Category: Weekly Commentary

10 May 2013

Issue 19 – The Need for Infrastructure

Palos continues to see energy infrastructure as a good investment. The Palos funds hold positions in Keyera Corp (TSX: KEY), Enbridge Inc (TSX: ENB), Pembina Pipeline Corp (TSX: PPL), Gibson Energy Inc (TSX: GEI), and AltaGas Ltd (TSX: ALA), all of which reported outstanding results for 2013 first quarter…  View full commentary in PDF

26 Apr 2013

Issue 17 – US GDP

The US economy grew slower than expected in the first quarter. The Bureau of Economic Analysis reported on Friday morning that real GDP grew at 2.5% on an annual basis, compared with expectations of 3.0% growth. This follows growth of 0.4% in the fourth quarter of 2012, also below expectations. The details, however, are not so devilish… View full commentary in PDF

16 Apr 2013

Issue 15 – Gold not Much of a Gold Medal

Palos Income Fund By Charles Marleau

  Palos has been underweight the gold sector for the past two years. The TSX has approximately a 7% weighting in gold equities, compared to 1% for Palos.  In the past few weeks the gold sector has further fallen out of favor, with sell-side research such as Goldman Sachs and CIBC lowering price targets on gold. Palos’ thinking is that these sell-side analysts are a bit late to the party, and the market was way ahead of analyst consensus. Year-to-date, the gold equity index is down 30%, and analyst are bringing their earnings estimates and price forecasts down in response to these declines.   Palos, being contrarian, believes that this aggressive sell-off has presented an attractive buying opportunity, especially in Goldcorp (TSX: G). G has best-in-class production growth over the next five years and has a high quality management team. On Friday Palos added to its position in Goldcorp bringing our exposure to 2.8% which represents all of Palos’ exposure to gold, still significantly below the index.   The graph below shows that Goldcorp has significantly underperformed the price of gold bullion. Palos believes that Goldcorp is at a point of inflection where G will disconnect itself from the underlying commodity price. In other words, we expect that investors will start looking at the fundamentals and production profile of G instead of being influenced by the price of gold. Furthermore, with the sell-off, Goldcorp’s dividend yield is now above 2%.

Chart 1: Palos Domestic Funds versus Benchmarks (Total Returns)*
 

FundServ

NAVPS

YTD Returns

Palos Income Fund L.P.

PAL 100

$9.03

5.28%

Palos Equity Income Fund – RRSP

PAL 101

$6.79

2.47%

Palos Merchant Fund L.P. (Mar 28, 2013)

PAL 500

$8.56

7.20%

Palos Majestic Commodity Fund L.P. (Apr 11, 2013)

PAL 600

$10.94

3.01%

S&P TSX Composite

0.09%

S&P 500

12.08%

S&P TSX Venture

-16.13%

   
Chart 2: Market Data*
   

Value

US Government 10-Year

1.72%

Canadian Government 10-Year

1.74%

Crude Oil Spot

US $90.96

Gold Spot

US $1,487.50

US Gov’t10-Year/Moody BAA Corp. Spread

199 bps

USD/CAD Exchange Rate Spot

US $0.9863

* Period ending Apr 12, 2013

Five Year Plan For G – Increase production from about 2.5-2.8MM oz in 2013 to ~4.0MM oz in 2016/17:   2013: 2.55 – 2.80MMoz   2014: 3.2 – 3.5MMoz   2015: 3.5 – 3.8MM oz   2016: 3.8 – 4.0MMoz   2017: 4.0 – 4.2MM oz

02 Feb 2013

Issue 5

Canaccord Genuity Corp. and National Bank Financial Inc. are leading the initial public offering of American Hotel Income Properties (AHIP). Palos had a one-on-one meeting with management a few days ago. AHIP’s strategy is consistent with our view — you need to be creative in the REIT space for valuations on traditional REIT’S have crept up to uncomfortable levels according to Palos. However, AHIP’s business is original and definitely deserved consideration. Some of AHIP’s unique attributes are… View full commentary in PDF

25 Jan 2013

Issue 4 – Why We Love Uncle Sam

While we recognize that recent stock market performance has a lot to do with the application of easy money in terms of cost and availability, it remains that the US economy is doing fairly well when compared to other developed economies. Corporate profits are beating expectations, confidence about the future has improved and the housing sector is on a significant uptick. View full commentary in PDF

18 Jan 2013

Issue 3 – Pair Trade in the Pressure Pumpers

Pressure pumpers are companies that offer fracturing and chemical stimulation services to enhance oil and natural gas production. There are three Canadian publicly listed companies that provide these services: Trican Well Services (TSX: TCW), Canyon Services (TSX: FRC), and Calfrac Well Services (TSX: CFW). The three companies usually trade in tandem. However, a trading opportunity has occurred among two of them: long FRC versus short TCW. There are two reasons why Palos thinks this trade is very compelling… View full commentary in PDF