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He would avoid this. As a value investor, there is a tendency to see a lot of underlying asset value. However, we’ve recently seen trends in online retailing accelerating and department stores becoming more and more challenged. Even though there is this theoretical asset value in the real estate, if the underlying retail valuations are not strong enough to pay the rent and support it over time, it is going to be hard for the company to surface that.
There is nothing comparable to this in the market, which is one reason he likes it. An organic foods business. They’ve done a great job of acquiring and building brands, and getting great shelf space in some of the grocery stores such as Walmart and Loblaw's. Trading at a pretty significant discount on Price to Sales to their US comparables, and there is nothing comparable in the Canadian market. A unique way for Canadian investor to get exposure to the ongoing growth of organic consumption by consumers.
On the surface it looks like a business with very high barriers to entry, with licenses giving them almost monopoly positions. Also, it’s a capital-intensive business, where they put a lot of money into large ships, recouping it through cash flow earned by harvesting seafood. Historically, they’ve generated high returns on capital, and they’ve been good investments, but in certain periods it leads to a lot of spending, negative free cash flow, quarter to quarter volatility. As a value investor, he likes to see a nice steady cash flow stream. With this one, you have to take a very long-term view. If you can do that, it is a pretty good business.
On the surface it looks like a business with very high barriers to entry, with licenses giving them almost monopoly positions. Also, it’s a capital-intensive business, where they put a lot of money into large ships, recouping it through cash flow earned by harvesting seafood. Historically, they’ve generated high returns on capital, and they’ve been good investments, but in certain periods it leads to a lot of spending, negative free cash flow, quarter to quarter volatility. As a value investor, he likes to see a nice steady cash flow stream. With this one, you have to take a very long-term view. If you can do that, it is a pretty good business.
A fairly controversial stock in Canada right now. Down 18% YTD. Has a fairly dominant position in the movie business, but this is an industry that is going through a lot of change. People are concerned about a variety of factors such as home viewing of movies, a shorter release cycle, etc. It is somewhat unique compared to the global or US theatre exhibition companies, in that they have a very strong market share in Canada and an attractive dividend yield. They have more advertising in the business and are diversifying with things like Rec Room. With the recent selloff, it is starting to look pretty attractive and he’s taken a very small initial position. Dividend yield of 5.6%.
This is in the category of "too tough to figure out". There are so many moving parts. The business is in a de-leveraging state where they are trying to sell off assets from years of the acquisition binge to pay down debt. The new CEO has been pretty aggressive in selling off assets, trying to raise cash. It still has a lot of financial leverage, and is very hard to analyse. There are better ways to make money.
If you own this, it is probably okay to hang on to, but he wouldn't advocate buying it here. The opportunity was last year when there was a crisis. Often, with financial institutions, it's all about confidence. If there is no confidence and they don't have access to capital at reasonable costs, it’s very hard for them to be in the lending business. This has been stabilized somewhat by the investment by Berkshire Hathaway, selling some businesses and new management.
This is a stock you have to take a longer-term view on. It's not a company he would think about on a quarter to quarter basis. They have a lot of long-life assets and are seen as one of the premier alternative asset managers globally. You really have to believe they are going to be able to compound their NAV for a long period of time.
(A Top Pick Dec 1/16. Up 10%.) He still likes this. There is a chance the insurance markets are going to improve with improved pricing after all the catastrophe losses last year. This is a great long-term investor, and if you take a long-term view it’s a company that will be able to compound Book Value at an above average rate. You should think of this as a 5-10 year investment.
He worries a little about this whole space. Auto parts in general are obviously a part of the Canadian market that could be severely impacted by NAFTA. The whole industry would be disrupted significantly. On a valuation basis, this doesn't look expensive. He would avoid it because of near peak auto sales in North America and the NAFTA risk.
This is in the new, emerging "meal kit" business. The concept is interesting. As people's lives get busier and they don't want to order in every night, this concept is gaining steam. There are a number of upstart companies in the US that have been growing very rapidly. This company has done a great job of growing their subscriber base and revenues, and is a very interesting company to watch. However, it is early stage and not making a lot of money. You have to look at this as a 3-4 year investment. He is watching and monitoring this with interest.
Market. He's a little cautious. There are a number of positive factors, North American economy is growing, there is some real follow through on US tax cuts, some companies talking about increasing CapX, giving employees bonuses, and optimism in the US. However, equity market valuations are quite high with PEs close to record levels, and this late in the cycle, there is more speculative behaviour. Investors need to focus on quality, and to have some cash hedges in place.