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. 

4 commentaires:

  1. Pyves:

    They operate mostly in ALberta I think. That is not looking promising.

    1. Alberta, BC, Ontario, Saskatchewan, Manitoba, Atlantic Provinces...I'm in for 2% and looking for a Carfinco type result.

  2. 4-5 times earnings is not such a big risk for a company which is profitable and has a high ROE.

  3. I sold RFC at 1.80 at a pretty big percentage loss (small position) last year. One of the Donville picks that did not work out. But in fairness, this is Alberta dependent and hence oil dependent. Donville could not guess oil pour crater a few years back.

    To get car exposure but not depend on Alberta, I replaced RFC by EFN asi prefer to depend on US car lease business than Alberta new car financing and indirectly benefit from low CDN dollar.

    While it has not worked out yet, I will stick with this call. RFC certainly looks cheap but may have major increase in loan delinquencies going forward. I am reasonable positive on EFN still.