Friday File Hodgepodge of Portfolio Thoughts

By Travis Johnson, Stock Gumshoe, November 30, 2012

There’s been a lot going on among the stocks that I own and those that I’ve written a lot about for you over the years, so I have a bit of updating to share when it comes to my thoughts … first, some thoughts on two large personal holdings that I’ve never suggested in the “Idea of the Month” but have written about a lot.

People know that Africa Oil (AOI.V AOIFF) and Sandstorm Gold (SAND SSL.TO) are two of my largest holdings, so they ask about these picks pretty much every week — for me, Sandstorm Gold is a core holding and I’m not interested in adding to it here … but as I’ve mentioned a few times, I have sold puts on my stock so I’m willing to buy more if it drops below $10 and becomes genuinely inexpensive again. If you’d like a more sober analysis of the stock, there was a piece at Seeking Alpha last week that argued for valuing Sandstorm based not on cash flow but on their reserves, and on that metric they argue that the stock is very expensive. I disagree with that valuation argument, but I could certainly be wrong. SAND is in growth mode still, with equity financings that support new deals they’re making, but they’re also generating good operating cash flow that they can reinvest and I expect this to compound nicely over time if the management team continues to make good deals. You can see SAND’s third quarter report here.

Africa Oil has had a newsworthy week — and a good 20%+ drop in the share price. Investors had been waiting for the results from their second well, Twiga-1, following the spectacular results of Ngamia-1 (that was their first discovery in Kenya, announced last Winter, and singlehandedly drove the share price from $1.50 to $11). We got the results, and the market was disappointed — they found oil, but found a 30 meter net pay zone compared to Ngamia’s 100+ meters. There was also a large anomalous formation of oil-bearing rock of some kind, but it all requires a lot more study and analysis and testing before they can figure out what it might mean. And more drilling.

Africa Oil is a large holding for me not because I invested heavily into it as a core position, but because my relatively small position went up by ...

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