# Stock deals -- getting harder to find?



## Dr_V (Oct 27, 2009)

I tend to stick to variations of Graham's Defensive stock investing criteria, and like to buy "plain" companies with substantial "moats of protection". (This strategy, which some may view as being rather conservative, has worked quite well for me in the past.) Lately, however, I've been finding it harder and harder to locate "good deals".

Some of the stocks that I think are still reasonably priced are already part of my portfolio. For reference, two examples are:

TDW => Tidewater
ALC => Algoma Central

With respect to adding to my positions in those stocks, I'm a bit on the fence -- while I still view them as "deals", they're not quite as sweet as when I had originally bought them.

Other than that, I'm finding the pickings to be rather slim at the moment. The 2009 report from Chou Funds seems to agree with this assessment, but I'm wondering what are others finding?

(I'm not much for forecasts, but I've noticed that, historically, the lack of good deals often bodes poorly for the overall direction of the stock market. This is somewhat tempered by the fact that the VIX appears to be near its 52 week lows, which suggests that we may have a bit more time before any major market movements. My gut feeling suggests that we could see some corrections once the central bank starts to raise interest rates, perhaps on 20 April or 1 June.)


K.


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## FrugalTrader (Oct 13, 2008)

I'm in the same boat. However, I've been hesitant to buy anything during this rally. The most recent equities I've purchased were some of the oil operators (HSE and XOM) and that was a few weeks ago.


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## CanadianCapitalist (Mar 31, 2009)

I'm mostly indexed and I find that stocks aren't screaming buys, so I'm not entirely surprised stock pickers are also finding it to be true. The TSX is expected to earn $720 this year, giving it an earnings yield of 6%. 10-year bonds are yielding about 4%, so stocks are still somewhat attractive but the spread is rather modest these days.

I'm finding EAFE to be much cheaper (though you could argue that it is deservedly so, considering all the troubles in European economies). If you look at earnings yield, it is not very cheap but it is trading at 1.5x book and the dividend yield is 3%. Since the Euro is weak and the C$ is strong, it is cheaper still for Canadian investors. 

I find EAFE to be below target to my asset allocation, so that's where new money is going these days.


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## Addy (Mar 12, 2010)

The only stock we have been purchasing of late has been ones that are pretty solid dividend payers. Plus two google stock for my 2 yr old  but that's only because we wanted to say our child owns a part of Google, not necessary based on intelligent investing!


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## MoneyMaker (Jun 1, 2009)

same here... i'm still waiting on Citigroup and two others to come down a little


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## Sampson (Apr 3, 2009)

I've picked up some HSE, SU, and RIM as of late, and some US midcap, as well as EAFE small-cap for my wife.

Still trying to round out my asset allocations, and waiting for interest rates to go up. (I had a whopping 2% allocated to Energy, and 0% to tech before those acquisitions )

I think they warrant some high P/Es, but I really only the fence with KO, MCD, and MMM, if only we could come down 5-10%. I'm convinced the recovery is well on its way outside the US.

Sitting on the most cash I've ever had though.


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## tojo (Apr 20, 2009)

Some investment grade (discounted) perpetual preferred shares are hitting interesting yields due to the anticipated rise in interest rates. I agree that stock deals are getting hard to find.


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## Cal (Jun 17, 2009)

Yep...waiting for a pull back or correction myself.


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## Soils4Peace (Mar 14, 2010)

I recently added some international small-mid cap ETFs that seem to offer value. MorningStar style, P/E, P/B and yield as follows...

NY: DGS - FTSE RAFI Emerging Mid Cap, 9.59, 1.47, 9.32%
NY: PDN - FTSE RAFI Developed ex-US Mid Cap, 14.11, 0.90, 3.99% 
NY: SCZ - MSCI EAFE Mid Cap. 14.90, 1.17, 4.02%
T: CIE - FTSE RAFI Developed Large Cap, 12.15 1.07, 8.85%


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## mogul777 (Jun 2, 2009)

Still pockets of value out there, but generally the markets are fully or overvalued. Way too many highs to get excited about indexing.


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## OptsyEagle (Nov 29, 2009)

With trillions of dollars sitting out there, looking for a good home, it is unlikely that you are going to come across a "Royal Bank" type stock trading at a bargain price. If you did, it would only be because of some negative event that would probably make you also, not want to buy it.

If you look where others are not, there are definitely gems. A few on my list:

Fortress Paper (FTP). It actually prints money. Euro's in Europe. It also makes wallpaper (only had a 1% sales decline during recession in wallpaper compared to double digit declines for any other building materials). Earnings from these products are growing very well and they have very little debt. A new upgrader for a European plant should quadruple their money printing business by 2011.

The main story here, however, is it's new acquisition of a pulp plant in Thurso. They bought the plant out of bankruptcy and will change it over to making Rayon (fabric like cotton), which is in much higher demand. It received $100M in financing from the Quebec government, at very low interest, with FTP only needing to put at risk, $15M of equity. If product prices stay the same, it will generate over $186 Million in EBITDA. They only have 10 Million shares, that currently trade at about $18. The EBITDA from this one acquisition, paid for by the Quebec government, will produce cash flow per share in 2012 EQUAL to what you would pay for each share, today. That is a bargain. Even if it didn't, their other businesses alone, justify their share price. The CEO personally owns 25% of the common shares.

AutoCanada (ACQ) Currently in an unloved industry which has some issues, but what I like about this company, that owns numerous car dealerships, is its car repair business. Just a steady cash cow. This company earned $0.63 per share in 2009 during the worst auto recession in 100 years. How much would they make if things ever got better and remember, people don't stop buying cars, they just put if off to a later date. Stock currently trades at around $4.00.

Sun Gro Horticulture (GRO.UN) Currenly switching to a corporation. Has 80% market share for peat moss production and due to the nature of the product, a monopolistic barrier to entry. Currently paying down debt with great success. Debt to equity in 2008 equaled 1.2:1, but is now down to 0.81:1 in 2009. I estimate it to be less than 0.5:1 in 2010 where dividends should start to flow again. Generated $0.91 per share in cash flow in 2009 and the stock trades for about $4.00. The really interesting thing here is that a company called Premier Tech, a direct competitor, and their CEO, Bernard Bellager, have been steadily buying up Sun Gro stock over the last year. They currently have about 20%. Now why would a company's direct competitor be buying up so much stock if they didn't think Sun Gro had the competitive advantage? Sun Gro insiders have also been active with another board member buying $50,000 worth on the 23rd of March. Anyway, can't grow grass in Arizona without peat moss, and you do have to call Sun Gro to get it. Give it a few years, (a few months if Premier Tech has anything to do with it) and you will be pleased.

All of the above do not pay dividends but they will some day and on that day, your yield to today's price will beat the heck out of the Royal Bank's. Just my opinion, do your DD, and yes I own them all.


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## OptsyEagle (Nov 29, 2009)

In continuation of my outlook on Fortress Paper above, BNN had the CEO of the company on last night and he describes the opportunity better than I do. 

http://watch.bnn.ca/the-close/march-2010/the-close-march-31-2010/#clip283493

Interesting point, was that they are buying the Thurso plant for $3 million dollars but are insuring it for $851 Million dollars. The Quebec government is really bearing all the risk and FTP is pretty much bearing all the gain. This CEO sure put together a peachy deal. He owns 25% of the company.

Check out their other businesses as well. All showing tremendous profitable growth.


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## OptsyEagle (Nov 29, 2009)

Further on Sun Gro. Insider disclosure today just reported that Bernard Belanger is still buying more of Sun Gro. Mr. Belanger is the CEO of Premier Tech, a direct competitor of Sun Gro. He has been steadily buying shares for the last year and has accumulated almost 20% of Sun Gro's shares, as we speak. It will be interesting to see "How much is enough" for Mr. Belanger. My guess is nothing less than 100% of the company, but that is just my guess.

http://canadianinsider.com/coReport/allTransactions.php?ticker=gro.un

Craig Graham is on the Board of Directors for Sun Gro Horticulture.

_Things that make you go hmmmm !_


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## CanadianCapitalist (Mar 31, 2009)

OptsyEagle said:


> In continuation of my outlook on Fortress Paper above, BNN had the CEO of the company on last night and he describes the opportunity better than I do.


Good timing. Stock up 10+% today.


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## OptsyEagle (Nov 29, 2009)

CanadianCapitalist said:


> Good timing. Stock up 10+% today.


Yes. It would appear that the CEO does tell the story a lot better than I do. 

Anyway, a lot more room to move up. It's only a $20 stock and this company was going to make more than $2.00 per share in 2010 anyways, before the Thurso acquisition. 

The Thurso acquisition, should add about $186M in EBITDA. Here I would subtract $6 million for interest and, almost nothing for depreciation (since that is about what they paid for it) and at most $60 million for taxes (could a piece of this be what the Quebec government is after) and you have about $100 Million of cash flow or about $10 more per share.

Did I mention that the shares trade for only $20?


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## MoneyMaker (Jun 1, 2009)

valueinvestigator.com of ABC Funds has some good write ups on FTP


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## Dr_V (Oct 27, 2009)

ABC has talked about Fortress for some time ... though, it never really caught my eye when I looked at it.


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## msimms (Apr 17, 2009)

Two US large caps I feel almost priced out but not quite yet.
SYY and JNJ, high ROE, both throw off lots of cash, simple businesses to understand, acceptable levels of debt relative to earnings, p/b is high but they aren't capital intensive businesses, so don't need a ton of assets to maintain earning as much as they do. good management, shareholder friendly. 
SYY trades at 15.7 p/e, and JNJ at 14.7. I would say 16 would be the limit for both of them. both appear to have a large margin of safety and could maintain their fixed charges a few times over.


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## [email protected] (Apr 13, 2010)

Dr_V said:


> I tend to stick to variations of Graham's Defensive stock investing criteria, and like to buy "plain" companies with substantial "moats of protection". (This strategy, which some may view as being rather conservative, has worked quite well for me in the past.) Lately, however, I've been finding it harder and harder to locate "good deals".
> 
> Some of the stocks that I think are still reasonably priced are already part of my portfolio. For reference, two examples are:
> 
> ...


What I like about Graham’s criteria is that it stresses more on conventional viewpoint for selecting individual stocks, which in my opinion is more appealing than aggressive methodologies.


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## CanadianCapitalist (Mar 31, 2009)

OptsyEagle said:


> Fortress Paper (FTP). It actually prints money. Euro's in Europe. It also makes wallpaper (only had a 1% sales decline during recession in wallpaper compared to double digit declines for any other building materials). Earnings from these products are growing very well and they have very little debt. A new upgrader for a European plant should quadruple their money printing business by 2011.
> 
> The main story here, however, is it's new acquisition of a pulp plant in Thurso. They bought the plant out of bankruptcy and will change it over to making Rayon (fabric like cotton), which is in much higher demand. It received $100M in financing from the Quebec government, at very low interest, with FTP only needing to put at risk, $15M of equity. If product prices stay the same, it will generate over $186 Million in EBITDA. They only have 10 Million shares, that currently trade at about $18. The EBITDA from this one acquisition, paid for by the Quebec government, will produce cash flow per share in 2012 EQUAL to what you would pay for each share, today. That is a bargain. Even if it didn't, their other businesses alone, justify their share price. The CEO personally owns 25% of the common shares.


A recent news item regarding FTP reminded me of this post. Shares are trading at $38 now. OptsyEagle made the call at $18. Better than a double in less than 6 months.

Great pick! And no, I didn't put in a buy order


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## FrugalTrader (Oct 13, 2008)

OptsyEagle said:


> With trillions of dollars sitting out there, looking for a good home, it is unlikely that you are going to come across a "Royal Bank" type stock trading at a bargain price. If you did, it would only be because of some negative event that would probably make you also, not want to buy it.
> 
> If you look where others are not, there are definitely gems. A few on my list:
> 
> ...


Not just FTP that's up from his list:

FTP: (38/18-1)= 111%
ACQ: (5/4-1) = 25%
GRO.UN: (5.25/4.20-1) = 25%

The important question is, what's on your list now OptsyEagle?


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## OptsyEagle (Nov 29, 2009)

By the way, SunGro did get taken over. $6.60 was the price offered last Monday.

I still own them all except I sold SunGro to the market on Monday. Fortress is going to $80. I expect EPS of about $11.88 per share in 2012. Maybe $2 or $3 for 2011 since it is a transitional year for their Rayon plant.

ACQ is still a bargain. If you look at all the auto parts companies and even the auto manufacturers, they are all on fire lately corresponding to the optimism for car sales over the next year or two. Now the only way they are going to be right on this one is if those cars get sold in dealerships like AutoCanada. Its a bargain. Their repair business is pretty much an annuity and the car sales is the topping on the cake.

I should point out, for full disclosure, that I rarely pick 3 stocks that all go up. 

The only other stock I would add to my bargain suggestion right now is GasFrac (GFS.V). They have a game changing technology to get more oil and gas out of the existing wells. The current issue this week is a fire that broke out on one of their rigs, which has stopped production for the next few days pending the investigation. It has created a 20% off sale for the stock, but it is a limited time offer.

Whether the news from the fire is great (one off issue, production starts right back up) or the news is bad (fundamental problem in their methods that need to be re-jigged) the world needs that last 30% of reserves and unless people decide that they would rather push their cars instead of drive them, this one is not going away. That's my opinion, anyways. A little higher risk then FTP, about the same as ACQ.


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## OptsyEagle (Nov 29, 2009)

For anyone interested in Fortress Paper, the CEO was on BNN today and he explains the opportunity quite well.

http://watch.bnn.ca/#clip404603

and my personal earnings estimates can be found here.

http://www.stockhouse.com/Bullboards/MessageDetail.aspx?p=0&m=29082431&l=0&r=0&s=ftp&t=LIST


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## FrugalTrader (Oct 13, 2008)

Thanks for the update OptsyEagle!


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## plen (Nov 18, 2010)

OptsyEagle said:


> Whether the news from the fire is great (one off issue, production starts right back up) or the news is bad (fundamental problem in their methods that need to be re-jigged) the world needs that last 30% of reserves and unless people decide that they would rather push their cars instead of drive them, this one is not going away. That's my opinion, anyways. A little higher risk then FTP, about the same as ACQ.


Thanks for the suggestion, put a little of my fun money in at $9.75 - They released their findings today.



> We have determined detailed corrective actions to prevent any recurrence and are in the process of implementing these actions and have targeted January 31, 2011 for recommencement of operations.


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## OptsyEagle (Nov 29, 2009)

Yes, just as I suspected. One way or the other this technology was not going to be dumped because of a little fire. I mean they are still drilling for oil in the Gulf of Mexico and look at that bloody accident.

I don't know why investors would sell off such a great stock 20%, simply because of that pathetic little fire but I suppose either they are inexperienced, too emotional or they just don't like all the problems involved with having too much money.

Gasfrac (GFS) is still a great stock. Worth at least $20 now but with the ability to move my target higher and higher as their progress unfolds. A lot like Fortress Paper.


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## Cal (Jun 17, 2009)

Not that any of these are deals, but I thought the article was of interest:

http://seekingalpha.com/article/248...ake-the-grade?source=email_the_daily_dispatch


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