The Leith Wheeler Canadian Equity (Trades, Portfolio) Fund disclosed in its second-quarter portfolio, which was released last week, it established three new holdings.
With the goal of generating superior long-term returns while protecting capital, the fund, which is part of Leith Wheeler Investment Counsel, uses bottom-up, fundamental analysis to find potential investments among a diverse number of undervalued Canadian companies that have stable earnings, long-term business models and good management.
Based on these criteria, the fund opened positions in Sleep Country Canada Holdings Inc. (TSX:ZZZ, Financial), CT Real Estate Investment Trust (TSX:CRT.UN, Financial) and Cineplex Inc. (TSX:CGX, Financial) during the quarter.
Sleep Country Canada
After previously selling out of Sleep Country Canada in the second quarter of 2017, the fund invested in a new 818,500-share holding, dedicating 0.52% of the equity portfolio to the position. The stock traded for an average price of 19.75 Canadian dollars ($14.81) per share during the quarter.
The Canadian mattress retailer has a CA$756.71 million market cap; its shares closed at $CA20.37 on Tuesday with a price-earnings ratio of 13.40, a price-book ratio of 2.59 and a price-sales ratio of 1.15.
The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued.
GuruFocus rated Sleep Country’s financial strength 4.8 out of 10. Despite having adequate interest coverage, the Altman Z-Score of 1.76 warns the company could be at risk of going bankrupt.
The company’s profitability and growth scored a 6 out of 10 rating, driven by strong margins and returns that outperform over half of competitors. Sleep Canada also has a moderate Piotroski F-Score of 6, which indicates operating conditions are stable.
Of the gurus invested in Sleep Country, the Mawer New Canada Fund (Trades, Portfolio) has the largest stake with 4.81% of outstanding shares. The Signature Select Canadian Fund (Trades, Portfolio) is also a shareholder.
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CT REIT
Leith Wheeler picked up 882,800 shares of CT, allocating 0.42% of the equity portfolio to the holding. Shares traded for an average price of CA$14.20 during the quarter.
The Toronto-based REIT has a market cap of CA$3.25 billion; its shares closed at CA$14.73 on Tuesday with a price-earnings ratio of 13.27, a price-book ratio of 2.42 and a price-sales ratio of 10.25.
According to the Peter Lynch chart, the stock is undervalued.
CT’s financial strength was rated 3.8 out of 10 by GuruFocus. Although the company has issued approximately CA$375.42 million in new long-term debt over the past three years, it is at a manageable level due to sufficient interest coverage. The Altman Z-Score of 0.99, however, warns the company could be in danger of bankruptcy.
The REIT’s profitability and growth fared much better, scoring a 6 out of 10 rating on the back of strong margins and returns that outperform over half of industry peers and a moderate Piotroski F-Score of 5.
The fund holds 0.40% of the company’s outstanding shares.
Cineplex
Having previously exited a position in Cineplex in the fourth quarter of 2009, the fund entered a new 47,000-share holding. The trade had an impact of 0.04% on the equity portfolio. During the quarter, the stock traded for an average per-share price of CA$25.21.
The company, which operates a chain of movie theaters in Canada, has a CA$1.58 billion market cap; its shares closed at CA$24.95 on Tuesday with a price-earnings ratio of 31.98, a price-book ratio of 2.53 and a price-sales ratio of 0.98.
Based on the Peter Lynch chart, the stock appears to be overvalued.
Weighed down by approximately CA$132.13 million in new long-term debt and poor interest coverage, Cineplex’s financial strength was rated 3.6 out of 10 by GuruFocus. In addition, the Altman Z-Score of 0.83 warns the company could be in danger of facing bankruptcy.
The company’s profitability and growth scored a 7 out of 10 rating despite having a declining operating margin, returns that underperform a majority of competitors and recording a slowdown in revenue per share growth over the past 12 months. Cineplex also has a moderate Piotroski F-Score of 6 and a business predictability rank of three out of five stars. GuruFocus says companies with this rank typically see their stocks gain an average of 8.2% per annum over a 10-year period.
With 1.30% of outstanding shares, the Mawer Canadian Equity Fund (Trades, Portfolio) is Cineplex’s largest guru shareholder. The CI Can Am Small Cap (Trades, Portfolio) Fund also owns the stock.
Additional trades
During the quarter, the Canadian Equity Fund also added to several other positions, including Rogers Communications Inc. (TSX:RCI.B, Financial), Royal Bank of Canada (TSX:RY, Financial), Manulife Financial Corp. (TSX:MFC), The Toronto-Dominion Bank (TSX:TD), Toromont Industries Ltd. (TSX:TIH), Winpak Ltd. (TSX:WPK) and IA Financial Corp. (TSX:IAG).
The fund’s $3.02 billion equity portfolio, which is composed of 39 stocks, is heavily invested in the financial services sector.
According to its website, the fund posted a -12.8% return in 2018, underperforming the S&P/TSX Composite Index’s return of -8.9%.
Disclosure: No positions.
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