Cott Corp (BCB-T)

It is miss-understood. They are working on selling the soda business for a water and coffee focus. A lot of this is baked in at current prices unless they announce a large acquisition. He has not seen the upside here. He finds better opportunities elsewhere.

This is going to be part of consumers staples, and as a general rule is not a place you want to be. Chart shows a little peak in early December, but the stock is really sideways. If it is going to become a Buy or find its legs, it could go down to $16 and still be quite positive. There would probably be some buyers coming in at around $18. You would be a bit concerned at around $20.61 and the next one would be at around $20.12. This would tell you that you are going to have a visit down to $18, and then possibly the $16 level. Not a fantastic place to be, but you could have outliers that make it a good Buy at any price.

Has been out of this for a long time. It moved into a new era of water, and probably tea and coffee as well. It’s worth looking at again.

It is going through a dynamic process. They sold the bottling division and are focusing on coffee, water and tea. There has been a lot of consolidation in those businesses. Their debt is going down. The strategy shift is exactly what they needed to do. Don’t rush, but as the balance sheet improves they will do better.

Beginning in May, he started getting rid of a lot of his defensive positions. The chart shows a little weakness in June. He would be selective in this space. If you own it, you’ve had a nice little gain and maybe you should take a little bit off the table. He doesn’t expect a full selloff. This has excellent support at around $16.50.

Has owned this in the past. He likes the turnaround that management has made. They were in contract manufacturing of a private label pop business and discovered it was not the best business for them, so started to transition away. Now into home delivery water and office delivery water and coffee. Not the highest margin business, but if they continue to make acquisitions, it will continue to grow. He is surprised the stock sold off as much is it has, and is in the process of looking at this.

No longer just a soda manufacturer. They’ve gotten heavy into the coffee and water delivery business around offices, homes and shops. A high free cash flow business, and they’ve been able to roll up that sector, both in Canada and Europe, on very, very cheap multiples. They’ve put a lot of debt on the balance sheet. While they are generating a lot of free cash flow, it seems the narrative has changed over the last few months. Part of it has to do with the British pound decline. There is a question as to how long they are going to be able to service their debt properly and how long will it take. Sold his holdings, but may look to enter again once they de-lever the business a little.

(Top Pick Nov 9/16, Down 18.86%) Has been under pressure by quant funds. He still owns it. He is going to continue to own it.

(Top Pick Sep 8/16, Down 23.43%) Operationally nothing has gone wrong and they keep executing. There has been general pressure on consumer staples stocks. This is a company with high debt. He thought they would pay down debt over time. They are not financially distressed and nothing has changed operationally.

Now they moved into more water and they still have juices. He thinks they will try to exit that part of the business. It ran up to close to $22 and now it seems to go down every single day. He thinks there is a seller out there. They made acquisitions with debt. It is not at a high multiple so he might take a look at it. It looks interesting at these prices.

They have had quite the history, changing strategy. They are now making a huge push into office bottled water. They have low growth and paying quite a large multiple for their requisitions and racking up a lot of debt. It is not a name he would invest in.

He had sold around Brexit and just added it back. A solid free cash flow story. Once it crossed 10% free cash flow he was interested. They can harvest the cash flow to pay down debt and then you have more value accruing for the shareholders and away from lenders. 1.75% dividend.

A value play. Not expensive, trading at 8X EBITDA. The company is in a transition, which could be risky in execution, but so far it is very good. It used to be a soft drink company, but they will try to sell the soft drink business, which would be a great catalyst for the stock to move up. They are diversifying into other businesses such as water. Just made an acquisition into coffee. Dividend yield of 1.55%.

This had been fading into oblivion for a very long time. Consumption of carbonated soft drinks is really on the decline. Very much a commodity driven business and vulnerable to the swings in price in plastics, aluminum, sugar, etc. They’ve made several transformational acquisitions into better businesses such as an office and home coffee and water delivery. Recently made 2 more acquisitions, one in the US and one in Europe. EPS is stuck in a range of about $.20 compared to $.40 in 2014. He prefers being invested in businesses that are proving and executing and achieving the financial metrics he is looking for. This doesn’t meet that test.

The stock is expensive. It has had a huge run. It is at 2.5 times its book value and that is about has high as it has got in a long time. The earnings have not kept pace with its stock price. It has momentum behind it but he can’t recommend it. It would concern him if things turned bearish.