Jamie Horvat Carfinco Financial Group CFN-T TOP PICK Nov 18, 2011

It is the shape of the Canadian consumer and how leveraged they already are. If Canada is at the end of its credit cycle then you want to get out of this. Would prefer a US regional bank for a credit cycle play.

Automotives’ seasonality is from Feb into April or May, but it pulled off substantially this year. Buy at last year’s low.

The 1 year chart shows the uptrend broken in January. Not a great looking chart. If he owned, he would probably use the most recent rally as a way to get out.

Doesn’t think there is anything wrong with this company, but, for the longest time, they were the only player in the D (?) space within auto lending. They now have another competitor, whereas in the past, there wasn’t as much attention paid to customer care and customer service. Because of this, a lot of dealers, when offered a 2^nd source, were very eager to do so. Still a lot of scope for both of them to grow their businesses.

Still likes this. Reasonably priced. Doesn’t think competition is a big issue. Stock has dropped because they did a financing, which effectively delevered them quite a bit. That affected their ROE, so now he is waiting for that capital to get soaked up. ROE seems to be troughing around the 20% level, which is where he wants it to stay. Expects this will start to lift as that capital gets employed. (See Top Picks.)

Has a small Short on this, but is neutral on it. On this pullback he would not recommend a Short. Had a hiccup in the business, but overall it is a good company. Not super cheap, and they won’t have any momentum going in their loan book right now. There is more competition on the low end of their market, and that is kind of hurting them right now.

Has always admired the job the management did in building up a pretty good business. When investing in smaller cap Canadian stocks, you have to be a little patient because they get into these funks. There are so many momentum guys investing in the market now and they start to see a stock start to fall off, even if there are good fundamentals, they may start to sell. He is just starting to look at this one. There is more competition coming in to their segment of the market.

There is increasing competition in the sub-prime auto lending area and they did an acquisition that is taking time to digest.

About 6 weeks ago, a large Spanish bank decided to get into the Canadian subprime business in terms of auto lending and made a cash offer of about $11.25. This is very good news for the non-banks in general. The stock peaked in Jan/Dec at around $12 and fell to the $8 level. Doesn’t think there will be another bid coming. If you own, he would tender your shares.

Sold his holdings months ago when the deal first came out. (See Top Picks.)