Badger Daylighting (BDGI.TO)

This is in the business of building trucks that contractors use, both in energy and utility areas, for moving earth with high-pressure water. It is now more in the US than in Canada, and much more in utilities rather than energy. They’ve done all the right things, and are the biggest in the industry in North America. Their most recent quarter had a soft period in January, and a Short seller got a hold of this and publicized it, which knocked the stock down. This will be a “show me” stock until they report their next quarter in August. This is an opportunity.

This is the latest Canadian company that is the subject of a Short selling campaign, originating in California. He could never understand how they could build a competitive company in this kind of business.

Felt valuation was pretty high for a low-tech business. At the current price, in the mid-$20, if there is nothing wrong and if their earnings follow-through, then the stock has potential. However, the elevated risks would still bother him. We’ll find out more in the next few weeks, and if you are comfortable, the entry point might be decent.

The issue is that in 2014 the stock got all the way up to about 16 times book value. Then it fell from grace. Going forward people think it will only go back to there. Earnings didn’t support it back then and still don’t. There is not much momentum in earnings, so they are overvalued. He has no interest in it.

He is short this. They build and operate mobile hydro-vac trucks or excavations. They always had a competitive advantage in that they basically invented the hydro-vac truck space. Now though, anyone who can get financing, can effectively have one of these. They have had a very large number of executives leave over the last couple of years. He also feels they have the potential to be harmed by a border adjustment tax, as they manufacture in Alberta and ship into the US.

They continue to move more and more of their business down into the US, and the stock has done really well. They are starting to see a pickup in the number of trucks they are building. If we see a ramp up in the infrastructure in the US, that would probably really help this company.

It is not an everyday stock. They use high pressure water to move earth. They used to be mostly in the energy area and then moved into the utility area. Recently they moved into the US. People still treat them as a Canadian energy company, but 2/3rds of their business is from the US and 3/4ths comes from non-energy. Earnings continue to grow and they raised the divided recently. (Analysts’ target: $35.00)

This is not a bad business, and if you believe in a large fiscal stimulus structure spend in North America, this company would stand to benefit. He would rather own something in the engineering space.

Great story and a well-run company. If you think about all the trends that are happening with oil and infrastructure spending, it is hard to say that this company is not going to be pretty active. They definitely have the fundamentals to back them. The problem he has always had is that they always trade at very lofty valuations. Part of that is because of ROC that they make from their truck. He looks around and sees a lot of trucks that are not theirs. They don’t have a high barrier to entry like they used to. Prefers other names, but wouldn’t be too worried given the turnaround, and there is more room for multiple expansion.

He shorted it in October and since then has covered it. They used to have a large emphasis on oil and gas. It is not a bad name to own if you think infrastructure spending will work out, but he does not.

(A Top Pick Nov 27/15. Up 37.07%.) Excavation by hydraulics. In recent years, it has been moving into the US. They are the biggest in the business. Has moved significantly away from energy and into excavation for municipalities, pipeline companies, and electric utilities, etc.

(A Top Pick Nov 6/15. Up 60.93%.) They use high-powered water to excavate. It has had a great run, and he has trimmed at around $25. He still likes this. If crude prices continue to edge higher, it will be even more beneficial.

Oil and gas activity is only about 40% of their business. That 40% should probably grow because we are seeing more activity. Their construction business is pretty steady at this stage. Also, there is a different angle on this. There is a massive Short position with 37 million shares outstanding, and 10 million of them are sold Short. Every day that the stock goes up, there is more agony for them. There are not a lot of Sellers, because it is very institutionally held. Dividend yield of 1.23%. With any luck, the stock could go to $40. (Analysts’ price target is $31.74.)

(Top Pick Aug 22/16, Up 9.12%) He sold out at these prices after a big move. It is a really well run company but has just gone through a CEO transition. A recent article in the media was a bit narrow minded. He took a bit of a pause.

He likes the scalability of this. It is a business where you could continue to buy hydro-vac trucks, put them into the market and grow the business organically. However, the oil/gas problems happened in Canada, and they had a bunch of trucks allocated to that part of the market. They had to repatriate those into the US, where they are starting to see that business pick up. A very good business and a long-term hold. The balance sheet and the sector look good.