Home Capital Group (HCG.TO)

Feels the recent stock correction was overdone. They reported some earnings that weren’t as good as the market had expected. Short-sellers in the US are trying to make a lot of money on the situation. If the stock came off anymore, he would seriously consider getting into it.

This was a very long-standing large position at his firm. He started to come to the belief that the Canadian housing market was starting to get too richly valued. The stock is now value again and is trading at about 7X earnings. Fantastic management, but they have stated that they are more disciplined in pulling back their horns on lending. This is a key tell on what has happened on the Canadian housing market. Wouldn’t sell at these levels. Good value, but he doesn’t like the outlook for the industry.

Had a big drop today and thinks it was precipitated because RBC downgraded the stock, not because they are negative on the housing market, but because of their concerns about slowing revenue growth. There is a big US Short position and they have been waiting and waiting for the Canadian housing market to fall. His sense is that the housing market is going to have to pause. Population growth is only going to take the housing market so far. Not a stock that he would want to own.

Tied to the vagaries of the Canadian housing market. It is highly regional. It is well run. There has been a big short position on this one. A lot of it he argues is ill-informed US investors who believe the Canadian housing market is in bubble territory. He believes we will soft land in real estate in Canada and this won’t affect HCG-T much.

Focused on Canadian housing for mortgage lending. Have done a very good job. She doesn’t expect a housing collapse, but probably a flattening out of the growth rate, which will be regionally based. For a financial exposure, she would much rather buy a Canadian bank that has a more diversified revenue stream. 2.1% dividend yield.

A mortgage lender that works outside the world of the big Canadian banks. Yielding about 2% and year-to-date it is down about 12%. If interest rates go up, it could work well for their interests. He would probably be interested in looking at the name.

It is okay to hold this stock. It is a derivative of oil because of the momentum out of Western Canada. He thinks we are at $50-60 this year and $60-70 next year. At that rate Calgary will do ‘okay’. Then there will always be a discount on this stock. He was short at the beginning of this year, but is not any longer.

He does not hold it because of a lack of price momentum. It has always been a favourite of US short sellers. The valuation is not bad and they have a good history of return on equity. They recently missed on one of their quarters and is probably why it fell off.

Great company, very, very efficient in the way they use their money. They are so well financed so if there is a drop in home prices they will still be okay. It is a decent entry point here.

(A Top Pick May 9/14. Down 5.49%.) Had the rap before this quarter of been an alternative lender, and therefore subject to high loan losses and loose credit standards, so people gave it a low price earnings multiple. This quarter, their loan losses were lower than any of the banks, but there mortgage originations were down because they tightened their credit standards, so the market sold off because it didn’t have any growth. Very prudent lenders, and their credit history is excellent. Their growth is good and their return on equity is close to 20%.

Has never sold a share and it is a great long-term investment.

This is a prime target that US hedge funds use if they want to Short the Canadian housing market. The reason is that banks are not as focused on the housing market. A great company and very well-managed. They had 2 quarters where there were misses, and the share price reacted quite negatively. Good company, but just expensive at times.

Seems to be a large short position. Considering they missed their last 2 earnings, what do you anticipate in the next 6 months? Short sellers aren’t dumb and they’ve done their homework. It is true that this company could get into trouble at some point. This is a bet on the housing market. For most Canadians that have their net worth tied up in housing, it is probably not really necessary for you to double up on your personal portfolio by owning an investment such as this. It has been a very well-run company and has been very profitable. If the housing market continues to perform well and this company continues to execute well, the short Squeeze could cause the stock to pop when short sellers try to cover. Doesn’t think Canadian investors should be making bets on derivative plays associated with the Canadian housing market.

Bank of Nova Scotia (BNS-T) or Home Capital Group (HCG-T)? Mainly focused on Canadian housing. It has a lower dividend then Scotia. Both stocks have pulled back. Her preference would be Scotia, because of their diverse business base.

Would not want to own this in this late stage housing cycle. They deal with the subprime market. Recently missed their earnings. This space is a very competitive market.