September “Idea of the Month” Ready to Fly?

Borrowing an idea from Alexander Roepers' Value Investment Congress presentation

By Travis Johnson, Stock Gumshoe, September 26, 2014

Today we’re due for our “Idea of the Month” pick — but I also should quickly let you know that I personally added some more to my Lancashire Holdings position this week when it tripped a buy order that had been in place for a while. I wrote more about Lancashire in my insurance-themed “idea of the month” piece in August and nothing has changed about the stock or the business in the last month, other than the fact that I’ve put more of my cash into it. There have been a few minor analyst moves, and more general press coverage about the “worst reinsurance market in memory” that makes me want to focus on excellent underwriters like Lancashire.

Moving on…

Every year I try to spend a couple weeks cogitating on the ideas I learn about at the Value Investing Congress and then pick my favorite idea from that group and feature it as our “Idea of the Month” here at Stock Gumshoe. It has been very successful sometimes (Flowserve, Ferrovial), unsuccessful others (Rosetta Stone, Arcos Dorados), and sometimes the stocks picked have just been “meh”… so with that caveat, what shall we feature today?

Well, there were two appealing, undervalued and well-managed small energy companies discussed in detail at the Congress — but I’m not interested in focusing that much on riskier stuff right now. If you’re looking for two stocks where there are catalysts coming for substantial potential gains but where risks are fairly high for different reasons, you might find some appeal in Perpetual Energy (PMT.TO, PMGYF), suggested by Guy Gottfried because of good management and good capital allocation that is about to improve their balance sheet (the risk is largely that it’s an indebted natural gas producer), or in Mart Resources (MMT, suggested by Tim Eriksen because of the dramatically improved production numbers they should see with their almost-done new pipeline (the risk is that they’re a junior oil explorer in Nigeria, so you’ve got the trifecta of commodity, drilling performance, and political risk).

If I weren’t already overexposed to the faltering commodities sector, I’d be thinking more seriously about both of those. I may still convince myself to buy Mart Resources, but it hasn’t happened yet — maybe if oil keeps falling it will eventually hit a price that I can’t resist.

And there were other appealing ideas, too — ...

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