Are you familiar with the expression “shaking out the weak hands”?
It has many connotations, but for the purpose of this article, I’m interested in identifying three stocks where investors have gone from strong to weak hands over the past month, driving their share prices down by 10% or more.
Take advantage of their temporary slide.
High Liner Foods Inc. (TSX:HLF): Down 17.3%
The Lunenburg-based fish processor best known for Captain High Liner and the High Liner brand of frozen fish has had its ups and downs over the years, but in recent times, it’s managed to extract enough cost savings from the business to deliver increased profits, despite sales volume declines in its traditional breaded and battered seafood products.
High Liner Foods is bringing new products to market that meet the needs of a healthier consumer, including its Captain’s Crew line of fish strips and nuggets geared to the younger demographic. In addition, in October 2014 it launched Simply Fish: a line of fresh fish—a first for the company.
Until these new products take hold, High Liner is pulling $20 million in annual cost savings out of the company, so it can continue to profitably grow its business, which generates more than $1 billion annually from retail and food-service customers in Canada and the U.S.
Most importantly, as Fool.ca contributor Nelson Smith reminds readers, High Liner generated $2.20 in free cash flow (FCF) per share over the past 12 months—FCF yield of 11.7%—which it can use to pay down some of its $252 million in debt.
Oh, and by the way, it pays a nice dividend of 3%.
Cott stock had a great year in 2015—up 94%. Unfortunately, it couldn’t carry that momentum through 2016, losing 29.1% of its value over the past three months to reverse a big move up earlier in the year.
Cott announced its third-quarter results November 10, and analysts might have expected more from the beverage company, which is transitioning away from private label carbonated soda to healthier products like water and coffee.
It expects to finish the year with adjusted FCF of at least US$135 million—its highest level over the past decade. In early December, CEO Jerry Fowden was named the 2016 EY Entrepreneur of the Year for retail and consumer products. Given what Fowden has done to remake the company, it’s an honour well deserved.
The only thing keeping Cott stock from really flourishing is the debt load it carries. At US$2 billion, a 33% increase from the end of 2016, the company has paid US$89.2 million in interest through the first nine months of the year. It can’t keep doing that if it wants to make money on an annual basis.
It’s made a lot of acquisitions over the past two years; now it needs to fully transform itself, including paying down its debt as fast as it can.
I believe Cott has what it takes to be a top TSX stock in 2017. The downturn over the past three months is a pause in its climb back to $20.
Parkland Fuel Corp. (TSX:PKI): Down 11%
It’s like the clock has struck midnight. Parkland’s stock was running along nicely through the first 10 months of the year—up nearly 40%; then the calendar turned to November, and it’s been on a downhill slide ever since.
The company’s been on a major acquisition spree this year, including agreeing to buy the Canadian assets of CST Brands, the American gas station and convenience store operator which was acquired by Alimentation Couche Tard Inc. for just under $1 billion.
In the span of a year, Parkland has been transformed into North America’s fastest-growing fuel and lubricants marketer with over 1,000 stations operating across the country under several different brands, including Esso and Chevron. The CST Brands deal strengthens its presence in Ontario, Quebec, and Atlantic Canadian.
Long term, Parkland is a stock you want to own. Take any decline in its stock price as an opportunity to buy it for less. Best of all, it pays a 4% yield.
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Fool contributor Will Ashworth has no position in any stocks mentioned. Alimentation Couche Tard is a recommendation of Stock Advisor Canada.