dimanche 25 septembre 2016

Book value and other criterias

I recently got two comments from two different guys on two different posts (at least, they had different nicknames, so, I assume they're not the same person) about book value or value investing.

I've never looked that much on book value. The only times I've looked at it was for some specific stocks that I owned in the past: Vecima Network, Rifco and Home Capital Group.

I'd look at it too if I was to invest in Berkshire.

The 3 stocks above are interesting. They're probably not great stocks anymore, but they're at least OK or good for me.  So, if a OK/good stock is selling under book value (these three are not, but it's close), it would be a criteria in favor of a buying. But not the main criteria.

Actually, book value is one of the last thing I look at before investing. And you may be surprised and even disappointed about it, but I look at growth in the middle of the process, not at the start. You may even think that I'm fucking crazy and I don't understand how the market works. But I simply don't see how I could invest in a business that's growing a lot but that doesn't have a good balance sheet. In other words, I'd invest in Bed bath and beyond (BBBY) long before investing in Netflix (NFLX).

Here's a short list of the things I look before investing. I look at some other numbers too, but it's just to show an order in my criterias.

1- ROE;
2- PE ratio and forward PE ratio;
3- Debt;
4- Growth;
5- Buyback or dilution;
6- Beta;
7- Book Value;
8- Dividend/Payout ratio (well, I look at this number very soon in the process, but it's only to see if the payout is too high). 

Usually, I believe that a stock selling under book value is a bad or average stock. I've never been very interested in Bank of America or AIG. You can get both at 65-70% of their book value. They did well in the last 5 years, but only because they went much too low (an incredible negative sentiment was towards them). You can even get Sears Holding at a very low multiple. The book value of SHLD is negative but if you believe that real estate assets are undervalued, it would be a pure value play.

It's not my kind of investment at all. I'm not comfortable with stocks that face a great great drop in earnings. At least, BAC and AIG don't lose money.

In fact, I'm not 100% comfortable with almost every stock on the market. With my portfolio, I simply try to reduce my discomfort.

For me, the best business is the business with earnings equivalent to the value of the business. Not the business that I could buy at 50% of the value of it's assets. I don't understand why I should value assets if a business doesn't make money.

mardi 20 septembre 2016

Stericycle exploring new depths

There's not a lot to tell about Jason Donville these times, so, I keep going with François Rochon and his picks.

When you first look at Rochon's selection (Giverny Capital) via Whale Wisdom, you ask yourself: "How does this guy works?" because you find a lot of average ROE and average growth stocks. Plus,  almost all these stocks have a high PE ratio. The only thing we can think is that these businesses have a fucking amazing moat that we didn't know about.

Among Giverny Capital's list, you'll find Mohawk, LKQ, Buffalo Wild Wings and Stericycle. All average ROE, all average growth and high PE.

Let's take a look at Stericycle.

Some people say it's a monopoly. That business collects and destroys medical waste.

I've never understood how a business in that field could be a monopoly.

What do you need to collect needles and other medical waste? Some protecting gloves. And probably some container to put waste in it. And then you put that shit in an incinerator and that's it. OK, they probably manipulate some oncology stuff, full of uranium, plutonium or any other radioactive stuff that they'll use to make cars fly in the future. That's probably the tricky part but I'm sure that they can bury that shit under a school on a weekend, when everybody looks elsewhere.

The market has always seen Stericycle as some kind of super mega giga invulnerable business. The stock went from about 29$ in august 2005 to almost 150$ in august 2015 (5 baggers). Since then, the stock lost half it's value. The stock is now selling for about 77-78$.

The average PE ratio of the last 5 years was 34. The actual PE ratio is 29. That's very high for a business with an average growth rate (the growth has been good for some years in the past but it wasn't consistent). Note that EPS are now almost the same in 2016 as they were in 2011.

The ROE has been between 18 and 23 since 2006 but is now much lower than that (actual ROE: 10).

The debt is high (about 15 times earnings), they recently had issues with accounting and their latest acquisition (Shred-It) raises some questions. How come buying that kind of business? I don't know. Please, ask someone else.

Some could argue that, with a forward PE of about 15, this stock looks pretty cheap on an historical basis.

That's true. But there's a lot of other stocks out there with a forward PE of 15, with better growth, better ROE and no accounting issues. My latest experience with accounting issues was unforgettable: Oh, sweet Valeant.

So, forget the free fall of Stericycle as an indicator to buy it. That's a mistake we all do. We should compare stocks with other stocks and not with themselves. 

mardi 13 septembre 2016

CRH Medical: Deep in the ass

Have you ever had a colonoscopy?

I do.

What a funny moment. The doctor inserts a hose in your ass and pushes that hose in your intestine to see if you have cancer or some other shit. When the hose gets in a curve, the sensation becomes a little less funny. I remember disliking that curvy part. And I remember feeling not too comfortable to see the camera inside my ass/intestine/whatever, showing me what I looked like from the inside. There's some parts of your anatomy that you should never be aware of. For instance, your brain, your intestine and that little path inside your penis.

And you know what? I was only 19 when I got that colonoscopy. I got it because I started shitting blood. Well, that wasn't blood in my crap. It was just super hemorroids.

I know: you never asked for this.

Jason Donville seems to like a lot CRH Medical, a company that's a leader in rectum exploration. I've never understood what was so great with this company. They never earned that much money and their ROE is just average. Plus, that's a small company with a short track record.

Let's take a look at some numbers:

EPS 2013: 0,05$
EPS 2014: 0,03$
EPS 2015: 0,04$

Last results (july 28th): EPS: 0,02$

Actual ROE: 13
ROE last 5 years: 16

The ROE was great in 2011, 2012 and 2013 (between 28 and 39) but before, its was very bad (something like -80) and it's just average since 2014. Jason Donville says that the ROE is about 35 but it's adjusted ROE just like the ROE of Valeant, Concordia, Directcash Payment, Pulse Seismic, etc. I don't use adjusted ROE. If the ROE is negative on Reuters, it's negative. Few things did worse to me than adjusted metrics.

The growth in sales and EPS is great in the very recent past, but I don't see anything that could justify to pay 45-50 times actual earnings. Some may say that, to evaluate a stock, we should look forward and not in the rear view mirror.


Some analysts seem to think that the forward PE of CRH is about 12-15. So, it looks like CRH is able to integrate acquisitions like Couche-Tard maybe? Oh yeah, everybody can do the same as Couche-Tard. 

These people probably believe in Santa Claus, in God, or maybe they're retard enough to believe that 9/11 actually happened or that some men walked on the moon in 1969.

Bunch of fuckers.

Anyway, CRH medical is not for me. 

samedi 10 septembre 2016

Not a glorious time for Donville Kent

Jason Donville must have been pretty disappointed in 2016. His performance has probably never been this bad.

His major mistake has surely been to pick stocks with obscure accounting practices and/or a short track record. If he had stuck with stocks using usual accounting practices, he would have got a much more decent performance.

Let's see Jason Donville's picks on august 25th 2015 (performance of the stocks since then is indicated besides):

Top picks:
CRH Medical 36%
MTY Food Group 34%
Valeant -87%

Total return top picks:-17%

Stocks rated as a buy, or positive comments:
Constellation Software 6%
Ten Peaks Coffee -11%
Tucows 12%
Rifco -27%
Pivot Technology -14%
Patient Home Monitoring -68%
Neulion 57%
CGI Group 35%
Concordia Healthcare -89%
Nobilis Health -21%
Acerus Pharmaceuticals -54%

Total return buy or positive comments:-16%

mercredi 7 septembre 2016

Bet against a good business (another way to find attractive stocks part II)

How come some investors dare to short great stocks? A business may face some challenges and a drop in earnings, but when that business has been solid in the past, I don't understand why people may bet against it (I wrote about that subject, 6 months ago). 

There's plenty of bad business out there. Why not bet against them? Why choose a business with great numbers, great ROE and great appreciation over time and not one of those stocks with a PE ratio of 80 or without any earnings since 2012?

You can find that kind of crap easily if you screen the market.

I discovered that my portfolio has a lot of heavily shorted stocks. I don't understand why so many people short them. Can you really short a business like Polaris, with an historic ROE higher than 99% of all the stocks on the market?  And how the fuck Netflix and Valeant are less shorted than Lithia Motors and Carmax? (Well, actually, Valeant is slightly more shorted than Lithia Motors).

Anyway, here's some stocks I like / I own that are heavily shorted (percentage = % of float shorted)

Lithia Motors (12%)
Carmax (16%)
Bank of the Ozarks (19%)
Chipotle Mexican Grill (20%) not so sure I like this one, but I don't dislike it either
United Therapeutics (23%)
Polaris (23%)

And here's some stocks I dislike that are heavily shorted (I'd short them if I had to short something)

Netflix (8%)
Valeant (13%)
David's Tea (27%)
Tesla Motors (30%)
Sears Holdings (63%)

Compare the two lists. You'll be amazed to see that a very high quality bank like Bank of the Ozarks is being more shorted than Valeant. Or that a business like David's Tea (that doesn't have earnings) is almost equally shorted as Polaris which is very very profitable.

Maybe you could take advantage of that folly.