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.

20 commentaires:

  1. I came across this name awhile ago when I ran one of my scans In my TD Waterhouse account. Didn't have any money available to do anything about it at the time, but I always remembered the name. Interesting that you should highlight here. Running scans can be a useful exercise.

  2. hey guys what do you prefer between the three?

    GUD - Knights Therapautics
    CXR - Concordia Healthcare
    VRX - Valent Pharmaceuticals

    If you had $100,000 would you go all in to one of them, two, none?

    Currently in my situation i'm downclose to -50%, bought CXR at $60.
    No current holdings in GUD or VRX

    Should one average down on CXR?
    Ride the momentum of VRX?
    Play it safe with GUD?
    Keep money in cash and wait for market correction/crash?
    Something else?

    Thanks again for time and help!

  3. Buy something that you understand. I bet you'll have problems understanding CXR and VRX if you take a look at their numbers.

    1. Barry Schwartz had HWD as one of his topic picks on March 28th and since then it is up 4.6%.

    2. Yeah, I saw that. He had it as a top pick a few days after I found it via Google Finance.

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  5. What else do you own?
    What is your timeframe?
    What is your risk profile?

  6. Just read other posts from this blog, mate. You'll find your answers.

  7. hey guys thanks for reply and feedback.


    What else do you own? I don't own anything else. Only stock holding is CXR. Bought CXR at $60 with $30,000. Currently now at net loss of near 50%.

    What is your timeframe? This may sound impatient, but the sooner the better. Just feel trapped, 9 to 5 daily grind, stuck in city, have not left country to see world yet, currently rent and prices are going up like insane so would love to at some point be able to buy,own and live in a good house, ultimately just want freedom in time, to relax and take breather and not have fear of no shelter, food and comfort in life

    What is your risk profile? Whatever it takes to be financial free without doing anything illegal or screwing anyone over

    Current net worth is $150,000. Worked years to get to this point. $30,000 held up in CXR with unfortunate current 50% loss if I sell now. Remaining $120,000 is in chequing and savings. $20,000 to be set aside as backup, emergency, savings fund. $100,000 with intention to grow it as much as possible. Goal is to try to grow $100,000 to $1,000,000 or more as soon as possible.

    1. Hey man, Penetrator has put a lot of wicked content on this blog over the years and I strongly suggest reading through it because a number of questions you have and will have are addressed in here. Read the comments as well – there are some smart folks reading this blog with a number of good ideas. I took an idea from Twotime and bought Kinaxis and it has served me well.
      If you read through Penetrator’s post on “The Great Challenge: Donville vs Penetrator” you’ll see a number of great names and in the comments section you’ll find even more names that are very interesting. If you read his article titled, “Another way to find attractive stocks”, you’ll find a methodology a lot of readers likely use in sniffing out stocks. If you read ROE vs EPS, it’ll give you an indication of timeframe and at the end of the article, a guideline of discipline in investing.
      Go to and read Jason’s newsletters in January for a number of interesting names and how he approaches stock picking.
      I have a significant position in CGI Group, Savaria, and have been loading up on Vermilion Energy and Badger Daylighting at these low values. I recently purchased Concordia Healthcare, Kinaxis and K-bro Linen with the pull-backs. I am currently watching Logistec Corp and Prism Medical. When I buy these names, I enter the purchase with the mentality of that unless something fundamentally changes, I’ll own these stocks for 4+ years.
      Good luck fella!

    2. Thanks Riley for your thorough reply, really appreciate the helpful information. I will definitely go over your suggestions and Penetrator's blog. I'm happy I found this blog and can't wait to learn and grow!

      Penetrator thank you for this blog and great information, it's entertaining and educational!

      Thanks and good luck to all!

    3. Good job Riley.

      Savaria is interesting. I may write about it eventually.

  8. I've had Hardwoods for about 3 years and did very well with it. However, I sold in July and rolled my gains into buying some contrarian plays- CSE, TA, and more recently Rona (January) and Pengrowth (March).

    I do believe that there is further room for capital appreciation with Hardwoods for the same reasons that you described. But, personally, I always set a price target when I purchase and sell 50%-100% of my holdings if the stock hits that target. For HWD it was $18 and I saw too many buys in the market at the time. It's still on my watch list and I could put my Rona and Capstone takeover funds back into Hardwoods. I'll assess when the time arrives.

  9. First post here, great work Penetrator. Very rarely do you see a mix of humour with sound finance and I thank you for that. Hardwood and others were featured on yesterday Globe Number Cruncher. The screen was for profitable Cdn companies with earning growth. HWD was # 7 with a trailing 1Y ROE of 16 compared to a 3Y one of 14. I do notice that it rank # 1 in term of 5Y EPS growth with 117%. Cash flow to debt was also impressive with a ratio of 38 (second best). I haven't look at the financial but the debt must be very low. Familiar names on that list were Gluskin, Nobilis, Jean Coutu, Exco, Home Capital and CGI. Savaria Corp was # 19 with a realy good 3Y ROE of 21. The one thing about Hardwood or Savaria are they are still very low market cap below 300M. I know Savaria is followed by Hodson and Takascy which is a good sign.

    For D. Wesker: I also own CXR, paid close to the actual closing price but still questionning if I should transfer into something like GUD which doesn't have the debt problem. The reason I am keeping it is the strong cash flows that should be generated, but there is also risk. I keep myself concentrated to the best 10 stocks and I find it a bit risky to bet on only 1 stock. Even the best stock in the world can have its problem. No moral on that we all need to live our experience. GLTU

  10. Don't you guys find it exhausting trying to keep up with CXR? I just had enough after earnings and sold out at a 15% loss. After seeing what the government did to Allergan / Pfizer I have an even lesser conviction with CXR. Why bother!

    1. This is why investing is just as much a psychological exercise as anything else. When you buy a stock and lose a lot on it, you have a history with it and it affects you and you start hating it. CXR is dirt cheap and expanding their business in Europe, At the present price it seems cheap to me. Sometmes the time to buy a stock is when everybody hates it.

  11. Sometimes, everybody hates a stock for the right reasons.

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  13. I read the shareholder's letter and the CEO is talking a lot about EBITDA... So what do you think about this Buffet quote?

    We’ll (Berkshire Hathaway) never buy a company when the managers talk about EBITDA. There are more frauds talking about EBITDA. That term has never appeared in the annual reports of companies like Wal-Mart, General Electric, or Microsoft. The fraudsters are trying to con you or they’re trying to con themselves. Interest and taxes are real expenses. Depreciation is the worst kind of expense: You buy an asset first and then pay a deduction, and you don’t get the tax benefit until you start making money. We have found that many of the crooks look like crooks. They are usually people that tell you things that are too good to be true. They have a smell about them."

  14. The CEO may write about EBITDA like a lot of others CEO. At least, the results of the company are actual profits and not adjusted earnings. That's the huge difference between HWD and CXR or VRX.