Investment Q&A

Q: My question concerns a robust method to estimate free cash flow.I have been running some calculations as part of my investment process and I make use of Free Cash Flow extensively in my models.

Usually I just use Operating Cash Flow - average of last five years CapEx. However in many cases such as GIL there are large variations in working capital from one year to the next. Management can boost operating and free cash flow by reducing working capital in the short run. This is a one-off rather than permanent boost to cash flow and can give a misleading measure of sustainable cash flows. The opposite is also true and management can make short term investments.

Some authors recommend removing changes in working capital from the calculation and defining free cash flow as Post-tax profit + Depreciation and amortization - stay in business CapEx. The stay in business CapEx is then estimated as the greater of the average of last five years CapEx or 120% of depreciation. Sometimes this adjusted definition of Free Cash Flow is also called owner earnings or Cash Profits.

With respect to GIL this approach certainly seems to give a much better free cash flow figure, but I wonder if this is wishful thinking? Is a company that over five years or more has to constantly deplete its working capital really showing us that it actually has a higher CapEx requirement? I would appreciate your comments.

Q: There are several answers today explaining that Friday's big drops in various stocks are due to Friday being a "quadruple witching day." Just wondering if it would be possible (and perhaps save you some time) if a Heads-up could be posted a day or two before to warn your members a "special" day is upcoming and we should all expect some unusual trading?

Q: KED P/E 2.2X, P/B 0.8X EPS $7.70 Div. 9.26% Debt/Capital 30.6% ROE 43% yet the share price keeps falling ? Why doesn't the market like this company, I think, fundamentally it s/b be closer to $30/share rather than the current $17.28. Please help me understand, would you think its a screaming buy ?

Q: I took a 4 cent flyer on this dog. Should I take the tax loss or, is there any hope.

Q: I manage an income portfolio for my wife who is 69 years old. The sole purpose of this portfolio is to provide income for life. Therefore the dividends are important and the actually ups and downs of the price of the stock less so. Some of these stocks pay quite high dividends. My question is are any of these company dividends at high risk of being cut due to raising interest rates or a downturn in the market and should be replaced with stocks that have lower yield but with safer dividends. The stocks are:

A&W Revenue Royalties

Artis REIT

BCE Inc.

Bank of Nova Scotia

Brookfield Renewable Partners

Chartwell Retirement Residence

Chorus Aviation Inc.

Cineplex Inc.

Dream Global REIT

Enbridge Income Fund Holdings

Extendicare Inc.

Pure Industrial Real Estate

Richards Packaging Income Fund

Royal Bank of Canada

Sun Life Financial Inc.

TransCanada Corp.


Apple

Whirlpool Corp.

Q: Preference shares
How does the market value preference shares? Disregarding variables such as credit quality and characteristics of different issues, these shares strike me fundamentally as a series of cash flows discounted to a present value. I suspect that the market is driven by institutional traders who are guided by a particular benchmark to establish a discount rate to determine the value of the cash flows If I am correct, what benchmark rate do the market makers use and does it vary? For example, do traders always use a benchmark of x bps over Canada bond yield for equivalent terms and is there an established amount for x which doesn't change over time? Without predictability in this regard, there would be no way to assess whether reset shares will trade at par on their reset date.

Q: Just a comment on the answer to the question regarding companies that were deleted from the portfolios (and why) ... the time and effort to answer this question is detailed and obviously took some time to muster. I think just a sign of your continuing efforts to care for 5i members.TY.

Q: Are you able to reasonably estimate when a company will produce positive (EPS) earnings per share (i.e 1-3 year out)? If so, when will GEI (Gibson's Energy) have positive earnings? Are there any services /sources out there that does this type of projection?

On a different matter, are my question credits carried over should I not use all my question credits by my renewal date?

Q: do you know anything about this company symbol iom.
in the healthcare space, profitable, fairly liquid.
is it buyable . dave

Q: I have investments in the listed Investment Trusts for income.
With the problems in the Retail Sector (Sears, The Bay, etc), and the growth of on-line shopping, are the values and incomes of any these Trusts exposed?
REI.un and CUF.un have been on a steady decline.
Thank you in advance for your comments.
Dietrich

Q: Presently has 6.25% of portfolio in Energy consisting of 2.5%,2.5% & 1.25%.of ALA.R,KEL(down 38%) & HWO(down 28%)respectively.Is this a good entry point for ENB? If so,my exposure to the energy sector maybe too high,so thinking of selling HWO.Please advise.Appreciate u usual great services & views

Q: Whenever I rebalance my portfolio, I find it somewhat troubling that I am treating a dollar in my RRSP account as equivalent to a dollar in my TFSA account or a dollar in my unregistered account. I am very near to the time when I will be converting my RRSP to a RIF and withdrawing mandatory amounts starting at 5.28% and rising in subsequent years. I will have to pay tax on these withdrawals and my marginal tax rate is not much below 50%. Moreover, I do not expect my marginal tax rate to change much over the remainder of my life. This means those withdrawals will be worth only about half as much to me after tax. Of course, when I withdraw a dollar from my TFSA or my unregistered account I get to keep the entire dollar. So I am inclined to treat a dollar in my RRSP account as equivalent to just 50 cents or so when I am totalling up my total assets and doing the rebalancing. Does this make sense to you?

Q: Hi Peter
can you revisit this company . Is it a buy at this point ?

Q: I have large positions in both companies and would like your medium term analysis,opinion and expectations on upcoming earnings.
Thanks again
Gary

Q: Morning,

Would like to know if the dividend from Cominar is currently safe and your view on the stock on an income based portfolio? Would Slate Office REIT be a good replacement if Cominar is deemed too risky?

Thanks!

Q: About a month ago, a member asked about the above companies, and you responded that you considered PBH riskier (although not *that* risky overall). In light of the AMZN move, do you still consider PBH riskier? I hold L, should I switch to PBH? For longterm, hopefully indefinite hold. Thank you.

Q: Please your thoughts on NYX.
I am down on this one and thinking of averaging down.
Your thoughts please

Q: I currently hold CVS and am down 21%. In a response today to a question about WBA, you indicate that a switch from WBA to HD would be okay given the structural change being brought about by AMZN on the purchase of Whole Foods. While the person asking the question had a good gain on WBA, would your response be the same for my position in CVS?......thanks....Tom

Q: Any info about this new fund IPO LS.UN would be appreciated - what companies would be in the fund. Looks like the dividend will be around 5% and settlement is July 15

Q: With the weekend to digest the move by Amazon, is this the type of (potentially) fundamental change to an industry that could mean, it's time to go. Is this a sell trigger for a precursor to a serious change, specifically in the grocery sector?

Your insight is greatly appreciated...