2017 was a crazy year. The S&P500 index has been on a tear the last 8 years. And 2017 wasn’t any different. The market ended the year up 19.41%. For the last 9 years, the index has been averaging 14.13% annual. Historically the index has returned approximately 10% annual since 1928 to 2014. So the last 9 years have been extremely bullish. We don’t expect the index to give this type of return going forward but with the low interest rates and herd mentality, I don’t expect things to correct anytime soon.
My portfolio returned 139.91% in 2017. The year was largely impacted by 5 very large returns. The knew these companies were cheap but we didn’t expect this type of return in a short time period. The big winners were HemaCare (215% return), Bewhere Holdings (300%), Petro River Oil (268%), Total Telcom (110%), and Valeura Energy (253%). Out of these 5 holdings, we sold out of all except Valeura.
We ended the year with 3 position on our portfolio. We sold out of all other positions as I believe these 3 positions have huge upside potential in 2017. It was hard selling some of our holdings (HemaCare and Schmitt) but I think the current positions have huge short-term catalyst.
Valeura Energy (VLE): This is our biggest position. The company’s first test well with the Statoil partnership has been a success. The results from the well are much better than management had expected. The market rewarded the stock price by moving it up more than 7x in the last 2 months. But I think this is just the beginning. The main reason is institutions still haven’t started buying up the shares. Also even after the 7x run-up, the company is still valued very cheaply. The company will have a resource update in late January, which should be a major catalyst to get other aware of the company and the asset they own. I think the most likely outcome for this company is a buyout and it is likely to happen in 2018.
Unidentified company #1: This is a company that we became aware of by looking at insider buys. It is very rare that I see the type of buying from the CEO that I saw for this company. After digging around on the company, I initially didn’t find much that would shed a light on why the CEO is buying. But then following the press releases the company put out it started to become clear the company has some special assets that is making the insider buy. Digging around online it is easy to see which asset it is. This is a sub-$6M market cap company with an asset that is likely worth in the billions. From the press releases it seems clear the company is likely to sell these assets. Again we see this as a short-term catalyst that should have great rewards for shareholders.
Grande West Transportation (BUS): This company I’ve followed for the last 2 years. I knew the story but never got that excited by the valuation. But in late 2017, I noticed couple of things that lined up perfectly and made me build an initial position. The insider buying on this one is huge. Over a year ago, insiders had buying when it was selling at fraction of the current price. Even after going up multiples, insiders didn’t stop buying. The constant insider buying and that too multiple different directors, made it very appealing. The company also has been a huge success in Canada and has recently entered US market. The upside from the US market is huge and they have the right product to win this market. If successful, the company can easily be worth multiples. Also I expect the orders from US to start coming in early 2018. Finally, in late 2017 the stock dropped from $3.45 to $2. This created a great opportunity to start a position. (Recently I sold out of BUS. I wanted the capital to allocate to VLE due to the recent pull back in VLE).
Although I’m concentrated in 2 plays (VLE and Unidentified #1), I feel that the risk is extremely low that I can lose. I think both of these companies are extremely cheap and once the market becomes aware of what is happening, the stock will be worth multiples. Also, I think the catalyst is in place for the market to wake up in early 2018. I feel like the biggest risk is me doing something stupid, like selling too early. Although 2017 has been good, I think 2018 is likely to be even better.