-- Posted Thursday, 11 February 2010 | | Source: GoldSeek.com
For environmental, financial and political reasons—not to mention to satisfy an energy-hungry world—Northern Border Capital Management founder Chris Potter sees some interesting opportunities for investors in alternative fuels on the horizon. One of his picks is a company using plasma gasification technology to produce clean-burning fuels. In this exclusive Energy Report interview, Chris also explains why he's bullish on natural gas. Politically incorrect though natural gas may be, he isn't overly worried about North America's abundant supply finding a home. Agribusiness is yet another arena that appeals to Chris, from the potential for domestic potash production for Brazil's huge agricultural sector to the extraction of protein from canola seeds to help feed the planet's growing population.
The Energy Report: You focus on small-cap resource companies based in Canada. How did you come to specialize in that?
Chris Potter: I focus on Canada because the market there is less efficient. In general, I like to find companies that have small share structures, where there is a world-class product or asset, where management owns a lot of the stock and where there's a compelling valuation. In my experience there are more opportunities in Canada that possess all of those characteristics. In the resource sector I like the exploration companies and early-stage producers because if you pick the right ones, you get a lot more leverage to rising commodity prices than you do with the larger companies.
TER: As I understand it, you consider the Canadian market somewhat less efficient than the U.S. market, thus making it easier to uncover attractively valued companies. What do you think accounts for the discrepancy, and is it specific to small caps or also true of large caps?
CP: It's really true of both large caps and small but it's not a permanent discrepancy. It's more of a lag. What I mean is that U.S. investors take a lot longer to recognize and buy high-quality Canadian companies than U.S.-listed ones. I used to be concerned that this lag would somehow be arbitraged away, but I've been doing this now for 12 or 13 years, and it has not.
There are a lot of reasons behind that. For one thing, there seems to be an apathy or ignorance on the part of U.S. investors about almost everything Canadian. There's also a perception that the Canadian securities laws are lax, that its investment community is run by mining promoters, and that U.S. investors won't get a fair shake up there. While there are certainly landmines to look out for when investing in Canada, they are no more dangerous than those in the U.S.
To characterize the entire Canadian investment scene as corrupt because of parts of the Vancouver mining community and the Bre-X Scandal in the late '90s is just silly and ignores the fact that the U.S. has had plenty of its own investment scandals such as a banking system that perpetrated the greatest financial fraud in history this past decade.
But I can't tell you all of the reasons for the valuation lag that I continue to see between U.S. and Canadian companies.
TER: You just know it's there. You've been very positive on gold and precious metals. What other sectors do you think will do well for investors over the next couple of years?
CP: I think that many areas of alternative energy will do well. That does not mean that all the alternative energy companies whose stocks go up will be developing worthwhile, commercial products or resources. On the contrary, I suspect that many of them will end up being duds. It's just that coal, oil and even natural gas have become so politically incorrect that the amount of money that will get thrown at the alternative energy sector will make most of those stocks go up, for a while at least.
I expect to see opportunities in the natural gas sector, too. Even though it's not a politically correct fuel, I don't see how it won't take a greater share of the North American energy market going forward. What other fuel combines abundant availability and low production costs with an emissions profile that is palatable to even hard core environmentalists? As coal and oil get squeezed out on the margin I'm guessing natural gas will fill much of that gap. There is a lot of bearishness surrounding the massive increase in North America's natural gas supply coming from shale plays. While I agree that shale gas supply will make it difficult for us to see sustainable double-digit gas prices for many years to come, the positive developments on the demand side that I just described can keep gas prices in the $5 to $7 range and there are a lot of gas explorers and producers that will do very well in that kind of price environment.
I also think we'll continue to see lots of opportunity is the agricultural sector. This is for the reasons that we all know about—emerging market population migration, improvements in diet, a greater focus on investing in fertilizers and other crop inputs.
Christopher K. Potter is the principal of Northern Border Capital Management, Inc., a Canadian-focused firm that he founded in 2002. A 1987 graduate of Hamilton College in Clinton, NY—which earned a place on U.S. News & World Report's "Best Colleges 2010" list of Tier 1 liberal arts institutions— in 1988 he went to work for Preferred Utilities Manufacturing Corp., a leading combustion equipment design firm. By the time he left to study for his MBA at Columbia University, Chris was managing Preferred Utilities' New York office. After being awarded his master's degree, he joined Ten Squared L.P., a hedge fund focused on North American publicly traded securities. He was an investment analyst with the fund from 1996 until 1999 and the co-portfolio manager from 1999 until 2001. It was his last three years at Ten Squared, when he developed and managed the fund's Canadian investment business, that led Chris to found Northern Border Capital Management, Inc.
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-- Posted Thursday, 11 February 2010 | Digg This Article
| Source: GoldSeek.com
