STRATOSPHERE PREMIUM

Volume 3

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

Volume 3: March 2019


News and Discussion

  • The market has continued its surge into 2019. The TSX has gained over 12% year-to-date and should I mention….its March. The Premium Portfolio has seen some really nice gains in recent picks including Go Easy Financial (GSY), WSP Global (WSP) and Alimentation Couche Tard (ATD.B) to name a few.

  • This month’s pick is MTY Food Group (MTY). MTY has just had a large selloff after missing earnings. All of the sudden this food court fast convenience food conglomerate is showing up on my screen for the first time after the market sending the share price downwards with this month’s Q4 results. The earnings missed by a wide margin, but the dividend was hiked by 10% and revenue saw continued growth. Earnings misses happen all of the time, this fast growing food conglomerate trading at 14x earnings is very attractive.

  • MTY is however, seeing somewhat meager system wide same store sales growth. This is purely a growth by acquisition story. You may recognize some of their food chain brands such as Thai Express, Country Style, Baton Rouge and many many more. Check out the brands listing here.

  • Given the likely volatility for MTY ahead, Alimentation Couche Tard (ATD.B), known for the Circle K convenience stores, is another fantastic option and over 40x the size by market cap. Risk averse subscribers might sleep better at night with this pick. ATD.B is currently in the portfolio already and a good candidate to increase position size. That being said, I am personally investing my own money in MTY Food Group this month.

  • The theme this month? Dividend growth coming from positions in the portfolio.


  • CCL Industries hiked the dividend by 31%! This is why I bought the stock expecting it to continue to be a dividend growth beast.

  • Go Easy posted record revenue and hiked the dividend 38%! This subprime lender is executing very well and continues to trade at attractive valuations.

  • TFI International, last month’s pick, just posted record fourth quarter operating and financial results with fourth quarter operating income up 56% over the prior year period to $103.3 million

  • Equitable Group hiked the dividend 7%. Gotta love the dividend growth coming from this name.

  • Magna International posted a record quarter and also boosted its dividend by 11 percent, its tenth consecutive annual increase. They recorded $951 million in free cash flow in the quarter, while it spent $479 million to repurchase 9.9 million shares. Oh and record sales. Not a bad way to close out 2018.

    Total sales grew nearly 5 percent from a year earlier, to $10.14 billion, as complete vehicle assembly sales soared 39 percent to $1.7 million. 

  • TD Bank has fallen along with the other big banks after reporting Q4 earnings. Once again, TD still raised it’s dividend and had higher revenues. Good buying opportunity as all is well for The Green Monster.

 

Quantitative TSX Analysis (SI Score)

Quantitative TSX Analysis

Download this month’s Spreadsheet.

 

$347.73

Dividend Income

Stratosphere Premium’s Portfolio has received $347.73 in dividend payouts since inception.

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

Dividends Paid Last Month:

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

 

This Month’s Activity

This Month’s Purchase

This month’s pick is MTY Food Group (MTY). MTY has just had a large selloff after missing earnings. All of the sudden this food court fast convenience food conglomerate is showing up on my screen for the first time after the market sending the share price downwards with this month’s Q4 results. The earnings missed by a wide margin, but the dividend was hiked by 10% and revenue saw continued growth. Earnings misses happen all of the time, this fast growing food conglomerate trading at 14x earnings is very attractive.

  • MTY is however, seeing somewhat meager system wide same store sales growth. This is purely a growth by acquisition story. You may recognize some of their food chain brands such as Thai Express, Country Style, Baton Rouge and many many more. Check out the brands listing here.

  • Given the likely volatility for MTY ahead, Alimentation Couche Tard (ATD.B), known for the Circle K convenience stores, is another fantastic option and over 40x the size by market cap. Risk averse subscribers might sleep better at night with this pick. ATD.B is currently in the portfolio already and a good candidate to increase position size. That being said, I am personally investing my own money in MTY Food Group this month.

ETF Activity

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

Sell Activity

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

 
 

$4,490.57 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.

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%).

 

$ 16,803.52

The Current Portfolio

The real money portfolio is currently worth $16,803.52 as of March 4, 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 (%)

march19-premium-portfolio
march19-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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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.