It was a wild week as earnings season ramped up in a big way. If you’re new here to Stocktrades Premium, we provide updated coverage on every single one of our Bull List highlights, every single quarter.
This means that during earnings season, our Sunday newsletter tends to be dominated by updates of these companies. There are still a few interesting topics that we want to cover, but we’ll do so after earnings season. We’ll also be on the lookout for another strong income pick for the Dividend Bull List, after earnings season settles.
If you missed our e-mail on Lightspeed and Acuity, which were so volatile post earnings we felt they needed their own e-mail, you can click here to read it. Remember, we post all of our e-mails over on the Premium website now for those who may miss an e-mail.
If there is one thing we learned last week, it was that performance against analyst estimates meant absolutely nothing
First, we do want to make it known that the vast majority of the markets are performing exceptionally well. Most major indexes are touching record highs, and the only major North American index to not be returning north of 20% this year is the Dow Jones.
During times of high volatility, we again direct members towards building a strong set of core holdings that make up the bulk of your portfolio. On the Canadian end of your portfolio, this is exactly why we announce our annual Foundational Stocks.
Most blue-chip options were largely ignored for most of the year. As uncertainty has been growing, some of these companies have stormed back in the last 5-6 months, and are currently outpacing the index by a wide margin.
Back to quarterly results, we saw some that beat expectations but resulted in a subsequent crash, while others that came in light performed quite well.
Why is that? It is all about the outlook right now. In this environment, the markets do not like uncertainty. Many companies are coming forward with a cautious or lower outlook as a result of three main headwinds:
1. Supply chain disruptions
2. Chip shortages
3. Labour shortages
All three of these are causing havoc across every industry. Last week, there were 9 Bull List stocks that reported earnings. We won’t speak on Acuity Ads (AT) and Lightspeed Commerce (LSPD) since we already sent out an email earlier this week on those. Here are how the other 7 performed:
Equitable Group
It was another strong quarter for Equitable Group which topped estimates. Earnings of $4.14 per share beat by $0.06 and revenue of $162M beat estimates which were calling for approximately $141M. There really is no stopping Equitable, and don’t be fooled by post-earnings weakness.
Equitable is one of the fastest growing banks in the country and at only 9.8 times earnings, it is also one of the cheapest. The company’s recent stock split will help increase volume, which should make it more attractive to investors. This one has plenty of room to run, and is one that I (Dan) have built a core position in.
You can read our updated report on Equitable Group here
Parkland Corp
Parkland also delivered strong results. Earnings of $0.75 beat by $0.11 and revenue of $6.06B crushed estimates for $5.02B. Post-earnings, Parkland announced it was acquiring all the assets of Urbieta Oil which nearly doubles its U.S. retail presence. The transaction includes 94 retail locations including the real estate purchase of 54 strategic sites.
This one also saw weakness to end the week despite strong performance. Pay no attention to these short-term fluctuations. Although it is frustrating to see a stock trade sideways for quite some time, we shouldn’t be interested in the returns of our investments over a 6-8 month timeframe.
Prior to the COVID-19 pandemic, Parkland Fuel’s share price was growing at an annualized rate of 15.15%. If you had reinvested the dividends, this return increases to 19.19%. Parkland’s business has not been materially impacted by the pandemic when it comes to the long term, so there’s no reason to believe it cannot return to its past level of growth.
In fact, the company remains on track to achieve lofty targets of $2B in EBITDA by 2025. Assuming it hits that target, the rest will take care of itself.
You can view our most recent report of Parkland here
Magna International
Facing chip shortages, Magna delivered a mixed quarter. While earnings missed by a wide margin ($0.56 vs $0.72), revenue actually topped expectations ($7.9 vs $7.85). Unfortunately, the company revised Fiscal 2021 guidance downwards for the second straight quarter.
So why did the company end the day down less than a percent? The bad news was already baked into the share price. Magna has been warning about the chip shortage issue since the first quarter, so it really didn’t come as a surprise to investors.
Again, we’re looking to ignore short term noise and instead invest in Magna based on the long term thesis of outperformance around EV development and it utilizing its blue-chip dominant presence.
The report for Magna is still undergoing some final touches, and will be released this week.
Manulife Financial
Manulife’s quarter wasn’t flashy. It posted a quarter that was pretty much inline with expectations as core earnings missed estimates by a penny. The quarter was impacted by certain weather-related events and further lockdowns in Asia due to the pandemic.
The biggest news came a few days later. The OSFI lifted the cap on dividend raises and Manulife took full advantage. It announced an additional $0.05 per share dividend for December, an 18% increase.
In the company’s statement, it indicated that it was taking advantage of the OSFI announcement to announce their annual dividend raise a quarter sooner. We believe this means that the company won’t announce another raise in Q4 – the quarter in which they typically announce. We could be wrong and would welcome a double raise, just don’t bank on it.
If you’re an income investor, particularly one that holds a lot of the Premium highlighted financial companies such as Intact Financial, Royal Bank, Bank of Montreal, TD Bank, and Equitable bank, you’re likely to see a healthy boost in your forward dividend income as these companies have been waiting to raise the dividend for quite some time.
You can view our most recent report of Manulife here
Quebecor
It was beats across the board for Quebecor. Earnings of $0.71 beat by a penny and revenue of $1.15B beat by $10M. The markets were apathetic to earnings and the company closed the week flat in relation to when it reported.
Earlier in the week, the company received good news when the challenge to their spectrum auction from Telus was dismissed by the courts. This is a big win, as Quebecor will now be able to expand its wireless services in Ontario, Manitoba, Alberta, and BC. There is significant potential for growth here if Quebecor is successful in penetrating these markets. Of note, they must launch within 7 years as one of the conditions of acquiring the spectrum.
There is no doubt, Quebecor has been one of the fastest growing in terms of both share price and the dividend when it comes to Canadian telecom companies. We believe they’re in a position to drive strong growth moving forward as well, and eventually the market should reflect this.
Our Quebecor report is still in the process of being updated, so stay tuned.
Open Text
It was also a double beat for Open Text. Earnings of $0.83 beat by $0.03 and revenue of $832M beat by $10M. We’d say Open Text had the least eventful week. There was nothing to get too excited about, nor was there anything to be too disappointed about. Despite the “meh” results, it finished the week on a high note.
If we were to pick a weak spot, it would be low, single-digit organic growth which will not be enough to satisfy investors for long. It is a challenging time for serial acquirers, and there were no major acquisitions for Open Text last quarter.
Open Text now has $1.7B in cash and is well positioned to make deals – it just needs valuations to come down. Important to note, this is not unique to Open Text. We are seeing many disciplined capital allocators such as Bull List stock Enghouse Ltd, who are holding on to cash due to the lack of acquisition opportunities. We even saw Acuity Ads mention they’re sitting on a stockpile of cash waiting for the right opportunities.
Investors generally do not like cash stockpiles over the short term, as they start to question the ability for the company to generate positive returns from that cash. But companies like Open Text have a significant history of being able to execute. So right now for us, it’s simply a wait and see situation.
You can view our report on Open Text here
Killam Apartment REIT
REITs have arguably been the best industry this year with Killam being a bright spot. The company posted revenue of $76.2M when $75M was expected. FFO and AFFO were strong, jumping by 11 and 13% respectively. Another key factor, the payout ratios dropped to their lowest since the pandemic began.
There was some anxiety about Killam’s payout ratios over the past year, but as we explained, trailing twelve month ratios were being impacted by pandemic quarters. Now that the pandemic quarters are off the books, payout ratios against FFO and AFFO dropped to 65.56% and 66% respectively. These are strong ratios when it comes to a REIT’s ability to pay its distribution.
It also posted a debt/asset ratio of 44.1% which is already exceeding their Fiscal 2021 target of 47%. Bottom line, Killam remains in excellent financial position.
Finally, worth pointing out that through the first 9 months of the year, Killam closed on $390M of acquisitions, far above their $100M annual target. The company’s growth is going to accelerate as a result.
You can read our updated report on Killam here
That does it for the recap of our Bull List picks
What a week! If you thought last week was busy, get a load of this week’s schedule.
Growth Bull List stocks: WELL, DCBO, PLC, BYD, SIS, and CARE
Dividend Bull List stocks: AQN, EIF, MI.UN, X, CRT.UN, and IFC
Buckle up and just remember, no matter how a company performs this week it is important to not make rash decisions.
Never let emotions take hold of your investment decisions. If you’re unsure, we will repeat what we have said many times before: sometimes the best course of action is no action.
If our opinion changes on any of the companies we feature here at Premium, it will not take us long to let you know.
