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Vikash Jain, CFA's  Instablog

Vikash Jain, CFA
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As Chief Investment Officer of Morguard Financial Corp., I manage a global equity portfolio and oversee a real estate portfolio. I like buying strong, quality companies that have seen their share prices stumble for, hopefully, temporary causes.
My company:
Morguard Financial Corp
My blog:
Morguard Blog
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  • Oil Equipment Supplier Flies Under The Radar

    Oil Equipment Supplier Flies Under the Radar

    by Vikash Jain, 28 Mar 2014

    We recently bought McCoy Global Corp (MCCRF/US, MCB/TSX) in our equity portfolio. McCoy is an Edmonton company that started life a century ago as a blacksmith shop, then switched to building specialized oil drilling equipment in the mid-1970's and today is a leading global supplier of mission critical parts like the hydraulic power tong shown here. Hydraulic Power Tong

    There are so many reasons to like McCoy:

    It is a Canadian manufacturer. We don't have enough of these in this country, as I once lamented in the National Post. And the stuff it builds is some pretty cool machinery that you can take a pipe wrench to.

    It has a long history of steadily growing revenue and earnings though there has been some recent weakness but that should be temporary as I explain below.

    It is conservatively run with a balance sheet in a net cash position.

    It pays a sustainable dividend that's grown over time but retains enough money to fund future growth.

    It is a top supplier to North American oil drillers and has been growing its US business as shale oil production booms. Its US revenue is up 25% over three years more than offsetting an 18% drop in its Canadian revenue.

    Its products are essential best-in-class equipment that oil drillers pay a premium for, as proven by a long-time gross margin of about 23% and a return on capital of 15%.

    It is a global supplier, with factories or key offices in Alberta, BC, Texas, Louisiana, Scotland and Singapore.

    Too small for the big investors it is overlooked by analysts and investors.

    McCoy management has a clear plan to grow its business through new organic sales and some judicious acquisitions.

    Finally McCoy is on sale. SharePriceIts share price fell 20% in mid-February from about C$7.20 to about C$5.80 after it pre-announced that Q4/13 earnings would be below expectations. However this "miss" was due to short-term operational hiccups: They recently deployed new software that will eventually optimize factory production but not without some initial pain including the delayed delivery of a large power tong. They have also spent money to add staff to their global offices to better service local clients.

    Rather than focus on a poor quarter, we give more credence to McCoy's many decades of solid performance. For us, the dip was a great buying opportunity in a quality name.

    Recent Price$5.80
    Market Cap$160 MM
    Price 52-Week Low/Hi$4.18 / $7.71
    Annual Dividend / Yield$0.20 / 3.4%
    Dividend Payout Ratio40.6%
    Insider Holding3.7%
    Consensus EPS Growth31.5%
    Forward P/E13.2x
    Forward EV/EBITDA7.0x
    Net Debt/EBITDA-0.77

    Disclosure: I am long MCCRF.

    Additional disclosure: We are long the Canadian-listed shares (MCB/TSX).

    Mar 31 10:34 AM | Link | Comment!
  • Dividend Heavy Hitters Grab Attention
    Over the last few weeks, I've written about four Canadian ETFs that
    • pay great dividends
    • are less volatile than the market as a whole and
    • provide better diversification than going international.
    This winning combination has attracted a lot of attention from readers and investors tired of the market gyrations. Today I appeared on BNN TV in Toronto to discuss the four ETFs. 
    Please watch the BNN clip here.

    Here are the articles. 
    On REITs:      Dividends sooth stocks' turmoil
    On Utilities:    Don't play monopoly with your portfolio

    Best Regards, 

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: I am long ZRE.TO and may initiate a position in ZUT.TO.
    Nov 14 7:53 PM | Link | Comment!
  • Nuclear sector a Buy after market panic
     The threat of a catastrophic meltdown at four (of 55 in total) Japanese nuclear reactors has hit the sector hard. Shares of Uranium miners like Cameco and Australia's Paladin, utilities like Exelon and EDF in Europe, and integrated firms like Areva in France, all saw double-digit drops over the last week. A pure uranium fund, "U" on the TSX, dropped over 30%. The biggest nuclear sector ETF, NLR, dropped 22% before recovering somewhat and is now down 14% from its price last Thursday before the earthquake hit. 
    But despite Japan's tragedy, the nuclear industry is not going away. If anything, with our global oil barrel at least half-empty, nuclear power has been experiencing a renaissance. President Obama re-affirmed the US' commitment to nuclear power the other day. Unfolding events in Japan will continue to cause turbulence in the sector but until there is a clearly better alternative energy, nuclear power is here to stay. 
    Market Vectors' NLR ETF holds 26 firms offering a good mix of uranium miners, nuclear engineering firms, and nuclear utilities. Global exposure is also mixed: 30% Canada, 27% US, 18% Japan and the rest in Australia and France. A couple of other nuclear ETFs, iShares NUCL and Powershares PKN are more global and less miner-focussed. But they are much smaller in AUM. NLR also offer a better dividend at nearly 5%. 

      archerETF MetrixNLR
     CategoryUS Equity
     BenchmarkS&P 500
     Total Holdings26
     52 Week High$27.45
     Recent Price$21.23
     52 Week Low$17.73
     Avg Daily Volume0.19 Million Shrs
     Avg Daily Volume ($)$4.14 Million
     Total Market Cap$201.30 Million
     ETF Annual Fee0.66%
     ETF Trading CurrencyUSD
     ETF FX ExposureC$ 30%/US$ 27%/Other
     Annual Volatility30.88%
     Correlation to S&P 50077.59%
     Return to Risk RatioNot Available
     Use of LeverageNo
     Use of FuturesNo
     6 month Return8.48%
     1 Year Return-4.11%
     2 Year Return35.22%
     3 Year Return-27.19%
     Dividend Yield (NYSE:TTM)4.99%

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Tags: NLR, PKN, NUCL, U.TO
    Mar 17 12:32 PM | Link | Comment!
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