When Guy Gottfried takes the podium in front of the world's
best value investors, you know something big is about to
Over the past few years, Mr. Gottfried has attained a
cult-like following only rivaled by legends like Warren
Buffett. That's because he has an uncanny knack for finding
DEEP value stocks right before they take off…
The last four times he addressed attendees of the
Value Investing Congress
, you could have made an average of 67% by just by buying his
recommended stocks. Earlier this week, I attended the latest
, and listening to Gottfried speak was worth the price of
admission by itself...
I've written about him before. In fact, around our
office we call him the Warren Buffett of Canada.
Gottfried's company is called Rational Investment Group, and his
track record is simply impressive.
Unlike many hedge fund managers, Gottfried has a low profile
and avoids the media. Google his name, and you won't find
much. However, twice a year he pops up at the
to share his top investment idea.
At a conference known for super-star investors, Gottfried was
chosen to be the first speaker at this year's conference in New
York City on the strength of his presentations' track record.
Simply put, when he talks, people buy shares in a way that would
make Jim Cramer blush.
One of his top investment ideas from the
is a company called
Supremex Inc. (Toronto: SXP)
. It's a small cap Canadian stock that trades at $1.84 Canadian
(all figures in this article will be in Canadian dollars). For
U.S. investors, the stock also trades on the OTC market under the
ticker symbol SUMFX.
Supremex is one of the most boring businesses in the
world. The company is in the envelope business, and is the
biggest player in Canada. Yes, plain vanilla envelopes used for
letters, account statements, and direct mail.
The envelope business is no doubt shrinking. That's a fact
that everyone knows, and it's one of the reasons this stock is so
Why on earth would an investor want to own shares of
Supremex? The bottom line is that this company is a cash
machine. The company's EBITDA - or a calculation of
business earnings before various accounting adjustments - was $16
million in the first half of 2013. And that was a 39% increase
from the year earlier.
Gottfried convincingly argues that the stock is dirt-cheap.
Shares today trade at around $1.80 or just three-times the free
cash flow of the business.
The stock is so cheap primarily because the company slashed
its dividend by 90% a few years ago. The share price plunged as a
result - falling from $10 in 2006 to as low as $1 earlier this
year. With only one investment bank analyst following this small
cap Canadian stock, the company gets little attention.
Today the company pays a quarterly dividend of $0.03.
Annualized, that 12-cent dividend translates into a yield of
6.6%. Today Supremex makes plenty of profits to cover its
dividend. In fact, the dividend payout ratio is just
Now that alone might be enough to attract investors to this
high yield stock. To unlock shareholder value, Gottfried is
advocating a big increase in the company's dividend. He
thinks Supremex could easily double its dividend payment, which
would translate into a 13% yield.
Immediately following Gottfried's presentation at the
Value Investing Congress
, I bought shares of Supremex in my personal investment account
at $1.86. After climbing to a 52-week high of $2.09 on
Tuesday, shares have pulled back to $1.84.
I tried buying more shares yesterday, but my order wasn't
executed. And I intend to buy more shares today, and
continue building a small position in the stock.
To be perfectly blunt, Supremex is a very tiny company with a
market cap of just $54 million. It's so small that I would
normally avoid telling you about this opportunity. Shares are
extremely illiquid - it averages just 21,000 shares of volume per
day. Compared with most
I recommend, Supremex is a higher-risk, higher-reward
But if the company does double its dividend, I expect the
share price to follow suit. And that's why I'm building a small
position in this stock. If you're looking for dividends plus
growth potential, look no further…
P.S. Words of warning: Given the small size of Supremex,
the small share float, and low average daily volume, investors
should use caution when buying this stock. I highly recommend
using limit orders when buying this stock. On Monday alone, this
stock rose 16% when 290,000 shares traded hands.