Holding on For the Long Term

Sometimes, it makes sense to hold on for the longer term if a company's fundamentals are sound. 

Two companies in the Financial Log Book are rebounding from rather breath-taking declines: Polaris Minerals Corp (PLS) and WaterFurnace Renewable Energy (WFI).

Polaris is a young company and, therefore, can be expected to suffer up's and down's as business develops.  Significantly, the company has large reserves of high quality aggregate and is well positioned to supply the west coast market via low cost marine transport.  Now that the economy is recovering, Polaris should see some significant improvement to its bottom line.  Although I was somewhat disheartened by the major loss (at one point the share price declined by 90 percent from the initial purchase price), I also saw it as an opportunity to load up once I sensed that a bottom was established. The fundamentals of the company remain attractive even though its shares had been diluted as a result of refinancing activity.  As mentioned in the previous posting, I am almost even and anticipate good things over the next several years.  While I would prefer to hold this stock for many years, it may not be possible as the company would be a great take-over candidate by virtue of its outstanding attributes. The only caveat is that acquisitors would have to be sensitive to agreements with First Nations.

WaterFurnace is a sound company with good management, product offerings which are well regarded in the community, and a stellar balance sheet.  The company has undertaken some cost savings measures, but I'm pleased to note that it has maintained and even increased its research and development budget - company management is in it for the long term. Further, it pays out a handsome quarterly dividend and has increased it substantially.  It is now $0.25 U.S. per share.  

With economic recovery underway in the U.S., I am optimistic that its earnings will increase as a result of new construction activity and the upgrading of home heating/cooling systems by private homeowners.  Initial reports look good.  My only reservation is with the company's operations in China and the potential impact of a slowing of its economy.  If the buzz about China is to be believed, China has a huge overhang of commercial and residential inventory and it faces the prospect of a major correction in the real estate market.  As noted in an earlier posting (Financial Kowtow Hanfeng Style - March 16/13), I am reluctant to invest in China, having been burned on a few occasions.  The rule of law is suspect and company security is somewhat tenuous.  The situation is akin to Russia.  A Russian friend once opined:  "In Russia three parties could steal my business and I would have no recourse." (business partners, the mafia or the state).  He left Russia and brought his considerable talents elsewhere as he did not want to raise a family in such circumstances.  

The share price of WaterFurnace declined by about half, reaching a low in December 2012.  Similar to Polaris, I added to my position as the share price rose and have been pleased with the results.  As further consolation, the accumulated dividends have ameliorated the decline in the share price to the extent that they have covered 50 percent of the difference in the current share price (22.76 as of July 26/13 ) versus the original purchase price of $28.44 ... yet another benefit of investing in dividend stocks.  

I will leave it up to readers to do their own due diligence and attend to the financial metrics of these companies.  A good start would be to read their recent annual reports.  

In future postings, I will address the topic of "When to Sell".  The first posting will focus on reasons to sell - they're not all spurred by a desire to take profits or minimize losses.