Finning Int (FTT.TO)

Q2 they checked all boxes. A story of improved macro tailwinds combined with increased margin efficiencies and cost cutting. They model earnings growth of 28%. Trading at 153 times 2019. (Analysts’ price target is $38.83)

Chile and Western Canada are huge markets. They are starting to consume cash for working capital but they are a good business.

(A Top Pick Aug 30/17, Up 14%) He saw the stirrings in capital expenditures in mining. Their product is made with steel and is in the news regarding trade wars. These are indispensible machines in the mining industry, however.

It's the world's largest Caterpillar equipment dealer and they also do after-market service and support, which reduces the cyclicality of this business. It boasts 15% ROE and trades at 17x earnings. (Analysts' price target $38.83)

He fills the time to buy this company has passed. He had owned three years ago and sentiment is towards holding. Management has engineered a good turnaround. Pricing is improving for new equipment and he likes the model. He still owns a small holding. Infrastructure spending in the US will have to be seen.

Has a lot of respect for how management has turned the business around over the past number of years. Now there is more good news being priced into the business, and it is clear that it is past the worst. Now that this business bounces off the bottom, there are certain things that happen. Incremental margins are better, but free cash flow conversions actually are worse, because they now have to invest in net working capital to grow the business. He likes the company, and over the years they can do just fine, but it is not the risk/return that it was.

The world’s largest Caterpillar dealer. Their largest customers are public works. Mining is their 2^nd largest. Mining industry capital spend has been in a nuclear winter since 2012, and is just coming out of that. Dividend yield of 2.8% per year and they’ve grown their dividend 8% per year (Analysts’ price target is $32.)

It was down trending, formed a really nice base and now is braking out. It is a cup and handle formation. It is struggling to break out.

(Market Call Minute.) Earnings have troughed here, and the market is telling you those earnings have troughed.

A very well-run business, and new management has done a very good job of restructuring. The Canadian business has been optimized/right sized, the South American business has been fixed, and they are in the process of fixing the UK business. That is going to take a little time, but he believes the company is well positioned for an ultimate rebound in their end market, which is Cat equipment, tied to things like oil sands, copper ore, etc. They generate a material amount of free cash flow. Expectations off the low are a little different and has been re-rated to a degree, but in tough times are cyclical cash flow benefits. In good times there are nice incremental margins and high operating leverage, that should drive nice earnings growth should things get better. He would be comfortable with this.

This is in the industrials, a sector that he likes. The peak was reached in 2007, and then it failed to make a new high in 2011, which put a cap on the stock for a while. It has now digested that move. Now has a well-defined Low at the beginning of this year and thinks it is now going to correct. As the corrective period goes on, the volume increases, and as it moves higher, the volume spikes up again. Watch the volume.

They used to be a serial dividend increaser. There is not a big demand for what they sell right now.

He owns this, because it is a much higher quality way to play a lot of mining and energy in general. Think of this as being in 2 important segments, oil sands in Western Canada, and Chilean copper. Both are clearly having a very difficult time. The business generates a lot of counter cyclical cash flows, so right now when things are more difficult, they are generating more cash as they liquidate inventory. There is an underlying service component which is very attractive. Companies that take stuff out of the ground, effectively can run a machine for a long time. Eventually the machine breaks. We are at the point now where a lot of companies have been parking machines, and then they start fixing and replacing things. Eventually the market for new machines will improve. Valuation is okay.

We have seen some slowing in Western Canada for demand in the products they provide. This is probably a permanent long term squeeze on their business. The yield is relatively low. He is currently doing homework on this company.

(Market Call Minute.) Would probably avoid this right now. If we saw the US$ start to decline, that would be good for a company like this. In the mean time they are probably going to have a lot of wind in their face, and earnings numbers are probably not going to be very strong.