In the aftermath of Wednesday's surprising but unsurprising Fed interest rate hike, we take a chance on a pair of struggling, profitless companies.
WASHINGTON, December 15, 2016 – After Wednesday’s post-Fed market bloodbath, the buyers were back Thursday morning for the most part, and stocks in general stayed modestly positive all day, with major averages closing modestly up.
As a result, the Prudent Man got back into action, if only a bit, and fussed around a bit with his largest portfolio. In general, sensing a pause before the Trump-Santa Claus Rally (probably) resumes in earnest, perhaps some time next week if not Friday, we took a look at our holdings and made a couple of speculative bets.
On the other hand, Sprint’s now-major owner, Japanese tech giant Softbank, has been making nice, co-operative statements to Apple and others about potential joint ventures, so who knows what will transpire? That’s probably what’s put a bit of strength back into this otherwise anemic holding, so we figured, what the heck. Our portfolios have all been weighted perhaps a bit too conservative lately for what seems to be on the horizon in 2017. So we scooped up some S on weakness today. This is something we may live to regret.
But we agree with CNBC’s much-maligned Jim Cramer, in that, if we small investors want to remain interested in our portfolio’s daily action, the best way to do that is to take a little bit of “mad money” and put it into something weird, non-standard, speculative, or otherwise maybe a 5-1 gamble on making some really nice money. (This is always, quite frankly, what we do with IPO shares we can grab as well).
We actually make money on these “flyers” more often than not, so we’ll try Sprint out for size here. (Remember: Your mileage may vary.)
We’ve also added one other, or, actually, did so late Wednesday afternoon. Our other spec stock is a company called Bill Barrett Corp. (BBG). This one is a small oil and gas driller located primarily in somewhat unfriendly Colorado, which is where most of its drilling takes place. We came in as the stock dropped due to the placement of secondary shares. (This is like an IPO, except that it’s an existing publicly traded company that issues new shares).
When companies do this, usually without much warning, their stocks tend to get hit since, in the short term at least, such a transaction is “dilutive” to existing shareholders. In other words, with more shares out there, the earnings per share are effectively diminished since such earnings are now spread out among more shares and shareholders.
Happily, in the case of Bill Barrett, there aren’t any earnings anyway, which makes the whole share issuing thing a moot point. Why would we buy a company with no, or rather negative earnings? For the same reason that investors snap up high-tech IPO shares by the ton in spite of the fact that few of them are ever profitable and that even fewer of them will be profitable in the foreseeable future: the potential for outsized growth. Bill Barrett is sort of like a tech company in the oil patch: a little player with some good land leases that’s ramping up its drilling program in light of current oil price increases.
Then again, BBG does have the iffy, purple state of Colorado to deal with, meaning that some of its activities could get stymied by that state’s rabidly “green” legislators and voters, most of whom fled California after they screwed that state up with “green” rules and legislation.
Anyhow, BBG is our second speculative flyer, and it paid us back today by going down a bit. We’ll just have to wait and see whether this company, with otherwise fine prospects, can inch its way toward profitability in 2016. If so, we should notch a tidy profit. If not, we’ll have to consign this idea to the “Oh, Well Department,” take our lumps and move on.
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