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Brian Acker, CA Home Capital Group HCG-T DON'T BUY Dec 21, 2005

Is model price is $33.53 which is a negative 5% differential. Has had a nice pullback.

Brian Acker, CA

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$35.200

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DON'T BUY

It became a show-me stock after its scandal, going sideways, running up only recently then has gone sideways, slightly breaking down now. He wouldn't buy it now, but would rather buy a lifeco. This will underperform in a market slowdown.

DON'T BUY

Management did a great job turning this company around. They probably have a few more risks to deal with at this point. He likes what they are doing. He is not buying it because he does not think you have to go this far down the risk curve right now.

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.

DON'T BUY

Used to own, but bad things happened and he got out. Economy is lousy, but not as lousy as people thought. Terrific recovery. Still concerns about small businesses. More comfortable investing in the Canadian banks.

DON'T BUY

Not keen. If you have a sizable portfolio, you probably already have a nice house, so better to diversify your equity portfolio out of what HCG does. Warren Buffett exited.

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.

HOLD

Long-term history tells him the current price, though at 5-year price to book high, could be a lot higher. FMV potential is well over 100% above current stock price. Don't sell. Big issue is when will they start paying a dividend, instead of just buying back stock?

COMMENT

A very good company in the alternative mortgage space. Big question is, how will all these companies hold up as interest rates run up (how far and how fast?). HCG offers shorter loans, so there's some margin of safety.

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.

COMMENT

Deal with Smith Financial. High quality. Very profitable, offers mortgages at higher rates than banks. ROE is very high. Reasonable valuation, could reach the $50s, possibly room for another bidder. Smith has picked up a good asset at an attractive price.

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Brian Acker, CA Home Capital Group HCG-T DON'T BUY Dec 21, 2005

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