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Stock Opinions by Todd Johnson

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Markets. The Fed, by not raising rates and mentioning China as a concern, has really confused the market rather than giving it some certainty and clarity. He was looking for a very slow rate hike increase, which would indicate the Fed was confident growth would continue. He tries to ignore the large economic fundamentals, such as China. He is a stock picker. If he can find good companies that are trading of valuations that are attractive, he is generally going to own them through the cycle. Always tends have a lower proportion of companies exposed to oil and gas. Oil prices will rise over time as the supply correction eventually reasserts itself.

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COMMENT

Likes this stock. It has had a brutal year in terms of share price with a decline of about 20%. In the meantime its business is increasing. Management has guided to about a 9% dividend annual increases for the next few years. Have a number of capital projects that are on the go. Tends to get a lot of negative press, but they have a lot of great growth projects. A good holding.

oil / gas pipelines
COMMENT

This has the best oil sands mining project. Horizon is a great project for them. They are executing this under budget, which historically has not been the case for oil sands projects. Very disciplined management in capital allocation. A good core holding. Have increased their dividends for about 15 consecutive years. Sees a lot of upside in a normalized oil price environment.

oil / gas
DON'T BUY

Too levered to one commodity. He doesn’t like layering a position on one commodity going forward. This has tended to be a story where expectations for potash demand are here, and they always kind of miss what is expected. This seems to perennially disappoint investors. It’s a good cash flow story, so the dividend should be fine. Too many moving parts for him.

integrated mines
HOLD

The reason you want to own this is a belief in Steve Hudson’s ability to grow the business significantly. He has definitely demonstrated a growth by acquisition story that is working. They are supposed to start a dividend in early 2016. He likes what their business is doing.

0
HOLD

Great company in terms of electronic data management for legal, health and financial services. Likes this company. Paying a reasonable dividend.

publishing / printing
COMMENT

This is a fine holding. The 3rd in auto parts companies in size. Have had a colourful board and executive over the last few years. There have been some legal issues that came out. It has also tended to underperform with the lowest net margins compared to the other 2. He would prefer Linamar (LNR-T) or Magna (MG-T).

metal fabricators
DON'T BUY

They basically consolidated the whole theatre business in Canada, and are using their cash flow to go into adjacent areas of entertainment. Management is very judicious in their use of capital. They generate lots of earnings and net margins off of concessions, and continually reinvest in their theatres. He likes this company, but valuation would keep him away.

other services
PAST TOP PICK

(A Top Pick May 22/14. Down 14.7%.) (7.35% bond maturing in 2026.) Pretty much everything went wrong about 9 months ago. Bought this because he felt that over time their new C series would be built and would be quite successful. Since then, their business jet division had some issues and they had to shut down a Lear jet plane project. Their Global 7000-8000 has been delayed. Even their Global 5000-6000 has seen lower sales. Holding this bond going forward should be fine. They face challenges, but feels most of those challenges are in the rear-view mirror. Once they start selling the C series they won’t be spending as much developing or burning as much cash flow.

transportation equip & components
PAST TOP PICK

(A Top Pick May 22/14. Up 14.05%.) This is like a bankers’ bank. It has a big asset service theme. Costs were always running a little bit higher, and there was a bit of a lawsuit with regards to their FX a few years ago. Those things have been settled. Earnings were up about 24% year-over-year in the last quarter, mainly on slight revenue gains, but more importantly on cost cuts. Good leverage to an improving environment. Reasonable dividend of 1.5%, and over time will probably increase this 7%-10% on a total return basis.

Financial Services
PAST TOP PICK

(A Top Pick May 22/14. Down 33.35%.) Thinks the selloff has been overdone. This bank trades with oil. 40% of its assets are in Alberta. Last quarter earnings were quite good. It has sub-20 provisions for credit losses, which is well below all the other banks. Trading close to BV, and with a 3-5 year time horizon, it is a great buy.

banks
COMMENT

A lot of revenue is from Volkswagen in Europe. He would be more concerned if their US Volkswagen sales, which are manufactured in Europe, are affected. Diesel penetration in Europe is higher also. This stock should not be sold on the Volkswagen news. They are slowly re-leveraging their balance sheet, as they have very, very low debt.

Automotive
COMMENT

He shies away from huge controversies. When you strip out their infrastructure assets and just look at the core engineering company, there is value. Hasn’t taken a real hard look at this.

contractors
COMMENT

Lumber prices in general have been turning down. There is a little bit of uncertainty about growth in China, and Japan a little bit. Single family home starts in the US, the driver for lumber demand, haven’t really rebounded to the post crisis lows. Also, the softwood lumber agreement is coming up for expiry. Lumber stocks can be very sensitive to those issues. A quality company. Earnings last quarter were pretty good. They did a lot of specialty sales. Not a bad holding.

west coast forestry
COMMENT

Copper zinc and nickel. Anything connected to mining has just been atrocious over the last 3 years. In periods like this, valuations can be quite attractive, but you never know when the cycle is really going to turn. This is a fairly well run mid-tier company. They have no debt problems. Their cash costs in their mine are relatively low. Good management. If you want exposure to mining, this is not a bad place to be.

metal mines
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