In this interim update, we offer our take on four Portfolio holdings: Exchange Income Corp (OTC: EIFZF, TSX: EIF), Norbord Inc (TSX: NBD, OTC: NBRXF), Spyglass Resources Corp (TSX: SGL, OTC: SGLRF), and Student Transportation (TSX: STB, NSDQ: STB). Each update is posted below in alphabetical order by company name.

We’ll have additional updates on other Portfolio holdings next week.

Exchange Income Corp (OTC: EIFZF, TSX: EIF) has had a wild ride this year—far wilder, in fact, than we had expected when we added this tiny Canadian buyout firm to our Portfolio. Though buyout firms use leverage to build a portfolio of companies, we liked the fact that EIF is diversified across three unrelated industries, including aviation services , metal manufacturing and communications infrastructure.

The shares were trading around CAD22.60 when we added the stock to the Portfolio in late January. At the time, this was well below the stock’s all-time closing high of CAD28.84, which it hit back in March 2013. And when we recommended it, EIF was rebounding from a near-term low it had hit in October.

Subsequent to adding it to the Portfolio, the stock fell into a protracted swoon through mid-May, before climbing as high as CAD23.19 in late June.

Two things happened over the summer that sapped investor sentiment. This is, after all, a tiny firm with a market capitalization that falls somewhere between small-cap and micro-cap, depending on your definition. So while we still think EIF has great growth prospects over the medium to long term, it doesn’t take much to push the stock down in the near term, especially when short sellers or a bearish analyst have it in their crosshairs.

First, as we noted in a previous update, the firm shifted then-current CFO Adam Terwin to the role of chief corporate development officer, where he oversees acquisitions and strategic growth initiatives for existing portfolio companies.

In his stead, the firm hired Ted Mahood as its new CFO. Mahood had previously served as a CFO at a number of different manufacturing firms, so he sounds like a good fit.

As we observed at the time, while investors usually take it as an ominous sign when there’s turnover at the CFO level, if Terwin had posed a problem in this position, then presumably he would have been ousted, instead of moving into a new prominent position.

But the bigger problem, as far as investor sentiment goes, occurred around the same time. Just a day after EIF announced the aforementioned changes to its C-suite, Veritas Investment Research, a Canadian independent research house, initiated its coverage of EIF with an incredibly bearish report on the firm in early July.

That report was subsequently amplified in early August, when it came across the radar of a prominent business and investing columnist at The Globe and Mail, one of Canada’s two biggest newspapers.

Even though the analyst’s opinion was a significant outlier from his peers–for instance, his 12-month target price was CAD8.50 at a time when the stock was trading near CAD22–that sort of thing is chum for journalists, particularly when it’s negative.

If this situation sounds familiar, that’s because it’s reminiscent of what happened when an upstart analyst at Hedgeye Risk Management tilted at Linn Energy, with substantial support from a columnist at the once-venerable weekly Barron’s.

To be sure, Veritas certainly does have the sheen of credibility: The firm says it takes a forensic accounting approach to its analysis, and the analyst, himself, is a chartered accountant, as well as a chartered business valuator.

So what was his take on EIF? In short, he believes the growth his analyst peers are projecting for the firm next year will fall short of expectations as a result of performance at the firm’s WesTower Communications subsidiary, which designs and builds cellphone towers.

WesTower derives 63 percent of its revenue from AT&T, and some industry players say the telecom giant is expected to continue cutting back on its spending in this area. Additionally, the analyst noted that the company has had difficulty collecting on some of its services.

Absent the growth in revenue, the Veritas analyst says the firm’s debt burden will prove unsustainable, as will its ability to pay its substantial dividend.

As a small-cap company whose shares are mostly held by yield-hungry retail investors, EIF is a tempting target for an up-and-coming analyst who’s trying to make a name for himself. When retail investors dominate a small stock’s float, negative reports such as these can easily precipitate sharp selloffs, especially when mainstream media outlets pick up on them.

While the stock had already begun selling off prior to The Globe & Mail running with the analyst’s report, the stock plunged anew the day after it was covered by the newspaper. Shares of EIF fell from the prior day’s close of CAD18.44 to an intra-day low of CAD14.30 on Aug. 7, before recovering to CAD16.85 by that day’s close. Trading volume that day was more than six times what it had been the previous day.

But the firm’s second-quarter results, which were released several days after The Globe & Mail’s article, seemed to provide a strong refutation, with EBITDA (earnings before interest, taxation, depreciation and amortization) climbing 14 percent year over year, to CAD28.4 million, with WesTower’s contribution toward that amount surging 169 percent, to CAD8.8 million.

Thereafter, the stock rebounded once again, rising as high as CAD20.34, and staying close to that level for most of September.

In early September, EIF announced that AT&T had renewed its turf contract with WesTower, which had been due to expire, for a three-year period. Analysts with Laurentian Bank Securities, where the stock is rated a “top pick,” said they do not anticipate a decline in revenue from AT&T and believe the renewal could lead to other important contract wins.

On the other hand, the bearish analyst with Veritas noted that the contract has no announced dollar value and no guaranteed minimum spending commitment. He reiterated his earlier assertion that a decline in AT&T’s capital spending will pare revenue for this unit.

EIF management has said that it expects a second-half drop in revenue of around 10 percent for WesTower, as a result of some work being pulled forward to the first half of the year. But CEO Mike Pyle also said WesTower also works with other carriers, who have substantial network updates that must be done as well. He told The Globe and Mail that he expects “to gain additional work, increase revenues and further diversify our customer base.”

Around the same time, EIF also announced a strategic alliance agreement with Sakku Investments Corp, the business arm of an Inuit group that invests in businesses for the betterment of the region in which it’s domiciled. The deal should benefit EIF’s aviation services segment, including Calm Air International LP and Keewatin Airlines LP, by winning new market share in the region.

Despite all of these promising developments, the stock plunged yet again in early October and currently trades near CAD16.58, down almost 14 percent since the end of September versus a decline of 3.1 percent for the S&P/TSX Composite Index.

At the moment, we can’t tell what exactly is driving this particular selloff. Most of the damage occurred during a single trading session, on Oct. 1, when the stock fell to CAD17.66 from CAD19.28.

Owing to its size, the stock is not widely followed in the financial media, and there’s no news that appears to be driving this latest selling pressure. Meanwhile, analyst sentiment has essentially held steady since early July, when Veritas first released its bearish report.

In fact, analysts continue to be largely bullish, with six “buys,” one “hold,” and two “sells.” The consensus 12-month target price is CAD23.57, which suggests potential appreciation of 42.2 percent.

Though most analysts last reiterated their ratings in early September, CIBC World Markets affirmed its “sector outperform” rating, which is equivalent to a “buy,” on Oct. 8, with a 12-month target price of CAD22.00.

The number of shares held short by investors dropped from 2.05 million at the end of July to 1.33 million in mid-September, and then rose to 1.45 million at month end. So it’s possible that short selling could be forcing the shares lower, especially since this is such a small stock, though we don’t have real-time access to this data.

Beyond that, there have been no insider transactions of note since June, nor were there any corporate actions in late September or early October.

Also, the two bearish analysts haven’t updated their analyses in over a month.

There was some welcome news yesterday from the institutional investor BlackRock, which reported that its holdings of EIF’s stock increased to 12.8 percent of shares outstanding from 10.3 percent of shares outstanding over the six-month period that ended Sept. 30.

Admittedly, the stock’s latest action is a mystery for now. We still like this stock for the long term, and we believe existing shareholders should sit tight. For now at least, this stock seems to have been unfairly victimized. The company is expected to report third-quarter earnings on or around Nov. 11. EIF remains a buy below USD22.

We added Norbord Inc (TSX: NBD, OTC: NBRXF) to the Portfolio in late June because it offered a rare opportunity to diversify away from the upstream MLPs, specialty financials, and mortgage REITs that tend to dominate the high-yield equity space.

Norbord primarily manufactures oriented strand board (OSB), a key material involved in homebuilding. As such, the company’s short-term stock performance can be affected by the steady stream of housing-related data pumped out by government agencies each month.

Unfortunately, data for US housing starts–61 percent of the firm’s production capacity is domiciled in the US and new home construction recently accounted for 50 percent of sales volume–has been jagged since then, though it did hit a post-Great Recession high in July.

That along with second-quarter results that surpassed analyst expectations helped the stock recover from its summer swoon, rising to CAD25.21 by mid-September. However, the stock has fallen again more recently and currently trades near CAD22.40, down about 20.2 percent on a price basis in US dollar terms since recommendation.

For the three months ended June 30, Norbord posted net earnings of USD11 million, or USD0.20 per share, compared with USD53 million, or USD0.99 per share, for the second quarter of 2013. Sales were down to USD311 million from USD365 million a year earlier.

While these results are lower than the comparable year-ago period, it’s important to note that sales have actually improved for three consecutive quarters.

In the company’s earnings call, CEO Peter Wijnbergen noted that North American homebuilding activity continues to improve, though the pace has been held back by labor availability and a lack of entry-level buyers.

OSB prices, however, were “disappointing.”

Demand from Norbord’s key customers in all core segments–new home construction, home improvement and industrial–continues to grow, driving a 10 percent increase in shipments so far in 2014. And OSB cash production costs are declining due to improved productivity and lower raw material usages.

North American OSB prices were relatively stable quarter over quarter, with the North Central benchmark averaging USD219 per thousand square feet. But that’s down from USD347 per thousand square feet a year ago.

OSB shipments in North America increased by 12 percent, as year-to-date US housing starts were up 6 percent and permits were up 5 percent.

European panel markets were a bit slower in the second quarter, reflecting a pullback from a particularly strong first quarter. Average panel prices were flat sequentially and up 2 percent year over year.

Norbord remains confident in the durability of the recovery, to the extent that it’s aggressively ramped up OSB production since 2013. However, it remains to be seen whether demand will catch up to the additional capacity.

Norbord declared a quarterly dividend of CAD0.60 per share in April 2013, nearly five years after it suspended its payout amid the Global Financial Crisis. The company struggled mightily in the aftermath of the US housing market crash, as did the stock price.

Chastened by this experience, Norbord implemented a variable dividend policy that targets the payout according to its expected future free cash flow through the cycle.

Despite the decline in share price, analysts remain largely bullish on the stock, at six “buys,” three “holds,” and one “sell.” The consensus 12-month target price is CAD27.91, which suggests potential appreciation of 24.8 percent above the current share price.

While full-year 2014 sales are projected to decline 9 percent year over year, to USD1.22 billion, analysts expect sales in 2015 to rise 11 percent, to USD1.36 billion. And next year, adjusted earnings per share are expected to surge 154 percent, to CAD1.77.

We had thought the declines in sales and earnings for this year had already been priced into the stock when we added it to the Portfolio. After all, those estimates haven’t changed all that much since then.

But we hadn’t accounted for the month-to-month volatility that could occur amid some of the macro uncertainty as it pertains to North American growth and the health of the US housing market.

Assuming the US economy remains in an upward trajectory, then housing should benefit. But the ride for Norbord’s shareholders could continue to be bumpy. Norbord remains a buy below USD26.

Spyglass Resources Corp (TSX: SGL, OTC: SGLRF) is one of our legacy holdings that was initially recommended as a turnaround play by the prior editorial team. Since taking over this newsletter in May 2013, we’ve largely tried to avoid turnarounds and instead focus on securities that have the ability to at least maintain, if not grow, their payouts over the long term.

The performance of Spyglass’ stock since initial recommendation has shown that even promising turnarounds can suffer additional deterioration. Indeed, the stock’s mid-summer selloff was prompted by the company’s decision to cut its dividend by one-third, to a monthly payout of CAD0.015 from CAD0.0225. The new annualized payout is CAD0.18.

The lower dividend still translates into a yield of 8.8 percent for those who bought in near CAD2.05, which was where the stock was trading when first recommended.

But in retrospect, we should have sold this stock during the month or so that it traded above CAD2.00 per share earlier this year. Even the trading range between CAD1.70 to CAD1.80 that prevailed for about three months from mid-spring to mid-summer would have been preferable compared to where the stock trades today, near CAD1.35.

It’s important to note that the company’s recent moves to shore up its finances by selling non-core assets (Spyglass sold CAD51 million worth of such assets in the most recent quarter) and cutting the dividend were applauded by the analyst community as prudent steps toward reducing leverage and freeing up capital to invest in future growth.

Indeed, the dividend cut will save the company about CAD12 million per year, while the asset sale is expected to reduce net debt by CAD36 million.

Additionally, a new CEO who has an extensive background in the energy sector took the helm in July, with an apparent mandate to make the dramatic moves necessary to position the company for the long term.

In the short term, however, Spyglass’ sizable yield has attracted an investor base that consists largely of yield-hungry retail investors, as opposed to institutions, and dividend cuts can cause sharp selloffs, such as what we’ve seen the past few months. Retail investors hold nearly 93 percent of shares outstanding, with institutions holding the balance.

The mix of analyst sentiment is largely neutral, at two “buys,” five “holds,” and two “sells.” The consensus 12-month target price is CAD1.55, which suggests potential appreciation of 14 percent above the current share price.

During the second quarter, the company’s funds flow from operations grew to CAD19 million from CAD16 million in the first quarter. Owing to downtime at the company’s Dixonville field following a pipeline incident, production was lower in the second quarter, averaging 14,474 barrels of oil equivalent per day (BOE/D) versus 14,560 BOE/D.

Operating netback, which measures the net proceeds per barrel after all the costs associated with bringing energy products to market, improved to CAD27.31 per barrel of oil equivalent (BOE) from CAD24.10 per BOE in the first quarter and CAD20.81 per BOE in the year-ago period.

Nevertheless, given the recent weakness in commodity prices, as well as the fact that Spyglass remains in turnaround mode, it will likely take at least another year for the company to shift from its current situation toward strong growth again.

With this longer time horizon for an eventual rebound, we’re downgrading the stock to a Hold.

Notwithstanding one of its buses dropping a first grader off at the wrong location, Student Transportation (TSX: STB, NSDQ: STB) is still chugging along.

The mistake happened in Pennsylvania at Student Transportation’s US subsidiary, Student Transportation of America (STA), and executives from the company almost outnumbered the six community members at the school board meeting where the incident was discussed.

Bottom line: STA training exceeds state requirements, and the bus driver in question was relieved of his duties. This overwhelming response to a sensitive situation is characteristic of a high-quality business that appreciates its responsibility for elementary-age children.

At a time when school districts are cutting budgets and eliminating busing services, Student Transportation is not only stepping into the breach, it’s doing so in a way that should satisfy parents.

Management reported solid fiscal 2014 fourth-quarter and full-year results on Sept. 16, with revenue for the three- and 12-month periods ended June 30 up 16.6 percent and 15.5 percent, respectively.

Adjusted earnings before interest, taxation, depreciation and amortization (EBITDA) grew by 9.2 percent and 10.1 percent.

Adjusted EBITDA for fiscal 2014 of USD89.4 million reflects an 18.3 percent increase over the previous year. The payout ratio for the year was 73.5 percent, down from 78.7 percent for fiscal 2013, which means the company can even more easily afford its dividend.

New-bid and conversion contracts combined with the boost from a full year of operations for acquisitions finished in fiscal 2014 establish a “booked revenue” increase of about 12 percent so far for fiscal 2015.

Well positioned to make the grade for another solid school year, Student Transportation remains a buy below USD7.