Stocks that are currently cheap on an historical basis

Sometimes, I think that the PE ratio is not that important, as long as it's not insane (like a PE of 50 or 100, for instance).

And the ROE isn't everything. Oh no. The market is full of high ROE stocks that go nowhere. It's just that, as a group, these stocks have more chances to go up, because they generate more cash than the others.

I now appreciate as much a good track record than a high ROE. For instance, I believe that if a stock had a great EPS growth over the last 5 or 10 years and the free cash flows are growing in a steady way too, that's a great indicator of a stock to own. Plus, if the current PE is about the same or lower than the average PE of the last 5 years, it shows that it may be a good moment to buy.

You may say: "Yeah, but if the current PE is lower than the average, it's probably for a good reason. Nothing is on sale for no reason". That's right. You have to be humble face to the market. You're not a fucking prospector barefoot in the Klondike in the 1800's. You live in an Internet world where everybody knows everything about everything.

So, here's a list of stocks that have growing free cash flows, that have achieved a great EPS growth over the last 5 years and that are selling at a PE ratio equivalent or lower than the 5 last years average (it doesn't mean at all that the current PE is low, it's just that it's lower or equivalent to the average):

Enghouse Systems
Hardwoods Distribution
Linamar
CGI Group
MTY Food Group
Canadian Pacific
Fortune Brands Home & Security
O'Reilly
LKQ
Dollar Tree
Biogen
Open Text
Disney
Credit Acceptance Corp
Middleby
Novo Nordisk
Robert Half International
Home Depot

Not any bad name on that list in my opinion.

They all fucking compound.

Credit acceptance corp (CACC)

An update about Sequoia Fund was out this week on www.dataroma.com

I've learned that the fund has initiated a position of about 2% in Credit acceptance corp (CACC). After a quick look at the numbers,

I've realized that, on almost every metric, CACC looks like a stock to own. It's a kind of Carfinco (car financing for consumers with a bad credit history), that stock which you surely heard about if you were active on the TSX, 3 or 4 years ago.

So, here's a quick look at CACC:

Current PE: 13
Performance last 5 years: 156%
Performance last 10 years: 726%
Annual sales growth last 5 years: 13%
Annual EPS growth last 5 years: 18%
Current ROE: 33
Average ROE last 5 years: 36
Dilution/Buyback last 3 years: they bought back about 10% of the float, which is huge
Current PE / average PE last 5 years: 1 (current price = fair)
Beta: 0,5
Free cash flow: steady growth over the last 5 years (great cash flows)

It looks too good to be true.

Oh yeah. Because a lot of analysts seem to be bearish with the stock. Out of 10 analysts following the stock on Reuters, 4 go for a hold, 5 for an underperformance, and 1 for a sell.

I may sometimes think that I'm a free thinker, these analysts make me believe there's some big shit under the surface. Some crazy shit.

Plus, 76% of the shares held are short. That's fucking crazy. What's going on? Is there a bankrupcy in sight? A fraud? Something worse than that (I don't know what it could be)? I don't think I've ever saw such a high short interest.

What is fucking wrong with that great stock?

Portfolio review (may 24th, 2017)

What about a portfolio review?

Not much activity in the Penerator's portfolio lately. I've got rid of Ceapro, which was anyway a very small position. I've got rid of Gilead too. I'm back with MTY Food Group, probably for good this time. I have a few other stocks on my watch list and I may add one or two very soon.

If that fucking Trump could be destituted, that would give me a great occasion to buy something on a bargain day.

Here's what my portfolio looks like:

Canada:

Alimentation Couche-Tard: 8,2%
Constellation Software: 6,8%
CGI Group: 6,6%
Tucows: 6%
Linamar: 5,3%
MTY Food Group: 5%
Knight Therapeutics: 3,3%
Stella Jones: 3%
Biosyent: 1,1%

US:

Ross Stores: 5,4%
Bank of the Ozarks: 5,1%
Novo Nordisk: 4,7%
United Therapeutics: 4,4%
LKQ: 4,4%
Biogen: 4%
Mohawk: 3,2%
Lithia Motors: 3,1%
Disney: 2,9%
Dollar Tree: 2,8%
Bioverativ: 0,4%

Cash: 14,4%

Average ROE: 27
Average forward PE: 16
Average Beta: 0,74

Superinvestor's transactions (ce que les meilleurs achètent)

Many superinvestors transactions have been released lately. Let's take a look at the most revelating transactions, in my opinion.


Warren Buffett:

He added a lot to his Apple position. The stock now represents 11,5% of Berkshire Hathaway. That's huge. To me, Buffett seems to be late to the party. But who am I to judge Warren Buffett's picks?

IBM dropped to about 7% of Berkshire Hathaway. Buffet sold about 20% of his position.

The other transactions are related to small positions (which would however be huge in absolute numbers for another investor).

Chuck Akre:

Akre added 22% to his Moody's position. The stock now represents almost 11% of Akre Capital Management. He also added to his Mastercard position (now 10% of his fund) and to his Visa position (now 7,2% of his fund). The other transactions were light, on small positions. That Akre guy is surely worth following.

Bill Ackman:

Ackman didn't buy anything. He sold 13% of his Mondelez position and 41% of his Air Products and Chemicals position. He probably had some great plan, like selling for tax purposes. That's such a great idea to sell stocks for that reason. What a fucking misundersood genius.

David Einhorn:

My god, Einhorn increased his General Motors position by 316% (now 31% of Greenlight Capital). You may say he's stupid but you couldn't say that he's not a guy of conviction. And he reduced his Apple stake by 31% (now 9% of the fund).

Carl Icahn: He did nothing that interesting. He should have said to himself: "Icahn do better at the next quarter". LOL. That's a joke for you, fragile people who don't like to read the word "cunt".

I'm still bored with these superinvestors transactions that could be resumed that way: Buy Apple, Sell Apple. And sometimes, buy strange stuff like oil companies, energy companies and buy random shit. I really despise many of them, except for Buffett, Akre and a couple others. 

To conclude, let's take a look at some Giverny Capital transactions of the quarter ended 31th of march 2017:

Visa: up 7% (now 4,9% of the US portfolio)
Markel: up 5% (now  4,8% of the US portfolio)
O'Reilly: up7% (now 3,8% of the portfolio)
GOOG: up 29% (now 3,1% of the portfolio) please note that GOOGL is 0,8% of the portfolio
Heico: up 87% (now 2,6% of the portfolio)
Five Below: new position (0,04% of the portfolio)
Hanesbrand: new position (0,04% of the portfolio)
Southwest Airlines: new position (0,04% of the portfolio)
Buffalo Wild Wings: sold
Stericycle: sold
Knight Transportation: sold

Ob la di Ob la da

Can anyone from Ireland please tell me what's going on with my blog?

I've had about one trillion visitors from Ireland in the last few days and usually, nobody from this country comes here. So, I'm assuming that U2 or Sinead O'Connor have wrote a song about my blog.

If you're Irish, I'll tell you about a guy you've never heard of. His name his Jason Donville. And the last years have been tragic for his legacy even if he's not dead.

Let's forget medium Donville's mistakes and let's remember only major ones where there was a fraud or something really shitty like Valeant, Concordia, Patient Home Monitoring and Home Capital Group.

Now, let's take a look at Badger Daylighting. Another top pick of Donville in the past that's being attacked by Marc Cohodes recently.

Badger is going down (-23% over the last 5 days) because Cohodes said he's short and he didn't trust management.

I don't know if the attack towards Badger is right or wrong, but let's remember that Cohodes seemed to be fucking right about Concordia and Home Capital.

It hurts me because I've loved Jason and I drank his words like they were the lyrics of "Imagine". I'm really sorry to feel now like I've listened to "Ob la di Ob la da".

Free cash flow champions

Free cash flow:

Free cash flow (FCF) is a measure of a company's financial performance, calculated as operating cash flow minus capital expenditures. FCF represents the cash that a company is able to generate after spending the money required to maintain or expand it's asset base. FCF is important because it allows a company to pursue opportunities that enhance shareholder value.

OK, enough with copy/paste. Let's go for some original content.

I've never used FCF that much. In fact, that element has always been obscure, or at least, not very important to me.

But, it's never too late to grow up. Because I've understood very recently that this element is much more important than what I thought. In fact, almost all the stocks that achieve growing FCF over time are great business. And it's not very hard to understand: If a business makes more and more money, year after year, whatever the expenses are, it's probably a good business.

So, I went to analyze some stocks via Morningstar to see how many business were able to grow their FCF in a steady way over the last 5 years. My criteria was very harsh: the stock had to grow it's FCF every year, without any exception. So, if a stock had a very good steady FCF growth but had only a slight decline only one year, it failed the test.  Let's try it with your stocks. You'll see that it's VERY hard to find stocks that grow their FCF every year.

Here's a list of free cash flow champions: stocks for which the free cash flow have been constantly on the rise over the last 5 years. There's 5 foreign stocks (mostly US) and 5 canadian stocks.

Foreign/US stocks:

Middleby (MIDD): UP 308%
Novo Nordisk (NVO): UP 38%
Priceline (PCLN): UP 170%
Discover financial Services (DFS): UP 77%
Facebook (FB): UP 293%

Canadian stocks:

Constellation Software (CSU): UP 672%
Enghouse Systems (ENGH): UP 329%
Open Text (OTEX): UP 256%
Canadian National (CNR) UP 152%
CCL Industries (CCL-B) UP 702%

Benchmark (S&P500): UP 77%

I don't know if my approach is scientific, but over these 10 stocks, only one did worse than the S&P over a 5 years period. And it wasn't an ugly performance...

I think I like that FCF approach. 

Savings: a great way to mitigate your stupid moves

For many years, at the end of each month, I update a spreadsheet on which my stocks are written.

It's a historical document that helps me to see my performance over time and also serves to see what were my preferences at different moments in time.

I sometimes use it to congratulate myself for not buying crappy stocks like Yellow Media anymore or to remind me how crazy I've been to sell my MasterCard shares.

Taking a look at that spreadsheet, I came to realize that, from 2012 to 2017, my portfolio more than tripled (3,54 times to be exact). It's amazing considering the fact that 2015 and 2016 have been bad years for me, with a performance hardly positive.

Before, I've had a couple of years of great performance, but the other reason of that increase in value is my savings. Year after year, I've managed to save a good amount of money. Plus, I don't have a lot of expenses, and they're all reasonable. I don't snort coke. I don't use whores. I minimize my material possessions to what I think necessary for a minimal comfort.

So, with discipline, my bad moves (which are plenty) have been mitigated by my capacity to save money.

We tend to forget that simple truth. Continue to save money is very important, at least in the first years of your investing life. When your portfolio's worth will be around 1 million dollars, probably that your savings won't have a lot of impact. But while it's between 0 and 200 000$, your savings can raise your portfolio by 10% in a single year even if the stock market is shitty and the returns are flat.

When you'll be 40 or 50 and you'll have done plenty of mistakes, you'll finally be a good investor. Then, you'll can snort coke with whores because supplementary savings won't have a lot of impact on your portfolio. So, you'll be able to live your mid-life crisis like everyone who is 55 should: buy a Camaro, and try to fuck 21 years old girls.

That's probably the only reason to be excited about getting old.

Tractor Supply (TSCO)

You know how Giverny Capital select their stocks?

I believe that they go on Value Line, and they check the stocks with the highest earnings predictability stocks. And they check stocks with growing cash flows. Checking those elements, you could find many of Giverny stocks like  Heico, LKQ, Union Pacific, and many more. In fact, Giverny seems to search for stocks that are predictable and steady. And they don't care if the stock is selling for 20-25 times earnings. In fact, they seem to be more willing to pay 25 times earnings than 15 times earnings. 

Screening Value Line with that predictability criteria, I discovered a stock with all these characteristics:

Actual ROE: 31
Average ROE last 5 years: 29
Annual EPS growth last 5 years: 17%
Forward PE: 16
Average PE last 5 years: 29
Debt: Low (less than 3 times earnings)
Buyback/Dilution: 6% buyback over the last 3 years (which is a lot)
Earnings predictability (Value Line): 95% (which is exceptionnal)
Payout ratio: 30%
Dividend: 1,5%

Everything has been growing over the last 10 years: margins, book value, sales, earnings...

That's a fucking amazing performance. And that's the performance of Tractor Supply (TSCO), a specialty retailer supplying the lifestyle needs of recreational farmers and ranchers, as long as tradesmen and small businesses. The company provides livestock and pet products (46% of 2016 sales), hardware, tools, truck and towing, seasonal products (snow blowers and mowers), gifts and toys, clothing, footwear and other stuff...

There's only two negative points with TSCO: growth has slowed down and I don't know if that's gonna change. Then, the cash flows of the business are pretty uneven, year after year. 

Is Amazon a threat for Tractor Supply? Probably for some products, but not all. Well, 46% of TSCO sales are pet products and probably that Amazon could be a threat there. For the biggest stuff like truck and towing, probably that Amazon is not that much of a threat for the moment, but who knows... Amazon may very well sell cars and yacht and boeing and cruise ships. That fucking business seems to sell everything and kill every retail store still alive.

So, I don't know if TSCO is still a great buy. But it's been a great stock until pretty recently.