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Parkit Enterprise Inc.: Pay Discount On Parking Assets, Get Asset Management With Significant Multi-Bagger Potential For Free

Summary Parkit is a rare opportunity to own a start-up asset manager that is likely to raise significant capital in 2015 to execute on their strategy. Parkit and ProPark combine to create a competitive advantage and have a track record of success which shall help raise capital. Management is extremely bullish and CEO has been buying on the open market extremely consistently at prices higher than today. Shares trade at a significant discount to NAV and investors get the asset management business for free. We see multi bagger potential. (Note: Parkit is also traded on the Canadian TSX Venture Exchange under the ticker PKT.V. Volume on the Canadian exchange is greater than on the OTCQB shares.) We are continuously looking for a business with quality economics run by incentivized managers and where the market is getting the risk/reward ratio very wrong. Strong downside protection is absolutely paramount as the upside will take care of itself with upcoming catalysts. To find such an opportunity in a frothy market such as today one must be willing to search through some obscure places. For 2015, we will be closely following a small parking garage owner based in Canada called Parkit Enterprise Inc. (OTCQX: PKTEF ). The company owns equity in two US off-airport parking garages and has been working on transitioning to becoming a fund manager that aggregates high quality income producing parking assets via a private equity platform. We think the market is serving up a very attractive opportunity as it is extremely rare for the investing public to have the ability to invest in an emerging asset manager. Most often those opportunities are only available to employees or private equity investors. Even rarer is that Parkit already has a track record, has operating assets and is cash flow positive. Currently trading at a discount to NAV on the company’s current owned parking assets, we think the low US$0.40s (mid CAD $0.40s) is a very cheap price to pay for Parkit and does not at all account for the upside potential as a fund manager of quality parking lots. We will be watching Parkit very closely as capital is raised for their first fund over the next few quarters. Management has significantly raised their guidance on funds they will be able to raise and if properly executed, this company is worth many multiples today’s price. History and Fund Manager A Long Time Coming In years past, Parkit was originally called Greenspace and previous management before 2012 did not have a coherent strategy. They helped greenfield the construction of the Canopy parking garage located right outside Denver International airport (completed in 2010), but they ran a bloated cost structure which ultimately almost led to the company going broke even as Canopy performed well. To help transition the company into a leading parking industry company, they brought on Rick Baxter as CEO, some other talented managers and a board of directors with the private equity experience to turn the ship around and execute on an asset manager strategy. Since 2012 when management changes occurred, the company has paid down debt, set the platform for the company’s new fund management strategy and did this while management did not pay themselves for a year and a half. Management decided to take the compensation that accrued to them and roll that over as equity into the company. Unwarranted Recent Price Dive You would expect the market to be reacting positively to Parkit’s turnaround and future prospects, which it did to some degree in April after the announcement of the Expresso acquisition; however, shares have been falling from a high of $0.70 in both the Canadian and US listed shares since October. We think that the market is overreacting to the combination of the oil sell off and the recent resignation of John LaGourgue, VP of Corporate Communications, who was extremely bullish on the company’s long-term prospects. We think that the oil price drop does not change the investment thesis and actually could increase drivers’ interest to travel and park in parking lots. Also, LaGourgue left for personal reasons and as a sign of interest in the company’s long-term prospects he continues to keep 85-90% of the shares and options in Parkit. Keep in mind, many of his shares were purchased on the open market and that he likely sold some shares to diversify his investments. Business Current And Going Forward (click to enlarge) (Source: Parkit Presentation) Parkit has been operating in the past and currently under the model to the left. Parkit owns an equity stake in the Canopy and Expresso garages alongside ProPark America and a few other outside investors. Parkit does not operate these assets, ProPark America provides those services as that is within their circle of competence. Previously Parkit did not bring too much to the relationship other than the capital to invest into Canopy, but that is changing drastically as the new strategy emerges. Parkit’s new strategy is to, to put it simply, set up and run a parking garage private equity fund not too different from an asset manager in structure. As seen in the chart above and to the right, Parkit has already set up a fund with ProPark to act as a platform to raise institutional money to then be used to aggregate parking assets that both Parkit and ProPark manage. Parkit and ProPark both are General Partners (50:50 split) and will receive hedge fund like management fees (0.5-1% of AUM), acquisition fees ( Additional disclosure: This article is meant for instructional purposes and not meant as a recommendation to buy or sell. We are human and can be wrong, especially with our forecasts, so it is extremely important to do your own homework. The only kind of intelligent investing is through your own due diligence. We own both PKTEF and PKT.V.

Themes For My Portfolio For 2015 And Beyond

I’m currently invested in 51 different companies across every single economic sector. You’d think I’d just call it a day right there and continue to allocate fresh capital and reinvest dividends back into those same companies. And that probably wouldn’t be a bad idea. Yet, I also see a number of high-quality companies obviously missing from the Freedom Fund . There are a number of investors out there that like to maintain rather concentrated portfolios. Nothing wrong with that, but I do think there are a lot more than 20 or 30 really high-quality companies that one can invest in. Thus, I see no reason to limit myself. I’ve often heard the old line about how one’s first or even twentieth idea is going to be better than their fortieth. I’m not so sure about that. For instance, I just very recently initiated a position in Walt Disney Co. (NYSE: DIS ), which became my 52nd idea. Is that a worse idea than Johnson & Johnson (NYSE: JNJ ) – one of my very first investments? I don’t believe that to be the case. I think they’re both excellent companies in totally different industries, offering a very different mix of yield and total return potential. But being different doesn’t necessarily make one better than the other, nor does it make Disney a bad investment just because it came later than Johnson & Johnson. Just my opinion on it. On that note, I feel there are some shortcomings in the portfolio. Some ideas that I still have in my mind, yet have lacked the capital or opportunity to realize. What you’ll see below are a few ideas that I still have that I hope to capitalize on at some point. These will be broader themes across the portfolio with specific stocks I have in mind to fulfill those themes. Shipping/Transportation I believe wholeheartedly that the world of 10 years from now will be moving more goods than the one of today. There will almost surely be more people alive, and people tend to buy stuff. Be it food or personal goods, or even energy to power their homes, transportation will increasingly be needed. I’m currently invested in Norfolk Southern Corp. (NYSE: NSC ), which has been a fantastic stock for me. However, I see the need to increase my exposure in this area. Some stocks on my watch list here include: Union Pacific Corporation (NYSE: UNP ) – This stock would increase and round out my investment in rail, giving me exposure to the west. UNP operates the largest network in the US. Though the stock is rarely cheap and the yield isn’t particularly high, rail offers huge competitive advantages in the form of barriers to entry. The company currently sports eight consecutive years of dividend increases. United Parcel Service, Inc. (NYSE: UPS ) – An investment in UPS would offer one even greater exposure to the increasing movement of goods across the world, and in a manner different from rail. Consumers continue to shop online more and more, and these goods have to be shipped from the retailer to the consumer. UPS is one of the key players in this arena. Another stock that’s not particularly cheap, but one I’d love to get my hands on. UPS has increased its dividend for five consecutive years. C.H. Robinson Worldwide Inc. (NASDAQ: CHRW ) – This is a global third-party logistics company. Goods move in a number of ways, but all of that movement needs to be properly executed and tracked. That’s where CHRW comes in. Another high-quality company that I’d love to invest in. CHRW has managed to raise its dividend for the past 16 consecutive years. Investment Management This is another area that I’m missing any exposure to. While it’s never been a particular priority for me, I see a number of companies that manage assets that operate at extremely high levels. Though some can be a bit cyclical due to the fact that people tend to pull assets when the economy is tanking, these companies do well over long periods of time. These are just a few companies on my watch list here: T. Rowe Price Group, Inc. (NASDAQ: TROW ) – A household name in this sector, they provide global asset management solutions. Though I’m obviously a do-it-yourself investor, many others lack the time, interest, or inclination to follow suit. Thus, they generally allow professionals to manage their investments. This is sometimes required through employer-sponsored 401(k) plans, as those generally don’t allow one to invest in individual stocks. TROW has an excellent dividend growth record, with 27 consecutive years of dividend increases. Franklin Resources Inc. (NYSE: BEN ) – They run the venerable Franklin Templeton Investments firm, which is another household name. The yield isn’t quite where I’d like it to be, but this is another company that does really well over lengthy periods of time. More people means more assets to manage, and there continues to be a groundswell of education that points to the fact that people need to invest more. There’s a ton of untapped potential here for BEN and other companies like it. Another great dividend growth stock, with 34 consecutive years of dividend increases. Eaton Vance Corp. (NYSE: EV ) – This stock flies under the radar, but the fundamentals appear to be excellent. Though it’s smaller than the other companies I’m watching in this sector, they’ve done incredibly well as a company for a long period of time. I wouldn’t mind at all being a shareholder in this company at the right price. They’ve increased their dividend for the past 34 consecutive years, which runs right through the financial crisis. Good stuff. Insurance Another huge hole in my portfolio. I’m currently invested in just one insurance company: AFLAC Incorporated (NYSE: AFL ). Great company and great stock, but I’d love to broaden my exposure here. I lack any investments in property & casualty insurers, which can be lucrative investments. Insurance companies have access to huge amounts of capital via their floats, which can supercharge their returns. The three insurance companies I’m most excited about include: The Travelers Companies (NYSE: TRV ) – I wrote about this stock not too long ago, and totally missed out by not investing right away. My capital is limited, but I still regret not pulling the trigger. Excellent fundamentals here and one of the larger insurers around, which I like. I tend to shy away from real small insurance companies due to the risks of catastrophic losses. TRV has increased its dividend for the past 10 consecutive years. The Chubb Corp. (NYSE: CB ) – Another high-quality insurance firm. Revenue hasn’t grown in some time now, but the company just continues to increase profit and dividends anyway. I regret not buying this stock earlier in the year when it could have been had for much cheaper, but the same could be said for a number of stocks. At any rate, I do hope to purchase shares at some point in the near future. With 32 consecutive years of dividend increases, I think this stock deserves a place in the portfolio. HCC Insurance Holdings, Inc. (NYSE: HCC ) – This insurer operates a bit differently than the other two on the list here. In addition, it’s a much smaller company. Nonetheless, it sports excellent fundamentals across the board. The stock has been on a tear this year, much to my chagrin. But I still think there’s an opportunity here for the long-term investor. HCC has increased its dividend for the last 18 consecutive years. Industrials I already have some exposure to some great industrials. However, there are still a number of great companies that produce great products that I’m not invested in yet. This isn’t a particular priority for me, but if an opportunity with the right stock comes my way, I won’t hesitate to pull the trigger. This is just another play on a growing economy. A number of industrial firms produce the products that allow a number of other industries to work properly. I love investing in companies that fly way under the radar, yet produce products that are ubiquitous. Big and small products alike – from jet engines to adhesives – remain in demand every single day. It should also be noted that some of the lengthiest dividend growth streaks around lie in the industrial sector. This list isn’t comprehensive, but does include: 3M Co. (NYSE: MMM ) – A fantastic company. What can really be said that hasn’t already? This is a great example of what I was discussing earlier. I missed out on MMM. I just plain made a mistake not investing in the company earlier. Does that make it somehow a worse investment than one of my earlier purchases, like, say, PepsiCo, Inc. (NYSE: PEP )? I don’t think so. Both have done well. Just vastly different companies. 3M has been on a tear lately, both in regards to its stock price and its dividend increases. It remains on my radar. 3M has increased its dividend for the past 56 consecutive years, which puts it in rare company. United Technologies Corporation (NYSE: UTX ) – This is a unique firm that’s heavily diversified. They produce products like jet engines, helicopters, elevators, and air conditioning systems. And they’ve done well with this unique mix. This is another high-quality firm that I’d love to invest in at some point. 21 consecutive years of dividend increases speaks for itself. Praxair, Inc. (NYSE: PX ) – This would allow me another investment in the industrial gasses area, which I’m currently exposed to through my investment in Air Products and Chemicals, Inc. (NYSE: APD ). I love the industrial gasses companies due to the fact that they basically operate an oligopoly where their clients have to lock up long-term contracts. PX has increased its dividend for the past 21 consecutive years. Consumer Products This is currently where my heaviest investment lies. But that’s for good reason. No matter what’s going on with the economy, people are still going to brush their teeth, buy their food and beverages, and take showers. Thus, companies that produce these products make for great long-term investments. Furthermore, their volatility is somewhat low, which balances out some of the more cyclical stocks. However, where I already have a lot of exposure here, there are still a few great companies out there that I’d love to own a piece of. These are just three select companies I’m interested in here: Nestle S.A. ( OTCPK:NSRGY ) – The largest food company in the world. How am I not invested yet? Another good example of the possibility of one’s 60th idea being just as good as their first. The problem with NSRGY is that it pays an annual dividend and also has a foreign dividend withholding tax by the Swiss government. This is nitpicking, however, when you consider the quality of the company and its brands. Another glaring hole in my portfolio. NSRGY has increased its dividend for the past 14 consecutive years. Church & Dwight Co Inc. (NYSE: CHD ) – An absolute monster in cleaning products, with brands ranging from Arm & Hammer to Kaboom to OxiClean. Great fundamentals, though it’s another stock that seems perennially expensive with a low yield. I’m waiting for the right opportunity, but I expect that this stock will be in the portfolio at some point or another. CHD has increased its dividend for the past 18 consecutive years. Colgate-Palmolive Company (NYSE: CL ) – This stock haunts me to this day. I regret not buying it years ago, and only didn’t do so because, like today, it was expensive. The stock currently sports a P/E ratio north of 30. I don’t care what anyone says, but I just refuse to go that high. Maybe I’m making the same mistake over and over again, but I’d rather miss out on an opportunity than risk loss of capital. If/when this stock comes back to earth, I’ll be one of the first in line aiming to buy shares. Colgate has one of the longest dividend growth records around, at 51 consecutive years and counting. Retailers Retailing isn’t my favorite area to invest in. Typically, it’s just a brutal industry. You have low margins and customers aren’t usually loyal to one particular retailer. If a consumer can get the same product cheaper down the road, then that’s where they’re going to go. However, I think there are a few standouts that offer potential. I’m already invested in Wal-Mart Stores, Inc. (NYSE: WMT ) due to their low-cost advantages and Target Corporation (NYSE: TGT ) for their niche products. But there are some other retailers on my watch list that have done particularly well over the last decade and will likely continue to do well for the foreseeable future. With that said, three retailers in particular remain on my radar: Costco Wholesale Corporation (NASDAQ: COST ) – A warehouse juggernaut, this company has grown faster than I thought they would. They now sport revenue well north of $100 billion, after more than doubling revenue over the last decade (from an already large base). I don’t shop here, but my fiancee does. She loves it. From what I can tell, they have a stickier customer base than your usual retail center due to their membership structure. The stock is way too expensive for me here, but I’d be interested in initiating a position at a much more attractive valuation. Costco has increased its dividend for the past 11 consecutive years. TJX Companies Inc. (NYSE: TJX ) – TJX, via its stores, offers a niche experience through what can only be described as a “treasure hunting experience.” TJX operates the Marshalls, T.J. Maxx, and HomeGoods stores in the US, as well as some stores in Canada and Europe. I love their growth and the fact that their margins are higher than a typical retailer. Their unique off-price apparel and other goods is difficult to replicate in another setting. TJX has a great dividend growth record, with 18 consecutive years of dividend raises under its belt. Ross Stores, Inc. (NASDAQ: ROST ) – Another off-price retailer, Ross has grown like gangbusters over the last decade. Revenue is up more than twofold and earnings per share has grown almost sevenfold. Like TJX, the stock isn’t cheap right now. However, if the valuation happens to come around right at the same time I have some spare capital, I wouldn’t mind at all being a shareholder in ROST. I regret not investing at the beginning of my journey, as the stock is up some 339% over the last five years. So many stocks, so little capital. ROST has a similar dividend growth record to TJX – 20 consecutive years and counting. Other Opportunities There are a few other sectors that I’m also interested in increasing my exposure to. I think that I’m currently underexposed to healthcare, and one company that I’d love to invest in is Becton, Dickinson and Co. (NYSE: BDX ). Just another stock I missed out on, as I looked at it when it was trading in the $70s. It’s had an incredible run this year, but would love to pick up shares if it drops a bit from here. I also need to increase my exposure to REITs after selling out of American Realty Capital Properties Inc. (NASDAQ: ARCP ). I’m aiming for somewhere around 7% of the portfolio to be allocated to REITs over the long haul, but I’d be willing to move that up to 10% since I don’t own any physical real estate. I’m currently interested in adding to the REITs I’m already invested in, depending on capital and valuation. In addition, W.P. Carey, Inc. (NYSE: WPC ) will likely fill ARCP’s now-vacant spot at some point here. WPC is currently at the top of my watch list as far as REITs I don’t yet own. I also think there are some solid REITs in the healthcare space (which could kill two birds with one stone), such as HCP, Inc. (NYSE: HCP ) and Ventas, Inc. (NYSE: VTR ). It appears to me that some of the best values remain in the energy sector, but my allocation to energy is above 15% right now. That’s considerably above where I’d like to be over the long haul, so I remain cautious and choosy about picking opportunities in this sector. I’d like to perhaps average down on Exxon Mobil Corporation (NYSE: XOM ) at some point, as well as National Oilwell Varco, Inc. (NYSE: NOV ). Conclusion So that includes some of the stocks currently on my watch list that I’m not yet invested in. While some may argue my portfolio is too large already, I don’t believe that to be the case. Managing a large portfolio isn’t time consuming or cumbersome, and yet there are still quite a few great companies that I’m not yet exposed to. I see no reason to put an artificial ceiling on myself. Obviously, I hope to invest in some of these companies over the course of many years, as this is way too big of a list to think about in short-term measures. But I wanted to share this list so as to provide some readers out there some value and ideas for their own portfolios, as well as to keep myself on task here as far as my own capital allocation. Full Disclosure : Long DIS, JNJ, NSC, AFL, PEP, APD, WMT, TGT, XOM, and NOV. Editor’s Note: This article discusses one or more securities that do not trade on a major exchange. Please be aware of the risks associated with these stocks.

ACIM Appears To Have Incredibly Low Risk, But That’s Inaccurate

Summary I’m taking a look at ACIM as a candidate for inclusion in my ETF portfolio. The correlation appears to be very low, but the low liquidity caused days with no trades. The same liquidity issues might have improved the standard deviation of returns. The premium to NAV makes it look like a potential short candidate. I’m not assessing any tax impacts. Investors should check their own situation for tax exposure. Investors should be seeking to improve their risk adjusted returns. I’m a big fan of using ETFs to achieve the risk adjusted returns relative to the portfolios that a normal investor can generate for themselves after trading costs. I’m working on building a new portfolio and I’m going to be analyzing several of the ETFs that I am considering for my personal portfolio. One of the funds that I’m considering is the SPDR® MSCI ACWI IMI ETF (NYSEARCA: ACIM ). I’ll be performing a substantial portion of my analysis along the lines of modern portfolio theory, so my goal is to find ways to minimize costs while achieving diversification to reduce my risk level. What does ACIM do? ACIM attempts to track the total return of the MSCI ACWI IMI Index. At least 80% of funds are invested in companies that are part of the index, or in ADRs (American Depositary Receipts). ACIM falls under the category of “World Stock”. Does ACIM provide diversification benefits to a portfolio? Each investor may hold a different portfolio, but I use (NYSEARCA: SPY ) as the basis for my analysis. I believe SPY, or another large cap U.S. fund with similar properties, represents the reasonable first step for many investors designing an ETF portfolio. Therefore, I start my diversification analysis by seeing how it works with SPY. I start with an ANOVA table: (click to enlarge) The correlation is an absurdly low 40%. If an investor stopped here, they would be dramatically misinformed about the risks of ACIM. The correlation is very low as a statistical measure, but the metric is being substantially enhanced by a lack of liquidity in the stock which caused several days to report no change in the price of securities. Standard deviation of daily returns (dividend adjusted, measured since March 2012) The standard deviation is excellent for the international exposure. For ACIM it is .9981%. For SPY, it is 0.7419% for the same period. SPY usually beats other ETFs in this regard, so having a lower standard deviation is excellent. Frequent readers should be aware that I have measured returns from March 2012 instead of my normal starting point of January 2012. I can’t measure values until the ETF is trading and Yahoo is tracking the dividend adjusted close values. Unfortunately, the standard deviation may appear substantially smaller than it should because several days (especially in 2012) reported no change in price. When no sales are reported, the price is not changed and it looks like a low standard deviation of returns. Investors should be aware that there is substantial liquidity risk. The average volume for the last 10 days is only 6,837. Mixing it with SPY I also run comparisons on the standard deviation of daily returns for the portfolio assuming that the portfolio is combined with the S&P 500. For research, I assume daily rebalancing because it dramatically simplifies the math. With a 50/50 weighting in a portfolio holding only SPY and ACIM, the standard deviation of daily returns across the entire portfolio is 0.7320%. If an investor wanted to use ACIM as a supplement to their portfolio, the standard deviation across the portfolio with 95% in SPY and 5% in ACIM would have been .7263%. However, due to the very low correlation, a position of 80% SPY combined with 20% ACIM results in a standard deviation for the portfolio of only .6982%. Investors hoping to capitalize on this low standard deviation of returns would need to have a relatively low need for liquidity since the price stability only works if no large sell orders are being introduced. Why I use standard deviation of daily returns I don’t believe historical returns have predictive power for future returns, but I do believe historical values for standard deviations of returns relative to other ETFs have some predictive power on future risks and correlations. Yield & Taxes The distribution yield is 1.84%. The yield is almost high enough for a retiring investor, in my opinion. Generally, I want to see yields over 2% when considering an ETF for retirement planning. This is close enough that I could still consider it from the perspective of a retiree, but only if the retiree was certain they did not have liquidity needs. I’m not a CPA or CFP, so I’m not assessing any tax impacts. Expense Ratio The ETF is posting .25% for an expense ratio. I want diversification, I want stability, and I don’t want to pay for them. The expense ratio on this fund is higher than I want to pay, but isn’t unbearable for the incredible diversification. Market to NAV The ETF is at a 1.85% premium to NAV currently. Premiums or discounts to NAV can change very quickly so investors should check prior to putting in an order. I wouldn’t want to pay a premium greater than .1% when investing in an ETF. There might be some situations where I would pay .2%, but you won’t see me agreeing to pay that premium. Not happening. If I took a position in this ETF it would be with a carefully monitored limit buy order that adjusted for the premium. If sell orders dropped it to my price, great, if not, I’d rather avoid the ETF entirely than pay that premium. Largest Holdings ACIM has great diversification when you look at the percent in each asset, but the top of the portfolio still has a huge tilt towards the U.S. economy. (click to enlarge) These aren’t bad stocks to hold, but I can get them by holding any of several major ETFs that hold major U.S. companies. The appeal of a world portfolio is having substantial exposure to other markets to help balance out the geographic risks of a U.S. based portfolio. This collection of top holdings supports my belief that the correlation is understated because favorable impacts from days where reported closing price did not change. If ACIM drops to trade at a discount to NAV, I may become very interested in it. Otherwise, regardless of the statistics, I’m not interested in paying a premium for an ETF that holds several of the same companies I can acquire without the premium. Conclusion I’m currently screening a large volume of ETFs for my own portfolio. The portfolio I’m building is through Schwab, so I’m able to trade ACIM with no commissions. I have a strong preference for researching ETFs that are free to trade in my account, so most of my research will be on ETFs that fall under the “ETF OneSource” program. I think the statistics for the ETF are misleading and premium to NAV looks like a poor bet for future returns. When this ETF trades near NAV, it may have some value to investors. I may take a deeper look at it in the future, but for now I think the low liquidity and premium NAV present a real challenge to including it in my portfolio. Due to low liquidity and the potential need to execute a trade over multiple days to create or sell a reasonable position, I would not consider this ETF at all from any account that was required to pay trading commissions on the ETF. If I can short ETFs that are overpriced (without commission), it might become appealing to initiate shorts on the ETF when it is trading over book value if I can own substantially the same securities through other ETFs without paying a premium to acquire them. Additional disclosure: Information in this article represents the opinion of the analyst. All statements are represented as opinions, rather than facts, and should not be construed as advice to buy or sell a security. Ratings of “outperform” and “underperform” reflect the analyst’s estimation of a divergence between the market value for a security and the price that would be appropriate given the potential for risks and returns relative to other securities. The analyst does not know your particular objectives for returns or constraints upon investing. All investors are encouraged to do their own research before making any investment decision. Information is regularly obtained from Yahoo Finance, Google Finance, and SEC Database. If Yahoo, Google, or the SEC database contained faulty or old information it could be incorporated into my analysis. The analyst holds a diversified portfolio including mutual funds or index funds which may include a small long exposure to the stock.