Home Capital Group (HCG.TO)

(A Top Pick Feb 19/13. Up 52.91%.) This is a tremendous company. Have a lot of faith in management. Loan/losses ratios are as good as any other financial institution.

He is either really wrong or really early or maybe both. Can’t recommend any of these subprime mortgage providers. Canada is between 70 and 80 % overvalued compared to rest of G7. If housing market pulled back HCG would be worth zero as they have 8 times leverage. He is short a small amount on this.

Not expensive. It’s just not as cheap as it was last summer when Americans were Shorting our banks and this company. He had been aggressively buying this and sold it at around this price level a couple of months ago. Likes the company. Has a high ROE and a niche spot for mortgaging. Easy money has been made. Wouldn’t be surprised if it trades in this range for a while and the earnings have to catch up a little.

Looking at the balance sheet, he is convinced their loan to value ratio is very reasonable. Even if there was a disaster in Canadian housing, say prices went down 25%-30%, feels this company would still be fully covered on its mortgage book. Have recently opened up a retail deposit taking institution, which will increase their availability of capital at a reasonable price. Excellently run and trading at a lower multiple of earnings. Lower than the banks, but with a higher growth rate but lower dividends.

(A Top Pick Dec 28/12. Down 37.72%.) 3 Shorts. Covered his Shorts in May and made a profit. He is now layering this trade back on now because the spike in rates in May through August pulled forward demand in the housing market.

(Top Pick Dec 27/12, Up 35.20%) He took a little of the table because it was 7% of his fund. There were a lot of US guys that shorted but they didn’t have a good understanding of this company. 10 times earnings. Not sure why it is less than the banks. Earnings are growing so you are going to get a higher stock price.

(Market Call Minute) Recovered nicely.

(Top Pick May 15/12, Up 63.69%) was cheap a year ago. Loan growth has grown earnings and it has risen from a depressed multiple of 6 to about 10, historically 11. 1.5% yield. Stock should track earnings growth. No problem holding it going forward.

Likes this a lot. The valuation versus the banks is very compelling at less than 10X earnings. Feels they are one of the best lenders in the country.

Sell Bombardier (BBD.B-T) and Buy Home Capital (HCG-T) and come back to Bombardier in 6 months or so? Bombardier is a way better Buy than this one. At some point the Canadian housing cycle is going to slow and all the marginal loans and the marginal people that have these loans are going to get into trouble. At some point we are going to see that multiple capped on this company.

ROE of 24%. Price is less than 10X earnings. They hardly ever issue stock. All they do it seems is to raise their dividend. He likes the sector, real estate market, interest rates and what they are doing. Credit control and loss ratio is really, really solid. Paradoxically, when the market is bad and banks withdraw credit, they grew their earnings every year of the financial crisis. With this one, you should have a 2-3 year time frame. Yield of 1.45%.

He is glad that the US investors that shorted this were dead wrong. A certain amount has been covered. It is a great long term investment. Margins and profitability will bump a little above trend because of changes in accounting requirements they have had to work with in terms of securitization. Should be a nice Q3/4 and Q1/2 coming up.

Sold some of his position. The US Shorted this stock for all the wrong reasons. They were looking for who was the biggest levered play in non-insured mortgages in Canada. Not as cheap as it was, but is still relatively cheap at 10X earnings. Management is still doing a great job. If it pulled back to the mid/high $60, he would probably be adding back to it again.

(A Top Pick Aug 21/12. Up 42.73%.) Easy money is behind them, but there is still a great opportunity.

Continues to grow and he sees a huge market demand. He is not selling. There is no limit to their growth. They could replicate their business model in the US.