Thursday, December 1, 2016

Debt Ratios

Debt does matter. I check it in a number of ways. I check the Long Term Debt of a company against the market cap. Since I am doing a ratio, I am looking for Debt/Market Cap Ratio approaching 1.00. Look for any large change in debt especially a debt increase. It is a warning sign if in a normal market your stock has this ratio approaching or higher than 1.00. If this occurs because of a severe bear market when all stocks have their market cap cut, I would not be so worried.

This is the thing that was pointed out with Valeant Pharmaceuticals and Debt. Of analysts seem to point it out after the fact. It is also the reason I would be cautious about Innergex Renewable Energy (TSX-INE, OTC-INGXF) which had a ratio of Long Term Debt/Market Cap Ratio of 1.63. Analysts have pointed out that the company owns good assets, but the high Debt/Market Cap Ratio seems to point to the fact that the market does not agree.

Another type of ratio I look at is the Intangible/Market Cap Ratio. This covers both Goodwill and Intangible assets. If this ratio is approaching 1.00 or is above 1.00 I think that the company has a problem. It is obvious that the market does not consider the value attached to Goodwill and/or Intangibles by the company to be valid. Often when this happens you are looking at possible write-downs of these items.

I also look at Leverage (Asset/Book Value Ratio) and Debt/Equity Ratios. These can vary depending on the sector your stock is in. Here it is important to know the normal ratios for the sector your stock is in. Consumer stocks tend to be with Leverage Ratios at around 2 and below and Debt/Equity ratios around 1 and below. On the other hand banks have high ratios with Leverage Ratios at around 16.00 to 18.00 and Debt/Equity ratios around 14.00 to 17.00.

I look at Liquidity Ratios. It is best that this ratio be 1.50 and above. If this ratio is lower than 1.00, it means that current assets cannot cover current liabilities. This is not a great situation. However, some companies, especially utilities, partially cover current liabilities with current cash flow. This is fine when the company's cash flow is dependable. The problem with low Liquidity Ratios is that it leaves the company vulnerable in bad times.

I also look at Debt Ratios. That is Assets compared to Liabilities. Here you do want the ratio to be 1.50 or better. This gives room for safety. If the ratio is below 1.00, it means that assets cannot cover current liabilities. When the ratio is below 1.00 you will have a negative book value. The book value is seen as the breakup value of the company. So if you have a negative book value, it means that the company is not worth anything. This may not be strictly true as a company may have assets that are worth more than the assets book value.

For addition readings on debt start at Investopedia with an overview of debt.

On my other blog I wrote yesterday about Crescent Point Energy Corp. (TSX-CPG, NYSE-CPG)... learn more. Tomorrow, I will write about Finning International Inc. (TSX-FTT, OTC-FINGF)... learn more on Friday, December 2, 2016 around 5 pm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter.

Tuesday, November 29, 2016

Valeant Pharmaceuticals and Debt

I remember when this company of Valeant Pharmaceuticals International, Inc. (VRX) plunged and people said, after the fact that they recognized the problem of too much debt, especially in relationship to the market cap. Peter Tchir talks about Valeant's debt in this Forbes article.

However, when this stock was soaring ever higher, I do not remember anyone ever bringing up this problem. Everyone seemed to just get on the bank wagon of every higher stock price for this company. After the stock price started to fall it seemed that a number of people where pointing out the fact of the high debt compared to the market cap and that people should have seen that and acted accordingly.

On Thursday of this week, I will talk about what debt ratios that I look at for the companies I review. I always keep an eye on long term debt compared to a stock's market cap.

On my other blog I wrote yesterday about Innergex Renewable Energy (TSX-INE, OTC-INGXF)... learn more. Tomorrow, I will write about Crescent Point Energy Corp. (TSX-CPG, NYSE-CPG)... learn more on Wednesday, November 30, 2016 around 5 pm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter.

Thursday, November 24, 2016

Five Year Rule

The five year rule says that you do not invest in the stock market money you will need within the next 5 years. Also, if you need to take money out of the market give yourself 5 years. Take out money when the market is relatively high. You never know when the top is, but you can tell if it is relatively high.

Another point is to never invest in anything that will not let you sleep at night. It is not worth it. If you are very cautious, then perhaps the best investment might be GICs. I know that they do not pay much, but if it is for 5 years or less it is guaranteed by the government. You will not lose money.

If you are young and are building an investment portfolio you can take a greater risk and it is probably silly not to be in the stock market. By all means buy ETFs or Mutual Funds if you are not willing to do any sort of research yourself. However, research does not necessary involve much. You can buy banks (if you are Canadian) or utilities (that produce power or are pipelines) or buy shares in the stores or business you deal with.

If you are retired you would think differently. If you cannot afford to lose the bit of money you have, go to GICs. Also, do not buy the fancy GICs like the ones with possibilities of higher rates because they are attached somehow to the stock market. Get absolutely plain vanilla ones that you will get some interest on that is guaranteed. If you cannot afford to lose your money, you probably cannot afford to lose any income your money can produce. It may be small, but it will be positive income.

Also, it is not only banks that sell GICs. The credit unions sell them also and they have the same guaranteed. Often the credit union GICs will give you a better interest rate. It may be worth your while to check them out.

Do not let any salesperson talk you into an investment. Sometimes it is hard to get what you want; especially if you have a savings account in a bank they will try to sell you a mutual fund. You can resist. Determine ahead of time what it is that you want. If it is a GIC just keep saying what it is that you want and ignore what the salesperson is saying. Remember they are salespeople. They are trained to sell.

You will get what you want if you just ignore the pitch and keep requesting what it is you want. You can also tell them that you want to think about it. Just take the information and leave.

On my other blog I wrote yesterday about IBI Group Inc. (TSX-IBG, OTC-IBIBF)... learn more. Tomorrow, I will write about PFB Corp. (TSX-PFB, OTC-PFBOF)... learn more on Friday, November 25, 2016 around 5 pm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter.

Tuesday, November 22, 2016

Failed Stocks

My son has a portfolio of 20 stocks. Among his stocks he had both Reitmans (Canada) Ltd. (TSX-RET.A, OTC-RTMAF) and TransAlta Corp (TSX-TA, NYSE-TAC). Reitmans cut their dividend around 75% in 2014 and TransAlta also cut their dividends around 86% between 2014 and 2016.

My son is in the process of building a portfolio of dividend growth stocks. What the above did to his portfolio was to make it pause in terms of dividend growth a couple of times in 2014 and 2016. Why I point this out is that making a mistake or having a stock cut its dividends is not a disaster.

The thing is that if you invest in stocks, no matter how well you do your homework, some are at least going to go through hard times. Some will cut their dividends. Then you have to decide if the stock is worthwhile holding on to.

For example, TransCanada Corp (TSX-TRP, NYSE-TRP) which is currently thought of as a great stock cut their dividends in 1999 by almost 38%. Bottom of the dividend were reached in 2000 and dividends started to increase again in 2001. It took almost 7 years for the dividends to get back to their old level.

On my other blog I wrote yesterday about Johnson and Johnson (NYSE-JNJ)... learn more. Tomorrow, I will write about IBI Group Inc. (TSX-IBG, OTC-IBIBF)... learn more on Wednesday, November 23, 2016 around 5 pm.

Also, on my book blog I have put a review of the book The Memory Illusion by Dr. Julia Shaw learn more...

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter.

Thursday, November 17, 2016

Money Show 2016 - Tom Sosnoff

Tom Sosnoff's talk was entitled "Money and Entrepreneurship: How to go get both with Tom Sosnoff" Tom Sosnoff is a cofounder of thinkorswim, CEO of. Tastytrade Inc. This is my last entry for the 2013 Money Show.

There is a close relationship between entrepreneurship and trading money. We are a product of our environment. Market experience changes how we deal with buying. It enables us to know the value of things. This is basic economics. Trading gives you the ability to put a value on goods and services.

Tastytrade is a proponent of active trading model rather than a passive model. No one runs a business passively. In the business of life, being passive does not work. Have confidence in your convictions. Active trading is one of the best accelerates for learning how to make quick decision.

Little is learned from passive investing. Most passive participants in any business venture either fold or set their expectations around mediocrity. Trading helps you to be able to make decisions.

You should build the know-how to do the active trader way. You need to understand probabilities, strategies, risk-adjusted opportunity and domain mechanics. Active trading reduces the emotional connection to various business transactions. This helps us stay mechanical. You must understand liquidity. Apply know-how. An example is showing how our appreciation of market randomness allows us to focus on logic and strategy rather than market direction. Markets by definition are random.

Do risk analysis. Active trading increases your ability to put context around risk (probabilities, statistics and correlations). In trading, learn how to make decisions and understand risk. If you reduce risk, you improve outcomes. If you apply a simple active strategy you might be able to see how it performs against a traditional passive approach.

You need to understand leverage. Leverage can maximize capital usage. This is why leverage is good.

Use probabilities. Create expectations of a reasonable outcome. This is important in setting yourself up for success. There is the genius of opportunity. You need to understand how volatility is generated from overpriced fear. It is the highest level of public capitulation that generates the greatest amount of profit.

For the mechanics of success, use trade size, theory of large numbers, managing winners and managing losers. Trade the profit from winners and get rid of losers. There is no reward for compliancy. Continuous engagement pays off over time. Probabilities naturally work themselves out when you trade small and trade often. The Law of Large Numbers say the actually probabilities get closer to expected with the more occurrences.

On my other blog I wrote yesterday about Keyera Corp. (TSX-KEY, OTC-KEYUF)... learn more. Tomorrow, I will write about Cenovus Energy Inc. (TSX-CVE, NYSE-CVE)... learn more on Friday, November 18, 2016 around 5 pm.

Today on my other blog I will write about Alimentation Couche-Tard Inc. Redone (TSX-ATD.B, OTC-ANCUF)... learn more.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter.

Tuesday, November 15, 2016

Inequality

It is not Inequality that people protest about. As in the US currently people where not protesting inequity because that has been around forever. What they are protesting is that the system does not work for them. This is the real problem.

We have this problem in Canada, but we do not have such a large minority of people for whom the system does not work. Look at people living on the street. Our country is not working for them at the moment. We need to fix this.

The left's solution of giving everyone in country money will not work. It sounds like the elite Roman's solution to their poor of bread and circuses. It did not work then and it will not work now.

It is interesting that in Canada we elected a traditional Politian in Trudeau. But then our middle class has not been under the pressure that it has been in the US. In the US just under half the taxpayers do not pay any Federal Tax. Lots collect money through the tax system. Like benefits given to those in low paying jobs.

For the people with difficulties living in our society, they do not want to be fobbed-off like this, they instead want in. They want a society that works for them. This is what we have to fix.

On my other blog I wrote yesterday about Encana Corp. (TSX-ECA, NYSE-ECA)... learn more. Tomorrow, I will write about Keyera Corp. (TSX-KEY, OTC-KEYUF)... learn more on Wednesday, November 16, 2016 around 5 pm.

Today on my other blog I am writing about Dollarama Inc. (TSX-DOL, OTC-DLMAF)... learn more on Tuesday, November 15, 2016 around 5 pm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter.

Thursday, November 10, 2016

Something to Buy November 2016

There is always something to buy in the stock market. On Tuesday, I put out a list of the stocks that I covered and showed what stock might be a good deal based on dividend yield. Now I am trying to categorize what sorts of stocks may be a good deal based on dividend yield.

The advantages to using dividend yield to judge how cheap or expensive a stock is, is that you are not using estimates or old data (like last reported quarter's data). You are using today's stock price and today's dividend yield.

For other testing, like using P/E Ratios and Price/Graham Price Ratios, you use EPS estimates or from the last reported financial quarter. When using P/S Ratios, P/CF Ratios or P/BV Ratios you are using data from the last reported financial quarter.

This system does not work well for old Income Trust companies. These companies had quite high Dividend Yields which will probably never be seen again. So I started a column called VT (for Valid Test) and this applies to checking stock price using dividend yield. If not a valid test I use N to show this. For these stocks, you might be better comparing the current dividend yield to the 5 year median dividend yield.

However, no system is perfect. But if you are interested in buying a stock a list of stocks cheap or reasonable using dividend yield data might be a good place to start.

Categorizing stocks is not as simple as it might seem. Every site you go to has categorized stocks a bit differently. I try to keep this as simple as possible. See Something to Buy November 2016 Spreadsheet to see what stocks are showing whether a stock is relatively cheap based on historical high dividend yields (P/Hi), historical average dividend yields (P/Ave), historical median dividend yields (P/Med) or on 5 year median dividend yields (P/5Yr). As in other spreadsheets, you can highlight a line or a number of lines for better viewing.

In the following notes I am only going to list stocks showing as cheap using the historical high dividend yields (P/Hi) and historical median dividend yields (P/Med).

I follow 20 stocks in the Consumer Discretionary category. None of these stocks are showing as cheap by the historically high dividend yield. Seven (or 35%) are showing cheap by historical median dividend yield. They are Canadian Tire Corporation (TSX-CTC.A, OTC-CDNAF), DHX Media Ltd. (TSX-DHX.A, OTC-DHXMF), Dorel Industries (TSX-DII.B), Leon's Furniture (TSX-LNF); Magna International Inc. (TSX-MG), Newfoundland Capital Corp (TSX-NCC.A), and Thomson Reuters Corp (TSX-TRI). DHX Media Ltd. (TSX-DHX.A, OTC-DHXMF) are added to this list and Goeasy Ltd. (TSX-GSY, OTC-EHMEF) and Reitmans (Canada) Ltd. (TSX-RET.A) has been deleted.

I follow 12 Consumer Staples stocks. There is one company showing as cheap by the historically high dividend yield and that is Empire Company Ltd. (TSX-EMP.A, OTC-EMLAF). Three stocks (or 25%) are showing cheap by historical median dividend yield. These are Empire Company Ltd. (TSX-EMP.A, OTC-EMLAF), Jean Coutu Group Inc. (TSX-PJC.A, OTC-JCOUF) and Loblaw Companies (TSX-L, OTC-LBLCF). Empire Company Ltd. TSX-EMP.A, OTC-EMLAF) is again showing as cheap by the historically high dividend yield.

I only follow two Health Care stocks and both are US stocks. None of these stocks are showing as cheap by the historically high dividend yield. They are both cheap by the historical median dividend yield. The stocks are Johnson and Johnson (NYSE-JNJ) and Medtronic Inc. (NYSE-MDT). This is the same as for last month. There is no change.

I follow 12 Real Estate stocks. None of these stocks are showing as cheap by the historically high dividend yield. Four stocks (or 33%) are showing cheap by historical median dividend yield. They are Artis REIT (TSX-AX.UN); FirstService Corp (TSX-FSV), Granite Real Estate (TSX-GRT.UN) and Melcor Developments Inc. (TSX-MRD. There is no change.

I follow 7 Bank stocks. There is one company showing as cheap by the historically high dividend yield and that is Home Capital Group (TSX-HCG, OTC-HMCBF). Six stocks (or 86%) are showing cheap by the historical median dividend yield. These stocks are Bank of Nova Scotia (TSX-BNS); Barclays PLC (NYSE-BCS), Home Capital Group (TSX-HCG, OTC-HMCBF), National Bank of Canada (TSX-NA); Royal Bank (TSX-RY) and Toronto Dominion Bank (TSX-TD). There is no change.

I follow 14 Financial Service stocks. None are showing as cheap by the historically high dividend yield. Nine (or 64%) stocks are showing cheap by the historical median dividend yield. These stocks are Accord Financial Corp (TSX-ACD, OTC-ACCFF), AGF Management Ltd (TSX-AGF.B), Alaris Royalty Corp (TSX-AD, OTC-ALARF), CI Financial (TSX-CIX), DH Corporation (TSX-DH, OTC-DHIFF), Equitable Group Inc. (TSX-EQB, OTC-EQGPF), Gluskin Sheff + Associates Inc. (TSX-GS), IGM Financial (TSX-IGM) and Power Corp (TSX-POW), DirectCash Payments Inc. (TSX-DCI) is no longer on this list. Accord Financial Corp (TSX-ACD, OTC-ACCFF), DH Corporation (TSX-DH, OTC-DHIFF) and Equitable Group Inc. (TSX-EQB, OTC-EQGPF) have been added to this list.

I follow 5 Insurance stocks. None are showing as cheap by the historically high dividend yield. Four stocks (or 80%) are showing cheap by historical median dividend yield. These stocks are Great-West Lifeco Inc. (TSX-GWO); Manulife Financial Corp (TSX-MFC); Power Financial Corp (TSX-PWF) and Sun Life Financial (TSX-SLF). There is no change.

I follow 34 Industrial stocks. Because I have so many and Industrial is not very descriptive, I have divided my Industrial stocks into 4 separate categories under Industrial. They are Construction, Industrial, Manufacturing and (Business) Services.

I have 6 Construction stocks. None are cheap by the historically high dividend yield. Three stocks or 50% are showing as cheap by historical median dividend yield. They are Bird Construction Inc. (TSX-BDT, OTC-BIRDF), SNC-Lavalin (TSX-SNC, OTC-SNCAF) and Stantec Inc. (TSX-STN, NYSE-STN). There is no change.

I have 3 stocks I have left with the sub-index of Industrial. None are cheap by the historically high dividend yield. Two stocks or 67% are showing as cheap by historical median dividend yield. They are Finning International Inc. (TSX-FTT, OTC-FINGF), and Russel Metals (TSX-RUS, OTC-RUSMF). There is no change.

I have 9 Manufacturing stocks. There is one company showing as cheap by the historically high dividend yield and that is Hammond Power Solutions Inc. (TSX-HPS.A, OTC-HMDPF). Five stocks or 56% are showing as cheap by historical median dividend yield. They are Canam Group Inc. (TSX-CAM, OTC-CNMGA), Exco Technologies Ltd. (TSX-XTC, OTC-EXCOF), Hammond Power Solutions Inc. (TSX-HPS.A, OTC-HMDPF), Intertape Polymer Group Inc. (TSX-ITP, OTC-ITPOF) and PFB Corp (TSX-PFB, OTC-PFBOF).

I have 16 Services stocks. Pason Systems Inc. (TSX-PSI, OTC-PSYTF) is showing as cheap by the historically high dividend yield. Three stocks or 19% are showing as cheap by historical median dividend yield. These stocks are Canadian National Railway (TSX-CNR, NYSE-CNI), Pason Systems Inc. (TSX-PSI, OTC-PSYTF) and Transcontinental Inc. (TSX-TCL.A, OTC-TCLAF). There is no change.

I follow 7 Material stocks. None are showing as cheap by the historically high dividend yield. One stock or 16% are showing as cheap by historical median dividend yield. That stock is Methanex Corp (TSX-MX, NASDAQ-MEOH). There is no change.

I follow 9 Energy stocks. One Stock or (11%) is showing as cheap by the historical high dividend yield. It is Ensign Energy Services (TSX-ESI, OTC-ESVIF) There are three stocks (or 33%) showing cheap by historical median dividend yield. They are Canadian Natural Resources (TSX-CNQ, NYSE-CNQ), Ensign Energy Services (TSX-ESI, OTC-ESVIF); and Suncor Energy (TSX-SU, NYSE-SU). There is no change.

I follow 8 Tech stocks. None are showing as cheap by historical high dividend yield. Five stocks (or 63%) are showing cheap by historical median dividend yield. They are Absolute Software Corporation (TSX-ABT, OTC-ALSWF), Calian Technologies Ltd (TSX-CTY, OTC-CLNFF), Computer Modelling Group Ltd. (TSX-CMG, OTC-CMDXF), Evertz Technologies (TSX-ET, OTC-EVTZF) and MacDonald Dettwiler & Assoc. (TSX-MDA, OTC-MDDWF). MacDonald Dettwiler & Assoc. (TSX-MDA, OTC-MDDWF) has been added to this list. I have started a spreadsheet on Sylogist Ltd (TSXV-SYZ, OTC-SYZLF), but I have not finished it yet.

I follow 8 of the Infrastructure type utility companies. None are showing as cheap by historical high dividend yield. Three stocks (or 38%) are showing cheap by historical median dividend yield. They are AltaGas Ltd (TSX-ALA, OTC-ATGFF), Enbridge Inc. (TSX-ENB, NYSE-ENB) and Veresen Inc. (TSX-VSN, OTC-FCGYF). Veresen Inc. (TSX-VSN, OTC-FCGYF) has been added to this list.

I follow 12 of the Power type utility companies. None are showing as cheap by the historically high dividend yield. One stock (or 8%) is showing cheap by historical median dividend yield. That stock is ATCO Ltd (TSX-ACO.X, OTC-ACLLF). There is no change.

I follow 5 of the Telecom Service type utility companies. No stock is showing cheap by the historical high dividend yield. Three stocks (or 60%) are showing cheap by historical median dividend yield. These stocks are Shaw Communications Inc. (TSX-SJR.B, NYSE-SJR); Telus Corp. (TSX-T, NYSE-TU) and WiLan Inc. (TSX-WIN, NASDAQ-WILN). There is no change.

On my other blog I wrote yesterday about Brookfield Asset Management Inc. (TSX-BAM.A, NYSE-BAM)... learn more. Tomorrow, I will write about CCL Industries Inc. (TSX-CCL.B, OTC-CCDBF)... learn more on Friday, November 11, 2016 around 5 pm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. I have three blogs. The first talks only about specific stocks and is called Investment Talk . The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter.