Just a warning on a few things and a must-read. Over the last few weeks, there has been an increased amount of impersonators messaging people on Discord, commenting on our stuff on Youtube, and even impersonating our Twitter accounts. If you are in the Discord, please know we will never reach out to you via direct message, ever. The same can be said of Youtube, we will never try to acquire information from you on any of these platforms. So ignore them, and report them as spam.
And with that said, let’s talk about the markets!
The markets continue to be volatile as we now enter a 6-month correction in the growth market. The TSX has been the best performing index on a 1, 3, 6, and 12-month basis as oil and financials continue to dominate returns.
Although oil and gas investors are likely happy, ultimately the only beneficiary in this situation is the oil producers themselves. We’ve witnessed this not only at the pump, but will soon witness it at the grocery store, hardware store, and wherever else we decide to shop.
As mentioned numerous times before, XEG is an excellent way to give your portfolio some exposure to the oil and gas sector. Buybacks and distributions are expected to be plenty over the next few years as companies are flush with cash. It obviously still hurts to pay the prices we do at the pump and in the grocery stores. But, having exposure in our portfolios somewhat softens the blow.
Combine the energy crisis with the fact that most of the globe has now sanctioned one of the biggest exporters of wheat, corn, and potash on the planet, and we have a situation where it’s inevitable that prices continue to rise.
As such, many Stocktrades Premium members last week were asking the best way to gain exposure to the US agriculture industry to take advantage of a likely surge in demand. So, we did a little digging and found an ETF that members might be interested in looking at. But, more on that in a bit.
First, we want to cover some Premium highlights reporting earnings, along with how the Canadian banks did this quarter.
Enghouse (ENGH) earnings
Enghouse posted another disappointing quarter. While earnings of $0.39 per share met expectations, revenue once again disappointed. It generated $111M vs expectations for $119.5M. A single quarterly miss is nothing to be concerned about, but Enghouse has now missed on the top line for two straight years. The last time the company topped revenue estimates was Q2 of Fiscal 2020.
More concerning is the company did not close on a single acquisition. For a serial acquirer that relies on growth through acquisitions, this is not great. Especially when one considers peers such as Foundational Stock Constellation Software (CSU) are starting to ramp up deals.
Quite frankly the quarterly results were disappointing. The only silver lining was a 16% raise to the dividend and the fact it did not announce a special dividend like it did last year. This could be taken as a sign that the company is ready to make some deals, as it is sitting on a large cash position. The markets are getting impatient, and as a shareholder (Dan) so am I. If the company can turn things around and start executing, the stock is certainly attractive today. In fact, it’s trading more than 30% below historical valuations.
I am not giving up quite yet and I continue to hold, as I find it hard to believe that a company and management team with such an outstanding history of providing strong returns on capital through acquisition has simply lost its touch. But, it will need to start executing or the overall investment thesis will have certainly changed and I will likely move on.
You can read our updated report on Enghouse here
Parkland Fuels (PKI) earnings
Now to the good news, with a few Premium companies that posted strong earnings.
Despite being somewhat of a disappointment share price-wise, Parkland Fuels posted its fourth straight quarter of strong results, indicating a turnaround is well underway. Despite seeing a fairly large impact to its adjusted EBITDA due to the BC floods, the company still topped estimates on all fronts and raised the dividend by 5.3%.
Including a bump to the dividend, the company bumped its Fiscal 2022 guidance and expects adjusted EBITDA to come in around $1.5B. This would represent 25% growth from 2021 and considering this company is only trading at 10.2X forward earnings and pays a near 4% dividend, in our opinion, it is one of the more attractive stocks on the TSX right now and the drag on its share price over the last year is puzzling to say the least.
You can view our full report on Parkland Fuels here
Park Lawn (PLC) earnings
Park Lawn is the longest-standing Bull List stock at Stocktrades Premium. Despite a brief stint in which its valuation ran up in 2019, it has been featured on our list at all times.
Why? The company has given us little reason to remove it. It posted fourth-quarter earnings that hit the mark, and the company has proven to be extremely reliable when it comes to hitting expectations. Considering this is a small-cap stock that fuels growth via acquisition, which could easily result in some short-term slip-ups, it’s definitely a strong accomplishment.
It closed out 2021 with a 14% increase in revenue, adjusted net earnings 38%, adjusted EBITDA 20%, and margins jumped by 100 basis points.
The most important statement on the quarter was the company’s guidance. Not only does it plan to exceed targets it set for this upcoming year back in 2018, but it laid out its new 4 year targets that have the company aiming to grow by 60%+ over that time period.
In our opinion, the company is being dragged down in this current growth selloff in 2022.
You can read our full report of Park Lawn here
TD Bank and other big bank earnings
Every quarter we like to do a quick recap on the earnings from Canada’s big banks. Why? They are among the most widely held stocks in the country. Considered bellwethers of the Canadian economy, Canada’s bank earnings are an important time of the year.
With that in mind, let’s look at how Canada’s Big Six banks performed in the first quarter of Fiscal 2022 (make sure you have images enabled.)
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Leading up to the release of earnings, analysts started to take a more cautious tone. In fact, there were several that expected Canadian banks to disappoint. The expectations were quite high, and there was a general feeling that earnings would perhaps not be as strong as originally thought.
The banks put those concerns to bed. For the first time in a long time, all six of Canada’s banks beat on top and bottom lines. That’s right, not a single miss, not even just a match. They all beat.
This is an impressive feat, and once again reiterates that they make for strong foundational stocks. In terms of stock performance, TD Bank has been the worst-performing bank year to date. We don’t however, attribute this to the company’s recent earnings.
The company, which was the top-performing bank of the year just a couple of weeks ago, has been mired in a mini downtrend ever since it announced the $13B all-cash deal to acquire First Horizon.
Once again, the markets are being short-sighted. While it may mean lower dividend raises and fewer buybacks over the short-term, the deal is expected to be immediately accretive to earnings per share (read this article to learn what this means) upon closing and it was acquired at a reasonable price (9.8x earnings and 2.1x book value).
We’d like to see banks put their cash hordes to good use when they find attractive growth opportunities. We’ve witnessed both Bull List bank options in Equitable Bank with their acquisition of Concentra Bank, and now TD Bank with the First Horizon acquisition do this.
While higher raises and buybacks are nice, that is taking a short-term view. We view the current underperformance as an opportunity.
You can view our full report of TD Bank here.
We also wanted to highlight the impressive quarter that former Bull List stock Bank of Montreal delivered. It absolutely crushed estimates and was the only bank to deliver double-digit (11%) YoY revenue growth. Adjusted return on equity jumped to 18.8% (from 15.8%) and it exited the quarter with a strong CET 1 Ratio of 14.1% (from 12.4%).
To close, we just wanted to note that there was no dividend raises announced this quarter. Not all that surprising considering all the banks announced big increases late last fall.
Agriculture exposure in light of sanctions
As I mentioned at the start of this e-mail, with the aggressive sanctions placed on Russia there is going to be an inevitable surge in demand for things like wheat, corn, and potash.
We can see this already on the potash side with Nutrien (NTR) surging over 30% in just a month. That option is quite obvious, with Nutrien being one of the largest potash producers in the world. However, many Stocktrades Premium members on the Discord last week were asking me what the best way to take advantage of higher commodity prices in the agricultural sector was.
Now, an investor could simply buy a commodity ETF like WEAT or CORN, which trades futures contracts of their respective commodities. But, many were asking about particular exposure to companies. And in that situation, I did some digging and came up with an interesting ETF.
The iShares Global Agriculture ETF, which trades under the ticker COW.TO (don’t forget to add the .TO) aims to give investors exposure to the US agriculture industry in a single click.
Yes, this ETF does say “Global” but it’s somewhat misleading. It is practically a pure-play, with 93% of the fund being exposed to US agriculture.
Its top holdings contain notable US agriculture companies like Mosiac, which is a potash producer. Corteva, which is a seed producer, and Archer-Daniels Midland, which is a large-cap producer of corn, wheat, and oilseeds.
The ETF also contains some equipment manufacturers as well, including Deere & Co, which produces things like John Deere tractors, and the Tractor Supply Company, which is one of the largest suppliers of equipment to retail farmers.
The fund is certainly an interesting one, and I figured we’d attach a tearsheet for the ETF here so members can have a look and do some due diligence on the companies inside of it.
This is a more simplified way to gain exposure to the industry, as futures contracts and commodity ETFs can be quite confusing and daunting for some.
This is one of the only Canadian ETFs I could track down in my research last week that directly aims to give investors exposure, in Canadian dollars, to the US agriculture sector. With it being such a niche ETF, fees are a bit higher at 0.71%. But surprisingly, over the long term, this one has outperformed some of its US counterparts such as VEGI and MOO.
Here is the attached tearsheet so members can have a deeper look:
