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par BOUTIN, mardi 01 novembre 2005, 10:08 (il y a 6945 jours) @ labadie

ALERT: Special Opportunity Portfolio Sells Fording (FDG), 10/14/05 (Original Post)

Closing out our FDG position.

At 10:55 AM, we sold all 400 of the 400 shares of Fording Canadian Coal (FDG) that we own in the Special Opportunity model portfolio. The trade crossed at $38.92 per share.

The goal of the Special Opportunity model portfolio is to provide you with a unique assortment of proprietary investment ideas that are geared towards helping you build a more diversified investment portfolio.

At the time of the sale, FDG's bid was $38.93 and its ask was $38.94. It is our policy to make any purchases at the ask price, and any sales at the bid price.

The sale of the 400 FDG shares generated $15,572.00 in proceeds. After deducting a $15 commission fee, the transaction generated $15,557.00 in proceeds. The gain from this sale totaled $5,930.00 (after roundtrip commissions), a gain of 61% over our buy price of $24.03. Note that we've also received several dollars of additional dividends since first buying the stock, which is not included in the percentage return.

We also closed out our FDG covered calls by buying 6 January $31.63 calls at $9.10 each for a total of $5,484 (including $24 in commissions). The total loss on this position was -$3,570.00.

** Why Sell Fording Canadian Coal Trust (FDG)!> **

Since first profiling metallurgical coalminer Fording Canadian Coal Trust (FDG) in July 2004 at just $15 per share, and then formally purchasing it last December at $24, we've enjoyed a nice run and bountiful dividends. As we've covered at length, FDG has benefited from booming demand (particularly from Asia) for its high-quality met coal, which is primarily used in steelmaking.

As a result, FDG has been able to significantly hike its dividend, attracting yield hungry investors en masse. This has pushed the stock up sharply in recent months.

Even though we wrote covered calls on FDG in July, thus effectively capping out much of the recent upside in the stock, we've still profited extremely handsomely from the position. The right move today is to book our profits and move on.

Looking forward, while we remain moderately upbeat about the prospects for met coal through 2006 (unlike most investors, we're modeling for a -10% to -30% pullback in prices), we believe it would be unwise to ignore the growing potential cyclical risks facing FDG. Steel prices have pulled back sharply, there's talk of a glut in China (FDG itself has hinted that Chinese demand may have a hiccup), and soaring natural gas prices are forcing steel producers to cut back on production. On top of that, signs of an economic slowdown abound (we think a first-half 2006 recession is possible), particularly in sectors like autos.

We've seen time and time again this year what can happen when yield hungry investors chase dividends in cyclical plays. Just look at the breakdown in the mortgage REIT (see: Annaly, a stock we profitably shorted) and oil shipping (see: Knightsbridge, a stock we were negative on but never shorted) sectors. The fact is that many of the investors buying FDG today only see the tasty 15% yield, and haven't done their homework about the potential cyclical risks.

Again, we're not turning bearish on met coal for 2006, but we do believe that FDG is now fairly valued (or more) and owned by too much hot money. At this point, we think the best opportunities in FDG may be found by nimble short side players.

As a side note, we plan to continue holding fellow met coal player Pine Valley Mining (PVMCF), as we believe that the company is undervalued and riding a number of company-specific drivers. Further, even if met coal prices pull back by -20% to -30% in 2006, we think the upstart could still earn 60 cents or more pretax per share.

Thanks for the gains, FDG!

Fording Announces Record Q3 Distribution, But New Worry Emerges. (9/22/05)

Pine Valley Mining Secures Financing, Coal Prep Plant On Deck. (9/20/05