Jason DonvilleMCAN Mortgage CorpMKP.TOCOMMENTJan 08, 2013

Lending in real estate finance. Very interest-rate sensitive. If you think interest rates are going to rise, as in 2022, then it will underperform significantly. Will do better if rates fall. Thinks the BOC has a bit more to go on that, so there could be a bit more upside.

But the stock's already rallied back to highs of 2021, so risk/return not that attractive. Risk/return looks more interesting around $16-17. He'd call it neutral to underweight at this point.

Trades at 7x earnings. Very profitable. Yield is 10%.

Basically paying out all of its income as dividend, so you are not going to get growth, just dividend. Thinks the dividend is relatively safe as long as the Canadian housing market holds up. If you like growth in the sector, he likes Equity Financial (EQI-T). Their lending book growth was something like 178% last quarter.

With Mortgage companies, you should receive a safer income stream as interest rates rise. It is a yield-only vehicle. If the stock moves up, trim down.

Has a small short position as part of a basket that is against his biggest Long Equity Financial Holdings (EQI-T) (?) in that sector. He is short this because it is one of the few publicly traded mortgage companies originators that has some pretty significant Western Canadian exposure, which will act as a bit of a headwind. Trading at close to 2X BV, whereas the company that he likes better is trading below its BV. 7.8% dividend yield is safe as long as the real estate market in Canada holds up and interest rates stay low. At some point we are going to see residential real estate in Canada roll over, and certainly in areas that are going to be hit by the decline in energy.

Mortgage investment company. When he got concerned as to where interest rates were going, he moved out of this. Longer-term it is a great vehicle for yield but there is probably not a lot of growth. As rates ratchet up or ratchet down, their yields will move up and down.

(A Top Pick Dec 28/12. Down 1.56%.) 3 Shorts. 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.

Pay out all their profitability every year. Stock had a little bit of a sell off but it was not anything significant. A timely buy.

(Top Pick Sept 27/12, Up 1.24%) SHORT. He was early in his call. We saw re-accelerating sales over the last three months. He saw some increase in their loan write-offs in the last few months.

Good company and there has probably been an overreaction to a slightly disappointing quarter or something like that. Insiders are buying which is a good sign. 8.9% dividend yield.

(Market Call Minute.) Interesting company. Just did an acquisition of Exceed Mortgage Corp. the nice thing about it is that if you want dividend income, they have a yield of around 10%.

Shorting Canadian housing with Home Capital Group (HCG-T,) and Genworth MI Canada (MIC-T). Is a little bit early but he has seen the housing bubble build and believes it has now peaked and is now on the downside. If right and Canadian housing prices fall 20%-30% over the next 2 years, then these companies are not going to just be at risk of earnings but also at risk of solvency.

Loan to values are quite conservative because of Canadian laws. There is headline risk. Stick with it but don't add to it. Prefers HCG-T