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STRATOSPHERE PREMIUM

Volume 7: July 2019

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


Discussion

  • First off, The Portfolio is crushing it, we are cruising past the index. As always, scroll to the bottom of this page to see returns. This month, the portfolio gained 4.06%.

  • Many dividends were paid in June resulting in $78.56 in income for the month. Not bad for (zero) days work.

  • Sometimes acting like a contrarian investor is hard. This is what sets disciplined investors apart.

    Shoutout to Stratosphere Premium Member, Ryan H, for sending me an email last week asking if stocks that have underperformed, Toromont Industries and Magna International, are attractive at the moment. These two fantastic companies that are very good at growing earnings and dividends for investors.

  • Given that, this month’s purchase will be adding to the TIH position. The recent pullback in the stock has made it even more attractive than when we purchased the stock a few months ago. This is how confident investors outperform institutional investors who are worried about what upper management will say when they go against the grain.

News in The Portfolio

  • Enghouse Systems second quarter revenue increased to $89.2 million, compared to revenue of $85.2 million in the second quarter of the prior year. The revenue increase primarily reflects contributions from acquisitions and incremental license revenue in both operating groups. Results from operating activities were $26.6 million compared to $24.7 million in the prior year's second quarter, an increase of 7.9%. Net income for the quarter was $16.5 million or $0.30 per diluted share compared to $15.3 million or $0.28 per diluted share in the prior year's second quarter.

  • BTB Real Estate Investment Trust announced the acquisition of two properties located on the South Shore of Montréal, Québec.  This $62.6 million transaction, excluding transaction fees, brings to 67 the number of properties owned by the Trust and its rentable area to 5.7 million square feet.  The total market value of BTB's portfolio, including this transaction, is close to $900 million.

  • MTY Food Group announced that one of its wholly-owned subsidiaries has signed an agreement to acquire the assets of Yuzu Sushi, a fast-growing chain of sushi restaurants.

    The Yuzu Sushi network currently has 132 points of sale in operation, including 68 restaurant franchises, 30 franchised express counters, and 34 complementary grocery outlets. Yuzu Sushi operates mainly in Quebec and has a presence in New Brunswick. System sales totaled more than $40 million in the fiscal year ended December 31, 2018.

  • WSP Global has two new execs - Philippe Fortier has been appointed Chief Legal Officer of the Corporation, effective July 2019. WSP has also appointed Greg Kelly, President and Chief Executive Officer of WSP in the United States to a newly created global role of Global Director, Major Projects and Programs.


 

Quantitative TSX Analysis (SI Score)

Quantitative TSX Analysis

Download this month’s Spreadsheet.

 

$ 504.18

Dividend Income

Stratosphere Premium’s Portfolio has received $504.18 in dividend payouts since inception.

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

Dividend Income Paid Last Month:

The Portfolio brought in $78.56 of income last month.

  • OTEX paid their quarterly dividend resulting in $3.18.

  • VEE (Emerging Markets ETF) paid the quarterly distribution resulting in $4.58.

  • XEF (International Market ETF) paid the semi-annual distribution resulting in $31.01 and a share repurchase (DRIP).

  • XUU (US Market ETF) paid the quarterly distribution resulting in $10.80.

  • CCL.B paid their quarterly dividend resulting in $4.59.

  • EQB paid their quarterly dividend resulting in $4.03.

  • BTB paid their monthly dividend resulting in $6.86 and a share repurchase (DRIP).

 

This Month’s Activity

This Month’s Purchase

Taken from April’s summary on the company.

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:

TIH

ETF Activity

No ETF activity this month.

Sell Activity

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

 
 

$2,521.28 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.

May - 1x position weighting ($500) into TFI International (TFII). This bought 11 shares for a book value of $481.25.

June - 1x position weighting ($500) into Enghouse Systems (ENGH) . This bought 15 shares for a book value of $505.05.

July - 1x position weighting ($500) into Toromont Industries (TIH). This bought 8 shares for a book value of $497.44.

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 (XUU) 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%).

 

$   $19,637.36

The Current Portfolio

The real money portfolio is currently worth $19,637.36 as of July 3, 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 Position Weighting (%)

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

 

Historical Returns since Inception

 
Annual Returns
Monthly YTD
 
Returns Chart

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.

Returns Comparison
 
 

Closed Positions

Sold Positions
 

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.


Nothing contained on this website should be considered investment advice, an offer to sell, or a solicitation of an offer to buy any security, nor shall Stratosphere Investing offer, sell or buy any security to or from any person through this site or reports on this site. Stratosphere Investing is not registered as an investment advisor in any jurisdiction. The content and materials contained on this website are provided for information purposes only and nothing contained therein is investment advice nor should it be construed as such. Prior to making any investment or subscribing to any of Stratosphere Investing free or premium services and products, you should consult with professional financial, legal and tax advisors to assist in due diligence as may be appropriate in determining the appropriateness of the risk associated with a particular investment.