There are many different approaches that an investor can use
to succeed. The key is to find the approach that works for
Personally, I operate best when I think of a stock as a small
ownership interest in a company and not a piece of paper to be
traded on a frequent basis. My approach is to buy shares in a
company I like at an attractive valuation and let management
build wealth for me over the long term.
That said, if I had the ability to be a market timer, that is
what I would do. It would be far less stressful (not to mention
rewarding) if I could accurately time the low point for a stock
and buy only then.
Ordinarily I'm very skeptical of my ability to pick the bottom
for a stock -- but today, I have a pretty good feeling about
The company is Canadian light oil producer
Lightstream Resources (
. I think this month could represent a long-term bottom for a
company turning a corner.
Lightstream has a market capitalization of over $1 billion and
production exceeding 46,000 barrels of oil equivalent (
) a day. If you name a horizontal oil play in western Canada,
chances are Lightstream has a significant land position in
horizontal oil plays -- not oil sands, not heavy oil, and
not natural gas.
In addition to having one of the largest positions in both the
Bakken and Cardium oil plays, Lightstream also has a significant
presence in several other emerging oil plays that include Swan
Hills, Montney, Duvernay and Nordegg.
This is a company built for the long term. At its 2013
drilling pace of roughly 100 wells per year, it will take
Lightstream more than 20 years to drill up only the drilling
locations it has already identified. That large inventory doesn't
include any of the emerging plays other than Swan Hills.
Despite this deep asset portfolio, the market has thrown
Lightstream into the bargain bin because it is unhappy with the
current level of debt the company carries relative to its cash
flow. Lightstream's assets are heavily discounted because of debt
Lightstream's management is aware of this. Last month,
the company had embarked on a process to reduce debt by $600
million through the sale of non-core assets.
As the proceeds from those sales are used to reduce debt,
shares of Lightstream should rise toward a valuation similar to
that of its peer group. If Lightstream's projected 2014 funds
from operations ($620 million) were to be valued similarly to its
peer group multiple of 8, the price of LSTMF would be $14.80 --
nearly three times its current price of just over $5 a share.
The next question that needs to be asked: How likely it is
that Lightstream can execute on these asset sales at attractive
The answer may be foreshadowed by the recent actions of
Lightstream CEO John Wright, who over the past week has spent
over $1.2 million of his own cash buying shares of Lightstream in
the open market. In addition to Wright, two other directors have
also combined for almost $1 million in open market purchases.
With Lightstream's ongoing plans for asset sales, the actions of
Wright and his fellow board members suggest they're encouraged by
what they're seeing.
In addition to buying shares today in front of potential
upcoming catalysts, investors are locking in a juicy dividend
yield. Lightstream pays a dividend of $0.04 a share -- which it
pays monthly, like many Canadian companies -- which means the
yield is over 9% at the current stock price near $5.
Lightstream is cheap, has a pending catalyst and pays a nice
dividend while you wait. Better still, I think the timing is
exactly right to invest in this one.
Risks to Consider:
Lightstream currently has a significant amount of debt: Its
debt-to-cash flow ratio is about 3-to-1, which is on the high end
for Canadian producers. In addition, Lightstream, like all
commodity producers, is susceptible to price volatility.
Action to Take -->
Buy Lightstream at its current price. Shares are currently
valuing Lightstream's assets at a steep discount, offer a
significant dividend yield and have potential near-term
appreciation upon completion of non-core asset sales. Investors
have been leery of Lightstream's debt and have missed the fact
that this company has an outstanding portfolio of real estate in
Canada's best horizontal oil plays.
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