Rebalancing June 07, 2021: Selling Sto SE & Co KGaA and Buying Cervus Equipment Corp

SELL: Sto SE & Co KGaA

On Monday, the next rebalancing was due. I sold one my favorite stocks of the last year. I personally am coming from Germany and studied ceramics, glass construction materials in university. So I was more then happy that a German construction materials company made to the Top of my Ranking approximately one year ago (bought on July 10, 2020).

Sto SE & Co KGaA ($570M market cap) operates in segments such as facade systems and coatings, interior plaster and paint systems, decorative coatings, interior claddings & acoustic systems, high-quality floor coatings and concrete repair products.

In my latest screen Sto SE actually showed up in the Top Decile of the final Ranking (MultiRank: 0.94; Place 336 of 5563). If we look into the individual Ranks, we’ll find the following:

Valuation: 0.89

Most valuation metrics and subranks are still strong. The worst outcome was found on P/S-to-MedianP/S with a rank of only 0.64 due to the strong recent stock performance. To put the overall Valuation Rank into context, see here some major multiples for Sto SE (source: gurufocus.com):

Performance: 0.81

The momentum scross 12, 6 and 3 months is still strong with non-critical 60-12m long-term reversal signals. All single momnetum metrics rank around ~0.7 and combined lead to a top quintile performance rank. To put this into context, see here 5Y chart for Sto SE (source: gurufocus.com):

Accounting: 0.69

The Accounting Rank was generally patchier. While the Piotrosky F-Score of 8 was still strong, metrics like ranked accruals, external financing and asset growth were more mediocre in comparison (ranks of about ~0.6). Sloan ratio even ranked only with 0.24. Sto nonetheless is rather healthy company:

Red Flags: 1 (Short-Term Reversal: 0.06)

I personally am rather strict with my rebalancing. Sto SE is a classic situation where keeping the stock could make sense for tax or trading cost reasons. Excluding the Red Flag, the Stock also would rank much higher (MultiRank: 0.98; Place ~100 of 5563). Still, I used the situation and sold Sto SE for +85% pretax gain. Maybe pick it up later again, if the stars align accordingly.

BUY: CERVUS EQUIPMENT CORP

Instead I bought the Canadian Small-Cap Cervus Equipment Corp (~$200M market cap). Cervus is a dealer for agricultural, commercial, industrial and transportation equipment, including skid-steer loaders, compact excavators, telehandlers, and mulchers, among others. Dealerships are mainly located in Canada, New Zealand and Australia. The company offers new equipment, used equipment, parts, and services, maintenance, and rentals. The majority revenue is generated in the agricultural segment.

The stock ranks 0.98 in Valuation, 0.89 in Performance, 0.98 in Accounting and exhibits no red flags. See here some major subranks for the stock in comparision:

The main positives are, high Piotrosky F-score, low valuation, recent Share Buybacks and Dept downpayment amongst others. To put the valuation into perspective, see here some major multiples (source: gurufocus.com):

The main issues with the business is the comapratively high absolute amount of debt and the volatile nature of the operating business. In relative terms, the comapny seems not to be in trouble. Of course there is risk involved nonetheless. The comapny should only be held in a diversified portfolio of stocks and should be re-evaluated at least once a year. My time horizon for the investment is 6 months. Top put the risks into perspective, see here some major numbers on margins, growth and the financial situation of the company (source: gurufocus.com):

Kind regards,

Non-Prophet