# The 20% CAGR stock that no one is talking about



## MrBlackhill (Jun 10, 2020)

I haven't seen much discussion activity about this stock. And it doesn't have a lot of volume. Yet it had quite a nice run recently. But not only recently. If you had bought 10 000$ worth of this stock in 2004 with DRIP, you'd have 200 000$ today.

Richards Packaging Income Fund. Is it under the radar or is there any reason?


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> Richards Packing Income Fund. Is it under the radar or is there any reason?


The market cap is only $728 million, which is getting up there, but still a small cap.

Meanwhile, the whole tech sector (XIT) is also performing at 20% CAGR, and those are well-established large caps. More diversification too.

Also, AAPL is performing at 25% CAGR and it's a large cap. AMZN is performing at 40% CAGR and is a large cap.

So I would flip the question on its head. Why would you settle for _only 20%_ CAGR on this small cap with low volume? With the intrinsic risk that comes from being an esoteric small cap, there should be a higher return to make this worthwhile.

I wouldn't bother, personally. If I'm going to chase 20% CAGR returns and pile into a momentum trade, I would do it with the better established stocks.

The story would change if it had something like 50% to 100% CAGR performance.


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## MrBlackhill (Jun 10, 2020)

True, but since you don't want to be 100% in the tech sector, you have to find other great stocks on diversified sectors & industries. And you may also not want to be 100% US and buy some CA stocks. And there isn't that much stocks who sustained >20% during >15 years. In fact, RPI did >30% in the last 10 years. For instance, from 2007-present XIT did 12% while RPI did 25% and from 2009-present XIT did 20% while RPI did 30% and RPI always had a better Sharpe ratio, also. And maybe should I also note that from 2015-present, XIT did 25% (mostly driven by SHOP) while RPI did... 38%?! Still, past performance does not guarantee future performance, but RPI was a solid choice in the last decade.

Let's take that big name AMZN. Based on Portfolio Analyzer, from 2010 until now, AMZN did 33.34% CAGR while RPI did 30.84%. AMZN's 5-year rolling return through that period was 31.98% while RPI was 31.85%. AMZN's standard deviation was 28.93% for a Sharpe ratio of 1.12 while RPI's standard deviation was 19.96% for a Sharpe ratio 1.43.

Not bad considering I'm comparing the most exciting US tech stock to the most boring CA packaging stock.

When trying to diversify through different industries, countries and cap size, I personally think RPI should be on the top of the radar. For instance, screen for Canada's best performing stocks in the last decade and make a top 5 for each industry/sector and RPI will be on that list.

(PS : I say AMZN is tech but I know it's considered consumer cyclical in internet retail industry, but AMZN is also a lot into tech services, their own online and physical stores is 55% of their revenue and the remaining 45% is all about tech services)


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## londoncalling (Sep 17, 2011)

I followed RPI about 7-10 years ago. I did consider it a nice sleeper stock at the time but never pulled the trigger. I also never was able to buy Apple, Amazon or CNR as I found the price just a little too steep. Likely this is confirmation that one may often need to pay more for quality. Perhaps I can convince myself to raise my bid on the next leg down. Cheers


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## MrBlackhill (Jun 10, 2020)

Yes, with the recent little run, it's hard to say if it will correct down a bit or if some investors just found out this undervalued (in my opinion) stock, therefore keeping the price at that current level. Still only at 2x P/S and 20x P/E, but earnings were down a bit last year. The current TTM is good though.


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## doctrine (Sep 30, 2011)

I remember following this company years ago too. I'm not sure that this is undervalued today, at 5 times book value and P/E of 22+, but it is growing, which is good. Probably, most of the easy money has been made here, but you never know, especially in today's momentum markets. A P/E 22 is not normally considered that cheap, and I'm not sure if their current bump in sales is permanent, given much of it appears to be COVID related sales growth. Distributors can face competition pretty quickly and you never know what curve balls may hit, and this isn't particularly a large company in that regard.


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## MrBlackhill (Jun 10, 2020)

Yeah, I agree it's currently more in the fair-value range but I think that's because of its recent run and that's why I'm only watching at the moment and not buying. Its recent run was too fast compared to its usual trend, so I'm not sure about its next move. Otherwise, it's hard to judge only by P/S, P/E and P/B. I usually use P/S for growth stocks and P/E for dividend stocks, but when stocks are growing fast while also giving >2% dividend, it's hard to put a threshold. We have to dig deeper. I've been looking for those stocks on the TSX which are growing fast while giving >2% dividend and they are hard to find. I'm currently watching closely AQN which amazes me and I may find a very good entry point since it is currently moving down.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> I've been looking for those stocks on the TSX which are growing fast while giving >2% dividend and they are hard to find. I'm currently watching closely AQN which amazes me and I may find a very good entry point since it is currently moving down.


You might want to look at the holdings of WXM, the momentum ETF.

A take a different approach from you. I look for fast growers that give LESS than 2% dividend (and preferably < 1% dividend) with good results so far. My growth/momentum portfolio has outperformed the index for nearly 4 years now.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> You might want to look at the holdings of WXM, the momentum ETF.


Thanks, that's interesting. I'm even surprised to find out that I already hold 7 of the 30 holdings of that ETF. There's inspiration to be found out of that ETF. It beats XIU and it's not over-represented by Financial and Energy as opposed to XIU (but I must admit that Canada's Big 6 are solid). Low volume for WXM, though. One could buy XIT, WXM/XIU, XMI and XEC and get returns compared to the in-between QQQ and SPY while having absolutely no exposure to US stock and yet decent exposure to foreign stocks (Try 40% XIT, 30% WXM/XIU, 20% XMI, 10% XEC [sure, it's mainly driven by tech but so is QQQ and even SPY has nearly 30% tech and my example still has 30% foreign stocks and anyways I believe in Canadian tech even though we don't have names as big as FAANG and this is not a financial advice, simply an observation of decent returns with great diversification except for tech... because it has to be high to compete with tech-driven indexes]). Or simply invest in ZGQ to get the best of every country and every sector (BMO has many solid ETF). And also if somebody doesn't like QQQ because 45% of its holding is only 5 stocks, then buy FHQ instead. It's sad that FHQ and ZGQ have low volumes, they are such great ETF in my opinion.



james4beach said:


> A take a different approach from you. I look for fast growers that give LESS than 2% dividend (and preferably < 1% dividend) with good results so far. My growth/momentum portfolio has outperformed the index for nearly 4 years now.


I also usually look at no dividend stocks when I'm looking at growth. My strategy is easy. Buy fast growth stocks until I reach enough capital to switch to dividend stocks for fixed income.

But I'm amazed by stocks having fast growth while giving >2% dividend. So far, I've only found that on RPI and AQN which are in the 20-30% CAGR range for total return.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> Thanks, that's interesting. I'm even surprised to find out that I already hold 7 of the 30 holdings of that ETF.


MrBlackhill, you seem to be getting some good stock picking ideas. I suggest starting a portfolio with stock picks, but make sure you carefully track the results for yourself. See how the performance shapes up over a year or two.

In my experience, stock picking has a lot of complications. Especially when some of your stocks begin to crash and get wiped out (which is inevitable). So it's not just a numerical process... it also tests your emotions and stamina. This can never be simulated on paper.

The real question is: how good are you at managing the portfolio. What do you do when the tough questions come up, like a stock which is acting horribly and now looks like a mistake. I don't think this can be simulated on paper.

Best thing to do is to start doing it with a small amount of money, and track your results. You can even track different test portfolios.

I currently have two different stock picking portfolios: my 5 pack, and also a growth/momentum portfolio. It provides me endless entertainment as well.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> MrBlackhill, you seem to be getting some good stock picking ideas. I suggest starting a portfolio with stock picks, but make sure you carefully track the results for yourself. See how the performance shapes up over a year or two.
> 
> In my experience, stock picking has a lot of complications. Especially when some of your stocks begin to crash and get wiped out (which is inevitable). So it's not just a numerical process... it also tests your emotions and stamina. This can never be simulated on paper.
> 
> ...


I'd surely do. But so far I'm more into the exploration phase for 1-2 years and unfortunately I don't have enough money at the moment to play around as I wish, but maybe in 1-2 years I'll be able to stabilise the distribution with enough money. Unless I simplify to only a 5-pack like you saw. I'm playing on building more than one portfolio though. One is my personal portfolio, one is my long-term matrimonial portfolio and one is my short-term matrimonial portfolio.


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## MrBlackhill (Jun 10, 2020)

If you are curious, here's how I started my stock market investing career having fun with some experiments. This is definitely not optimised, it's the result of my experiments. Obviously, I had investments in the past decade, but it's my first time on the stock market.

Here's my current list in order of position size. I bought some as an investment to encourage the company and I bought some as an investment to make profit. *First stocks I bought were on April 15.* (Obviously, total return will depend on when I last bought)










And here's my watch list so far. I need to add more small names and more stocks about to thrive, which take more time to screen. I only listed some big names and a few others that I stumbled upon. This is not my complete watch list.


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## livewell (Dec 1, 2013)

I bought RPI.UN back in early 2013 for $8.83. Back then (Unlike AMZ, APPL) it was a high dividend paying stock (I just checked and it was 8.8% when I bought it!). I just checked and my dividend income has covered 80% of my initial purchase. Unfortunately I sold half my position in Jan 19 as it was starting to take a sizable percentage of my portfolio ~6-7% for a small cap stock. Don't know if I would buy it today.


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## MrBlackhill (Jun 10, 2020)

As of today, I'd wait a bit to see if the recent run up was temporary because based on its trend it should be more in the low-50s. But the past trend is not enough to make a decision, I'll do my due diligence before buying, if I decide to do the move once I get some money to invest.


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## MrBlackhill (Jun 10, 2020)

My goal is not to beat the GSPTSE, not to beat the DJI, not to beat the GSPC, it's to beat the IXIC and if I can do it with only TSX stocks that'd be even better.


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