What's simple is that I usually buy relatively good companies in out of favour sectors...
Saskatchewan Wheat Pool (Viterra) I bought for $5.67 when Wheat was at very low demand and it made sense that commodities would come back... Now wheat prices are at record highs, and SWP benefits from it. it currently trades over $13.27. what made them a buy for me was there interest in getting debt under control... much the same as what Abitibi is trying to accomplish.
Forestry is in the doldrums, and someday around the corner will return:
http://ca.news.finance.yahoo.com/s/0...ays-group.html
When this happens, I'm making the bet that Abitibi will still be around... with some companies, it really is that simple. even though it may be hard to look past the current state of the forestry industry where paper consumption, especially newsprint has declined so rapidly... and multiply that buy a slowing house building sector and whammmo!
but there are good things on ABH horizon:
-the company is restructuring to cut costs.
-If the company recovers, the upside is enormous.
The Canadian government might step in or pressure the banks to do it. The
proposed refinancing
(
http://biz.yahoo.com/cnw/080310/e_abitibbowater_debt.html?.v=1) might
prove successful. Some of the major owners, deep pocketed as they are,
might step in and bail out the company.
However, bankruptcy is also a very real possibility if the enterprise
cannot refinance. If that scenario occurs, there is a high probability
that shareholders will receive either nothing or next to nothing.
This play reminds of me of a previous venture into steel companies and airlines I did on my dad's advice a few years ago.
Unfortunately I was early in jumping in with Abitibi and had to absorb a nasty
beating. With the latter, my father and I might have been lucky choosing the right company and having a huge run. Eventually forestry will rebound and
prosper. But the nature of this game is that investing too late in a hot
sector or investing too early under frigid conditions can both leave a
burning sensation in investors´ pockets.
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