Laurentian Bank

LB-T

They should be doing well with a strong Quebec real estate market, but they are not. There's a ticking time bomb in their mortgage book. They are also unionized, so they pay higher costs. They compete against the big banks, which is tough. Reading between the lines, there's something worrisome with LB.

(A Top Pick Aug 20/18, Up 1%) Likes it because Quebec is the most fiscally responsible province. Montreal real estate is on a roll. Quebec is turning out as a good place to be. Nice yield. Mortgages have been an issue, plus Americans are down on Canadian banks. Hang on and get well paid to wait.

Canadian banks are fine, and LB is below its average. A definite buy.

It is a smaller bank, a regional player. It is tough in Canada to complete with the top 5. It is the only bank that is unionized. It could be caught in the culture by a bigger player. But the banks in Canada should do well in general.

(A Top Pick Jul 30/18, Down 1%) LB isn't far from its valuation. Quebec is the strongest province, fiscally. LB struggles because it had mortgage accounting issues, which hasn't faded yet. He sees good potential and still holds it.

When things turn for a small cap, things can get ugly. LB has trouble growing--head office troubles, mortgage troubles. Buy a big Canadian bank instead. Avoid this.

A weak regional bank plagued with operational problems. It won't match the dividend growth of the big banks. This has "value trap" written all over it. Buy one of the big 5 instead.

Tempting here. Super nice dividend. Trading extremely cheap at 0.7 time book. But last quarter they largely missed. Contraction of the consumer loan portfolio. ROE at 8% is anemic for a Canadian Bank. Many problems are self inflicted. 60% payout ratio is high for a Canadian Bank (others are at 45%). Riskier name. He wouldn't buy it until earnings start to stabilize.

They've had issues with mortgage lending and loan portfolio in the past few quarters. But others, like RY (that he owns) offer a good 4.5% dividend and offer a lot less risk.

The smaller the bank, the more it'll get hurt in a recession. Go big in banks.

LB vs. NB He prefers NB. LB is a lot smaller. You're comparing a regional bank vs. a full-service bank. NB participates in national markets and exposure to business banking.

The juicy dividend sticks out. He thinks it is safe, but you have to be able to stomach some volatility. Their business lines are concentrated on the Canadian consumer, vs. BNS-T, which is international. The dividend is safe but it could have a 20% correction from here. It is not a screaming buy although the yield is tough to replace.

LB hasn't followed the big Canadian banks. It's been sideways for many years. It's been a definite downtrend since late 2017. Recently, it looks like it's breaking the downtrend, which is positive. Now, the chart looks good. He's okay with it.

If he was going to buy a bank it would be this. He's seeking dividend companies. He bought it in December at $39.56 with a 6.6% dividend. It has a good chance of rising above $50 again. Since then, he has bought more. But he wouldn't buy--or sell--it at today's price, though.