(Image: Zen Buddha Silence, by Marilyn Barbone)
October 25, 2020
We continue with examples of Boole’s quantitative investment process in action.
Recently, we looked at the following companies:
LGL Group, Inc. (LGL): http://boolefund.com/lgl-group-inc-lgl/
G-III Apparel Group, Ltd. (GIII): http://boolefund.com/g-iii-apparel-group-ltd-giii/
Hummingbird Resources Plc. (HUMRF): http://boolefund.com/hummingbird-resources-plc-humrf/
Micropac Industries, Inc. (MPAD): http://boolefund.com/micropac-industries-inc-mpad/
Barrett Business Services, Inc. (BBSI): http://boolefund.com/barrett-business-services-inc-bbsi/
Delta Apparel, Inc. (DLA): http://boolefund.com/delta-apparel-inc-dla/
AdvanSix, Inc. (ASIX): http://boolefund.com/advansix-inc-asix/
Universal Technical Institute (UTI): http://boolefund.com/universal-technical-institute-uti/
Burnham Holdings Inc (BURCA): http://boolefund.com/burnham-holdings-inc-burca/
Select Interior Concepts (SIC): http://boolefund.com/select-interior-concepts-sic/
Manitowoc (MTW): http://boolefund.com/manitowoc-mtw/
Ciner Resources LP (CINR): http://boolefund.com/ciner-resources-lp-cinr/
Global Ship Lease (GSL): http://boolefund.com/global-ship-lease-gsl/
Alico, Inc. (ALCO): http://boolefund.com/alico-inc-alco/
Genco Shipping (GNK): http://boolefund.com/genco-shipping-gnk/
SEACOR Marine (SMHI): http://boolefund.com/seacor-marine-smhi/
Tidewater (TDW): http://boolefund.com/tidewater-tdw/
TravelCenters of America (TA): http://boolefund.com/travelcenters-america-ta/
Teekay Tankers (TNK): http://boolefund.com/teekay-tankers-tnk/
Ranger Energy Services (RNGR): http://boolefund.com/ranger-energy-services-rngr/
Macro Enterprises (Canada: MCR.V): http://boolefund.com/macro-enterprises-mcr-v/
This week, we are going to look at Terravest Industries Inc. (TVK.TO). Terravest is #1 in North America at selling home heating oil products (mostly storage tanks). They also sell transport vehicles and storage vessels for propane, anhydrous ammonia, and NGL (they’re #1 in Canada and in the top three in the U.S.). And the company sells oil and gas wellhead processing equipment (they’re #1 in Canada).
Terravest has a market cap of $261.5 million, with $17.3 million in cash and $141.6 million in debt. The stock price is $14.00. (All amounts are in Canadian dollars.)
First we screen for cheapness based on five metrics. Here are the numbers for Terravest Industries:
- EV/EBITDA = 7.67
- P/E = 11.89
- P/B = 2.39
- P/CF = 4.32
- P/S = 0.83
Next we calculate the Piotroski F-Score, which is a measure of the fundamental strength of the company. For more on the Piostroski F-Score, see my blog post here: http://boolefund.com/piotroski-f-score/
Terravest has a Piotroski F-Score of 7. (The best score possible is 9, while the worst score is 0.) This is good.
Then we rank the company based on low debt, high insider ownership, and shareholder yield.
We measure debt levels by looking at total liabilities (TL) to total assets (TA). Terravest has TL/TA of 56.7%, which is OK.
Insider ownership is important because that means that the people running the company have interests that are aligned with the interests of other shareholders. At Terravest, insider ownership is approximately 50%. This is excellent.
Shareholder yield is the dividend yield plus the buyback yield. At Terravest Industries, dividend yield is 2.8%. The buyback yield is 6.5%. Thus, shareholder yield is 9.3%. This is very good.
Each component of the ranking has a different weight. The overall combined ranking of Terravest places it in the top 50 stocks on our screen, or the top 2% of the more than two thousand companies we ranked.
The final step is to study the company’s financial statements, presentations, and quarterly conference calls to (i) check for non-recurring items, hidden liabilities, and bad accounting; (ii) estimate intrinsic value—how much the business is worth—using scenarios for low, mid, and high cases.
See Terravest’s most recent reports: https://www.sedar.com/DisplayCompanyDocuments.do?lang=EN&issuerNo=00033827
Also, check out the following write-up: https://valueinvestorsclub.com/idea/TERRAVEST_INDUSTRIES_INC/6083042253
(To access the link to valueinvestorsclub.com, you may have to create a guest membership, which is free.)
Important Note: Terravest Industries is being run by value investors who are focused on maximizing the intrinsic value of the company over time.
Intrinsic value scenarios:
- Low case: Trailing EPS (earnings per share) is $1.18. At a P/E of 10, the shares would be worth $11.77, which is about 16% lower than today’s $14.00.
- Mid case: EPS is likely to reach at least $2.50 in a few years. (EPS grew at 60% a year from 2010 to 2019. EPS won’t grow as fast going forward, but it will still grow.) With a P/E of 14, Terravest would be worth $35 a share, which is about 150% higher than today’s $14.00.
- High case: EPS may reach at least $4.00 in three to five years. With a P/E of 15, Terravest would be worth $60 a share, which is over 325% higher than today’s $14.00.
BOOLE MICROCAP FUND
An equal weighted group of micro caps generally far outperforms an equal weighted (or cap-weighted) group of larger stocks over time. See the historical chart here: http://boolefund.com/best-performers-microcap-stocks/
This outperformance increases significantly by focusing on cheap micro caps. Performance can be further boosted by isolating cheap microcap companies that show improving fundamentals. We rank microcap stocks based on these and similar criteria.
There are roughly 10-20 positions in the portfolio. The size of each position is determined by its rank. Typically the largest position is 15-20% (at cost), while the average position is 8-10% (at cost). Positions are held for 3 to 5 years unless a stock approaches intrinsic value sooner or an error has been discovered.
The mission of the Boole Fund is to outperform the S&P 500 Index by at least 5% per year (net of fees) over 5-year periods. We also aim to outpace the Russell Microcap Index by at least 2% per year (net). The Boole Fund has low fees.
If you are interested in finding out more, please e-mail me or leave a comment.
My e-mail: firstname.lastname@example.org
Disclosures: Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Boole Capital, LLC.