The Money Machine

With over 700 locations, Dollarama is Canada’s largest dollar store chain. Recently, Dollarama’s choice to offer price points up to $2 has helped it greatly increase same-store revenue.  Dollarama is a company to  buy as a hedge against a rebounding economy.

Meaning: Dollarama provides affordable goods to price-sensitive Canadians

Moat:  Unlike most dollar/discount stores, Dollarama sources products directly from manufacturers, rather than local distributors, giving it a greater margin on its products.

Management: Larry Rossy has been named one of the Top 10 Canadian CEOs of the Decade by MSN Money.

Margin of Safety: a 20% MOS isn’t great, but the big 5 numbers are excellent.

Tim Hortons is the largest publicly traded quick-service restaurant chain in Canada, fourth in the continent.  With plans to deepen penetration accross the country and strengthen the brand in the US, Tim Horton’s still has plenty of opportunity.  Currently searching for a new CEO, Tim Horton’s is a company to watch.

Meaning: Tim Hortons is a donor to the Childrens Wish Foundation and they create local programs everywhere they are.

Moat: The Tim Hortons brand is a part of the Canadian national identity.  Their strategy of growing with consumers tastes means they will stay relevant.

Management: CEO left in May, still looking.  Interim CEO Paul D House is the chairman, and doesn’t appear remarkable.

MOS: There is currently a 22% margin of safety.

Huge reserves of inventory, with growing demand and shrinking supply.  Recent aquisition of Petro Can with great results, strong environmental policies and a Top 100 Employer.  For a 15% return, there is a 9.03% Margin of Safety.  Suncor is a good pick.

Meaning: Suncor’s vision is to be Canada’s premier integrated energy company focused on operational excellence and high growth, with the assets, people, and financial strength to compete globally

Moat: They have 7.2 bil barrels of proven oil reserves, the most in Canada

Management: Rick George, “Outstanding CEO of the Year” in 1999 and Canadian Business Leader Award in 2000.  Retiring Spring 2012

MOS: There is currently a 9.5% Margin of Safety

We will follow Phil Town’s Rule #1 investing methodology:

Make sure the company has meaning (does good things), a moat (sustainable competitive advantage), great management, and a big margin of safety.

Calculate the future stock price based on the equity growth rate and predicted PE ratio, then discount it back using a required rate of return of 15%.  This is the sticker price of the stock - what the stock should be priced at today to achieve the required rate of return for ten years.

Confirm that the Big 5 numbers are all consistant and above 10%.

The investment center is up and running!  This is an excel document that calculates:

• Sticker price for a stock (How much one should pay for a share, based on a particular expected rate of return)
• the Big Five numbers (ROIC, Equity Growth, EPS Growth, Sales Growth, Cash Growth)
• The Ticker turns green if the current price is below 50% of the sticker price (50% margin of safety)