STRATOSPHERE PREMIUM

Volume 4

Volume 4: April 2019

Finally, a flat-fee follow-along investment portfolio for Canadians. Grown as a community.


News and Discussion

NOTE April 3: Added a new section below The Portfolio displaying monthly and annual returns from the portfolio.

Before I get into the portfolio updates, I am excited to announce that under Stratosphere Investing, I will be partnering with a non-profit, Stratas Foundation. The two co-founders are biking from Toronto to Vancouver in June raising funds for mental health awareness and research.

A portion of subscription revenue to Stratosphere Investing will be sponsoring their ride. Additionally, I am hosting a charity night in Toronto on the second weekend of May.

I know that this community is from various Provinces. However, send me an email at braden@stratosphereinvesting.com if you would like to get involved in this awesome initiative for a good cause.

Cheers,

Braden

  • After a ferocious bull run to start Q1 of 2019, markets are simmering down as expected. The TSX is still up 1% in March, though.

  • This month’s pick is Toromont Industries (TIH). Toromont is one of the world’s largest dealer of Caterpillar construction equipment that we are all very used to seeing on the side of the highway. CAT is a global leader is construction heavy equipment and Toromont has made some very profitable acquisitions as of late in this segment. Additionally, Toromont is a leader in rental of construction equipment, under their Toromont Battlefield division. Again, they are the leader in this for CAT’s equipment on the rental side too. Their third segment under the Toromont brand is Toromont Energy. Toromont specializes in small distributed power generation plants and remote off-grid generators. In remote operations, as an engineer in the power sector, I personally see their strong position in this market too.

  • Toromont’s investor relations page is found here.

  • MTY Food Group (MTY), last month’s pick, just made a pretty big acquisiton. They scooped up South Street Burger. I love these types of companies because they are so easy to understand. The higher priced fast food burger market has been really popular lately and South Street is a good play in this space. Do you like their burgers? If you’re in Ontario, maybe head down and scoop up a burger combo tonight (for investing research purposes, of course).

  • Alimentation (ATD.B) just posted record earnings for their third quarter in history. Every time you drive by a Circle K convenience store, remember, you own a piece of the pie. Side note, I went to Vietnam this summer - Circle K’s are more common than there are Tim Horton’s in Canada, I am convinced.

  • WSP (WSP) is becoming the engineering tycoon that they (and we) have dreamed to be. They reported recorded profits and their backlog grows.

  • TFI International (TFII) continues to be one of the best stocks available on the TSX based on pure numbers.

  • There is a new metric in the SI Score Spreadsheet this month, take a look. I don’t even know what to call it yet… Happy to take some suggestions. It is quite simple really - we are taking the inverse of the PEG ratio, which is a metric to compare their PE ratio and how fast they are growing their earnings. But now, we are accounting for dividend yield in the earnings growth too. I have stolen the concept of this metric from Peter Lynch, one of the best fund managers in history. In his book, he doesn’t give this metric a title. I suppose we have to.


 

Quantitative TSX Analysis (SI Score)

Quantitative TSX Analysis

Download this month’s Spreadsheet.

 

$364.02

Dividend Income

Stratosphere Premium’s Portfolio has received $364.02 in dividend payouts since inception.

The portfolio has Dividend Reinvestment Investment Plans (DRIPs) on all positions.

Dividends Paid Last Month:

Magna (MG) paid their quarterly dividend that they continue to hike. $13.48.

My favourite Canadian tech company, Open Text (OTEX) paid their quarterly dividend. $2.81.

BTB REIT paid their monthly distribution of $6.76, resulting in one share repurchase.

 

This Month’s Activity

This Month’s Purchase

Toromont Industries (TIH). Toromont is one of the world’s largest dealer of Caterpillar construction equipment that we are all very used to seeing on the side of the highway. CAT is a global leader is construction heavy equipment and Toromont has made some very profitable acquisitions as of late in this segment. Additionally, Toromont is a leader in rental of construction equipment, under their Toromont Battlefield division. Again, they are the leader in this for CAT’s equipment on the rental side too. Their third segment under the Toromont brand is Toromont Energy. Toromont specializes in small distributed power generation plants and remote off-grid generators. In remote operations, as an engineer in the power sector, I personally see their strong position in this market too.

Their recent acquisitions of CAT dealers in the east coast have given them some nice pricing power and earnings and dividends are rising on a nice steady pace.

A large consideration is that this stock is reliant on CAT’s performance in the construction market.

Toromont’s Operations:

toromont

ETF Activity

Blackrock's US Total Market ETF, XUU, at 0.07% management expense ratio is going to become the US exposure ETF of choice and replaces VUN.

0.16% MER -> 0.07% MER for the same ETF equity exposure. XUU becomes the obvious choice.

Normally, I don't bother with staying up to date with the cheapest ETF fees as Blackrock (iShares) and Vanguard stay neck and neck every year. However, this is a biggest enough difference to pay attention to.

The portfolio now holds 90 shares of XUU.

Sell Activity

No positions are being sold in this month’s volume. See past “Closed Positions” below.

Note, there was the sale of VUN for XUU. But this is simply the sale and then repurchase of the same index.

 
 

$4,002.53 Remaining

2019 Capital Deployment Schedule

$6,000 is to be invested in 2019 (current TFSA Contribution Limit).

$500 each month will be deployed as advised in monthly volumes and email updates.

History Year to Date:

January - 1x position weighting ($500) into WSP Global (WSP). This bought 8 shares for a book value of $468.08

February - 1x position weighting ($500) into TFI International (TFII). This bought 13 shares for a book value of $507.65.

March - 1x position weighting ($500) into MTY Food Group (MTY). This bought 9 shares for a book value of $533.70.

April - 1x position weighting ($500) into Toromont Industries (TIH). This bought 7 shares for a book value of $477.89.

ETF Deployment Schedule:

International stocks are held through broad based index funds and aims to make up 30% of the portfolio. Some months will include rebalancing these funds to desired allocations and will be featured in “This Month’s Purchase”.

The US Total Market Index (VUN) will be balanced at end of Q1 2019 to approximately desired portfolio allocation (15%).

The International Index (XEF) will be balanced at end of Q2 2019 to approximately desired portfolio allocation (10%).

The Emerging Markets (VEE) Index will be balanced at end of Q3 2019 to approximately desired portfolio allocation (5%).

 

$ 17,063.98

The Current Portfolio

The real money portfolio is currently worth $17,063.98 as of April 1, 2019.

You may invest as much or as little as you wish within contribution limits. Maximize TFSA contribution limits first.

Returns are since inception in July, 2015.

The Portfolio by Recommended Position Weighting (%)

April19-premium-portfolio
premium-etfs

Why the international ETF exposure?  As Canadians, it would be unwise to be wholly invested on stocks only bought on Canadian exchanges.  100% Canadian Home Bias is an ineffective way to manage a portfolio.  The beauty of these ETFS is that they are all traded in Canadian Dollars (CAD). The exposure from these three ETFs will provide investors global diversification from markets as seen from the maps below.

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Returns

Returns YTD

 
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returns-vs-book
 
 

Historical Returns since Inception

 
Returns YoY
 
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Returns are calculated via the Modified Dietz Method which is a money weighted return on investment (the way all portfolios should be measured) calculation that incorporates cash flow contributions.

 
 

Closed Positions

Sold Positions December 18
 

Stratosphere Premium’s Rule-Based Management Philosophy:

A defined set of rules to maintain discipline in our strategy.

The Buy Rules:

1.     Buy companies trading below determined upper limits of valuation multiples.

2.     Buy companies that have demonstrated recurring top line revenue growth.

3.     Buy companies that pay a growing dividend.

4.     Buy companies with a history of profitability and high return on equity.

5.     Buy companies with an obviously recognizable qualitative moat.

6.     Buy companies that have demonstrated a history of share repurchases.

The Avoid Rules:

1.     Avoid companies trading above determined upper limits of valuation multiples.

2.     Avoid companies that have demonstrated meager or no top line revenue growth.

3.     Avoid companies with high total debt to equity ratios.

4.     Avoid companies with high payout ratios.

5.     Avoid companies that depend on factors in the political landscape and macroeconomic conditions.

6.     Avoid companies that do not have an easy to identify competitive advantage.

7.     Avoid companies with business models that produce unpredictable generation of free cash flow from operations.

8.     Avoid companies that are well without a circle of competence.

The Sell Rules:

1.     Sell held companies that have exceeded determined upper limits of valuation multiples.

2.     Sell held companies that cut dividend payouts.

3.     Sell companies with consistently declining top line revenues.

4.     Sell companies with a identifiable slipping of competitive advantage.


*The Questrade trade credit is for users looking to open an account or switch over to the service from another discount brokerage. You will recieve a rebate up to $150 rebate from Questrade if switching brokerage providers incurs a transfer fee. In my experience, this covers the entire transfer out fee from all brokerages.