Equitable Group (EQB.TO)

(A Top Pick July 5/16. Down 15%.) Believed that the model was very good. He began selling it at $60, and by the time he was done it was trading at a little above $48-$49.

It is a quality company. They have an impeccable portfolio. Their bad loans are miniscule. They got thrown in with HCG-T. He can’t say anything bad about it. Their earnings were fine when they came out. He does not think the latest budget will have any effect on them.

Very similar to Home Capital (HCG-T) in how they run things. The issue a lot of these companies face is that they are borrowing money at a retail level, which has hurt them a fair bit. Everybody worries about the mortgages, but those are probably fine. The problem is, they have to be funded and the funding is the bad part. If somebody doesn’t trust you when you are funding things, it becomes very difficult. That is exactly what happened in the US in 2008. (CEO just stated that there was no material decline in deposits, and they have just lined up a $2 billion standby credit facility, just in case.)

Assuming that the contagion is not so devastating, and assuming that they can still raise capital at a reasonable cost, he thinks this company will pull through. A year from now, many of these companies will regain their losses.

(A Top Pick July 2/15. Down 12.9%.) An alternative mortgage lender. A segment that people love to hate at the moment. There is concern that the housing market, particularly in Toronto and Vancouver, are going to explode and that mortgage lenders are going to be like the ones in the US, left for dead on the battlefield. A terrific opportunity to buy a quality company.

Mortgages. They also have a fin Tech spin to them. The fin Tech bank can get deposits that others can’t. Trading at a very low multiple, at about 7X this year’s earnings and 6X next year’s earnings. Dividend yield of 1.53%.

Had launched a bank, and got quite a bit of attention in January when they had a savings account that was paying 3%. It was remarkably successful, and probably more than they had anticipated. Since then it has scaled back to about 2.25%. If you are lending in mortgages and paying 3% on deposits, that is going to have a real squeeze on your net interest margin. On top of that, they did a fair amount of marketing and advertising in Q1, which may have an impact on their Q1 numbers. Also, have about an 8% exposure in Alberta.

This got tarnished with the Home Capital (HCG-T) brush. The big decline that occurred in the spring and summer was partly due to Home Capital. He has a lot more confidence in their due diligence that they do on their lenders and the systems they have set up. Trading at 1.2X BV and 1.5X earnings.

Mortgage lending to those without a T4 slip like contractors and the self-employed. It is a prudent lender. Loan losses are minimal as they have great credit judgment. 8 times earnings and pretty good growth rate. The dividend is half of the banks, however.

Despite its size, this stock is quite illiquid and doesn’t trade very much. One of his concerns is that they have a lot more exposure to Western Canada then some of its peers. Has also had outperformance this year and its valuations are lofty relative to its peers.

Good company. Screens very well right now. He has made his bets on Home Capital (HCG-T), which has a higher return on equity. In the context of everything he looks at, both of these would be a Buy.

(A Top Short May 27/13. Down 66.77%.) A subprime mortgage lender. Has taken a couple of shots at this thinking that the housing market in Canada was going to roll, especially when he saw the interest rates rise last summer. Highly speculative and a risky stock to own.

Very well run. He has taken some profits. Done an excellent job of turning around the company. Trading above tangible book (1.4 times). Could be a merger or takeover target. Have increased their dividend and returned earnings to shareholders. 1.5% dividend.

(A Top Pick September 10/12. Up 48.27%.) Well run company. Similar to Home Capital (HCG-T), nonstandard mortgages. Trimmed his position because it became well over 10% of his portfolio. Expect it will go higher. Cheap.

SHORT. Is running at about 20 times assets to equity and are very levered. It won’t take much to wipe out the equity as housing market slows.