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Turning Chaos into Calm

The last few days have been interesting to say the least. Although I may appear cautious in my previous posts, I have been taking advantage of weakness in valuations on fundamentally sound stocks when they’ve hit my targets. This includes new additions to my Dividend Growth, Value and RSP Portfolios over the past week while also adding to current positions.

While I had hoped that the turn in the market would produce share prices within a buy range for more stocks on my watchlist, I didn’t chase any and am happy that I had the discipline to do so. Some limit orders were missed by dollar and others by cents. To many that may seem as a wasted opportunity, but in an environment such as this an investor (for right or wrong) must stick to their strategy or risk allowing emotion to take control of their decisions. That is when the biggest mistakes are made

I was fortunate to anticipate an early drop in the market Tuesday morning in order to snag a few shares of select companies. Although I missed a few I badly wanted, I know that with so many new 52-week lows being hit this week we likely haven’t seen the last of such stocks trading at or below these lows.

What I was up to…

DivG:

CWT.UN/CUF.UN – For reasons of diversification and valuation, I decided after some suggestion from a friend that adding real estate to my portfolio would not only help balance my heavy weighting of financials, but increase the cashflow of the portfolio in times when stocks may move sideways for some time. An impressive portion of Calloway’s portfolio is anchored my Walmart which attracts supplementary businesses to shoppers that frequent the large retailer. To compliment the retail component of Calloway I’ve added Cominar which is a REIT based primarily in Quebec City & Montreal focusing on commercial & business offices. While some may see its focus in Quebec as a limitation for growth, I know through experience that many established businesses in Quebec stay in Quebec due to strong cultural links and nationality. Both these trusts provide predictable cashflow to the portfolio at attractive yields and offer value through the large discount in NAV (in excess of 15% for both) while gaining some protection to rising inflation.

CP – I took advantage of the recent weakness in the stock price to add a smaller position to compliment my current holding in CNR as both companies have exposure in their operations to different aspects of the economy. As long-term investments, it’s hard to argue that either is a poor investment with their wide moat against competition and integrated services to the Canadian economy. Although the need for resources will slow, it is not about to stop. At historically high yield’s and attractive P/E ratios both are excellent additions to the portfolio as exposure to industrials. CP also has an attractive portfolio of real estate that has attracted interest within the past twelve months.

PCA – This stock goes beyond cheap for the price that I paid. I’ve never quite understood the discount that this stock trades at versus its peers. With a forward P/E well under 10, a history of excellent dividend growth and exposure to inevitable increasing energy costs over the long-term this stock adds incredible value over to an industry I had yet to gain exposure to directly.

RUS – You want cheap? Let’s talk about cheap. I bought this stock with an 8.2% yield on a dividend that in all forms of assessment is safe. That’s right….SAFE. The company has virtually no debt, adequate cashflow to cover the dividend, excellent history of commitment to the dividend by management and has a network of distribution to infrastructure that’s hard to match in North America. Add in the market’s complete disregard for its ability to adapt to a more challenging economic climate and you’ve got a stock over the long-term that not only fuels the yield of the overall portfolio, but adds exposure to materials.

IGM – Simply the best of the best. I myself don’t believe in paying for active management which charges exorbitant MER’s. Yet as I outlined in my post for strategies in 2008, active management is a perfect fit for many Canadians who simply don’t have the time or patience to manage their own savings. Why not pay someone else to do it. Demographics favour this stock as retiring baby boomers will not want to waste their time or energy managing their retirement income in contrast to travelling, spending time with family or other activities. In up or down markets this company will continue to collect their fees and what clients of the company don’t know won’t hurt them when considering this is one of the best dividend growth stocks in Canada.

MRU.A/EMP.A – Walmart….got your attention? These two stocks (which own A&P and Sobey’s respectively) have little to worry about from these new superstores when you consider that they don’t directly compete with the large retailer for the same customer base. A focus on quality, customer service and experience instead of price will serve both positively as they concentrate on smaller locations and more frequent purchases than the expansive aisles of the supercentres for an ageing population. While Loblaw and Walmart compete on eroding margins, the protection of Metro & Empire is a continued focus on higher margins and understanding that you never compete on price. As mentioned before; if you have the opportunity to add to a quality company for the long-term at a forward P/E below 10, then you’re likely laughing in a few years.

Value:

PZA.UN – This trust continues to execute on all levels regardless of the slide in share price over the past 2 weeks. It’s integration of its Alberta acquisition last year and continued strength in same store growth (see its most recently reported financial statements) puts this trust as one of the cornerstones of my undervalued income producing securities in this portfolio.

KEYN – When a current holding becomes even cheaper over time relative to continued strength in operations, I won’t hesitate to add more. The value of real estate, superior management and cashflow from operations continue to impress regardless of the lack of respect paid by the market to it.

BDK – Quality, plain & simple. It got hammered, I picked some up. I’ll continue to add on weakness in the housing market and consumer spending as this stock offers tremendous value over the long-term. The quality of products and brand name recognition are two of its greatest strengths in a challenging market environment.

RSP:

JNJ – Talk about a complete beat down…what can I say that’s bad about this company? As in past posts, I’ve outlined clearly my stance on the complete quality of the company. It’s trading at a valuation that’s cheaper than nearly five years ago and continues to produce results quarter after quarter. In an environment such as this, with a portfolio of products as diversified as it has and global scope of penetration, this stock should be trading at a premium rather than at less than 15x 2008 earnings. A solid dividend growth history and profit increases make this the first acquisition made with a CDN$ that appears to be headed for par again in the last few days, maximizing my purchasing power at its discounted price.

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{ 2 comments… add one }
  • FinancialJungle January 24, 2008, 6:54 pm

    KEYN looks dirt cheap. If it wasn’t for a general market decline (too many deals to choose from), I’d probably pick up a small position in this stock.

  • Nurse B, 911 January 24, 2008, 8:43 pm

    As many know I’ve held a position in the stock since late 2006, so with the appreciation of the portfolio since my weighting was less than my target. Adding seemed appropriate, but there certainly are “better” deals on the horizon.

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