When markets are rising, as they have been recently, working in the investment business can be a lot of fun. Everyone’s making money and feeling good. When markets take a downturn, of course, everyone’s grumpy. My wife and kids can usually tell which way things are going, since, by dealing with thousands of do-it-yourself investors, these feelings get expressed to our company day after day.
But, regardless of market direction, there is always something interesting going on. This is why I couldn’t think of any better career. No day is ever the same, and, if you look hard enough, there are stories everywhere. Let’s take a look at five:
The widow maker strikes again
When I was last a portfolio manager, nearly nine years ago now, we used to call the company Sierra Wireless the “widow maker.” It got this nickname from its almost predictable habit of missing earnings badly, and then seeing its stock fall precipitously. Well, a decade later the moniker still very much applies. Sierra (SW on TSX) missed earnings estimates this week by a whopping 75 per cent, and the stock fell more than 20 per cent on Wednesday, bringing its one-year decline to 53 per cent. Now, with a miss of such magnitude either the company or Bay Street analysts have surely screwed things up. As for the company, it says it “continues to make strong progress on our transformation.” The stock drop was the worst since Feb. 14, where the company gave investors a Valentine’s Day present of a 26 per cent stock price decline following — you guessed it — another earnings miss. Maybe public markets aren’t for you, Sierra.
Cancer-fighting developments can still make you rich
Nextcure Inc. (NXTC on Nasdaq) caught our eye this week with a 248 per cent single-day gain on Tuesday. The stock started the week at $27.35 and hit $109 in a frenzy following the release of promising results from a dose-finding study of a drug targeting several different types of cancer. The trial was small with only seven patients, but one patient’s tumour disappeared completely, and others’ shrunk, or at least didn’t grow further. NXTC went public just this year, at $15 per share, in May. At least this is one IPO that hasn’t disappointed investors. Caution is advised, as a seven-patient trial might not have statistical significance, but for investors and patients alike any positive cancer treatment development is a good thing.
Where did the $6 billion go?
On the opposite (losing) side of investments in the past week, we have Pengrowth Energy (PGF on TSX). A little over a decade ago, PGF was a $27 stock, with the company worth $6 billion. Last Friday, the company accepted a takeover offer at $0.05 — five cents — per share. Market cap now: $26 million. Shares fell 75 per cent on news of the “takeover.” Now, this may have been the only move for the company, with bankruptcy looming. However, we have talked to dozens of investors who are simply livid. They would rather see their shares become worthless than take a nickel takeover offer after suffering losses all these years. They still get a vote on the deal, but there is a large break-fee of $45 million, which will likely scuttle any other deals.
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Maybe the third time will be lucky
GFL Environmental cancelled its planned IPO this week, after investors balked at the price and the debt of the company. It was to be Canada’s largest IPO in more than twenty years. We pity the poor investment bankers who will miss out on another giant payday. (Just kidding!) GFL was also supposed to go public in 2017, but then decided to do a recapitalization deal with large pension investors instead. GFL is a large garbage collection company. Who knew garbage would be so hard to sell?
Some short sellers have some serious guts
Finally, let’s take a look at YETI Holdings Inc. (YETI on NYSE). What makes this one interesting? Well, a screen shows that the short interest on the company is 17.8 million shares, which represents more than 63 per cent of the float of the company, and one of the largest short interests in North American equities. Short sellers are betting that Yeti coolers, seat cushions and so on are nothing more than a fad. YETI also has $294 million in debt, more than three times’ its annualized cash flow. Well, how have short sellers fared with this bet? The stock is up 107 per cent this year, and is up 143 per cent from its low in late December. One has to admire the fortitude of the short sellers on this one, especially as the short interest has slowly continued to increase even as the stock has risen. At some point, there will be a collapse, and short sellers will finally be right. Or, there could be a giant short squeeze, and the stock could surge even further. Which way will it go? We wish you could tell you, but most investors find it more fun to see short sellers suffer.
Peter Hodson, CFA, is Founder and Head of Research of 5i Research Inc., an independent research network providing conflict-free advice to individual investors (https://www.5iresearch.ca).