Here are my picks for the 2012 Island of Misfit Bloggers Stock Picking Contest:
Poseidon Concepts (TSE:PSN) ($12.45)
Indigo (TSE:IDG) ($7.40)
Superior Plus (TSE:SPB) ($5.75)
Research in Motion (TSE:RIM) ($14.81)
I’ve already done a whole post on PSN.
Indigo was originally a “hidden value” play for me. Now the Kobo division has been sold (though the deal has yet to close), and yet the stock price has been languishing after an initial bump on the news — presently trading at about the value of the Kobo deal plus half tangible book of the bookstore business. Management has said that they won’t be returning the cash from Kobo to shareholders, which means some mad folly may easily destroy the value there. For risk management reasons, I won’t be buying any more in RL unless it gets a lot cheaper, but there’s a lot of potential here if Indigo can shake the impression of being somehow on death’s doorstep (a profitable holiday quarter would help a lot there).
Superior Plus is a long-time holding of mine. A bit of a strange mini-conglomerate with 3 business lines, one of which I like, one of which is mediocre but generates reasonable cash flow, and one of which is just terrible. They took on too much debt building this little conglomerate, and the debt market has recently bitten them. The past few years have not been easy for them, and they spent a long time over-paying a juicy dividend while hoping business fundamentals would turn around faster than they did. When they did finally decide to cut the dividend, the stock tanked (from already-depressed levels), yet the company is still about as cash-generating as it was a few months before; all that changed is where the cash is going. Plus, new management may lead to a promising 2012. The thing to watch will be dilution, as they state they are still looking for tuck-in acquisitions, which will be funded with equity (since the objective now is to reduce debt). That makes me roll my eyes, since expansion by acquisition is in large part what got them into trouble in the first place, and you don’t want to be doing equity raises while the stock price is so depressed.
RIM: there are stocks that are “priced for perfection” which means that so many good expectations are built in that even if the company is profitable and grows but just grows a little less than the market was hoping — anything short of perfection — the stock price can tank. At some point a few years ago, that description may have fit RIM very well; it seems to be the opposite now. RIM is if anything, priced for the worst-case scenario: barely above book value, for what is still a profitable company — though no longer a growing one, in a very rapidly shifting business. At this point though, I think any good news could really drive the stock up, as witnessed by the 10% pop on the mere rumour of a rejected takeover courtship. I don’t own any in RL, but was hoping for some last-minute tax-loss selling to put it into the $12-13 range (it sure looked like it was heading there before the rumour came out). Some big things to watch for include just falling flat on their face: the fabled QNX phones were supposed to be the next big thing for RIM, but they have been much-delayed, and now may not even make it out for the 2012 holiday season. Mr. Market’s pessimism may be overdone in this case, but it is certainly not unwarranted.