Cascades Inc (CAS.TO)

Tissues and container boards. He is playing off the theme of improving shipments in the economy. Just reported earnings, and the market essentially gave them a pass as it didn’t trade down too much. Shipments are improving and this company is the way to play that. Between mid-March and the end of May is the period of seasonal strength. It gains an average of about 11.6% over that time frame. Good percentage, right space, fundamental data supports it, and it is starting to break resistance at about $13.14. Dividend yield of 1.18%. (Analysts’ price target is $15.)

They have 2 core businesses, tissue and container board. He likes the container board side in particular because of the growing economy where people are shipping more things in boxes. It is a fairly tight market right now for container board and there have been price increases in the last couple of days. As more and more online shopping occurs, that is going to lead to more things shipped in boxes. Trading at only about 5.5X enterprise value to EBITDA. Dividend yield of 1.15%. (Analysts’ price target is $14.60.)

(A Top Pick Dec 9/15. Up 11.74%.) A company that is really well-managed, but does tend to go through cycles. He tends to trade this.

(Top Pick Sept 15/16, Up 2.63%) A great business, and solid free cash flow story. The balance sheet is improving every day. They use a lot of recycled resources, so would not be affected by Trump as much as the forestry industry will be.

Cash ROE is 34% which is healthy. The chart is very interesting showing a consolidation period from February to September, and forming what he would call a tea cup and handle. Wait for it to break out, ideally on above average volume.

It is a large free cash flow story. It is at an inflection point. There is still a lot of upside on this one. We just saw a big increase in container board pricing in North America. He thinks they will use their free cash flow to pay down debt. He thinks at some point it could be taken over.

A wonderfully run company with great assets. The problem is that they are full of debt. Until they pay off a lot of their debt, he is afraid to go near them. They are in 2 main businesses, tissues such as toilet paper and hand tissues as well as container and cardboard. This part is not economically sensitive and is mostly private label. The other side is box board and container board, packaging, which is much more economically sensitive.

There have been some concerns over pricing pressures from heavy competition. Their industry has a weaker outlook this year.

Have really driven synergies through their business and tried to cut costs. Also, benefiting from selling a lot of their product into the US on the box board and container board side of things. Those prices have been going up, and as long as the economy stays fairly steady, that is probably going to continue. They are getting the benefit of the US$. Trading at a fairly reasonable multiple.

This fits in with his global growth theme. Being a cyclical and just breaking out, it hit a 52 week high. The 1^st 52 week high will not be the last. It is reasonably liquid, had a breakout and is a sector outperform.

(A Top Pick May 8/14. Up 17.46%.) This has gone under a transition over the last couple of years, and they seem to be doing much better now in the box board container market. The cost of materials has mitigated margins to some extent.

Earnings today were a bit light because of lower tissue shipments and prices on tissue, but their packaging products are doing quite well. He is seeing them doing better in box board and container board, etc. Have invested in plant facilities and equipment over the last few years. Feels they are addressing concerns about the balance sheet. He can see fairly significant capital appreciation potential.

Recently bought back in. It trades for half of book value. Lately they had announcements of product price increases. 3.8% yield. Margins will significantly improve. Balance sheet is stretched but the debt situation will be addressed by improving margins. Thinks it could be higher than 14.5 times earnings this year and 10-11 times next year.

Long-term lid at $5. There is some upward momentum and he thinks it could get back to the $5 level. He wants to see it break $5 to get in.

The lumber side has been fantastic. The pulp side is at very depressed levels. Thinks this one will be buoyed up by the sector and is probably a good place to park some money.