samedi 30 janvier 2016

The great challenge: Donville VS Penetrator

Have you read the last ROE reporter? It's been released on thursday and it's excellent, once again.

The january edition is the most interesting of the year because Jason Donville presents his approach: High ROE/low PE ratio stocks, like he does every year. Also, Jason states that even if the TSX is mainly based on natural resources and, to a lesser extent, financials (for a lot of people, investing in Canada means investing in one of the big banks or in Suncor), there's some great stocks out there in the knowledge sector (healthcare and technology) which deserve attention.

As always, at the end of the ROE reporter, there's a list of stocks and Donville presents his 5 top picks for the year ahead.

For 2016, his faith goes to his usual picks:

CGI Group
Home Capital Group
Concordia Healthcare
Constellation Software
CRH Medical

The first four names represent more than 30% of my portfolio. So, I believe in them too, obviously.

This year, I'll try to prove myself by playing the game against Donville (and against all the others analysts I'm talking about from time to time). So, I'm gonna chose 7 stocks that I believe will get good results for the year ahead (5 serious picks and 2 long shots). A substantial part of my portfolio is made of US equities. Would it be fair to chose some US equities against a 100% canadian equities portfolio? I don't know. The canadian dollar is so low that it may not be such an unfair approach. In fact, the canadian dollar should rise sooner or later, which would reduce the performance of all US equities. So, I've decided to chose one US listed company.

I think that Donville chosed pretty good stocks and I'd chose most of them too. But I'll try to be original and chose something else.

Here's my choices for 2016.

1- Canadian Pacific
2- Valeant
3- Knight Therapeutics
4- Couche-Tard
5- Allergan (US listed)

Long shots:

6- Ten Peaks Cofee (TPK.TO)
7- Rifco  (RFC.V)

I'm betting on cash full companies such as Knight Therapeutics and CGI Group (even if I didn't chose that last one because Donville chose it first). The market is low and there's plenty of occasions out there, so companies with lots of cash may jump on the occasion to buy something cheap. Cheap companies might as well be bought (Concordia Healthcare, Callidus Capital, Home Capital Group, Nobilis Health, etc).

I'll surely write a review at the end of 2016 or the beginning of 2017.

If you're interested to participate, please use the comment section to write your 5 picks for 2016.

dimanche 24 janvier 2016

Rifco, now a great bargain?

In the stock market, usually, people are either "growth" or "value". It means that people invest in stocks that are growing year after year or in stocks that are really cheap, like, for instance, under book value.

I've never been a fan of value investing. Usually, when you're a value investor, you seek companies that have had a bad management, have been thrown in a crisis or in big trouble (AIG, Bank of America, Sears). Sometimes, it may be a good thing to invest in these companies but I think that the real opportunities among these companies are scarcier than among growth stocks.

So, if you're a value investor, you'll end up with companies like IBM in your portfolio. It's not a bad pick, because the stock is hated even though the company continues to make money (earnings per share are still growing even if sales are declining). That company may take a long time to recover but at least, it's management is devoted to shareholders.

These days, on the stock market, there's plenty of stocks that are selling under book value. Even some good companies for which sales have slowed down are selling around book value. I've written about Home Capital Group (HCG.TO) before and I've wrote a few words about High Arctic Energy (HWO.TO) lately. They're actually value stocks that could easily transform into growth stocks in a matter of months. 

And there's Rifco too (RFC.V). Remember in february 2015, I wrote an article called: "I've had it in the ass with Rifco". I'm pretty happy to have sold all my shares back then because the stock went under 1$ last week. In fact, the stock is selling at around 3 to 5 times this year earnings! It seems pretty crazy to me. More, the ROE of Rifco is around 25. And the company makes money even if sales have declined a lot over the last year.

Yeah, I haven't forgot: Rifco is listed on the Venture, which is an index that I dislike. But, come on, a financial that makes money with a ROE of about 25, selling at around 3 to 5 times earnings? I'm tempted to go back in the stock, with a very low percentage of my portfolio however. Something like 1 or 2%.

Heads, you double your money easily, tails, you lose a small percentage because I don't see how Rifco could go much lower than that.

Which makes me rant once again about CRH Medical and Patient Home Monitoring. These two small caps don't make that much money (in fact, PHM's earnings are negative) while RFC still makes money even if it's not that fun in Alberta these days.

So, to be clear, I'd be pretty much more interested to invest in Rifco than in maybe any other small cap right now. 

dimanche 17 janvier 2016

Jason Donville VS Fabrice Taylor VS Christine Poole VS Bruce Campbell (second round)

In october, I wrote some lines about the results of the four analysts listed above over a one year period.

Three months later, in the eye of the storm, let's take a look at which analyst did the best. Take note that the period is slightly different for each analyst because they almost never appear on TV at the same time. However, their appearances have been close enough to compare them.

Once again, I've retained the three top picks for each analyst. An average return is calculated for each list of 3 top picks.

Jason Donville (february 5th, 2015)

Valeant (VRX.TO): DOWN 45%
Constellation Software (CSU.TO): UP 38%
CGI Group (GIB-A.TO): UP 6%
Average return for top picks: 0%

Fabrice Taylor (january 28th, 2015)

Klondex Mines (KDX.TO): UP 2%
State Office (SOT-UN.TO): DOWN 20%
Snip Interactive (SPN.V): DOWN 48%
Average return for top picks: DOWN 22%

Christine Poole (february 10th, 2015)

Royal Bank (RY.TO): DOWN 12%
PPG Industries (PPG): DOWN 20%
Loblaws (L.TO): UP 4%
Average return for top picks: DOWN 9%

Bruce Campbell (january 14th, 2015)

Diversified Royalties (DIV.TO): DOWN 24%
Nobilis Health (NHC.TO): DOWN 16%
Patient Home Monitoring (PHM.V): DOWN 31%
Average return for top picks: DOWN 24%

Can you believe it? Two of these analysts did worse than the stock market with their top picks (Fabrice Taylor and Bruce Campbell). One analyst did almost the same as the stock market (Christine Poole) and Jason Donville is still the king with his 0% total return (beats the index by 11-12%).

I'm not really surprised for the results of Donville, but I'm beginning to think that the others are fucking lame. They're suppose to give advices to people on TV and they fucking can't achieve results better than the index with their biggest conviction picks.

Worse, they fucking achieve results twice as bad as the market.

vendredi 15 janvier 2016

The clearance rack

Holy fuck, what a beginning of year it is! Almost every investor out there has lost money in the 15 first days of the year. And we'll probably continue losing money, because we're overdue for a such a bad moment.

I've just began to take some yoga lessons. So I approach this crisis with a peaceful mind. Oh yeah, I'm full of mantras, such as "peace, joy, happiness". No shit, they really tell you to repeat that crap in your mind while you're doing some contorsions. No need to tell you that I'm not telling myself that kind of shit at all. Instead, I'm cursing like a lumberjack while they tell me to raise my leg above my head or some other impossible thing to do for a sedentary person.

Well, I'm peaceful but I don't really like this period we're going through. We forgot what a bear market was. Only an handful of stocks keep doing well these days and many of them are those low beta stocks.

What's so great with corrections like these is that almost all stocks are down, and some are a lot. Which means that the bargain price of a lot of companies is linked to a general context instead of a particular problem within companies. So, we can buy without being too worried about a particular problem.

A great truth in life such as in investment is that most things tend to return to their average level. So, when we see an anomaly caused by nothing too important, the return to an average level should happen sooner of later.

For instance, if we take a look at Home Capital Group.

Lowest PE ratio for the last 5 years: 9
Highest PE ratio for the last 5 years: 11,6
Actual PE ratio: 5,3
Shares are trading at book value, which is pretty rare for a company that is making money.

Things may be slowing down at Home Capital, but the actual PE ratio is about 40% lower than the lowest PE ratio of the last 5 years.

Or, take a look at Polaris, one of the best bargains in the US right now, in my opinion.

Lowest PE ratio for the last 5 years: 18
Highest PE ratio for the last 5 years: 27
Actual PE ratio: 11

Like for HCG, the growth is slowing there too, but the actual PE ratio is way way lower than the lowest point of the last 5 years (for a company that still has good sales and a very high ROE)

These days, Warren Buffet has bought for many hundreds of million $ of Phillips 66 (PSX). That stock seems cheap too, like all those stocks related to oil and gas. In the TSX, there's High Arctic Energy (HWO.TO) that may deserve some attention with a price under book value, a ROE of about 15 and a PE ratio of less than 7. As a canadian, I'd probably look there instead of PSX. 

Speaking of Buffet, Berkshire's trading at about 130% of book value. Buffet has said before that he would buy back his own stock at 120% of book value. So, it may be a good moment to buy these shares too.

I could continue like that on and on, because, frankly, there's a lot of great stocks that went down a lot.

In fact, I wish I had sold all of my positions 6 months ago to buy many many stocks right now. But, that's the tragedy of being infected by so-called great ideas such as "buy and hold", "don't try to time the market", "you should always be 100% invested in the stock market" and all that shit. You are now in front of a massive clearance rack with about 3 or 4% of your portfolio in cash. Not enough to make purchases that would do the difference on your portfolio.

And David Bowie is dead.

mardi 5 janvier 2016

If I was the CEO of a big canadian bank...

If I was the CEO of a big canadian bank, I'd surely buy Home Capital Group (HCG.TO).

At the actual price of about 27$, this stock is selling at less than 6 times next year earnings, which is a total bargain given the fact that this company is making money and has a great track record (even though the last months have been hard: no growth).

At 6 times this year's earnings, you'll get a company that has an historic ROE of almost 25 (however, the ROE should be between 16 and 20 this year).

Some people have been buying AIG and Bank of America because these stocks have been trading under book value. Well, with Home Capital Group, we have a financial stock that is selling almost at book value, with a PE ratio under those of AIG and BAC without any heavy charges comparable to AIG and BAC. HCG has been managed much better than AIG and BAC over the years. As a bonus, you'll get a great dividend of about 3,2% with HCG.

I think there's not a single stock in the TSX with a comparable track record that is selling for such a low price.

So, maybe not any CEO of a big canadian bank will buy HCG. But if they did, it would be a great move in my opinion. They would get financial assets that are performing better than their actual asset and they would pay a ridiculous price.

If they don't buy it, you could do it. I've done it yesterday. And if my position wasn't so high, I'd surely put a lot of money on HCG right now.

I don't see how that stock could go much lower than that.