Combining Intelligent Investing with Beating the TSX

As discussed in my recent post, my stocks have failed to outperform the TSX.  I think I can do better.  The basic pricinples of Benjamin Graham are sound, but I have not been able to apply them to build a diversified portfolio.  I want to use those principles – sound dividend and earnings growth – but apply them to build a broader portfolio.

AGU.TO Agrium Inc.
BBD.B Bombardier, Inc.
BCE.TO BCE Inc.
BMO.TO Bank of Montreal
BNS.TO The Bank of Nova Scotia
CM.TO Canadian Imperial Bank of Commerce
CSU.TO Constellation Software Inc.
ENB.TO Enbridge Inc
FTS Fortis Inc
HSE Husky Energy Inc.
L.TO Loblaw Companies Limited
MFC.TO Manulife Financial Corp.
NA National Bank of Canada
POT.TO Potash Corp./Saskatchewan Inc.
POW Power Corporation of Canada
RCI.B Rogers Communications Inc.
RY.TO Royal Bank of Canada
SJR.B Shaw Communications Inc
SLF.TO Sun Life Financial Inc.
SU.TO Suncor Energy Inc.
T.TO TELUS Corporation
TCK.B Teck Resources Ltd
TD.TO Toronto-Dominion Bank
TRP.TO TransCanada Corporation

The basic method is:

  • Start with the TSX 60
  • Remove former trusts
  • Remove any stock with dividend coverage below 125%
  • Take the top 23 stocks
  • I then deselected two of the banks to prevent over-concentration

Adding JP Morgan

Screen Shot 2014-01-02 at 9.15.05 AMJP Morgan Chase (JPM.TO) meets my screening criteria.

JPMorgan is a global financial services firm and a banking institution in the United States, with global operations.  The Company is engaged in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing, asset management and private equity.

I analyzed the stock using my usual procedures. The results are as follows.

Screen Shot 2014-01-02 at 9.06.51 AM

  • The P/E Ratio is 13.21, which is a little higher than the average historical P/E of 10.25, and the Graham Number is $72.96
  • The Dividend Yield is only 2.61%, which is low, but the coverage is 290% which supports a future dividend raise
  • Forecast Growth Rate is good at 8.93%, compared with 35.33% historically
  • The Gordon Return (Dividend + Growth) is 11.54%, which is quite high

The Margin of Safety at current prices is -9.35%. This is low but I think the price is fair given the growth prospects.  I believe that the stock is fairly priced here.

  • Buy LB.TO @ $58.20

Taking profits on Intact Insurance

Intact Financial (IFC.TO) is another stock that no longer meets my screening criteria.  As with Power Corp, which I am also selling, Intact’s price has risen so much that it is no longer good value.  This is good.

  • Sell IFC.TO @ $69.00

I originally bought Intact for $58.60 back on 13th May 2013.  During my period of ownership the stock paid three dividends each 44c.  The total gain was therefore $11.72 per share.  This is a gain of 20.0% in 8 months.  A good call.

Selling Power Corp

Power Corporation (POW.TO) is another stock that no longer meets my screening criteria.  This is because it’s price has risen so much that it is no longer good value.  This is good – I made a big profit!

  • Sell POW.TO @ $32.10

I originally bought Power Corp for $26.20 back on 25th April 2013.  During my period of ownership the stock paid three dividends each 29c.  The total gain was therefore $6.77 per share.  This is a gain of 25.8% in 8 months.  A good call.