Why Quality Matters the Most- Linamar, MTY, Enghouse, CGI Group and Google 5

My brokerage account updates top 5 performing stocks based on size of my holdings at any given time.

I checked the account in the last night and this was what happened…

I do not think there had been this much of gain before ever since I started investing. Most of my stocks are up a bit but my superstars did amazingly well whereas TSX composite is only up by 0.16%.


1. First Linamar (LNR)It is buying MacDon, a farming equipment company at $1.2 billion. Before the news release, Linamar was traded at $4.2 billion so it is trying to buy a company that is about 1/3 of Linamar itself. A huge deal after a disappointing quarter (although I thought the quarter was pretty good) boosted the stock by 11.5%…


2. Next MTY Food Group (MTY)– I explained that MTY is buying Imvescor at $248 million. Initially the stock dropped by 5-6% so I added more as I considered the acquisition as positive instead of negative by many people. I think people are starting to realize that and buying.. hence the driving its stock price higher.


3. Third Enghouse’s Q4 result was out. The result would have been seen disappointing by people as their revenue grew by only 7% and net earnings decreased and adjusted EBITDA decreased… Typically, there should have been a selloff on Enghouse and I was ready to deploy more capital if it did… However stock soared… You know why? I think mainly because of the following paragraph.

Enghouse generated cash flows from operations of $29.1 million in the quarter compared to $15.8 million in the prior year’s fourth quarter, which was attributable to operating results and strong cash collections. Cash flows generated from operations for the fiscal year were $83.2 million compared to $59.7 million in the prior fiscal year, an increase of 39.4%. Enghouse closed the year with a record $130.3 million in cash, cash equivalents and short-term investments, compared to $85.9 million at October 31, 2016.

Its cash flow actually grew by almost 40% year to year… increasing its cash balance by $45 million. That’s quite crazy… I have been telling you many times that businesses run on cash flow not earnings… If you earn $1 and invest all of it to earn $1.1 next year then I would not be very interested. I care about cash flow and top dog’s capital allocation skills. The guy who runs the show is a quite disciplined capital allocator, Stephen Sadler. You can easily feel that from the way he speak during conference calls.



4. CGI Group– Not sure what happened to this stock but I thought the stock has been quite undervalued for a while and maybe it is starting to breaking out.

5. Google- I don’t think I need an explanation for this stock. It is a monopoly and it will be for a very long time. I love monopoly.


I wrote this article a while ago about the importance of quality. If your companies are all superstars making tones of cash flows, run by a solid guy who is aligned to the shareholders and smartly and patiently allocates capital, then just stick to the companies as long as your initial assessment does not change. Because they will make you richer every year.. It won’t make you a millionaire tomorrow but you will be so much richer in 5-10 years time.

One question you must ask yourself before buying any stocks

Investing is Art, Science and Your Own Homework.


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