A jam-packed e-mail this week as we both add and remove a stock from the Dividend Bull List, recap some Premium companies reporting earnings and go over a couple of model portfolio updates in our Late Stage models.
But first, let’s speak on the addition, and it’s a company we’ve currently been watching for quite some time.
We’ve added Goeasy Ltd to the Dividend Bull List
We’ve decided to add Goeasy Ltd to the Dividend Bull List. The company underwent a significant correction in price over the last 6 months, and after some consolidation at these current price levels, we feel now is a solid opportunity to add it.
The company recently released its 3-year outlook in which it expects revenue to grow at a double-digit clip annually. It also has some lofty expectations to grow its loan portfolio by over 75% through 2024.
Overall, you could make a case for Goeasy to be on both the Growth and Dividend Lists. In fact, it was a highlight on the Growth Bull List back in 2018 when it was trading in the low $30’s.
It recently raised the dividend by 38% on the back of some very strong quarterly results and in our opinion, the current correction on Goeasy is somewhat puzzling.
It currently sits at 9.9x trailing earnings. The company’s 3, 5, and 10-year price-to-earnings averages come in at 12.26, 12.68, and 12.29 times earnings respectively. Considering how little deviance there is in these numbers over a decade-long timespan, we think it’s only a matter of time before the market is willing to pay that again. This is a profitable company with a large addressable market, of which it currently only has around 1% of the market share. The company is also eying expansion in both the United States and United Kingdom.
The company is on the volatile side, however. With a beta of 2.12, this company is around 2X more volatile than the market itself. What this means is that during rising markets, we can expect Goeasy to outperform. However, in market pullbacks, Goeasy is likely to underperform.
This is why it is very important if you’re going to take a position in a volatile company like Goeasy it must not only fit your risk tolerance but be made with the intentions to hold for the long term.
We’ve got much more information inside of our full report on Goeasy, which you can read here.
We’ve removed Quebecor from the Bull List
Dividend Bull List stock Quebecor (QBR.B) delivered mixed quarterly results. Earnings of $0.66 missed by $0.04 while revenue of $1.184B beat by $1.7 million. The company also raised the dividend by 9% and while it remains well covered, this raise is far below historical averages.
This is likely a result of slowing growth along with the fact it intends to expand outside of Quebec, which will require significant capital outlay.
After some consideration and digging through the quarter over the weekend, we have decided to move to neutral on Quebecor with the intention of removing it from our Dividend Bull List. The company has been on our list since the fall of 2020, and we do like to keep our lists fresh.
As always, this is not a recommendation to sell. In fact, if Quebecor’s expansion works out it could end up being very beneficial to current shareholders.
Quebecor remains the cheapest telecom in the industry with a yield that has touched record levels. However, it is the overall uncertainty that has led us to remove it.
Earnings recaps – 3 Foundational Stocks
As we head towards the tail end of the earnings season, the pace of quarterly results is starting to slow. This has been one of the most volatile quarters in terms of earnings we’ve ever witnessed, so we’re not exactly upset it’s winding down. We do still have quite a few Premium companies reporting over the coming weeks though, so it’s important to stay tuned.
We still had plenty of action from this past week led mainly by our Foundational Stocks.
Loblaw
Loblaw delivered a beat on the top and bottom lines, continuing its streak of strong performances. Earnings of $1.52 per share beat by $0.16 and revenue of $12.7B beat by $14 million. The company pointed to strong demand from eat-at-home which was amplified by the holiday period.
Shoppers Drug Mart results were also very strong as it posted 7.9% same-store sales growth in the quarter. Loblaw also noted that it anticipates benefiting from pandemic impacts through the first half of Fiscal 2022 but that YoY growth in the second half will be challenged thanks to inflation and economic re-openings.
The biggest news on the quarter was the company’s feud with Frito-Lay. The chip producer halted shipments to Loblaws after the company refused to pay rising costs. Ultimately the feud has the potential to do more damage to Frito-Lay than it does Loblaw, and we’re not overly concerned.
Royal Bank
Royal Bank of Canada (RY) was the first bank to report earnings and it certainly did not disappoint. Fiscal 2022 Q1 earnings of $2.84 beat by $0.14 and revenue of $13.07B beat by $1.07B.
It was a very strong quarter despite some warnings that banks could disappoint. For the first time in a while, provision for credit losses ticked upwards, but only by 5 basis points (0.05%). The biggest impact was the company’s Wealth Management segment which posted 24% net income growth from Q1 of Fiscal 2021. Overall, it was just a rock-solid quarter.
Home Depot
Moving on to our US Foundationals, Home Depot (HD) delivered strong quarterly results, but the outlook negatively impacted the stock. Earnings of $3.21 beat by $0.03 and revenue of $35.72B beat by $870M. The company also raised the dividend by 15% to $1.90 per share, but the focus was on guidance which missed estimates.
Home Depot expects sales growth to be ‘slightly positive’ and to deliver flat operational margins. It guided to low single-digit EPS growth vs 4.32% estimates and as a result, the company ended the week down by 8.71%. We think this is an overreaction, and the company is now trading at a 20% discount to historical averages.
Portfolio overviews
There actually isn’t all that much to talk about with our Late Stage Portfolios. This is primarily due to the fact they were designed to perform well during turbulent conditions like we’re in now. The bulk of them are made up of sound, blue-chip Canadian companies which have performed very well over the last 6 months.
Late Stage Conservative
In our Late Stage Conservative, we didn’t make a single change. The portfolio has been one of our best performing since our last updates. It has outperformed its benchmark over the last 1, 3, 6, 9, and 12-month timeframes as the market has begun to warm up to cash flow positive, “real” economy companies. Which is exclusively what this portfolio is made of.
Late Stage Moderate
In our Late Stage Moderate, the story is much the same. We spoke of patience for years inside of these portfolios as high-growth reigned supreme and low valuation, blue-chip Canadian companies got cast aside. Well, there finally seems to be a reversal as the Late-Stage Moderate portfolio has now outperformed its benchmark on a 1, 3, 6, and 12-month basis as well.
It still has a bit to go to start outpacing its benchmark since its inception, but it seems to be well on its way. The overall stock market correction at the time of update is certainly still having an impact on the portfolio but as it sits it’s down around 2% YTD while many major indexes are down much, much more than this.
We’ve made a very minor change in the portfolio, trimming off a bit of profit from Telus as its allocation had gotten quite high, and we’ve fed that capital into current lagging Bull List stock Parkland Fuels, which we feel offers strong value at this time.
Late Stage Aggressive
In terms of our Late Stage Aggressive, the portfolio is underperforming over the short term due to some allocations to higher growth plays, but this is still one of the best performing portfolios at Stocktrades Premium. It has outperformed its benchmark every year since its inception, and once growth starts to turn things around, it will be in a strong position to perform once again.
Due to a run-up in financial stocks, we’ve had to make some moves in this one. It was approaching 26% allocation to the financial sector and we felt it was a good opportunity to shave profits off of Bank of Nova Scotia, TD Bank, and Manulife Financial.
With the proceeds, we bought a position in recent Bull List stock Waste Connections. This portfolio lacked any kind of industrial exposure, and the position in Waste Connections gives the later-stage portfolio a solid, defensive holding.
Of note, the portfolio overview is updated on the website, but we are currently putting the final touches on the portfolio pack. Look for this early this week.
The Conservative and Moderate models, however, are fully updated and on the site. There are a lot more details about performance and moves inside of those packs and overviews, so feel free to have a read.
