Finning Int (FTT.TO)

A very well-run business, and new management has done a very good job of restructuring. The Canadian business has been optimized/right sized, the South American business has been fixed, and they are in the process of fixing the UK business. That is going to take a little time, but he believes the company is well positioned for an ultimate rebound in their end market, which is Cat equipment, tied to things like oil sands, copper ore, etc. They generate a material amount of free cash flow. Expectations off the low are a little different and has been re-rated to a degree, but in tough times are cyclical cash flow benefits. In good times there are nice incremental margins and high operating leverage, that should drive nice earnings growth should things get better. He would be comfortable with this.

This is in the industrials, a sector that he likes. The peak was reached in 2007, and then it failed to make a new high in 2011, which put a cap on the stock for a while. It has now digested that move. Now has a well-defined Low at the beginning of this year and thinks it is now going to correct. As the corrective period goes on, the volume increases, and as it moves higher, the volume spikes up again. Watch the volume.

They used to be a serial dividend increaser. There is not a big demand for what they sell right now.

He owns this, because it is a much higher quality way to play a lot of mining and energy in general. Think of this as being in 2 important segments, oil sands in Western Canada, and Chilean copper. Both are clearly having a very difficult time. The business generates a lot of counter cyclical cash flows, so right now when things are more difficult, they are generating more cash as they liquidate inventory. There is an underlying service component which is very attractive. Companies that take stuff out of the ground, effectively can run a machine for a long time. Eventually the machine breaks. We are at the point now where a lot of companies have been parking machines, and then they start fixing and replacing things. Eventually the market for new machines will improve. Valuation is okay.

We have seen some slowing in Western Canada for demand in the products they provide. This is probably a permanent long term squeeze on their business. The yield is relatively low. He is currently doing homework on this company.

(Market Call Minute.) Would probably avoid this right now. If we saw the US$ start to decline, that would be good for a company like this. In the mean time they are probably going to have a lot of wind in their face, and earnings numbers are probably not going to be very strong.

This is like a “Dog of the TSX” type strategy. You can sell Puts on this and get a little bit of it, and then maybe a year from now get a little bit more. You are going to get paid your dividend. A quality name trading below its five-year average with very good metrics. Strong balance sheet and strong Return on Capital. They have buybacks. In his view, this part of the market goes lower. He doesn’t think it is going higher in the next 12 months.

A good company, well managed, good balance sheet. But it does not make the cut for him because he has CNR-T and it is a faster dividend grower. FFT-T will do fine with a two year horizon.

Probably going to be dead money for a while. The dividend is safe and has a low payout ratio. It is cheap and is a quality name.

This is the Caterpillar dealer. The stock is quite weak as a result of the commodity business, their key segment. If you own, continue to Hold, but he wouldn’t add to your holdings.

Had it, but sold it all in Oct. The chart is showing a fishbowl with a rounded top. Thinks it will go back to the $20.00 range. It is in a space that might be a little problematic.

The dividend is well covered. It is a stellar dividend growth story. There is a headwind from Western Canada, but there is also the service revenue from the equipment in the oil patch.

There is weakness in new equipment sales, but they are having modest strength in sales of used equipment, rentals and product support. Also, the lower Cdn$ is mitigating to a certain extent. He doesn’t see a lot of growth. Expects they will be increasing their dividend 12% over the next couple of years. Their payout ratio is really low. You could probably pick away at this if you are patient. 3% dividend yield.

Caterpillar (CAT-N) came out with a weak outlook recently, which hit this company. His numbers are even more negative and assumes new equipment sales fall 20% in Canada, 10% in South America. Even with that, given their strength in product support, he sees their overall earnings actually rising by 5% in 2015. If his assumption is right, it means they earn a $2.29 free cash flow, which gives them about 11% free cash flow yield. If you are looking long-term, the dividend is safe with a 34% payout ratio and the balance sheet is strong. This could be accumulated down at these prices.

Very, very dependent on the resource industries, particularly mining, energy as well as construction. Insofar as you can see the economic landscape picking up, this one longer-term is a good industrial holding from here. For him to get interested in it, he would want to see it below $25.