reader to conduct your own investigation of an investment (remember I am just a retired fellow trying to build a portfolio that will see him through his senior years).

      Oddly enough, one thing that Scotia McLeod saw as a plus concerned me. I'm not fond of the link between CET and Venezuela's PDVSA oil company.

      Cathedral Energy Services is a small company. I would not put too much of my portfolio into it but then I wouldn't put too much into a large company either. That said, CET seems a good little bet in the short term. I hope to boost the value of my portfolio, make enough money to live, and eventually move the profits from CET to something more in keeping with my original allocation model.

      Thanks again for your comment and maybe in the future I will post a little more of my thinking along with a firmer warning about my limitations as a stock picker.

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