Keurig Dr Pepper Inc – KDP (US)

Keurig Dr Pepper Inc – KDP (US)

Price: 22.8 USD as of 31 Aug 2018

Looks like an outstanding stock to invest in based on many value investing criteria. Some of the key stats are listed below to help you get started in researching this company.

In brackets besides some of the numbers are remarks suitable for investors looking to buy (i.e. long) or hold the stock.

The question that we have in mind is: With all dividends re-invested, can this stock holding double in value (total returns of 100%) in 5 years or less? If yes, that would give us a CAGR of 15% or more – a very healthy number.

Industry: Non-alcoholic Beverages

Employees: 21000

City of Domicile: Burlington


Market Cap: 31.6 billion USD

Enterprise value: 35.96 billion USD (the lower this number, the better)


Price to Earnings: 5x (very good)

Price to Diluted Earnings Per Share (EPS): 3.74x (very good)

5 year average price to earnings: 20x (very good, compared to current – which is much lesser)

Price to Cash Flow: 3.9x (very good)

Price to Book: 1.51x (good)

Price to Sales: 0.60x (good)


5 year average return on equity: 42% (very good)

3 year average return on assets: 10% (good)


Diluted EPS 5 year average growth: 14% (good)


Retention Ratio: 61% (good)

Dividend Yield: 2.4% (good)

Sustainable growth rate*: 29% (good)


Net margin 5 year average: 15% (good)


Current Ratio: 0.9

Quick Ratio: 0.6

Debt to Assets: 44.5% (acceptable)


10 year annualized total return: 20.7% (very strong)

5 year annualized total return: 26.7%


One thing we notice is, is that with all other factors unchanged, if the market prices this stock at a P/E of 10 only (half of its historic P/E), the price should double.

Regarding “margin of safety”, we selected this stock because it is not very highly leveraged (geared, indebted) and it is an established brand in a relatively unchanging industry, unlike internet or biotech companies.

What do you think about KDP? Is it a smart investment today? Do leave your observations and opinions in the comments below.

Author:
Sam Wadia, MCom, ChFC
https://www.linkedin.com/in/wadias

 

* Notes:

(1) Sustainable Growth Rate is a measure of how much a firm can grow without borrowing more money.

(2) Do not buy or sell anything unless you fully understand it. Get written consent from your qualified financial advisor before making any money decision.

(3) Historic performance is no guarantee of future returns.

World Equity Indexes – Opportunity Analysis August 2018

In the subject of stock selection, there is indeed a lot of “noise” – facts & factoids, TV channels and talking heads spewing out all kinds of “information”, which are patently useless, even dangerous to wise investing decision making. We are here to reduce that clutter and help you zero-in on the stats that matter. Luckily, one can make a very smart choice – low risk and high potential return – by looking at just a handful of them. Our aim as investors is to simply place the odds in our favor.

We like to look that major global stock market indexes first – starting with developed nations because the numbers reported are more reliable – before we go into individual stock selection. This is because index valuations – price to earnings, price to book, debt levels, revenue growth, return on equity, return on assets, profit margins, etc. – give us a broad picture of what is going in the world of financial opportunities today. They represent the global markets at large.

The question that we want to have answers to are:

Are the markets expensive or cheap:

  • based on historic levels?
  • based on their own intrinsic valuations?
  • compared to those of other countries?

If the market is cheap, we can be more confident in allocating a bigger percentage of our asset portfolio to it, and viceversa. The beauty of investing in an index (through a low-cost tracking fund) is that we get the benefit of convinient and cheap diversification with access to blue-chips i.e. large, strong companies with a track record behind them.

Here are 12 top benchmarks and their P/E and dividend yields. P/E is current price to earnings (times). Dividend yield is last 12 months of dividends as a percentage of current market price.

Dow Jones Industrial Average (USA)

  1. Value: 25313
  2. P/E: 18
  3. P/E before extraordinary items: 22.4x
  4. Div Yield: 2.16
  5. ROE: 18%
  6. P/B: 4x
  7. Profit margin: 9%
  8. Current ratio: 1.25
  9. Total debt to total equity: 207%
  10. Index enterprise value: 28650

S&P 500 (USA)

  1. Value: 2833
  2. P/E: 20.6
  3. Div Yield: 1.84
  4. P/E before extraordinary items: 23x
  5. ROE: 14.9
  6. Price to book value: 3.4x
  7. Profit margin: 9.7%
  8. Current ratio: 1.37
  9. Total debt to total equity: 112%
  10. Index enterprise value: 3269

Nasdaq Composite (USA)

  1. Value: 7839
  2. P/E: 54
  3. Div Yield: 0.98
  4. P/E before extraordinary items: 25x
  5. ROE: 12.7%
  6. P/B: 4.7x
  7. Profit margin: 8%
  8. Current ratio: 1.71
  9. Total debt to total equity: 84.8%
  10. Index enterprise value: 8850

S&P TSX Composite (Canada)

  1. Value: 16326
  2. P/E: 18
  3. Div Yield: 2.81
  4. P/E before extraordinary items: 18.8%
  5. Return on Assets: 1.29%
  6. Return on Equity: 10.0%
  7. Price to Book Value: 1.83%
  8. Profit margin: 9.4%
  9. Current ratio: 1.18
  10. Total debt to total equity: 105.5%
  11. Index enterprise value: 26370

FTSE 100 (UK)

  1. Value: 7622
  2. P/E: 17
  3. Div Yield: 4.15 (high is good for investors!)
  4. P/E before extraordinary items: 13.2x
  5. Return on Assets: 1.74%
  6. Return on Equity: 15.35%
  7. Price to Book Value: 1.85x
  8. Profit margin: 9.6%
  9. Current ratio: 1.03
  10. Total debt to total equity: 120%
  11. Index enterprise value: 9311

CAC 40 (France)

  1. Value: 5400
  2. P/E: 16.34
  3. Div Yield: 3.18
  4. P/E before extraordinary items: 16.6x
  5. Return on Assets: 1.25%
  6. Return on Equity: 10.4%
  7. Price to Book Value: 1.65%
  8. Profit margin: 7.1%
  9. Current ratio: 1.13
  10. Total debt to total equity: 193% (very high!)
  11. Index enterprise value: 6390

Nikkei 225 (Japan)

  1. Value: 21857
  2. P/E: 15.8
  3. Div Yield: 1.84
  4. P/E before extraordinary items: 16x
  5. Return on Assets: 3.5%
  6. Return on Equity: 11.1%
  7. Price to Book Value: 1.75%
  8. Profit margin: 6.66%
  9. Current ratio: 1.49
  10. Total debt to total equity: 70.4%
  11. Index enterprise value: 26050

Dax (Germany)

  1. Value: 12347
  2. P/E: 14
  3. Div Yield: 3.14
  4. P/E before extraordinary items: 14.4x
  5. Return on Assets: 1.6%
  6. Return on Equity: 12.5%
  7. Price to Book Value: 1.7x
  8. Profit margin: 6.9%
  9. Current ratio: 1.15
  10. Total debt to total equity: 138%
  11. Index enterprise value: 14850

Hang Seng (Hong Kong)

  1. Value: 27936
  2. P/E: 10.9 (very low, very cheap, hence very good for buyers!)
  3. Div Yield: 3.89
  4. P/E before extraordinary items: 10.5%
  5. Return on Assets: 1.62%
  6. Return on Equity: 11.9%
  7. Price to Book Value: 1.25x
  8. Profit margin: 18.3% (very high! this is good)
  9. Current ratio: 1.26
  10. Total debt to total equity: 108%
  11. Index enterprise value: 33572

S&P ASX 200 (Australia)

  1. Value: 6252
  2. P/E: 18.49
  3. Div Yield: 4.08
  4. P/E before extraordinary items: 18.15x
  5. Return on Assets: 1.7%
  6. Return on Equity: 11.3%
  7. Price to Book Value: 2.13x
  8. Profit margin: 12.3%
  9. Current ratio: 1.18
  10. Total debt to total equity: 158%
  11. Index enterprise value: 7900

STI (Singapore)

  1. Value: 3245
  2. P/E: 11.42
  3. Div Yield: 4.24
  4. P/B: 1.12x
  5. ROE: 9.99%
  6. ROA: 1.82%
  7. Profit margin: 16.16%
  8. P/E before extraordinary items: 11.3%
  9. Current ratio: 1.27
  10. Total debt to total equity: 59%
  11. Index enterprise value: 5955

Kospi (South Korea)

Value: 2248

P/E: 10.75

Div Yield: 2

 

Inference:

From the above, we can tell that Singapore and Hong Kong have much lower valuations than the Nasdaq. Also, the 30 Dow Jones index companies have a slighly lower valuation than the rest of those in the S&P 500.

 

Disclaimer: This is not specific investment advice or recommendations. Though every effort has been made to make this information accurate, please recheck the numbers above through your own sources, they may or may not have been inadvertently misquoted. Please acquire written consent from your qualified financial advisor before making any investment decision. This website is not liable for any gains or losses an investor makes in the short- or long-term.

Norbord Inc. (OSB)

This one really caught my eye when it popped up on the screener. Norbord is a Canadian manufacturer of wood-based construction materials, the kind of boring money spinner that Peter Lynch would love. It’s only 30 years old and under 4B in market cap, so it has room to grow. And it has been growing nicely.

Right now it’s trading at a multiple of 7.4, well below its industry and its own five year average. with a dividend yield of 4.3%. However, it is thinly traded and owned largely by institutions, and the analysts don’t even know it exists. It’s a true hidden gem. So is it worth buying?

Profit margins, revenue growth and returns are all strong, and it compares very favorably with its industry peers. Earnings have grown almost 130% over the last year, but projections for the next few years are negative. Hmm. Cash flow has grown a juicy 34% over the past five years.

Debt and payout ratio are also quite manageable. So let’s look at those payouts. Dividends have been growing, but in part because it has been recovering from a few bad years in 2015-16. Overall, dividend history has been erratic. Not the steadily increasing pattern we like to see.

No company is perfect, but on balance this looks like a winner.

– David Goldwich, J.D.

Screener Results – April 2018

We ran a screen to filter stocks with the following criteria:

  • Companies domiciled and listed in North America, Western Europe, and Singapore i.e. devloped markets.
  • Primary security of the company only, with active trading status.
  • Low P/E: below 12x. In other words, high immediate earnings power (earnings yield on each dollar invested today) of over 8% per year.
  • Low Debt / Capital
  • High ROE: above 10% per year average over the last 5 years.
  • High Diluted EPS growth: above 10% per year average over the last 5 years.
  • Market capitalization over 1 billion USD.
  • Low Enterprise Value (at VSJ, we call it Enterprise Cost): below 1.3x Market capitalization

This screener resulted in only 31 stocks from across the developed world, out of tens of thousands of listed companies. This is a remarkable small list, which make research and selection a lot easier and quicker.

The following 8 caught our attention:

  • Audi AG (Germany)
  • Universal Insurance Holdings (USA)
  • Rentokil Initial PLC (Britain)
  • Cirrus Logic Inc (USA)
  • Canfor Pulp Products Inc (Canada)
  • MGI Coutier (France)
  • Industrial Alliance Insurance (Canada)
  • JetBlue Airways Corp (USA)

I would highly recommend you research them fully, and understand them. Feel free to comment your thoughts on each of them below this post.

To your profitable investing,

-SW

The Marshmallow Test

There was a famous study in psychology called the marshmallow (or sometimes cookie) test. It worked like this: Preschool students (about five years old or so) were seated at a table with a marshmallow (or cookie). The authority figure (teacher or researcher) explained that she had to go out for a few minutes, and if the kid didn’t eat the marshmallow while she was gone she would give him a second marshmallow as a reward when she returned, but if he ate the marshmallow he would not be given another. Most kids are not good with delayed gratification, and quickly gobbled up their one and only marshmallow. But some kids had the willpower to wait and get the reward of a second treat! (I wish my investments could compound at such a rate!)

But there’s more to the story. The researchers followed up with the kids years later. Those who were able to delay gratification at the marshmallow table tended to be better off financially as adults. Delayed gratification works! Patience really does pay!

The study, though revealing, wasn’t exactly fair. Kids lack maturity and cannot be expected to display discipline or wisdom in the face of such overwhelming temptation. There is no reason an impulsive little tyke cannot learn to take today’s money and invest it for tomorrow’s consumption. But you’re (probably) not a little kid. Are you investing yet? What’s your excuse?

In the spotlight: Lear Corporation

Lear Corporation (LEA)

Manufacturer of automotive seating and electrical systems. A boring, steady type of company that Peter Lynch would love!

LEA – Lear Corporation, USA, founded 1917.

Date of research: 25 August 2017.

Industry: automotive components.

HQ: Southfield, Michigan, USA. 

Industry outlook: we think this is going to grow for this major player, because even with changing engine technology (towards electric battery), car seats stay the same.

Stock price performance 5 years: was $37 in September 2012, today it’s $146, an increase of over 290% on price alone. ✅

Dividend yield: 1.3%. $2 per year currently, it has grown over the last 3 years.

Payout ratio: only 10%, which is low compared to other companies of its profile.

P/E TTM: 10x ✅

PEG: 2.2

P/Book: 3x

Price / Sales: 0.5

Price / Cash flow: 6.9x ✅

RoA: 10%

RoI: 20%

RoE: 32% ✅

Profit margin: 5.5%

Operating margin: 8%

Debt / Equity: 59% ✅

Growth rates over last 5 years:-

   EPS: 21% vs 12% for industry (CAGR) ✅

   Revenue: 5.5% vs 2.5% for industry (CAGR)

Enterprise Value: $10.6 billion, within 10% of its market cap  (for stock buyers, the lower this figure, the better).

Market Capitalization: $9.92 billion USD