I don’t know about you, but I’m in line to have another very successful year on the stock market. Last year, my RRSP account showed a 21.7% jump (50% in Cdn stocks and 50% in US). This year, I’m already at 15.7% and counting! But it’s not a reason to stop looking at my portfolio. After all, in the middle of October I was only +9%… The wind changes direction in short order these days! This is why I made a small change in my portfolio last week; since I don’t have cash on hand, I sold a less performing stock and bought an amazing opportunity. Buy when there is blood on the street they say…
Where There Was Blood – Bought 188 Shares of Black Diamond Group (TSE:BDI)
There was a lot of blood last week in the oil industry. The price of a barrel dropped by 25% since its peak this past summer. Most oil companies dropped accordingly. I bought Helmerich & Payne (NYSE:HP) earlier this year and the stock is now down 20% in my portfolio. HP is specialized in drilling oil & gas wells. If oil prices drop, chances of having new exploration contracts go down along the way.
A similar phenomenon had hit Black Diamond Group (TSE:BDI) this year. After an awesome ride in 2012-2013, the stock plunged like a rock since this summer:
The stock price has fallen by 46% since July 1st 2014. Why is that? BDI is specialized in providing temporary and permanent modular buildings. Its biggest market is oil sand exploration in northern Alberta. If the oil sticks around $75 a barrel, there won’t be many new projects out there as the oil sand operations are very expensive.
BDI not only meets my investing principles but shows a great growth opportunity. This is not a stock that would qualify in my core portfolio (as I don’t think I want to hold this position for 10+ years) but this is definitely a great time to buy the stock. I bought my 188 shares at $17.73 on Tuesday November 4th while the stock took an 11% hit on that day. The company is now trading under a 15 PE ratio and pays over 5% in dividend yield.
The management team made two important moves showing they believe in this company. On November 5th, they published their quarterly report announcing a dividend increase from $0.075/share to $0.08/share (dividends are distributed monthly). On top of this 6.67% dividend increase, the management team also bought back $30M worth of shares lately seeing the same opportunity I do.
What Can You Do When You Want to Buy a Stock but don’t Have Cash on Hand?
I had spotted BDI a while ago and was following its every move. I knew it was the right time to buy it last Tuesday after the announcement that Saudi Arabia reported they would maintain their current production level to keep oil price low (in order to retain their market share). The problem is that I didn’t have new money to inject in my account.
So I took an hour and looked at my portfolio. I reviewed each company I hold and see if there was an opportunity to sell a stock. My first analysis led me to think: I only hold good companies… there is nothing to sell right now. This is why I had to go further. I started to look at the short term potential of each company. My goal was to buy BDI for a 12-18 month horizon so I had to see which stock would probably be “underperform” during this period. This is often the case with stocks included in my core portfolio. They are very strong companies paying an increasing dividend but from time to time, they can be dormant for a year or two when they go through a tougher period. This is exactly the case with McDonald’s (MCD).
The stock isn’t going anywhere right now as the company struggles with margin pressures, China’s problems and sales stagnation. It won’t hurt my portfolio if I get rid of MCD now and buy it back later. After all, I’m trading a 3% dividend stock for a 5% yielding stock with great upside potential.
I know most of you didn’t like MCD that much anyways, what do you think of my new acquisition?