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Silver Wheaton Corp. (SLW), Ultra Petroleum Corp. (UPL): Out of Favor, Overlooked, and Misunderstood Gems

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Silver Wheaton Corp. (USA) (NYSE:SLW)Jim Roumell of Roumell Opportunistic Value Fund Institutional Class (MUTF:RAMSX) doesn’t look for stocks where everyone else does—there’s no edge in that. He keeps his eyes open for opportunistic investments that are out of favor, overlooked, and misunderstood. Today, he is seeing opportunities in Ultra Petroleum Corp. (NYSE:UPL), Aeropostale, Inc. (NYSE:ARO), and Sandstorm Metals and Energy Ltd (CVE:SND).

A New Fund With Deep Roots

Roumell Opportunistic Value Fund is a fairly young fund. Roumell and co-manager Ted Crawford, however, apply the same approach that Roumell has been using in his asset management business since 1998.

For starters, the duo only invest when they see opportunity. They are more than happy to sit on cash. Second, their approach can, and usually does, take them anywhere along the market cap and asset class spectrums.

More Than Just Ideas

Perhaps most important, however, is the penchant for looking where others aren’t. It’s an eclectic approach, to some degree, but one that unearths unique investment opportunities. However, just finding an idea doesn’t get a company in the portfolio.

Roumell and Crawford scour a company’s balance sheet, examine industry and company dynamics, and pay a visit to management. If everything checks out and there is a compelling reason to believe the security will appreciate, then it gets added.

Some examples will help explain the approach:

Ultra Petroleum

Watching the steep decline in natural gas prices, Roumell started to examine the sector. At first he bought the deeply discounted debt of gas companies, profitable trades that he has been closing out. However, he also rooted through the equity side of the industry, too, in search of a well capitalized, low-cost producer.

He found that gem in Ultra Petroleum Corp. (NYSE:UPL). Roumell likes the company because it has a long reserve life and boasts exceptionally low costs. In fact, the manager believes that Ultra can profitably drill for gas at price levels as low as around $3 per thousand cubic feet (Mcf). Natural gas recently traded above that level, but below the industry average cost of over $6 per Mcf.

While it’s nice that the company can make money even when others can’t, Roumell’s long-term conviction is backed by the out-of-favor nature of natural gas, too. For example, with gas at historic lows in the United States, utilities have been switching from coal to gas. Moreover, he sees a budding export industry on the horizon. These factors, among others, should help boost natural gas prices and support higher prices for Ultra’s shares.

Aeropostale

Crawford found Aeropostale, Inc. (NYSE:ARO) after a successful investment in competitor Abercrombie & Fitch Co. (NYSE:ANF). With that trade he noted that the industry space in which the company operated was dominated by just a few names. Moreover, investors tended to get carried away by both good results and bad, sending stock prices to extremes on both sides.

When Crawford saw that Abercrombie competitor Aeropostale was putting up weak same store sales numbers, he took a look at the shares. They were being punished. Meanwhile, Crawford notes that the company has no debt, has been buying back shares, and has had positive cash flow for the last decade. In other words, it has plenty of money to implement a turnaround.

To that end, Aeropostale, Inc. (NYSE:ARO) has been closing underperforming stores and investing in its supply chain. Both should help turn sales trends in a more positive direction. Additionally, the company has been investing in a children’s version of its stores that it expects to start positively contributing this year. And it is using licensing to profitably expand overseas.

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