Unlike a traditional stock screener, this is a list of stocks that I have looked at along with some comments regarding the business. It is a constant work in progress and very likely will not include everything I have looked at. Companies in certain industries will be excluded by default.
Praxair (PX) – wow what an amazing business. This is a specialty chemical company focusing on gases (oxygen, carbon dioxide, nitrogen, hyrdogen). The company’s margins are incredible with a gross margin of 43% and operating margin of 21%. And returns on equity are very high – around 26%. An oligopoly industry structure and the difficulty in transporting gases makes the economics of this industry very attractive. Revenue and margins are incredibly stable over time. The company has paid and increased its dividends for 18 years. The company is shareholder friendly with generous dividends and share buybacks. Share price right now provides an attractive return. Above average future growth. Last reviewed Jan 2014.
Dell (DELL) – incredible returns on equity capital. Most of the business is financed through accounts payable, customer prepayments, etc. Capital requirements significantly reduced through outsourcing. Very little debt. Stable gross margin but declining operating margins. Returns capital to shareholders through buybacks but refuses to pay a dividend. Company has lost the lead and low cost supplier position in the PC business dropping quickly to #3 after HP and acer. Trying to expand into other areas to compensate. Future unclear – and industry changes quickly. Company may squander its large pool of cash on further acquisitions. I really wish they paid a dividend. Last reviewed summer 2010.
Tim Hortons (THI) – One of Canada’s top companies. Long history and consistent profitability and cash flow, high ROE. This company will be around and generating strong owner earnings for a long time. However, price includes a big growth premium. Much rests on the companies ability to expand into the U.S. which is dubious. See full blog post. Last reviewed July 2010.
Hot Topic (HOTT) – Hot Topic retails music merchandise including licensed band t-shirts, accessories as well as other clothing and gift items targeting kids aged 12-22 at its 680 stores mainly in the US. Torrid sells fashions for plus sized females aged 15-29 at 156 stores. Recently traded at very attractive prices ~$5 per share/$220m mkt cap. Owner earnings are strong – normalized ~$26m but not consistent over any reasonable period of time. Company recently initiated a decent dividend of $0.28 per share. Company has been around since 1989. However, Company’s products are highly fashion oriented and taste changes in this particularly fickle demographic could quickly result in losses and even business failure. Also lots of new competitors have emerged online. Last reviewed August 2010.
Keg Royalties Income Fund (KEG.UN) – Wonderful security with a very high dividend. Most of the cash flow comes from a 4% royalty on Keg Restaurants and the rest comes from a loan to the company that operates the restaurants. The Keg is the name for steakhouses in Canada. Read entire blog post. Email me for more info. Last reviewed August 2010.
Chapters Indigo (TSX: IDG) – Chapters Indigo is Canada’s leading bookstore chain with a 28% market share. This is a good business with above average returns. The price is attractive. There is a great deal of cash on the balance sheet (~ $7 per share). After paying down a lot of debt incurred to merge a few businesses, the Company initiated a decent divided. However, all is not well. There are two major business problems the company faces which could make the future less attractive than the present. One is Amazon.com which has made solid inroads into selling conventional books and other goods online in Canada and elsewhere; I believe they will continue to take market share. The other problem is worse: electronic books. I recently downloaded the Kindle App for the iphone and I am hooked. I much prefer electronic books as they are cheaper, more portable and more convenient. I even downloaded a bunch for free off the internet (don’t ask me how). Traditional booksellers are going to see a huge loss of business just like CD stores did. Chapters Indigo does have an ebook reader called Kobo but it is an also-ran player in a large market lead by Amazon’s Kindle.
Microsoft (MSFT) – Wonderful cash flow machine that generates cash and has a huge amount of cash on its balance sheet. Makes almost all of its money from Windows operating system, Server software and Microsoft Office. Online division (Bing, Hotmail) is a money loser. Entertainment division (Xbox) breaks even. Microsoft has genuine barriers to entry created by its operating system. It is very hard for consumers and companies to switch to something else because all their software only runs on Windows. This being said, the Company makes bloated products that customers don’t love. There is a big movement to move to Apple’s Macs. I see a lot of people around me moving to Macs. Anyone I have talked to who has made the move almost never goes back. This used to be only die hards but now includes techies and mainstream users. Macs have becomes cool in addition to offering a better user experience and a more efficient use of hardware by the operating system. Also, separately, there is another movement for applications such as word processing to move to the “cloud” where online service providers such as Google will offer the service; not sure where this will go. On the server side, there are much cheaper alternatives that run equivalent or better than Microsoft products such as Linux, Apache, MySQL, PHP, etc. So the question is how long Microsoft will continue to dominate the computer world? I don’t know the answer.
Companies I own / would like to buy at the right price:
Procter and Gamble
Philip Morris Intl
Johnson and Johnson
I’m not a big fan of shorting stocks, but at the right price I might consider shorting:
Netflix (Jan 2014)
Martha Stewart Living Omnimedia
Ballard Power Systems