Popular Answers to Member Questions 

Question 1: Can you please comment on the remaining assets of SNC-Lavalin (SNC) (after its sale 10% of the 407) and would they represent (along with the general business of the company) a takeout opportunity for a competitor, perhaps at higher prices than the current market value.

Answer 1: The debt reduction will help sentiment. Remaining assets might be worth $22 to $24, but that does not mean the price will get there. The turnaround is big and is going to take some time. The Caisse (20% owner) is not happy, and this might make a takeover more likely, but the Quebec government might block one as well. 

Question 2: What do you make of Canadian Tire (CTC) quarter and purchase of PartyCity? Would you buy at this point?

Answer 2: Canadian Tire (CTC) has a good history of solid acquisitions. It is not a huge deal for CTC, but gets it into another retail vertical and there is not a lot of direct competition. The sector is nobody's favourite, but we would not bet against this company, which has fought competition successfully for decades. 

Question 3: I wanted your opinion on adding and allocating US and International equity to my portfolio. I will be using ETF's solely held in my RRSP account. Currently, I hold Canadian ETFs but am looking at using US ETFs to possibly reduce cost (lower MER and avoiding withholding taxes on dividends) as well as introducing some currency exposure

In response to an earlier question today, you indicated: "Our one comment is that the suggested ETFs might result in US dollar exposure somewhere close to 50% of the portfolio. This might make sense depending on individual needs, but 50% exposure to the US dollar might be a bit high for a lot of investors." which has led to some follow-up questions:
In general, what would you consider to be an appropriate range for non-CDN exposure? More specifically, what factors might an investor consider in one's own situation to help decide where in this range is personally appropriate or whether it makes sense to exceed the suggested range? 

Answer 3: Some things to consider are:

-The frequency in which you use USD (travel, business, other purchases/investments or properties)

-Your willingness to hold the USD long-term 

-How much US exposure you want in your portfolio

-How many options you would like to have access to on the US side (more USD options)

We are using USD here as an example as it is most common, however, this can apply to other currencies as well. We think 25-50% is appropriate. More than 50% is fine, but a higher amount would result in higher currency risk and probably more approrpiate for someone with US based expenses (ex. lower purchasing power USD appreciates, lower return if CAD appreciates).

Expenses are a big consideration. If one travels or has significant US expenses, then currency hits can have a direct influence on the standard of living (both ways). Generally speaking, we find much better investment opportunities in the US and are comfortable with currency risks to get these better investment opportunities. 

Question 4: Please comment on earnings (CCL Industries (CCL) and Knight Therapeutics (GUD))

Anwer 4: Knight Therapeutics (GUD) revenue was $3.4M, up 43%. Net income surged to $18.9M on a revaluation of investments. Cash is $745M. It bought back 4.6M shares. Results were well ahead of estimates but the revenue base is really not material enough to the company yet. 

CCL Industries (CCL)’s EBITDA of $267M missed estimates of $288M. Sales of $1.35B missed estimates of $1.38B. EPS of $0.69 missed estimates of $0.76. Sales rose 7.1%, with organic growth of 2.3%. Margins slipped 1.1 points. Innovia profit improved nicely. CCL quoted 'slowing end markets'. Results are 'OK' but still a 'miss'. 

Question 5: I would like to know your opinion on the recent Globe interview (https://www.theglobeandmail.com/business/article-star-ceo-of-stella-jones-looks-back-as-he-moves-forward/) Brian McManus, the outgoing CEO of Stella Jones (SJ) gave on the future of the company. He spoke of the company having a long runway but my take was he went on to state that of the three main areas that they are in - railway ties, poles and treated lumber - only poles really seemed to have much growth. They control the market in ties but that sector isn't growing and he felt expanding lumber into the US seems uneconomical.

Are you able to comment on where you see the growth prospects for the company? It would seem to me that they will have to branch out into new areas and while they have a seasoned, long-serving team in place expansion into new avenues is not risk-free. Given this, do you see any growth left in the company? Or do we give the remaining team and the soon to be named incoming CEO the benefit of the doubt for now?

Answer 5: He has always been on the 'conservative' side, so we would give this one a bit more time to see new leadership. We would not expect Stella Jones (SJ) to see the same rate of growth as the past decade or so but we think the company will adapt. Debt is a bit high so we might not see a new vertical in the short term (unless it raises more money). Estimates call for pretty good growth still over the next 24 months. Based on the company's solid history we think it deserves a chance to prove itself going forward with the new CEO.

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Disclosure: The author does not hold positions in any stocks or funds mentioned.