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Bucking the Trend

Should bad news have kept us out of the markets in 2002? Not necessarily

Mar 1, 2003

by Christopher Gulka

Most investors would like to forget about 2002 – a year of doom and gloom. The markets were bearish, no doubt about it. Major world indexes continued their descents from the prior year. Financial analysts left the industry, brokerage firms went out of business and blue chip companies became penny stocks.

Financial analysts left the industry, brokerage firms went out of business and blue chip companies became penny stocks.

But that wasn’t the only news. As some of you hopefully discovered, there were some great local investment stories in 2002. Yes, even though the markets were full of despair, many Alberta-based companies bucked this trend, either by surprising the markets with strong gains or going unnoticed with rising stock prices.

Of the most significance, nearly every Alberta-based energy stock moved up as oil and gas prices rose. One of the more notable rising stars was Calgary-based Niko Resources Ltd. (NKO: TSX), whose development of oil and gas properties in India caused the stock to move from $10 to over $25 (150% gain). Likewise, the development of oil and gas properties in Kazakhstan allowed Calgary-based Hurricane Hydrocarbons (HHL: TSX) to increase from $12 to as high as $24 (100% gain) during 2002.

The oil and gas sector certainly saw Alberta-based companies buck the trend by generating double-digit gains while the market on the whole dropped by double-digit percentages. But in nearly every other industry, there were also examples of significant gains for Alberta-based stocks. We saw Forzani Group (FGL: TSX), the Calgary-based sporting good retailer move up from the $15 dollar range to over $24 (60% gain) during 2002. Big Rock Brewery (BR.UN:TSX), a Calgary-based brewing company moved from $5 to hit a high of $8 (60% gain). BW Technologies (BWT: TSX), which designs, manufactures and markets gas detection instruments, moved from $16 to $24 for a 50% gain. Echo Bay Mines, an Edmonton-based gold mining company rose from $1 to $2 (100% gain) in 2002. Even some real estate companies performed well while the rest of the markets fell. Genesis Land Development moved from $1.20 to over $2.80 (133% gain).

So which will rise next? Beyond those mentioned above there are a number of smaller, unheard of Alberta-based companies that also have had great returns in 2002 and still have great future potential to continue realizing those gains.

Bison Resources Ltd. (BIS.A: TSXV), is a Calgary-based oil and gas exploration and development company with properties in Western Canada. Bison currently trades at $2, having appreciated 250% from $0.80 at the beginning of 2002. Even with these gains, the company still trades at a reasonable Price Earnings Multiple of 11.50. Bison’s average daily production for the nine months ended Sept. 30, 2002 was 775 boepd as compared to 452 boepd for the prior period. Production revenues, net of royalties, for this period was $5,578,914 compared to $2,914,074 for the prior period. Cash flow from operations increased to $4,161,298 ($0.39 per share), and net income increased to $1,819,594 ($0.17 per share) from $467,402 ($0.04 per share). With Bison’s growing production, revenues, and income, and with rising oil and gas prices, significant gains should continue.

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Computer Modelling Group Ltd. (CPU: SXV), a Calgary-based computer software and
consulting firm engaged in the development of reservoir simulation software, also beat the market by appreciating 100% from $1.00 at the beginning of 2002 to currently trade at $2. Still, the company trades at a low Price Earnings Multiple of 5.20, suggesting much more upside. The company recorded its most successful year in its five-year history as a public company, with revenues of $9.9 million, earnings of $2.4 million and cash flow from operations of $1.8 million. With rising revenues and profits and a normal course issuer bid to purchase up to 10% of the public float, the firm is modelled for future growth.

Winalta Inc. (WTA.A: TSXV), which produces manufactured homes, and related products, has appreciated 375% from $0.40 to $1.50 range. Even with these tremendous gains, the company still looks undervalued as it trades at a low Price Earnings Multiple of 6.10. For the nine months ended July 31, 2002, revenues increased to $46.9 million from $27.9 million with net earnings rising from under $0.5 million to $3.1 million. With rising revenues and profits and new projects under development, WTA.A is building up for continued growth.

Christopher Gulka , CA, CFA is the Prairie Trader. An avid investor, sometime day trader and painstaking researcher, as a financial writer, Gulka has proven his knack for identifying undervalued firms. He also publishes The Stock Manager , an investment newsletter for his corporate finance firm, Working Capital Corporation.

Prairie Trader is an independent overview and assessment of Alberta-based companies in the public markets that have investment potential. The author declares that he has no investment or business interest in any of the recommended companies described herein. Alberta Venture assumes no responsibility for the accuracy of any stock recommendations. You can reach Christopher Gulka at prairietrader@albertaventure.com or send feedback about this column to feedback@albertaventure.com.

 

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