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Sheila Dang
Sheila Dang
Articles (264) 

Chou RRSP Fund's Top Stocks Also Trading At Low P/E

April 10, 2015 | About:

In his annual shareholder letter, Chou RRSP Fund (Trades, Portfolio) manager Francis Chou (Trades, Portfolio) singled out six stocks that contributed to the fund’s 14.2% return in Canadian dollars, compared to the 10.6% return for the S&P/TSX Index. Coincidentally, three of these stocks — Torstar Corp (TSX:TS.B), Ridley (TSX:RCL), and Canfor Pulp Products (TSX:CFX) — are also trading near the low end of their historical P/E range.

The fund owns 1,259,416 shares of Torstar Corp, which accounts for 9.2% of the portfolio as of the fourth quarter.

Torstar is a media and book publishing company. The media segment publishes four daily newspapers: The Toronto Star, The Hamilton Spectator, the Waterloo Region Record, and the Guelph Mercury. The stock currently trades at C$6.77, with a P/E ratio for the trailing 12 months of 3, and P/S ratio of 0.63.

When comparing the stock price to the Peter Lynch earnings line, the stock appears to be undervalued.

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Of the stocks trading at low P/E ratios in the fund’s portfolio, Ridley has the largest portfolio weighting at 10.7%. The fund holds 313,200 shares, which has remained unchanged since Q2 2010. The stock price has increased to C$33.87 from the initial purchase price of C$8.68, helping the fund realize a 290% gain.

Ridley’s P/E ratio for the trailing 12 months is 14.8, near the low-range of its history, which has seen P/E rise up to 81.7 during the past 10 years. The current P/S ratio is 0.59.

Ridley is a livestock and poultry feed manufacturer with operations in Manitoba, Alberta, Saskatchewan and Ontario.

The company’s operating margin has been increasing steadily at more than 32% over the past five years. In 2014, the margin was 5.69%.

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The Chou RRSP Fund (Trades, Portfolio) also owns 493,900 shares of Canfor Pulp Products, which is trading at a P/E ratio of 11.8, near the low end of its history. In 2012, the P/E ratio was as high as 61.57.

The stock has been up 32% over the past year, and the fund has seen a 61% gain from the position. Canfor is a supplier of pulp and pulp products with operations in British Columbia. Its products include bleached and unbleached high performance kraft paper, high-porous papers, and others.

Canfor is currently priced at C$14.75, and when compared to the Peter Lynch earnings line, appears to be undervalued.

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Net income in 2014 was C$89.5 million, up from C$41.8 million the year before. EBIT per share in 2014 was C$1.77, an increase from C$1.04 in 2013. The current dividend yield is 1.7%, while the payout ratio is 19%.

View the complete portfolio of the Chou RRSP Fund (Trades, Portfolio) here. Not a Premium Member of GuruFocus? Try it free for 7 days.

About the author:

Sheila Dang
Editorial assistant at GuruFocus

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