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March 2020

Number Cruncher Extra: Kirkland Lake Gold, IA Financial Corporation and Toromont Industries

In our system, Kirkland Lake Gold, Toromont Industries and IA Financial Corporation have an overall score higher than 60 which implies a positive outlook. These stocks are all clasified as quality because of their long-term track record. All stocks are classified as growth stocks as well because of their high growth in sales and profitability over the last years, but Toromont Industries is also classified as bad value because of its expensiveness determined by its price-to-book  and price/earnings ratio. Kirkland Lake is identified as a low risk stock because of its low beta. In portfolio construction, gold miners are often seen as a great diversification tool because of their low correlation or even negative correlation with the market.

The performance spread is the difference between the return on capital and the cost of capital. A company with high volatility will have a cost of capital higher than a less volatile one. This is why the price/earnings for highly cyclical stocks is often low, the market wants to be rewarded by taking higher risk. A company with high return on capital while maintaining a low cost of capital creates value.

Ia Financial Corporation and Kirkland had times where their cost of capital was higher than their return on capital while it never happened for Toromont Industries. If you are looking at quality, the latter seems the best of the list.

Ia Financial Corporation was slighly destroying value in 2015, but it reversed since. The company generated a return on capital higher than its cost of capital overall, but the company is vulnerable to lower interest rates because of its business in life insurance. Also, a bear market means lower fees from their advisors, This is why IA Financial Corporation is already down more than 50% since the start of the crisis. The company is correctly priced if we consider that it will generate a return on capital of 0% in 2020 and one of 10% in the long-term which should be considered as a conservative scenario.


If we look at peers, Kirkland seems affordable because it is at the right compared to the Y axis and produce high value because it is a lot higher than the X axis. That is exactly the kind of stock that you want. On the other hand, we need to be careful because the last 12-month has been incredible for Kirkland. This may overstate the company’s sustainable performance, but it still has a great long-term track record.


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Cyclical Large-Cap Stocks for Investors to Keep on Their Radar

What are we looking for?

As expected, cyclical sectors have been hit harder than defensive ones in the past month. Switching now to defensive stocks, which are far less correlated than cyclicals to the overall economy, may limit losses in the shorter term, but also future gains during a rebound. On the expectation of an eventual slowdown in the number of COVID-19 cases, it may be prudent for investors to keep cyclical stocks on their radar.

Today, we will be looking at cyclical large caps in Canada with a focus on companies that have a good track record in the past five years. Please note that all financial ratios are reported at the end of the previous quarter and do not reflect the impact of low oil prices and COVID-19.

The screen

We screened Canadian companies from the consumer discretionary, energy, financials and materials sectors, focusing on the following criteria:

  • Market capitalization greater than $3.5-billion;
  • Five-year average return on capital higher than 8 per cent – we want to find profitable companies that have a good return on investment in the long term;
  • Sales growth higher than 6 per cent over 24 months – a great company should have been able to grow its revenue in the past 24 months;
  • Net operating profit growth higher than 20 per cent over 24 months – we want to see growth in the bottom line while excluding the impact of interest rates and taxes.

For informational purposes, we have also included recent stock price, dividend yield and one-year price return.

More about Inovestor

Inovestor for Advisors is a fundamental-analysis research platform specializing in the economic value-added (EVA) approach. With Inovestor, advisers can quickly identify attractive investment opportunities, outsource their stock picking by using model portfolios, and easily communicate investment decisions with clients through client-friendly reports. In addition, Inovestor allows users to create personalized filters, build custom portfolios and carry out in-depth analysis on more than 13,000 companies (Canadian and U.S. stocks and American depositary receipts).


KL-T Kirkland Lake Gold Ltd. 36.75 10540 88.7 19.5 266.3 -17.7 1.8 Materials
TIH-T Toromont Industries Ltd. 58.32 4780 56.5 17.5 63.9 -13.2 2.1 Industrial – Commercial Svcs and Supplies
IAG-T Ia Financial Corporation Inc. 37.05 3963 26.6 12.8 22.2 -26.7 5.2 Financials – Insurance
RBA-T Ritchie Bros. Auctioneers Inc. 40.91 4480 120.8 11.9 46.1 -9.5 2.6 Industrial – Commercial Svcs and Supplies
SLF-T Sun Life Financial Inc. 36.44 21391 22.1 11.0 21.2 -27.6 5.7 Financials – Insurance
MFC-T Manulife Financial Corporation 13.62 26540 37.0 10.6 173.1 -40.6 8.2 Financials – Insurance
WSP-T Wsp Global Inc. 64.08 6800 28.4 8.8 46.4 -11.7 2.3 Industrial – Capital Goods

What we found

Kirkland Lake Gold Ltd., Toromont Industries Ltd. and IA Financial Corp. Inc. are the companies with the best five-year average return on capital while showing strong operating profits and sales growth. We believe these stocks in particular are worth further investigation by investors.

Note that three of the seven stocks on our list are life insurance companies, which are negatively affected by lower interest rates, but they also have strong capital ratios that will help them weather the current environment.

Investors are advised to do further research before investing in any of the companies listed in the accompanying table.

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Canadian Model Portfolio update: COVID-19

With the current COVID-19 spreading all over the global. Here is a quick portfolio update:

  • On February 20, S&P/TSX TR achieved new highs closing at $17,944. Since then the benchmark is down -20.29%. Whereas Inovestor Canadian model portfolio is down -17.44%
  • YTD the S&P/TSX is down -15.90% and Inovestor Canadian model portfolio is down -14.26%
  • The best performing stocks in our Canadian model portfolio since 20 February: Dollarama Inc -0.6%, Metro Inc -0.7% and Telus Corpotation -9.1%
  • The worst performing stocks in our Canadian model portfolio since 20 February: Parex Resources Inc -34.7%, Equitable Group Inc. -30.7% and Parkland Fuel Corp -28.6%
  • We remain focus on the long term and avoid current market noises. We believe our portfolio companies are fundamentally sound and should performed well on the long term

Opportunities might arise during bear markets


From February 20, to March 5, 2020, the S&P 500 was down more than -15%, officially landing in the market correction territory. As the COVID-19 continues to spread in new territories, global supply chains are being disrupted, and companies are readjusting their forecasts. Mainland China is the most impacted with 111,363 confirmed cases and a death rate of 3.7% (as of 09/03/2020). Although we are facing a lot of uncertainty in the global economy and the financial markets, this might be a good opportunity for investors to buy stocks at a discounted price.

Today we will be looking at US fundamentally-sound stocks that are trading at a discount, giving the recent market correction.


  • market cap: $1B – we are only looking for large cap companies
  • Current SP Score: A minimum score of 50. The SP Score is a scoring system model, based on a 12-factor algorithm, which focuses on quality and value. The weights for quality and value are 75% and 25%, respectively.
  • Price 20-day Change (%): Stocks that are down at least –15% in the past 20 days. A 15% drop is considered a market correction
  • Increase in NOPAT over 24 months: at least 5% increase in NOPAT over the last 24 months. We are looking for companies that can increase the profitably of the business
  • Positive EVA: We are looking for companies with positive EVA only. Economic Value Added (EVA) is a measure of true economic profit created by a company. The higher Economic Value Added, the more value a company generates for its shareholders.
  • Increase in Sales over the last 24 months: At least a 7% increase in sales over the last 2 years. We are looking for company that can scale and grow the business
  • Dividend yield: At least a yield of 3%. This is an indicator that the company can distribute their profits with the shareholders




We found 10 companies that were potentially affected by the market correction but appear to have strong fundamentals.

CSCO Cisco Systems, Inc. 39.68 168282.88 57 12558.94 5.70 2178.16 7.19 3.05 -18.80 -22.87
VNO Vornado Realty Trust 52.35 9998.10 56 3717.36 12.19 2109.23 156.51 3.97 -20.95 -20.40
CMA Comerica Incorporated 44.81 6367.30 70 1207.15 6.88 196.67 15.81 3.74 -26.94 -39.57
SNV Synovus Financial Corp. 25.58 3764.29 71 607.47 9.44 241.97 67.08 3.06 -30.05 -26.86
SHLX Shell Midstream Partners Lp 15.1 3522.67 56 602.33 8.54 453.59 7.00 8.36 -24.31 -4.31
MCY Mercury General Corporation 44.31 2452.91 55 320.09 7.14 214.03 13.53 5.16 -17.49 -18.24
EVR Evercore Inc Class A 61.67 2415.98 73 360.46 6.86 221.71 17.08 3.00 -23.93 -27.67
PAGP Plains Gp Holdings Lp Class 12.2 2222.09 63 2304.97 6.24 803.80 26.32 7.28 -24.03 -40.62
GEF-B Greif Class B 37.07 2197.23 53 483.68 6.44 291.95 29.21 3.71 -24.47 -11.99
CADE Cadence Bancorporation Class 12.06 1538.83 56 217.18 7.29 4.67 99.04 3.86 -25.88 -29.36


Cisco Systems is one of the global players in the Network and Cloud industry. They have been increasing their revenue year-over-year as well as their operating margins. One of the strategies put in place to boost revenues is to offer new products targeted to small businesses This could be a game changer, as we see the rise of small businesses in North America. Although the company beat Q2 earning, the stock dropped due to fears of COVIS-19, as 40% of their sales is outside the US. Given its potential, the stock price has been trading at the same price level as February 2018 – this might be a good buying opportunity.

Vornado Realty Trust is a real estate investment trust formed in Maryland, with its primary office in New York City. The company invests in office buildings and street retail in Manhattan. They have been constantly distribution a stable dividend yield of around 3.9%. The company has been increasing the net profit margin, ROE and ROA over the last 3 years. They are the largest owner of LEED-certified property in the US, with more than 27 million square feet of LEED-certified properties. With a solid balance sheet and a strong market presence in the US, Vornado might be trading at a discount given a rent drop of -21% last 20 days


For more details about Vornado Realty Trust and Cisco Systems, performance, readers can subscribe to the Investor for Advisor platform for free:

Portfolio Manager’s March comment For February Results

The Canadian stock market realized one of its worst performance in February. This negative outcome unfolded as growing concerns on the economic impact of the COVID-19 was being factored in investor expectations. Given the elevated level of equity markets, the COVID-19 was the perfect trigger for a market correction.

The S&P/TSX Total Return Index declined by 5.9% in February and the S&P 500 also declined by 8.2% while the MSCI ACWI ex. USA lost 7.9%. At February end, the 12-months S&P/TSX Total Return Index gain was 4.9% behind the S&P500 gain of 8.2% and higher than the MSCI ACWI ex. USA who was flat.

The best TSX sector for the month of February was Information Technology down 2.7%, followed by Utilities down 3.1%, and Real Estate down 3.8%. On the contrary, the worst performing sectors were Health Care (-16.7%), Material (-7.6%) and Energy (-7.5%).

The best performers in February were Brookfield Asset Management (-0.9%) Constellation Software (-1.7%) and TFI International (-2.3%). Brookfield Asset Management trades as a bond equivalent and performs relatively well when long term interest rate decrease and the market considers IT stocks like Constellation Software isolated from the COVID-19 economic impact. At the opposite, the weakest contributors were CCL Industries, which was down 20.6% on very disappointing results as organic growth missed by a wide margin, Kirkland Lake Gold was down 20.2% due to poor production gold grade in Fosterville and Equitable group was down 15.4% because of low guidance despite better than expected results.