Last month’s Canada Day had us reflecting on our country’s proud history and the limitless opportunities that lie ahead for us domestically. This patriotic thinking brings to mind two Canadian companies that have flown below the radar, but offer excellent growth prospects going forward. We also review a third that has served us well, but we’d advise proceeding with caution going forward.
Lassonde Industries (LAS.A)
Founded in 1918, it is a leading fruit and vegetable juice producer, with sales exceeding $1.1 billion. While best-known in Canada for such juice brands as Rougemont, Allen’s, Everfresh , Oasis and Del Monte, as well as for Arista Wines, the company derives more than 50% of its sales from the U.S. in part due to its recent acquisition of the Adam & Eve brand. But the company is more than juices, with leading subsidiaries operating in five food markets.
As consumers continue to dismiss artificially sweetened soft drinks and other carbonated beverages, opting instead for more healthier options, the juice market is poised to further take away market share. Lassonde is a good way to play this trend: it is a long-established dominant company, it’s operating in a growth industry and it has loyal customers.
We began purchasing in October 2010 at $52.20, and it now trades at $145 for a gain of 178%, not including dividends.
DH Corporation (DH)
In business for 130 years and previously known as Davis and Henderson, the company has wisely expanded beyond its traditional cheque-printing business, and today is a market leader in the financial lending and payments technology solutions field in Canada. It has strategic relationships with Canadian banks and both federal and provincial governments. The company also provides banking and lending technologies to more than 6,000 financial institutions in the U.S., including 60 of the top 100 banks. In 2014, it had revenues of $1.2 billion.
We believe that investors look at the cheque-printing business as a dinosaur (and by extension DH Corp.), but they’re missing how a savvy executive group can reposition a company for growth. And, in this case, it’s never reduced its overall revenues from cheque printing in any given year. DH is clearly a dominant company in an industry seeing more mortgage originations as the U.S. economy continues to hum along. U.S. unemployment is at a 42-year low. So as more people get jobs, they can afford to jump back into homes. Throw in a 3.15% dividend, and there is a lot to like about this company.
We first bought DH in October 2011 at $16.55 per share, and it now trades at $43.50 for a return of about 163%, not including dividends.
While the company is well managed, it’s operating in a tough environment. Historically, we have liked cable companies for the cash cows they represent. New homes were always prewired for cable, not satellite. In fact, we owned Rogers for years until the company chose to diversify into sports, which we felt isn’t its core strength. So, we hunted for another cable company and bought Cogeco at $38.00 per share in January 2010.
Ironically, in doing our due diligence, we learned that Cogeco’s largest shareholder is Rogers. We held Cogeco up to $72.36 per share, but sold in July 2015 for a gain of 90%. The reason for selling? The societal shift away from network TV and into online streaming. Cable companies are scrambling to maintain their subscriber bases — many resorting to acquisitions. The CRTC hasn’t helped with its recent position that all cable companies must soon offer a “skinny package” of local programming capped at $25 per month. While cable companies are doing all they can to stay relevant, we believe their efforts are akin to pushing on a string.
Disclosure: Advisor.ca is owned by Rogers Communications, Inc.
The opinions expressed are those of the author and may not necessarily reflect those of Manulife Securities Incorporated. Manulife Securities Incorporated is a member of the Canadian Investor Protection Fund.