October Madness

Markets have certainly been volatile over the last couple of weeks. As I write this - midday Oct. 15 - the market is down around 2.5%. The slide in oil prices has definitely contributed to this recent slide, putting pressure on various country's economies. Combine that with poor economic data coming out of the Eurozone, the war on ISIS, slowing growth in China, and Fed manipulation its hard to tell which way is up.

I'm not too concerned at this point, as I've been waiting for some time of pullback to at least make things interesting. As backwards as it sounds, I hope things continue to fall for awhile so that we can uncover some real bargains which have been few and far between recently.

Vectrus (VEC), our recent purchase has been fairly volatile. It has jumped down below where we bought it but has also rallied upwards as much as 10%. I like seeing the resistance at our purchase price but as this is a potentially longer term holding, these short term spikes mean little.

The aforementioned slide in oil prices has caused oil stocks to get crushed along with it. We have just initiated positions in BP (BP) and Petroamerica (PTAXF). BP is now hopping around near the bottom of its 52 week range and may have now even broken through to new lows. However, it is selling below BV, and is yielding over 5.5%. While it probably isn't a two or threebagger over the next couple years given its size, when oil prices normalize over the next year or even two, I believe BP could result in a total gain of over 40% for us.

Petroamerica is a small E&P in Columbia but based in Canada. They have a solid balance sheet and have recently completed a potentially transformative acquisition of Suroco Energy. They have become CF positive over the last two or so years and they look poised to continue growing over the next several years. I urge you to read the articles written on SeekingAlpha by the authors 'Value Digger' and 'TheValueMan' as they expertly delve into the company.

Happy Investing,
Ben

Disclaimer: This post should not be construed as investment advice. I am not a registered investment advisor and you should conduct your own due diligence before investing in any company mentioned here.

Vectrus - Spin Off Opportunity?

Vectrus (VEC) was just spun off from Exelis (XLS) recently and subsequently sold off - now selling below $20.

Vectrus contains the slower growth, lower margin portion of Exelis' business - primarily service type operations. I've invested in XLS in the past so the spinoff intrigued me.

Long story short, I think Vectrus will provide a decent return over the next 1-3 years. The compensation seems to help align interest, with the CEO receiving a bulk of his salary based on meeting goals over the next several years, and I believe he also received some stock options as an initial founder's grant. Vectrus has a mostly variable cost structure, and should be able to produce FCF consistently. With the spinoff, they should now be able to pursue further growth opportunities as new markets become available in addition to their decent backlog.

We have opened a small position and may add to it should the price continue to drop.

Happy Investing,
Ben

Disclaimer: This post should not be construed as investment advice. These are MY thoughts on the company, and you should conduct your own due diligence before investing.