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NorthwesTel Is Calling

June 21, 2013

Drama. NorthwesTel is the only trunk-line telecommunications supplier North of the 60th parallel and it is owned by Bell Canada summarizing a history that begins in 1901 and the connection of the Yukon Telegraph line to Dawson City and Vancouver.

North of the 60th Parallel

North of the 60th Parallel
Courtesy: The Economist

In our view, the “problems” of developing these vast territories for habitation and industry are not so much technical – for which we have all kinds of technology and engineering not even imagined 100 years ago – but economic within which we include not only money and investment, but regulatory, environmental, governance, and sovereignty issues for which there continues to be dissatisfaction among both the new (last 100 years) and the old (last 10,000 years) inhabitants (CBC, June 21, 2013, NorthwesTel slammed at CRTC hearings in Whitehorse).

We’re thinking about this because investors are flummoxed by The Great Rotation on hold, and they don’t know what to do with their money (The Street, June 20, 2013, Cramer: Neutral Is Cool). We’re suggesting that they invest it and buy some of our stocks which pay dividends and aren’t getting any cheaper with reasonable management of the portfolio.

Exhibit 1: The Wall Street Put – March through June 2013

The Wall Street Put - March Through June 2013

The Wall Street Put – March Through June 2013

The portfolio has hardly changed; there was some stop/loss selling but all of those companies are still (B) and so we bought them back at lower prices. The only company that is no longer in the portfolio is Primaris Retail REIT which was sold to KingSett et al.

(Please Click on the Chart to make it larger if required.)

And then, of course, there are all kinds of specialty portfolios such as The Dow Transports, Black Gold in the Canadian Oil Patch, Extraterrestrial Funds (ETFs) in the golds, and dozens of situations and ( B)(N)-Companies (such as (B)(N) CCO Cameco Corporation) they we like to look at.

For example, BCE Incorporated, which owns Bell Canada and therefore also the aforementioned NorthwesTel, is currently trading at a discount and paying a current dividend of $0.583 per share per quarter for a total of $1.8 billion expected this year and an incredible yield of 5.4%.

But you can’t buy it from us because it’s still trading above the price of risk and it’s been in our portfolio, the Perpetual Bond™, since much lower prices of $20 more than three years ago. Please see Exhibit 1 below, Red Line Stock Price (SP) above the Black Line Risk Price (SF) and for no other reason.

Our estimate of the downside in the stock price due to the demonstrated volatility is minus ($2.50) and although we can afford the stop/loss as $40 we can also buy the August put at $43 for $0.70 per share today and sell an offsetting call at $45 for $0.50 so that for the cost of holding the stock at $43 and the collar at $0.20 per share ($0.70 less $0.50), we can hold the stock between $43 and $45 for the next few months and collect our dividends until Wall Street gets back from their vacation.

Exhibit 2: (B)(N) BCE BCE Incorporated – Risk Price Chart

(B)(N) BCE BCE Incorporated

(B)(N) BCE BCE Incorporated

BCE Incorporated provides suite of broadband communication services to residential and business customers in Canada.

(Please Click on the Chart to make it larger if required.)

From the Company: BCE Incorporated provides communications solutions to residential, business, and wholesale customers primarily in Canada. The company offers local and long distance telephone services under the Bell Home Phone brand; direct-to-home satellite television (TV) services under the Bell TV name; Internet protocol TV services under the Bell Fibe TV brand; and personal video recorders and online access services. It also provides data services, including Internet access services under the Bell Internet name; Internet protocol based services; and information and communications technology solutions. In addition, the company engages in the rental, sale, and maintenance of business terminal equipment; sale of TV set-top boxes; and provision of network installation and maintenance services for third parties. Further, it offers wireless voice and data communications products and services, such as call display and voicemail, e-mail, Web browsing, social networking, text, picture and video messaging, music downloads, ring tunes, ringtones, games and applications, video streaming, live TV, mobile Internet, roaming, and global positioning system navigation services under the Bell and Virgin Mobile brands. Additionally, the company provides media services comprising TV programming services to broadcast distributors. It operates approximately 28 conventional over-the-air stations and 30 English and French-language specialty TV channels; 33 FM and AM radio stations and their related Websites; and Theloop.ca Website. As of December 31, 2012, the company served approximately 2.1 million high-speed Internet access customers through fiber-optic, digital subscriber line, or wireless broadband technology; and 7.7 million wireless customers. BCE Incorporated offers its services through call centre representatives, independent dealer stores, and value-added resellers, as well as through its Websites. The company was founded in 1880, has 56,000 employees,  and is headquartered in Verdun, Canada.

The Price of Risk

The calculated Risk Price (SF) is a provably effective estimate of the “price of risk” which is “the least stock price at which the company is likeable” (Goetze 2006) and “likeability” is determined by the demonstrated factors of “risk aversion” – we want to keep our money and obtain a hopeful return above the rate of inflation – and the properties of portfolios of such stocks. Stock prices that are less than the price of risk can be said to be “bargain prices” but with the risk attached that the company might never get a higher price other than that due to ambient volatility or “surprise”; on the other hand, investors who are willing to pay the “full price” above the price of risk, and buy and hold the stock at those prices, must also be confident, and have reason to believe, that the company will produce those values, absent new information.

Please see our Posts, The Price of Risk, August 2012 and The Nash Equilibrium & Its Stock Price, October 2012, for more information on the theory.

To see what else “risk averse” investing can do for us, please see our recent Posts, The Wall Street Put, April 2013, and earlier Posts such as The Dow Transports, March 2013, or The Risk Adjusted Dow, March 2013, or The Canada Pension Bond, February 2013, and for a more colorful description of investment risk and the application of the “price of risk” to mergers & acquisitions, please see our Post, Bystanders & Collateral Damage, April 2013.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™“
Alpha-smart with 100% Capital Safety and 100% Liquidity”
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.Disclaimer Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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