Home Capital Group (HCG.TO)

This is the one amongst the three he sees the most upside in. They have been beaten up so much on valuation. It has been over done on the bad news. They don’t need to execute miracles. 2.7% dividend yield.

You need to look at this in 2 different ways. Operationally this has been a very well-managed group over the last 20 years. In the downturn in 2008, they did very well operationally in spite of the share price. However, you have to separate the sentiment on the stock. This is viewed as a pure play on Cdn housing. American hedge funds have been very bearish on Canadian housing, and this is the largest and most liquid way to play it aside from the banks. You’re really going to be finding some headwinds over the next few months, if not quarters. He would be cautious, but if you hold the stock you’ll be fine over the long-term.

She has not heard any particular news recently. They had some issues in some of those companies that were feeding their business, but that is largely behind them. If she wants exposure in financials she prefers a more diversified player like a Canadian bank.

Ever since the financial crisis, Americans have been predicting the Canadian housing market was going to have a great collapse. It still hasn’t happened, but enough people are believing it could that it is causing this company to be weak. There is going to be weakness in Alberta and some of the other energy producing areas, but in terms of the other areas, he doesn’t think we will see the same sort of weakness.

He has had a short for the last couple of years. It is a good short position now. He is now covering off his short. He prefers EQI-T.

Has been a very well-run company. The dismissal of a lot of brokers was a very wise thing. The issue for a lot of individual investors is that you are sort of doubling up on a bet that most Canadians have. A lot of assets invested, tied to the outcome of the housing market as being a positive outcome for the longer-term. This company tends to operate in a market where banks don’t want to operate. Also, you have to worry about the funding of these types of companies over the longer haul if things start to get into trouble. When interest rates start to rise, companies like this will have a very, very rough run.

(Market Call Minute.) Lots of controversy around this and lots of issues with the brokers and what has happened there. They have a great track record of running a business. Have run into a bit of a hiccup and is probably a great opportunity to pick up the stock.

They had some problems with some of their agents who source loans. They indicated they don’t anticipate taking any great charges on these loans. She prefers the big banks, though.

This story is nothing more than what you see. They have to tighten the controls. It has been the Golden stock. They now have the problem of reasserting itself, which is very difficult as the “Golden stock”. It will take time. Even though it is not harming their Book, it will take them time to rebuild. Doesn’t think they are in any deep trouble at all. If you own, you can Sell and take your profits, or you can hold it patiently. You have to keep in mind that this is really the risk end of the market, which the banks don’t touch.

Since 2001, this company has not issued a single new share. Management owns 7% and the founder owns $100 million worth of stock. The ROE has always been more than 20% and their Operating Margin has always been more than 50%. They’ve never had huge credit losses and have had 13 dividend increases since 2008. Everyone is worried about credit losses, but this company’s has always been low. Trading at 7X earnings. In the recession of 2008, the company increased its earnings and increased their dividend twice. Dividend yield of 2.73%.

Had a problem with some falsification of income on loan documents. This is a problem with an outfit that really depends on mortgage brokers being honest. You have to understand, this company is loaning to people that can’t get loans. They have done an excellent job over the years and have no significant losses right now. Unfortunately they have been the subject of significant Shorting from the US. He doesn’t tend to invest in this type of company, but thinks this is probably a reasonable Buy at these levels.

Just reported and it wasn’t a bad one. There are a lot of question marks about the quality of the loans they’ve been given. At the request of the Ontario Securities Commission, they had to let about 45 brokers go. They say that income data was falsified on mortgages representing $960 million, which is about 5.6% of their outstanding loan assets in 2014. The company doesn’t expect there will be big credit losses.

Financial services stuff can get scary when you hear the issues. He has owned this for a very long time. Waiting for the conference call to explain what is going on and get a better feeling as to what is happening. They preannounced $1.03 in earnings. Still believes in the valuation. A lot of people have concerns with the mortgage market and what is going to happen with housing prices.

They terminated 15% of their broker relationships last week. They found out they are taking on too much risk. They cut their growth targets. He does not know if there is more bad stuff to come. Wait a quarter to see what plays out.

Replaced one of their chief risk officers. It looks cheap and would typically be the kind of thing he would look at hard. They are the financier for people who can’t get financing from banks. In a tightening cycle, Canada is going to shrink and we are going to see a squeeze take place over the coming years. Credit quality is going to be the biggest thing with this company.