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Stock Opinions by John O'Connell, CFA

COMMENT

CP today increased their offer to buy Kansas City Southern He owns none of the rails here, but owns FedEx and has long liked it and its management. This battle will go on for a while. Even if CP wins, it'll likely be a year before the deal closes, and CP will be worth $90 billion, on par with rival bidder CN. CN will still have bigger revenues than CP, while CP will carry more debt if CP wins the battle. So, CP would win the battle, but lose the war. It'll be interesting to see how much synergy CP can generate if CP wins. The short-term winner will be KCS shareholders.

Transportation
COMMENT

A great risk to stock investors is government (globally) is becoming more active in regulation, namely anti-trust and privacy. He's paying attention to payment systems. The pandemic may be a catalyst for long-term change. How are companies investing their cash in innovating techniques. The next phase of innovation is how to apply A.I. and A.R. into banking, medical, education and industrial companies. He looks for businesses actively investing in the future, into technology. Google, Microsoft, Apple and Amazon are morphing into greater vertical operations. Keep an eye on them. Canadian banks will keep up with tech; they are very well run and are the leaders in digital tech. Rather, the big risk is how to grow their Canadian franchises while competing in the U.S.

Unknown
DON'T BUY
Hydrogen power outlook in general The green energy space is interesting as battery power will continue to be a key driver in powertrain. Hydrogen power will be a fringe part of this. During the hydrogen power crazy last winter, BLDP raise a good deal of capital. The company is now sustainable and are adept at living within its means. But the stock is now overpriced. What will they do with all that cash they raised months ago? He'll stay away.
misc industrial products
BUY
He's ashamed to say he's owned this for a long time. He believes in management which owns a lot of shares. They allocate capital well. They find hydrocarbons and have a great track record selling those. A year and a half ago they sold half their production for more than the enterprise value of the whole company. They now have a great balance sheet and are growing their production in nat gas (in NE B.C.).
oil / gas
DON'T BUY
Hasn't liked this for a long time. ENB keeps promising dividend increases that their profits can't meet. Equity raises funded those increases, but diluted shares. It yield around 6.7%, around the same as junk bonds. Their business model and dividend growth are unsustainable.
oil / gas pipelines
DON'T BUY
He hasn't looked at this for a while. As a sector, these aren't the same dividend stocks of years ago. The pipeline business is like squeezing orange juice from the peels. It's not a growth business; we're not moving more oil through pipelines. They grow by buying other companies.
oil / gas pipelines
DON'T BUY
Why doesn't this trade above $30 given all its positive metrics and recent strong report? Yes, it trades cheaply at 1x book, lower then the Canadian banks. The problem is that the operations of Canadian insurers are complicated during very low interest rates. Insurers invest a lot of their money in low-duration, fixed-income assets--namely bonds--and those aren't paying much at all. The risk is that if inflation rises, then those assets will be hit as the insurers pay out policy holders more money. Also, there's worry over MFC's expansion into Asia, despite strong recent numbers, as the John Hancock expansion of some years ago remains fresh in minds.
insurance
COMMENT
The dividend is safe for now. It's not in a growth business, though it's protected within Canada (an oligopoly). Canadians pay unsemingly high rates for data; the excuse is it's expensive to build network. As Starlink uses low-orbit satellites to rural Canada (always used an excuse to charge high data rates), how will this challenge such rates? In some years, this may pose a risk to telecoms.
telephone utilities
PAST TOP PICK
(A Top Pick Aug 08/20, Up 74%) Trading at reasonable valuations. Good management and dividend. Trades at a slight premium to book value at 1.6x. Great growth opportunities abroad. Expects ROE in the mid-teens to come.
Financial Services
PAST TOP PICK

(A Top Pick Aug 08/20, Up 45%) He stuck with it last September when the trend was to sell growth and buy value. But selling means paying capital gains. FB continues to be a growth story internationally and are exploring opportunities in e-commerce to compete against Amazon and Google, and in digital payments, which it just entered.

0
PAST TOP PICK
(A Top Pick Aug 08/20, Up 78%) He was stunned when US banks lagged in 2020 as the FAANGs rose. So the banks offered better valued and still do. Governments around the world won't let their banks crash again (as in 2008). Banks have been building balance sheets and avoiding very risky areas. Finally, the market has accepted the banks. Interest rates and the yield curve will stabilize.
banks
COMMENT
Question on GLXY-T He won't comment on GLXY itself. He will say in general that global governments will regulate digital currencies. We're in the wild west now where brokers make big returns, because the business is opaque. As transparency rises and big companies enter, it'll be harder to earn the same high returns. The wild west will end.
Unknown
BUY

Favourite US bank He avoids cyclical businesses. Brokerage businesses in Morgan Stanley and Goldman Sachs are very well run are more investment bank/trading firms. Theoretically, they should trade lower multiples than more diversified banks like JPMorgan. He owns 4 banks, including PNC will likely be a major consolidator given their strong balance sheet. Are well-run. he expect them to buy back shares and raise their dividend.

Financial Services
DON'T BUY

https://www.cbc.ca/news/canada/calgary/bitcoin-mining-black-rock-petroleum-company-1.6106978 The bitcoin miners won't drive Canadian energy producers. Instead, energy companies are price-takers. Bitcoin will find ways to alt energy sources of power. CPG itself is well-run, acquisitive and not afraid to make big deals. The CEO is trying to show capital discipline, but it's very hard to pay a dividend when your resources are being depleted and you're not in control of the pricing of what you sell. This is a cyclical business. Oil prices will likely move a bit higher. Keep your energy holdings limited and tight. In oil, he prefers Cenovus or Tourmaline or Topaz (for income).

oil / gas
TOP PICK
Recent results announced slightly slower growth and investors lost their minds. They're investing a lot into their 3P logistics network so they can cover 18% of the US population (instead of 9%) for one-day delivery. Their subscription, cloud and advertising businesses are strong and will drive their long-term performance. Investors who are backing away are short-sighted. Shares are down 12% from that report, so it's great buying opportunity. (Analysts’ price target is $244.46)
specialty stores
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