John B. Sanfilippo & Son, Inc.

The Canadian Capitalist had a link to this an article at by Irwin A. Michael called “The Nutty Investor”. The article starts of,

Most investors want stocks that are exciting, glamorous, novel. I tend to find that the best buys lie in the opposite direction, among the overlooked and ignored sectors of the market – which is why I am now happily investing in nuts.

This article was timely for me, as I just noticed John B. Sanfilippo being discussing on Mr. Michael’s “Value Favourites” page at his site a few weeks ago. It is his newest addition to the value favourites page (which is why I read it) and he talks about it here. There, he really fleshes out the reasoning why ABC Funds bought JBSS (they own 5% of JBSS):

. . . Today, with its shares trading at $13.75, JBSS appears to be a bargain. The stock is trading at a 27% discount to its book value of $18.42 and at approximately eight times next year’s estimated earnings of $1.65 per share. Book value is likely understated given that JBSS owns quite a bit of real estate, most of which was purchased in the 1980s and early 1990s. The company is planning to consolidate its operations by building a new larger central facility. Given the expected short payback of the project, the cost savings could be materially accretive to earnings in a couple of years. As far as tree costs are concerned, management expects prices to fall as newly planted crops are harvested in the coming years. Finally, given the company’s low stock price, the costs and time required complying with Sarbanes Oxley, and the favourable prospects for the company, the Sanfilippo family could take the company private. If it did, we feel it would be worth considerably more than what the stock is trading for in the market.

Like Graham, Irwin tries to find stocks that are trading for significantly less than their book value, or what a private owner of the business would be willing to pay. The Sarbanes Oxley Act is something you will hear about often these days. You can read more about it here.

ABC Funds

I think I’ve found my dream mutual fund company: ABC Funds. From the introduction:

The most distinguishing characteristic of the ABC Funds is our firm adherence to true value investing. The funds use a “bottom up,” Graham and Dodd style in selecting securities. This style commands thorough, proprietary research on fundamentally undervalued Canadian and American securities and strong investor discipline. All three ABC Funds use this investment approach.

Before you go on and read about it, you should know that they require a minimum initial investment of $150,000 per fund (I assume that’s CAD). The MER is 2% on all their funds and they seem to have an excellent track record at beating the indexes. Some years they do worse than the indexes, but that shouldn’t worry the long-term investor.

Do not shy away from clicking on the “client area” link on the main page. It looks like everything there is publicly accessible.

It seems easy to find good active value management in Canada if you have lots of money. Another company that comes to mind is Strategic Advisors Corp (affiliated with Ross Healy).