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Stock Opinions by Chris Hensen

N/A

Markets. Not surprised by the current volatility. We were in a low volatility environment for a period of time, but it doesn’t concern him. It gives a lot of opportunities to own some very good names. He just maintains focus on buying high-quality businesses and building a high-quality portfolio. As the opportunities come along, you are either adding to positions, or establishing new positions with companies where you have been waiting for the right price levels.

Unknown
PARTIAL BUY

A great company with a great management team. With names like this that have done really well, he’ll start off with a smaller position, and if the name sells off, he adds to it. If it does very well, then you just trim back.

management / diversified
COMMENT

Going through a transition right now. Sold off their credit card business and are focusing more on the industrial side. There is cost-cutting, buy back and they are aggressive with the dividend. If it were between $15 and $20, he would be an aggressive buyer. At these levels, with 6%-8% EPS growth and a dividend yield of around 4%, you are looking at a return of 8%-12% going forward.

electrical / electronic
BUY on WEAKNESS

Very strong auto parts manufacturer. Doesn’t see a tremendous amount of upside in the stock. In the near term there is going to be some choppiness with the monthly sales numbers, which might give you better entry points.

Automotive
BUY on WEAKNESS

All the telecoms seem to be doing well. He is more favourable to Rogers (RCI.B-T) at this time, given the valuation relative to Telus (T-T) and BCE. You can’t go wrong with this company, but at this level he doesn’t see a tremendous amount of upside. They are doing the right things by taking excess cash and buying back stock and increasing the dividend.

telephone utilities
COMMENT

A really strong retailer in the Canadian marketplace. Not too sure if they will really benefit from Target (TGT-N) leaving as they didn’t seem to get hit while it was in Canada. They are well-balanced across a number of their different platforms. Looking at the valuation relative to its level of profitability, he doesn’t see a lot of upside. He would want to be buying in the $90s and selling in the $120s.

specialty stores
COMMENT

Operating margins last quarter had a 600 basis point improvement. If he compares that to Canadian National (CNR-T) there is some room for further operating margin expansion, but we are in the later innings of that game. Lower energy prices is a positive. Oil shipments may decline, but they will pick up in other areas. Fairly valued at this level. Anything under $200, there is upside.

Transportation
COMMENT

John Chen had been put in place to turn the company around, and the big shareholders are going to give him leeway. Has brought costs down from a quarterly run rate of $2 billion down to $500 million a quarter. They are re-launching products and hopefully they’ll get some traction there. Expectations are very low and the market share is very low, so there is some room for some improvement. Trying to transition more to a software business and away from handsets, but that will take time. As they refocus on the mobile device management segment in corporate enterprise over the next 2 years, we should see the benefits. The last 3 quarters have been free cash flow positive.

electrical / electronic
PAST TOP PICK

(A Top Pick Oct 20/14. Up 20.87%.) Have done a great job of leveraging the balance sheet, making strategic acquisitions, doing strategic spinouts, buying back stock and increasing the dividend. Since he picked this, same store sales are accelerating. They have a full integration of Safeway, so there are a lot of cost synergies. At these levels, he doesn’t see as much upside as before, but wait for the right entry point.

food stores
PAST TOP PICK

(A Top Pick Oct 20/14. Up 7.45%.) This industry is highly consolidated and this company controls 40% of the global ratings. They do 45% EBITDA margins. Putting that into context, the other 200 largest companies in the US have an average EBITDA margin of about 25%. This is a business that can increase prices every year. In the last couple of quarters, they announced an additional $1 billion buyback and increased the dividend by about 20%.

Financial Services
TOP PICK

(A Top Pick Oct 20/14. Up 23.64%.) The King of the food courts. Dominant franchises within the quick serves. Have been doing some acquisitions which will grow the top line by about 25%. Have about a 3% market share in Canada, and he could see them doubling that. Could see them doubling their revenue base over the next 7 years. Yield of 1.12%.

food services
COMMENT

If the Canadian economy slows, it makes people a little concerned going on from here. Any time you have a bit of a blip in respect to credit related to the banks, it is sort of exacerbated. As a shareholder, you are not going to get hurt like you would in the US, but you can definitely feel it. He is a little concerned because the credit cycle has been very favourable for a long period of time. It is a cycle and it does come back. He is generally underweight banks and would want to wait before getting a little more comfortable.

banks
COMMENT

If the Canadian economy slows, it makes people a little concerned going on from here. Any time you have a bit of a blip in respect to credit related to the banks, it is sort of exacerbated. As a shareholder, you are not going to get hurt like you would in the US, but you can definitely feel it. He is a little concerned because the credit cycle has been very favourable for a long period of time. It is a cycle and it does come back. He is generally underweight banks and would want to wait before getting a little more comfortable.

banks
WAIT

A high-quality Canadian name. Have done an outstanding job with acquisitions in Norway and just did a deal in the US. There is further ground for them to cover to do acquisitions in Canada and the US. They are a natural buyer as they have the balance sheet and can take on the leverage and are great at integrating. Thinks the recent spike is because of a lot of investors were seeking safety after moving out of energy. Over the long-term he doesn’t think you can go wrong, but pick away when it has a bump. At this level he doesn’t see a lot of upside.

food stores
COMMENT

This was the old Tim Hortons along with Burger King. He doesn’t see as much upside at this level and is going to wait and see how the next couple of quarters pan out. They are leveraged to a turnaround here.

food services
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