Canaccord Financial Inc (CF.TO)

Not doing very well. Chart shows it tried to recover this year, but didn’t quite make it, and it came back down. Looks like this is going to be trading in a narrow range of $4-$6 going forward. There are better things to do with your money.

(Top Pick July6/17, Down 15.23%) It is up since he first recommended it in his newsletter.

They are a top underwriter for the cannabis industry. They combined with Genuity and are now a full fledge multi-industry service investment firm. Not too many people paid attention at their earnings announcement. They are about to buy a UK wealth manager. He expects over a $1 a share in earnings. He has been buying more. (Analysts’ target: $6.50).

Not quite sure that being Long a Canadian brokerage would be the best place to be over the near term, particularly given that he is not that rosy about the Canadian economy in general. It is a very, very hyper competitive industry they are operating in, with margins being compressed from every direction. However, it is diversifying into other countries, the UK, which is an interesting contrarian play because of the BREXIT overhang. Trading below BV and also have considerable retail assets that would be worth something to a potential acquirer.

The major 4^th retail operator currently listed. It has been through difficult times. The markets have been difficult. They lost their president. Has some very interesting properties in Australia and the US. Volumes have not been tremendous on the stock and IPO markets for the most part. Doesn’t see anything that is going to crank the handle in the near term. If you see something more exciting, then put the cash there. He sold his holdings.

Preferred C. This will reset at the 5 year Canada rate, around 3.75%. Why is it at $18, instead of $25, which would normally be the issuance value? 5-6 years ago, the rage was Reset Preferreds because rates were low and if rates went up, there would be a higher yield when it reset. Instead of going up though, rates fell. Therefore at reset, at 3.75% over our Canada 5 year of about 80 basis points, it is going to be reset with a 4.5% yield. The risk doesn’t necessarily correspond with a 4.5% yield that you would get on other safer preferreds. The market doesn’t like that, so it is not going to pay you for value. As long as interest rates stay low, it is a great thing for the issuer because it is a cheap preferred. Unfortunately, it will trade at around $18 for a while.

Their season is from October into April. Chart shows a long downward drop from 2014 until early 2016, at which time it started basing. He doesn’t have a lot of faith that the stock will have an uptick at this point. Wait for that to take place, and come back to it in October.

It is a rounded bottom. This is a positive development.

Will this benefit from an interest rate hike? The short answer is yes. Brokers do very well in a rising rate environment, or in an environment where there is a yield curve of any sort, because they can actually make money on cash balances that sit on their books. This has a reasonable US presence. The one issue he would caution you on, is that they have a very large UK business.

The 5-year chart shows a big overhead supply in 2014 into 2015. This is building a base now, and needs to break above $5.70 before it is out of the woods. The jury is still out on this one. You want to see a breakout of $5.70, or at least a bigger base.

He has a short position in this one. They have some legacy issues. Independent brokers in Canada are not a particularly good place to be.

One of Canada’s 2 publicly traded brokerage firms. Well diversified with retail, institutional, investment banking and advising business. It has gone through a big restructuring in the last few years. The brokerage industry globally is facing a lot of challenges. It isn’t as profitable as it once was. This one has been very fortunate in being diversified across different industries, but do have a substantial amount of their assets in the UK, and are directly impacted by what has happened with BREXIT. That will impact their profitability and their asset base. He likes this name and it is extremely cheap. Trades at a significant discount to its BV.

The whole Canadian independent brokerage sector is under extreme pressure. They now got rid of a lot of acquisitions. Unless the resource sector comes back, they are faced with headaches.

A very volatile stock and trades a lot with commodity pricing. They also have the retail franchise which has about $9 billion in assets, but doesn’t seem to generate too much cash. This is going to move a lot with the S&P 500 and the TSX. It is also going to move along with the sub indices of energy and materials. Soon as you start seeing that turn around, that is when you want to start making an investment.

Generally speaking the Canadian capital markets are undergoing a very difficult period of time and have been for a while. This is in a very challenged environment and there is not much of a growth outlook. Expects there will be more mergers and consolidations, and it is going to be awhile. If he were going to play a Canadian non-bank financial, it would be something like an Investors Group.