Dollarama Inc. (DOL.TO)

Had a super run, but looks sort of expensive at these levels. Has done quite well in terms of expanding its stores, but thinks it is going to find it’s time for a rest. The stock had a niche and it has filled it fairly effectively, and he is not sure there are a lot of other locations they can find that will give it the same kind of lift that they had with the 1^st run around.

They run a terrific business. They successfully took their customer up the value chain and he doesn’t see why they can’t take people further. It has not come off very much. As a long term hold he is in favour of it.

He likes this and has been buying it recently. Their most recent quarterly result was really impressive. This is a great, long term, steady Eddie stock. ROE is in the 30s.

He would call it a soft hold or a sell. The field is going to get a little more competitive. Their valuation comes partly from money moving out of energy and now it is moving back into it. He thinks the valuation is a little excessive. If you sit and wait long enough, it will grow into its valuation.

He continues to look at it but they are not a big dividend payer. They are growing it, but they really want to grow their business. He would buy it. Their growth rate is 25% so a P/E of 31 is warranted.

He regrets not owning it. They have executed very well. He always felt it was expensive and that is why he does not own it. If Canada is in a zero growth mode, he assumes people are shopping for bargains. If they were to miss earnings, you always have to look at why. It could create a better opportunity to buy in.

When a stock multiple gets really high, it doesn’t mean it isn’t a good stock, but he doesn’t like it as much. At 30-35 times earnings, if they stop executing then it will trade back to half that multiple. Nobody knows when that business plan comes to an end.

Normally you have to have about 20 years of data to do a seasonal trade. However, technically, this is one of the better stocks on the TSE. It is clearly on an upward trend. During the period of weakness for the TSE Composite, it has been outperforming the market and is still trading above its 20 day moving average. Short-term momentum indicators are still fairly positive. It still looks very good

This is a stock that will do just fine, even in a slower Canadian economy. Management has shown itself to be very sure footed. They have niche that they haven’t filled completely. His main concern was that a US company would come marching in and knock them out. The environment is quite positive for this type of company.

Canadian Tire (CTC.A-T) or Dollarama (DOL-T)? Both companies have some headwinds. If he had to pick, it would be Canadian Tire. Longer-term they have shown tremendous adaptability. The headwind from a weak Cdn$ makes imported products for the stores more expensive, but thinks it will affect this one more.

A fantastic stock. Broke a Volatility Stop at around $70.49. He would probably wait. You have a little bit of time. If it broke $75.58, then he would step in.

Great management. Have been able to take people up the price ladder away from $1 an item to $2 and $3. A really neat business. They have some opportunities to grow internationally. The push back is that you have Dollar Tree coming in from the US, which could put some pressure on them. Also, the stock is not cheap.

He is getting very, very nervous about holding this. It has been a great performer, but the multiple is getting up there at about 25 or 26 times next year’s earnings, which is richer than what he normally likes to pay for stocks. They have a problem with the Cdn$, because most of their goods are imported, which will be a little bit of a squeeze on margins.

The 5 year chart shows a long-term uptrend and starting in mid-2014 it kind of arced upwards off of that. There is always room for a correction when stocks do that. There is nothing wrong with this picture right now. If you own it continue to hold and if you don’t own it look for a pullback to the trend line and consider buying it.

Retail is one of the few sectors that has been performing well in Canada. This is in an interesting position because they build a new store and pay it back in about 2 years. There is a lot of room for them to add new stores. Have been slowly taking their price point higher, and as they raise the average price of products, their profit goes higher.