Canaccord Financial Inc (CF.TO)

Held this about 6 months ago before the market turned down. From the lows, it has had a pretty nice jump off the bottom. They do make money, but it is a very cyclical company. They generate returns based on the energy market, materials market such as gold, and how many deals they do. Also, have a lot of investment advisors. He likes their overall business, but you can’t hold this for the long-term because it is always going to have its ups and downs. Pays a reasonable dividend. If there is a potential of a big move down in the market, this is not a name you want to be in.

A very, very cheap company and trading almost below its BV and almost below its cash value as well. They are very highly tuned to the capital market, particularly the Junior markets in terms of technology and resources. He really doesn’t know why investors are not appreciating the stock. It has high leverage to capital markets, a great balance sheet, and great earnings potential if things go well, and as these finances come back, their leverage on investment banking fees and advisory work is very, very big. Good company.

Had a Short on this and just covered it in the last couple of days. His issue is that the ROE is really, really modest. They have a capital base of about $1.1 billion of equity and are on target to make $35 million. That is a 3.5% return. When you are doing this kind of return on that kind of capital, you won’t trade at BV. The rough rule of thumb in Canada is that if you have an 8% ROE, you will trade at Book, 16% ROE you will trade at 2X Book, etc. This company’s average is around 4%, so that should trade at around .5X Book, and their average is about .6X Book right now. They have to become much more capital efficient. If there is a little bit of a rally in this company and if you own, he would recommend that you Sell.

(Top Pick Feb 4/14, Up 1.33%) They have tons of cash and are trading below book value. It is a very attractive company from a valuation perspective. You need the growth in mergers and financings, which we have seen in the last week. Their costs are variable and you have to watch them.

(Top Pick Jan 10/14, Down 6.92%) They are geared to a commodity market. They performed well the first half of the year. He took half his position off since. Continue to hold it or buy more.

Largest free broker left in Canada. Times are not good for independent brokers because of problems in the oil sector where it is hard to do new issues. The yield is okay. You are better in a bank or insurance company, however.

This stock is highly correlated to the stock market. Trading below book value right now. Now is probably a pretty good time to buy. It is very dependent on the market.

(A Top Pick Jan 10/14. Up 5.97%.) Had anticipated better times and a better year, which he got. Bought more in January, but sold about half his holdings in the $12 area. Today it is trading at about 8X BV, which is when you buy brokers, not when you sell them. It is now becoming very interesting. Close to a 4% dividend yield and management is buying back stock. This would be on his radar screen to pick away at.

Brokerage firm profits will go up and down with the general level of the stock market. Highly cyclical businesses. This one has had a big run. They were involved in a very, very large financing, and a lot of investors bought the stock in advance of them reporting their earnings. Generally you want to buy these stocks when the stock market is on its knees. You are in late stage innings. Financing could continue, but it is highly competitive right now. You are into a late, late stage of the game. If you own, consider trimming at least half your position.

Has mixed feelings. Had hoped to see a revival in the IPO market and the resource sector, where these mid-tier firms in Canada historically made their money. He would be patient and wouldn’t rush right in. They may have another difficult quarter. Put it on your Watch List and see if you can pick it up after their Q3.

Very interesting brokerage firm and a decent company. A sub segment of financial services from a public market perspective that he is not terribly keen about. Majority of investment/brokerages are silent partnerships. A shorter-term oriented industry with very highly paid employees. Whether they are public or private, they demand very high compensation. The downside is that they are using the public’s money to leverage their business. Prefers other areas of financial services, but in the short term this is a good investment, but be ready to pull the trigger and Sell.

This is more of a cyclical in the sense that it is geared to markets. Quadrupled their earnings from last year. This is your senior, independent of the banks, investment banking company. Should continue to do very well.

Was one of his top picks in the past. It was too cheap and trading below its book value. In ’08 everyone didn’t like the company, but the market bottomed and then there were lots of financings last year and CF is knocking it out of the park now. He would hold it a little bit longer.

Preferred. Never average down. This is not a fixed income investment. You get a better yield than the common.

This is a capital markets play. He rates this as a B-. Valuation is very attractive. BV is $8 a share so it is trading below Book Value. Every 2 weeks they announce how many shares they bought back with their cash. They have $360 million in cash. Starting to see pick up in financing activity. Even the gold sector is starting to do some capital market raises. Their international presence is impressive. If the market does well, financings will pick back up. Yield of 2.98%.