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Investment Q&A

Not investment advice or solicitation to buy/sell securities. Do your own due diligence and/or consult an advisor.

Q: I looked through the PTE questions, and I believe the questions I am asking have not been asked (yet). Specifically, there are two questions I have regarding PTE, that of insider selling and the Innohome partnership.

In mid-September 2017, one significant insider sold 875,000 shares, of a total position (as reported by SEDI) of 2.2 Million shares, or about 40%. How do you view such a large disposition by a significant insider, who obviously has a better line of sight to "future prospects" than outside investors ? I generally do not view insiders selling as inherently negative (if it occurs in smaller tranches), as I can understand that they too want to realize some value now & again. However, such a large disposition occurring before the UL858 regulation comes into play leaves me wondering.

In regards to the Innohome partnership, what are your thoughts as to how this is working (on an economic basis) for PTE ? My understanding is that PTE is selling the Innohome product via their distribution channels with HD, Wilmar, & Staples. This sounds to me like PTE has opened up the North American market for Innohome. I have not heard of any press releases suggesting that PTE products are being sold abroad (in Europe), which begs the question as to how PTE might be compensated for doing this. Do you have any thoughts as to how PTE might be benefitting from this ?
Read Answer Asked by Mike on February 12, 2018
Q: Hi, Dollarama was added to your Growth portfolio recently with full position. The stock was quiet for several weeks but took off recently to $169 (+10% since added). I bought a few shares at $158, during recent decline. However, with the market jitters (coupled with Desjardins downgrade citing valuation) specially over past two days, tested the lows of last quarterly release. Valuation seems to be still expensive. What's your take for short/long term ? For now, it's a tiny 1% position for me. Should I take advantage of the pull back and add or just liquidate ? Thanks
Read Answer Asked by rajeev on February 12, 2018
Q: I would like to start by stating that you are very patient, answering similar questions about same stocks over and over. My question is no different. I have been considering a position in Enbridge and have been hesitating for some time now.

Its price has decreased quite dramatically in the recent past and this may (or may not) be a buying opportunity. From all the posts I`ve read, and there are many, it is clear that this is a buying opportunity (but so was it at $50+). Some concerns that I have follow:

Debt. How much debt is too much? I've made (big) mistakes with GE and others. I am trying to learn from my errors, from your input and from the community at large. My understanding is that the leverage ratio is quite high. Interest rates are on the rise. Debt (with the exception 2015 to 2016) has continuously increased during the last 5 years (where it is almost twice as large today as it was 5 years ago). In 2016 the company increased its cash balance by approximately $1B (vs prior year) but still has about $65B in debt. How long will it take to possibly pay this off and with rising interest rates are we at risk of potential default in the future? I am a long term investor and would hope to avoid surprises down the road.

Retained Earnings. This number has dropped consecutively over the last 5 years. I do not think this is a positive sign.

P/E ratio. In my opinion, this is not a growth company and has quite a high P/E ratio. Albeit net income and cash flow have increased, revenue has not really changed much over the last 4 years. At end of 2016 its revenue was a bit higher than 2013 but lower than 2014. Numbers should increase at both the bottom and top.

Any additional commentary, over and above that already expressed in numerous other similar questions you've responded too is appreciated. We must be missing something. You must see something that we don't see. It is also possible that we are over analyzing this. I mentioned a few concerns above (ex. P/E ratio) and could have found other concerns but you may be looking at specific ratios/mgmt/new business/..., otherwise every company would probably have problems. Finally, would you be a buyer of this company at this time and/or would you be buying a competitor in its place/why?

Thanks again. I am quite sure there are many people like myself that read your input, use it to make investment decisions but even more importantly, we use it to further our own abilities to make sound investment decisions, and we thank you for that.
Read Answer Asked by Walter on February 08, 2018
Q: Peter & Associates

Using Enbridge Inc. as a bellwether, yearend numbers from 2000 to 2009 produced the following averages: A mean P/E of 16.5, (several years in the 13 range) a growing dividend with an average yield of 3.1 % representing 50% of earnings and 75% of 10 year TBs when they ranged from 5.4 to 4 %. A check of a recent brokerage report places its debt level at 60% which seems well in line with those over the referenced period.

Clearly the dynamics have changed. Might what is playing out in industries which traditionally need constant access to new capital, be it common or preferred shares are seen as better planning tools providing them with greater option flexibilities than fixed income alternatives? Whereas interest payments must be made, dividends must be declared? With concerns being expressed, a 10 year rate over 3% could do more harm than good, is ENB oversold and at this price too good to be true? It would seem rates would have to rise a lot to actually come into competition with the yields ENB equities offer.

If someone were investing in an ENB for yield, it would seem logical to suggest they would also seek moderate capital risks, far less than what this one has experienced. Is a projected forward P/E of 20 and a dividend over 6% which ENB claims will increase, warning signals? Assuming it is a good bellwether security, how much more downside could this stock potentially see and/or how likely/ risky the need to eventually cut the dividend ( common)? Albeit a very different industry and dynamics, energy stocks had to make cuts to reflect their financial realities; even non CAD banks went through well documented challenging times. The point, no industry is immune from economic realities and their balance sheet realities. Concerns over debt are being expressed as rates rise.

Having a well balanced portfolio is a protection but, so called bond proxies are found in multiple sectors and collectively can add up to an important exposure. There is an expression, things tend to eventually revert to their mean. That said, might we be seeing the start of that occurring since these are not generally seen as growth stocks where earning growth is the offsetting factor to deal with these high ratios?

Would very much appreciate your insight. Thank you.
Mike
Read Answer Asked by Michael on February 07, 2018
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