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Our Top Buy For March

Mar. 03, 2021 8:00 AM ETACLLF, ET, UVE, INGR, HBI, CDUAF, ACO.X:CA, CU:CA30 Comments


  • Every month we release a list of "top picks."
  • This month's pick is little-known ACLLF.
  • We share our thesis here.
  • Looking for a portfolio of ideas like this one? Members of High Yield Investor get exclusive access to our model portfolio. Get started today »

The calendar has turned to March and - after a month that saw considerable volatility in our portfolio holdings - we recently published an updated list of Top Picks. Today we will share with you our top pick for March: ATCO Ltd (OTCPK:ACLLF).

Our February Top Picks for our Equity Portfolio were:

  • Energy Transfer (ET): Midstream
  • ATCO (OTCPK:ACLLF): Infrastructure
  • Universal Insurance (UVE): Insurance
  • Ingredion (INGR): Consumer Defensive
  • Hanesbrands (HBI): Consumer Cyclical

Overall, we were blessed to continue our streak of significantly outperforming the market indexes:

They all outperformed the NASDAQ (QQQ) and all but one significantly outperformed the Dow Jones (DIA) and the S&P 500 (SPY).

On average, the Equity Portfolio top picks returned a whopping 16.63% from February 1 - March 1 compared to just 4.69% for DIA, 3.55% for SPY, and 0.36% for QQQ.

ET, INGR, HBI, and UVE have all appreciated to the point where they are no longer our top values given their strong outperformance relative to the index and several of our other holdings. As a result, we are removing them from this month's Top Picks list.

However, ACLLF - though it generated positive returns last month - was our lone underperformer despite reporting very strong earnings, so it will remain on our Top Picks list this month as our top pick.

As we recently outlined in our article 3 Reasons We Are Buying ATCO Instead Of Brookfield Infrastructure, there is a lot to like about ACLLF that reminds us somewhat of fellow Canadian-based infrastructure investor Brookfield (BIP) (BIPC) (BAM), but given its cheap valuation, we like it even more right now:

#1 Strong Balance Sheet

With an A- credit rating and very low interest costs (they recently issued 30-year debt at an incredibly cheap 2.609% interest rate), ATCO enables investors to sleep well at

What Are We Buying?

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This article was written by

Samuel Smith profile picture

Samuel Smith is Vice President at Leonberg Capital and manages the High Yield Investor Seeking Alpha Investing Group.

Samuel is a Professional Engineer and Project Management Professional by training and holds a B.S. in Civil Engineering and Mathematics from the United States Military Academy at West Point and a Masters in Engineering from Texas A&M with a focus on Computational Engineering and Mathematics. He is a former Army officer, land development project engineer, and lead investment analyst at Sure Dividend.

Analyst’s Disclosure: I am/we are long ACLLF, BAM, INGR, HBI, UVE, ET. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (30)

Any insight into how their adjusted EPS compares with their actual EPS? My understanding is that Canadian Utilities sold off a bunch of fossil-fuel based electricity generation assets in 2019, which dropped their earnings by $45 million. Proceeds of the sale were roughly $900 million for CU.

What do you look for when you are trying to account for the legitimacy of adjusted earnings? At some point I would expect the proceeds from that sale re-invested into other generation or distribution assets (CU purchased a pipeline for approx 180 mill in AB).

I'm not even sure what I'm asking, but any help thinking through this would be greatly appreciated.

Thank you for the article
Guraaf profile picture
I don't see any appreciation in $UVE. What was your recommendation level?
Samuel Smith profile picture
@Guraaf on February 1st, we bought UVE shares at $13.11.
bengalesq profile picture
ACLLF (ATCO Limited). At $30 from pre-covid $40 vs BAM (BIP – the subsidiary actually is the compare) which is near 1Y high. Infrastructure. Canadian jr to BAM (BIP is 3.5x bigger) but with better credit rating (A- vs BBB = lower rate borrowing), decent debt ladder repayment, Canadian utilities, cargo, clean energy infrastructure, date, terminals, ports, toll roads, railroads, midstream. PB is 1.1x here vs average for company at 1.6x and 2.9x for BIP. 5% dividend. Issues a 10-99 vs a K1. 28 years’ worth of growing dividends.
Vandooman profile picture
For US investors, be aware of a) currency risk and b) withhold tax. You can avoid the latter by using an IRA that benefits from tax treaties. Do not believe people who tell you it comes back from a Foreign Tax Credit. Unless you have a lot of Canadian income it will not all come back. Nothing you can do about currency risk. The Canadian Dollar trades at 83 cents today but it was as low as 75 cents recently. I liquidated my Canadian holdings at above par a long time ago. In a given year it could change and it will be whoops, just lost my dividend. The lowest exchange rate that comes to mind was 62 cents in 2002. If that happened again you would lose 25% of your principal on paper.
BM Cashflow Detective profile picture
At the current price of $90.64, Ingredion has made up a significant portion of its previously undervaluation.

The current Blended Blended P / OCF 7.93 shows an undervaluation compared to the 10 year fair value of Normal P / OCF Ratio 9.68. After that, a current margin of safety 18.08%.

Ingredion's current dividend yield of 2.82% is 18% above its five-year average of 2.39%. In this regard, a match in terms of the current margin of safety.

Ingredion is good value based on its 3-year forward PEG Ratio 1.40 compared to the Food - Miscellaneous industry's very poor TTM PEG ratio of 3.41 and to the IVV iShares S&P 500 ETF's poor TTM PEG ratio of 2.34.

Ingredion stock is still undervalued, but a return to fair value would generate roughly 9.20% total annual return over the next three years. In this context, I consider it a moderate buy.

I'm long $INGR
Samuel Smith profile picture
@BM Cashflow Detective thanks for sharing your perspective!
Utility stocks are obviously under pressure from the fear of inflation. But it seems to me that the electric vehicle trend should bode favorably on utilities, as they require massive amounts electricity. What am I missing here? Why do we not hear more about this?
CC-TX profile picture
Like the ACLLF stock but purchasing is laborious. Market makers play a little to hard to get ....
Samuel Smith profile picture
@CC-TX thanks for sharing your experience with it. You can also buy the TSX listed shares (ACO.X) for greater liquidity.
Winnertakesall profile picture
INGR is a great company with good earnings, and growth.
Was looking into INGR and discovered TATE ... Really interesting 👍
Samuel Smith profile picture
@CptObvious thanks for sharing! We prefer INGR, but TATE is an interesting higher risk/higher reward alternative.
One negative to consider is that ATCO suffers a common Canadian disease of having 2 classes of shares - the non-voting ACO.X on the TSE (or ACLLF in the pink sheets) and the voting shares ACO.Y which are majority controlled by the Southern family through their privately owned Sentgraf Enterprises.

So there will never be a takeover premium or change of control unless the family agrees.
Samuel Smith profile picture
@bahama727 I don't mind if they never sell the company. It is a great dividend + growth story as is.
Vandooman profile picture
@bahama727 if ever in Calgary, visit the family's Spruce Meadows equestrian complex where the Canadian Masters is held.
Diversify Cultivate Grow profile picture
I don't believe you can DRIP this, which is a bummer.
Samuel Smith profile picture
@Diversify Cultivate Grow it truly is. We would definitely DRIP it if we could.
03 Mar. 2021
Thank you again Samuel for an informative article. Can you provide an opinion on the family ownership impact and any prospects for a buyout. It seems that Brookfield is on the prowl for infrastructure assets and has deep enough pockets to pull something like that off. I hope it doesn’t happen (I also have a large position in BIP and BEP) but they may seem to good to pass up in their eyes. They seem ripe to add to their “empire”.
Samuel Smith profile picture
@GS55 ACLLF would make a good addition for Brookfield. Who knows what will happen as it is impossible to know what the Southern family's intent is.
Willow Street Investments profile picture
I bought INGR at 74.75 right before earnings...was only able to buy 67 shares before it popped...I wanted double the amount I bought.
Samuel Smith profile picture
@Willow Street Investments better to make a little than to lose a lot! Congrats on the great timing.
Willow Street Investments profile picture
@Samuel Smith Thanks...its in my IRA...normally in my IRA I have $10,000 starting positions but this one is half that. The same happened to me with AOS last year.

I am a long term holder but when I make a 20% gain in 1 month I am tempted to sell...too many times before with stocks like GILD and ENR I was up 20-50% within 6-12 months only to experience sell offs abd be losing a small amount after 2-3 years.

I will stick with INGR though.
Samuel Smith profile picture
@Willow Street Investments INGR has further to run in our view as well. Good growth engine.
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