Thursday, July 16, 2009

Saputo Inc 2

I am continuing my review this stock (TSX-SAP) today as I have received its annual report. I currently own this stock and it has done well for me. It is easy to understand what this company does for a living. They make and sell cheese and other dairy products. Part of what got us into economic trouble lately has been that people bought things that did not understand. Take, for instance, mortgage derivatives like collateralized mortgage obligations (CMOs). People did not really know what they were buying.

The thing is that you should never, ever, buy something that you do not understand. Also, buying any sort of derivative product can be daunting and much harder to understand than the underlying product. For example, stock options are harder to understand that stocks. I never buy any derivative product, including stock options.

As far as insider selling and insider buying goes, there has been over the past year a lot of insider selling by the CEO. However, since it seems it was all stock options, this does not tell us anything. This selling took place last fall.

The next place to go is ratios. The P/E ratio on this stock currently around 15.7 is lower than the 5 year average on the closing price and is about the same as the 5 year average low. So this is a reasonable P/E. The yield on this stock of 2.3% is higher than the 5 year average of 1.98% so it also has a reasonable yield. The next thing is the Graham Price. The current price is some 30% above the Graham Price. Since this is not only a dividend paying stock, but also a growth stock, it is not surprising. However, the 10 year average for the price above Graham Price is 46%. So the difference is more narrow that usual.

The next ratio I looked at was the Price/Book Value Ratio. The current ratio of 2.56 is 90% of the 10 year average of 2.79. It shows that the current price is reasonable, but to show a great buy, it would have to be 80% of the 10 year average. The last ratio is the Price/Sales ratio. This P/S is at .79 and this is less than the 10 year average of .91 and the 5 year average of .98.

The Globe Investor site gives this stock a 4 star rating. When I look at the analysts’ ratings, I find Strong Buy and Buy ratings on this stock. The consensus rating would seem to be a Buy. (See my site for information on analyst ratings.)

When looking at the charts, I find that this company over the last 3, 5 and 10 year periods, has preformed better than both the TSX and the Consumer Staples Index. Over shorter periods, the results are rather mixed.

To sum up this report, most ratios point to the stock price as being reasonable. It would seem that most analyst like this stock as I could find no other ratings besides the above Buy and Strong Buy ratings. I expect to make a reasonable return on my investment in this stock over the long term. The only current thing that worries me is the high Accrual Ratio that I talked about yesterday.

This company is a dairy processor and cheese producer in Canada and USA. Its web site is See my spreadsheet at

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website at for a list of the stocks for which I have put up spreadsheets.

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