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Business owner for over 30 years now working less and investing more. Our company has grown from $1M in sales to $25M in that time. I have recently sold my shares as part of an exit strategy. My philosophy for success in life and business is based on creativity. As Albert Einstein once said,... More
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  • Look To The Future To Find Value. 0 comments
    Feb 7, 2014 1:32 PM | about stocks: AGU, JPM, MET, QCOM

    With the current run up in stock prices through 2013 it's been harder to find good value stocks with more upside than downside risk. With January's correction, I wanted to see if there were any new entry points on stocks I've been watching.

    I am not an active investor and usually only review my portfolio positions a few times per year. My preference is to find good value stocks with limited downside and good long term prospects. I prefer to own stocks forever and rarely sell unless a stock gets way ahead of itself or if my portfolio gets out of balance due to the success of one of my holdings.

    I recently sold my shares in my private company as an exit strategy, so I will have significant new funds over the next 5 years that need to find a home.

    I am based in Canada, so my selections reflect my own concerns about the Canadian dollar and partly a diversification strategy since 90% of my existing holdings are Canadian companies. I own stocks both in my RRSP, TFSA and outside a tax sheltered account.

    My picks for 2014 are Metlife (NYSE:MET), JP Morgan (NYSE:JPM), Qualcomm (NASDAQ:QCOM), Agrium (NYSE:AGU) and Dundee International REIT (OTC:DUNDF). I have purchased equal amounts of each for my RRSP (tax sheltered account).

    MetLife

    I currently own Manulife (NYSE:MFC) which has done very well for me in 2013. However moving forward, I needed to find a company outside of Canada trading at a reasonable valuation with very good long term prospects. MetLife is one of the largest insurance companies in the world and has been in business since 1868. While based in the US, it does business around the world which provides me good international exposure.

    A quick look at FastGraphs shows the historical PE vs the future PE.

    (click to enlarge)

    Normally you would not see a company with a trailing PE of 22 and a forward PE of 9.5. I bought at $53.81. It has since pulled back to $47.68 but with a PE of 9, I like this stock even more and may pick up additional shares.

    JP Morgan

    The troubles of JP Morgan are well known, but I feel that the worst may be behind them. JP Morgan is one of the largest banks in the world and is a significant player in the market themselves. With the upcoming spin off of their commodity trading arm, JPM is poised to be more like a bank and should have a PE multiple like a bank. I believe that 14 is a more reasonable PE for a company like JPM.

    The trailing PE of JPM is currently 12.5, however moving forward it's PE is only 10.5. I see tremendous value in a large bank with a forward PE at this level.

    A quick look at Fastgraphs confirms my research.

    (click to enlarge)

    Qualcomm

    I already own Apple (NASDAQ:AAPL), however I cannot predict what the future holds for mobile technology. This pick is based on my belief that mobile will continue to grow but I don't know which brand. QCOM provides important technology that is in almost every mobile phone in the world. So if the mobile industry grows, then QCOM will do well.

    Since I only buy when I see value, I needed to pick up QCOM on a dip. I'm not sure why the market has priced in the possibility that growth will stall, I only see continued growth of the overall mobile phone industry. Many parts of the world aren't even up to 3G, let alone LTE. While it's possible that growth could temporarily stall I just need to be patient for it to return.

    I don't typically buy stocks with this sort of high PE, however normally QCOM trades at 35 PE so it's current 19 PE seems low compared to history. In my research I could not find anything to explain QCOMs dip in price other than some sort of market expectation that growth or profits may suffer. A significant portion of QCOM revenue is licensing fees which have no cost. It looks like a license to print money to me.

    When you see the historical picture on Fastgraphs you will see that QCOM normally trades above it dividends paid line, however it has recently dipped below that yet still has significant growth in the future.

    (click to enlarge)

    Agrium

    With the markets at lofty levels, I wanted to balance my choices with a more defensive play. Agrium is one of the largest producers of farm nutrients in the world and they also own their own distribution channel. This makes them a very large diversified agricultural play. They have grown their dividend significantly over the years and show no signs of not being able to in the future. The profits generated from potash alone are not as significant to Agrium as they might be to other players in this space, so I feel that Agrium has been unfairly penalized by that one commodity.

    Here's how they look on Fastgraphs.

    (click to enlarge)

    Dundee International REIT

    Dundee International REIT is run by one of the best capital allocators in the business, Michael Cooper. The original Dundee was split into 3 companies and then he started a 4th with a focus on German Real Estate. It's very hard for smaller investors to participate in Europe in a meaningful way and with Europe's problems all over the news, I wanted to find something that was flying under the radar.

    Germany is the leading economy in Europe. With it's central location, large export oriented manufacturing base and stable western democracy, it would almost certainly lead Europe out of it's current troubles. And when the market improves, so would the value of it's real estate.

    DUNDF is trading below book and yields ~9%. Knowing Dundee as well as I do, I felt comfortable taking a small position in their European startup.

    Since this company is so new, there isn't any meaningful history to compare to, except that Dundee is a very well run company.

    Please note that I am not a professional investor, however I do know how to read a balance sheet and income statement. I do all my own research and buy only what I understand.

    Disclosure: I am long MET, JPM, AAPL, MFC, DUNDF, QCOM, AGU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Themes: long-ideas Stocks: AGU, JPM, MET, QCOM
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