Wednesday, March 1, 2017

2 Recent Buys – CU, NGD

Some quick updates for the recent moves in my portfolio. I made a few purchases in January that I never got around to documenting, so here it is.

I made the following purchases in January 2017

  • 100 shares of Canadian Utilities Ltd (CU.TO) + 1 STO covered call
  • 1,000 shares of New Gold Inc (NGD.TO) *New position*
  • + New portfolio for my daughter – details coming soon in a separate post

Canadian Utilities Ltd


CU
I opened a new account with Interactive Brokers, where the option trades are much cheaper. Interactive Brokers charges C$1.50 per option trade + no assignment fee as opposed to Questrade, where I hold most of my assets which charges C$9.95 + C$1 per contract + C$25 assignment fee. I have been experimenting lightly with buy-write covered calls over the past couple of years and have seen modest income generated and wanted to explore this idea deeper.

As a first trade, I decided to play it safe by buying an equity that I already own and know the fundamentals (already researched). I decided to buy 100 shares of Canadian Utilities and write one covered call immediately. I timed it so that the call date was after a ex-dividend date, so even if the shares get called away, I get the dividends for the quarter. If they do not get called away, I am happy to keep the shares as I am long on this company.

To summarize:

I added 100 shares of Canadian Utilities Ltd (CU.TO) @ C$36.90. The stock pays $1.43 in annual dividends (dividend just increased in Jan 2017) adding $143 to my annual income. I wrote a covered call expiring Feb 17, 2017, strike price $37.00 (STO CU-170217-C-3700) and booked $45 in option premium.

New Gold Inc (NGD.TO)

NGD
New Gold is an intermediate gold mining company that has seen intense pressure in the last few days. The company announced that its Rainy River project is expected to be delayed by three months and will see higher capex bringing the grand total of the project to $1.2B. The company is approx $100M short and will need to raise some capital either via private placements, warrants, or equity dilution. Personally I don’t think this is a problem and the management will be able to do this. The gold is in the ground (albeit low grade) and is not going to evaporate overnight. Moreover, the sunken costs are close to $1B just on the Rainy River project, and the stock punished over the past few days by almost 35% brought the entire market cap of this company to $900M. Rainy River is just one project in this company’s arsenal and has other mines that are producing gold, silver and copper efficiently. There are risks present of course: the management needs to raise capital and execute to get this project up and running. All things considered, I saw an opportunity as I thought that the stock punishment was too severe and saw some good value.

To summarize: I bought 1,000 shares in New Gold Inc (NGD.TO) @ C$3.44.

Followup: I do not own the shares of NGD anymore. I sold the shares a week later (at C$3.95) after a quick 15% gain. See details of the sale here.

Full Disclosure: Our full list of holdings is available here.

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