lundi 31 août 2015

The day of great bargains

A week ago, I was somewhere in Utah, on my way to the fucking Antelope Canyon (beautiful place run by motherfuckers) and I was completely shocked by what I saw on the stock market. Almost all my companies were down a lot. What was happening? Did a meteor hit the earth? Did some new German fascist invaded Poland? It was a super-panic caused by nothing very exceptional: slowing growth in China.

I was shocked and excited. Richelieu Hardware (RCH.TO) was down like fuck. Allergan (AGN) was down a lot too. In fact, dozens of great companies were down 5, 10, 15%. I wanted to buy everything. But FUCK, I had already spend almost all my money left on friday, on a day that I thought was full of bargains. Such a fucking vicious fate. All I achieved to buy was a few shares of Concordia Healthcare at around 84$.

I'm still angry about that day. Such a day happens once every 2 or 3 years. And it passed right in front of me while I only had an Iphone on hand, in a place where I didn't have a lot of time to do some transactions.

Lesson learned: Fuck those trips in a foreign country. You better stay at home and watch stock markets every day. And even if you stay at home, don't stay away from you computer for too long.

For instance, if you're having a big crap, keep your computer on your knees. You'll never get rich otherwise.

vendredi 21 août 2015

There is blood on the streets: buy!

Ok, there's not really blood on the streets now, but a lot of things are on sale.

I have to say that I've been buying a lot of things recently. In fact, I have almost not any liquidities left at this moment.

For my portfolio, I've bought more shares of:

Home Capital Group;
CGI Group;
Concordia Healtcare;
Portfolio Recovery and Associates;
Chicago Bridge and Iron (massive bargain on that one, it's an initial purchase for me).

And now, I'm flying to Las Vegas to get a car and see some desert scenery and american national parks. If you're around Antelope Canyon in the next few days, let's set a meeting there.

mercredi 19 août 2015

small caps VS LARGE CAPS

Before, a great company was, for me, a company with a big name. A blue chip.

Then, a great company became a company that had a great track record (rear view mirror).

Then, I became intelligent like those apes at the beginning of 2001: A Space Odissey. I learned how to break something with a bone. A great company was now a company that satisfied a check list: high ROE, good growth, little debt, low beta, etc...

Around the time I became intelligent, I heard about the performance of small caps VS large caps. I've read a lot of times that small caps performed better than large caps.

Then, very recently (today), I've realised that it wasn't true at all. I've got a lot of examples of small caps that did well for a little while and then came with very disappointing earnings because of bad decisions, problems with integration of a business recently bought or simply the fact that managing growth is a challenge not so easy to achieve. I've got much more examples of small caps turning bad than examples of small caps turning well.

In fact, I'd almost recommend anybody to sell half of their position in a small cap if they got a 50% yield or above in a short period (less than a year). Otherwise, the odds are high that the stock price will go down and you'll lose a good chunk of your profit. For those familiar with canadian stocks, it happened with Biosyent, Cipher, Delphi Energy, Autocanada, Badger Daylighting, Rifco, Avigilon, and all those on the venture that I've written about before.

Many would say that it's easier for a small cap to grow than for a large cap. It seems true at first glance, but I think that it's easier to grow constantly for a middle or large cap than for a small cap. Small caps are less constant for sure. I haven't got any fucking universitary research on hand to say those things, sadly.

You've got some pretty aggresive medium and large cap stocks out there like Valeant, Gilead and Allergan. You've got Apple and Constellation Software. You've got O'Reilly (pretty expensive however). Please note that the guys at Sequoia once said that they prefered middle cap stocks because the results were usually the best with them.

I take a look at all my small caps holdings and the small caps I've owned before and it's not there that I've made most of my money. So, if you give me the choice between Valeant (VRX) and Biosyent (RX.V), I wouldn't hesitate a second to choose Valeant.

mardi 11 août 2015

About market reactions (DORM and PRAA)

Every long time investor knows that market reactions can be strange.

Sometimes, a company acquires another one and the acquirer goes a lot lower even if it's a very good acquisition.

Sometimes, a company has bad results and the stock price goes up. Sometimes, the results are good and the stock price goes down.

I have two recent examples:

Dorman Products (DORM) recently released it's results. Analysts were expecting 70 cents EPS and the results were 65 cents EPS. The company also missed the expectations about revenue. The growth with comparable quarter last year was anemic. In the following days, the stock price went up more than 10%.

Portfolio recovery and associates (PRAA) released it's results yesterday. The EPS and revenue were under expectations but were nonetheless good in my opinion. Analysts were expecting 1,15$ EPS and the company got 1,06$ EPS. The EPS for comparable quarter last year were 74 cents. So, EPS are up 43%. Return on equity is also pretty good at 23,5. Today, shares are down 10%.

Both companies didn't meet analysts expectations and one is up 10%, the other one is down 10%. The one that is up has anemic growth and the one that is down has good growth.

Pretty wierd.

I sold all of my Dorman shares because I was tired of such low growth and excuses about their ERP system issues. I would however be tempted to buy more PRAA shares because the price of the stock is very low for such a good growth and good ROE (a 24 ROE with a 10-12 forward PE is equivalent to ROE/PE = 2, which is very good).

samedi 8 août 2015

Patient Home Monitoring (PHM.V): I stay away

There's a lot of things that I don't understand in the stock market. Why Gilead isn't going up after such good results? Why is Amazon so expensive? Why Bruce Berkowitz keeps buying that fucking Sears Holding?

And why Jason Donville, the king of analysts in Canada, has made bad top pick suggestions such as:

Pulse Seismic (PSD)
Directcash payments (DCI)
Delphi Energy (DEE)
Rifco (RFC.V)
Biosyent (RX.V) at 10,25$ (it was pretty expensive back then)

And now, what about Patient Home Monitoring (PHM.V) which is one of the new darling stocks of Jason Donville?

I've always been reluctant about that stock. First, it's on the Venture stock exchange, a stock exchange on which I've only had bad experiences (LOY, MCR, NCI, RFC). That fucking exchange is full of crappy businesses that can only achieve 2 or 3 good quarters and then fall in an abyss of shit. I'm out of there, maybe forever.

But I'll try to pass over my disdain of the venture to push a little further on PHM.

That company is trying to consolidate the market of services to people who need home monitoring (sick people). I agree, it's a nice sector.

That company is buying everything at a phenomenal rate which is something that works for some companies (like Valeant, for instance). But for a small business, I don't know.

On april 28th 2015, they released their fucking results and they had 0,0079$ EPS. FUCK, that's not even 1 cent EPS.

The most important point for me is: even if they buy everything in sight, they haven't proved yet that they can integrate so many businesses in an accretive way. Some analysts expect that EPS for 2015 will be around 2 cents and that EPS will be around 11 cents in 2016. What? Multiply the EPS by 5.5 in only a year???? Who is able to do that!?!?

And more, there has been a lot of insider selling recently, which is something I dislike. Two executives sold more than 13 millions shares at 1,36$ (result: more than 18 millions $).

I've sold my position in United Therapeutics (UTHR) because of that (the transgender CEO is constantly selling shares). It turned that I didn't do such a good move because the stock went from 100$ to about 165$ after my selling (it however went from 50$ to 100$ between my buying and my selling).

But well, for PHM, if they think that their fucking incredible acquisition rate is accretive to earnings, why do they sell their shares? What a bunch of cocksuckers. I can't respect such management.

I may be wrong, but there's a lot of other businesses that do things the way I like it and I'd rather look there. That's why I'm staying away of PHM, whatever anybody thinks about that company.

samedi 1 août 2015

Some US stocks to watch (that I don't own)

The stock market is pretty high. It's hard to find something attractive. You have to use a screener to find interesting things... and even if you do, you won't find a lot of stocks at interesting prices.

Even if I consider that my 15 stocks are enough for my portfolio, I'm always looking elsewhere to find prettier girls to fuck. So, I'm always reading, or taking a look at my impressive watch list. And sometimes, I use a screener. There's a screener on Google Finance but I prefer the one that is avalaible on Value Line. Here's some of the metrics I use to build my screener (I use some other metrics too, but not as important as these):

PE: under 20 (at least, the forward PE should be under 20)
ROE: over 20
EPS growth per year for the last 5 years: over 15%
Projected EPS growth per year for the next 5 years: over 15% (Value Line guys are conservative, they usually underestimate growth so, if they estimate a 15% growth, it'll probably be higher)
Long term debt/Capital: Maximum 50%.

That screening should extract companies that:
  • achieve high growth year over year;
  • possess a certain moat;
  • are not too pricey
  • don't have a high level of debt. 
Usually, when you find a cheap stock with a high ROE, it's because that stock is related to resources, which is not a very good thing. Just take a look at the fucking TSX since the beginning of the year. Canada is so much related to resources that our fucking index is stalling or regressing when oil price drops. Fuck us!

Here's some US companies that seem interesting to me. I don't own shares of any of these companies but I could buy some stocks one day. Maybe soon. Maybe later. Maybe never.

1- Chicago Bridge and Iron (CBI)
Not my type of stock (services to the consumers in the energy infrastructure), but some superinvestors bought shares of this company in the last month. The metrics are pretty good for a company in this industry and the price is dirty cheap. Please note that Warren Buffet is an investor of this company. I like this stock because it's cheap and because some great investors are behind it.

Beta: 2,1
Forward PE: 9
ROE: 22
EPS growth last 5 years: 23%
Dividend: 0,5%
Market Cap: 5,6B$
Superinvestors in: Arnold Van Den Berg, David Einhorn, Robert Torray, David Tepper, Francis Chou, Warren Buffett, Thomas Russo (7 people)

2- Union Pacific (UNP)
One of the best railroad managers out there. Maybe the best. I like railroads companies because barriers to entry are pretty high and viability of the business is almost guaranteed. However, becoming rich by owning a railroad company is an utopy. Aim at a 10-15% yield for the long term and it should be achievable. I like this stock because it's maybe the best railroad stock in America and because it's the cheapest of all the best railroad stocks at the moment.

Beta: 1
Forward PE: 15
ROE: 24
EPS growth last 5 years: 25%
Dividend: 2,3%
Market cap: 85 B$
Superinvestors in: David Winters, Lee Ainslie, Thomas Russo (3 people)

3- Biogen (BIIB):
Do I have to repeat once again that I love biotech/healthcare stocks? Biogen has always been pricey but recently, the price took a nice dive (21% down in the last month) because of a cut in the outlook. That company is full of cash and they may announce an acquisition in the next year because they can buy a lot of things. I think it's my favorite pick in this list because of the high ROE and because of the sector.

Beta: 0,9
Forward PE: 18
ROE: 32
EPS growth last 5 years: 30%
Dividend: 0%
Market Cap: 75 B$
Superinvestors in: Nobody

4- Mylan (MYL):
Like Biogen, Mylan's share price took a nice dive too (about 18% down in the last month) because people were so sad that it wasn't bought by Teva. Teva instead bought generics from Allergan. Snif snif. It's so fucking sad. Just take a look at the growth of earnings in the recent years and you'll find some relief. Like all the major biotechs, they'll probably acquire something else or be acquired by a bigger company (why not Valeant?). I like this company for the EPS growth and for the sector but the ROE is a little low for me.

Beta: 1,2
Forward PE: 12
ROE: 14
EPS growth last 5 years: 52%
Dividend: 0%
Market Cap: 27 B$
Superinvestors in: Thomas Russo (1 people)

5- Zoetis (ZTS):
Zoetis is the most expensive suggestion of this list but Bill Ackman is a big owner of that one. When Bill Ackman is around, activism is in sight. Take note that Ackman has bought for about 75 M$ of this stock in the beginning of july at a price of 48$ per share, which is about the actual price of the shares. I like this stock for the very high ROE and for the superinvestors who are behind it (Bill Ackman and Robert Goldfarb are among my favorite investors). However, the price is high and the growth is so-so.

Beta: 0,9
Forward PE: 26
ROE: 50
EPS growth last 5 years: (ZTS doesn't have a long track record. EPS are growing about 10% per year for the last years)
Dividend: 0,7%
Market Cap: 25 B$
Superinvestors in: Bill Ackman, William Fries, Robert Olstein, Robert Goldfarb/David Poppe (4 people/institutions)