The Leith Wheeler Canadian Equity (Trades, Portfolio) Fund disclosed it exited three positions when it released its fourth-quarter portfolio.
With the goal of achieving superior long-term returns, the portfolio management team invests in unpopular Canadian companies that have stable earnings.
The fund divested Bank of Montreal (TSX:BMO, Financial), Sun Life Financial Inc. (TSX:SLF, Financial) and Teck Resources Ltd. (TSX:TECK.B, Financial) from its portfolio during the quarter.
Bank of Montreal
The Canadian Equity Fund axed its remaining 577,900 shares of Bank of Montreal for an average price of 77.98 Canadian dollars ($61.95) per share, impacting the portfolio by -2.06%.
GuruFocus estimates the fund has lost 18% on the investment since the fourth quarter of 2016.
The Canadian bank has a market cap of CA$61.3 billion; its shares closed at CA$94.96 on Wednesday with a price-earnings ratio of 13.32, a price-book ratio of 1.59 and a price-sales ratio of 2.77.
The Peter Lynch chart below suggests the stock is undervalued as it is trading below its fair value.
As the bank has issued approximately CA$13.5 billion in new long-term debt over the past several years, GuruFocus rated its financial strength 5 out of 10. Its profitability and growth, however, was rated 6 of 10 because its operating margin is expanding and it has a four-star (out of five) business predictability rating.
With 0.15% of outstanding shares, the Mawer Canadian Equity Fund (Trades, Portfolio) is the bank’s only guru shareholder.
Sun Life Financial
The fund sold its remaining 565,400 shares of Sun Life Financial for an average price of CA$39.87 per share. The trade had an impact of -0.98% on the portfolio.
According to GuruFocus, the fund has gained an estimated 9% on the investment since the second quarter of 2014.
Headquartered in Toronto, the insurance company has a market cap of CA$31.2 billion; its shares closed at CA$51.34 on Wednesday with a price-earnings ratio of 14.75, a price-book ratio of 1.56 and a price-sales ratio of 1.08.
According to the Peter Lynch chart below, the stock is trading close to its fair value.
Sun Life’s financial strength and profitability and growth were both ranked 5 out of 10 by GuruFocus. While the company’s interest coverage meets Benjamin Graham’s threshold of 5, it underperforms 83% of competitors. In addition, its operating margin underperforms 51% of competitors. One positive for the stock is it has a one-star business predictability rating.
The company’s sole guru shareholder, the Signature Select Canadian Fund (Trades, Portfolio), holds 0.03% of its outstanding shares.
Teck Resources
Leith Wheeler’s final sale for the quarter was 580,500 shares of Teck Resources for an average price of CA$22.78 per share. The trade had an impact of -0.49% on the portfolio.
The fund has lost an estimated 31% on the investment since the fourth quarter of 2012, according to GuruFocus.
The Vancouver, British Columbia-based mining company has a market cap of CA$19.23 billion; its shares closed at CA$33.53 on Wednesday with a price-earnings ratio of 7.85, a price-book ratio of 0.99 and a price-sales ratio of 1.63.
Based on the Peter Lynch chart below, the stock appears to be undervalued as it is trading below its fair value.
GuruFocus rated Teck’s financial strength 6 out of 10 as it has good interest coverage and a moderate Altman Z-Score of 1.87. Its profitability and growth was rated 8 of 10 as it has a high Piotroski F-Score of 7 and a one-star business predictability rating. In addition, its operating margin outperforms 93% of competitors.
The Signature Select Canadian Fund (Trades, Portfolio) is now the company’s sole guru investor with 0.01% of outstanding shares.
Other trades
During the quarter, the firm also trimmed its holdings of BRP Inc. (TSX:DOO, Financial), Canadian National Railway Co. (TSX:CNR, Financial), Canadian Tire Corp. Ltd. (TSX:CTC.A), Baytex Energy Corp. (TSX:BTE) and Finning International Inc. (FTT), among others.
The current portfolio of 36 stocks is largely composed of securities in the financial services sector. According to its fact sheet, the fund slightly underperformed its benchmark, the S&P/ TSX Composite, in 2017 with an 8.5% return. The index returned 9.1%.
Disclosure: No positions.
