Patrick Horan

Markets. After the decline of today, the mandate of not investing in resources is feeling pretty good. When his portfolio was started about 8 years ago, resources had really had their best time and he felt okay on missing out on a couple of good years. Gold is a pretty good barometer of inflation, and given how much it fell today, he’ll be looking for the hard value guys to come in and support the price. It had felt like capitulation. People are selling because the price is down, as opposed to having a view that there is something fundamentally that has changed. Gold companies right now are trading somewhere pre-2001 levels. It is phenomenal that they have not made a return for 20 years. He would be surprised if gold did not have better days in front of it. Believes in the strong US$ and that the US have their act together. They are building sort of a new economic platform, based mostly off the consumer at this point. Feels Canada is not very far behind. Expects the dollar to continue getting strength, but where it is going to get this from is not going to be the same as where it got it from over the past couple of years, primarily the euro and other developed markets. Thinks its strength will come from pockets of emerging markets. The stronger US$ means you have to be a little bit more selective. You want to be in stocks that have high barriers to entry, so they can offset some of the dollar pressure with price increases. You want to be in domestic consumer oriented stocks. Technology and banking stocks fit into this category.

He is Short this stock. He is also Short Enbridge (ENB-T) and would not be enthusiastic for any other midstream pipeline company. A very expensive stock, trading at 27X earnings. Over the past 4 years, earnings have not mattered; it has been dividends that have mattered. This company has done a wonderful job of raising dividends, raising capital and reinvesting, but have done it in a very low interest rate environment. As interest rates go up, the leverage that they have in that earnings stream and on the balance sheet is going to start to affect earnings.

This has lagged both Magna (MG-T) and Martinrea (MRE-T). It was probably 1^st out of the gates in terms of acceleration and its ability to leverage its position. A very good company. The other 2 probably have more leverage to a falling Cdn$. This one is more hedged and has a lot of plants all over. An excellent company and very well positioned. (See Top Picks.)

ETF’s or stocks in a TFS account for a 10 year hold? His core belief is that we have been in a 35 year bond bull market, where interest rates have come from 15% down to negative yields. Believes we have crossed the point and yields are going to be higher, and remain higher, for the next 10 years at least. In that environment, you want things that are anti-yield. You want to be out of all the dividend stocks that have done really well. The stuff that you want is the stuff with pricing power. He wouldn’t try to stock pick, but would be in ETF’s. In Canada he would look at industrials and technology. Canadian financial ETF’s probably some time in the fall when he expects to see loan loss provisions come up in the banks. Also, diversify into the US. QQQs are a good place to be as well as the US financials. Healthcare, although still overvalued, is a pretty good place to be. Keep about 60% in Canada and diversify the rest of the 40% into international markets with 20% in the US.

Predisposed positively to this bank. US financials got hit with uncertainty, liability and lawsuits about 5 years ago. They had to build their reserves because they had issues with how much they could affect the US economy going forward. We are now just starting to get to the good part where the yield curve is rising and capital markets are responding better.

(A Top Pick Aug 14/14. Up 21.41%.) Still likes this. This is US consumer centric. They have an excellent platform. Very well-run. More of a growthier stock, so trades at around 18-19 times earnings.

(A Top Pick Aug 14/14. Down 29.56%.) A Short. Started shorting this at around 23-24 times earnings. Earnings didn’t grow that much last year, but now it is almost 30X earnings. He is still Short. They had 80% of the theatre seats in Canada when they did the last acquisition. Thinks their prices are too high. The US box office is up around 7%-8% year-to-date while the Canadian box office is almost flat. Canadians are not going out to watch movies.

(A Top Pick Aug 14/14. Up 26%.) Still likes this. Sold his holdings last year when he saw other opportunities in the market. This is a stock that he probably would look at if it came down a little more. They have a platform called iCom where they are merging all of their products onto. This will streamline their expenses. It will be fully integrated in about 1.5 years.

A highly cyclical stock. Have lots and lots of operating leverage. It swings really hard both ways. Right now we are in a period of a vacuum where new management isn’t really talking about what they can do with operating margins. He suspects that the way the Cdn$ is working he can see this stock doubling from here over the next 3-4 years.

They have expanded and done very, very well in terms of their fleet acquisition. He is not all that enthusiastic about transport, particularly in Canada. One of the things that should be positively affecting them is the cost of diesel, which has been a big wind at their back. This has not affected their stock price as much as he had expected. He would want this to be a lot cheaper before he looked at it. Such as 5X EBITDA. Their core operating profit has been out West which is going to get hurt.

A very commodity oriented bank. This is where you really want to take a 2^nd look at it. They have exposure to South America, Mexico and the Caribbean. These are areas that probably will suffer with the stronger US$.

Replaced one of their chief risk officers. It looks cheap and would typically be the kind of thing he would look at hard. They are the financier for people who can’t get financing from banks. In a tightening cycle, Canada is going to shrink and we are going to see a squeeze take place over the coming years. Credit quality is going to be the biggest thing with this company.

His is more of a value shop, and this company is definitely a growth stock. They have really revolutionized cameras and have done a very good job. They are going to try to be the portal for personal videos and have new cameras coming out. His problem is that they are a consumers product company and trading at 76 times. Very few companies are successful maintaining that kind of multiple. They have a lot of growth that they have to try to grow into that. However, this is a bull market and a stock like this can go up for a very long time and they can work. You want to be a trader on this, not an investor.

Lockheed Martin (LMT-N) or United Technology (UTX-N). This is really about defence aerospace versus other industrial technology based companies. He would probably have a preference for United Technologies, primarily because the defence world is really a tough one to figure out. The risk of either winning or losing a program is quite high, which is going to put a damper on any kind of multiple expansion on defence companies.

Lockheed Martin (LMT-N) or United Technology (UTX-N). This is really about defence aerospace versus other industrial technology based companies. He would probably have a preference for this company, primarily because the defence world is really a tough one to figure out. The risk of either winning or losing a program is quite high, which is going to put a damper on any kind of multiple expansion on defence companies.