High Liner Foods (HLF.TO)

Had a strong uptrend since 2016 and since then a series of lower lows and highs. Not great. It's now at the bottom of a lower trend.

Historically this company has not had a great return on capital. Returns from reinvestments have never really come.

He decided to keep the name because the yield is safe and good. It is a touch business. They are doing value added food processing on many types of fish. Margins have been squeezed. He thinks this might be coming to an end. The shrimp farm in Asia looks like it is fixed. The company has value at some point. It is the kind of name that private equity tends to gravitate to. He thinks it should be trading higher, but it is not a momentum name.

He used to own this around $3 and sold it at $10. They recently had some contamination from one of their suppliers. The long-term CEO has stepped down to be the Board Chair. He would consider this if it went back below $10. It is a leader in the field.

It hit a low in 2016 and it looks like that level is being tested (near $10). Near term the trend was down and longer term it is testing a old low. It is in a precarious position. It could bounce up or not. As a new buyer he would not buy it because you don’t know it will hold the $10 line. If you hold it then continue.

He owned it previously and sold it at a good profit. He has come close to buying it back, but thankfully hasn’t (thankfully, because it keeps declining). This industry sells fish to retail and food service business. There was a hope that consumers would be eating more fish. Unfortunately, fish are priced in US dollars. As the dollar goes up, fish gets more expensive and demand goes down. Industry growth is not there. They have been making a lot of acquisitions and face the challenge of integrating the acquisitions into their system.

He says the earnings expectations have been revised downwards my several analysts recently. Their last earnings report had a negative 14% surprise. Although the current P/E is reasonable the free cash flow rate is negative. The dividend looks defendable with a 51% payout ratio. Overall, it is the lack of growth hurting this one and he sees better opportunity elsewhere. Yield 5.4%.

Has had a terrible time lately with product recall and CEO replacement. Still owns it. A beaten-up stock. If they get their act together, stock could rise sharply in a short time. Not for the weak of heart though.

There are a lot of moving parts. They made a major acquisition and were immediately faced with a recall. So they brought back the former CEO. They have put the product questions behind them. But the market has really lost confidence in the company. They are quite inexpensive. The price can be volatile because of liquidity. He would hold it and see how the returning CEO changes things.

This company doesn’t fish, it buys seafood and puts value added things to it. They sell to restaurants as well as to consumers. Their big business is selling to restaurants and to hospitality. They feel there is a big opportunity, especially as minimum wage is going up significantly and restaurants are facing increasing labour costs. Since they already have products that are easy to cook and bake, restaurants don’t need fancy chefs, and that’s where they feel they have the value. The stock price has been absolutely terrible, and he thinks a lot of the impact is unwarranted. The CEO who ran the company from 1992 to 2015, is now back, and is thinking 12 quarters ahead, not just 2 quarters. The market is punishing the company for things that happened 2 quarters ago, which was a recall of some of its products. There is a serious opportunity here for long-term investors. Dividend yield of 4.2%.

This has not been one of his great, shining picks in the last 2 years. He made a fortune on the stock in the early part of the decade. Unfortunately, they took part of it back. Poor execution on a recent acquisition of a shrimp company in south east Asia, and they had some product recalls that really hammered earnings. Their 4^th quarter was better. He hasn’t given up on this yet.

Long-term, it has a nice trend. There is quite a nice base in 2000-2011, and then we had a big break out in 2011. The fact that it has come back down so much, to him it would be too much of a volatile stock. The risk/reward is reasonable right here. If it broke much below $14, it is going to hit $10 pretty fast. The kind of name he would want to avoid for the next 6 months.

The chart has been ugly. In the last 2 quarters, they’ve been hurt by plant inefficiencies and a recall on a number of products. The good news is that the past president is back. He grew the company when it was a $100 million sales company to a billion-dollar sales company. If they get some of those issues right, you could see a meaningful upside in the company. Valuation is very cheap. There are rumours the company is interested in getting into canned fish as well, which would be a natural fit. Has a wonderful distribution network and a wonderful group of clients.

Has been suffering in the last year or so. Got rid of their CEO. Made an acquisition to try to diversify their assets away from battered breaded products. It is going to take some time to work its way through. Valuation is extraordinarily cheap if they get it right. The market has been concerned about declining sales. There have been inefficiencies in their operations. They also had a big product recall. It has not been a good situation. They’ve guided for organic sales growth in the 2^nd half of the year, as well as organic earnings growth. Trading at 8X next year’s earnings. If things improve and operations improve, you could easily see it double.

It looks good based on a PE ratio, but they had a CEO leave and earnings went down. There was uncertainty as why he left so he would be careful.