Despite the recent rally, it has not been a great year for the Toronto Stock Exchange.
While the U.S. markets were powering ahead, the TSX was virtually flat for the first eight months of 2017. Even with the recent gains, which have pushed the S&P/TSX Composite to a record high, we are only up 5.2 per cent for the year. Contrast that with New York's S&P 500, which has gained 15.6 per cent year-to-date. We are the poor country cousin.
But there are a lot of stocks that have outperformed the index by a wide margin this year. If you focused on good stock selection rather then buying an index-linked ETF, you may have done well.
This week, we begin a year-end series on the best performers of 2017 and how they got there.
We begin with New Flyer Industries Inc. (NFI-T), which was first recommended by in March 2013 at $10.30. It closed on Nov. 7 at $54.25.
This Winnipeg-based company is in the right place at the right time. It is North America's leading manufacturer of buses and motor coaches, with an emphasis on clean-energy vehicles. It is the only company offering three types of zero-emission solutions including battery-electric, fuel cell electric, and trolley-electric. To date, New Flyer has delivered over 6,400 transit buses equipped with electric motors and batteries.
It also is a leading parts distributor, with service centres in Canada and the U.S. The company employs 5,800 people in the two countries.
New Flyer delivered 877 units in the third quarter, an increase of 100 from the same period last year. Total bus and coach inventory at Oct. 1 was 566, an increase of 32 from the previous quarter.
The company's business shows no sign of slowing down. New firm orders for 536 units were booked in the third quarter, valued at $276.2-million (dollar amounts in U.S. currency). New option orders were received for 1,098 units, valued at $518.1-million. As well, 559 options were converted to firm orders, with a value of $406.8-million.
The backlog at the end of this year's third quarter was 3,806 units, up from 3,588 at the end of the second quarter.
The stock price has reflected the company's strong performance. New Flyer ended 2016 at $40.84. It reached a peak of $56.52 in June, then retreated to the $50 range in September. It has since bounced back.
The company raised its quarterly dividend by almost 37 per cent in March to 32.5 cents per share. To date, investors have received payments of 89 cents per share in 2017, bringing the total return this year to 35.7 per cent.
Our second top performer this week is Empire Company Ltd. (EMP.A-T). It's the second largest grocery chain in Canada with 1,800 stores selling food, pharmacy products, liquor, and fuel. Empire employs 125, 000 people.
That should be a formula for success but the company has been going through some tough times. Back in January it seemed like the shares of this Nova Scotia based conglomerate were in a death spiral. Its main asset, the Sobey's supermarket chain, was coming under heavy fire for its botched $5.8-billion take-over of the Safeway stores in western Canada. The stock dropped from a high of over $30 a share in January 2015 all the way to $15.25 at the start of this year.
A new CEO was brought in to stem the bleeding. Michael Medline, who was formerly head of Canadian Tire, promised a complete reorganization that he called "Project Sunrise". His goal is to generate $500-million in annual savings by 2020.
It seems to be working. The company's financial results for the first quarter 2018 (to Aug. 5) showed sales were up 1.4 per cent year-over-year, to almost $6.3-billion, thanks in part to an increase in same-store sales. More important, the company recorded adjusted net earnings, net of non-controlling interest, of $87.5-million (32 cents per share, fully diluted). That compared to $73.6-million (27 cents per share) in the first quarter last year, an 18.9-per-cent increase.
"We are encouraged by our first quarter results," said Mr. Medline. "Stabilizing margins, good cost control, and an increase in same-store sales combined with our important transformational work of Project Sunrise gives us a level of optimism not seen in the business for some time. Having said that, we must continue the heavy lifting of Project Sunrise, while beginning to make important strides in our brand and customer experience. We still have a lot of work ahead of us to thrill our customers and improve our bottom line."
The stock has experienced a lot of dips and valleys this year but the overall trend is up. The shares opened the year at $15.25 and closed on Nov. 7 at $23.95 for a gain of just over 56 per cent. We also received four dividend payments totalling 41.5 cents for a year to date total return of 58.3 per cent.
Empire also holds a 41.5-per-cent stake in Crombie REIT, which owns several of the plazas in which its supermarkets are tenants. Crombie's contribution to the company's operating earnings dropped from $11.2-million in 2016 to $8.4-million in the latest quarter, due to the cost of new acquisitions. That situation should turn around going forward.
Neither of these stocks are high on most people's buy list but both have beaten the TSX by a wide margin this year. As we'll see in future articles in this series, many of the outperformers this year tend to be overlooked by most investors.
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Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca. Follow Gordon Pape on Twitter at twitter.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney
Gordon Pape