The portfolio was valued at $10,000 when it was created, with the assets
distributed among eight stocks. Three were U.S. companies while the rest
were Canadian. We have switched some of the stocks over the four and a half
years since, but until now we have retained the original mix of five
Canadian and three U.S. securities. However, it is becoming increasing
difficult to find Canadian stocks with high growth potential.
Here are the securities that make up the current portfolio, with an update
on how they have performed since my
in February. Prices are as of the afternoon of Aug. 17.
Simon Property Group (NYSE: SPG). I expressed concern about this stock at the time of our last review. The
company is the largest developer of retail malls in the U.S., but
bricks-and-mortar stores are increasingly under pressure from e-commerce,
and many retailers are suffering. The yield is still attractive (US$1.80
per share quarterly), but the growth potential at this stage looks very
limited. It is time to drop this from the portfolio and replace it with a
stock with much more upside.
Alimentation Couche-Tard (TSX: ATD.B). This stock hasn’t budged since our last review, but in this case I
believe there is more upside potential. The convenience store business is
still fragmented, offering future takeover targets for management. The
venture into Europe is working well so far. Despite the lack of recent
progress, we’ll hang tight here.
WSP Global Inc. (TSX: WSP). Shares in WSP Global continued to gain ground in the latest six-month
period, rising $3.30. We received two dividends totaling $0.75 per share.
Shopify Inc. (TSX: SHOP). In February, we replaced Stella-Jones with Ottawa-based tech company
Shopify, as we felt it had a lot more upside potential in the current
environment. That turned out to be a good move. Shopify was trading in
Toronto at $78.71 when we made the purchase; it was at $119.59 in
mid-August, for a gain of $40.88 a share. That’s what we are looking for in
a Growth Portfolio. The stock does not pay a dividend, but the capital gain
should satisfy us.
TFI International Inc. (TSX: TFII). After a strong run last winter, this stock went into a prolonged slump.
It rallied a little recently but at the time of writing was still down
$5.93 since the time of the last review. The company is struggling to
reorganize its business in response to the recession in Alberta. Struggling
firms have no place in this type of portfolio.
New Flyer Industries Inc. (TSX: NFI). This Winnipeg-based manufacturer of public transit buses continues to
generate great returns for us. The share price is up $8.30 since my last
review. On top of that, the company increased its quarterly dividend by 37%
in June, to $0.325 per share. This is by far the number-one performer in
the portfolio, with a gain since inception of 592%.
Apple Inc. (NDQ: AAPL). This company is the largest in the U.S. by market
capitalization, and the shares continue to gain ground. Since our last
review, they have gone up by US$22.89 each, a very handsome jump. The
dividend was raised by 10.5%, to US$0.63 per quarter, effective with the
UnitedHealth Group (NYSE: UNH). This U.S. health insurance provider hit another all-time high earlier
this month, and the shares have gained almost US$30 since our last review.
In June the company increased its quarterly dividend by 20%, to US$0.75.
Cash. We received interest of $8.70 on our cash holdings.
The table below shows how the portfolio stood on the afternoon of Aug. 17.
Commissions are not taken into account. The U.S. and Canadian dollars are
treated as being at par, but obviously gains (or losses) on the American
securities are increased due to the significant exchange rate differential.
Comments: Except for Alimentation Couche-Tard, big winners and big losers marked
the last six months. We experienced large losses in Simon Property Group
and TFI International. Fortunately, those were more than offset by
significant gains for WSP Global, Shopify, New Flyer Industries, Apple, and
United Health Care. The bottom line was a gain of 12.1% for the portfolio
over the period.
That brings the total gain over five years to 212% for an average annual
compounded rate of return of 25.56%. I’m very pleased with that result, but
I caution again that it won’t go on forever. At some point the market will
correct, and we will experience a setback in our results. I still maintain
that over time a 12% annualized return is about right for this portfolio.
Changes: We are going to drop two of our positions, Simon Property Group and TFI
International. This is not because they suffered setbacks in the latest
period but because neither stock appears to have a lot of growth potential
in the current environment.
Our holdings in these stocks, including retained dividends, total
$4,199.31. We will use that money to buy 26 shares of
Nvidia Corp. (NASDAQ: NVDA), which closed on Aug. 17 at $161.47. The cost is $4,198.22, leaving us
with $1.09 to add to our cash position. (Remember, we treat the currencies
as being at par for the purpose of this portfolio.)
Nvidia does not have the universal recognition of Apple or Google, but it
is on the leading edge of a new generation of technology. The company
originally gained attention through its pioneering work in computer gaming
but has now emerged as a leader in such emerging technologies as artificial
The company creates and manufactures programmable chips called Graphics
Processing Units (GPUs), which have been called the soul of modern
computers (CPUs, or Central Processing Units, provide the brains). These
chips are specialized for display functions – they control the images that
appear on your screen.
The potential applications for these products stagger the imagination,
ranging from virtual reality to self-driving cars to robotics.
At mid-August, the stock had pulled back a little from its earlier high of
$174.56, so we deemed it a good entry point.
The stock is not cheap – few growth stocks are in this frothy market. The
trailing p/e ratio was at mid-August was 46.1, which is high but not as
outrageously out-of-sight as Amazon.com. The latest quarterly report, to
July 30, was solid. Revenue came in at a record $2.23 billion (figures in
U.S. dollars), up 56% from a year ago. GAAP earnings per share came in at
$0.92, a gain of 124%. The company believes its stock is undervalued; it
spent $758 million buying back shares in the open market during the first
half of the year.
Adding Nvidia will change the balance of the portfolio to four Canadian
stocks and three U.S. issues, but it greatly strengthens the growth
We will keep our cash of $810.16 in the EQ Bank account, which now pays
Here is a look at the revised portfolio. I will revisit it again next
February in my Internet Wealth Builder newsletter.
Gordon Pape is one of Canada’s best-known personal finance commentators and
investment experts. He is the publisher of
The Internet Wealth Builder and The Income Investornewsletters, which are available through the Building Wealth website.
For more information on subscriptions to Gordon Pape’s newsletters,
check the Building Wealth website.
Follow Gordon Pape on Twitter at
https://twitter.com/GPUpdates and on Facebook at
Notes and Disclaimer
© 2017 by The Fund Library. All rights reserved.
The foregoing is for general information purposes only and is the opinion
of the writer. Securities mentioned carry risk of loss, and no guarantee of
performance is made or implied. This information is not intended to provide
specific personalized advice including, without limitation, investment,
financial, legal, accounting, or tax advice. Always seek advice from your
own financial advisor before making investment decisions.
BUILDING WEALTH WITH GORDON PAPE