lundi 22 avril 2019

Knight Therapeutics: A pure speculation play

Have you heard about the fight between the actual management of Knight Therapeutics (GUD.TO) and another guy from Israel who wants to run the company?

I've heard a bit about it. But I haven't studied the issue. 

Knight is runned by Jonathan Goodman, who was the CEO of Paladin some years ago. I made a lot of money with Paladin but that reason is not enough to want to be associated with Goodman in everything he does. 

For a few years now, almost nothing happened with Knight. The stock was and still is mainly a pile of money. Wether you like it or not, that's a case of speculation. Speculation is to hope that something will happen with a stock. When you buy Constellation Software, you know the company has large revenues, large benefits, huge ROE. When you buy Knight Therapeutics, all you know is that the company has a lot of money. That's it. You don't know what they will do with the money. 

The company had 717 million dollars in short term assets on december 31st 2018 and the current valuation of the company is 1 billion dollars. The stock is selling exactly at book value, which is a s price you usually pay for a stock that's going right into an iceberg. I don't think it's the case here. 

I don't see how the stock could drop more than that. Actually, it's probably a good price to buy at this level. But it's purely speculation. 

It's intelligent speculation, I believe. 

samedi 13 avril 2019

A few words on canadian growth stocks which suck for now

It's been a tough year for a lot of great canadian stocks, just to name a few, here's some superstocks that have biten the dust over the last year. All Quebec stocks, except for Enghouse Systems.

Richelieu
Dollarama
Lassonde
Savaria
MTY Food Group
Enghouse Systems

A lot of people look at them and say: "It's cheaper than it's been for years! Let's buy them!"

Well, usually, when it's cheap, it's cheap for a reason. Like food in groceries. When it's cheap, it's because it's becoming to be rotten and the grocery prefers to give you a 30% bargain than to put that shit in the trash.

And you, fucking genius, buy that cheap food saying: "Wow, it's cheaper than it's been for years!" and then, you get cancer.

Let's take a look at a two of these stocks.

First of all, Richelieu grows by 2-3% each quarter, which is very low for a stock that was sold no so long ago for 25 times current earnings and more than 22 times next year's earnings. How could you pay that price when you can get some stocks that grow by 10% every year for 15 times forward earnings?

Second, Enghouse Systems. The growth there is similar to Richelieu. How could you pay 25 times next year's earnings for such a low growth?

Both stocks have a very low debt however, which give them a lot of flexibility to pursue any acquisition. But come on, who the fuck would think it would be a good idea to buy something when the market is at an all-time high, or so? Overpaying is always a bad idea.

In that regard, I don't think there's any momentum for Richelieu and Enghouse. Their valuation is still moderately high and the market is expensive. So, they probably won't start to grow a lot again without any acquisition. And any acquisition would probably be pricey.

I look elsewehere for an occasion. But they're great stocks anyway.

I don't like how Savaria executives manage their company. They always fucking dilute the float and their payout ratio is very high. That's stupid. Very few company that grow a lot act that way because it's simply a crazy fucking way to manage a company. You may get a boner from their adjusted earnings, but I don't know any intelligent investor who would replicate that fucking model if they had to start a company.

The recent numbers of Lassonde aren't good at all. The company seems to have a lot of difficulty to sell their juices. In the long run, they may be back on track, but I bet it won't be a short-term ride.

And then, Dollarama and MTY... I like them, but my favorite is by far MTY. That stock is a constellation of brands. It's like a Valeant well-managed. I'm still convinced that this stock will at least double over the last 5 years. Perhaps it's gonna be hard for a year. Perhaps for two years. But the stock will sooner or later go back to it's traditional valuation.

lundi 8 avril 2019

About predictability

I'm often writing about predictability. It's not everything, but it's a very important aspect of investing. After all, if you had the opportunity to buy a restaurant that will surely grow it's revenue by 10% year after year and another restaurant that may grow it's revenue by a range of 0 to 20% every year, which one would you buy?

A gambler would maybe buy the second one. But an investor would buy the first one.

An investor seeks visibility. A gambler seeks surprises and emotions. Often, a gambler is only someone who doesn't know how the market works and has no interest to understand. He wants to make money and gets some thrill from the great mystery of a stock going up 25% on a single day.

***********

And how can we see the predictability of a stock?

There's Value Line, which is a great website. On a one-pager, it shows you everything you want to know about your favorite stocks. And among these datas, you can see the predictability of the stock. I have a free acess to that site but maybe you can't use it without paying. In that case, there's a few other options.

For instance, you could use the website of the Wall Street Journal. Just take a look at the estimates for a specific stock and see the range of estimates. For instance, Ulta Beauty which gets the 100% predictability score on Value Line:




The blue dot represents the earnings vs the line which represents the estimates. As you can see, the estimates are very precise. It's a line with a very thin blue zone around it that grows very slightly as years advance.

And then, Amazon which gets a very low predictability score on Value Line (lower than 30% predictable).




This time, we can see that the blue zone around earnings is very wide as years advance. Earnings should be growing, but the margin of error is much more important than with Ulta Beauty.

That's why predictability is important for me: with it, you know where you're going. Without it, you navigate in the fog.

samedi 6 avril 2019

Jason Del Vicario over the last year

Everybody knows Jason Del Vicario. The guy known (by himself at least), as the new Jason Donville. The guy known by me as the guy who's been saying for two or three years that we'll eventually meet in Quebec City and have a few drinks together.

I'm still waiting for that event. And I think about it often. I'm 100% heterosexual, but Vicario makes me doubt about what I really want. 

So, we all know now that he doesn't do what he's supposed to do. Does he perform like we think he performs?

Here's his picks from last year (april 12th, 2018). Let's see how it's been over the last year: 

Top picks: 
Couche-Tard (ATD-B.TO): 48%
Dollarama (DOL.TO): -23%
Data Communication Management (DCM.TO): -15%

Buy: 
Biosyent (RX.V): -23%
Boyd Group (BYD-UN.TO): 36%
Sangoma Technologies (STC.V): 26%
Photon Control (PHO.TO): -28%
Suncor (SU.TO): -7%
Take Two Interactive (TTWO): -4%
Sleep Country (ZZZ.TO): -44%

Weak buy:
Shopify (SHOP.TO): 71%

A lot of negative performances on that list. Some strange names too. 

Average performance: 3,4% including Shopify and -3,4% without Shopify

Performance of the market over the last year: 7%

I declare the market winner over Vicario. 

****EDIT****

Like everyone on this earth, I'm influenced by the media. I take a piece here, a bit there and I figure the whole puzzle with my impressive mental skills. In that particular case, I used the website Stockhase to collect datas about Jason Del Vicario picks. That was my only tool. But Jason had some precisions to bring and they were interesting.

Well, 99% of the time, I'm right and 1% of the time, I don't have all the information to be right. Perhaps that post should be included in my 1%. But I doubt it.

Usually, when I'm wrong, it's other's people fault.

Here's Jason's answer to my post:

Interesting analysis. Being judged based on the symbols people call and ask me about on BNN is pretty arbitrary (I'm assuming you take this from Stockhouse... and they get their information from the BNN shows). I would suggest judging a PMs abilities on their track record or at the very least stocks they actually own. We don't own SU, TTWO, STC, PHO. We also own the likes of CSU, ROST, MA and such. You're not really comparing apples to apples here. Furthermore, we have a 4% weight to CSU and a 0.5% weight to DCM so taking a simple average again is useless. In short, you have no idea what we own or our weights. Lastly, you're comparing us to a 1 year time frame. We don't publish what we own for obvious reasons but if you actually want to know what we own rather the speculate based on third party information found on the web, e-mail me and I'll get you that information. I will be in QC in September; we'll grab beers then... that is if you want to... I mean I'm not very good at picking stocks so maybe it'll be a waste of your time?! Your call. Jokes aside, I look forward to finally meeting in person.

jeudi 4 avril 2019

Portfolio review - April 4th 2019

Here's a view on my portfolio: 

Number of stocks: 22
Average ROE: 41
Average Forward PE: 19
Average Beta: 0,77
Predictability of the portfolio: 82%

Performance of the portfolio since january 1st: 16%
Performance of the TSX/S&P500 since january 1st: 14%

I like my portfolio. It's probably not perfect, but to me, it's got the right balance between expensive stocks and fairly priced stocks. The right balance between low beta and higher beta stocks. The right balance between high ROE stocks and average ROE stocks. It's like I've tried for many years to cook the best rice krispies squares and now, I've achieved something. 

I have a portfolio that performs slightly better than the market when the market goes up and substantially better than the market when it goes down. It's hard to affirm that kind of thing because everything changes constantly (the size of the positions, the nature of a particular stock, the whole market, etc). However, how could a high ROE, an OK forward PE, a Low Beta and highly predictable portfolio could perform worse than the market in the long run?  Only time will tell. But for now, short time has told me that it works. 

Yesterday, I said to myself that I'd never had so much money at any point of my life. It's not enough to say I'm rich, but I'm very far from where I started 10 years ago. 

But money isn't everything. Some things were better when I had less money. Sadly, life never provides everything at a specific moment. There's always some stuff missing. Remember that, you stupid little 20-something years-old investor who can still have a boner.

dimanche 31 mars 2019

Charles Schwab (SCHW) VS Ameritrade Holding (AMTD)

If you follow superinvestors transactions, you've probably seen that Charles Schwab is a favorite stock of many superinvestors. Lou Simpson, Lee Ainslie, Bob Goldfarb (Sequoia) Thomas Gayner and François Rochon are some of the good names associated with the stock. 

On the Ameritrade Holding, there's only Chuck Akre. 

But what exactly do these similar companies?

Both offer brokerage services. And Charles Schwab seems to offer some other financial services which are not offered by AMTD. To make it short, both are financial companies. 

Here's a few numbers:

SCHW

Annual EPS Growth last 5 years: 12%
Estimated annual EPS Growth next 5 years: 16% 
Earnings predictabiliy according to Value Line: 85%
Dilution over the last 3 years: 1%
Current PE ratio: 17
Forward PE ratio: 14
Forward PE VS last 5 years historical PE: 50% discount
ROE last 5 years: 12
Beta: 1,2

AMTD

Annual EPS Growth last 5 years: 12%
Estimated annual EPS Growth next 5 years: 18% 
Earnings predictabiliy according to Value Line: 80%
Dilution over the last 3 years: 6%
Current PE ratio: 16
Forward PE ratio: 11
Forward PE VS last 5 years historical PE: 50% discount
ROE last 5 yers: 16
Beta: 1,2

Over the last 12 months, both stocks have beaten the estimates on every quarter. 

So, there's an interesting momentum here. And both stocks are cheap on an historical basis. However, there's a reason for that: their Beta is moderately high and both stocks are sensible to the general state of the economy. 

Both stocks appear interesting but I prefer AMTD. Why? A better ROE, a better growth ahead and a better performance over the last years. 

I prefer stocks with a low Beta, but a little percentage of a portfolio for these stocks wouldn't be a bad idea. They're cheap and highly predictable, two great advantages for a portfolio. 

vendredi 29 mars 2019

IPO of the day: Lyft

Today, Lyft had it's IPO. For those who don't know Lyft, it's a competitor of Uber. For those who don't know Uber, I feel bad for you. 

Once again, the IPO implied a crazy valuation. 

We're talking here about a company that's been valued 27B US dollars and that had a loss of 911 million dollars in 2018. So, the company isn't making money, but people are crazy enough to pay 80 US dollars a share for a company that doesn't even have positive EPS. 

And let's talk about the moat of the company. What kind of moat is it exactly? Is it different from Uber? Or is it different to any other business model like Airbnb where the platform links the customer to any improvised service provider? 

No. 

Sometimes, IPOs lead to a good performance for investors, when we're talking about a unique business model. Facebook, Dollarama, Visa and Mastercard are a few examples of IPOs where the price asked was high but where performance was delivered before and after the IPO. But these few stocks about very special examples. I'm not a specialist of the taxi industry, but I don't see how someone could pay a very high price for that kind of company that could be emulated by anybody.

I don't see a bright future for Lyft. 

Let's see next year how wrong or right I'll be. Or, let's see in 2 years to be sure.