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GROWTH PORTFOLIO POSTS GAIN

By Gordon Pape, Editor and Publisher

It’s been a rough year for the markets, as even the most casual observer knows. All the major indexes are down year to date. That’s why I’m pleased to report our Growth Portfolio registered a gain in the latest six-month period. Not a big one, but any profit these days is welcome.

We created the IWB Growth Portfolio 10 years ago this month, in August 2012. It had an initial value of $10,000 and a target annual growth rate of 12%. Readers should keep in mind this is a high-risk portfolio, with 100% exposure to the equity markets. It’s not a place for cautious investors.

Here are the securities that make up the current portfolio, with an update on how they have performed since our last review in March. Prices are as of the close on Aug. 24.

iShares US Aerospace and Defense ETF (BSX: ITA). As the name suggests, this ETF invests in the US defense and aerospace industry. We added it to the portfolio in March, based on its long-term record of profitability and the heightened tension in Europe. The units lost a little ground during the market turbulence of the past few months, dropping $1.61. We received two distributions for a total of $0.438 per unit.

Alimentation Couche-Tard (TSX: ATD, OTC: ANCUF). Alimentation operates convenience stores in Canada, the US, and Europe. The stock was one of the few to gain ground during the sell-off in the first half of the year and is up $8.77 since our last review. The company pays a quarterly dividend of $0.11 a share.

WSP Global Inc. (TSX: WSP, OTC: WSPOF). Montreal based WSP is an international engineering and design firm. The stock has been a big winner for us but slumped in the latest six-month period, losing $9.87 a share. We received two dividends totaling $0.75 per share.

iShares North American Natural Resources ETF (BSX: IGE). This fund invests in energy, mining, and forestry companies based in North America. The units are up $0.47 since we added it to the portfolio in March. Frankly, I was expecting more given the strong showing of the oil and gas sector, but we’ll hold on to it for a little longer. We received two distributions for a total of $0.453.

Amazon.com (NDQ: AMZN). Amazon shares split 20-1 in the latest period, but the stock still lost ground in the broad tech sell-off. The good news is that it’s well off its 52-week low of $101.26. Amazon does not pay a dividend.

Apple Inc. (NDQ: AAPL). While the tech sector was selling off, Apple shares actually gained $9.35 (5.9%) in our six-month period. We received two dividends of $0.23 each.

Costco (NDQ: COST). Costco shares gained $11.87 since March. We received two dividends totaling $1.80 per share.

United Parcel Service (NYSE: UPS). This is the world’s largest package delivery company and is on the leading edge of new delivery technologies, especially in the healthcare sector. The shares lost a little ground in the latest period, dropping $3.66. We received two dividends of $1.52 each.

Cash. We received interest of $14.78 on our cash holdings at EQ Bank.

Here is how the portfolio stood at the close on Aug. 24. Commissions are not considered. The US and Canadian dollars are treated as being at par but obviously gains (or losses) on the American securities are increased due to the exchange rate differential.

IWB Growth Portfolio (a/o Aug. 24/22)

Symbol

Weight
%

Total
Shares

Average
Price

Book
Value

Current
Price

Market
Value

Retained
Distributions

Gain/
Loss
%
ITA

7.1

50

$107.42

$5,371.00

$105.81

$5,290.50

$21.90

=0.1
ATD

10.9

140

$8.32

$1,164.10

$58.02

$8,122.80

$261.19

+620.2
WSP

19.0

90

$27.00

$2,430.29

$157.54

$14,178.60

$331.61

+497.1
IGE

8.7

160

$40.05

$6,408.00

$40.52

$6,483.20

$72.48

+ 2.3
AMZN

7.2

40

$102.14

$4,085.52

$133.80

$5,352.00

0

+31.0
AAPL

17.9

80

$30.43

$2,434.07

$167.53

$13,402.40

$409.64

+467.4
COST

14.6

20

$344.27

$6,885.40

$543.22

$10,864.40

$327.20

+62.5
UPS

13.6

50

$118.45

$5,922.50

$203.04

$10,152.00

$631.00

+82.1
Cash

1.0

$727.81

$742.59

Total

100.0

$35,428.69

$74,588.49

$2,055.02

+116.3
Inception

$10,000.00

+666.4

Comments: Four of the securities in the portfolio were up during the period with the biggest gains coming from Alimentation Couche-Tard, Costco, and Apple. The major losers were WSP Global and Amazon.

The total value of the portfolio (market price plus retained distributions) now stands at $76,643.51. That’s a gain of 1.3% since the March review. Not a lot, but any profits are welcome at this time.

For the 10 years since this portfolio was launched, we have a cumulative return of 666.4%. That’s an average annual compound growth rate of 22.59%. That’s well ahead of our target.

Changes: We’ll stand pat for now. All our stocks are in sound companies with good growth potential. The two ETFs add diversification in sectors that should perform well in the current environment.

Our total cash is now $2,797.61. We will move the money to Duca Credit Union, which is offering a special promotion rate of 3.25% interest.

I will review the portfolio again in March.

Follow Gordon Pape on Twitter @GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney

 

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SIX LESSONS FROM THE TECH SELL-OFF

By Adam Mayers, Contributing Editor

Technology stocks were the stars of the stock market show for most of the first two pandemic years. But since the beginning of 2022, they have been in steady retreat.

Even after the summer rally, the Nasdaq Composite Index is down 21% year-to-date at the time of writing.  As Gordon Pape noted in last week’s issue, not even the heavyweights have been spared. Shares of Google’s parent Alphabet (NDQ: GOOG) are off 21% year-to-date, adjusted for its recent split. Stumbling Meta Platforms, (NDQ: FB), the renamed Facebook, is down 52%. Shopify, Canada’s answer to Amazon, (TSX, NDQ: SHOP) has performed even more poorly and is down 76% post-split. Amazon, (NDQ: AMZN) is off 20% post-split.

Investors may be wondering if the worst is over, or if there’s more to come as we start seeing third quarter earnings. They got going in earnest last week with the big Canadian banks reporting. Although there is plenty of opinion on both sides of the argument, the consensus seems to be there’s more selling pressure to come. Interest rates will rise further this fall – though likely at a slower rate. Inflation will stay high, though perhaps it has peaked. Consumer confidence remains weak.

The optimists see a sustained rally starting just before Christmas. The pessimists envisage a slow grind through the winter.

Nobody can predict the future, though many claim they can. How long or deep this setback will be can only be known in hindsight, so here are some things to keep in mind as we muddle through the near term.

Quality always wins. Companies that sell things we need, rather than things we want, do well in all conditions. These are the products and services that are noticed if they go missing. Microsoft, Google, and Amazon tick that box.

These companies have brand and pricing power and can pass on inflationary costs. They have experienced many expansions and recessions and have the resources to expand and acquire competitors at times like these. Microsoft’s US$67 billion takeover offer for Activision Blizzard Inc. (NDQ: ATVI) to bolster its Xbox gaming segment is an example. Amazon closed an $8.5 billion acquisition of MGM Holdings in March, which gives it Metro-Goldwyn-Mayer’s film library for its Prime streaming service.

These companies also have money for research and development to maintain their dominance. R&D is a hidden asset that leads to new products. Microsoft will spend US$24.5 billion this year on R&D, or 12% of revenues. Amazon will spend $62.6 billion, or 13% of revenues. IBM will spend $3.6 billion, or 6% of revenue.

Markets overreact both ways. Zoom Video Communications (NDQ: ZM) had a price earnings ratio of 1,790 ahead of its earnings two years ago in August 2020. Its shares were trading at US$370. Between then and now, revenue rose 558% to $4.1 billion in its latest trailing 12 months. Net income rose from $25 million to $1.3 billion.

Zoom is eminently more valuable and profitable today than two years ago, yet worth far less on paper. Its p/e ratio has fallen to 21 and the $81 share price is 78% lower. This sort of repricing offers opportunities.

Patience, patience, patience. Investing success relies on a tolerance for risk as conditions change, diversification by sector and geography, and sticking to a plan. The economy goes up and down, as do share prices, but over the long run studies show investment in large cap US stocks has an average annual return of between 7% and 9%.

When things seem worst, the worst may be over.  Sadiq Adatia, chief investment officer at BMO Global Asset Management in Toronto, said recently he sees the current market uptick as a bear rally because what’s missing is capitulation by small investors. When they throw in the towel and sentiment is at its worst, it usually signals a bottom. Thereafter, irrational pessimism can quickly give way to irrational exuberance.

Be realistic. Many of the pandemic highflyers are not going to regain their highs soon. Greg Taylor, chief investment officer at Purpose Investments Inc. in Toronto, noted recently that during the pandemic companies were seeing revenues grow by 50% a year as they pulled normal growth forward.  “That’s not sustainable,” he said.

He added that the best of the bunch will continue to succeed.  Zoom, for example, has a good business model and “has become an essential tool for so many people. It’s just got to figure out a way to keep growing.”

Stick to the plan. The strategic plan is a decision-making anchor that helps put day-to-day noise in perspective. These goals, developed with your advisor, will determine your asset mix, the need for growth versus income and tolerance for risk.

Jack Bogle, who founded the Vanguard family of funds, called ‘The Plan’ the way to “Buy right and hold tight.”

Adam Mayers is a contributor to The Globe & Mail’s Report on Business and a former investing columnist at The Toronto Star. His website is adammayers.com. adammayers.comHe lives in the greater Toronto area.

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TWO TECH WINNERS AND A LOSER

By Adam Mayers

Amid the sell-off in technology stocks, some companies have emerged from the crash even stronger.

Their core businesses have benefitted from work-from-home trends and the technology needed to facilitate that. They have taken advantage of conditions to acquire competitors and strengthen their businesses.

Others are being overwhelmed by negative sentiment even though their longer-term prospects may be bright. With rates and inflation rising, growth stocks with long horizons to profitability are out of favour.

Here are updates on three companies with different prospects.

Microsoft (NDQ: MSFT) 

Originally recommended on Apr. 9/18 (#21815) at $90.77. Trading Friday at $271.26. (All figures in US dollars.)

Background: Microsoft is the world’s largest software company. It’s best known for its Windows operating system, which runs about 90% of the world’s personal computers. Microsoft also owns LinkedIn, Skype, and markets the Xbox gaming system.

Performance: The shares are down 18% year-to-date amid the general tech retreat but almost 200% higher since being recommended.

Recent developments: Microsoft reported strong fourth quarter earnings, led by its Azure cloud business, and sees double digit revenue growth for the year.

For the three months ended June 30, revenue was $51.9 billion, 12% higher than a year earlier. Net income rose to $16.7 billion, or $2.23 per share, a 2% increase.

Regulators continue to examine Microsoft’s $68.7 billion offer for video game developer Activision Blizzard. The gaming component of Microsoft’s business is almost 11% of revenue and would grow considerably with the acquisition, bolstering its position.

Subsequent to its earnings release, Microsoft announced a round of belt tightening, saying it will shrink its workforce by 1% in the coming year. That is 18,000 people out of a total of 180,000.

Dividend: Microsoft’s dividend was increased in November 2021 to $0.62 per share quarterly. It yields 0.9% at current prices.

Outlook: Microsoft continues to benefit from its strategic shift to cloud computing which offers companies a way to store and access information remotely.

Action now: Buy.

IBM (NYSE: IBM)

Originally recommended on Jan.14/2019 (#21902) at $121.46. Trading Friday at $131.02. (All figures in US dollars.)

Background: International Business Machines is one of the world’s largest technology companies. It gets 60% of its revenue outside of the US and competes with Microsoft in cloud computing and data analytics.

Performance: IBM’s shares are down about 2% year-to-date. The shares are 7.9% higher since being recommended.

Recent developments: IBM performance beat expectations in its latest quarter, but as with Microsoft, it warned that a strong US dollar is impacting its profitability. However, despite a weakening economy, it does not see customers cutting back on spending.

IBM said on a conference call the strengthening dollar shaved $900 million from quarterly revenue, and costs associated with closing its Russia operations will affect near-term results.
Even so, it expects single-digit revenue growth for the year.

Strong demand at its consulting and infrastructure businesses and cloud business helped quarterly revenue rise 9% to $15.54 billion. Excluding extraordinary items, earnings rose 44.6%, to $2.11 billion.

Dividend: IBM has increased its dividend for 25 years in a row. The quarterly payment rose 1 cent to $1.63 in April. The stock yields a high 5%, but the dividend seems secure.

Outlook: IBM continues to gain from a restructuring, which is now in its fourth year. The company has shed older, low growth services and taken aim at higher-margin areas like the cloud, AI, and security.

Action now: Buy.

Babylon Holdings Ltd. (NDQ: BBLN)

Originally recommended on Dec. 1/2021 (#22143) at $6.93. Trading Friday at $0.682. (All figures in US dollars.)

Background: Babylon is a UK-based telehealth company which is a pioneer in the field. Founded in 2013, it offers services that connect doctors, patients, and pharmacists via their phones or computers and sells software that helps medical offices with records and bookings management.

Babylon operates in 15 countries with partners that include the British National Health Service and Telus Corp. in Canada.

Performance: The stock is down 88% year-to-date and is 90% below its recommended price in December.

Recent developments: Babylon reported second quarter revenue of $265 million on Aug. 9, almost five times greater than the same period in 2021. Its $157.1 million loss compares with $69 million, a year ago. As a percentage of revenue, the loss fell by more than half as it adds clients and gets synergies from investments in technology platforms.

Babylon reiterated its forecast that revenue will hit $1 billion this year, three times greater than 2021. Losses as a percentage of revenue will continue to fall. It reiterated its forecast of profitability by 2025.

Discussion: Babylon’s share price collapse has been extreme even though its message since the IPO is unchanged. CEO Ali Parsa said in a conference call that its unfortunate timing for an IPO in November, its use of a SPAC to do so, and the unforgiving climate for growth stocks since has been a perfect storm.

Mr. Parsa said the anti-SPAC backlash has been acute. SPACs are shell companies, set up with the sole purpose of raising money more cheaply through an initial public offering (IPO). Post-IPO many SPACs have missed revenue and profit projections and been accused of a lack of transparency. Mr. Parsa said Babylon has met its targets and been transparent in its dealings.

Mr. Parsa said Babylon has “implemented a series of decisive measures to accelerate our path to profitability. We think that incrementally the market will start to see the true underlying value of our business.”

A week after its earnings report, Babylon’s stock was halted on rumours it is in talks to be acquired and is considering taking itself private. The company denied the rumour.

Outlook: IPOs are always risky, though Babylon seemed to be a good bet. It has been in business for more than a decade. It is a telehealth pioneer, just as this form of medical care is taking off. It has a proven technology platform and a list of partners including Microsoft, Telus, and Palantir Technologies. Its message has been consistent. Yet, for now, the market doesn’t see that, and the market is always right.

Action now: Hold if you own it but avoid new buying.

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TRANSPORT STOCKS REBOUND

By Gordon Pape

Transportation stocks seem to fly below the radar of most investors. But right now, it’s one of the better performing sectors in the market.

After getting off to a weak start in 2022, transportation stocks have staged a strong recovery. The Dow Jones Transportation Average (DJTA) has gained 11.69% in the current quarter (to Aug. 25). Looking back a decade, the DJTA has posted gains in eight out of 10 years. Seven of those were double-digit advances.

The index is made up of 20 companies, including railroads, air lines, trucking firms, car rental firms, and delivery services.

The DJTA is closely watched by many analysts as an indicator of economic direction. The fact it is currently rising is positive news and supports the view that we may avoid a recession.

We have several transportation firms on our recommended list. Here are updates on two of them, both trucking companies. TFI International is a Canadian company, based in Montreal. J.D. Hunt Transport is based in Arkansas and is included in the DJTA.

TFI International Inc. (TSX, NYSE: TFII)

Originally recommended by Tom Slee on June 11/12 (#21220) at C$17.49, US$17.06. Trading Friday at C$139.32, US$106.85.

Background: This Montreal-based company is a North American leader in the transportation and logistics industry. It operates across Canada, the United States, and Mexico, offering package and courier service, truckload and less than truckload haulage, logistics, and other services.

Performance: After a big drop in mid-June, when the price fell all the way to $93.63, the shares have staged a strong recovery. We are up 697% since the original recommendation.

Recent developments: On Aug. 22, TFI announced that it is selling its Truckload, Temp Control, and Mexican non-asset logistics businesses to Heartland Express for US$525 million.

CEO Alain Bedard said “the decision to sell was reached following a thorough evaluation of our portfolio, and aligns perfectly with our longstanding focus on driving cash flow and ROIC…This transaction will reduce our capital intensity, with some of the proceeds used to pay down debt in the near term and over time redeployed with the objective of generating higher returns.”

RBC Capital analysts Walter Spracklin and James McGarragle said the sale clears the way for an expected major acquisition by TFI in 2023.

“We continue to view M&A as a key catalyst for the shares and believe today’s announcement increases the likelihood of a deal in the next 12-18 months,” they wrote in a note to clients. The target price for the stock was raised to US$115, from US$112.

Earlier, TFI released second quarter results that showed significant year-over-year improvement. Revenue for the quarter came in at $2.4 billion compared to $1.8 billion last year. For the first six months of the 2022 fiscal year, revenue was $4.6 billion, compared to just under $3 billion a year ago. Note that the company reports in US dollars.

Adjusted net income for the quarter was $241.1 million ($2.61 per diluted share. That compares with $137.2 million ($1.44 per share) in the same period of 2021. First half adjusted income was $398.7 million ($4.28 a share), compared to $210.9 million ($2.21 per share) the year before.

Dividend: The stock pays a quarterly dividend of US$0.27 per share (US$1.08 per year) to yield 1%.

Outlook: The company is generating impressive results and, with the recently announced sale, appears to be positioning itself for a major acquisition.

Action now: Buy.

J.B. Hunt Transport (NDQ: JBHT)

Originally recommended by Gordon Pape on April 6/20 (#22014) at $89.76. Trading Friday at $183.73. (All currency figures in US dollars.)

Background: This company is in the freight transportation business, providing truckload, intermodal, and contract carriage facilities to customers across a diverse set of industries in the U.S., Canada, and Mexico. It specializes in handling imports through its “shore to door” service. Major customers include the Burlington Northern and Norfolk Southern railways.

Performance: The stock hit a 52-week low of $153.92 in mid-June but has since recovered well.

Recent developments: Like TFI, this Arkansas-based transport company is also enjoying a good year. Total operating revenue for the second quarter was $3.84 billion, compared with $2.91 billion the year before, an increase of almost 32%. All the company’s operating units reported strong growth.

Operating income was $353.1 million, a gain of 46% from $241.5 million last year. Net earnings were $255.3 million ($2.42 per diluted share), up from $172.2 million ($1.61 per share) in the same quarter of 2021.

Acquisition: Earlier this year, the company announced it had purchased Zenith Freight Lines from Basset Furniture Industries for a price of $87 million.

“This investment enhances J.B. Hunt’s furniture delivery capabilities by expanding our nationwide, end-to-end supply chain solution for our customers, and we look forward to establishing a long-term connection with Bassett, a manufacturer and retailer of high-quality home furnishings and a leader in the industry,” said CEO John Roberts.

Dividend: The quarterly dividend was increased by one-third in February to $0.40 ($1.60 per year). The shares yield 0.9% at the current price.

The company is also buying back stock. In the second quarter, it purchased about 979,000 shares for a cost of $164 million.

Outlook: Trucking companies are delivering strong profits right now.

Action now: Buy.

One last note. While these companies are performing well right now, they will be vulnerable if we do slip into a recession. Be guided accordingly.

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GAVIN GRAHAM’S UPDATES

Cameco Corp (TSX: CCO; NYSE: CCJ)

Originally recommended on Nov 8/21 (#22140) at C$33.63, US$27.00. Trading Friday at C$34.53, US$26.50.

Background: Saskatoon headquartered Cameco is one of the world’s largest uranium producers, with major mines in Saskatchewan and refineries in Ontario. Its flagship McArthur mine used to produce over 50% of its output but has been mothballed for the last four years while Cameco sourced uranium on the spot market. McArthur is now being reactivated while the Cigar Lake mine, which was closed for the first four months of 2021 due to COVID-19, at a cost of $8-10 million, has been working at full capacity this year.

Performance: Having risen as high as $41 shortly after the invasion of Ukraine in April, the stock subsequently sold off. However, it’s still above our initial recommended price.

Recent developments: As the world comes to realize the importance of secure baseload power not dependent on weather or the benevolence of autocratic regimes, nuclear power has become more attractive to many governments. The most recent example is Japan’s decision to reverse its policy on atomic energy, with Prime Minister Fumio Kishida ordering the development and construction of next-generation nuclear power plants.

As demand for uranium has increased, Cameco has signed contracts for an additional 45 million pounds of uranium oxide this year.

For the six months ended June 30, its revenue rose 47% to $956 million. Adjusted net earnings were $89 million ($0.22 per share) compared to a loss of $67 million in the prior year.

Cameco delivered 7.6 million pounds in the second quarter at a price 41% higher than the previous year. Cameco’s share of Cigar Lake’s 18 million pounds of production in 2022 will total 11 million pounds. This is a result of the company raising its holding to 54.55% by buying Idemitsu’s 7.875% stake in the mine.

Cameco has cash reserves of $1.4 billion with $997 million in debt, so has a net cash position.

Dividend: Cameco pays a small annual dividend. This year’s payment will be $0.12 a share, due Dec. 15. The yield is 0.03%.

Action now: With McArthur River coming back on stream this year, the increased stake in Cigar Lake, and rising prices for uranium, Cameco is well positioned to benefit from the growth in nuclear power generation. Buy now.

Empire Company (TSX: EMP.A; OTC: EMLAF)

Originally recommended on Jan. 18/16 (#21603) at C$24.32, US$17.77. Trading Friday at C$38.48, US$30.11.

Background: Nova Scotia based Empire Company is the parent company of the Sobey’s and Safeway supermarket chains. It also owns FreshCo, IGS, Thrifty’s, Farm Boy, and the Lawton Drug Stores chain. It purchased 51% of the Ontario based high end grocery chain Longo’s in 2021 for $357 million and owns 41.5% of Crombie REIT, which controls many of its supermarket sites. It owns 1,500 stores and 350 gas stations in 10 provinces and employs 125,000 employees.

Performance: Empire, like other food retailers has benefited from the changes in consumer behaviour brought about by COVID-19. Under the leadership of ex Canadian Tire CEO Michael Medline, it has turned around the mishandled Safeway acquisition. The stock is up 70% from the initial recommendation six years ago, although it’s flat from the last update a year ago.

Recent developments: Empire reported net earnings of $745.8 million ($2.80 per share) for the fiscal year ended May 7. That was up 6.3% from $701.3 million ($2.60 per share). Revenues were up 6.7% to $30.2 billion, although this year included an extra week.

Same store sales, excluding gas, actually fell 2.1%, reflecting the effect of higher prices causing customers to trade down or defer purchases.

Discussing the annual results Michael Medline said: “We’ve gone through another intense period with copious cost increases being brought forward in a short time and have managed through it well with the help of our supplier partners.” He went on to say: “We’re cognizant that customers simply won’t, and often cannot, accept cost increases at some of the extreme levels we’re seeing.” He noted customers are visiting its discount FreshCo brand more often, buying own label products, and switching to chicken from beef.

The Project Horizon cost improvement program, now in its third year, aims to add $500 million to earnings before interest, tax, depreciation & amortization. It is on track, helped by the Voila e-commerce rollout in Toronto, Montreal, and Calgary. The plan reduced earnings by $0.15-$0.20 in 2021-2022 but should be a positive contributor going forward.

Dividend: Empire raised its dividend by 10% to $0.165 a quarter, giving it a yield equivalent to 1.7%.

Action now: Empire has substantially outperformed the S&P/TSX Composite Index over the last five years and should continue to enjoy growth in revenues and earnings due its geographic expansion, transformation of Safeways to FreshCo in western Canada, e-commerce initiatives, and the success of Project Horizon. Buy now.

Winpak Ltd (TSX: WPK, OTC: WIPKF)

Originally recommended on Aug 9/21 (#22129) at C$41.08, US$32.30. Trading Friday at C$42.75, US$33.16.

Background: Winpak is a Manitoba based manufacturer of packaging and packaging machinery. Its products are mainly used in food and beverage and healthcare applications. Its modified atmosphere packaging is used to extend the shelf life of perishable goods such as meats, poultry, and cheeses as well as healthcare products. The majority of its sales are in North America.

Performance: Having drifted down to the mid-$30s after the initial recommendation last August, the stock has rebounded strongly this year on the back of a strong operating performance. It’s up 10% from a year ago and over 20% from its lows.

Recent developments: Revenue in the second quarter (to June 30) rose 27% to $310.3 million (the company reports in US dollars). EBITDA was up 18% to $58.7 million and net income gained by the same percentage to $34.1 million ($0.52 per share).

The smaller rise in earnings compared to revenue reflected delay in passing on cost increases in raw materials and input, but the company was confident revenues would keep growing at the same pace for the remainder of the year. Winpak has net cash on its balance sheet.

Dividend: Winpak pays a nominal dividend of $0.03 a quarter, equivalent to a yield of 0.29%. But the company pays occasional special dividends, such as $3 a share in June 2021.

Action now: Winpak has proven itself able to pass on rising raw material and input costs to customers and is enjoying strong revenue growth even after taking inflation into account. It remains a Buy.

 

In This Issue:

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GROWTH PORTFOLIO POSTS GAIN

By Gordon Pape, Editor and Publisher

It’s been a rough year for the markets, as even the most casual observer knows. All the major indexes are down year to date. That’s why I’m pleased to report our Growth Portfolio registered a gain in the latest six-month period. Not a big one, but any profit these days is welcome.

We created the IWB Growth Portfolio 10 years ago this month, in August 2012. It had an initial value of $10,000 and a target annual growth rate of 12%. Readers should keep in mind this is a high-risk portfolio, with 100% exposure to the equity markets. It’s not a place for cautious investors.

Here are the securities that make up the current portfolio, with an update on how they have performed since our last review in March. Prices are as of the close on Aug. 24.

iShares US Aerospace and Defense ETF (BSX: ITA). As the name suggests, this ETF invests in the US defense and aerospace industry. We added it to the portfolio in March, based on its long-term record of profitability and the heightened tension in Europe. The units lost a little ground during the market turbulence of the past few months, dropping $1.61. We received two distributions for a total of $0.438 per unit.

Alimentation Couche-Tard (TSX: ATD, OTC: ANCUF). Alimentation operates convenience stores in Canada, the US, and Europe. The stock was one of the few to gain ground during the sell-off in the first half of the year and is up $8.77 since our last review. The company pays a quarterly dividend of $0.11 a share.

WSP Global Inc. (TSX: WSP, OTC: WSPOF). Montreal based WSP is an international engineering and design firm. The stock has been a big winner for us but slumped in the latest six-month period, losing $9.87 a share. We received two dividends totaling $0.75 per share.

iShares North American Natural Resources ETF (BSX: IGE). This fund invests in energy, mining, and forestry companies based in North America. The units are up $0.47 since we added it to the portfolio in March. Frankly, I was expecting more given the strong showing of the oil and gas sector, but we’ll hold on to it for a little longer. We received two distributions for a total of $0.453.

Amazon.com (NDQ: AMZN). Amazon shares split 20-1 in the latest period, but the stock still lost ground in the broad tech sell-off. The good news is that it’s well off its 52-week low of $101.26. Amazon does not pay a dividend.

Apple Inc. (NDQ: AAPL). While the tech sector was selling off, Apple shares actually gained $9.35 (5.9%) in our six-month period. We received two dividends of $0.23 each.

Costco (NDQ: COST). Costco shares gained $11.87 since March. We received two dividends totaling $1.80 per share.

United Parcel Service (NYSE: UPS). This is the world’s largest package delivery company and is on the leading edge of new delivery technologies, especially in the healthcare sector. The shares lost a little ground in the latest period, dropping $3.66. We received two dividends of $1.52 each.

Cash. We received interest of $14.78 on our cash holdings at EQ Bank.

Here is how the portfolio stood at the close on Aug. 24. Commissions are not considered. The US and Canadian dollars are treated as being at par but obviously gains (or losses) on the American securities are increased due to the exchange rate differential.

IWB Growth Portfolio (a/o Aug. 24/22)

Symbol

Weight
%

Total
Shares

Average
Price

Book
Value

Current
Price

Market
Value

Retained
Distributions

Gain/
Loss
%
ITA

7.1

50

$107.42

$5,371.00

$105.81

$5,290.50

$21.90

=0.1
ATD

10.9

140

$8.32

$1,164.10

$58.02

$8,122.80

$261.19

+620.2
WSP

19.0

90

$27.00

$2,430.29

$157.54

$14,178.60

$331.61

+497.1
IGE

8.7

160

$40.05

$6,408.00

$40.52

$6,483.20

$72.48

+ 2.3
AMZN

7.2

40

$102.14

$4,085.52

$133.80

$5,352.00

0

+31.0
AAPL

17.9

80

$30.43

$2,434.07

$167.53

$13,402.40

$409.64

+467.4
COST

14.6

20

$344.27

$6,885.40

$543.22

$10,864.40

$327.20

+62.5
UPS

13.6

50

$118.45

$5,922.50

$203.04

$10,152.00

$631.00

+82.1
Cash

1.0

$727.81

$742.59

Total

100.0

$35,428.69

$74,588.49

$2,055.02

+116.3
Inception

$10,000.00

+666.4

Comments: Four of the securities in the portfolio were up during the period with the biggest gains coming from Alimentation Couche-Tard, Costco, and Apple. The major losers were WSP Global and Amazon.

The total value of the portfolio (market price plus retained distributions) now stands at $76,643.51. That’s a gain of 1.3% since the March review. Not a lot, but any profits are welcome at this time.

For the 10 years since this portfolio was launched, we have a cumulative return of 666.4%. That’s an average annual compound growth rate of 22.59%. That’s well ahead of our target.

Changes: We’ll stand pat for now. All our stocks are in sound companies with good growth potential. The two ETFs add diversification in sectors that should perform well in the current environment.

Our total cash is now $2,797.61. We will move the money to Duca Credit Union, which is offering a special promotion rate of 3.25% interest.

I will review the portfolio again in March.

Follow Gordon Pape on Twitter @GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney

 

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SIX LESSONS FROM THE TECH SELL-OFF

By Adam Mayers, Contributing Editor

Technology stocks were the stars of the stock market show for most of the first two pandemic years. But since the beginning of 2022, they have been in steady retreat.

Even after the summer rally, the Nasdaq Composite Index is down 21% year-to-date at the time of writing.  As Gordon Pape noted in last week’s issue, not even the heavyweights have been spared. Shares of Google’s parent Alphabet (NDQ: GOOG) are off 21% year-to-date, adjusted for its recent split. Stumbling Meta Platforms, (NDQ: FB), the renamed Facebook, is down 52%. Shopify, Canada’s answer to Amazon, (TSX, NDQ: SHOP) has performed even more poorly and is down 76% post-split. Amazon, (NDQ: AMZN) is off 20% post-split.

Investors may be wondering if the worst is over, or if there’s more to come as we start seeing third quarter earnings. They got going in earnest last week with the big Canadian banks reporting. Although there is plenty of opinion on both sides of the argument, the consensus seems to be there’s more selling pressure to come. Interest rates will rise further this fall – though likely at a slower rate. Inflation will stay high, though perhaps it has peaked. Consumer confidence remains weak.

The optimists see a sustained rally starting just before Christmas. The pessimists envisage a slow grind through the winter.

Nobody can predict the future, though many claim they can. How long or deep this setback will be can only be known in hindsight, so here are some things to keep in mind as we muddle through the near term.

Quality always wins. Companies that sell things we need, rather than things we want, do well in all conditions. These are the products and services that are noticed if they go missing. Microsoft, Google, and Amazon tick that box.

These companies have brand and pricing power and can pass on inflationary costs. They have experienced many expansions and recessions and have the resources to expand and acquire competitors at times like these. Microsoft’s US$67 billion takeover offer for Activision Blizzard Inc. (NDQ: ATVI) to bolster its Xbox gaming segment is an example. Amazon closed an $8.5 billion acquisition of MGM Holdings in March, which gives it Metro-Goldwyn-Mayer’s film library for its Prime streaming service.

These companies also have money for research and development to maintain their dominance. R&D is a hidden asset that leads to new products. Microsoft will spend US$24.5 billion this year on R&D, or 12% of revenues. Amazon will spend $62.6 billion, or 13% of revenues. IBM will spend $3.6 billion, or 6% of revenue.

Markets overreact both ways. Zoom Video Communications (NDQ: ZM) had a price earnings ratio of 1,790 ahead of its earnings two years ago in August 2020. Its shares were trading at US$370. Between then and now, revenue rose 558% to $4.1 billion in its latest trailing 12 months. Net income rose from $25 million to $1.3 billion.

Zoom is eminently more valuable and profitable today than two years ago, yet worth far less on paper. Its p/e ratio has fallen to 21 and the $81 share price is 78% lower. This sort of repricing offers opportunities.

Patience, patience, patience. Investing success relies on a tolerance for risk as conditions change, diversification by sector and geography, and sticking to a plan. The economy goes up and down, as do share prices, but over the long run studies show investment in large cap US stocks has an average annual return of between 7% and 9%.

When things seem worst, the worst may be over.  Sadiq Adatia, chief investment officer at BMO Global Asset Management in Toronto, said recently he sees the current market uptick as a bear rally because what’s missing is capitulation by small investors. When they throw in the towel and sentiment is at its worst, it usually signals a bottom. Thereafter, irrational pessimism can quickly give way to irrational exuberance.

Be realistic. Many of the pandemic highflyers are not going to regain their highs soon. Greg Taylor, chief investment officer at Purpose Investments Inc. in Toronto, noted recently that during the pandemic companies were seeing revenues grow by 50% a year as they pulled normal growth forward.  “That’s not sustainable,” he said.

He added that the best of the bunch will continue to succeed.  Zoom, for example, has a good business model and “has become an essential tool for so many people. It’s just got to figure out a way to keep growing.”

Stick to the plan. The strategic plan is a decision-making anchor that helps put day-to-day noise in perspective. These goals, developed with your advisor, will determine your asset mix, the need for growth versus income and tolerance for risk.

Jack Bogle, who founded the Vanguard family of funds, called ‘The Plan’ the way to “Buy right and hold tight.”

Adam Mayers is a contributor to The Globe & Mail’s Report on Business and a former investing columnist at The Toronto Star. His website is adammayers.com. adammayers.comHe lives in the greater Toronto area.

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TWO TECH WINNERS AND A LOSER

By Adam Mayers

Amid the sell-off in technology stocks, some companies have emerged from the crash even stronger.

Their core businesses have benefitted from work-from-home trends and the technology needed to facilitate that. They have taken advantage of conditions to acquire competitors and strengthen their businesses.

Others are being overwhelmed by negative sentiment even though their longer-term prospects may be bright. With rates and inflation rising, growth stocks with long horizons to profitability are out of favour.

Here are updates on three companies with different prospects.

Microsoft (NDQ: MSFT) 

Originally recommended on Apr. 9/18 (#21815) at $90.77. Trading Friday at $271.26. (All figures in US dollars.)

Background: Microsoft is the world’s largest software company. It’s best known for its Windows operating system, which runs about 90% of the world’s personal computers. Microsoft also owns LinkedIn, Skype, and markets the Xbox gaming system.

Performance: The shares are down 18% year-to-date amid the general tech retreat but almost 200% higher since being recommended.

Recent developments: Microsoft reported strong fourth quarter earnings, led by its Azure cloud business, and sees double digit revenue growth for the year.

For the three months ended June 30, revenue was $51.9 billion, 12% higher than a year earlier. Net income rose to $16.7 billion, or $2.23 per share, a 2% increase.

Regulators continue to examine Microsoft’s $68.7 billion offer for video game developer Activision Blizzard. The gaming component of Microsoft’s business is almost 11% of revenue and would grow considerably with the acquisition, bolstering its position.

Subsequent to its earnings release, Microsoft announced a round of belt tightening, saying it will shrink its workforce by 1% in the coming year. That is 18,000 people out of a total of 180,000.

Dividend: Microsoft’s dividend was increased in November 2021 to $0.62 per share quarterly. It yields 0.9% at current prices.

Outlook: Microsoft continues to benefit from its strategic shift to cloud computing which offers companies a way to store and access information remotely.

Action now: Buy.

IBM (NYSE: IBM)

Originally recommended on Jan.14/2019 (#21902) at $121.46. Trading Friday at $131.02. (All figures in US dollars.)

Background: International Business Machines is one of the world’s largest technology companies. It gets 60% of its revenue outside of the US and competes with Microsoft in cloud computing and data analytics.

Performance: IBM’s shares are down about 2% year-to-date. The shares are 7.9% higher since being recommended.

Recent developments: IBM performance beat expectations in its latest quarter, but as with Microsoft, it warned that a strong US dollar is impacting its profitability. However, despite a weakening economy, it does not see customers cutting back on spending.

IBM said on a conference call the strengthening dollar shaved $900 million from quarterly revenue, and costs associated with closing its Russia operations will affect near-term results.
Even so, it expects single-digit revenue growth for the year.

Strong demand at its consulting and infrastructure businesses and cloud business helped quarterly revenue rise 9% to $15.54 billion. Excluding extraordinary items, earnings rose 44.6%, to $2.11 billion.

Dividend: IBM has increased its dividend for 25 years in a row. The quarterly payment rose 1 cent to $1.63 in April. The stock yields a high 5%, but the dividend seems secure.

Outlook: IBM continues to gain from a restructuring, which is now in its fourth year. The company has shed older, low growth services and taken aim at higher-margin areas like the cloud, AI, and security.

Action now: Buy.

Babylon Holdings Ltd. (NDQ: BBLN)

Originally recommended on Dec. 1/2021 (#22143) at $6.93. Trading Friday at $0.682. (All figures in US dollars.)

Background: Babylon is a UK-based telehealth company which is a pioneer in the field. Founded in 2013, it offers services that connect doctors, patients, and pharmacists via their phones or computers and sells software that helps medical offices with records and bookings management.

Babylon operates in 15 countries with partners that include the British National Health Service and Telus Corp. in Canada.

Performance: The stock is down 88% year-to-date and is 90% below its recommended price in December.

Recent developments: Babylon reported second quarter revenue of $265 million on Aug. 9, almost five times greater than the same period in 2021. Its $157.1 million loss compares with $69 million, a year ago. As a percentage of revenue, the loss fell by more than half as it adds clients and gets synergies from investments in technology platforms.

Babylon reiterated its forecast that revenue will hit $1 billion this year, three times greater than 2021. Losses as a percentage of revenue will continue to fall. It reiterated its forecast of profitability by 2025.

Discussion: Babylon’s share price collapse has been extreme even though its message since the IPO is unchanged. CEO Ali Parsa said in a conference call that its unfortunate timing for an IPO in November, its use of a SPAC to do so, and the unforgiving climate for growth stocks since has been a perfect storm.

Mr. Parsa said the anti-SPAC backlash has been acute. SPACs are shell companies, set up with the sole purpose of raising money more cheaply through an initial public offering (IPO). Post-IPO many SPACs have missed revenue and profit projections and been accused of a lack of transparency. Mr. Parsa said Babylon has met its targets and been transparent in its dealings.

Mr. Parsa said Babylon has “implemented a series of decisive measures to accelerate our path to profitability. We think that incrementally the market will start to see the true underlying value of our business.”

A week after its earnings report, Babylon’s stock was halted on rumours it is in talks to be acquired and is considering taking itself private. The company denied the rumour.

Outlook: IPOs are always risky, though Babylon seemed to be a good bet. It has been in business for more than a decade. It is a telehealth pioneer, just as this form of medical care is taking off. It has a proven technology platform and a list of partners including Microsoft, Telus, and Palantir Technologies. Its message has been consistent. Yet, for now, the market doesn’t see that, and the market is always right.

Action now: Hold if you own it but avoid new buying.

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TRANSPORT STOCKS REBOUND

By Gordon Pape

Transportation stocks seem to fly below the radar of most investors. But right now, it’s one of the better performing sectors in the market.

After getting off to a weak start in 2022, transportation stocks have staged a strong recovery. The Dow Jones Transportation Average (DJTA) has gained 11.69% in the current quarter (to Aug. 25). Looking back a decade, the DJTA has posted gains in eight out of 10 years. Seven of those were double-digit advances.

The index is made up of 20 companies, including railroads, air lines, trucking firms, car rental firms, and delivery services.

The DJTA is closely watched by many analysts as an indicator of economic direction. The fact it is currently rising is positive news and supports the view that we may avoid a recession.

We have several transportation firms on our recommended list. Here are updates on two of them, both trucking companies. TFI International is a Canadian company, based in Montreal. J.D. Hunt Transport is based in Arkansas and is included in the DJTA.

TFI International Inc. (TSX, NYSE: TFII)

Originally recommended by Tom Slee on June 11/12 (#21220) at C$17.49, US$17.06. Trading Friday at C$139.32, US$106.85.

Background: This Montreal-based company is a North American leader in the transportation and logistics industry. It operates across Canada, the United States, and Mexico, offering package and courier service, truckload and less than truckload haulage, logistics, and other services.

Performance: After a big drop in mid-June, when the price fell all the way to $93.63, the shares have staged a strong recovery. We are up 697% since the original recommendation.

Recent developments: On Aug. 22, TFI announced that it is selling its Truckload, Temp Control, and Mexican non-asset logistics businesses to Heartland Express for US$525 million.

CEO Alain Bedard said “the decision to sell was reached following a thorough evaluation of our portfolio, and aligns perfectly with our longstanding focus on driving cash flow and ROIC…This transaction will reduce our capital intensity, with some of the proceeds used to pay down debt in the near term and over time redeployed with the objective of generating higher returns.”

RBC Capital analysts Walter Spracklin and James McGarragle said the sale clears the way for an expected major acquisition by TFI in 2023.

“We continue to view M&A as a key catalyst for the shares and believe today’s announcement increases the likelihood of a deal in the next 12-18 months,” they wrote in a note to clients. The target price for the stock was raised to US$115, from US$112.

Earlier, TFI released second quarter results that showed significant year-over-year improvement. Revenue for the quarter came in at $2.4 billion compared to $1.8 billion last year. For the first six months of the 2022 fiscal year, revenue was $4.6 billion, compared to just under $3 billion a year ago. Note that the company reports in US dollars.

Adjusted net income for the quarter was $241.1 million ($2.61 per diluted share. That compares with $137.2 million ($1.44 per share) in the same period of 2021. First half adjusted income was $398.7 million ($4.28 a share), compared to $210.9 million ($2.21 per share) the year before.

Dividend: The stock pays a quarterly dividend of US$0.27 per share (US$1.08 per year) to yield 1%.

Outlook: The company is generating impressive results and, with the recently announced sale, appears to be positioning itself for a major acquisition.

Action now: Buy.

J.B. Hunt Transport (NDQ: JBHT)

Originally recommended by Gordon Pape on April 6/20 (#22014) at $89.76. Trading Friday at $183.73. (All currency figures in US dollars.)

Background: This company is in the freight transportation business, providing truckload, intermodal, and contract carriage facilities to customers across a diverse set of industries in the U.S., Canada, and Mexico. It specializes in handling imports through its “shore to door” service. Major customers include the Burlington Northern and Norfolk Southern railways.

Performance: The stock hit a 52-week low of $153.92 in mid-June but has since recovered well.

Recent developments: Like TFI, this Arkansas-based transport company is also enjoying a good year. Total operating revenue for the second quarter was $3.84 billion, compared with $2.91 billion the year before, an increase of almost 32%. All the company’s operating units reported strong growth.

Operating income was $353.1 million, a gain of 46% from $241.5 million last year. Net earnings were $255.3 million ($2.42 per diluted share), up from $172.2 million ($1.61 per share) in the same quarter of 2021.

Acquisition: Earlier this year, the company announced it had purchased Zenith Freight Lines from Basset Furniture Industries for a price of $87 million.

“This investment enhances J.B. Hunt’s furniture delivery capabilities by expanding our nationwide, end-to-end supply chain solution for our customers, and we look forward to establishing a long-term connection with Bassett, a manufacturer and retailer of high-quality home furnishings and a leader in the industry,” said CEO John Roberts.

Dividend: The quarterly dividend was increased by one-third in February to $0.40 ($1.60 per year). The shares yield 0.9% at the current price.

The company is also buying back stock. In the second quarter, it purchased about 979,000 shares for a cost of $164 million.

Outlook: Trucking companies are delivering strong profits right now.

Action now: Buy.

One last note. While these companies are performing well right now, they will be vulnerable if we do slip into a recession. Be guided accordingly.

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GAVIN GRAHAM’S UPDATES

Cameco Corp (TSX: CCO; NYSE: CCJ)

Originally recommended on Nov 8/21 (#22140) at C$33.63, US$27.00. Trading Friday at C$34.53, US$26.50.

Background: Saskatoon headquartered Cameco is one of the world’s largest uranium producers, with major mines in Saskatchewan and refineries in Ontario. Its flagship McArthur mine used to produce over 50% of its output but has been mothballed for the last four years while Cameco sourced uranium on the spot market. McArthur is now being reactivated while the Cigar Lake mine, which was closed for the first four months of 2021 due to COVID-19, at a cost of $8-10 million, has been working at full capacity this year.

Performance: Having risen as high as $41 shortly after the invasion of Ukraine in April, the stock subsequently sold off. However, it’s still above our initial recommended price.

Recent developments: As the world comes to realize the importance of secure baseload power not dependent on weather or the benevolence of autocratic regimes, nuclear power has become more attractive to many governments. The most recent example is Japan’s decision to reverse its policy on atomic energy, with Prime Minister Fumio Kishida ordering the development and construction of next-generation nuclear power plants.

As demand for uranium has increased, Cameco has signed contracts for an additional 45 million pounds of uranium oxide this year.

For the six months ended June 30, its revenue rose 47% to $956 million. Adjusted net earnings were $89 million ($0.22 per share) compared to a loss of $67 million in the prior year.

Cameco delivered 7.6 million pounds in the second quarter at a price 41% higher than the previous year. Cameco’s share of Cigar Lake’s 18 million pounds of production in 2022 will total 11 million pounds. This is a result of the company raising its holding to 54.55% by buying Idemitsu’s 7.875% stake in the mine.

Cameco has cash reserves of $1.4 billion with $997 million in debt, so has a net cash position.

Dividend: Cameco pays a small annual dividend. This year’s payment will be $0.12 a share, due Dec. 15. The yield is 0.03%.

Action now: With McArthur River coming back on stream this year, the increased stake in Cigar Lake, and rising prices for uranium, Cameco is well positioned to benefit from the growth in nuclear power generation. Buy now.

Empire Company (TSX: EMP.A; OTC: EMLAF)

Originally recommended on Jan. 18/16 (#21603) at C$24.32, US$17.77. Trading Friday at C$38.48, US$30.11.

Background: Nova Scotia based Empire Company is the parent company of the Sobey’s and Safeway supermarket chains. It also owns FreshCo, IGS, Thrifty’s, Farm Boy, and the Lawton Drug Stores chain. It purchased 51% of the Ontario based high end grocery chain Longo’s in 2021 for $357 million and owns 41.5% of Crombie REIT, which controls many of its supermarket sites. It owns 1,500 stores and 350 gas stations in 10 provinces and employs 125,000 employees.

Performance: Empire, like other food retailers has benefited from the changes in consumer behaviour brought about by COVID-19. Under the leadership of ex Canadian Tire CEO Michael Medline, it has turned around the mishandled Safeway acquisition. The stock is up 70% from the initial recommendation six years ago, although it’s flat from the last update a year ago.

Recent developments: Empire reported net earnings of $745.8 million ($2.80 per share) for the fiscal year ended May 7. That was up 6.3% from $701.3 million ($2.60 per share). Revenues were up 6.7% to $30.2 billion, although this year included an extra week.

Same store sales, excluding gas, actually fell 2.1%, reflecting the effect of higher prices causing customers to trade down or defer purchases.

Discussing the annual results Michael Medline said: “We’ve gone through another intense period with copious cost increases being brought forward in a short time and have managed through it well with the help of our supplier partners.” He went on to say: “We’re cognizant that customers simply won’t, and often cannot, accept cost increases at some of the extreme levels we’re seeing.” He noted customers are visiting its discount FreshCo brand more often, buying own label products, and switching to chicken from beef.

The Project Horizon cost improvement program, now in its third year, aims to add $500 million to earnings before interest, tax, depreciation & amortization. It is on track, helped by the Voila e-commerce rollout in Toronto, Montreal, and Calgary. The plan reduced earnings by $0.15-$0.20 in 2021-2022 but should be a positive contributor going forward.

Dividend: Empire raised its dividend by 10% to $0.165 a quarter, giving it a yield equivalent to 1.7%.

Action now: Empire has substantially outperformed the S&P/TSX Composite Index over the last five years and should continue to enjoy growth in revenues and earnings due its geographic expansion, transformation of Safeways to FreshCo in western Canada, e-commerce initiatives, and the success of Project Horizon. Buy now.

Winpak Ltd (TSX: WPK, OTC: WIPKF)

Originally recommended on Aug 9/21 (#22129) at C$41.08, US$32.30. Trading Friday at C$42.75, US$33.16.

Background: Winpak is a Manitoba based manufacturer of packaging and packaging machinery. Its products are mainly used in food and beverage and healthcare applications. Its modified atmosphere packaging is used to extend the shelf life of perishable goods such as meats, poultry, and cheeses as well as healthcare products. The majority of its sales are in North America.

Performance: Having drifted down to the mid-$30s after the initial recommendation last August, the stock has rebounded strongly this year on the back of a strong operating performance. It’s up 10% from a year ago and over 20% from its lows.

Recent developments: Revenue in the second quarter (to June 30) rose 27% to $310.3 million (the company reports in US dollars). EBITDA was up 18% to $58.7 million and net income gained by the same percentage to $34.1 million ($0.52 per share).

The smaller rise in earnings compared to revenue reflected delay in passing on cost increases in raw materials and input, but the company was confident revenues would keep growing at the same pace for the remainder of the year. Winpak has net cash on its balance sheet.

Dividend: Winpak pays a nominal dividend of $0.03 a quarter, equivalent to a yield of 0.29%. But the company pays occasional special dividends, such as $3 a share in June 2021.

Action now: Winpak has proven itself able to pass on rising raw material and input costs to customers and is enjoying strong revenue growth even after taking inflation into account. It remains a Buy.