by Will Ashworth | May 1, 2013 8:18 am
When it comes to investing, most Americans look to Canada for its energy and bank stocks. However, the country also is home to a number of successful companies in other industries.
Here are three of my favorites:
While many investors south of the border wouldn’t recognize its name, Saputo (PINK:SAPIF) is the 12th-largest dairy processor in the world. In fiscal 2012, it generated 40% of its C$6.9 billion in revenue in the U.S., employing 3,300 people in 16 plants across the country.
Its business has been built on acquisitions. Since 1997, the company has acquired 22 businesses, none more important than the acquisition of Morningstar Foods, LLC — a former subsidiary of Dean Foods (NYSE:DF) — for $1.45 billion in January of this year. Morningstar’s dairy business brought C$1.6 billion in top-line revenue with 2,000 employees at 10 plants in nine states.
As a result of the acquisition, its U.S. dairy business represents approximately half its annual revenue. Although based in Montreal, Saputo’s future growth depends on America.
So, what makes the company special?
SAPIF stock has achieved a 15-year annualized total return of 8.9% — 450 basis points greater than the S&P 500. The Saputo family, who founded the company in 1954, continues to own 34% of its stock, and Lino Saputo Jr. is its CEO.
My experience is that family-controlled public companies with a family member as CEO tend to provide greater attention to shareholder value than non-family CEOs. Anyone who has been a SAPIF shareholder for the past decade-and-a-half can attest to this.
If you compare it to Dean Foods, you’ll see that Saputo’s cash return (free cash flow plus interest expense divided into enterprise value) and earnings yield (inverse of P/E ratio) are both higher than its recent deal partner, and while its stock is within 2% of its all-time high of $51.19, I think its long-term prospects remain incredibly bright.
Starting with a single store in 1980, CEO Alain Bouchard built Alimentation Couche-Tard (PINK:ANCUF) into a global dynamo. The Quebec-based company has done an impressive job acquiring convenience stores in Canada and the U.S. during the past 33 years by quickly integrating them into its operations.
In 2012, it made the biggest deal in its history when it acquired Statoil‘s (NYSE:STO) Scandinavian network of convenience stores and gas stations. At a cost of $2.6 billion, the deal brought the number of stores worldwide to 12,400. Now the company is the largest independent operator of convenience stores in North America outside of 7-Eleven, one of the biggest anywhere.
Bouchard and other insiders have a 22% economic interest in the company and control 57% of the votes. While Bouchard has been a driving force in its growth, the company has evolved much like Berkshire Hathaway (NYSE:BRK.B) and will operate just fine once he steps down as CEO. COO Brian Hannasch is the likeliest candidate to take the reins in the next couple of years.
Bouchard plans to remain in an executive role once he steps down by busying himself with doubling its store count by 2023. At 63 years of age (Buffett is 82), he has many years left to continue to make his mark on the retail world.
Most importantly, during the past 10 years, Alimentation Couche-Tard’s stock’s achieved an annualized total return of 23.9%, more than double the return of the S&P/TSX Composite Index, the Canadian version of the S&P 500. You have to love founder-led businesses.
CCL Industries (PINK:CCDBF) was founded in 1951 by Gordon Lang as the Canadian outpost for Connecticut Chemicals, a Bridgeport aerosol business.
Now the company is in the midst of acquiring both Avery Dennison’s (NYSE:AVY) office-products and label-converting businesses for $500 million in cash. Paying 4.6 times EBITDA, it expects to close the deal by the middle of this year.
Acquiring the “Avery” brand name enables CCL to reach into the B2C market for the first time. CCL’s management believes this to be a transformational deal.
Once again, I’ve chosen a company that’s family-controlled, although run by a non-family CEO. Donald and Stuart Lang hold a 7% economic interest while owning 95% of the voting shares.
But before you protest this abuse of corporate governance, consider that CCL’s stock has achieved a 15-year annualized total return of 9.7% — 770 basis points higher than the S&P 500, and 1,280 basis points higher than its peers in the packaging and container industry.
If that doesn’t get you interested in learning more about its business, nothing will.
Successful investors go where others won’t.
However, it’s understandable that investing in the pink sheets might make you leery. If that’s the case — and you’re unable to invest in these through the Toronto Stock Exchange — you can always buy the iShares MSCI Canada Index Fund (NYSE:EWC), which invests in 95 large- and midcap Canadian stocks, including Saputo and Alimentation Couche-Tard.
If you’re concerned about the exchange, Deutsche Bank offers a hedged version — db X-trackers MSCI Canada Hedged Equity Fund (NYSE:DBCN) — of the MSCI Canada Index. Either way, you’re getting about 85% of the Canadian market cap.
As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.
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