vendredi 29 avril 2016

ROE reporter - april 2016

Another quarter, another ROE reporter.

This april, the ROE reporter is interesting. Jason states once again that the two best sectors to invest in are healthcare and technology. I agree with him. Even with the huge shitstorm I've been through with Valeant, Concordia Healthcare and, to a minor extent, Allergan and Gilead today, I still love healthcare stocks. Some of these stocks offer the best mix "high ROE - low debt - low beta" you can get (see Gilead, Biogen and Novo Nordisk for instance).

And I like tech stocks too. Not as much as healthcare stocks, but these stocks usually have a low beta and achieve good growth (Constellation Software is the only great name with a super ROE in Canada in my opinion. Enghouse and Open Text are OK but they have an average ROE).

The ROE reporter presents some established names with a a good ROE and a fair PE ratio. It presents also a list of emerging companies that look promising (like Biosyent, CRH medical (still don't like that one) or Tucows (I like that one)).

You should take a look at these two lists of great canadian companies. It's a great way to find new ideas.

In my opinion, the best listed companies on the ROE reporter are:

CGI Group
Constellation Software
Nobilis Healthcare
CCL Industries (the ROE is not as high as the others, but everything else looks great with that company)

I have to admit that I don't understand how Jason gets his ROE numbers for some companies (for instance, the ROE of CRH, Pulse Seismic, Enghouse, Open Text and Concordia Healthcare is way lower on Reuters and some other websites than the numbers of Jason). If a company doesn't earn money, I don't see how we should adjust the numbers to make like they generate money. Well, if you ask me, I'll tell you I'm not giving chances to any fucking company anymore. I ain't no fucking Mother Teresa.

Anyway, she's fucking dead.

jeudi 21 avril 2016

Savaria (SIS.TO)

In a civilization where people are older and older, there's nothing like a business selling things to help these poor old seniors to gain some mobility. Because old people often have lots of money and they don't care spending it to be mobile... for what? 

To see nobody. To wander in a fucking walmart maybe. 

But before they die in total indifference, old people like to move a little bit. So, Savaria (SIS.TO) is there to sell them elevators, wheelchairs and other things at a high price. What a joke. These people have worked all their fucking life to earn money. And that money eventually serves to help them enjoy JUST A LITTLE BIT of their last years of life with some technical help. Neil Young had it right: It's better to burn out than to fade away. 

Ok, enough for the pep talk.

Savaria is a rare example of a company that achieves high growth in Canada and Jason Donville may say something about that company in BNN in the near future. Because EPS have achieved a 19% annual growth over the last 5 years and 44% growth over the last year. These numbers are actually pretty good. There's very few companies in Canada with a growth like this.

The ROE has been around 18 over the last 5 years and is actually 21 (great ROE). And the debt is at a very reasonable level (less than 4 times earnings, which indicates a good management).

However, liquidities appear a little low. And the biggest problem is that Savaria appears to be a champion of dilution. Which means that the company has issued 39% more shares over the last 3 years... It's pretty bad if you ask me.

With that kind of company, you can bet that every high increase in the price of the shares will be followed by many extra shares issued in the market.... which will lead to a drop in price of the shares. 

So, that business has diarrhoea. Shares are like shit coming out of the anus of the company in a constant way.

To conclude, the price is OK, at about 17 times next year's earnings and the stock has had a nice rise over the last 7 years. I don't see how things could turn completely wrong at this point.

So, almost every indicator looks great, but on the dilution aspect, it's not my kind of company.

I may buy some shares anyway. But not before they issue some new shares, which should come sooner or later...

dimanche 17 avril 2016

Back to the pre-investing sheet

Bad experiences like that Valeant shit are very instructive... once your anger is over. Traumas may have a good effect. For me, the good effect is that I woke up.

I woke up from that fucking wonderland where I thought I could buy a stock without any analysis, reproducing moves of so-called experts. And Bill Ackman is no longer a kind of Jesus-Christ for me. For instance, I sold my Canadian Pacific shares because I realized that even if many people worship Hunter Harrisson (including me) Canadian National and Union Pacific are better railroad operators. They're more expensive, but on every aspect (except share repurchase), they're superior to CP.

The method exposed in the next lines is probably more intelligent and more effective than many superinvestor's moves. Many of these guys manage billion of fucking dollars and they act like cunts. Fuck them.   

I've found an old pre-investing sheet I created about 4 years ago (thanks to Bernard Mooney, once again) and I've decided to update it. At the time, in 2012, that sheet attributed a score to different stocks by looking at different metrics. In retrospect, I see that some metrics used at the time didn't have importance (variation of the long term debt over last 3 years, analysts recommandations...). Too, I didn't have a "momentum indicator", so I didn't really took consideration of a trend in earnings. However, I could see what were the best companies in a perspective of consolidated statement of financial position, which is probably the most important thing to do before investing.

So, I updated that sheet and I took a look at about 60 good/great companies from Canada and USA. All the metrics that were important in my view were gathered on a single line (performance of the stock, EPS growth, actual and historic ROE, dilution of the shares, cash VS debt, debts VS earnings, payout ratio, forward PE, actual PE VS mean PE over the last 5 years and Beta. I added the "momentum indicator" which is related to EPS growth over the last year.

The most important thing for me is to select companies that got a good result on that sheet first. If a company has good growth, small debt, a lot of cash, doesn't issue stock, has a low payout ratio, a low beta and a PE which is equivalent or smaller than it's average PE over the last 5 years, it's probably a good buy.

The idea is to combine a good score with the momentum indicator. Take a look at that sheet, it's a fucking great gift I'm giving to the readers here, I believe.

Funny story: 4 years ago, I took a look at Valeant, using my first version of that sheet and I said to myself, "that fucking stock looks pretty bad on paper!"

4 years later, I had almost 15% of my portfolio on that stock.


samedi 9 avril 2016

Global ROE and global PE ratio

We often talk about some of our stock's ROE and PE ratio but rarely about our global ROE and PE.

That's a mistake because our portfolio is like a big conglomerate and we should think much more about balance between our stocks.

I've been investing money on the stock market for almost 7 years and I had never thought about doing the math about the ROE and PE of my portfolio. But it's never too late to learn and never too late to improve our methods.

So, I've took a look at the ROE (on and  forward PE ratio (on Yahoo Finance) of all of my stocks and I took consideration of the percentage of each stock in my portfolio.

I found that my conglomerate has a ROE of 32 and a forward PE ratio of 14 (I've used the forward PE ratio because I think it's a better number than the actual ROE when you're a growth investor).

So, I'm pretty satisfied with the ROE and forward PE of my portfolio. A company with a ROE of 32 and a forward PE of 14 would look pretty attractive to me.

Note to the readers: Try to do the same. You can have a couple of medium ROE stocks and a couple of high PE ratio stock. But with some adjustment, you can get a good balance and try to drop the PE at the same time as you try to elevate the ROE.

I'd be interested to read your results in the comments.

P.S. I haven't used adjusted ROE for stocks like Valeant and Allergan. If a business don't get positive earnings, I won't adjust the numbers. So, for both companies, I attributed a 0 for the ROE.

mercredi 6 avril 2016

Hardwoods Distribution (HWD.TO)

People seem to like when I write about Valeant or when I write about a top pick from Donville. But, even though Jason Donville has talked about most of the great companies in Canada, there's some interesting names about which he never talked. And I've found one of those...

About 10 days ago, I was screening on Google Finance for some businesses with a low beta and high growth. I've found the usual names like Dollarama and Couche-Tard (for me, they're the perfect examples of very low beta/great growth in Canada).

Somewhere among the short list of stocks I got, I found a name I'd never heard of: Hardwoods distribution (HWD.TO)

Looking at the name, you may think: "Oh no. Not a 19th century company that cuts and sells trees."

Well, not exactly. Hardwoods Distribution is a company that works in the whosale distribution of hardwood lumber, plywood and related products to the woodworking industry. The company has been active for more than 50 years.

If someone is looking for momentum, Hardwoods Distribution seems to be a very good choice (see the numbers below). The good numbers are partly the results of 2 factors: the low exchange rate for canadian dollar and the strength in housing market in the states (about 75% of the sales are in USA and 25% in Canada).

According to Reuters, here's some numbers:

Beta: 0,18 (pretty low)
PE ratio: 15
Forward PE ratio: 13
Dividend yield: 1,2%
Dividend growth rate: Almost tripled over the last 4 years (from 0,02$ in march 2012 to 0,055$ today) 
Payout ratio: 17% (pretty low)
EPS growth rate last 5 years: 79%
EPS growth last quarter VS same period last year: 59%
ROE: 16
ROE last 5 years: 16
Long term debt: Very low
Number of shares oustanding: Very little dilution over the last 5 years

The numbers look great and the company seems to be very well managed.

The business may be related to natural resources, but to me, it looks a lot like Stella Jones: a company that produces construction materials with primary resources. The biggest difference between the two companies is that Hardwoods Distribution is much less known than Stella Jones and is thus avalaible at a much lower price.

Stella Jones has a similar ROE (very slightly higher than HWD), a similar payout ratio, an impressive growth (but lower than HWD), a low Beta (a little higher than HWD) but a much higher PE ratio and a much higher debt too.

It's not the kind of company in which Jason Donville usually invests. He's much more into technology and healthcare.

But I think that, at the actual price, HWD is a pretty high reward/low risk business.

lundi 4 avril 2016

Allergan: another healthcare stock falling (EDIT)

Holy crap, 2016 is such a shitty year for my healthcare stocks.

Today, Allergan is down about 20-22% after hours because of the US government new inversion rules (which are not precisely known at this moment).

Let's remind that Pfizer has made an offer last fall to buy Allergan

According to the terms of the deal, each Allergan shareholder will receive 11.3 shares of Pfizer stock for every share of Allergan share they own. Pfizer is also kicking in another $12 billion in cash for the deal. That means when the deal closes, Allergan shareholders are likely to get around $355 a share.

It looks like the deal is in jeopardy. The new government inversion roules happen because too much money is going out of the states because taxes are too high there. For exemple, the irish tax rate (Allergan) is about 12,5% VS 35% for USA (Pfizer). The after hours results are almost identical as the difference in taxes between the two countries (22% difference).

Once again, the market reaction seems crazy to me:

1- Before the deal, around november 20th 2015, you could buy a share of Allergan for about 300$;
2- After today's news (probabilty of a deal bust) shares are selling at about 220$;
3- Pfizer shares are now selling at about 31,60$ (up 3% after hours);
4- I don't understand.

The only logical explanation is that the market believes that the deal won't happen. It wouldn't be a bad thing in my opinion because Allergan is a great company (high growth) while Pfizer is not such a good company (anemic growth).

With or without Pfizer, Allergan is still a great company. It should continue to do well and could be acquired by another company, probably from somewhere else than USA. So, if the transaction fails, it's OK for me.

But my opinion has absolutely no value in that fucking crazy market. Maybe Allergan could drop to 150$ tomorrow. It could even go fucking bankrupt because nothing surprises me anymore.