Ridley Inc. (RCL) manufactures and sells animal nutrition products to North American meat, milk and egg producers. As such, it operates in a fairly stable industry, as demand for many feed products tends to hold steady through recessions.

Despite the stability of this industry, and Ridley's role as one of the larger players with $600 million of annual sales, the company is conservatively capitalized with only $13 million of debt compared to equity of $150 million. Meanwhile, the company trades for just $100 million, while it has brought in combined operating cash flow of over $60 million over the last four years.

On this site, we have been pretty wary of companies that use cash to fund acquisitions...cash that could have otherwise been returned to shareholders. We've highlighted a few companies that, while they look cheap, have squandered more on bad acquisitions than they have earned over the last decade, which doesn't bode well for current shareholders unless the company has changed how it allocates capital. But that doesn't mean all acquisitions are bad. When management makes smart decisions when it comes to acquiring other companies, shareholder value is enhanced.

Consider Dorel (DIIB.PK), a designer and manufacturer of bicycles and various juvenile products. When we last looked at this company, its sales were suffering due to the fact that retailers were reducing inventories (2008 Q4). Nevertheless, the company remained profitable. Some of its competitors had not been able to maintain profits, however, and some of them found themselves overleveraged. Dorel has taken advantage of the situation, as it has purchased the assets of companies that have gone bankrupt.

As we've discussed before, it is much easier to predict a company's operating earnings than it is its net income, due to changes in debt levels, interest rates, non-operating earnings, and one-time tax items which all affect the latter but not the former. When attempting to value a company using these estimates of operating earnings, however, care must be taken to avoid blanketing each company with the same general tax rate.

Since most North American companies face a tax rate of around 35%, it is tempting to apply this estimate blindly when running a back-of-the-envelope valuation of a company under consideration. However, due to certain credits, tax treaties, and subsidiary jurisdictions, companies can have very different tax rates. This can wildly throw off a valuation.

Since the last time I wrote about my portfolio, things have been volatile. Here are my actions since then:

New Buys

Dorel (DIIB.PK) manufactures and distributes products in three segments: juvenile (strollers, car-seats etc.), leisure (mainly bicycles), and home furniture. The company's fourth quarter results held up very well despite the downturn, suggesting many of the company's products are recession proof. But the stock price has taken a hit, even though earnings are relatively stable. As a result, the P/E for this stable, profitable company is around 5!

Martin Schwartz has been CEO since 1993, and is also Chairman of the Board. Due to Dorel's dual-class share structure, the Schwartz family controls 70% of voting shares despite owning only 10% of the company's share capital. In Security Analysis, Ben Graham has warned us to be wary of instances where ownership control and risk are not aligned!

At the beginning of each calendar year, I sit down and see how my expenses have tracked over the past year. I make a table and a pie chart to show my wife. She is always amazed at how much goes to taxes, though the new amazement is what it takes to put children through college. We spend some time discussing plans for the next year. Since my wife is not money-oriented (not a big spender, and focused on teaching the children) this gives her a quick way to get reoriented in our financial situation.

After that, I look at investment income. 2008 was an unusual year for me in this way: it was the first year in my working life that my net worth fell. Though painful, at age 48, I’m grateful that I have had a good past.

RBC Capital has released a list of stocks on the S&P/TSX Composite Index it claims will have the most “predictable” positive performance.

“Predictability factors tend to perform well during low earnings growth environments or periods of high market volatility,” RBC analyst Chad McAlpine said in a note on Wednesday. The list was produced using RBC's proprietary computer models and boasts “defensive, high-quality names ... they offer strong growth profiles at attractive valuations,” he said.