September Results
September was yet again another strong month for the Bull List, as our list returned 2.29% while the TSX lost 2.28%. Overall, since the markets started recovering back in April, our Bull List has outperformed the TSX Index every single month.
Even more impressive, since the launch of Stocktrades Premium back in December of 2018, our Bull List has returned 21.16% while the TSX has returned 4.23%. This is 5 times the returns of our benchmark index.
So, what companies were the stars of September, and which ones struggled? Canada Goose (TSX:GOOS), Goodfood Market (TSX:FOOD) and Brookfield Infrastructure Partners (TSX:BIP-UN) led the way in September, posting gains of 38%, 31.72% and 11.92% respectively.
So, why the increases? Well for Canada Goose, this is primarily a strong quarter as winter approaches and its jackets increase in popularity. The company also announced its plans to open a new flagship store in Berlin.
Finally, to top a strong month off by Canada Goose, Oliver Chen, a senior research analyst at Cowen recently upgraded the stock from market perform to outperform, citing strong growth potential in China, which is our primary investment thesis on the company.
As you read in our prior e-mail, there was really no catalyst, at least news wise, for Goodfood Market’s surge in price. The stock is up 40%+ off September lows, and we believe the sharp rise in price is due to overall fears of a second wave and shutdown.
To us however, this line of thinking is short-sighted. Will it benefit Premium members who purchased the stock? Absolutely. But we didn’t highlight the stock because of this. We believe the company is fundamentally strong and we are firm believers in the shift to boxed meals.
Not to mention, prior to bringing the stock to Premium members attention, I tried it myself, and the quality was next level. So much so that I’ve become a customer.
Kirkland Lake (TSX:KL) struggled the most in September, losing 6.65% as the price of gold dipped into the mid $1800/oz range. It’s key to keep in mind, Kirkland Lake is still expected to generate significant cash flows at these price levels, and we’re still bullish on the company. These cash flows should allow the company to increase the dividend at a rapid clip.
IPO Centre
By popular demand, our IPO Center is live! Stocktrades Premium Subscribers now have access to a list of upcoming IPOs, recent performance data and our take on current, past and upcoming public offerings.
We don’t currently have a custom report on a single IPO, as this will come later on in the month. However, there’s still a ton of information inside to digest.
Before we jump into more details, we did want to point out that investing in IPOs comes with additional risk. They are highly volatile, have no history of execution and for the most part, are a play on the management team.
When we talk about investors doing their due diligence (research), it becomes even more critical to ensure investors do so on any new, or recently issued IPO. Don’t be fooled by fancy presentations, stick to the numbers and company fundamentals. If you do so, it is much easier to spot a dud versus one that has the potential to breakout.
With that in mind, the single most important document is the company’s long-form prospectus. Companies typically announce their intentions to go public via new release accompanied by a preliminary long-form prospectus. If you are going to invest in an IPO, or a recently issued IPO – it is critical that you read the company’s prospectus. The good news is, we’re going to make all these available to you on one page when we have a chance to get at them.
A preliminary document is just that – an initial document that includes marketing materials, company overview, fundamentals, growth prospects etc
It typically lacks pricing details, or other key information such as number of shares being offered, date of offering etc. Although investors can get a very good sense of the business from the preliminary long-form, it is difficult to accurately value the company.
Either in the initial release, or in a subsequent one, the company will typically announce its targeted price offering and how much it intends to raise. These are usually in the form of a range and can be used to get a sense of company valuation. Pricing is the key information required to value the company.
Once the final long-term prospectus is filed; all that key information that was previously missing will now be available and investors will now be able to properly value the company. It is important to note, that in some cases investors will not know the final price of the offering until the day before it begins trading.
That means investors will have to make an educated guess if they would like to express their interest and participate in the IPO. To do this, you will have to use the expected pricing ranges and stay on top of recent news.
If there is strong demand for the offering, then the company will price at or above the high end of the offering. This happened with the most recent IPO – Nuvei Technologies (TSX:NVEI).
The company had initially intended to price between US$20-$22 but ended up pricing at $US26 per share the day before it began trading.
That means, investors who were successful in having their expression of interests filled would have paid $US26.00 per share, well above what they might have been expecting.
In this case it worked out, because Nuvei did look quite attractive at those levels. In others, it might not if valuation gets out of hand.
On the flip side, if the price comes in at the low end of expected pricing, then it is a sign of weak demand. Flagship REIT (TSX:MHC.UN) is an example of this – see our recent IPO news article.
Retail investors are rarely successful in having their expressions of interests filled at the List Price
This is especially true of oversubscribed IPOs (strong demand).
We recognize that this may be a new process for subscribers, so if you have any questions about the information contained within a prospectus please reach out via the Q&A and we’d be happy to provide further explanation.
In the “Recent IPO News” section, you will find the latest news related to TSX and TSXV-listed news. We will give our quick take on the news, followed by the news release (if available) itself. This is a good way to track what is happening in the space.
In the Upcoming IPO table, you will see all of those who have recently filed or announced their intentions to go public
In the month of October, there are two companies that are on watch. Flagship REIT (MHC.U) is scheduled to close its offering next week and Topaz Energy (TPZ) is aiming for the end of October.
Although both look like decent companies, neither are of interest to us due to the industries in which they operate (Energy and Real Estate). Not saying they are bad companies; these are just industries that are under pressure in our current environment.
In the Recent IPO table, you will see how companies which have gone public recently have performed. Today, we’d like to bring your attention to Nuvei (TSX:NVEI). The company has been an absolute star since it went public. Up 24% since it opened on the TSX Index in mid-September.
As we discussed previously, Nuvei was attractively priced when compared to competitors such as Lightspeed (TSX:LSPD) and Square (NYSE:SQ).
At today’s price of $56.02 per share, that valuation gap has narrowed considerably. Although it is still trading at a decent discount to LSPD (30%), it is now trading in line with Square on a P/S and forward P/S basis.
This is not to say there is not further upside, but given its strong performance there is a risk of a pullback here.
In our opinion, it is an excellent company and one that has ample growth prospects. Once again however, as a recent IPO it has no track record of performance versus market expectations. As such, investors can expect continue volatility. Approach with caution and if interested, averaging into a position is likely the best course of action.
Mathieu Litalien is long NVEI. Daniel Kent is long Kirkland lake. Both Daniel and Mathieu are long Canada Goose
