jeudi 4 janvier 2018

Stocks for less than 20 times next year's earnings

A few years ago, you could build a great portfolio, selecting stocks with a current PE ratio of 15 or less.

That time is over. Now, if you manage to find a great stock with a forward PE ratio of 20, first, you'll have to work hard, then, you have to buy it. Because the market is more expensive than that.

You don't have a lot of choices. At this moment, there's a handful of great stocks that are selling for less than 20 times forward earnings. If they're selling for that relatively low price, that's because the sky isn't that clear for them. But it's probably just a momentary problem.

Here's a short list of good stocks which are selling for less than 20 times next year's earnings:

CAN: Canadian National, Canadian Pacific, Linamar, Magna, Alimentation Couche-Tard, CGI, Hardwood Distribution, CCL Industries, Metro.

US: Disney, Mohawk, LKQ, O'Reilly, Omnicom, Credit Acceptance Corp., Discover.

I know, these days, everybody is crazy for those fucking weed stocks. Canopy Growth goes up something like 10% on a given day for no reason. Then, the next day, it goes up 15% and still, nothing happened. And the next day, it goes up 30%. And you say to yourself: "Fuck". And, after a month, the stock is up 100% while your miserable fucking portfolio has done 2%.

I have a friend whom I initiated to the stock market with stocks like Apple, Biogen and Tucows. He still owns some of these stocks but he now gambles with weed stocks. I feel like Obi-Wan Kenobi facing my padawan chosing the dark side.

But it's maybe the inevitable path for growing up. Like we all tasted our pooh when we were babies (some of us still do it). It may be funny for a moment, but you can't live like that forever.

9 commentaires:

  1. Thanks for the list of quality companies going for less than 20 times next year earnings. It is an impressive list of companies.
    Today, I looked at my portfolio of mostly smaller cap growth companies and decided that I needed to take some profits from them/ trim the size of my position in the smaller caps, and bring in a couple of really big companies into my portfolio. I still expect these very large companies to experience high growth.
    I'm following my investing idol Penetrator into Facebook. I will pay 28x next year earnings for that level of market dominance. Half the planet is addicted to Facebook.
    I also followed my new investing idols Edutrader and Quality Investor into VISA. (Visa owns the game. They run the whole capitalist system. Every transaction is a few more pennies or dollars for Visa.)
    I'm seeing the smaller caps get rocked and this is happening even on good days for the general market. I like small growth companies with huge potential (a very big runway to growth)...but if things turn bearish in 2018, it will be nice to own a couple of huge companies that just spin off about $10 billion in free cash flow every year and have a nearly impenetrable economic moat. They are likely to hold their value better than some small cap company in rough times.

    As for marijuana stocks, the best advice is to stay away. If you must buy a marijuana stock, do not buy some marijuana stock from Ontario or out west going for over $5 billion market cap. There is just one Quebec based marijuana stock. It has a modest market cap of around $460 million. In the coming marijuana wars, I predict a decisive victory for the forces of Quebec Inc (much lower production costs for marijuana in Quebec where electricity is very low priced).
    The only Quebec based marijuana company will have many advantages including a likely alliance with Alimentation Couche Tard. If you must gamble on a marijuana stock, place your bet on THE HYDROPOTHECARY CORPORATION (THCX on the venture exchange).

    As luck would have it, a member of the board of directors of Alimentation Couche Tard (a little convenience store chain with 12,000 company owned stores across the world) was recently invited to sit on the board of directors of THE HYDROPOTHECARY CORPORATION.
    Here's an interesting announcement:
    Hydropothecary appoints Nathalie Bourque to its Board of Directors

    I respect the wisdom of people who do not like to take crazy chances...but life is boring if you don't gamble a little. I'm not buying one of dozens of marijuana stocks based in Ontario or B.C.
    I'm investing in the ONLY one in Quebec (the low cost jurisdiction if you're growing marijuana). I'm not paying up for a company with a market cap of over $5 billion (THCX is more like half a billion market cap).
    I'm also investing a VERY SMALL percentage of my stock portfolio in my one pick to dominate the Canadian marijuana industry in the years ahead.

  2. Two software companies I like that are available for less than 20x earnings:


    Both are very capital light, but in a rapidly changing industry (so can be obsoleted any time).

  3. Guys:

    I want to bring your attention back to the blog entry of November 25, 2017 entitled FACEBOOK AND GOOGLE. In that blog entry my new investing idol Monsieur Penetrator is making the case that you don't have to gamble on small companies and take extra risks to get higher returns. The biggest and most low risk companies with some of the most impenetrable economic moats out there are making some of the biggest returns.
    Even when I get higher returns, I don't feel like I'm a better investor than the guys that buy only the biggest quality stocks. I realize that I'm taking way more risks. My chance of ruin with small cap high growth companies is much higher.
    I would like to expand on the Penetrator's work of November 25, 2017 where he makes the case for Facebook and Google. Why stop there? I will present the ten biggest publicly traded companies in the world with their market cap and what has happened to the price of each one of these stocks over the last five years. It may convince more of us that taking risks with ShitPussy Inc on the Venture exchange is really not necessary (or it should be done with a very tiny percentage of your overall portfolio just for fun). Check out the numbers, guys:

    Biggest Companies and five year results:

    1. Apple 890 Billion Stock went from $70 to $175 in last 5 yrs.

    2. Alphabet/Google 770 B Stock went from $350 to $1100 in 5 yrs.

    3. Microsoft 680 Billion Stock went from $27 to $88 in last 5 yrs.

    4. Amazon 592 Billion Stock went from $268 to $1,230 in last 5 yrs

    5. Facebook $543 B Stock went from $30 to $187 in last 5 yrs.

    6. Tencent $525 B Stock went from $7 to $56 in last 5 years.

    7. Berkshire Hathaway 497 B from $140,000 to $300,000 in last 5 yrs

    8. Ali Baba 489 B from 90 to $190 (has only been around 3 years).

    9. Johnson & Johnson 380 B went from $70 to $140 in last 5 yrs.

    10. JP Morgan 376 B went from $46 to $108 in last 5 years.

    What an easy way to win the investment game. The race is not always to the biggest and the strongest and the richest...but that's the way to bet. :-)

    1. I am glad to see a debate on high cap stock in this blog. I have the same reflexion than yours since few days. I have some BRK and FB stocks.

      Goog and FB have phenomenal earnings and no debt. BRK is BRK, cash loaded and a very safe investment. However, Buffet is piling cash and not buying much. Why?

      Obviously, you won't have a ten baggers with these companies but you can expect a double digit return. A friend of mine is almost fully invested in BRK but he made a similar return than my portfolio than has mostly small cap / high growth stocks.

      With the ongoing rise of the Canadian dollar, it may be a good occasion to buy the stock you have listed.

  4. I'll add in one thought into the decision making process. If you like Berkshire as a forward-looking investment(i do not) consider investing in Markel instead at 15B market cap with Tom Gaynor at the helm and it has outperformed BRK handily over the past 5 years, same business model. Or you could also look at Fairfax (i am very long) who have changed their approach this past year to be Berkshire-like with Watsa and emerging markets. More of a turnaround, but undervalued, 18B cap.

  5. I totally agree on this truly unique insurance company that you mentioned: Markel Corporation (MKL) on the new york stock exchange.
    I'm looking at a lifetime chart...

    price on Jan 1, 1990: $21
    Price today: about $1,117

    I do not like Fairfax. Watsa must relinquish his title as the Canadian Warren Buffett. Way too often this guy has tried to time the market or bet heavily on the direction of the market or predicted stock market doom and made investing decisions that really cut into the profits of Fairfax. I want to like Prem, but he does not inspire the kind of trust that Buffett or the Markel corporation do. If you want confirmation of this, just look at the lifetime chart of Fairfax and compare it to the lifetime chart of Markel.
    Fairfax is a roller coaster ride. Be honest. You would not likely be holding from a price of $575 in Jan 1, 1999 all the way down to $75 in March of 2003. It came back up...but who needs that volatility? Who needs wild rollercoaster rides? Markel has such a great niche in the insurance business. They have been rising steadily. Only the financial meltdown of 2008 shook them a little (it shook everybody).

  6. In my years walking around on this planet I have learned that it isn’t necessarily what people say that is relevant, but the things they leave out.

    Allow me to inject some countering arguments to this big cap growth love-fest…just to level the playing field a little.

    Over the last five years cheap money has flooded into the market and has found a home in the big cap growth stocks in the states who offer a market for their shares to absorb all this excess liquidity.

    More and more of these companies are using ‘adjusted earnings’ to (mis)state their bottom line profit.

    The proliferation of ETF’s is also responsible for pouring additional liquidity into the same big cap growth names. In other words they are all over-owned and just the tone in this blog lately is indicating that this could be a top in the making.

    The most important thing about investing is not return on capital or equity (although they are very important)…it is psychology, how did everyone feel about the market 2 years ago.

    Some more unsettling evidence…too much optimism…

    Commodities relative to stocks are at their cheapest levels in nearly 50 years…see below…

    Now of course this bull could keep running fuelled on its own momentum and group psychology but history shows that these things end badly. And according to long running research (decades) the best asset class in to invest in for the long term is small cap value.

    Now I know that most people here disagree with me but that’s what makes a market.