Q: I struggle with when to sell a security as many others have said here, but particularly when there is large unrealized capital gain. My ACB on Premium Brands is in the low $30 range leaving me with a sizeable cap gain, so I look at PBH lately and wonder do I take the tax hit and sell, do I hold on and collect the dividend at the risk of it drifting lower? Theoretically it could fall to point where the erosion in capital would leave me wishing I had sold it and paid the tax. I know you suggest selling if something fundamental has changed for the worse, and also am aware that I have to have something else in mind to employ the capital in that is going to “make up” for the tax hit if I sell. Can I have your thoughts?
5i Research Answer:
PBH is currently in the capital investment cycle that has depressed PBH’s free cash flow for some time. That said, the management believes the company is currently near the end of the investment program. We don’t think PBH’s fundamentals have worsened materially enough for major concern, but investors need some patience for this company. In addition, the risk of reinvestment when selling out a position to purchase something else is also worth considering. We would sit tight for a few more quarters before considering selling the position.