Thursday, December 30, 2010

Goodfellow and Pareto

I had a bit of money to invest, so I bought some Goodfellow Inc and a bit more Pareto Corp. I had no Goodfellow Inc before yesterday. I have tracked this stock for some time and it is has been pushed by the Investment Reporter for some time. It is in a rather old industry, being heavily involved with wood.

However, considering that we still use steam to turn turbines to make electricity, even when we use nuclear power, I think that man is great at improving things. Real change is sometime that seems to occur very seldom. I therefore have few problems with buying into an old type industrial for a long term investment.

As I have said in the past, the best you can usually do in a purchases is pay a reasonable price for your stock. I looked at a couple other stocks, specially, Reitmans (TSX-RET.A) and Emera (TSX-EMA), which I have recently read about as good dividend paying stocks to buy currently. However, both these stocks seem to be relatively expensive.

This stock does always tend to be on the cheap side. Also, it is encouraging that they gave out a special dividend last year. However, I tend to look at special dividends as the management saying they have some money now for dividends, but they do not make the increase permanent, because they are not absolutely sure it can be maintained. Current, the dividend rate is at 5% and the 5 year average is 5%, so this points to an average price.

The stock price of $12 for yesterday is about 48% lower than my Graham price, which is $23.03. However, this stock is generally below the Graham price. The Price/Book Value at 0.90 is some 96% of the 10 year average of 0.93. This stock is often sold below the book value, but it is also a good sign that it is lower than average. The P/E is at just 6.9. The P/E on this stock is also generally low with a 5 year median low of 5.4 and a 5 year median high of 9.2. Of course, the whole point is that I am paying a reasonable price for this stock.

When I look at the insider trading report, I find that there is a bit of insider buying and a bit more of insider selling. However, these amounts are so small that they tell us nothing. More of interest is the special dividend mentioned above. One good thing that I see is that the company is expanding aboard, rather than just doing business in US and Canada. (Note this company is also sold over the counter in the US, with a symbol of GFELF.) One problem is that the 1st quarter financial reports for 2011, dated November 30th, 2010 came in weaker than the equivalent 1st quarter of 2010, dated November 30th, 2009.

If you are considering this company, please note that the dividends have gone down as well as up. Over the long term, they seem to go up just fine. Over the short term, they have gone both up and down. They have also given out special dividends.

Goodfellow Inc. is one of eastern Canada's largest independent re-manufacturers and distributors of lumber and hardwood flooring products. The company serves customers throughout Canada, the United States and abroad including the UK and China and the Middle East. It is about 60% owned by insiders. Its web site is here Goodfellow. See my spreadsheet at gdl.htm.

There is not much to say about Pareto. I do not own much of this, so its share price is very low at about $2.35 currently. It is a fast moving coming and it is therefore difficult to tell if I am paying a reasonable price or not. Although the current yield is good at 5.1%, it is lower than the average so far, which is at 6 %. The current price is at $2.35 and it is above the Graham price of $1.69 by 40%. (This is rather normal for growth stock. The average high is running at 68% above the Graham Price.)

There has been a bit of insider buying, but not enough to tell us anything. However, the company raised their dividends twice in 2010 and this translates into a 100% increase in dividends. For the 3rd quarter, revenue and net earnings have increased. The earnings per share are down a bit, because more shares have been issued. The one important thing that is down for the 3d quarter is cash flow.

Pareto is a Canadian marketing services and execution company committed to helping clients sell more. They service Canada’s most successful businesses through our network of services; Retail Merchandising, In-Retail Messaging, Direct Marketing, and Incentives. Its web site is here Pareto. See my spreadsheet at pto.htm.

I next have to decide what to invest with my new $5,000 deposit to the Tax Free Savings Account (TFSA) in January. The last two years I have bought Shoppers Drug Mart (TSX-SC) and Pareto Corp (TSX-PTO). I was again using Pareto as filler to sop up little money that remained after buying Shoppers. Ironically, my TFSA is only doing well because of the Pareto purchase, not because of my main purchase in Shoppers.

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 for stocks followed and investment notes. Follow me on twitter

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