vendredi 21 juillet 2017

Linamar, so far so good

I've never understood why so many people weren't interested in Linamar.

The stock has been very cheap for a while.
EPS growth has been steady and very good for a while.
The ROE has been great (around 20) for a while.
The company has a very moderate debt.
It's not a regulated sector (auto parts).
Everything is there.

But, some people say that the income of the CEO is too high (for those who can read french).

I've never really cared about the income of any CEO. They're almost all overpaid. What about an over-overpaid CEO? I don't care about it if the performance of the stock and the numbers behind the stock are good. I mean, OK, it's immoral to earn 14 million dollars a year while ethiopians are drinking water full of worms and shit. But we live in an immoral world where we kill billions of male baby chicken every year because they're worthless (it's true, just check on the Internet). We let stupid people reproduce, thus spreading stupidity and misery around us. There's 10 billion things more immoral as a fucking CEO who earns 14 millions dollars a year and we all tolerate them because of our system of values which I don't share.  So, I don't give a fuck about total compensation.

Anyway, take a look at that list. The richest CEO's in Canada are there. You'll see that the king of motherfuckers, Mike Pearson (Valeant), is well ahead everybody. Then, you have Hunter Harrisson (CP.TO), Mark Barrenechea (OTEX.TO), Brian Hannasch (ATD-B.TO), and, at number 8, you get Linda Hasenfratz (LNR.TO) with a total compensation of about 14 million dollars a year. It's a lot, but, if the total compensation was a reason not to invest in a stock, I wouldn't own Alimentation Couche-Tard and I wouldn't be thinking of owning Open Text. 

Both business are great. They're surely among the top 10 in Canada. 

And I won't buy shares of Blackberry just because the CEO is number 91 on the list.

LNR.TO is up about 22% this year. It's a good perfomance. And you didn't have to be a fucking genius to select that stock 6-7 months ago. But you were afraid of the peak of auto sales. Because you're always afraid of something. But you were not afraid of following Ackman with his giga-stupid move of investing in Shitpotle Mexican Grill. And you weren't afraid of buying CRH Medical at something like 50 times actual earnings. Because they're not "cyclical stocks".

I don't think that LNR is the best stock in the world. But it was a safe bet (it's probably still a safe bet) and a logical choice in my opinion. That's a company that makes money, year after year and that's not overvalued at all. Much better than all those stocks that need a serious turn-around or that surf on some crazy fucking hype.

7 commentaires:

  1. Linda (ceo), her father (chairman) AND the president are ALL making about $10 million (or more). That's a lot for a company with a market cap under $5 billion (cdn). That's over $30 million And that's just their salaries. How high does their compensation get when we add in stock options? We're used to being financially raped by CEO's... but they usually operate much bigger companies.
    This is a great company but there's a level of greed that's just hard to stomach. (consider that these insiders own a good chunk of the company and get very rich just by helping the stock go up).
    If there are headwinds ahead for this sector (and I believe there will be), then the greed of upper management will really shine through in bad times. Nobody minds when everybody is making money.
    I think it's going to get harder for even the best retailers and car parts companies. A lot of value investors may fall into value traps investing in these sectors. But people will just assume that I'm crazy if I tell them to beware of these great companies going at such great values. I have a great value stock for you guys: Ford. It's going for 7x next year earnings...and yet...most people that bought Ford at any time in the last five years have lost money. You'd have to gotten extremely lucky in your timing to have made money with Ford over the last five years.

    1. Yeah, there's a lot of greed there. But, except for Stanley Ma and Mark Leonard, very few CEO seem to live a frugal life. Or at least, want to look like they live a frugal life.

    2. Let us discuss some of the headwinds that Angelo was referring to for Linamar. 1) the subprime loan market for cars as well as student loans in the US is going through some Major problems 2) Interest rates in the US and Canada are increasing, while wages are stagnant, Not good news if you are a consumer that is going to purchase a big ticket item. Finally, I will refer to what Veronika Hirsh said about Magna International on BNN, this week:

      This is a stock that is in the late stage cycle, and generally you don’t own consumer stocks. Industrial products is probably where you want to be. One of the fears is that a lot of car loans are going to go bad in this cycle. Some of the loans go 6-7 years, and by that time, the car is not worth anything. Last quarter, the margins looked a little healthier in Europe. A great company, but it’s just the wrong stage of the cycle.

      If I could please have your opinion on CRH. This company had: a interesting ROQ of 20%, ROA of 12%; a reasonable debt to equity of 47%; a Strong generator of cash flow; as well as a formidable balance sheet. From what I gather, they were expecting 20% less in US government payments. In turn, this would probably imply that private insurers would also be paying them less in fees. Being a growth by acquisition story, this stock really got slaughtered, because the changes in payments would imply a different growth rate. Would you agree with this assessment, or am I missing some other important factors?


      Snack Attack

    3. Great Analysis of some of the headwinds facing the car biz, UNKNOWN/ Snack Attack.
      Funny story about the risks car manufacturers take with their loans:
      A couple of years ago, I took my dad (a mere 75 years old at the time) to buy a new car. What kind of terms was he offered for his NOTHING down car loan? Well...he was approved for an EIGHT YEAR loan. Maybe when he's 85, we'll go back and see if they can give him another 8 year car loan on his next car purchase. LOL

  2. Linamar is my second highest holding I think right after Lassonde...

    Three of the top executives of Linama (Linda, Frank and a guy) make $35M while the company's TTM net income is $540M, operating cash flow is $834M and free cash flow is $477M. I agree it is a bit much but the company is doing great. (Linda's $14M/$540M= 2.5% of net income)

    I wrote a while ago in my blog about Linda purchasing shares @$3.65 during financial crisis.

    My favorite frugal CEO&largest shareholder is Stanley Ma who made $408K in 2016 $405k in 2015 and $423k in 2014... which include $23K of annual car benefit. (What the heck does he drive? 2014 Corolla? I would believe it). The company's TTM net income $63M and free cash flow is $71M so his salary comes to $408K/ 63M= 0.6% of net income...

    That means Linda makes 4 times more salary compared to Stanley Ma.

    If we are looking for stocks with lowest CEO salary then we gotta go with Mark from Constellation and Sam from Boardwalk... where both make $1. Any other Canadian CEOs do you know who makes $1 salary?

    1. The information is probably avalaible somewhere. But there may be very few of them.

    2. When you look at upper management's compensation, it is important to not just look at salary but total compensation (because some times they make 10x as much in stock options)
      Example: The CEO of McKesson made $8.2 million in salary and $80 million in total compensation ($72 million in stock options). Shareholders got off cheap. The previous year when I held MCK this guy's total compensation worked out to about $140 million (most of it from stock options). LOL. Of course, when you DILUTE to reward upper management with tens of million$ in extra shares it will affect the rest of the shareholders and the earnings per share going forward. THAT is the real reason Constellation Software is the most fair company to shareholders. They do not dilute your shares by issuing millions more shares every year to line the pockets of upper management.