The Premium The Premium The Premium

5 Non-Tech Stocks Which Soared In The Last 5 Years

Companies
5 Non-Tech Stocks Which Soared In The Last 5 Years

Value investors like Warren Buffett have historically shunned technology stocks. One exception that Buffett made was investing $10.7 billion in IBM back in 2011. While technology companies could be a good contributor to a portfolio, the golden rule advocated by Buffett, as well as star advisors like Suze Orman, is still: “If you don’t understand it, don’t invest in it.” For most ordinary investors, the strategy which is the most sustainable over time is the approach of the tortoise, not the hare. Here is a look at five non-technology stocks which have more than doubled in share price over the last five years. One thing they have in common: Intrinsic value.

One of the major contributors to the 1999 tech bust (known as the ‘dot-com crash’) was that investors and start-up owners lost sight of one fundamental principle: A company’s value should be based on real earnings. Many investors got burned at the time because they invested in vaporous promises and ‘expected’ future earnings which never came to fruition. Let’s keep that lesson in mind, since it still holds true now. Please note that this author is not endorsing these companies, and does not have positions in any of these stocks. Three of these companies are Canadian, and two are US based.

There are a few factors important to ranking on this list. First, the share price over the span of five years. Second, the debt numbers, and then finally the dividend yield. The debt-equity ratio is known as a leverage ratio because it compares a company’s total debt to its total shareholders’ equity. We won’t look at this number for all the companies but in short, the debt-to-equity ratio gives investors a quick look at the risk that a company is taking in order to continue its business.

Taking on debt is a risk because it has to be paid back using future earnings, which the company cannot completely control. Bear in mind that healthy debt-equity ratios vary between industries. And for real estate investment companies such as REITs, there are different measures of debt to take into account. There are also many more factors which professional analysts use when judging investments, but for the purposes of this list, only the basics will be covered.

Allied Properties REIT (AP.UN) – Canada

AP.UN has seen an increase in share price of 160 percent over the last five years. This does not factor in the dividends.

Allied

Looking at Allied Properties’ debt indicators, we see that the total debt as a percentage of fair value of investment properties was 35.7 percent in the latest results, steadily down from 36.4 percent in 2012. This means that the company is well managed.

For REIT companies, the dividend is more accurately called a ‘distribution’. Currently the distribution yield per year for AP.UN is 4.14 percent. The distributions increased by 3.7 percent over the last year. So, taking into account the distribution income over five years coupled with the share price increase, this REIT has been a good investment over the past five years. Once again, a REIT company which owns quality real estate is unlikely to suddenly take a nose dive overnight, because it has the solid base of the real estate assets it owns.

Magna International Inc. (MG) – Canada

Magna International Inc. is a great Canadian company which has seen a stock price increase of 430 percent over the last five years.

Magna

Magna International Inc. is a great Canadian company which has seen a stock price increase of 430 percent over the last five years.

Looking at Magna’s financial statements, we see that the total contractual obligations for 2014, divided by the total shareholders’ equity, gives us a percentage of roughly 25.3 percent. Magna states in their latest report to shareholders that although they intend to use the strength in their balance sheet to invest and grow the company, they certainly aim to maintain balance sheet strength in order to be able to capitalize on opportunities. This means simply that they will grow the business but be responsible and not take on too much debt. Isn’t there a lesson for us to learn here also for our personal finances?

Magna’s dividend increased 19 percent over the last year, currently yielding almost 1.6 percent per year. Although the yield is not very high, we have to measure it in the light of the huge stock price gain.

Toronto Dominion Bank (TD) – Canada

TD Bank is Canadian bank which certainly benefits from the stable banking system in Canada, which is quite different from the US, because of vastly different government regulations.

TD has seen an increase of 135 percent in stock price over the last five years.

TD

Looking at TD’s debt numbers, we see that the quarterly debt-to-equity ratio has decreased from 0.3147 in April 2009 to 0.1525 in January 2014. This means that the leverage of this bank is decreasing, which means that the earnings should not be too volatile over the next few years, and hence just from a very cursory overview it is likely that the share price would not be volatile either in the near term.

TD’s dividend yield has been steady between 3.4 percent and 3.7 percent over the last five years. It has not dramatically increased, but again it is a steady income stream as part of a portfolio, where the underlying investment is unlikely to be volatile.

3M Co. (MMM:US) – US

3M (MMM) has seen an increase of 283.4 percent in share price over the last 5 years. As a point of interest the annual earnings per share is now $6.72 per share for 3M, which is not as spectacular as some tech stocks, but as we mentioned, steady is the name of the game for our analysis here.

3M

The total debt to equity as a percentage is 34.33 percent, which is an indication of solid fiscal management.

3M’s dividend history is encouraging as well, they increased their quarterly payout from 0.51 in 2009 to 0.855 per quarter (USD). The annual yield is now 2.54 percent, which is reasonable taking into account the significant increase in the stock price. The five-year dividend growth rate is 4.9 percent, so taking into consideration all three of our quick kitchen table analyses 3M is a solid company to have in a value-based portfolio.

Northstar Realty Finance Corp. (NRF:US) – US

Northstar Realty Finance Corp. is not a REIT, but a real estate investment company nonetheless.

As we can see from the chart, the NRF Corp. stock price has increased 864 percent in the last five years.

NorthStar

The total debt of NRF as a percentage of total shareholder’s equity was 125.8 percent at the end of 2013. It’s noteworthy that NRF is currently making a loss, although the annual loss has dramatically decreased from $261.6M (USD) to $81.9M (USD).

This financial services company is not as strong as the others when judging them on the balance sheet, but according to handy charts from BloomBerg BusinessWeek (investing.businessweek.com) the four-year trend in annual gross profit is very encouraging, and the dividend yield is high, at 6.3 percent.

What About Buffet?

aptr_buffett

Let’s turn our attention back to Warren Buffet’s break-out into Tech with the IBM holdings he built up in 2011( now roughly 13.5 percent of his portfolio, according to gurufocus.com). The key factor is the share buy-back plan. IBM is working on a share repurchase program since 2011. Buffett actually did the same thing with the shares in his own Berkshire Hathaway. But one needs to understand why a share repurchase (when a company buys back its own shares) is a good idea. Buybacks could be good at the right price and bad at the wrong price, according to Buffett’s latest letter to shareholders.

“Continuing shareholders are hurt unless shares are purchased below intrinsic value. The first law of capital allocation – whether the money is slated for acquisitions or share repurchases – is that what is smart at one price is dumb at another,” Buffett writes in his letter. In essence, what a share buyback does for a company is that it increases the book value, which is good for shareholders over a longer period of time.

The key is that the share price has to be fairly low relative to the book value at the time of the repurchase. Buffett said in his shareholder letter that he hopes IBM’s stock price “languishes throughout the five years” that the company continues to buy back $50 billion of its own shares. The reason is because it will increase the value of his huge stake in IBM. For ordinary investors once again, it’s fascinating to learn how Buffett thinks, but we should still make sure we know what we’re doing when we invest.

Staying clear of tech stocks in general seems to have been proven as a good strategy over the last five years, measured by the five companies we discussed. Please understand that this article is for information purposes only and professional advice should be sought from a licensed financial advisor.

  • Ad Free Browsing
  • Over 10,000 Videos!
  • All in 1 Access
  • Join For Free!
GO PREMIUM WITH THERICHEST
Go Premium!

Videos