Opinions
David Baskin
Home Capital Group
HCG-T
HOLD
Oct 04, 2019
They had near death experience a few years ago and was saved by Warren Buffet. It was unfairly attacked by the OSC. History shows they do not make imprudent loans and their securty on loans has been fine. A recession may increase their cost of bad loans, but not in a threatening way. They do need to reduce their cost of funding, however. Through Oaken they pay the highest rate for GICs. The company is pretty safe now.
$25.250
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BUY
What is interesting about them is that they came through mortgage hell in 2008 with barely a ripple. It has also emerged from COVID-19 issues with barely a ripple. It is very cheap compared to its long term book value of $45. The fair market value is huge and the balance sheet is fine. He wishes they would institute a dividend that would give investors more comfortable that everything is fine. He thinks deferred mortgage payments will not be an issue for them. In a recovery, it will do very well.
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STRONG BUY
A few years ago, it was one of his beloved stocks until it got slammed by comments from the U.S. and OSC. It has since rebounded. Its fair market value is 154% higher than the current price. If it can break out from the current $45 price, this will enjoy a nice upside. They are also buying back a lot of shares, which he thinks is stupid; raise the dividend instead.
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DON'T BUY
If you want to own a lender, please own Canadian bank stocks instead. HCG and others don't have the same access to capital, so they can get caught in a liquidity squeeze. Borrowers pay a higher rate of interest. If housing market has a hiccup, HCG would be more exposed than the banks.
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