It’s finally here!
What, you bought some deodorant?
That doesn’t even make sense.
I hate you. Does that make sense?
Italics man should have made a New Year’s resolution to be nicer to people.
And you should have made a New Year’s resolution to not suck so much!
I originally ripped this idea off Mr. Tako Escapes, who probably ripped it off some unsuspecting chump and/or chumpette. And then they probably ripped it off from a library book. All I’m saying is I don’t feel too bad since there’s no such thing as an original idea any more. Besides, he hasn’t done one since October, which means as declared by the decree “he abandoned it, therefore it’s mine” this idea now belongs to me.
That’s enough terrible preamble. Let’s do this thing. Note that this only includes stocks I haven’t bought already. I might just average down on those bad boys. I’ll then do an update at the end of the month outlining what I bought.
American Hotel Properties
Note I wrote a bunch more words about this over at the (basically) dead CDI blog:
American Hotel Properties (TSX:HOT.UN) owns 112 different hotels spread across 89 cities in 32 states. It has evolved over the years from owning value hotels that catered to rail workers to much nicer brands through a series of acquisitions.
The first thing that should catch your eye is the stock’s 13% dividend, which is paid in U.S. Dollars. You gotta like that. The payout ratio is sustainable on a trailing 12 month basis, but only barely. Recent numbers have been lackluster because of important hotels being renovated. It’s also a seasonal business, so we really won’t know the impact of these renos until the spring.
The stock is insanely cheap on all the traditional value metrics. It trades at 70% of book value and at just 1.1 times sales. It posted US$0.67 per share in adjusted funds from operations over the last year, which puts shares at approximately 7x AFFO once we convert back to local currency. That’s damn cheap.
Two big red flags are the company’s debt (which stands at about 60% of assets, which is too much) and the CEO was just replaced with his brother. Note this isn’t a family controlled company. The new CEO (and other insiders) have been buying stock aggressively over the last couple months, and the CEO has elected to get paid entirely in stock. Insider buying is usually a pretty bullish signal.
Both Linamar (TSX:LNR) and Magna (TSX:MG) are depressed for pretty much the same reasons. People are worried about an upcoming recession hitting auto sales hard and there’s always the possibility further tariffs may be passed.
This is creating a fantastic buying opportunity for both these names. Linamar trades at 5 times trailing earnings. Magna trades at 6.7 times earnings. Linamar also trades at 0.8 times book; Magna is slightly more expensive at 1.4 times book. Magna’s dividend yield is nearly 3%, much more attractive than Linamar’s 1% yield. And Magna has a history of annual dividend growth behind it. Linamar’s dividend growth is much more sporadic.
What really appeals to me about Magna is the share buyback program. Shares outstanding have decreased from 486 million at the end of 2011 to approximately 350 million shares today. And it has authorization to buyback an additional 33 million shares over the next year.
I’ve been researching Magna for months now. I’ll likely pull the trigger sometime this month.
Intertape Polymer (TSX:ITP) is a stock I’m quite familiar with. I bought in 2008 for $2.50 per share. I sold some at $7 and then the rest at $12. It promptly went up to $20. Oh well.
The company makes various plastic products. 60% of revenues come from various tape products, with the rest spread out between films, protective packaging, and woven. In a world where more and more stuff will be shipped after being purchased at websites, this isn’t such a bad business to be in.
There’s also plenty of potential to acquire smaller competitors. The company has spent about $500 million on six small acquisitions since 2015. This has left the balance sheet a bit stretched — net debt is about $500M versus a $1B market cap — but these deals are easy ways to acquire top-line growth.
Valuation is sound, with shares trading at approximately 12x trailing earnings or 10.5 times forward earnings expectations. The stock pays a 4% dividend too, although it appears dividend growth has been halted.
I’m usually not a big fan of paying more than book value for a REIT, but I just can’t help it with Smart REIT (TSX:SRU.UN). They are damn smart (heh!) operators.
Let’s start with the Walmart exposure. They’ve intentionally centered their portfolio around the world’s biggest retailer, which in turn attracts other tenants. Occupancy has consistently sat above 98% because of this.
Next is the trust’s potential to redevelop some of its existing property. Management figures there’s potential to add some 20 million square feet to the existing footprint of 34 million square feet. It also is expanding away from retail into self-storage, mixed-use (both office and residential mixed with retail space) and into senior’s living.
The trust’s Chairman is Mitchell Goldhar, who might be the best real estate developer alive in Canada today. Goldhar owns a bunch of shares (approximately 20% worth) when the company acquired Smartcentres from him in 2015. I like that he’s aboard.
Finally, shares pay a nice 5.7% yield with an annual distribution increase every year since 2013.
Since this is getting too long I’ll just mention a few more stocks I’m watching.
- Altagas (TSX:ALA) — The cheapest utility in Canada and it’s not even close, either. Balance sheet is a bit of a tire fire though.
- RioCan (TSX:REI.UN) — Like Smart I like the redevelopment pipeline. Has great retail assets with a long-term plan to diversify into other types of real estate.
- Dollarama (TSX:DOL) — Not super happy about being bullish on a retail stock but it’s cheap, still has good growth potential, and small store sizes make it more likely it can maintain 40% gross margin targets.
- Fedex (NYSE:FDX) — Down 30% in the last month and 35% in the last year. Trades at 9x trailing earnings. That’s simply too cheap.
Any stocks you’re watching? Comment away, yo.