Utilities have long been considered a safe haven in the stock market. Utility stocks generally pay out generous dividends, have predictable revenues, and the business is somewhat recession proof (people usually keep paying their hydro bill if they possibly can). These qualities and the reputation as a safe haven has led to the sector appreciating a lot, with manybelieving utilities could be overvalued.
Enercare Inc. (ECI) offers the best qualities of the utility sector, with the added benefits of growth and being undervalued right now.
Two months ago I wrote my thesis on Input Capital Corp, which essentially boils down to they are generating lots of cash but the business model seems to be misunderstood or otherwise not getting the full respect it deserves. Everyone seems to accept that mining streams are good models, and are safe ways to play precious metal prices. Far fewer seem to think that agricultural streams are a good way to play canola prices though. Continue reading “Input Capital Update”
Anybody who takes a look at my portfolio will see I’m a huge fan of Brookfield Asset Management. I’m a big believer in Bruce Flatt and know that I want him responsible for a lot of my portfolio’s returns. But BAM.A is huge. I salivate at the thought of having invested back when it was Brascan. Integrated Asset Management may give me a chance to turn back the clock so to speak.
Integrated Asset Management (IAM) is an alternative asset manager for institutions and private clients, just like Brookfield. Where Brookfield focuses on private equity, real estate, infrastructure, and renewable energy; IAM focuses on private debt, real estate, and infrastructure. Continue reading “Integrated Asset Management – A Tiny Brookfield?”
There are three sure things in life: death, taxes, and insert joke inclusion here. Really there’s only two sure things. There aren’t any great ways to invest in taxes (get a government job?), but there is a way to invest in death. That is to own a cemetery. Continue reading “How to Invest in Death: Park Lawn Corp (PLC)”
One of the better pieces of investing advice out there is to “buy what you know”. It basically boils down to: if you use a product/shop at a store/ use a service, and are very happy with it, it’s likely that others do too. If many people are happy with a company’s offerings, that company very well could make a good investment. Continue reading “Clearwater Seafoods: CLR”
In yet another example of “loaning money to Canadians or Canadian companies isn’t a real business and making money that way doesn’t count”, we have Callidus Capital. Now, to be fair, this is how Callidus explains their business:
Callidus Capital Corporation is a Canadian company that specializes in innovative and creative financing solutions for companies that are unable to obtain adequate financing from conventional lending institutions. Unlike conventional lending institutions who demand a long list of covenants and make credit decisions based on cash flow and projections, Callidus credit facilities have few, if any, covenants and are based on the value of the borrower’s assets, its enterprise value and borrowing needs.
This is a company in a boring industry (utility poles and rail ties while moving into other lumber segments recently), but this boring company has simply crushed expectations and the market for years. Look at the chart below.
It’s that top right corner of the chart that has caught my interest. That part where this beautiful 45 degree line stops going directly up and to the right. The reason that this is really interesting is because this is the chart for the share price obviously, but the revenue, net income, and dividend charts have continues up and to the right. Eventually the above chart will continue up as well.
From 2011 to the year ended 2015 assets have increased almost 300%, as has shareholders equity. They’ve grown revenue from $640 million to $1.559 billion. Earnings per share rose from $0.87 to $2.04. The dividend has risen from $0.13 to $0.40 today.
The most recent earnings release showed net income rise another 16%, debt reduced by $92 million in the quarter, and sales in their newer residential lumber division increased over 100%.
Shares have been mostly flat and because of this can be bought for a very fair P/E of 17. When a company is growing by 16% per year that’s an excellent multiple. That’s a PEG of 1.07x for a company with lots of potential acquisitions out there, breaking into a new market (residential), and having enviable organic growth of approximately 6%.
From what I can see shares have not risen due to slightly lower sales in the rail tie and utility pole divisions, which are what people associate with SJ. In the 3rd quarter tie sales were down by 7% and utility poles down by 6.2%. This could look disconcerting, and obviously has the market worried, but growth in the other divisions is encouraging and even in a down quarter sales still increased by 18% to a record $512 million. And the purchase of railway ties and utility poles can only be put off so long, so this decrease now may persist for a couple quarters but will surely reverse.
The stock was absolutely punished for announcing preliminary results, telling investors that sales and income in the fourth quarter will be down. It presented a tremendous buying opportunity as shares dropped to around $38. Shares have since recovered to over $41, but that’s still far closer to the 52 week low than the 52 week high.
Stella Jones still shows strong organic growth but most importantly, management has shown they are great at accretive acquisitions and this should remain a strong driver of growth for the stock. Utility pole sales will not stay depressed. Railway tie sales will not stay depressed. If for some reason these two segments of their business do remain under pressure, that should present the company opportunities for acquisitions at a discount. Residential lumber sales are going to increase organically, and is where it seems the company is focusing on growing.
This is a fantastic company and I kick myself every day, as I looked at this company 5 years ago and in my naivety didn’t want to pay over 20x P/E. I know I’ll be very happy holding this stock long term, both by the share price growing and the dividend continuing to rise. I feel it’s often overlooked by retail investors because of the boring industry but there is nothing boring about the returns it has delivered.
Input Capital has a pretty simple business model. They pay farmers a certain amount of money up front, and then they get paid back in canola. A typical deal might be paying a farmer $240/MT of canola up front, and then paying them another $86 upon delivery. This means Input is buying canola for around $326/MT and selling it for much higher. They’ve realized average prices around $480, and the current canola price is ~$520. Input is essentially buying $5 bills for $3.20. Continue reading “Input Capital Corp: INP”