Every now and again a stock gets so cheap that you have to scratch your head. I realize that there are two sides to every trade, and for every buyer there is a willing seller, but who was selling shares of Canadian clothing retailer Reitmans Ltd. (RET.A) today around $15.50? I don't believe Reitmans is going out of business, yet it seems the market is holding a 'going out of business sale' on the stock. Unless someone out there knows something that I don't know, which I hope is not possible, then in my opinion this is absurd.
My view on Reitmans here.
The price the market was asking for shares of Reitmans today was too attractive to pass up. I gobbled some up at $15.57. At this price they were trading under 11x earnings and yielding over 4.6%. For a company with return on equity and assets north of 18%, no debt, and a solid history of earnings and dividend growth this is the utter definition of cheap. My discounted cash flow model indicates that at $15.50 the market is pricing 3 - 4% earnings growth for the next 10 years from Reitmans. It felt good to add those new dividends into my annual income from investments flow. I'm always a sucker for a good sale, especially one that pays fat dividends.
With this purchase Reitmans now makes up about 6% of my portfolio. I'm now 15% weighted in consumer products.
8 comments:
MG,
I bought some more on Monday. Good company with shareholder aligned management and $2ish in cash or investments. Not many finds like this on the TSX. Also picked up some BMO at 51 something, sporty a 5.5% yield. Expecting a slim dividend increase in 08 but resuming modest increases in the future. Now only if BNS would get crushed.
Pickles
MG,
I don't think you're really missing anything. People are just thinking recession. Could be also that their December sales were down a little "Sales in December for the five weeks ended January 5, 2008 decreased 0.6% while comparable store sales decreased 4.5%."
Great entry point.
The December sales were poor, but it really does not concern me long term. Most retailers had a lackluster 2007 holiday season. Long deep Canadian recession must be priced in at these levels for RET.A.
It is just hard to get over the fact that you can buy 4.6% yield, under 11x earnings, with this type of recent growth. Given, their EPS growth is slowing, and maybe even slowing considerably, but they have proven success in the past and the Canadian economy is in decent shape. Even if they can eek out 5% earnings growth avg. over the next 5 years, my return after dividends will be at least 9% per year...
do you have a limit on the percentage weight of one business in your portfolio?
As Middle Class Millionaire indicated, Reitmans may be collateral damage since most institutions are reducing their holdings in consumer discretionary to consumer staples. Its performance may be more structural than specific.
Nice catch also
I saw it down the past few days once again but was a little preoccupied with some other buying for diversification/opportunistic value. Over the long-term you can't be faulted for adding again to the position as the company will be worth significantly more 5 years out. As I've explained to a lot of friends recently: you have to look beyond short-term weakness and paper losses to where a company will be in the future.
How's those midnight feedings btw?
Great comments.
Sami, I have not officially set any kind of limit for one holding, however I am about 14% Yellow Pages currently and I would not add to that no matter what happened. Ideally I'd like YLO.UN to make up less than 12%.
Brad, you'll have to ask my wife.....
MG: Good call on Reitmans. I've been looking at this stock every since you posted about it back in December. The stock is definitely hard to pass up at these levels. Thanks for posting!
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