Monday, January 9, 2012

Automodular Corp.

If you have a Tax Free Savings Account (TFSA), and everyone should, you will find that you have bits of money in this account that is not doing much for you. This is because you can invest a maximum of $5,000 a year and this is not much. After you bought the stock you want using your yearly deposit, there will be money left over. Also, if you are buying dividend paying stock, you will have dividends.

There are several ways of handling this. One way is to use DRIPs, where you use the dividends to buy more shares in your company. For a review of this see My Own Adviser’s write up on this subject at Dividend Ninja and his site.

DRIPs are a good idea, but I have been there and done that. I used DRIPs to build up shares in my stocks when I first started to invest. I had to keep track of the Adjusted Cost Basis (ACB) of my stocks and I ended up with odd number of shares in my stocks that are harder to sell. It wasn’t particularly fun. It was rather boring, but it also was profitable for me.

What I do now is invest in some dividend paying small cap, like this stock. I just bought this stock (TSX-AM), for my TFSA. This is a risky stock in several ways. It is a small cap so it will not be traded much or in good volumes. It is dependent on one large company as a customer and that is Ford. However, investing in such stock can be a lot more fun in soaking up your bits of cash than doing other things.

This is a small cap that got hammered in the 2000 recession. This happened to a lot of small caps. This stock has slowly been coming back. A lot of small caps have never recovered. Dividends have been an on and off affair for this stock for a while. They issued no dividends from 2004 to 2009. Then they did a special dividend in 2010. They restarted dividends in 2011 and now have full quarterly dividends.

The dividend rate is current great at 9%. In the last couple of years, dividend income has been a big part of the return. Beside the great dividend, the next great think about this stock is the debt ratios. The current Liquidity Ratio is 2.60 and the Asset/Liability Ratio is 3.71. For these ratios, you are looking for ones at or above 1.50. The current Leverage and Debt/Equity Ratios are also very good, with current ones at 1.37 and 0.37, respectively.

As far as growth goes it was mixed in 2010 with Revenues and Cash Flows up smartly, but the EPS was negative. So far in 2011, revenues are down a bit and cash flow is up a bit, but the real winner is a better EPS than this company has had for some time. They are also trying to get other customers rather than just relying on Ford Oakville plant.

The 5 year median low and high Price/Earnings Ratios are 1.18 and 3.98. These are very low ratios. Mostly this is because there were a number of years with negative earnings. The current P/E ratio of 4.11 is also very low. The yield has always been high on this stock, but even for this stock, a 9% yield is high, but it has been up in this neighborhood before. However, the median yield when it was last paying dividends was 6.3%.

The 5 year median Price/Book Value is low at just 0.97. That is a book value higher than the stock price. The current one of 1.19 is higher, but it is still, in absolute terms low. I get a Graham Price of $4.35. This is 49% above the current stock price. This in itself shows a good stock price. However, it has been better, but the median difference between the Graham Price and Stock price is the stock price 26% lower. So, on a relatively basis, the stock price is good.

In any event, the current stock price of $2.22 seems low.

Needless to say, there are not many analysts following this stock. I found one who said it was a buy because the shares are cheap given the company's earnings and dividends. He thinks it will be a market beater in 2012. He said it was also a Buy because it is debt-free. Automodular should be bought for long term gains and dividends. However, it is also risky because of limited customers.

It is interesting who owns this stock. The CEO owns some 21% of the shares. There are 3 institutions that hold 44% of the shares. Two of these are The Bank of Nova Scotia and Bissett Investment Management (of Franklin Templeton Investments Corp).

See a G&M article on this company dated April 2011.

Automodular Corporation is a supplier of sub-assembly, sequencing and transportation services to the automotive industry - Ford's Oakville Assembly Plant and the renewable energy industry. The Company has three operating facilities. Its web site is here Automodular. See my spreadsheet at am.htm.

I follow a number of these small cap stocks. They include:
Pulse Seismic (TSX-PSD)
Wi-Lan (TSX-WIN)
EnerCare (TSX-ECI)

I own TECSYS and McCoy currently. See my site stocks followed to look up my reviews on these stocks.

So how well have I done on this. The first stock I bought was Matrikon Inc. This was dividend paying small Tech cap. One problem with small cap tech stocks is that they can be bought out if successful. I made two purchases on this stock, one in 2009 and one in 2010 totaling $1,047.98. I had to sell because of a buy out in June 2010. My total return was $1,822.01 a 74% increase in value.

The next stock I bought was Pareto Corp. This was to replace Matrikon and then a separate purchase in January 2011. Total purchase was $3,007.98. Total return on this stock was $4,659.01 when I was forced to sell in buyout on February 2011. This was a 55% increase in value.

Next I used some of the money to buy Davis and Henderson Corp (TSX-DH) and what was left over ($403.99) and some extra money in May 2011($412.99) and a total of $816.98 to buy McCoy Corp (MCB) as a filler stock. The value of this stock is currently at $655. This 20% decrease in value. (I, of course, expect this to do better in the future. I didn’t buy more this time as I only have $274.19 in the account, the MCB is going currently at $3.20 a share.)

I was reading a report on Automodular Corp and decided to try it.

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.


  1. Actually it is the ex-CEO, Blair, and his investment company that owned 21% of the company, and which is now probably down to less than the 10% threshold for insider status. His selling over the past year and that of Scotia, which held a similar significant position as the result of earlier terms of a financing for the company, drove the price down below the $2 level it has been trading at. Seemingly their selling has slowed allowing the price to inflate once again.

  2. I talk about this in my second post on Automodular Corp, dated June 6th.