Home Capital Group (HCG.TO)

Looking out 12 months, this is probably an attractive name. The company is doing all the right things in terms of their board and a new president. It might be a bit of a grind higher from here. The easy money has been made.

He believes the bad news is in the equation. Warren Buffet has come in and provided capital for them to deploy into mortgages and this has really improved their situation. The worst is behind them.

This looks like a “traders stock” and could be a great trade. There is the potential that it could get up to its downward trend line. A riskier trade than what he would want to be involved in, because the big picture is Down. You will have to be a very quick and agile trader to work with these stocks.

This is back to being a company and not a rank speculation like it was a couple of months ago. There is nothing wrong with the balance sheet. A bunch of American speculators drove this company into the ground. In a couple of quarters, we should start seeing a bounce back in earnings, as well as dividends. (Analysts’ price target is $17.63.)

It was one of those stocks that just kept getting more and more extended. He exited 2 or 3 years ago. The buffet injection of cash is a good thing. It is a case of how much the culture and the company has to transform. You are also looking at an interesting time in the Canadian housing market.

Just announced a new CEO and he has to reassess the strategy. They still have to stabilize their funding sources. They are offering higher rates for their GICs to attract funding, which means they are going to have to charge higher rates, meaning the incremental person who is seeking a mortgage, may not be able to afford it if rates are higher. There is still the question of how this business model is going to evolve. She prefers the big banks.

Warren Buffett knows his name adds credibility, and this company needed credibility, so him going into this was a perfect match. BV, diluted for the 1^st tranche, is about $19. It is very levered. He would rather sleep at night and own a bank than he would this.

Warren Buffett’s announcement came out and the stock rallied, which he contributed to Short rallying. Now the question comes down to valuation. This company has a BV of about $19, and currently seems to be settling down below that. He is not interested in the stock at this price.

There were some lax lending practices, and some prior relationships with mortgage brokers that had fudged the numbers. When the tide goes out on the Canadian housing market, there will be a lag factor of about 6 months on prices. When it goes, there will be a huge recession in Canada. He has Shorted this in the past.

With the settlement of the financing, it looks like they are going to survive. They won’t be going back to where they were. It doesn’t fit his risk profile for his clients. If you are a risk taker, it is probably not a bad risk here, but it is going to be exceedingly volatile, and you have to be prepared for that.

He would not buy it. There are fundamentally some uncertainties you don’t know about. You could trade it. It could get back to $20 as a point of resistance, perhaps. It has been in a down trend for some time.

It is all in the news and had a blow off in the last little while. Potentially he could buy it after watching it for 6 months as he always does. He would wait a bit and see if other shoes drop. The cost for them to survive was incredibly high. However, he is wary of it right now, and wouldn't be a buyer at this level.

There are still lots of uncertainties. If you are buying it now, there is a significant component of speculation. It is a little too rich for him, in terms of a risk.

The OSC had better be right, because if it turns out they are wrong, what are they going to say to shareholders who lost so much value on the back of a news release. There were a lot of short-sellers, who were not right. What brought the company down was a run on the bank caused by regulatory scrutiny that arose from some poor disclosure on their part. The short-sellers are using their recent victory to attack other companies.

CDIC insurance of their GICs. If they are insured he does not have problems with them. HGC-T is described as a subprime lender, similar to those US, but they are not quite subprime. The stock collapsed because of a run on the bank. Turn arounds in these kinds of stocks are a tough story.