President and Chief Investment Strategist at Otterwood Capital Management
Member since: Dec '13 · 73 Opinions
Continues to be a very interesting situation. With the backing of a pension fund, they bought Saks. So far that story has been about financial engineering and unlocking value that was there and about the REIT spin out that is probably coming at the end of this year or early next year. If you hold it through the REIT spin out, what do you do? If you continue to hold, you have to be willing to give them the benefit of the doubt that this is going to be a good retail, it was a very bold, ambitious plan to unroll Saks out into the Canadian marketplace. She expects this will be successful.
With your bond background, how do you approach a stock like this? Her approach to this is the same as her approach to any stock. It is whether or not the risk area of the market is a good idea at the time. You have to deflect to the bond market and not to the earnings for this bank as that is backwards looking and the bond market is dynamic current and forward-looking. If we are in the stage of the cycle that is positive for equities and the bond market is supportive of that, it means the banks are making money. She likes this bank.
Alibaba IPO is not that well known in terms of the retail public, but it is a tremendous IPO and rumours are that once it starts trading, it will come out at a $170 billion market cap. Because there is so little of it and so much demand, they will take it up to $200 billion quickly. Every $5 billion change in the market cap of Alibaba has the impact of almost $0.90 on Yahoo. Because of this, she is hearing that this company can get to $70.
(A Top Pick Dec 10/13. Up 46.86%.) They have continued with rolling up collision repair shops, so each acquisition that they make, they bring it under the fold and immediately the insurance companies start sending business to the new shops. Because of this, same-store sales go up immediately. Also, the freezing cold winter created a lot of collisions.
Historically these pipelines are expensive. Interest rates have been falling for some time and now the Fed is saying that next year they could be looking at tightening if things go well. However, backlogs are bigger than she has seen in the last 25 years. Because of this, they deserve a higher valuation. Pipelines in general have growth potential and growth in earnings and they have huge dividends. You want to buy these opportunistically.
We need fewer gas drilling rigs for the number of holes because of horizontal drilling. They can produce far more per well than on the conventional vertical. However, on the whole natural gas picture, there is a lot of supply. We are coming into winter right now and storage currently is 20% less than last year. We’ll see better pricing on natural gas and more exploration. However, you get through the winter and you are into the 1st year of LNG exporting. Because of this, she thinks we are in a bottoming phase for natural gas prices over the next few years.
In a rate rising scenario, you are locked in to your contracts. These are longer-term in nature. She feels this one can manage through a higher rate environment. These are retirement residences and because of deaths their portfolio is culled continuously and they can adjust to a higher rate environment. This has 90% occupancy.
This is a great company to be holding. Its main business lines are very, very stable. A very GDP type of growth, so it is not volatile. Because of this, the dividend is very secure. Made a sizable in-market acquisition last year and those synergies have yet to come through. You are earning 5% just waiting for the synergies to kick in.
Economy. Federal reserve is unwinding its money printing, Europe is accelerating it and Japan is doing the same thing. There is a ton of new money being created in the system. As we saw with QE 1, QE 2 and QE 3, it is impossible to tell in advance exactly where that money is going to be channelled. It doesn’t stick. There are no capital controls. Liquidity is going to continue to be tremendous. She continues to be bullish on equities, more so than on bonds and more so on North American equities.