Wednesday, April 3, 2019

Some decent names: CTC-A, TSGI, CFP

After the selloff last Christmas we had the inevitable run-up. While prices normalized there wasn't much in the bargain bin. My single buy in Q1, Itafos, is slightly underwater. I also bought some bond and gold hedges. 

Now that we're in Q2 there are some interesting names approaching value territory. 

Canadian Tire (CTC-A)
Name a better retailer in Canada. I bet you can't. At least I can't. 

While I wouldn't touch traditional value names in this sector with a 92-ft pole (looking at you, Reitmans!), there is no denying that people continue to shop at Canadian Tire. I hate the place and I still go sometimes. 

Traditional value metrics like p/b, debt and so forth don't really matter, in my view, when you have the nuthold on the economy that CT does. It pays a growing dividend in case you care about that kind of thing. 

The Stars Group (TSGI)
This company is the Amazon of online poker. No one comes close in terms of traffic or in quality of software. The only real gripe about them is that they continuously downgrade their rebate programs (rakeback, cashback, VIP points) to the chagrin of regulars. But then this company makes its money off of recreational players, not professionals. 

Unless humans suddenly bore of gambling, I don't see anything standing in the way of this company in the short term. 

Canfor (CFP)
Yeah there are trade tensions and Trump and blah blah blah, but wood is a fundamental material to human existence. I don't know how someone could be bearish on wood except in the very short term. 

This one weighs better on value metrics than the other two with low debt, low p/b, low p/s, etc. It is also the most beaten-up of its woodsy peers. 

Disclosure: I'm short puts on Stars Group and Canfor. No position of any kind in CTC.



Friday, March 29, 2019

Blog name change

The old named, Old-School Canadian Value Stocks, was too similar to other blog names. What we're really after are mispriced equities - if there weren't any, indexing would be optimal.

Monday, March 11, 2019

Q1 2019 update - boredom rules



Aside from a tiny speculative position in Itafos (IFOS), I made my first purchase of 2019 today. And it was just a bond hedge.

I watch about 50 companies but haven't seen anything worth buying since December.

I am short puts in several companies - Canfor, Linamar and Stars Group. At this time I think they'll all expire worthless.

Covered calls on BCE and Emera look like they will be exercised, which will provide more capital I don't really need at the moment.

One solid argument in favour of indexing is that you don't spend much time on the sidelines.




Tuesday, January 8, 2019

New position: short LNR puts


There is an excellent write-up about Linamar (LNR) at Canadian Value Stocks. It's also been mentioned recently on Financial Uproar. We won't re-hash their points but we will say what we like about it.

Good stuff
It's down 40 percent over the last year. Compared to auto-parts peers Magna (down 16 percent) and Exco (down 9 percent), that is quite a lot. Here at OSCVS, we like beat up companies the best.

It has high insider ownership at 31 percent (Exco has 27, Magna around 1). Insiders have been buying at a frenzied pace lately, especially over the last three months while the stock has been in the $45 range. 

LNR has aggressively grown earnings every year since 2009.

LNR pays a dividend (good) with a low payout ratio (also good). At OSCVS we are not dividend nerds but we do prefer companies that pay dividends because it generally signals more stable revenues versus those that don't.

Bad stuff 
LNR has the worst balance sheet of the auto-parts triumvirate.

There could be a recession around the corner. 

Like other value investors, there's something about auto parts companies that just doesn't sit well with us. Perhaps it is our general fear of being in or even near automobiles speaking here, but we wouldn't invest our last dollar in the sector. Perhaps it is Elon Musk's new moustache striking fear in us. This isn't our last dollar though and we are interested in making money, not waxing philosophic about our personal likes and dislikes. So who cares what we think about auto parts, really. 

Conclusion
Here at OSCVS we are bullish on LNR, but we do not necessarily want to own it. Selling puts allows us to express our bullish sentiment without necessarily locking in for the long term. If we are assigned, we will fire up our call writing apparatus and sell contracts until assigned. 

We are short 2 JUL 40 puts. 







Thursday, January 3, 2019

January 2019 portfolio update

My plan to sell my losers on Christmas Eve crumbled after the historic sell-off. Part of investing is adapting to conditions so I've modified my gameplan accordingly.

BCE and EMA - looking to unload these as soon as is prudent. I will use some combination of waiting, collecting dividends and writing covered calls to garner an appropriate return.

CNR - I believe this is worth much more than it's currently trading for. There are some decent call-writing opportunities but like BCE and EMA, I'm waiting for a better price.

TAO - This is a CDN$30-million company that was sold for US$30-million last November. The market is not giving any credit for the sale, which is expected to close by the end of the quarter. I'm waiting it out and will likely sell at closing.

Watch list - I watch about 40 stocks. Once a stock is on the list, price is the most important catalyst for a buy. There is nothing imminent right now.

Goal - I'm looking to create a book of 8-12 stocks with as little turnover as possible. That doesn't mean I won't trade, but quick profits aren't the goal.


Monday, December 17, 2018

Martin Shkreli, opening your mind and a definition of value

The man, the myth, the legend. 
Martin Shrekli
If you don't already read Martin Shkreli's prison blog, you should. Put aside the brash personality and multiple felonies, and you're left with a brilliant mind. His biopharma picks won't help us a lot in Canada but his thinking will.

Years back, Stephen King wrote a book on writing (called On Writing), where he shared his reading lists and admitted to not fully understanding half of the books on them. Why read these? Well, he argued, reading genius writing makes you a better writer. Even if you don't fully absorb it.

Shkreli has the same sort of mind for investing. I've watched many hours of his YouTube videos where he dissects particular aspects of the biopharma industry. I've retained almost nothing of the videos (high science is beyond me), except the distinct impression that he operates on a different plane than the rest of us. Genius is rare and contemporary genius even more so.

One night, MS was clicking through some pharma website to find the meat. He described the website as the typical "perfunctory nonsense" that you often see in that industry - stock photos displaying multi-ethnic people smiling and having a good time all to make you, the visitor, buy in to some clinical trial or drug. It was a necessary marketing tactic, if not a bit dull.

40 oz dreams
Opening your mind
That phrase, perfunctory nonsense, has stuck with me. I find myself asking this question with most sites I visit. The great majority fit the bill - just a few cheap carnival tricks slung together to rob you, dear visitor, of your hard-earned shekels.

I will admit to having a sort of envy of companies that don't have websites. It's so backwards that it comes fill-circle and becomes sort of avant-garde. Almost hip. Companies like E-L Financial (ELF) and Becker Milk (BEK-B) are perpetually on my watch list. (ELF at least has a logo on their financial report; BEK-B has no visual identity whatsoever.)

Which brings me to a related matter. E-L and Becker have earned the right to not have websites by being decades-old profitable companies. If you're a company still trying to make your mark you have to put a lot of effort in to your brand. It's not hip at all to neglect the website in such cases. That sort of neglect is earned.

Street Capital Group (SCB) hit a 52-week low this morning at 59 cents. There might be some decent value here. Strip out the property, goodwill, intangibles and equipment from the assets and you're left with 80+ cents a share. There are mortgage-related risks but certainly something to look at. SCB became a schedule-1 bank in 2017 and have begun rolling out GICs as their first deposit product.

As an investor I could maybe overlook SCB's semi-competitive GIC rates if their website wasn't hot garbage. You could literally build something better using Wix in an afternoon. At this stage in SCB's development, the website is an important sales and marketing tool. They should be throwing a lot more money at it. Middling GIC rates and a tire fire of a website are not going to help differentiate SCB from the other banks in the country. At this stage the perfunctory nonsense is, you know, non-negotiable. You gotta make your mark, SCB.

A definition of value
Finally, a definition of alpha that leads us to a definition of value:
"Alpha, which we can define as human-discoverable arbitrage opportunity, is a variable that has specific behavior. I conjecture alpha is correlated to the VIX. When volatility is high and markets are in panic, alpha opportunities exist as investors lose it." - http://martinshkreli.com/uncategorized/12-14-2018/
Losing it is what investors appear to be doing over The Stars Group (TSGI), another name that is perpetually on my list. The problem with TSGI is that it's really not a value stock by any metric. It's a growth stock. It's swimming in debt, it's swallowing competitors so fast that it's hard to keep track of them and it's barely profitable most quarters.

What is value, though, if not opportunities exposed by investors losing it? Call yourself a value investor, a growth investor, a whatever-investor. Any active investor is after the same thing, alpha, however we can find it.

Since PokerStars swallowed Full Tilt Poker in 2012, they have been the market leader and it's not close. They have eight to 12 times more traffic than any online poker room in the world at any time of the day. Even more if you exclude IDN, which is only accessible in Asia. It is no stretch to say that TSGI is to poker what Amazon is to retail, or Google is to search. The question is, how much is that worth.

TSGI's ownership, in its current form, began in 2014 (it was privately held before then). Here is their revenue as a public company, in millions USD:

  • 2014: 593
  • 2015: 988
  • 2016: 1,156
  • 2017: 1,312
  • 2018: 1,737

Over that span, book value has increased from 7.50 per share to 20 but the stock price has remained flat (it hit 50 at one point but fell on lower revised guidance this year).

This stock is definitely outside of my comfort zone despite the obvious value. There is money there. It's sort of giving me an existential crisis to tell you the truth. If I buy into this then what's to stop me from buying into any other wild fad? Micron? Snap? HMMJ?

I don't think I'm going to buy anything else in 2018. I've designated Dec 24 as my day to sell the losers. I am hoping for a week-long rally between now and then.

I will end this post with a link to my favourite Christmas music video:



Thursday, December 13, 2018

2018 Year in Review

This has been a pretty crappy year for investing in Canadian stocks. I have two duds in my portfolio right now that will be sold off before the end of the year. They are BCE and Emera, both of which I purchased near 18-month highs right before the interest hikes began. My philosophy has changed since I bought these -- I am no longer investing in mature, heavily indebted companies except railroads.

I got lucky on timing for a few different stocks. I bought and sold BMO, CM and QTRH for small gains right before the floor fell out of all three. I sold BMO and CM because there is better value outside of the Big 6, and sold QTRH because I thought I was going to switch brokers, but changed my mind. It's dropped 40 cents since I sold it and looks better than ever. I will get back into QTRH in 2019 unless the Apple case is worked out before I get around to it.

Rounding out my Canadian portfolio is CNR with a covered CNR call that is going to expire worthless, and Tag Oil (TAO). Tag is a $30-million New Zealand oil company that sold substantially all of its assets for $40 million. I will hang onto the shares until the sale goes through, or fails. 

Despite a mediocre year and some mistakes, I beat the index by 13 percent. It's worth noting that my choices lagged until mid-year though.