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Jan 3, 2020

Stock Competition Yields A Hit And A Miss

by Norm Rothery

Norm RotheryThe Ben Graham Centre for Value Investing, part of the Ivey School of Business at Western University, recently hosted its sixth annual student stock picking competition. It pitted 24 teams of students against each other in a ferocious battle of wits. They used their value investing skills to analyze firms to win points from a panel of distinguished value investors. It was not an easy task.

The contest was hosted by Dr. George Athanassakos who founded the value investing program at Western University’s Ivey Business School. It attracted students from around the world including teams from Canada, China, the Dominican Republic, India, the United Kingdom, and the U.S.A.

In the first round, each team picked a stock to analyze from a short list of value companies. For instance, the eventual winners studied Lydall (NYSE:LDL) which hails from Manchester, Connecticut. The firm says, in a turn of phrase an engineer would love, that it produces specialty engineered products for the thermal/acoustical and filtration/separation markets. The students pegged its intrinsic value at $40.00 per share and believed it was a buy at $25.17 per share when they examined it. As I write, the stock trades at $19.17 per share and presumably offers an even better value.

Only three teams made it through the first round to the finals, which were held in Toronto. This year the finalists came from the Tepper School of Business of Carnegie Mellon University, the Rotman School of Management at the University of Toronto, and the Ivey Business School of Western University. They vied for a total of $14,000 in cash prizes thanks to the sponsorship of Burgundy Asset Management Ltd., Bristol Gate Capital Partners Inc., Foyston, Gordon & Payne Inc., Peters MacGregor Capital Management, Robotti & Company Advisors, and Stacey Muirhead Capital Management.

The teams were given only a few days to analyze and report on the same company. This year Computer Modelling Group (TSX:CMG) was put under the microscope. The students studied it and then presented and defended their findings in front of a panel of veteran value investors. This year the panel included Wayne Peters (the founder of Peters MacGregor Capital Management), Robert Robotti (Robotti & Company), Kim Shannon (Sionna Investment Managers), Jeff Stacey (Stacey Muirhead Capital Management), and Evan Vanderveer (Vanshap Capital).

Computer Modelling Group is a computer software technology and consulting company based in Calgary. It serves the oil and gas industry and is known for its reservoir modelling software. The firm’s stock is well down from its all-time high in early 2014 near $15.75 per share, currently trades close to $7.00 per share, and offers a generous dividend yield of 5.6%. The low price is just the sort of thing that attracts bargain hunters.

At first blush, the company doesn’t appear to be in bad shape despite the downturn and consolidation in the oil patch. Sure, its earnings slipped from $32.6 million in fiscal 2015 to $22.1 million in fiscal 2019, but its profits climbed 6% on a year-over-year basis. On the other hand, its stock trades at about 26 times earnings, which would be on the high side for many bargain hunters.

Two of the three teams thought Computer Modelling Group was a buy in early April. The other one was interested in it at a slightly lower price and gave it a “no-buy” rating. To my mind, it was a fairly close call.

The three teams of finalists presented well, and they should all be proud of their work. They performed better than I would have at their age. The students from Carnegie Mellon got the third-place prize of $2,000. Western University came in second and picked up $4,000. The team from the University of Toronto nabbed the top prize of $8,000.

Congratulations go to champions Frederico Gomes, Michael Sproule, and Vinicus Vilhena from the University of Toronto. They were keen on Computer Modelling Group at $5.40 per share or less, which is now well below its recent price of $7.08 per share making it a “no-buy”.

Norman Rothery, PhD, CFA, Founder of StingyInvestor.com, Toronto, ON (416) 243-9580, rothery@stingyinvestor.com