STRATOSPHERE PREMIUM

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

Volume 1: January 2019

*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.


News and Discussion

  • Market volatility is looking to be the norm. The stock market has had some crazy swings with the worst December in history and also the single largest one day gain in history with the S&P 500 increasing nearly 5%.

  • The market has faced its first serious market correction in recent memory. The overvalued tech has taken a real (expected) hit as I have been writing about for a while. Could this longest running bull market be over? Stocks are on sale, for now. Continue to dollar cost average and pick up some great businesses trading lower.

  • Alimentation Couche-Tard Inc. (most known by Circle K) had a monster quarter due to new acquisitions. Earnings grew 9% and is riding 52 week highs.

  • Equitable Group shares continue to climb higher as they are approaching their fair value and good financial results. Still very undervalued as their stock crashed with Home Capital Group by association in March 2017. Trading at 7x earnings - still very attractive. Most recent quarter recorded record top and bottom line.

  • GM closing their Oshawa, Ontario plant is news that is shaking up the auto sector. There have been employee walkouts and 15,000 jobs are at risk in total some reports say. We all know manufacturing in Ontario is trending negatively. Magna is positioned well across the rest of the globe. The concerns with them supplying Oshawa is real and is hard on the local Ontario plants.

  • Magna will be closing a deal to purchase a seat manufacturer called Viza Geca SL.

  • CCL Industries agreed to acquire the assets of Unilogo, based near Warsaw, Poland, a supplier of digitally printed, pressure sensitive and sleeve labels for consumer products customers.

  • Amia And Air Canada oficially Enter Agreement For Purchase Of Aeroplan Loyalty Business. Visa is part of the deal with TD and CIBC are the network partners for loyalty credit cards. Glad to see that AC is using Aeroplan again. The brands have been known as paired together and it makes perfect sense that they re-acquire it. Air Canada used to be a position in the portfolio. Due to my strict dividend income rule and sold for 20.85% profit.

  • TD, closes out another great year with earnings up 12% and revenue up 5% from last quarter. Dividend yield at 3.67% with a 43% payout ratio.

  • Go Easy has been named one of 2018’s Most Admired Corporate Cultures in Canada by Waterstone Human Capital, one of Canada’s fastest-growing cultural talent management and retained executive search firms.

  • Go Easy has also greatly increased insider holdings. This stock has had a huge pullback in the last 2 months and is looking very cheap.

  • BTB Real Estate Investment Trust has been named on the 2018 list of the 15 Best Workplace in Quebec.

  • WSP Global (This Volume’s Buy) closed on an acquisition of Louis Berger, a US-headquartered leading international professional services firm mainly active in the Transportation & Infrastructure and Environmental & Water sectors, as well as in Master Planning.

 

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.

 

Quantitative TSX Analysis (SI Score)

Quantitative TSX Analysis

Download this month’s Spreadsheet.

 

$277.92

Dividend Income

Stratosphere Premium’s Portfolio has received $253.52 in dividend payouts since inception when including international ETF exposure.

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

Dividends Paid Last Month:

BTB REIT paid their monthly distribution of $6.72 ($0.035 per share) resulting in one share repurchase. The Yield on BTB is currently over 10% after the market pullback.

Magna International paid a quarterly distribution of $12.37 ($0.33 per share).

CCL Industries paid a quarterly distribution of $3.51 ($0.13 per share).

Alimentation Couche-Tard Inc. paid a quarterly distribution of $1.80 ($0.10 per share).

 

This Month’s Activity

This Month’s Purchase

8 Shares of WSP Global (WSP) - (SI Score 266.9) were purchased in this volume. WSP Global is an amazing Canadian growth story in the engineering consulting business. They operates in sectors, such as property and buildings, including services, such as disciplines of structural and mechanical, electrical and plumbing engineering; transportation and infrastructure, which includes planning, analyzing, designing and managing projects for rail, transit, aviation, bridges, tunnels, highways, ports, roads and urban infrastructure and environmental services.

It has always traded expensively as it is a high quality business. With the recent market pullback, buying these kind of high quality businesses can be very attractive.

Note: December 2018’s purchase of Open Text Corp (OTEX) is a business that fits this high quality category that is also a buy.

ETF Activity

No rebalancing or purchasing of international index ETFs were purchased this month.

Owned positions that look attractively priced right now:

  1. CCL Industries (CCL.B)

  2. BTB REIT (BTB.UN)

  3. GoEasy (GSY)

  4. Magna International (MG)

Sell Activity

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

 

$0

2018 Capital Deployment Schedule

TFSA Contributions have been made in 2018.

 

$5,531.92 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

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 bought at end of Q1 2019 to approximately desired portfolio allocation (15%).

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

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

 

$13,993

The Current Portfolio

The real money portfolio is currently worth $13,993 as of December 30, 2018.

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

Returns are since inception in July, 2015.

The Portfolio by Recommended Position Weighting (%)

Premium Picks January 2019
ETFs January 2019

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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Closed Positions

Sold Positions December 18