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SEENSCO
SEENSCO
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Six Positions Giving Us Great Returns in 2014

January 14, 2015 | About:

Below is a list of 6 companies in which we invested in 2014 that gave us great returns and, we believe, are of tremendous educational value. Be aware, however, that just because we made investments in them in 2014 and they met our value screens, does not mean we would, or even could, invest in them today. We bought when the prices were right, economic fundamentals were strong, and their margins-of-safety were sufficient to qualify for investment. Also keep in mind that for a few of these positons, the market was unjustifiably pessimistic about their future growth prospects – making them very hard to ignore.

Big Lots

Big Lots Inc. (NYSE:BIG) is one of the U.S.’ largest closeout retailing business. The company generally purchases closeout merchandise at lower costs than would be paid by traditional discount retailers and offers closeout merchandise to customers at lower prices than those offered by traditional discount retailers. The beginning of year sell-off resulting from the firm’s failed Canadian expansion and write-off of assets knocked Big Lots down to about $27.36 a share against solid three-year average EPS of $2.91 a share. The company has been in business since 2001 and has won consumers’ minds as one of the cheapest places to shop for consumer and household items. Near year end, we closed the position at $45.83, giving us a superfast 68% rate of return.

Campbell Soup Company

Who doesn’t know Campbell Soup Company (NYSE:CPB)? Americans, Canadians, Europeans have been eating their soups for years, and no other soup company controls as much counter space as Campbell. That being said, not all investors are aware that Campbell also owns Pepperidge Farm, V8, Habitant, Prego, and Swanson brand name products – products distributed in virtually every grocery store in North America. The company’s return on equity averaged 67% over the last three years and per share earnings grew at a rate of about 4.7% per year since 2005. Buying in at a reasonable price of $39.37, collecting $0.93 in dividends, and selling at $45.12 gave us a near risk-free (from our perspective, anyway) rate of return of 17%.

Keg Royalties Income Fund

Keg Royalties Income Fund (KEG.UN)  is a Canadian unincorporated open-ended limited purpose trust that was established to invest in the Keg Rights Limited Partnership, which owns the trademarks, trade names, operating procedures and systems and other intellectual property used in connection with the operation of Keg steakhouse restaurants and bars in Canada and the USA. The Keg has easily won consumers’ minds as one of the best place to eat top-grade Canadian steak. We purchased the Keg in early 2014 at $14.44 before being acquired by Fairfax Financial. Collecting monthly dividends totalling $0.96 and closing the position at $16.60 gave us a quick 21.6% rate of return. As of today, the stock is trading at $18.25 a share.

Metro Inc.

Metro Inc. (MRU) is one of the largest grocery store chains in Canada operating or supplying over 640 food stores in Quebec or Ontario and close to 750 small retail outlets. The company also acts as franchisor and distributor for almost 200 independently owned drugstores and operates about 75 of its own drugstores under the Pharmacy and Drug Basics banners. We bought in early 2014 at $65.57 a share against three-year average EPS of $5.30, which equates to an initial “zero growth” rate of return of 8.1%. It also had a book value of $30.50 per share. By year end it was trading $88.95 a share and had paid $1.20 in dividends, which equates to an annual rate of return of 37.5%. Today the stock is trading at $91.55.

Shoppers Drug Mart Corp. (Acquired by Loblaws Companies Ltd.)

Shoppers Drug Mart (NYSE:SC) is Canada’s leading distributor of over-the-counter and patented prescription drugs. The company’s average return on equity over the last 10 year was 15.7%. Per share earnings growth was 8.5% between 2004 and 2013. At the right price this was a great buy and worth holding on to for a long time. People are always getting sick and in need of medication and this need is not going to change any time soon. We bought at $45.37 in mid-2013 and collected $1.12 in dividends before the company was purchased by Loblaws Companies Ltd. and closed at $61.88 in March 2014. This gave us a nice 38% rate of return over a relatively short holding period.

Tim Hortons Inc. (Acquired by Burger King Worldwide Inc.)

Founded in 1964, Tim Hortons (THI) has built a dominant position in the quick service coffee restaurant market in Canada selling coffee, espresso-based hot and cold specialty drinks, including lattes, cappuccinos and espresso shots, specialty teas, fruit smoothies, home-style soups, grilled panini and classic sandwiches, wraps, hot breakfast sandwiches and fresh baked goods, including its trademark doughnuts and timbits. Over the last 10 years, the company has had a yearly return on equity of between 26% and 49%, which is a highly caffeinated result! It is a fantastic and innovative company and, at the right price, it was a great investment. We acquired stock in the company early in 2014 at $55.18 a share. We then closed the position in late 2014 following the Burger King acquisition at $99 per share. Including dividends collected over the period of $0.96, we earned a rate of return in less than nine months of 81%.

Time will only tell what 2015 has in store. A key lesson we learned last year was that, while good things might not always happen to good people, good things always happen to good companies. The trick is being able to recognize competitive might, being patient, and only pulling the trigger when the firms are selling substantial discounts to intrinsic value.

About the author:

SEENSCO
SEENSCO, a Canadian Corporation founded by Daniel Seens, CFA, is an investment research firm located in Ottawa, Ontario. Our Safety-First approach to identifying and evaluating companies helps investors to protect their principal and generate exceptional rates of return.

Visit SEENSCO's Website


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