Rebalancing May 28, 2021: Selling Groupe Guillin and Buying Interfor Corp
SELL: GROUPE GUILLIN
On Friday, the newest portfolio position rebalancing was due. This is position "4" of the new 6-month rebalancing cycle. I sold Groupe Guillin after hollding it since June 22, 2020. It had a good run and returned approximately 40% since the buy.
Here the business description for Groupe Guillin from gurufocus.com:
"Groupe Guillin SA is a European company. It is engaged in producing and selling of plastic packages. The company's product offering includes trays, catering containers, cake, and pastry containers and thermoforming sheets. The firm serves the catering industry, meat and food industry, and fruit and vegetable producers and packers."
In my latest screen, Groupe Guillin made it to #561 of 5642 stocks in the screen. That means that the stock is still in the Top Decile of my final Buy Ranking. Not bad. Still, over 500 potentially "better" alternatives is for me a reason to sell the position (sorry).
Let's see how Groupe Guillin would rank on the single composites. Here an overview:
The valuation composite and the absence of Red Flags are still marking a strong buy signal. So for a pure Deep Value Investor, Groupe Guillin is still a Buy or at least a Hold. Also according to Gurufocus, the valuation is still favorable, both in comparsion to the industry and in comparison to the stock’s history:
Regarding the performance composite, the 60-12m long-term reversal signal is still intact with a strong 0.83 rank and momentum signals are "OK" in the range of 0.42 for 6-1m Momentum and 0.60 for 12-1m Momentum.
Problems arise in the accounting composite. While the F-score is still strong, the ranks on accruals, external financing and asset growth are mediocre. A system focusing on Value and just demanding a certain minum rank on Accounting and Performance would most likely remain long Groupe Guillin. However, I trust all of my "3 judges" equally. So I sold.
BUY: INTERFOR CORP
Instead I picked up “Interfor Corp”, a Canadian forest products company. Here the description according to gurufocus.com:
"Interfor Corp produces and sells lumber, timber, and other wood products. The company operates sawmills to convert timber into lumber, logs, wood chips, and other wood products for sale. The firm also harvests timber for its sawmills on forest land owned by the Canadian government. Interfor pays the Canadian government stumpage fees based on the number of trees it harvests. The company's primary customers are in the construction and renovation industries. The majority of revenue is generated from the sale of lumber. The majority of Interfor's revenue comes from the United States."
The stocks strongly profited from the recent boom in lumber prices and homebuilding in the US. There are many reasons for this situation:
- lack of sawmill investments after many companies burned their fingers in the housing boom leading to the 2008/2009 financial crysis,
- forest damage in Canada and increasing environmental restrictions,
- (transitory) supply/demand shocks due to the COVID crysis,
- and probably more.
Will the boom continue? Who knows. At this point, I once again want to remind the reader that I buy stocks for a 6-month holding period and have a high turnover. I have no long-term view on Interfor Corp or any other stock I hold. Each position is part of a somewhat diversified portfolio and not all of them will work out.
That said: There is not much to add about Interfor except that it is a perfect hit for my system right now. No red flags, low/mediocre asset growth and stock performance over the last years paired with strong recent price and fundamental momentum (e.g. perfect Piotrosky F-score of 9) and that with all earnings-power related valuation multiples flashing green. Here some valuation data and the 5Y stock price chart from gurufocus.com:
Of course, buying into a hot and highly cyclical trend is always scary, but I still would say historical data is on my side. Noone should bet all of his/her chips on Interfor or any cyclical company or should make concentrated bets in such sectors. Those who follow Micheal Mitchell on Twitter (@IgnoreNarrative) will know that it can work but only with in-depth due diligence, a strong investing network, strong conviction and hard research work.
(Good) systematic investing instead lives from finding a balance: Make few enough bets to capture the best factor exposure but make enough bets to not blow up.
Cheers,
Non-Prophet