Opinions
Barry Schwartz
Algoma Central Corp.
ALC-T
PAST TOP PICK
Nov 23, 2015
Stock price when the opinion was issued
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A very well-run company. It ships goods across the Great Lakes and owns assets in ocean shipping. This is now trading below BV. A cyclical business. It could easily recover if the Canadian economy starts to improve. If you are looking for value, he wouldn’t hesitate to Buy. The company is doing all the right things. They are keeping their costs under control and using their balance sheet to improve their ships.
It is a shipper. It is a tough business. You often end up with empty ships doing a ‘dry’ run. This one has been rather consistent, but their return on capital is usually 5%, and is down to 2% right now. A year ago it was down to 1%. He likes improving return on capital. If it gets back to 5%, the stock would be worth about $20. We need to see that improvement. There is a small amount of evidence that the return on capital is improving.
Formerly known as Algoma Central Railway, this Ontario based bulk shipping company is a TOP PICK. The company recently announced the order of two additional refined product tankers to be contracted to Irving Oil. Cash reserves are growing, while the company reduces debt and buys back shares. It trades under book value and 8x earnings, while supporting an 18% ROE. It pays a nice dividend, backed by a payout ratio under 25% of cash flow. We recommend placing a stop-loss at $13.50, looking to achieve $22.50 -- upside potential of 45%. Yield 4.5%
(Analysts’ price target is $22.75)We reiterate this marine bulk transport business as a TOP PICK. Recently reported revenues were up 10% over the year. Management expects a return to full fleet utilization for the balance of the year. It trades at 7x earnings and under book value, while supporting a 15% ROE. It pays a good dividend, backed by a payout ratio under 30% of cash flow. We recommend trailing up the stop (from $13.50) to $14.50, looking to achieve $22.00 -- upside potential over 40%. Yield 4.5%
(Analysts’ price target is $22.50)Our PAST TOP PICK with ALC has triggered its stop at $14.50. To remain disciplined, we recommend covering the position at this time. This will result in a net investment loss of 5%, when combined with the previous recommendations.
Owns lots of ships on the Great Lakes and trans-ocean. Very capital intensive, renewing its fleet, spending 100s of millions of dollars. Economically cyclical. In Q1, usually loses money; this year, lost less. Cautious 2024 outlook. Illiquid, trades almost by appointment.
Note that there are some convertible shares coming on the market at the end of this month, and as a result this might depress the stock price.
(A Top Pick Dec 1/14. Down 5.23%.) A small company that runs shipping vessels in the Great Lakes and also owns a share in an ocean shipping Company. The big news on this is that they have announced they are looking to sell their real estate, and he thinks there is an embedded value of $5 a share, and doesn’t think this is reflected in the stock price. He can see upside well into the $20-$25 range.