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Leith Wheeler Canadian Equity Fund's Top 5 Semi-Annual Trades

Fund pulls back its top holding as price jumps

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Graham Griffin
Sep 07, 2021

Summary

  • Fund reduces its top holding in Toromont Industries.
  • New buy established in Metro.
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The

Leith Wheeler Canadian Equity (Trades, Portfolio) Fund has revealed its portfolio for the first half of 2021. Top trades for the period include reductions in the fund’s Tourmaline Oil Corp. (TSX:TOU, Financial), Brookfield Infrastructure Partners LP (TSX:BIP.UN, Financial) and Toromont Industries Ltd. (TSX:TIH, Financial) holdings alongside a new buy into Metro Inc. (TSX:MRU, Financial). Managers of the fund also added to its position in Rogers Communications Inc. (TSX:RCI.B, Financial).

The goal of the fund is to provide superior long-term investment returns by investing in a diversified portfolio of Canadian common shares, convertible debentures and other equity related securities. Under normal circumstances, the fund keeps its portfolio fully invested, to the greatest extent possible, in equity and equity related securities. Managers utilize a value approach to stock selection, applying bottom-up, fundamental analysis to all investment decisions.

Portfolio overview

Through the first half of the year, the fund’s portfolio contained 44 stocks with five new holdings. It was valued at $3.70 billion and has seen a turnover rate of 3%. Top holdings include Toromont Industries, Royal Bank of Canada (

TSX:RY, Financial), Brookfield Asset Management Inc. (TSX:BAM.A, Financial), Canadian National Railway Co. (TSX:CNR, Financial) and The Toronto-Dominion Bank (TSX:TD, Financial).

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The top represented sectors are financial services (36.03%), industrials (18.49%) and technology (11.79%).

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Tourmaline Oil

The fund pulled back its Tourmaline Oil (

TSX:TOU, Financial) holding by 30.6% with the sale of 1.95 million shares. The shares traded at an average price of 25.24 Canadian dollars ($19.96) during the period. Overall, the sale had a -1.02% impact on the equity portfolio and GuruFocus estimates the total gain of the holding at 18.58%.

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Tourmaline Oil is a Canadian energy company engaged in natural gas and crude oil acquisition, exploration, development and production in the Western Canada Sedimentary Basin. The company produces light and medium crude, natural gas liquids and conventional and shale natural gas. Production averaged 311,000 barrels of oil equivalent per day in 2020, and the company estimates that it holds approximately 3.3 million barrels of oil equivalent of proved and probable crude oil and natural gas reserves.

On Sept. 7, the stock was trading at CA$35.18 per share with a market cap of CA$10.51 billion. According to the GF Value Line, the stock is trading at a significantly overvalued rating.

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GuruFocus gives the company a financial strength rating of 5 out of 10, a profitability rank of 7 out of 10 and a valuation rank of 9 out of 10. There is currently one severe warning sign issued for a Beneish M-Score indicating the company may manipulate its financial results. There is also a medium warning sign issued for the company’s failure to balance its return on invested capital and weighted cost of capital, indicating struggles with capital efficiency.

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Metro

A new buy was established in Metro (

TSX:MRU, Financial) during the first half of the year. Managers purchased 530,650 shares that traded at an average price of CA$57.02. GuruFocus estimates the holding has gained 13% since it was established and the purchase had a 0.85% impact on the equity portfolio overall.

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Metro is one of the largest grocery retailers in Canada. Following its 2018 acquisition of Jean Coutu, it also boasts a meaningful drugstore footprint. Noteworthy grocery banners include Metro, Metro Plus, Super C and Food Basics, while its pharmacies primarily operate under the Jean Coutu and Brunet trademarks. It utilizes an array of business models, but it most frequently acts as either a retailer, operating individual stores, or a franchiser, licensing its trademarks and supplying merchandise to franchisees. The firm also acts as a distributor, leveraging its supply chain capabilities to service smaller neighborhood grocery stores.

As of Sept. 7, the stock was trading at CA$64.43 per share with a market cap of CA$15.73 billion. The GF Value Line shows the stock trading at a fair value rating.

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GuruFocus gives the company a financial strength rating of 5 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 4 out of 10. There is currently one severe warning sign issued for assets growing faster than revenue. The company’s cash-to-debt ratio of 0.09 ranks it worse than 82.67% of industry competitors after a large increase in debt in 2020.

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Brookfield Infrastructure Partners

Managers of the fund also reduced its Brookfield Infrastructure Partners (

TSX:BIP.UN, Financial) position. The sale of 286,700 shares cut the position by 12.38%. During the first half of the year, the shares traded at an average price of CA$66.40, landing the fund at a total estimated gain of 99.17% on the position. Overall, the sale had a -0.55% impact on the equity portfolio.

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Brookfield Infrastructure Partners is a Bermuda exempted limited partnership that owns and operates quality, long-life assets that generate stable cash flows. It focuses on acquiring infrastructure assets that have low maintenance capital costs and high barriers to entry. The company's segments consist of Utilities, Transport, Midstream and Data.

The stock was trading at CA$71.80 per share with a market cap of CA$21.22 billion on Sept. 7. The stock is trading at a modestly undervalued rating according to the GF Value Line.

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GuruFocus gives the company a financial strength rating of 3 out of 10, a profitability rank of 7 out of 10 and a valuation rank of 9 out of 10. There are currently five severe warning signs issued, including declining operating and gross margins and an Altman Z-Score placing the company in the distress column. The company’s free cash flow has increased consistently over the last several years and its operating cash flow is more than enough to support dividend payouts.

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Toromont Industries

The fund’s long-standing holding in Toromont Industries (

TSX:TIH, Financial) was reduced by 7.57% with the sale of 200,360 shares. The shares traded at an average price of CA$96.88 during the first half of the year. Overall, the sale had a -0.54% impact on the equity portfolio and GuruFocus estimates the total gain of the holding at 268.88%.

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Toromont Industries is a Canadian industrial company. The company operates two business segments: Equipment Group and CIMCO. The larger segment by revenue, Equipment Group includes a Caterpillar dealership and rental operation of construction equipment. CIMCO offers solutions for the design, engineering, fabrication and installation of industrial and recreational refrigeration systems. The company operates primarily in Canada and derives a smaller portion of sales from the United States of America.

On Sept. 7 the stock was trading at CA$107.06 per share with a market cap of CA$8.85 billion. According to the GF Value Line, the stock is trading at a significantly overvalued rating.

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GuruFocus gives the company a financial strength rating of 7 out of 10, a profitability rank of 9 out of 10 and a valuation rank of 1 out of 10. There is currently one severe warning sign issued for assets growing faster than revenue. The company’s exceptional profitability rank is propped up by an operating margin of 11.25% that beats 86.54% of industry competitors and a net margin that does equally well.

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The

Mawer Canadian Equity Fund (Trades, Portfolio) and the Signature Select Canadian Fund (Trades, Portfolio) also maintain holdings in Toromont Industries (TSX:TIH, Financial).

Rogers Communications

Rounding out the fund’s top five trades was an addition to its Rogers Communications (

TSX:RCI.B, Financial) position. The purchase of 281,000 shares that traded at an average price of CA$60.62 boosted the position by 19.16%. GuruFocus estimates the total gain of the holding at 4.96% and the purchase had a 0.50% impact on the equity portfolio overall.

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Rogers is the largest wireless service provider in Canada, with its more than 10 million subscribers equating to one-third of the total Canadian market. Rogers' wireless business accounted for over 60% of the company's total sales in 2020. The cable segment, which provides about one-fourth of total sales, offers home internet, television and landline phone service to consumers and businesses. Remaining sales come from Rogers' media unit, which owns and operates various television and radio stations and the Toronto Blue Jays. Rogers' significant exposure to sports also includes ownership stakes in the Toronto Maple Leafs, Raptors, FC and Argonauts.

As of Sept. 7, the stock was trading at CA$64.49 per share with a market cap of CA$32.17 billion. The GF Value Line shows the stock trading at a fair value rating.

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GuruFocus gives the company a financial strength rating of 3 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 3 out of 10. There are currently three severe warning signs issued for new long-term debt, poor financial strength and an Altman Z-Score placing the company in the distress column. The company’s revenue and net income have declined since 2018.

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Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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