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Stock Opinions by Bill Harris, CFA

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COMMENT
Tariffs.

There are all sorts of strategies in the stock market, including being a moth that just wants to go to the flame. His firm's strategy is to not be the bullseye. Their idea is to find a great business that everyone's ignoring, and so to find things that are not going to be affected by tariffs. Focusing on the tariffs themselves is just too hard to figure out.

When Trump was elected in November he was already talking about tariffs, so they went through all their companies to see how they'd be affected by tariffs. So far, the one impacted the most is CP Rail. They own it for the long term, can't be replicated, monopoly. It has been hit, but has moved mostly sideways. Looking at the stock action over the last couple of days, it looks as though tariffs are all priced in and the market's looking through that.

A lot of things aren't affected by tariffs. The overall economy might get softer and it looks as though it is, and the consumer might be affected. Will auto manufacturers be affected? Yes, 100%. But they don't affect the earnings from MSFT. In Canada, earnings for a BN would be affected by interest rates and the 10-year bond yield. And the budget is way more important to the 10-year bond yield and how that affects the stock market. Those things are more important than tariffs.

That's why the market has digested tariffs so quickly. They have a specific impact on this little part of the stock market, but not the big picture.

COMMENT
Focus.

Over the past year or so, his firm has really been trying to find higher dividend-paying stocks. Resource stocks are where he's finding opportunity right now, while his colleague is specializing in growth names. They're trying to build a high-income engine within their long-term strategy.

BUY

A couple of years ago energy was the place you had to be, and stocks have been sliding since then. Tariffs are slowing things down and gumming up global supply chains. OPEC wants to increase production. With the oil price where it is, there isn't a lot of drilling going on.

There's too much oil right now going into the fall, but oil has a way of tightening itself up. If oil stays lower for longer, there's more drive to get that price higher later. This is the stock in Canada you want to own for sector exposure, sit and collect the dividend, and be there for when the oil price goes higher. Doesn't seem as though there's any catalyst for that to happen in the next 6 months. Yield is ~5%.

BUY

One of the fantastic Canadian compounders over time. But it will also go through periods where it can go sideways. High rate of return core business, and they're going to take FCF and possibly leverage and get even more of these businesses around the world. Seven & I deal would be great for synergies; if not, also great because they'd just buy their stock back.

Market doesn't know what to do because of all the uncertainty. Consolidating at a long-term moving average. Relatively inexpensive to historical levels. Waiting for the catalyst, but the catalyst isn't happening now. Mild consumer recession in US depending on income level, so its numbers are a bit weak right now. It'll get through this in 1-2 years, still one of his core Canadian holdings.

SELL

Not compelling right now for transparently understanding where it could go to. With the tariffs, this business is something that could actually be on the table; the dynamics of the Canadian market might change dramatically. Makes most of its money off international flights.

DON'T BUY

Over the long term, great Canadian business that's gotten really efficient about how they retail. Consumer recession might happen; not right now, but it is a concern. Incrementally, will be a better business over time. Tariffs will have an impact on some of its stuff, but which stuff and how much? If his team can't figure it out, they tend to just stay away.

HOLD

Pool of money trading on the stock exchange, which they invest in short-term first and second mortgages. Can't specify a rate of return, but you get 100% of the income on those mortgages. The income you get is based on the interest rate.

The dip earlier this year on the chart was because of sentiment, as it's involved in the commercial and residential real estate market. So it traded at a big discount to NAV. Still underpriced for where it should be long term, capital gain if you're patient.

WEAK BUY

Both oil and oil in Canada are just drifting. No real catalyst imminent. Trying to restructure and clean things up, and they've been very transparent on that. Great company, high-quality business. Still great margins, throwing off lots of $$. Inexpensive; can't sit around and wait for a breakout, because when the moves come they're pretty dramatic.

He owns CNQ instead.

PAST TOP PICK
(A Top Pick Mar 11/24, Up 14%)

More conservative than TF, and he owns both. Core position. Nice dividend. Not trying to shoot the lights out, just want to collect the income and reinvest.

PAST TOP PICK
(A Top Pick Mar 11/24, Up 67%)

Everybody loves gold now. Still only trades at 1.1x NAV. Cheaper on valuation than AEM, and still growing. Gossip that one of its downed mines might come back, so that's a catalyst. He'll always have an allocation to gold. See his Top Picks.

PAST TOP PICK
(A Top Pick Mar 11/24, Down 10%)

Quebec gets really cold unless they have propane to keep the lights on. Really stable, consistent income business. Distribution includes all over the US. Bought compressed natural gas business. Got stopped out, then reloaded to their income mandate around $6.

HOLD

Harder and harder to start a new company, so consolidation makes sense. He owns CNQ, because if the market moves it'll move that name first. Anyone who wants to own WCP, owns it already. And there's no immediate catalyst to the industry. Be patient, collect the dividend, and know that it will be higher later.

HOLD

Should be affected by tariffs, but it's actually not because of its Canadian and US standalone businesses. Inexpensive. Capital intensive, so the rate of return is not as high as he'd like. Agriculture seems to be working its way out of a funk.

HOLD

Owns it just for the yield. As long as the stock doesn't go down, he doesn't expect that much from it. Should be able to clean up the business and the balance sheet, and that's happening. Seems that it can increase pricing on cell plans incrementally. Telco that's the most transparent on what's going on.

DON'T BUY
MFC vs. SLF

MFC is such a complex company, really hard to figure out. If he can't figure it out, he just stays away. If you compare the two right now, SLF is incrementally more profitable and more transparent. Nothing compelling about the price.

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