AutoCanada Inc. (ACQ.TO)

He has watched them for quite a while. They are a consolidator in the car dealership space. He doesn’t like the 80% decline in share price – great quality stocks don’t do this. If the stock broke below $17 on heavy volume, he would run for the exit. They are relatively highly leveraged and could face substantial issues during the next recession. Yield 2%.

He sold out a few months ago. The recent selloff has prompted some shareholder resentment and a call for strategic alternatives. The latest quarterly earnings were disappointing. There was discussion of a US acquisition, but he feels it may be a lower margin one. He does not know how they will change the momentum.

He sold his holdings. Previous management was unfocussed with its many purchases to grow the business, about 14 in one year, then they failed to integrate the back offices. New management came in promising to diversify their brands internationally and reduce their purchases. Management failed to exit a relationship with a company founder well. They bought a dealership in the U.S. which didn't make sense with no synergies. Management has become unfocussed again.

He sold it at the start of 2018. The stock has taken a dive. It had a bad quarter, but it could move back to $18-20. It's currently at cheap valuations. A problem is that they can't buy enough dealerships to grow their company, at least not in Canada, so they must look to the U.S. Also, rising interest rates and the late auto cycle are headwinds.

He's shied away from it. They just reported a disastrous quarter. Auto sales are cyclical, and more and more consumers are turning to debt financing to buy cars--and consumers are struggling with heavy debt. Auto sales were hot last year, but ACQ keeps disaapointing on earnings.

He is negative on consumer discretionary in Canada, including automotive. They are diversifying away from being Chrysler driven. He sees the diversity as a positive and it is on his looking-to-buy list. This is the kind of think he might buy at the end of the tax-loss selling season, near the end of the year just because it is down so much.

He would not buy it at this price because the Alberta economy is not yet recovering. There is some infrastructure spending underway now, but that will eventually peter out and sales of pickup trucks will slow down. ACQ makes its biggest money on expensive pickup trucks and associated insurance; there isn’t enough money to afford many new ones. There is a large supply of used pickup trucks that hurt the market for new truck sales.

It's been going sideways and not doing much for over two years. The only way to trade this stock is to buy at the bottom end of the range then sell at the top of the range.

(A Top Pick March 8/17 - Down 9%.) He likes the model. They basically didn’t like the way management was executing.

Underlying everything it is a great business. It has been building a base since 2015. This is a good level to be buying the company at. They continue to diversify in brand and geography. It is about parts and service, which is recurring revenue. Almost a 10% free cash flow. (Analysts’ target: $26.00).

(A Top Pick Feb.23, 2017, Down 17%) Sold his. They had a primary shareholder, which he expected ACQ to get out of the way, but in fact it became really complicated. Also, from talking to private companies in this sector, the deals ACQ were paying were high. So, it's hard for the deals that ACQ were making to be accretive.

Auto dealership group. The growth here is sort of a consolidation story. 3500 car dealerships in Canada and two-thirds are mom and pop shops. They should be OK in the near term as auto sell are running high in Canada. Lot of their sales come from Western Canada. On the valuation side he would be comfortable.

(A Top Pick Mar 2017 Up 4%) He bought this about a year ago at $21 and thought it was cheaper then. Car sales have been fantastic across Canada. There is an overhang from the previous owner having standalone dealerships, but that has now ended. However, it is a cycle business and is relatively expensive to US counterparts. Could see it hit $30 this year.

(A Top Pick January 16/17. Up 8.2%.) A good company. They continue to hold it as they like it long term. One of the problem they had is that the integration side of the acquisitions was not working well. They are diversifying better across Canada now. It is not only selling cars but also service of the cars.

It is under loved and undervalued. They had a stumble because of the western economy. Once you take that valuation out it takes time to get it back. It is cheap. There will be no magic. It will be quarter by quarter, doing what they say they will do. It is not for him right now but if it goes a couple of quarters and they do well AND it doesn’t move up it will be attractive.