Wednesday, 25 June 2014

WaterFurnace Renewable Energy - All's well that ends well

WaterFurnace (TSX: WFI) is being acquired by a Swedish company in the same business, bringing to an end the four-year holding that I posted about in 2010 when I first bought shares in WFI. Though WFI's price took a big jump up from recent $25 or so to about the $30.60 acquisition price, that has only made for an "ok" investment overall. As the Yahoo Finance chart shows, shortly after I bought it, WFI took a prolonged downward slide that it only recently has recovered. Compared to an market index ETF like iShares TSX Composite XIC, the ride has been a lot bumpier to get to pretty well the same place, though dividends are not included and that would put WFI ahead of XIC since its yield in 2010 was 3.5% while XIC's would have been 1% or so lower - thus 5 years x 1% = 5% more return for WFI bumping it slightly ahead of XIC. Anyhow it's a friendly acquisition so is almost sure to go ahead and thus is the end of the line for WFI.

Here are my takeaways from the experience:

  • Extreme patience is required and the only way to be able to exercise patience is to have some confidence in the on-going value of the company. The seemingly endless downward slide of WFI's stock price from 2010 through 2011, 2012 and 2013 didn't feel great. Stagnant actual company results didn't help much. In early 2013 when I posted after the release of 2012 results, it looked as though the stock price could only be worth $20 max. Regular in-coming dividends - WFI even increased its dividend during the downward slide of stock price - also help greatly to exercise patience. You are getting something back out of the investment. Funnily enough, WFI's recent business results haven't been inspiring enough to think significantly higher stock prices are justified so I am more than happy to sell my shares at $30. As Yogi Berra said, "It's never over till it's over".
  • You can still get sand-bagged by the unexpected no matter how good your due diligence. My MBA-style due diligence before purchase in 2010 was as good as I could make it, yet I still missed the one key factor that has been a severe drag on WFI's business performance (in addition to housing starts), namely the huge drop in natural gas prices and relative loss of attractiveness of ground source heat pumps for heating/cooling as a result of fracking. I'm still not sure whether WFI management didn't realize themselves the importance (incompetence), or just didn't want to tell shareholders (untruthful), but they sure didn't talk or write about it. On-going paranoia about what could go wrong seems to be a necessary attitude to maintain when investing in individual stocks.
  • A follow-on is that Socially-responsible environmentally-friendly companies are not necessarily the best-run. Managers missed the boat on natural gas prices and they have been increasing their pay much faster than performance would justify too.

1 comment:

Anne @ Money Propeller said...

Extreme patience is a difficult thing to have, especially after doing due diligence and wanting to pull the trigger!

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