What really matters is that corporations are flush with cash which should allow more capitalspending and employment. And increased share buy-backs, dividends and merger andacquisition activity. And what really matters is that, in terms of protecting purchasing power,stocks are safer than bonds.With earnings right back to their long-term trend line and at all-time highs, the S&P 500 isselling at a 15% discount to our Fair Market Value. Yet, bonds, with paltry yields, remainfavoured by U.S. households and pension funds over equities, so equity allocations are atmulti-year lows. The stock market will be propelled higher by the mountain of cash on thesidelines as the overwhelming fear ultimately abates.We think now is an extraordinarily good time to invest. The large-cap indexes areundervalued. Stocks today are, by far, the preferred asset class compared to bonds and cash.
Our TRAC™ and TRIM™ work are positive—
a number of markets and sectors appear to haveinflected up from key support levels. And, most important, risk-reward parameters for ourindividual holdings are so highly favourable.
These Stocks Matter
Our current portfolio holdings are below-average risk
that is, the likelihood of permanentimpairment in those securities is minimal, if at all. Even in our downside analysis we forecastgains.We always look for stocks that are mispriced from being misunderstood or unknown. But inthis correction smaller-cap holdings such as ours appear to be unwanted mostly becausenervous investors prefer the perceived safety of cash. To boot, our four largest holdings hadannouncements in the quarter which led to short-term concerns about the companies. In ourview, these were all temporary issues in those companies which all have below-average risk and significant upside potential. And, inasmuch as our targets have not changed, their currentupside is even higher than at the start of the quarter.
declined after Apache, its joint venture partner for its shale gasdevelopment, elected not to proceed with a second stage following poor results from twohorizontal exploratory wells. Corridor believes the wells were drilled incorrectly and the
partner’s withdrawal did not alter our appraisal of the company. Corridor now intends to
proceed with a pilot project of its own with drilling commencing late this year.We expect Corridor, with or without a new partner, to commercialize the Frederick Brook shaleproject. The size of the prize is enormous and should attract lots of interested parties. And,
given the market’s reaction, it seems to be overlooking the fact that Corridor’s first
targetedshale well, its G-41 well, which Corridor itself drilled vertically, had excellent results. If theinitial flow rates from subsequent Frederick Brook wells are less than half of G-41, and even if gas prices remain depressed, the p
economics are still adequate. Also, both wells drilledby Apache encountered strong gas shows while
drilling. Meanwhile, the company’s reservevalue is in line with the current share price, so we’re getting this project
, and the othersignificant potential of Corridor, free.