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With an ugly September now in the books and a continuation of the market ugliness into October, all of a sudden, we’re in the midst of a market “schism.”
This time around, the blame appears to live squarely on the shoulders of spiking longer-term bond yields that are increasingly making the cost of money across the yield curve more expensive — all while simultaneously increasing the rate at which the cash flows our favourite companies generate are discounted at, which, in turn, negatively impacts their value.
The U.S. 10-year Treasury bond yield has jumped from ~4.2% at the beginning of September to ~4.7% today — a level not experienced in years. And, Fools, this move, and more so the potential continuation of this move, has vast swaths of market participants shaking in their loafers.
Not us, Fools. Not us!
After several months of not really finding much of interest in terms of new investment ideas, especially from the Canadian market, my colleagues and I at Stock Advisor Canada are increasingly intrigued by what’s available. A pool of opportunity has begun to form … and it’s growing by the day.
Here, though, we’re coming back to stocks we’ve already recommended to call out five that we think are worth investing new capital into right now. It was tough to cap this list at five.
Foolishly yours,
Iain Butler, CFA
Advisor, Stock Advisor Canada
“Best Buys Now” Pick #1:
MTY Food Group (TSX: MTY)
By Jim Gillies: The big-picture investing story for MTY Food Group (TSX: MTY) has been the company’s return to deal-making following the pandemic reopening. MTY has always been a company that grows through acquisition, and it announced and followed through with a couple of doozies in the past year. First BBQ Holdings (parent company of Famous Dave’s, Barrio Queen, and Granite City), and then Wetzel’s Pretzels. Combined, these large deals (plus a much smaller one — Sauce Pizza and Wine) added about $560 million of debt to MTY’s balance sheet over two quarters.
Fortunately, MTY had the “dry powder” to do so, having spent the pandemic directing its cash flows to debt repayment. After putting recent acquisitions on the company credit line, MTY has again turned its cash flows back to deleveraging, taking down about $56 million in the past two quarters.
Today, MTY has an annual EBITDA capacity in the $275 million to $300 million range. Over the last four quarters, “normalized” adjusted EBITDA (which strips out acquisition-related expenses) is $242.6 million, and that’s without full-year contributions from BBQ and Wetzel’s. The present share price reflects an 8.9-9.7 times enterprise value multiple on this EBITDA range, nicely below the up to 12 times we’ve suggested paying. It’s a great Canadian food stock going for a better-than-fair price today.
