What is? A fund? Sounds fun. I’m here all week. Because I’M IN VEGAS SUCKAS. (Gets drunk, tackles a cop, everyone laughs because it’s Vegas)
Just in time for the market to melt down completely, it’s the Financial Uproar fund, which I really should call the FU fund. Nah, that seems a little offensive. So the Uproar fund it is.
The fund is simple. It starts out with $100,000, all in cash. Positions are added as I buy stocks in real life. I can’t cherry pick and choose investments for the fund based on stocks I’ve bought before. It’ll be a concentrated fund, never having more than 20 stocks in it, but will most likely peak at just 10 or 12 different positions. Stocks will be chosen on my contrarian values. I’m looking at stocks that are beaten up, have potential for spectacular recoveries, that have great balance sheets, and can hopefully beat the market over time.
I think I can, but I’ve been lax at tracking my results. That’ll change. Each stock will get a writeup as I buy it, disclosing the price I paid, what percentage of the fund it makes up, and a real time buy or hold ranking on a separate page on the site. Just scroll up and you’ll find it.
We’ll do quarterly updates on the fund, probably starting in July. Feel free to mock me if my stocks go down.
Before I get into the first position for the fund, remember my disclaimer which I haven’t cracked out in a little while, but here goes: If you buy shares in a company because some guy on the internet did, you are a moron who deserves to lose their money. Do your own research.
Okay, onto the stock I bought for the fund. ARE YOU READY KIDS? I’M MORE JACKED THAN THE ULTIMATE WARRIOR DOING A PRE-MATCH INTERVIEW. Except, you know, not so much now.
Purchase Reitmans (TSX:RET.A)
- Number of shares bought: 2,000
- Price paid: $6.295
- Percentage of fund: 12.60%
- Target price: $15.75
(Shares in Reitmans were purchased twice, half at $6.48 per share and half at $6.11. Purchase price is adjusted based on getting a dividend from the first half.)
Reitmans is a classic deep value play. They’re a retailer of women’s clothing under several different banners, each catering to a certain subsection of the market, including maternity, plus-size, and professional wear you’d wear to work. They have almost 900 stores in total. Same store sales numbers have been negative lately, due to a bunch of factors, including crappier selection at Smart Set (the company’s chain catering to younger women), expansion into the U.S. building stores inside Babies-R-Us locations which flopped miserably, and the emergence of Target in the Canadian market.
Latest earnings weren’t terrible. The company tumbled to a small loss in the most recent quarter – which did beat analysts expectations – and posted same store sales weakness of 2.8%. The stock popped on the news, briefly touching the $6.48 level I first paid for the name. It promptly sunk back to the $6.15 range where I picked up the second half.
A big problem in this space is losing sales to online only competitors. Reitmans was slow embracing the internet, only making a token effort to get online prior to 2013. Last year the company started taking it seriously, rolling out totally revamped websites for each of its brands. The company’s new inventory system (implemented in 2012) now links inventory for each of its stores and the website, allowing merchandise to be taken from stores and shipped to online customers. This should hopefully cut down on discounting, a problem that’s plagued the company during its recent sales slump.
The balance sheet is practically arousing. Although I wish it had a nice real estate portfolio like a Sears Canada, Reitmans still has an asset rich balance sheet. Book value is $6.56 per share, about 7% higher than current levels. The company slashed its dividend back in December, cutting it from 80 cents per year to 20. Still, it represents a 3.2% yield, and is easily covered by cash flow. Oh, and Reitmans is sitting on almost $2 per share in cash, and has just spent a bunch of money improving stores.
Management has been at the company for a long time. CEO Jeremy Reitman has been in charge since 1974. His brother, and COO, Steven, has been around since 1976. Insiders own a whack of the stock, 57% of the voting shares and 7% of the non-voting shares. Noted value investor Prem Watsa bought 13% of the class A non-voting shares in December. I like when management has skin in the game, and I seem to follow Watsa from investment to investment these days.
Reitmans is the perfect contrarian stock. It has a rock solid balance sheet, pays you to wait, and has fixable problems. I’ve set a target price of $15.75. Let’s see if it makes it there.