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.

 

14 thoughts on “2 Recent Buys – CU, NGD

  1. R2R,

    Interesting choice with NGD. In my opinion, that’s a tough sector to do business in. Although, where there is a bigger bet, there is a potential bigger win. I’ll be watching adding that one to my watch list. Hoping for the best for you.

    • Mining business needs a different mindset and Ive spent the last year or so just scratching the surface…I still learn a lot everyday. The biggest mindshift came when realizing that you are working with depleting resources — for every ounce mined, you are decreasing your future value. So you constantly need to explore or acquired previously explored/developed sites to keep operating in the space.

      NGD has some pretty decent sites. The Rainy River has turned into an expensive project — its low grade, but high volume. Lots of gold in proven and probable resources.

      Best
      R2R

  2. JC says:

    Sheesh those Questtrade fees are ridiculous especially if you get assigned. Typically what I’ve seen is that they just charge you a commission for the buy but $25 is crazy. That’s 2.5x the commission rate.

    How are options on the CDN market handled? American or European style? I’m looking forward to seeing what else you do.

    • Yes, the Questrade fees are ridiculous. I will still keep that account because I have free ETF purchases there and stock trading isnt too bad ($5 per trade), but option trading is insanely expensive.

      Cdn markets handle both American and European styles. Its a good question on how to tell them apart…I have to look into it. I have never had anything called before the expiry date, so based on experience they seem to behave more like Euro style.

      R2R

  3. Mike says:

    any other options instead of interactive brokers? I have a questrade account as well (long time hold and buy investor) and have recently begun trading options.

    • When it comes to options trading, theres nothing better than IB. I read a lot of different reviews and almost every road led to IB. Its the best out there…and having this account for a few weeks, I really like it and can endorse it.

      You can move some of your funds from Questrade to IB to open the account if you dont have an extra US$10K lying around. I can write a post to show how, if you are interested. Let me know.

      cheers
      R2R

  4. Nice pickups. Don’t know much about new gold but I think Ive seen the ads on bnn. Some of my biggest gains have been buying when I feel the market beat a company up. What’s your thoughts on brookfield renewable? I haven’t bought cu or fortis because I think renewable is the next trend. Your thoughts?

    • New Gold had seen some punishment and I decided to pick some up. Note that I have already sold the stake and made a quick 15% return on this and dont own the shares anymore. I will update the article and a link to the Sale post.

      I agree — the electric utilities business will get disrupted big time by the renewable space. I dont know exactly how things will turn out in the next 5-10 years, but I bet the industry will look very different than it is now. There will obviously be some winners and losers. I like CU because they are well diversified — not just in power generation and transmission, but also in pipelines and construction through their Atco arm. I probably wont be holding this stock forever…I intend to write covered call options on this and collect the extra premiums and sooner or later will exit this position.

      As for renewable space, BEP is a great one. Its probably one of the best one out there. Another yiedlco to check out and research might be CAFD — its a joint venture between FSLR and SPWR. But there are a lot of other options too — something that I am considering is going with an ETF instead — theres one called YLCO. Something to research and consider.

      R2R

      • Thanks man, didn’t know canadian utilities was that diversified. Will look into that etf. Just sold my position in hydro one this morning. I will be putting those proceeds probably into my purchase of brookfield renewable this weekend. Seems wynNE finally is going to be doing some stuff to lower our hydro bills. So might as well get out now. If not once the conservatives win the next election I’m sure lowwring hydro rates will be a top thing. Anyways keep it up

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