1 Under-the-Radar Growth Stock to Buy Immediately

Maine lobster used to be the most coveted in the world. China is not worrying about that any longer due to the trade war.

| More on:
Profit dial turned up to maximum

Image source: Getty Images

Lobster exports to China have skyrocketed in recent years, thanks to U.S. lobster wholesalers and industry representatives doing an excellent job of promoting the delicious crustaceans at Asian trade shows and to Chinese hotels.

Canada’s Atlantic lobster is its most valuable and best-known seafood export

China imposed tariffs of 25% on U.S. seafood in retaliation for tariffs imposed on Chinese exports by the Trump administration. Since that imposition, seafood imports from the United States have fallen off the table.

China has opened the door to the rest of the world by lowering tariffs with other countries — even as its trade war with the U.S. continues to drag on. The tariff problem is a very good situation for Canada. The reality is that the Nova Scotia lobster is as equally coveted as the Maine lobster once was. The cold waters in both parts of the world produce the same wonderful sea treats.

There are several interesting aspects to this situation. The changing climate appears to be pushing lobster further north. According to certain reports, two decades ago the centre of the American population of lobster was south of Cape Cod, Massachusetts. Ten years later, it was in the south of the Gulf of Maine. Reportedly, today the centre is in the north of the Gulf of Maine, and the population is rising in the Gulf of St. Lawrence.

Canada may see more plentiful harvests of lobster in the future, but the question is, will they be able to meet demand? One company that has taken action to secure supply is Premium Brands Holdings (TSX:PBH).

Premium acquired Ready Seafood in Portland, Maine, in September as part of a massive $753 million, 12-transaction acquisition spree in 2018. Ready came with three production facilities and handled 15 million pounds of lobster annually, generating $129 million in annual revenue based on reports.

An intelligent investor might say that Premium went acquisition crazy in 2018. That statement might be an understatement. The acquisition of Ready brought Premium’s seafood assets to more than $400 million in annual sales. The Canadian company could grow its annual seafood revenue to $1 billion in the future.

Growing that quickly is possible because Premium remains in a strong position of liquidity. The company could still make more buys. The CFO noted that Premium had almost $220 million of unutilized capacity on its credit facilities in the fourth-quarter call of 2018.

A long-term compounder

Premium Brands has a long history of success. The company’s major growth initiatives in seafood, protein, and sandwiches are on or ahead of plan and are expected to result in accelerated growth in the second half of the year

After the second quarter of 2019, the company declared a quarterly dividend of $0.525 per share, which is excellent. The stock market has not yet realized Premium’s capability to increase dividend income to investors in the coming years. Now is the time to analyze and predict that capability. The 2019 second-quarter numbers on this company are impressive.

Premium posted record revenue of $945.4 million, representing a 24.1%, or $183.9 million, increase as compared to the second quarter of 2018.

Record adjusted EBITDA of $88.3 million, representing a 19%, or $14.1 million, increase as compared to $74.2 million in the second quarter of 2018. After normalizing for the adoption of the new IFRS-16 accounting standard and unusual transitory challenges relating to weather and the outbreak of African Swine Fever in China, the company’s adjusted EBITDA for the second quarter of 2019 is $90.1 million

With an aggressive acquisition strategy and the ability to finance that direction, Premium could easily retain and strengthen its powerful position in the space it occupies. The trade war will only help the company. More important than the trade war is something significant to both Premium and Ready — sustainability.

Demand for seafood is growing exponentially. Both companies have a good record on their practices and treatment of the resource and the environment. Sustainable practices should bode well for the new combined company and the stock. Premium is a good “catch” for investors.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Robert Flynn has no position in the companies mentioned.

More on Investing

Aircraft wing plane

Are Airline Stocks a Good Buy in June 2023?

Airlines like Air Canada (TSX:AC) still haven't recovered from their COVID-19 era slump. Are they buys today?

Read more »

A worker drinks out of a mug in an office.

Ready to Invest With $5,000? 3 Stocks for June 2023

Here’s a list of three top stocks that any long-term Canadian investor would be wise to have on their watch…

Read more »

tsx today
Energy Stocks

TSX Today: What to Watch for in Stocks on Monday, June 5

An early morning rally in oil prices could lift TSX energy stocks at the open today.

Read more »

Retirement plan
Dividend Stocks

Planning for Retirement? Here Are the Best Canadian Dividend Stocks to Buy

Buying two of the best Canadian dividend stocks now for the long term can help you retire without financial worries.

Read more »

investment research
Dividend Stocks

A Dividend Giant I’d Buy Over TD Bank Stock

Energy and financials are the TSX’s sector heavyweights, but I’d choose a dividend giant in the former over a big…

Read more »

edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.
Dividend Stocks

2 Dividend Stocks Worth a Permanent Spot in My TFSA

Restaurant Brands International (TSX:QSR) and Berkshire Hathaway (NYSE:BRK.B) are two of my top TFSA holdings that I intend to hold…

Read more »

Bank sign on traditional europe building facade
Bank Stocks

Don’t Avoid Bank Stocks! This 1 Actually Has Massive Long-Term Potential

Some investors have said that it's a good time to avoid bank stocks. Here's one bank you shouldn't avoid. Buy…

Read more »

edit Businessman using calculator next to laptop

5 Stocks You Can Confidently Invest $500 in Right Now

Buy and hold stocks these TSX stocks to outperform the broader market averages in the long term.

Read more »