Canadian Western Bank (CWB.TO)

*Short*. (Top Pick Jun 10’16, Up 9.11%) This is a paired trade for him. He has no specific target.

A levered way to play Canadian banks. When oil prices go down, this bank goes down more than it should. If you think oil prices are near their bottom, and he does, as they go up, this bank will catch up. This could be a really good levered play. Be careful, because if oil were to go back down to $40, this bank goes down.

The whole banking sector is quite positive. The chart shows a little head and shoulders. If it can break above $32, it would probably run away pretty nicely. He likes the whole financial sector. (See Top Picks.)

Compared to Oil prices over the last 5 years, you can see it is a big proxy. It is not a perfect correlation, but oil is a huge influence. CWB-T will be a range trader for the next 5 years.

Has a long term Short on this. Looking back to the last downturn in 2008-2009, it took 17 quarters for them to get back to pre-recession provisioning levels. The current downturn in Alberta has been a lot longer and more protracted, so thinks the time horizon for provisions will probably be even longer than 17 quarters and doesn’t think the street is factoring that in.

(Market Call Minute) Completely exposed to the West. Its loan book is not as bad as people thought. It is not going out of business.

This has most of its operations in Western Canada, and is very tied into the energy market. It will sink or swim with energy stocks. Its underperformed the other banks. If you are a big believer that the worst is over for energy, and that there is growth ahead, then this probably has some leverage. He wouldn’t hedge quite like this. If you want an energy stock, he would buy it, and if you want a bank, he would buy a regular bank.

This would be reward time for him. Stocks don’t behave this way. A good name and a good company, but anything with bank or financial, has had about a year’s move in 2 months.

It has lagged and the regional exposure is the reason for the lag. It is undiversified by geography and by line of business. His concern would be that although the oil commodity complex is picking up, he feels employment has a lagged effect. Loan losses and credit provisions would be a concern for some time.

Banks have been coming out with strong fourth quarter results and this one is about to report. Technically this is in an upward trend. It looks okay. Banks usually move higher from August until the end of November. This is usually the time to take money off the table. Look for such an opportunity to sell on strength over the next couple of weeks.

He likes the financial sector, but believes the US banks are the better place to invest right now. A well-run company, but the stock is up quite a bit in recent months, probably around optimism on oil prices. The stock is not overly cheap. Feels there are better places to invest in, in financials.

(A Top Pick June 3/15. Down 6.69%.) Given what is happening in Alberta and with the Alberta housing market, this is down. They bought a vehicle financing business, and sold off their custodian and their PNC insurance business. He still likes it.

(A Top Pick Nov 24/15. Down 1.28%.) Short. (A pairs trade with a Long on Callidus Capital (CBL-T).)

(Market Call Minute.) Oil and gas.

Canadian Banks were really superstars this last quarter. A lot of that had to do with them being overly pessimistic regarding provisions for credit losses, particularly relating to the energy industry. This bank would be even more so. Trades at a significant discount to the rest of the group. Given the way the dynamics for oil is playing out, the forward curve for crude, you are probably going to be in a good scenario for the next 6-12 months with this bank.