Maple Leaf Foods (MFI.TO)

They’ve done an incredible job of transforming their business from 25-26 plants across Canada down to 5-6 and have become much more efficient. Margins have gone up, and at the same time, a few years ago they sold their big position in Canada Bread to a Mexican company and got a lot of cash, so their balance sheet is a fortress. Have no debt and has $300 million cash, so are in a good position to either make an acquisition, increase the dividend, buy back shares, etc. Still trades at a discount to some of its US peers. Feels that ultimately a big US company will make a bid for them. Dividend yield of 1.19%.

(A little worried about the markets in the short term, and wants to give viewers some things that won’t have too much downside if the market trades down.) There is some upside in this in the short term in the next two quarters. They spent a lot of money over the last couple of years on plant optimization, so he expects margins to expand on that. At the same time, lean hog pricing has been cut in half and decimated, which will help margins for the next two quarters. Pristine balance sheet which would allow them to do an acquisition or buy back stock. Fundamentally, financially and technically he likes it, and can see it as an easy $34-$35 stock. 1.15% yield is a little bit small for a traditional dividend investor, so you can Sell a $34 covered call out to January, which will give you an extra 2%, plus a 9% upside in the stock price.

A nice steady company for what could be a rocky market environment. The dominant company in Canada for branded protein products, pork, bacon, etc. Has gone through a massive transformation over the last 5-6 years. They’ve gone from 20 some odd manufacturing facilities, down to 6, which has helped margins increase substantially. In an enviable position with a very strong balance sheet. Sold their stake in Canada Bread a few years ago, and as a result have $300 million in cash on their balance sheet, and no debt. This gives them the ability to probably deploy $800-$900 million of capital through acquisitions, share purchases and dividend increases. If they do that, the valuation discount, versus some of its US peers, will close. This is a business that is going to continue to see margin expansion. Dividend yield of 1.6%.

For a long time he was not a fan of this company, and for a long time it wasn’t a good investment. They have finally been able to get the right assets together and it is now working. Longer-term it is probably not a bad deal. Wouldn’t get into a right now as it has had a good run.

(Market Call Minute.) Had been a Short for him for a long time, but thinks they have turned the corner. Had a big beat in the recent quarter.

They just restructured and realized the value of Canada Bread. He is curious to see what the next steps are. It looks like a fully valued stock at this point.

(The background of the 3 top picks is that they are dividend paying stocks.) 1.33% dividend yield. The largest consumer meat and protein products company in Canada. Earnings are expected to grow from $0.54 in 2015 to $1.06. Trading at .95X enterprise value at trailing sales. Forecasted ROE is 8%.

Likes this company. Sold their 90% holdings of Canada Bread to a Mexican company. Have taken the cash, paid down a lot of debt and have started to buy back some stock. There is speculation that going from 20 manufacturing facilities down to 5 will be a real benefit to their margins and will start to return some of that cash to shareholders.

A big buy back yesterday. It is better than it has been. Meat packing has been a very low margin business. He is not enthusiastic about the company.

(A Top Pick Feb 21/14. Up 46.14%.) The reason it has performed so well is that they had the big stake in Canada Bread, which they sold to a Mexican company for about $2 billion, which they used to pay down debt. Now sitting with $500 million in cash. Packaged and meat processing is improving. Margins are going up and there is an expectation that they could institute a dividend or share buyback.

The whole consumer space has been exceptional. He couldn’t say that this one is a bad idea. One thing he does like is the recent break out. Chart shows a long base from July on, which was quite good. Against the TSX, it ranks quite well. Hitting an all-time high.

Sold its most profitable division, Canada Bread, earlier this year. They have their meat division which has always been marginally profitable at best. Sitting with a pristine balance sheet and $500 billion in cash. The issue with him is what are they going to do with that cash. The company has not been a great acquirer of businesses in the past. To him there doesn't seem to be tremendous value here.

He is favourable on this from an M&A perspective. Felt there was a significant amount of value to be had in the event they were able to sell their bakery business, which has been done. Have a bunch of cash on their balance sheet. He is a little confused because he thinks the market is giving them too much credit on their ability to turn around the protein business. That is yet to be seen. Easy money has been made, but on the upside you are looking at $21-$22.

Has just undergone a major restructuring, pushed by a hedge fund. Sold their best asset, Canada Bread, the only real profitable part of this company. The meat business that is left is certainly a large business, but has struggled to make money for a number of years. Commodity-based businesses are very tough businesses.

Profile has changed quite a bit since completing the sale of Canada Bread. It is now a protein focused company that is in the midst of a big restructuring with lots of cash on its balance sheet. The question as to whether they have been successful in turning the protein business around is still out there. Next quarter will be very, very volatile and he thinks disappointing as you won’t see as much progress as some investors might want to see. In the event the stock pulls back because of disappointment that they are not restructuring fast enough, would create a buying opportunity.