samedi 28 janvier 2017

The recipe for a 100 bagger

I usually don't really like Philippe Leblanc. The guy often writes articles without saying anything substantial. And he sometimes preach a little too much for me.

But yesterday, he wrote a great article which should interest every serious investor. The name of the article is "Six 100 baggers québécois" which you probably can translate without my help. The article is interesting but a little misleading because his picks are not all 100 baggers. But anyway, let's see the list:

CGI Group: 492 baggers over the last 27 years
Alimentation Couche-Tard: 400 baggers over the last 27 years
MTY Food Group: 282 baggers over the last 20 years
Metro: 154 baggers over the last 27 years
Industries Lassonde: 47 baggers over the last 27 years
Richelieu Hardware: 41 baggers over the last 24 years

 He finishes the article with 2 elements shared by these multiple baggers:
1- A lot of insider ownership;
2- Companies in boring and traditional fields.

I'd add the following elements in regard of the 6 stocks above:
3- A stock which is not a small cap (too risky), nor a large cap (too big to grow in a substantial way). Ok, if you bought them 27 years ago, they were surely small caps, but I believe we should always wait for at least 5 years of track record before investing in a company;
4- A stock in an industry without regulation (I've never written as much about regulation as in this month). 

When I think of these elements and I take a look at my portfolio, I see that my healthcare stocks (Gilead, United Therapeutics, Novo Nordisk and Biogen) have two "negative" elements: they are large caps (well, UTHR is a mid cap) and they operate in a sector where innovation is crucial and where there is or there could be important regulation.

Looking at boring stocks, Home Depot is a great, great, great stock in a boring sector, but with a market cap of 170 billion dollars, you probably won't get a multiple bagger there (maybe a 2,3,4 or 5 baggers in the next 10 years, but surely not a 100 baggers).

In the other hand, there's stocks like LKQ, Constellation Software, Stella Jones, Knight Therapeutics,
Winmark, Tucows, Bank of the Ozarks which are not that big. They don't all have a giga ROE, but they have appetite for growth.

Another thing to change in my method: Looking for multiple baggers and not only for stocks with a great balance sheet and great ratios. 

jeudi 26 janvier 2017

Winmark (WINA)

Do you buy used clothes? Probably not. If you got enough money to invest on the stock market, you probably have enough money to buy something new and clean, without any trace of sweat, lice and AIDS. 

But maybe you have enough money to invest because you save your money, dressing yourself like a fucking Hobo. Who knows.
The only times in my life I've bought used clothes was when I went to some kitsch party where we had to dress like in the 80's. I believe I share that disdain about used clothes with many people. But it's not because I don't like something that there's not a demand for that.
Anyway, there's a stock which is a franchiser of used stuff. The stock is Winmark (WINA). The five franchises of Winmark are :
Once upon a child
Style Encore
Play it again sports (only Winmark's franchise known in Quebec in my opinion)
Plato's closet
Music go round 
OK, not such an attractive industry at first sight. But the numbers are interesting.
Actual PE  : 23
Forward PE : 20
Average PE last 5 years: 22,5
Performance of the stock over the last 5 years : 118%
Performance of the stock over the last 10 years : 517%
EPS growth last year : 14%
Annual EPS growth last 5 years : 19%
Actual ROE : 60
Average ROE last 5 years : 60
Buyback/Dilution : Lots of buyback (float reduced by 20% over the last 3 years)
Debt : Very little
Dividend and Payout:  0,34% (div.) and 7% (payout)
Beta : 0,58

It's very hard to find a stock with such a high ROE, such a low debt and good growth (without being spectacular). Plus, there's no regulation in that industry.
Only negative point: the earnings are not that steady, even though the beta is low. 
Definitely a name to remember.

dimanche 22 janvier 2017

British stocks

Recently, François Rochon said in an interview that he thought that the british pound was undervalued by about 18% VS the american dollar. He said that some british stocks looked interesting to him.

Most of the readers of this blog are canadian. So, we don't really care about the difference between US dollar and british pound. We care about the difference between canadian dollar and british pound.

So, what's the difference between the two?

On january 22, 2017, you would have to pay 1,64$ for a british pound.

In 2016, you had to pay 1,80$ for a british pound (average exchange rate as for the years below);
In 2015, you had to pay 1,95$ for a british pound;
In 2014, you had to pay 1,82$ for a british pound;
In 2013, you had to pay 1,61$ for a british pound;
In 2012, you had to pay 1,58$ for a british pound.

So, the average price you'd have to pay for a british pound from 2012 to 2016 is 1,75$. Today, the exchange rate is about 6% lower, which is not a huge bargain. Maybe there's gonna be a better bargain after the Brexit? Who knows.

Anyway, what are the best british stocks? I've been searching a bit on the web and I didn't see that much interesting stocks. It doesn't seem to have much growth in UK these days. So, here's a short list of well known names :

Rolls Royce
BP (British Petroleum)
Rio Tinto
BHP Bilinton
Burberry (high ROE)
Next (high ROE)
Hargreaves Lansdown (high ROE)
British American Tobacco (high ROE)
British Sky Broadcasting (high ROE)
GlaxoSmithKline (usually high ROE, but not now)

My favorite stock in the area of United Kingdom is Accenture, an Irish consulting company with a very high ROE. I've been a shareholder in the past and I really like that stock. Maybe that the Brexit will have some impact on the price of this company in the year ahead, who knows? I prefer that stock to any UK stock in the list above.

Someone is a shareholder of some british stock or is looking at some british stock at the moment? My list isn't that attractive. Probably that someone has something more attractive to talk about.

vendredi 20 janvier 2017

From Concordia to Tucows

As said my dear friend Robin Speziale and as some readers already know: I'm a nihilistic person. 
We live, we die. Between the two, we’re ambitious. We try to get rich, we try to fuck girls, we try to reach the top of the pyramid, we want to have a big car, a big house. And in the end, it doesn’t matter because we die in a mansion, whispering « Rosebud », full of regrets about our youth and our sleigh.
Universe and life are random events with obscure causes and obscure future. Some people say the Big Bang happened when god tried to divide 0 by 0. It's an interesting theory. Have you ever tried to divide 0 by 0? You shouldn't. Your calculator will explode.
Some say the dinosaurs disappeared when they started being gay. Interesting theory. But I don’t know, I wasn't there. I'm always skeptic when I'm not there. 
And then, we're there. Ants thinking they're the top of evolution. We're just drops in the ocean, on a planetary perspective. Imagine on the perspective of the solar system. Imagine on the perspective of the entire Universe. 
Fuck, I feel so depressed.
But, while we live, we can have some sentiment of control over things. That's what make us feel alive and make us forget that we could all die right now and it wouldn't matter.
Investment is one of those fields where we have control over things. But we sometimes forget it.
Like when we buy a stock that goes down and down, and we keep it, and keep it, hoping that it would finally change direction and go up.  And it never happens. Because you've bought Concordia Healthcare.

Here’s an interesting story :

On september 30th, 2015, I started buying some Concordia Healthcare on my standard account (compte courant, en français) buying from 53$ to 42$ during the fall.
Then, in march of 2016, I lost confidence in this stock, and sold everything at about 38$. I lost about 10$ per share. I didn't get poor, but I've lost a few thousand dollars.
Two weeks later, on the same account, with the same money, I started buying Tucows for about 28$. I kept buying it in the following months.
Then, today, the company made a big acquisition and the price of the stock went up about 15%. So, about 9 months after I bought my first shares, I’ve got a 75% return.
I know that something like that doesn't happen that often. You rarely jump from a free-falling elevator to a fast-climbing one. But that story shows at least that you can change the course of things if you take the reins and stop going where you're not sure you're going. 

That story is the story of one of my worst buying going to one of my best buying (I lost much more money with Valeant, but Concordia was and still is a crappy stock anyway).
When you change the course of things, it's a good feeling. It makes you  happy for a short while.

lundi 16 janvier 2017

Stella Jones: the right time to buy?

Today, Stella Jones (SJ.TO) was down a lot due to a major drop in guidance.

Some people say it's a good time to buy because of the 8-10% correction.

I don't think so. Usually, when the operating income of a company drops from 48 millions dollars to 28 million dollars (which is the case for Stella Jones), it's not a signal that the price of the shares will go up. EPS will almost certainly drop for more than 8-10%. So, on an EPS basis, Stella Jones is probably more expensive today than it was one year ago.

If you think that 2017 will be a good year for Stella Jones, you're probably wrong. I don't think it's a momentum pick at all. Sorry for all those who thought that SJ would be a great pick for 2017. You still have 9 picks to save your portfolio.

But anyway, Stella Jones is a great business run but a brilliant manager (Brian McManus). It's one of the few canadian stocks which is a buy and hold for many years. It's like Novo Nordisk to some extent: A great business that goes through tough times but that should still be there 10 years from now... and that should make much more money. But unlike Novo Nordisk, Stella Jones operates in an industry where the regulation is almost absent, which is a great thing for us, investors.

So, if you want to build a solid portfolio of stocks run by a handful of great managers, Stella Jones is a pick for you, along with Metro, CGI Group, Richelieu Hardware, Canadian National, Alimentation Couche-Tard and some others.

But don't expect anything for the year ahead.

dimanche 15 janvier 2017

Distribution of assets

We talk a lot about stocks here. But most of us have some other things that constitute our "personal value".

My distribution of assets is approximately as follows:

Stocks: 50%
House (market value minus mortgage to pay): 40%
Forest land: 6%
Cash: 2%
Others (car, furnitures): 2%

I'm not exactly sure about the value of my house and my forest land so the distribution is not precise. But the reality is probably not to far.

Like many people, I don't see my house as an investment. I like to have my place, without any neighbour too close. I like to have my own ground even if I don't spend that much time there except for mowing the lawn (which is not something I really like). But anyway, the value of my house could decrease by 75% and I think I would be almost indifferent. Same thing for my forest land which was bought by my father 25 years ago and bought back by me some years ago.

There's absolutely nothing scientific in that distribution. I don't plan to have a specific percentage of stocks VS my house. Well, actually, my goal is to have a very, very high percentage of my value in stocks. Once the foundation of my life is there (a house, an OK car, a little comfort in the house), I don't plan to own anything more. I don't plan to buy a block of flats or a Tesla.

If I project myself 20 years in the future, I don't see any more possessions than I have now, except much more money invested in stocks.

My goal in life probably looks boring to many people...

jeudi 12 janvier 2017

Portfolio review - January 12th, 2017

How do I start the year? Have I bullshited you with my picks for 2017, having few of them in my portfolio?
I don't think so. Here's my actual portfolio:
Alimentation Couche-Tard : 8,1%
CGI Group : 7,1%
Tucows : 6,7%
Constellation Software : 6,5%
Linamar : 5,3%
Hardwoods Distribution : 4,1%
Knight Therapeutics : 3,8%
Stella Jones : 3,1%
Ceapro : 1,3%
United Therapeutics : 6,2%
Ross Stores : 6%
Bank of the Ozarks : 5,3%
Biogen : 4,8%
Novo Nordisk : 4,2%
Gilead : 3,9%
Dollar Tree : 3,7%
Lithia Motors : 3,6%
Disney : 3,1%
Mohawk Industries : 2,9%

Cash : 10,1%
Average portfolio ROE : 32%
Average portfolio forward PE : 16
Average portfolio Beta : 0,8

As you can see, I own every pick I've chosen for 2017 except for LKQ. That stock is interesting and I’ll probably buy it sooner or later. But the market is pricey and I’ve decided to wait for a correction before buying anything (except if there’s a special event for a particular stock).
You may say : "If you like the stock now, but it now. There’s always an occasion in the market. You should always be fully invested. BLAH BLAH BLAH. Yeah, you’re right. But I think that occasions are easier to find when the entire stock market is down instead of only a particular stock.
There’s always someone giving me these kind of lessons in the comment section. But nobody is giving me lessons about my unusual sexual comments, which indicates that most of you are fucking perverts. You look like boring guys on the outside: very cartesian and talking about margins, ratios, cash flows and all that shit.
But when the sun goes down, you probably all fuck goats and put hamsters in your ass. 

mardi 10 janvier 2017

Reversal of situation / turn-around

Do you believe in reversal of situations?

I don't.

OK, Apple did a spectacular turn-around when Steve Jobs came back in the late 90's, but you have probably 50 examples of a business going to the wall and hurting the wall for a business going to the wall and avoiding it. I don't understand why we should go for a risky situation with a business not safe/that tries to reinvent itself instead of a business that's selling the same thing for 20 years, away from media exposure (ex: Richelieu Hardware, LKQ, Ross Stores).

Today, we learn that Valeant sold 2,1 billion US dollars of assets to L'Oréal and to a chinese business. Wow, the debt of the company will go down... a bit. And so what? The debt may go down but the business is smaller too. And more than anything else, it doesn't look like a period where Valeant could sell it's assets in a position of strength. In fact, there's a pressure on Valeant which is comparable to the weight of the water at the bottom of the Mariana Trench. You should go there to understand what I'm writing. Some say it's not very comfortable.

There's so much business out there, why bet on a stock which has 10% of chances of success, whatever the price is (5-10-15 times earnings) when you can invest in a lot of quiet stocks that have never been related to any scandal or crisis and which has steady earnings... and that's avalaible at 15-20 times earnings? I know, I wrote something similar in the past, but today, a lot of people were writing about Valeant on Seeking Alpha, writing stuff like: "Shorts will cover their ass now!"

Come on, Valeant was toxic one year ago. It's radioactive now. It's a panic selling of assets due to popular and insider pression. It's not good. Look elsewhere and forgive Mike Pearson for his sins. Anyway, he will burn in hell for what he did.

Which brings me to my question: Do you believe in turn-around? If the answer is yes, which percentage of your portfolio is related to these turn-around?

jeudi 5 janvier 2017

Evolution VS your portfolio

My god, the last post has been a fucking hit. Everybody across Canada seems to have read it.

It's my Reckless so far. You know, every artist has a Reckless. Bryan Adams had a Reckless in 1984 and it was his biggest hit. So, that boring post is my Reckless. 

Thanks to everybody for your contribution. It was very interesting and sometimes strange to see your picks. Nice discussions in the comment section too. I'm beginning to like and even love some of you. We should meet in a spa or a sauna someday.

Which brings me to another kind of social gathering. Have you been to Boxing Day? I know I'm a little late about that topic, but this year, in the Quebec City area, the boxing day was very quiet. I went to a few stores and in some places, it looked like a friday at 6 PM.

What happened? Was it Amazon's fault?

We've heard about Amazon for many years now. The investor's day transcripts of Sequoia Fund are full of references about "brick and mortar" stores that should or should not be affected by Amazon. Well, this year, it looked like everybody bought online instead of in those "brick and mortar" stores.  Was it different in Montreal, Toronto, Vancouver and Yellowknife? Maybe it was just here that  something happened...

Another big change that's happening is related to electric and self-driving cars. Will they destroy Exxon, Chevron, Couche-Tard and Casey's? Will they destroy insurance companies because there'll be no more accidents?

Have you thought about your portfolio versus these changes? Are you protected? Should you be protected? Do you understand what I'm talking about? Have you reached a point of non-return in existentialism making you say "So what?" about everything?

Well, for myself, I don't see a lot of impact to my portfolio, with these probable changes. Maybe on Couche-Tard. Maybe on Ross Stores. Actually, they both look like two of my most solid investments. But there may be some threat that's appearing...

Except for that, I don't know. What's your opinion? 

lundi 2 janvier 2017

My picks for 2017

It would be stupid to completely change my investing style for 2017. Except for a couple of very bad picks, most of my 2016 picks were at least OK.

For the year ahead, I thought about using the magic formula in a brain-dead manner (just pick the highest ROE/low ROE stocks and don't care about the quality of stocks).

Or I thought that I could mix the usual high ROE/not too high PE with some not so obvious picks (Rochon's picks).

Almost all of these are momentum stocks because the growth in the recent past has been great. Some of them are ready for a big acquisition (Constellation Software, CGI Group, Knight Therapeutics, Disney...). Half of them have a great ROE (Constellation Software, Alimentation Couche-Tard, Linamar, Tucows, United Therapeutics). Some of them operate in boring industries (Alimentation Couche-Tard, Linamar, Mohawk, LKQ). I really believe in this group and I strongly believe that it will beat the market over the next 12 months.

1- Constellation Software (softwares);
2- CGI Group (consulting services);
3- Alimentation Couche-Tard (convenience stores);
4- Linamar (auto parts);
5- Knight Therapeutics (healthcare, but mostly a full-cash company for now);
6- Tucows (Internet services);
7- United Therapeutics (healthcare);
8- Mohawk Industries (carpets and ceramics);
9- Disney (movies, thematic parks, ESPN and more);
10-LKQ (auto parts and cours à scrap).

I invite everybody to suggest stocks for 2017. Some guys wrote recently that they wanted a challenge. Just compete with me and with all the crazy guys who read this blog.

So, just build a 10 stocks portfolio like I did. If you're lazy or possessive of your precious portfolio, you can suggest only a couple of names that appear interesting to you.

Fuck those holiday times which are over now. Let's get serious. Let's make money.