Badger Infrastructure (BDGI.TO)

This used to be a really exciting growth stock. Builds hydro-vac units used for excavation which were used a lot in the energy industry. It was a great growth stock when energy services was working. Now the outlook is less clear. Their equipment is fairly mobile and they have done a great job in moving into the US. They now do utility work for more than half their portfolio. The medium and short term outlook is less clear because we are not sure of the strategic direction of the new CEO.

The previous management was terrific in diversifying out of the oil/gas business. It is now growing much more in the US. This could still face a couple of tough quarters, but she would hang onto it. 2 years from now you will be happy.

By far the biggest North American players in hydro-vaccuing with over 1000 trucks that excavate without breaking pipes and wires. Stock was hit because of their exposure to the oil/gas industry, especially in Western Canada. However, two thirds of sales are now coming out of the US. They are growing their utility infrastructure business. Thinks there will be a big turnaround in 2017. They make great profit margins and great free cash flow. Very well-managed. Not expensive, trading at under 8X next year’s EBITDA. Dividend yield of 1.76%.

They do daylighting, exposing underground wiring and pipelines. Seem to be able to do it quicker and more efficiently than their competitors. Great management team. Have been through downturns before and have managed it. However, looking at the valuation, it looks like it is priced to perfection at 24X forward earnings. Has a pretty good growth plan, and if they can deliver on it there is some potential for a return. The problem is, they moved into the US and have seen their margins depressed. Not confident they can get those margins up to historical levels.

(A Top Pick May 26/15. Down 24.58%.) This is in the hydro-vac business. They build machines that uses high-pressure water to move earth. Half their business is to the energy industry, and the other half is utilities and governments. This is the biggest in North America and a consolidator. Still a Buy. Thinks we have seen the most of the downside for this.

They have been diversifying away from the energy patch. They also diversified into the US. They are the biggest in both countries. The core business continues to do okay. He still buys it for new accounts.

They were focused on oil and gas, but now it is down to about 50% due to reallocating. They are well managed and are definitely doing the right thing through this downturn. Portfolio managers might look at this one to get more exposure indirectly to oil and gas.

(A Top Pick May 25/15. Down 25.48%.) Hydro-vac excavators. Was a little early on this. Reduced his holdings because of the declining price momentum. Valuation is still good, and it trades in the top 95% of his valuations. ROE is around 20%. Very solid balance sheet. This will benefit from a cyclical turn in the oil sector.

The issue they had this year was that when oil/gas exploration fell off so dramatically. A lot of their investors were in for the dividend yield, and it started to look like it would be dicey if they could keep the dividend where it was. Had been Short the name because he had thought the perception of the company was that it was safe because of their other business lines outside of oil and gas. Has covered his Shorts recently. If you think the energy rally is real, then he would take a look at it here. A solid management team. Valuation has come down to a level where it is reasonably attractive.

In the business of hydro-vac. They use high-pressure water to move Earth. Their customer base is both in the energy patch and in the construction and utility business. In that business, you have to be careful that you don’t cut cables, sewer lines, etc. You can dig part way, but then you use high-pressure water to move the earth safely out of the way. They have been growing aggressively in the US. Have also been moving away from the energy sector. Dividend yield of 1.48%.

(Top Pick Nov 19/14, Down 20.97%) He sold it shortly afterwards. It broke down from a technical level. They had strong earnings recently and he is taking a hard look at it again.

Historically, the sector does very well right from around the end of January right through until May each year. This company is a little different because it is focusing on a certain type of oil services, but it should follow a similar pattern. It is now approaching its period of seasonal strength. Technically a nice little base has formed and has been breaking out in the last few days. Technicals are starting to look better. It is trading above its 20 day moving average and it is outperforming the TSE composite. Seasonality is not there yet, but is expected to be clicking in sometime around the 3^rd week in January. Try to buy this on weakness between now and the 3^rd week in January.

Has taken a beating, and thinks it is now base building. They have hydraulic trucks that can move around, and they moved a lot of the trucks into the US, and redeployed them. They were in the energy patch in Canada, and business is slow there. It looks very promising here. They own a lot of their own stock and work very hard. They produce their own trucks in Canada so have a lower cost base.

He shot down a bid to acquire it several years ago. The company is a very well run company, but had no idea what they were worth. They have continued to do well. Half of its business is serving the oil patch. They have expanded in the US and are the go-to name in the business. They are moving their trucks away from the energy patch to municipal work, but there is only so much they can do. He is keeping it because it is a well run company. More than half is now not with commodities so he is happy with it.

They are good operators. He is looking to add stock back down at these prices. It is being thrown in with all of the energy names, but this one is different because it has to do more with infrastructure.