Pfallergan

On monday, Pfizer announced that it would buy Allergan. Some funny guy on seeking alpha named the new company "Pfallergan". I like it.

I like it much more than that fucking transaction in which an average 200 billion dollars company will buy a great 120 billion dollars company.

Pfizer is one of the first companies I've took a look at when I started investing, 7 years ago. Even if I analyzed companies like a fucking ape at the time (mainly by taking a look at a chart), I wasn't impressed by Pfizer.

Today, I still can't see what could be great with this company. Their earnings per share have increased by 3% on an annual basis over the last 5 years. That's mediocre. Who the fuck is looking to buy a company that grows so slowly? I can't think of anybody intelligent. Maybe it's the case for those fuckers who run a mutual fund and want to impress their stupid clients by showing them universal known names such as Pfizer.

And the average ROE of Pfizer has been about 11 for the last 5 years. For the recent years in which I've been a bit more clever, I've never invested in such a low ROE business combined with such low EPS growth.

Do I really have to take these 11.3 shares of Pfizer for each of my Allergan shares? I don't want to be part of the Pfizer community and I think my shares deserve a better price and a better acquirer. Fuck, I'm so upset. Couldn't Pfizer just give me 400$ for each of my shares and do the fuck they want with Allergan?

I agree with the US government. This transaction is deeply immoral. A lot of money will vanish from the USA and go to Ireland. That money could have been pretty useful in the US like by putting more money on NSA's surveillance programs, hire more snipers to track and kill Edward Snowden or upgrade Guantanamo to help people there to drown more prisoners.

Carmax (KMX) or Lithia Motors (LAD)?

A commentator on a recent text suggested to me to take a look at Lithia Motors (LAD), a company similar to Carmax. I've looked at it and it seemed to me like a very interresting investment. In fact, it's probably one of the most interesting companies right now on the stock market in my opinion because of the valuation VS growth. However, the sector may be a little too much related to the general state of the economy.

And even if Lithia Motors looks pretty good, I have to say that Carmax looks interesting too. The stock was recently at an annual low, altogether with many other stocks. It's often a good time to shoot when many companies are down at the same time. It means that your target probably hasn't internal problems.

Here's how I work to analyze a company which seems interesting. In this case, I was able to compare two similar companies with the same metrics. I think we always can compare any two companies, whatever the sector in which they operate. But when the comparison is between two companies in the same sector, it's even easier to make a choice. 

Carmax:
Actual PE ratio: 18
Lowest / Highest PE ratio last 5 years: 17 / 25
Performance last 5 years: 64%
Performance last 10 years: 281%
LT debt / annual profits: 15,6 times (pretty high)
Number of shares last 5 years: small buyback
Annual EPS growth last 5 years: 17%
Actual ROE: 19
ROE last 5 years: 17
Dividend: None

Lithia Motors:
Actual PE ratio: 17
Lowest / highest PE ratio last 5 years: 12 / 28 
Performance last 5 years: 792%
Performance last 10 years: 310%
LT debt / annual profits: 13,3 times (pretty high)
Number of shares last 5 years: no buyback, but no dilution either
Annual EPS growth last 5 years: 93%
Actual ROE: 25
ROE last 5 years: 18
Dividend: 0,7%

Winner in each category 

Actual PE ratio: LAD
Lowest / highest PE ratio last 5 years: KMX is the closest to the lowest PE ratio of the last 5 years
Performance last 5 years: LAD
Performance last 10 years: LAD
LT debt / annual profits: LAD
Number of shares last 5 years: KMX
Annual EPS growth last 5 years: LAD
Actual ROE: LAD
ROE last 5 years: LAD
Dividend: LAD

Lithia Motors seems to me to be the best investment. The growth is better, the ROE is better, the debt is smaller and the PE ratio is smaller. There's a lot of debt in this industry (probably because they have to buy used cars before selling them). But both companies are very well managed and I think both will do well in the future.

In fact, I may buy both companies pretty soon. But If I do, the biggest investment will be LAD because most of the numbers suggest that this company will continue to do better than KMX. 

The price to pay for a great stock

Today, I've received a transaction receipt that informed me that my last purchase in US dollars had a 35% conversion.  Holy whore. It's so expensive to buy stocks listed on some american stock exchange... We're so far from 2011 when we could purchase 1,05 american dollar for 1 canadian dollar.

Dry your eyes my little friend. I know you don't cry for Paris. You, cold heart motherfucker, you're only crying because of the conversion rate. Even if it's hard for us to accept, we must understand that if we want a great ROE stock, we have to look south of the border. In fact, there's not so much great stocks in Canada. If you're looking for the Joel Greenblatt/Jason Donville recipe (predicable earnings + low PE + high ROE), you won't find a lot a opportunites in the country of Glass Tiger. You may rather take a look at the country of Paula Abdul.

Here's a list of a few canadian companies that have a ROE higher than 30 (I may have forgotten some, but there's not much more to be listed):

Constellation Software
Rifco
Gluskinn Cheff
Dollarama
Computer Modeling Group

The list is short. More, on this list, 3 stocks are fucking expensive (CSU, CMG and DOL).

And here's a list of a few US listed companies that have a ROE higher than 30 (there are much more companies than this that got a ROE higher than 30):

Accenture
Apple
The Buckle
Colgate Palmolive
Fossil
Kraft
Lockheed Martin
Mastercard
McDonald's
Novo Nordisk
Paychex
Priceline
Polaris
CH Robinson Worldwide
Ross Stores
Strayer Education
Starbucks
TJX companies
IBM
Gilead
Sherwin Williams
Biogen
Dollar Tree


See that bunch of great US stock? Many of them aren't expensive at all (10-15 times earnings).

I'd rather pay a 35% conversion rate for a company which is selling at 14 times earnings, have a ROE of 40 than to pay 18 times earnings for a canadian stock with a ROE of 20.

No wonder why american markets are usually performing better than canadian market.

USA is the real shit.

4 inexpensive stocks to watch (close to their lowest PE ratio for the last year)

Many stocks are close to their lowest price for the last 52 weeks. Here’s a few cheap suggestions and most of them haven’t been discussed before on this blog.

Amaya (AYA.TO) : This gambling company is almost as controversial as a drug company. But growth look promising. The market reaction after results were released this week was completely crazy. If I were to start a portfolio, I would maybe put 2% of it on this stock, but not much more than that. 

Forward PE : 9

ROE : X

EPS growth 5 years : 64%

Debt : Very High

United Therapeutics (UTHR) : I’ve been a shareholder of UTHR in the past. The prospects of the company are still looking good. Their sales are mainly due to a few drugs, but the price of the share is not expensive. They have a lot of cash, they don’t have any long term debt and they generate a lot of cash. A safe investment that should bring good returns over time.

Forward PE : 12

ROE : 49 (the selling of a review voucher is in cause, usually the ROE is around 20-25, which is still good)

EPS growth 5 years : 79% (the selling of a voucher is in cause, once again…)

Debt : None

Polaris (PII) : I’ve just initiated a position in Polaris. This company produces snowmobiles, all-terrain vehicles and motorcycles. The numbers have been impressive for a long time. Their last quarterly results were pretty good but failed to impress the market. The ROE is very high (one of the highest ROE on the stock market) and the PE has rarely been this cheap. I’ve always liked this company but thought until recently that the PE was too high.

Forward PE : 13

ROE : 55

EPS growth 5 years : 34%

Debt : Medium

Carmax (KMX) is a company that some bald columnist on the gazette likes a lot. It’s simple : that guy doesn’t miss an occasion to write how much he likes that company which sells used cars. To me, the numbers of the company have always been OK, borderline good. But I’ve never been astonished by it’s results. Whatever. It’s a good company and the PE has rarely been this low. 

Forward PE : 16

ROE : 19

EPS growth 5 years : 17%

Debt : High

Money isn't everything

Until august, that was a good year for me. My portfolio was up and my few mistakes were largely compensated by my best moves. 

Then, fall came and shit hit the fan. Since july 31th, my portfolio is down about 20%. And I don’t even count the money added to the portfolio since july 31th. So it’s a pretty shitty year. In fact, it’s the worst year of my life as an investor (I invest in the stock market since the fall of 2008).

But money isn’t everything. There’s other things in life such as butterflies, rainbows and love. And there's family. My girlfriend recently found out that she was pregnant after two miscarriages in the last years.

I said to myself : « I may lose some money, but I may regain it later. And if it’s not the case, at least, I’ll achieve my only real goal in life since I’m young which is to have at least two kids. »

Today, my girlfriend had a third miscarriage.

Nobilis Healthcare is suing a short seller for 300 million dollars...!

Last week, Nobilis Healthcare (NHC.TO) announced that it planned to sue for 300 million dollars the short seller at the origin of the big drop of NHC stock price in october.

The amount of 300 million dollars is equivalent to the drop in market valuation after the negative article was written on seekingalpha.

Nobilis Healthcare affirms that numerous statements in the article were untrue and damaged Nobilis Healthcare reputation. For example, the article said that Nobilis bought crappy hospitals and assets and that there was a lot of turmoil inside the business.

Which brings me to te question that a lot of people are asking these days. Should short selling be illegal?

I agree that when false allegations are made and damage a company reputation, the company should react with vigor, and even more if the quality of the products sold is attacked. For example, if I'm the CEO of McDonald's and some blogger is writing that the BigMac is made of human flesh instead of beef and the article convince million of investors to sell the stock, I'd probably be angry. And if the sales of McDonald's are impacted a lot, I'd probably want to sue this guy.

But if the guy is writing that the management of McDonald's is selling all their stocks and McDonald's is poorly managed, it looks minor to me. Almost nobody will stop eating that tasty BigMac for such reason.

In the case of Nobilis, it looks to me that both the management and the product were attacked ("inappropriate success rate for it's medical procedures"). But I wonder if the sales of Nobilis will be hurt by such an article.

Which brings another question. How does the market react in the presence or absence of a legal action? Will the market believe that the short seller is right if the company doesn't sue him? Will the market believe that the company is just trying to preserve it's image and will have time to build a solid argument before the process take place (in a couple of years)? Is the company only trying to scare all the others short sellers out there with a massive suing?

I don't know if I'm pro or against short selling. I believe that most of the opinions (or articles) about companies are generally biased (it may be too positive or too negative). If we sue the short sellers, why wouldn't we sue the longs too? Both may say a lot of lies that may result in a loss of many thousands of dollars for us.

Actually, I realize that we should sue maybe 10% of the people who are writing or saying things about stocks because there's probably more opinion than facts out there. The problem is not the analysts, the shorts or the longs. Like I've written a couple of times before, the problem is the individual investor. 

Let's not forget one thing: individual responsability. If you're on the stock market, you have to know (otherwise you're stupid) that you'll surely lose some money on some investments. Whatever analysts or bloggers are saying, you're the one who pushes the ENTER button after a purchase or a sell order.

I may be wrong, but did it ever happen that a great company was really hurt (and even went bankrupt) because of false allegations? My opinion is that a great company shows to the market how great it is by continuing to deliver solid results. So, all the people who sold their Nobilis shares after that negative article are naive. They should have wait for the next results which are coming. Judge a company on it's results. Not on the opinion of some bloggers who are writing articles on a keyboard full of chips crumbs.

Andrew Left received some death threats or what?

Man, I’m so fucking tired about reading hundred of billion of theories about how Valeant is the worst scandal in the history of capitalism. In fact, I’m not reading all these theories, I just see all these titles on Seekingalpha and, to me, it feels just like when I hear « Hotel California » on the radio : It’s way too much. I can’t take it anymore.

Holy fucking shit, what a domino effect. I don’t recall a single company being hated so much since the big US banks in the 2008-2009 crisis.  

Last week, Valeant’s stock was still down a lot in anticipation of the next attack of Citron that has been released today. I guess a lot of people thought that it would be the fucking coup de grâce. Like if the guillotine was about to fall and take away the small drop of life that was still left in Valeant.

Well, I’ve read the last Citron report and I thought : 

What? Did the guy (Andrew Left) became some pussy or what? Or did someone came to him with a rusted crow bar, saying he’s gonna break his two legs with tetanus as a bonus if he planned to continue his ranting? I can’t believe how a fucking wet firecracker it is. Or should I say WeT FiReCrACKer!!! like we could read on Citron fabulous website.  

But maybe Andrew Left wrote such a boring article just because thousands of lemmings took the relay and pushed the fabulation way further by writing articles with much more sensationalist titles, comparing Valeant to the Titanic, the Challenger, Tchernobyl, the comet that fell on earth 65 million years ago and killed all the dinosaurs or some other fucking tragedy. Maybe the guy knows that the story is now much larger than him and he doesn’t have to be creative anymore.

In fact, he surely knows that he's not as creative as all those assholes who think that Elvis is still alive or that the World Trade Center attack didn’t really happen (because it’s just a David Copperfield trick). Those cocksuckers are able to bring the story to a fucking parallel universe that only people who ever got into a black hole can understand. That’s where we are : surrounded with people that have been in a black hole. Holy motherfucking shit.