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Introducing The Tech-Focused Home Run Fund

This is a new portfolio project I’m working on targeting high-growth names in areas of the market I don’t typically invest in. Capital gains are the goal here, as opposed to my usual pursuit of income. I’m using this project to expand my investing horizons. This project started last Friday. Since then I’ve made 7 purchases worth roughly 21% of the fund’s starting value. I am pleased to introduce a new project I’ve started working on, a model portfolio that I’m in the process of building that I’ll call The Home Run Fund . This “fund” is a hypothetical portfolio that I manage and update in real-time focused around “owning” more high risk/high reward, speculative, momentum-driven, exciting companies in search of Alpha with a more short-term, trader-oriented mindset. I wonder sometimes how many other more traditional, conservative, buy and hold type dividend growth investors frequent other areas of this site – window shopping? I’m talking about technology, entertainment, media, biotech and the like that offer much higher growth potential than the typical blue chip, dividend aristocrat type companies that DGI portfolios are usually comprised of. These sections of Seeking Alpha are ones that I frequent as a reader, but don’t often contribute to as a writer. With the creation of this model portfolio series, I hope to change this. In my personal portfolios, I’m very satisfied chocking up on the bat, shortening my stroke, and hitting for average (and collecting those dividends). However, in this portfolio project I will be swinging for the fences. If you can’t tell, I’m a baseball fan. So, there we have it: The Home Run Fund . If you already follow me here , by now you have a pretty good idea about my investment philosophies and stock picking strategy. For those of you who aren’t as familiar with my work on Seeking Alpha, in the most basic sense, I would describe myself as a conservative dividend growth investor with a mind to buy and hold because of my very long-term investment horizon. I have exposure to some of these generally more risky sectors and industries in my personal portfolios; however, for the most part this exposure comes in the form of mature, mega/large cap “legacy” type companies. I focus on wide moats. I focus on strong, reliable cash flows and balance sheet health. More than anything, I am risk averse with capital preservation existing right at the top of my priority list alongside dividend growth. This sort of investing strategy has led to success for me, though I admit it can be lacking in the excitement department. Now obviously, excitement isn’t the name of the game when it comes to investing, making money is. However, I don’t think the two have to be mutually exclusive. This series will allow me to delve into a more risk-laden area of the market, a journey I am pleased to embark on because oftentimes, when it comes to the portfolio guidelines I’ve laid out for myself with regard to capital preservation and a conservative focus on value rather than growth, I find myself having to suppress urges to join in on the fun, exposing myself to some of the popular market darling stocks and their highly speculative valuations. I am not a professional in the financial industry. I manage a vineyard and work as a real estate agent. Portfolio management is a passion of mine; it’s rare that I make it through a day now without wishing that I had studied finance at the university level rather than English and Studio Art. Don’t get me wrong, I loved my time at the University of Virginia and the liberal arts education that I pursued. However, the degrees that I earned don’t qualify me to work in the industry that I currently love – it wasn’t until after graduation that I discovered the stock market and began managing money seriously. I say all of this for several reasons. First, to tamper down any unrealistic expectations. Although I plan on making more speculative bets that will lead to exorbitant gains in this portfolio comprised of hypothetical money, no one should be following my advice here as I admit wholeheartedly that I am a newbie when it comes to investing in high growth/non-dividend paying names. Taking this notion a step forward, no one should ever blindly follow me into or out of any trade; feel free to critique me, laugh at me, or learn with me, but don’t follow my lead without doing your own due diligence. This leads me to the second reason I highlighted my amateur status: to really highlight the point of this series and The Home Run Fund , which is, of course, education. Everything that I write related to finance is for educational purposes. Organizing my thoughts and putting them down onto paper forces me to look for weak spots in my ideas, for holes in my arguments. And once an article in completed, any comments that the piece inspires go on to further magnify my convictions and concerns, allowing me (and hopefully others as well) to take a step back and really digest the information, erasing doubts, and strengthening beliefs about stock picks and the evaluation process. I was recently at a real estate conference and something that a speaker said really stuck with me. The man, talking about being intentional as a salesman said, “If you aren’t uncomfortable, you probably aren’t making real money.” Obviously portfolio management is a bit different than building spheres of influence and making strong sales pitches; however, I do think that it is important for all investors, regardless of management philosophy, to be willing to push his or her boundaries, to make his or her self uncomfortable, all in pursuit of broadened experience and increased knowledge. Like I said before, I sometimes consider making investments in the more speculative names that I will be focusing on in this series in my actual portfolios, though I resist temptation knowing that I don’t likely have the intestinal fortitude required to cope with inherent volatility that comes along with these sorts of investments. Many of the more popular, growth-oriented, momentum-fueled stocks that I plan on targeting within The Home Run Fund have been on my wish list for years. Because of the discipline that I maintain in my personal portfolios and my prioritization of capital preservation, I simply don’t allow myself to invest in these stocks due to rich valuations no matter how much I respect, and even love, the companies themselves. However, looking back I have often regretted this conservative mindset when in hindsight I see that my target prices would have been attractive entry points, eventually leading to big-time gains. I wouldn’t exactly call my reflections on these missed opportunities regret, because I know very well why I didn’t invest in those companies in the first place (they simply didn’t fit into my portfolio’s plan); however, I do think that if I can prove a positive trend with regard to my ability to target attractive entries in less predictable, more volatile names, I would be more willing to put my capital at risk in the markets knowing that my system has proven to be successful in real time and warrants investment attention. To me, experiential knowledge is the best kind. The emotional responses to success and failure leave a much bigger impact and stick with me much longer than most academic study. In other words, “feeling” a loss or gain is much more tangible than simply reading about one or the other. This project will enable me to experience these feelings to a certain extent without putting my capital at risk in the markets. The real-time nature of this portfolio project will help me dial in my evaluation system in areas of the market that are rather foreign to me. Doing it this way should be more effective than simply back testing ideas. Although this “Fund” will be hypothetical, you can rest assured that I will be performing the same level of due diligence when making selections for this portfolio as I do my own. I am too competitive and (shamefully) prideful not to. I want positive results here; I want to prove to myself that I am just as capable of management success in a more speculative environment as I am when really crunching the numbers and patiently waiting for safety margins to widen in the blue chip dividend names. I hope that you all will take this ride with me; with any luck, it’ll be an enjoyable experience for all involved. As always, I look forward to your feedback (probably more so now than ever, because I’ll be dealing with trades in this portfolio that are undoubtedly out of my comfort zone). So, without further adieu, let me introduce the basic ground rules and strategic guidelines for this project: I will be giving myself $100,000 hypothetical dollars to build this portfolio. There will be no new cash added throughout the process. The primary goal of this portfolio is capital appreciation. Unlike my actual portfolios, income will not play a large role in stock selection. All income generated within the portfolio will be pooled in with the cash reserves fund and put to work when making future purchases. I will be comparing this portfolio to all relevant benchmarks in pursuit of Alpha. Unlike my personal portfolios, here I will be focusing more on small/mid cap companies. I will be “buying”, “selling”, and “short-selling” individual stocks or bonds. I will not be using option strategies in this portfolio. I will also not own mutual funds, index funds, close ended funds, exchange traded notes, or the like. I will give myself 30 free trades a month for this fund (the same deal I get at my brokerage); although I doubt I will ever exceed that amount, any trades above the 30 trade threshold will cost $7.99. I say I don’t plan on exceeding that number of trades because I plan on this portfolio being much more highly concentrated than my own. I don’t have set in stone targets with regard to number of holdings or asset allocation. I would like to maintain between 10 and 15 holdings (much less than the 50+ I own in my actual portfolio), though this is subject to change depending on price action and opportunities that arise in the markets. There will be no weighting or section allocation targets within the fund. Being a value investor at heart, I will be looking to capitalize on contrarian moves, more willing to take risks and attempt to catch falling knives here than I am within my actual portfolios. Similar to the portfolios I currently manage I will be looking to own companies with wide competitive moats. However, in The Home Run Fund I will also happily expose myself to companies with very narrow moats assuming that they offer a product or service that I deem to be by and large the best in breed in their industry. I will also be looking to give myself exposure to long-term trends that I believe strongly in. I do this in my actual portfolios as well, though value plays a bigger role than my belief in a trend. In this portfolio I will look past valuations when I truly believe in a movement, especially if it’s expected to play out in the short-term. And lastly, and probably most importantly for this project, I will do my best to check my fear of failure at the door when entering the confines of The Home Run Fund . This fear and reluctance to put my capital at risk has caused me to lose out on potentially lucrative opportunities in the past. I already manage a relatively conservative portfolio, that isn’t the point with this one. I began making purchases for The Home Run Fund last Friday during regular market hours. Just as I did with these purchases, I will be posting stock talks here at SA focused on each purchase/sale. This allows for transparency when it comes to my entry and exit prices. It also allows anyone interested to keep track of moves made by the “fund” in real time giving me time to write and publish detailed trade summaries. Here are the trades I’ve made thus far and a quick snapshot of the portfolio as it sits today. I will briefly describe my reasoning for each selection in this piece, but for the sake of word count, I will be posting primary ticker pieces on each trade made as well, covering my thought process involved in much greater detail later. Starting out the Fund purchasing shares of Alphabet (NASDAQ: GOOGL ) (NASDAQ: GOOG ) and Amazon (NASDAQ: AMZN ) was a relatively easy choice. It’s too bad that I waited until after their recent stellar earnings reports to begin this project. If I had started this a week ago I would have saved a nice chunk of change on these two trades. However, I couldn’t deny myself exposure to these two transformative companies. I think that any portfolio focused on growth should seriously consider holding these two names. Both companies have expanded their business operations to the point that they have their fingers in a myriad of potentially highly profitable cookie jars. I’ve been following both Google and Amazon for some time now and never allowed myself to pull the trigger due to their valuations and lack of dividend payments. Well, even though I’d obviously love to pick up shares here on dips, I decided it was best to simply bite the bullet and initiate positions regardless of current valuations because of the massive growth prospects both companies offer. (click to enlarge) Biogen (NASDAQ: BIIB ) is a company that caught my eye due to recent weakness in the biotech space. Unlike many of its brethren in the Nasdaq Biotech ETF (NASDAQ: IBB ), Biogen is a highly profitable company. Sure, recent question marks have arose that are company specific, but for the most part I think this company has traded down because of industry wide fears sparked in part by politicians posturing on price gouging and drug prices. Even if recent events in the space lead to a restructuring of the pricing models, I simply don’t believe that any changes will be impactful enough to justify the sort of selloff that BIIB has experienced as of late. Also, I am interested in the massive potential that BIIB’s pipeline could have in store, namely in the treatment Alzheimer’s disease, something that has been very difficult and elusive for biotechs thus far. Whole Foods Market (NASDAQ: WFM ) is a company that I own in my personal portfolio. I actually increased my own position by 15% at this $30.75 share price. I love what this company represents. I think the health foods movement is a long-term trend, not a fad. I think science is increasingly pointing towards the fact that humans should be consuming more natural, less processed foods. And, not only this, but I love the experience that WFM stores offer. Shopping there is a pleasure (albeit a relatively more expensive one). I understand that comps are slowing, but I think that store count growth will offset this. I also think that after recent weakness in the health food-focused grocer industry, M&A activity will pick up in the space and WFM could benefit from this, as either an acquirer or an aquiree. I like Blue Buffalo Pet Products (NASDAQ: BUFF ) for many of the same reasons that I like WFM. Just as I think the health foods movement is real and will be long lasting, I think the humanization trend with people and their pets is real as well. I think wholesome, natural pet food products will continue to gain market share within the pet food industry and BUFF is best situated to benefit from this. I like BUFF as a pure play in the space rather than the other larger conglomerate type companies that offer wholesome natural pet foods as a very small part of their overall operations. This company has fallen hard since its unfortunately timed IPO in late July. Shares initiated trading in the $27 range and now $10 cheaper, I find the value much more attractive. GoPro (GRPO) and Ambarella (NASDAQ: AMBA ) trades were announced together because I view both positions in a similar light. First, looking at GoPro I see a company with a best in breed type product that comes with a lot of fanfare. The cameras that this company makes are top notch and I don’t see it losing its spot at the top of the wearable camera space anytime soon. I also wouldn’t be surprised to see GoPro transition into the media space with some of the unique content that its hardware can create. It already has relationships with many of the biggest media and entertainment companies. Original content seems to be all the rage these days and I think as GoPro matures (if it isn’t bought out before then), it will head in this direction. AMBA makes chips for GoPro, though I see this as a more general play on this industry, as well at the drone space, which AMBA has made strides in. With the holiday season coming up, I think we may be in for another GoPro Christmas. Also, I wouldn’t be surprised if drones are one of the more popular presents purchased this year (and in subsequent years as well). Both companies have experienced major weakness over the last several months, bringing their valuations down to much more attractive levels. I know that I’m attempting to catch falling knives here but I think over the long-term I will be rewarded. Here is a snap shot of what the portfolio looks like currently. (click to enlarge) Like I said before, I hope that we’re all able to take something away from this project and put it to use in our own portfolio management practices. I hope you enjoyed this introduction and look forward to all of The Home Run Fund pieces on the way. Please feel free to leave advice, recommendations, or critiques in the comment sections as we move forward. Best of luck all!

TransAlta: Environmental Regulations And Cheap Crude Make For A Perfect Storm

Summary TransAlta’s share price has fallen sharply over the last six months in response to the return of cheap petroleum and the election of pro-environment governments in Alberta and Canada. Planned and unplanned downtime in Q2 prevented the company from taking full advantage of hot temperatures in Canada, resulting in a large earnings miss for the quarter. Looking ahead, the company is faced with the prospect of either converting its existing coal facilities to natural gas or writing off a large amount of relatively young assets. While a large forward yield could catch the eye of dividend investors, the company’s outlook is too negative to be an attractive long investment opportunity at this time. Author’s note: This article refers to a Canadian company and all dollar figures represent Canadian dollars unless otherwise stated. The share price of Canadian electricity generator TransAlta Corporation (NYSE: TAC ) has plummeted in 2015 to date as the prices of natural gas and petroleum have halved and regulatory concerns have mounted in its primary markets. This volatility has only increased over the last week in the wake of Canadian voters bringing the country’s pro-environment Liberal party to power in national elections and a rumored buyout attempt, although the company’s shares have rebounded by 27% over the last four weeks. This article evaluates TransAlta as a potential long investment opportunity in light of this uncertainty. TransAlta at a glance TransAlta owns and operates power plants in Canada, the United States, and Australia. Owning more than $9 million in assets, including more than 5,200 MW of generating capacity in the Canadian province of Alberta alone, the company utilizes a diverse mix of coal, natural gas, wind, and hydro to generate electricity that is then sold to nearby electric utilities via power purchase agreements. TransAlta is heavily reliant on coal despite this diversity, however, owning 4,931 MW of coal-fired capacity, 88% of which is contracted out for an average period of 5.5 years. This capacity has an average age of 17 years, making it relatively young given that coal-fired capacity can remain operational for up to 50 years. Another 1,447 MW of TransAlta’s capacity relies on natural gas, of which 95% is contracted out for an average period of 10.9 years. The company also utilizes 1,271 MW of wind power, 65% of which is contracted for an average of 10 years; and 914 MW of hydro, 96% of which is contracted for an average of 5.3 years. While electricity generation operations provide the majority of the company’s earnings, it also operates an energy trading division that has historically generated roughly $50 million in annual EBITDA. TransAlta has reported steady annual EBITDA growth since FY 2009, including 6% annually since FY 2012. This growth has been made possible primarily due to its heavy exposure to Alberta, which has been home to rapid economic and construction growth in recent years due to its large reserves of unconventional petroleum in the form of oil shale and tar sands. In addition to being substantially more energy intensive than conventional petroleum extraction, Alberta’s unconventional reserves became the subject of heavy demand in the early years of the current decade as rising energy prices made their extraction commercially attractive. This set off a resource boom in the province that in turn led to population growth, demand for new housing, and ultimately higher electricity demand. Unfortunately for TransAlta’s shareholders, electricity generators responded to this demand with a sharp increase in supply. Oversupply in Alberta was the ultimate result, leading to lower electricity prices. FY 2010 and FY 2011 proved to be the high points for the company’s annual revenue and EBITDA results, respectively, although both have also rebounded from their FY 2012 lows. It was on the verge of returning to its pre-glut earnings level in FY 2014 when petroleum prices swooned, making the extraction of Alberta’s unconventional petroleum reserves unattractive. The province’s economy has reversed course and the construction industry has faltered, further increasing its electricity glut and hurting electricity prices. TransAlta has responded to the poor situation in Alberta by diversifying its operations in terms of both geography and fuel mix. It has expanded its capacity in Australia, building 1,000 MW of new natural gas-fired generating capacity and acquiring 136 MW of existing renewable capacity. Recognizing its heavy exposure to the North American coal market, however, with North American coal generating capacity contributing 45% of its Q2 2015 consolidated EBITDA and Canadian coal contributing 39%, the company is also moving forward with an effort to expand its share of Alberta’s generation market from 11% currently to 30% by 2021. Perhaps the most important development, however, is TransAlta’s 2013 decision to form a subsidiary focused on renewable generation, the aptly-named TransAlta Renewables (OTC: TRSWF ). In May, TransAlta dropped down $1 billion in Australian assets to its subsidiary in exchange for $217 million in proceeds, which it used to reduce its debt load, and a post-transaction ownership interest of 76%. The subsidiary’s focus on renewable generation assets provides it with a number of advantages over TransAlta, including attractive financing rates and lengthy contracts as Canada’s government incentivizes the move away from fossil fuels to renewable energy. TransAlta, in turn, intends to use TransAlta Renewable’s distributions (it has a forward yield of 9.3% at the time of writing) to provide it with the cash flow necessary to finance its own debt and future capex. TransAlta Renewable will play an important role in TransAlta’s ability to meet its target of $50 million annual EBITDA growth and 8-10% annual shareholder return moving forward, the latter being something that it hasn’t achieved since FY 2011. Q2 earnings report TransAlta reported Q2 earnings that demonstrated the negative effects of its exposure to the North American coal markets and Alberta’s unconventional petroleum market. Revenue came in at $438 million (see figure), down by 10.8% YoY, as availability at its generating facilities declined from 85.4% to 80.9% over the same period (8,820 GWh generated versus 9,283 GWh YoY). The revenue decline came despite an increase in Alberta’s average electricity price from $42/MWh to $57/MWh due to abnormally hot weather during the quarter and was primarily due to one of its coal facilities experiencing damage-induced unplanned downtime that lasted most of the quarter and another facility undergoing planned downtime at the same time. TransAlta financials (non-adjusted) Q2 2015 Q1 2015 Q4 2014 Q3 2014 Q2 2014 Revenue ($MM) 438.0 593.0 718.0 639.0 491.0 Gross income ($MM) 238.0 356.0 450.0 362.0 279.0 Net income ($MM) -131.0 7.0 148.0 -6.0 -50.0 Diluted EPS ($) -0.47 0.03 0.54 -0.03 -0.18 EBITDA ($MM) 133.0 231.0 359.0 238.0 158.0 Source: Morningstar (2015). Gross profit came in at $238 million, down from $279 million YoY. Surprisingly, given the earnings reports of other North American electricity generators, TransAlta’s cost of revenue fell only slightly over the same period from $212 million to $200 million despite the presence of much lower energy prices in the most recent quarter. As a result, net income fell to -$131 million from -$40 million in the previous year. Some of the decline was attributable to a non-cash adjustment to the fair value of the company’s energy hedges as well as the presence of a higher base tax rate in Alberta. Accounting for these factors resulted in an adjusted net income of -$44 milllion compared with -$12 million YoY. Adjusted EPS fell to -$0.16 from -$0.04, missing the analyst consensus by $0.14. EBITDA also fell, declining from $213 million to $183 million YoY. The company’s emphasis on coal-fired generation hurt, with its coal segment reporting the only YoY decline to EBITDA; the wind segment was flat and the natural gas and hydro segments reported gains, albeit insufficient to offset coal’s performance. Beyond its generation segments, however, TransAlta’s trading segment reported a $22 million YoY decrease due to volatility in the energy markets. Free cash flow increased slightly by $3 million to $23 million over the same period, although the company’s operating cash flow fell from $51 million to -$39 million. Outlook TransAlta took steps to reduce the uncertainty in its outlook during Q2, although several new headwinds have developed that will likely offset the positive impact of these steps. First, the company agreed to pay $56 million to settle market manipulation allegations in Alberta, bringing a multi-year saga to a close. Furthermore, the company’s aforementioned drop-down to TransAlta Renewables was the first stage of a process to reduce its debt load via further drop-downs. Moody’s recently announced that it is reviewing the company’s bond rating for a downgrade to junk status in light of its high debt load. In July, TransAlta agreed to purchase 71 MW of renewable capacity in the U.S., and this, too, could become part of a second drop-down to TransAlta Renewables that the company intends to use the proceeds from to further reduce its debt. The presence of very warm temperatures in Canada caused the company’s number of cooling degree-days to increase in Q3, allowing management to reaffirm its previous FY 2015 EBITDA guidance during the earnings call , albeit at the lower end of the given range, despite the Q2 earning miss. The current year’s guidance is likely to receive further support by the development of a historically strong El Nino event, which is expected to keep temperatures higher than normal through September, potentially boosting air conditioner use and supporting electricity prices. These positive impacts could become negative in FY 2016, however. Past El Nino events have been associated with below-average winter precipitation levels, especially in Canada’s western half. Many regions of Canada are already suffering from drought and, given the large number of hydroelectric facilities that TransAlta operates in many of those same regions, it is feasible that an especially strong El Nino could ultimately result in lower availability starting in Q2 2016. TransAlta’s outlook worsens still further beyond 2016. May saw the election of a left-of-center provincial government in the historically conservative Alberta. More recently the centrist Liberal party, which favors restrictions on greenhouse gas emissions, won Canada’s national election and will replace the outgoing pro-business Conservative party. The new governing party is expected to support clean energy initiatives, in part by placing national restrictions on coal-fired generation facilities. Given an average contract term of 5.5 years, TransAlta’s coal segment will need to establish new power purchase agreements relatively soon after any new environmental policies become entrenched. Two of its alternatives, the use of carbon capture and sequestration at its coal-fired facilities and conversion to natural gas from coal, offer ways around this hurdle while incurring additional costs. Carbon capture and sequestration, in particular, is unlikely given the high costs that it incurs despite years of industrial R&D. Conversion to natural gas is more important and while this will incur conversion costs, it is preferable to simply shutting down coal-fired assets that have up to 30 years of effective productivity remaining. A more pressing matter is the continued presence of low petroleum prices in North America. The health of Alberta’s economy has long been linked to petroleum prices, with the province experiencing lower growth and falling construction rates during previous petroleum bear markets in the early 1980s and again in 2009. Likewise, TransAlta’s share price lost most of its value in late 2008 and early 2009 as petroleum prices fell, although crude’s rapid rebound prevented this from being reflected by a steep drop to its annual earnings in either year. The duration of the current low price environment is very important to TransAlta’s outlook due to its current debt situation. The company has $1.1 billion (mostly denominated in U.S. dollars) of debt that matures in FY 2017 and FY 2018, with another $400 million maturing in FY 2019. Its ability to repay these loans while also financing its planned capex and potential acquisitions will be very dependent on the economic health of Alberta, especially given the company’s plans to increase its share of the province’s generation market. While I do not expect petroleum prices to remain at their current levels for such an extended period of time, potential investors should be aware of the potentially severe financial repercussions to the company that would result from such a situation. Valuation The consensus analyst estimates for TransAlta’s FY 2015 and FY 2016 earnings have been revised significantly lower over the last 90 days in response to its missed Q2 earnings report and mounting headwinds, management’s reaffirmed guidance notwithstanding. The FY 2015 diluted EPS estimate has fallen from $0.23 to $0.12 while the FY 2016 estimate has fallen from $$0.29 to $0.23. Both of these results would be well below the company’s 5-year highs. Based on a share price at the time of writing of $5.25, the company’s shares are trading at an adjusted trailing P/E ratio of 105x and forward ratios of 43.8x and 22.8x, respectively. Even the FY 2016 ratio is well above the company’s respective historical range, suggesting that the company’s shares remain very overvalued despite their poor performance in FY 2015 to date. While a recent anonymous report suggested that TransAlta had been very close to selling itself , buying at the current price level would require the presence of very optimistic assumptions regarding future operating conditions for the company. Conclusion Shares of Canadian electric generator TransAlta have lost nearly half of their value over the last six months and are currently trading at only a fraction of their historical high price. While such a negative market reaction often indicates the presence of a value investment opportunity, potential investors in the company should be wary of the numerous pitfalls that sit in its path over the next several years. Low petroleum prices are already causing Alberta’s economy and construction market to slow, hindering the company’s plans to further increase its share of its largest market. Likewise, the removal of the Conservatives from both Alberta’s government as well as Canada’s national government since May make it likely that the company’s heavy exposure to the coal-fired power segment will hamper its overall earnings in the coming years as existing restrictions on greenhouse gas emissions are strengthened and future ones are enacted. With a share valuation that is much larger than its foreseeable earnings potential, a large debt load, and free cash flow per share that has been less than half of the company’s dividend per share in recent quarters, TransAlta is a very risky prospect for investors. There is a chance that a buyout could occur on favorable terms, resulting in a modest gain for new investors. I consider the probability of this occurring to be quite small compared to the potential for further losses in light of how overvalued the company’s shares are at the time of writing, however. Yield-seeking investors are encouraged to look elsewhere.