Wednesday, 3 June 2015

The Canadian Shareowner Investments Experiment Part One

Putting it All Together, Phase One

In late 2014, I had accumulated a small sum of money in my kids' interest savings accounts at Tangerine, which was paying absolutely nothing.

I had run a simulation in the summer of 2014 in an attempt to estimate what the future cost would be of having to send three kids to university.  My kids at the time were 7, 5, and 1.  I had about $27,000 saved in an RESP which was basically sitting in 1 year GIC's paying 1.85%.  I figured that as long as I contributed $2,500 per year, the government would top me up by 20% x $2,500 = $500.  A $500 risk free return on $27,000, plus 1.85% x $27,000 was equivalent to $1,000 / $27,000 = 3.7% risk free. Obviously, the return diminishes the more I contribute as the $500 cap from the government becomes spread over a larger asset base.

In order to fund three kids successively going through university starting in 2025, at an estimated cost of $15K per kid (per year over 4 years), I'd either need to boost my annual contribution to the RESP's significantly, increase my returns inside the RESP, or supplement the RESP elsewhere by investing outside the RESP on my kids' behalf (over and above the $2,500 CESG limit).

Prior to coming to this determination, I had opened an informal trust account for my oldest daughter at Canadian Shareowner Investments.  Canadian Shareowner Investments offers a pooled investing service whereby individual Canadian investors can set up automatic savings programs which will invest an equal amount of money into a basket of stocks (or etfs).  The cost of running one buy program is $40 for up to 20 securities.  The best thing about Canadian Shareowner Investments is that they make it prohibitively expensive to trade, so you are forced to buy and hold!

Having just ravaged my way through the Little Book That Still Beats the Market as described in a previous post, I endeavoured to build my own ranking system using the Canadian Shareowner Investments list of securities, which you can find here:

https://www.shareowner.com/stocks-etfs.html

I spent about a week manually building my own database of ranked stocks out of the 400 securities offered by Canadian Shareowner Investments.

My first permutation of my own version of a "Greenblatt" ranking system produced the following top 100 stocks based on a combination of highest relative return on capital and highest relative earnings yield.  Note that this list was based on a hybrid of 2013 reported and 2014 estimated annualized results and was pretty rough around the edges.  I did manage to eliminate the bottom 3/4's of the list which ranked poorly relative to everything else (due to a low relative combination of good and cheap).

From this list, I selected 13 stocks, which I've highlighted in yellow below.  Strong caveat, this is in no way an endorsement for any of these stocks.  This was simply my first foray (at the time) into, what I believed would be the world of Joel Greenblatt as applied to The Canadian Shareowner Investments universe of stocks, in an attempt to grow my kids' assets over time.  In retrospect, this was an exercise in throwing darts, but it was a pretty good exercise as the basket of stocks has done pretty well since October 2014, which is when I initiated the buy program.

Company ROC Rank EBIT (ttm) EV (test) E/Y Rank Combined Rank
Weight Watchers International, Inc. 281% 4                461        1,339.69 34% 1 5
MTY Food Group 958% 1                  68            630.00 11% 24 25
Coach, Inc. 88% 28            1,120        9,398.35 12% 15 43
UnitedHealth Group Incorporated 210% 7            9,623      95,943.11 10% 37 44
The Buckle, Inc. 87% 31                257        2,175.91 12% 16 47
Philip Morris International, Inc. 118% 18          13,515    130,046.70 10% 31 49
PetMed Express, Inc. 112% 20                  28            273.65 10% 32 52
Kraft Foods Group, Inc. 87% 30            4,699      43,123.57 11% 23 53
ManTech International Corporation 67% 50                140            901.69 16% 5 55
Viacom, Inc. 118% 19            3,929      42,692.38 9% 45 64
Apple Inc. 196% 9          48,999    590,816.14 8% 60 69
Constellation Brands Inc. 64% 61            2,827      23,250.92 12% 13 74
LHC Group, Inc. 60% 64                  61            480.09 13% 11 75
The Western Union Company 86% 33            1,107      11,624.10 10% 42 75
Penn National Gaming Inc. 53% 77                361        1,904.92 19% 2 79
Harris Corporation 65% 57                882        8,020.71 11% 22 79
International Game Technology 69% 45                572        6,141.17 9% 43 88
Symantec Corporation 99% 24            1,453      17,690.89 8% 65 89
The Gap, Inc. 53% 76            2,149      18,849.93 11% 21 97
CF Industries Holdings, Inc. 47% 92            2,412      17,937.54 13% 8 100
Kellogg Company 62% 62            2,833      29,089.51 10% 40 102
Bed Bath & Beyond Inc. 48% 87            1,615      13,816.28 12% 17 104
Corus Entertainment Inc. 149% 12                221        2,940.00 8% 94 106
Laboratory Corp. of America Holdings 60% 65                991      11,095.31 9% 49 114
Microsoft Corporation 214% 6          27,886    384,356.66 7% 108 114
Pfizer Inc. 92% 27          16,366    211,955.78 8% 88 115
Jacobs Engineering Group Inc. 51% 78                669        6,744.39 10% 38 116
International Business Machines Corporation 61% 63          19,599    225,714.62 9% 53 116
Quest Diagnostics Inc. 74% 42            1,001      12,399.59 8% 74 116
Oracle Corporation 87% 32          14,983    192,252.41 8% 86 118
EZCORP, Inc. 40% 118                139            796.02 17% 3 121
Ross Stores Inc. 54% 73            1,343      15,761.52 9% 57 130
PetSmart, Inc. 45% 97                693        6,897.23 10% 36 133
United Technologies Corporation 56% 70            9,209    112,994.69 8% 70 140
General Mills, Inc. 68% 48            2,961      38,820.12 8% 93 141
Staples, Inc. 37% 136            1,242        8,455.79 15% 6 142
Lockheed Martin Corporation 69% 46            4,505      60,346.55 7% 96 142
National Oilwell Varco, Inc. 40% 117            3,423      32,178.61 11% 26 143
Jack Henry & Associates Inc. 107% 22                312        4,486.17 7% 121 143
Cisco Systems, Inc. 143% 15            9,763    142,613.54 7% 129 144
Raytheon Company 47% 93            2,938      33,669.84 9% 52 145
EMC Corporation 73% 43            4,374      59,394.42 7% 102 145
General Dynamics Corporation 47% 91            3,693      43,114.04 9% 56 147
Valmont Industries, Inc. 36% 137                473        3,806.99 12% 12 149
L-3 Communications Holdings Inc. 41% 109            1,258      13,135.45 10% 41 150
Hewlett-Packard Company 39% 122            8,143      78,126.43 10% 30 152
Time Warner Inc. 55% 72            6,605      83,547.25 8% 80 152
Dollar Tree, Inc. 48% 89                970      11,879.37 8% 67 156
The TJX Companies, Inc. 54% 75            3,351      42,396.87 8% 81 156
Fluor Corporation 36% 138            1,190      10,351.56 11% 19 157
Energizer Holdings Inc. 49% 84                740        9,185.79 8% 75 159
Crane Co. 50% 82                351        4,424.61 8% 79 161
Expeditors International of Washington Inc. 66% 55                561        7,671.23 7% 106 161
Metro 43% 101                602        7,265.00 8% 61 162
Capella Education Co. 43% 103                  60            724.50 8% 62 165
Eli Lilly and Company 49% 85            6,067      77,393.67 8% 83 168
Emerson Electric Co. 44% 100            3,942      48,337.05 8% 69 169
CVS Health Corporation 51% 79            8,037    104,435.52 8% 90 169
CI Financial 354% 2                601        9,880.00 6% 172 174
Whirlpool Corp. 37% 134            1,249      13,702.38 9% 46 180
McGraw Hill Financial, Inc. 148% 13            1,405      22,792.89 6% 169 182
Paychex, Inc. 108% 21                983      15,808.22 6% 166 187
Shaw Communications Inc. 39% 125            1,366      16,570.00 8% 63 188
Verizon Communications Inc. 29% 165          31,944    304,029.63 11% 27 192
Chevron Corporation 22% 189          39,505    246,646.12 16% 4 193
Exxon Mobil Corporation 23% 186          57,720    417,761.35 14% 7 193
The Clorox Company 66% 54                961      14,472.15 7% 140 194
Dolby Laboratories, Inc. 88% 29                245        3,934.71 6% 165 194
AT&T, Inc. 27% 176          30,479    265,337.49 11% 20 196
Altria Group Inc. 42% 107            8,084    104,827.40 8% 89 196
The Mosaic Company 23% 184            2,196      18,256.85 12% 14 198
The Jean Coutu Group 56% 71                302        4,370.00 7% 127 198
3M Company 49% 83            6,666      95,361.98 7% 118 201
Magna International Inc. 28% 169            2,049      20,348.52 10% 34 203
W.W. Grainger, Inc. 44% 99            1,297      17,722.32 7% 105 204
The J. M. Smucker Company 40% 113                929      12,171.09 8% 92 205
Johnson & Johnson 79% 37          18,957    305,354.07 6% 168 205
Cash America International, Inc. 20% 200                210        1,571.99 13% 9 209
Cummins Inc. 34% 146            2,133      25,912.58 8% 64 210
Toromont Industries 36% 139                174        2,140.00 8% 71 210
QUALCOMM Incorporated 83% 36            7,230    119,358.44 6% 174 210
ConocoPhillips 20% 201          15,058    112,854.27 13% 10 211
The Boeing Company 51% 80            6,562      96,562.88 7% 132 212
Visa Inc. 132% 17            7,239    126,075.76 6% 197 214
CGI Group, Inc. 132% 16                628      10,957.88 6% 198 214
CME Group Inc. 200% 8            1,637      29,359.62 6% 207 215
Church & Dwight Co. Inc. 65% 59                622        9,811.33 6% 157 216
IGM Financial 107% 23            1,073      18,440.00 6% 193 216
CH Robinson Worldwide Inc. 65% 58                674      10,689.14 6% 161 219
Anixter International Inc. 24% 181                344        3,507.89 10% 39 220
Fiserv, Inc. 193% 10            1,061      19,165.71 6% 210 220
ScanSource, Inc. 20% 204                109            946.77 12% 18 222
Rogers Communications Inc. 26% 178            3,011      32,562.78 9% 44 222
Fresenius Medical Care AG & Co. KGAA 39% 123            2,256      30,522.14 7% 100 223
NetApp, Inc. 75% 41                822      13,885.59 6% 182 223
Automatic Data Processing, Inc. 78% 38            2,225      37,729.76 6% 186 224
McDonald's Corp. 31% 160            8,764    107,167.89 8% 66 226
Panera Bread Company 42% 108                314        4,495.42 7% 119 227
Patterson Companies, Inc. 45% 98                345        5,043.59 7% 130 228

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