Been a bit busy lately. Doesn't help that my MFI stocks are sucking wind of late either. Hard to get pumped up to post a blog when the news is not so good. Just as recently as mid February, I was about 10K above the benchmark. I have given it all back and now trail the benchmark by about 5K. Seems like all the news and earnings have been disappointing lately.
A poster on the Yahoo board commented that MFI Canadian stocks (think FDG, TCK and BVF) have underperformed. At first I thought it was a small sample and just bad luck. Also Canada had recent law change on trusts that hit FDG. But then I started thinking (always dangerous). MFI measures earnings for both earnings yield and Return on Invested capital before taxes. That generally makes sense as tax rates can be all over the place. So when you are using MFI to compare a US company vs a US company, that seems like a smart factor to use. BUT when you are comparing companies from different countries, it may not be right to use earnings before taxes as tax rates vary between country. Thus MFI may overstate the ratios for companies in higher tax jurisdictions, which I am sure include Canada. Of course I have at least 4 CA companies: CREL, PDS, VPHM and FDG.
Finally, a slew of companies have been bought recently. SVM and THE for sure. Then PALM is a heavy speculative target. Of course I own none of these companies. Well, at least I am back in the green YTD, even if I am falling behind the Russell 3000. Tomorrow is a new day.
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4 comments:
I think your tax point is a good one, but I think the difference between US and Canadian companies is more of a blurred line than a solid one.
Companies usually pay taxes wherever they do business. Many of the US companies have an effective tax rate that ends up being a weighted average of the statutory rates they paid in multiple countries. It's clear that some of the Canadian firms on the MFI list do the bulk of their business in Canada and some US firms do the bulk of their business in the US. However, I think most of them will have a blended tax rate. For that reason, I would doubt (although I haven't looked at the data) that there's a significant difference in effective tax rates between the US companies on the list and the Canadian companeis on the list.
By the way, I love the blog and your posts on the Yahoo board. Keep up the good work and thanks.
Karl
KJ
Thanks for the comment, but I don't think you are right. Tyco and Nabors relocated their corporate headquarters to Bermuda to reduce their exposure to US taxes. Black and Decker looked at it as well. Microsoft runs all European ops through Dublin, the lowest tax jursidiction in the EU. Appreciate the comments about my blog.
MG
MG -
You are right. I didn't mean to say that a corporation can't locate HQ or parts of their business in certain jurisdictions to manage their effective tax rate. Just that I've seen plenty of US companies that have low effective tax rates (<25% vs. statutory rate of 35%) due to their global operations. We can't assume that because a company on the MFI list is a Canadian company it will definitely have a higher tax rate.
KJ
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