Stock Opinions by Paul Tepsich - Stockchase Experts
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Paul Tepsich

On Stockchase since : Apr 2016

Portfolio Manager at High Rock Capital Management Inc.

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Stock Opinions by Paul Tepsich - Stockchase Experts

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General Market Comment 

April 25, 2016

Markets. He is currently cautious. Stocks are near their all-time highs, and yet we have got sub- 2% US GDP growth, Central Banks are talking more devilishly, and negative interest rates are quite a way out the curve. A potential risk is the prospect of inflation. Since the crisis of 2008-2009, but intensifying over the last 2-3 years, there is global competitive currency devaluation. Most Central Banks and governments saw the US economy as the best of all evils and the strongest of the bunch, and they wanted to export their deflation to the US. Feels this has really been intensifying in the last few years. Most Central Banks and nations have devalued their currencies, trying to export more to the US. The question becomes, is the US economy strong enough to import deflation from China, Japan, Europe, and even Canada. He is not so sure. If he is right, and inflation is not the issue, the back end of the interest rate curve should hold quite well. The interest rate curve has flattened from about a 2 year to a 30 year. He is seeing people with zero in fixed income and government bonds, which is a massively unhedged portfolio. He is currently looking to add 30 year bonds, which provides a huge cushion to a portfolio for a) deflation, if it comes, and b) if risk assets start selling off because of a flight to safety into government bonds.

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Markets. He is currently cautious. Stocks are near their all-time highs, and yet we have got sub- 2% US GDP growth, Central Banks are talking more devilishly, and negative interest rates are quite a way out the curve. A potential risk is the prospect of inflation. Since the crisis of 2008-2009, but intensifying over the last 2-3 years, there is global competitive currency devaluation. Most Central Banks and governments saw the US economy as the best of all evils and the strongest of the bunch, and they wanted to export their deflation to the US. Feels this has really been intensifying in the last few years. Most Central Banks and nations have devalued their currencies, trying to export more to the US. The question becomes, is the US economy strong enough to import deflation from China, Japan, Europe, and even Canada. He is not so sure. If he is right, and inflation is not the issue, the back end of the interest rate curve should hold quite well. The interest rate curve has flattened from about a 2 year to a 30 year. He is seeing people with zero in fixed income and government bonds, which is a massively unhedged portfolio. He is currently looking to add 30 year bonds, which provides a huge cushion to a portfolio for a) deflation, if it comes, and b) if risk assets start selling off because of a flight to safety into government bonds.

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Paul Tepsich

Portfolio , High Rock Capital Ma...

Price Price
$0.020
Owned Owned
_N/A

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COMMENT
General Market Comment 

April 25, 2016

Canadian chartered bank’s new 5.5%-5-year rate reset preferred shares? Most retail investors get some fixed income through preferreds, but the preferred market is not a fixed income vehicle, it is a senior equity security. This can be very dangerous. They are complex instruments. They have been sold as fixed income because most investment advisors either don’t comprehend a more traditional fixed income, or just can’t get their hands on it. They also get paid a sizable commission. In this past year, rate resets got hammered because people thought rates were going to go up. For preferred shares, if the regulator decides there is a triggering event on that particular bank or issuer, those preferreds turn into common equity of the bank. All that risk then runs down to the common shareholder making it all more volatile.

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Canadian chartered bank’s new 5.5%-5-year rate reset preferred shares? Most retail investors get some fixed income through preferreds, but the preferred market is not a fixed income vehicle, it is a senior equity security. This can be very dangerous. They are complex instruments. They have been sold as fixed income because most investment advisors either don’t comprehend a more traditional fixed income, or just can’t get their hands on it. They also get paid a sizable commission. In this past year, rate resets got hammered because people thought rates were going to go up. For preferred shares, if the regulator decides there is a triggering event on that particular bank or issuer, those preferreds turn into common equity of the bank. All that risk then runs down to the common shareholder making it all more volatile.

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Paul Tepsich

Portfolio , High Rock Capital Ma...

Price Price
$0.020
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Unknown

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COMMENT
Encana Corp(ECA-T) 

April 25, 2016

Short-term trade? A short-term trade is kind of speculating on gas and oil, which is something he doesn’t do. A much better way is to trade a company over a 6 or 7 week period buying into lows and selling on highs. You could also get exposure through high-yield debt. (See Top Picks.)

oil/gas
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Short-term trade? A short-term trade is kind of speculating on gas and oil, which is something he doesn’t do. A much better way is to trade a company over a 6 or 7 week period buying into lows and selling on highs. You could also get exposure through high-yield debt. (See Top Picks.)

oil/gas
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Paul Tepsich

Portfolio , High Rock Capital Ma...

Price Price
$9.030
Owned Owned
No

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COMMENT

For 3 to 5 years? A very interesting company. Not overly diversified and sitting on a fairly good chunk of cash. Has some assets, nickel mining and oil/gas and power, in Cuba which have been phenomenal. Has fallen down on its nickel mine in Madagascar. The CapX, which is mostly behind them right now, has kind of blown their brains out. They have 3 bonds outstanding, 2018, 2020 and 2022, and are trading at roughly $.50 on the dollar, very, very distressed with a high yield. They are in a position where they could, and should, buy back debt in the open market. If the nickel market turned around, this has a lot of leverage to nickel.

integrated mines
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For 3 to 5 years? A very interesting company. Not overly diversified and sitting on a fairly good chunk of cash. Has some assets, nickel mining and oil/gas and power, in Cuba which have been phenomenal. Has fallen down on its nickel mine in Madagascar. The CapX, which is mostly behind them right now, has kind of blown their brains out. They have 3 bonds outstanding, 2018, 2020 and 2022, and are trading at roughly $.50 on the dollar, very, very distressed with a high yield. They are in a position where they could, and should, buy back debt in the open market. If the nickel market turned around, this has a lot of leverage to nickel.

integrated mines
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Paul Tepsich

Portfolio , High Rock Capital Ma...

Price Price
$0.910
Owned Owned
Unknown

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COMMENT
Transalta Corp(TA-T) 

April 25, 2016

2019 bonds for a small portion of a portfolio? This company has kind of fallen on hard times. They are holding about 7X leverage, which is high. Thinks the bonds trade at around 7% which is not overly cheap. If you do this, it will require more diligence.

electrical/electronic
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2019 bonds for a small portion of a portfolio? This company has kind of fallen on hard times. They are holding about 7X leverage, which is high. Thinks the bonds trade at around 7% which is not overly cheap. If you do this, it will require more diligence.

electrical/electronic
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Paul Tepsich

Portfolio , High Rock Capital Ma...

Price Price
$6.230
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Unknown

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COMMENT

The units have done pretty well over the last little while. Noranda is tricky, and is hard to wrap your mind around. It is effectively a “pass-through” for zinc processing. Really a toll booth. Not sure he would be jumping into this, especially after its recent movement. The “units” effectively have a priority to receive dividends.

investment companies/funds
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The units have done pretty well over the last little while. Noranda is tricky, and is hard to wrap your mind around. It is effectively a “pass-through” for zinc processing. Really a toll booth. Not sure he would be jumping into this, especially after its recent movement. The “units” effectively have a priority to receive dividends.

investment companies/funds
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Paul Tepsich

Portfolio , High Rock Capital Ma...

Price Price
$3.410
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Unknown

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HOLD
Firstservice Corp(FSV-T) 

April 25, 2016

An extremely well-run and well diversified business. They own businesses such as College Pro Painters and a home security business. Pretty big in property management in the US, especially the southern US.

other services
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An extremely well-run and well diversified business. They own businesses such as College Pro Painters and a home security business. Pretty big in property management in the US, especially the southern US.

other services
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Paul Tepsich

Portfolio , High Rock Capital Ma...

Price Price
$54.600
Owned Owned
No

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COMMENT

A Blackrock bond fund for an 81-year-old? He doesn’t know this corporate ETF, but ETF’s are a good idea because they are very low cost. He would recommend going into a government bond ETF, and put it out across the entire curve, 2 to 30 years. Then you could look at another ETF, that would perhaps have some corporate bonds in order to give you a little bit more yield.

E.T.F.'s
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A Blackrock bond fund for an 81-year-old? He doesn’t know this corporate ETF, but ETF’s are a good idea because they are very low cost. He would recommend going into a government bond ETF, and put it out across the entire curve, 2 to 30 years. Then you could look at another ETF, that would perhaps have some corporate bonds in order to give you a little bit more yield.

E.T.F.'s
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Paul Tepsich

Portfolio , High Rock Capital Ma...

Price Price
$19.060
Owned Owned
No

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COMMENT
IGM Financial Inc.(IGM-T) 

April 25, 2016

First preferred 5.9% noncumulative 1st preferred series B? Wouldn’t classify this as a secure fixed income security, so it should be a very small portion of your fixed income portion. Wouldn’t be a buyer of the stock, but might consider this “preferred” as a Hold.

investment companies/funds
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First preferred 5.9% noncumulative 1st preferred series B? Wouldn’t classify this as a secure fixed income security, so it should be a very small portion of your fixed income portion. Wouldn’t be a buyer of the stock, but might consider this “preferred” as a Hold.

investment companies/funds
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Paul Tepsich

Portfolio , High Rock Capital Ma...

Price Price
$39.310
Owned Owned
Unknown

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COMMENT

C series preferred? This company has had a really rough go, and maybe just coming off the mat. Not a huge fan. It has been very poorly run for a number of years.

transportation equip & components
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C series preferred? This company has had a really rough go, and maybe just coming off the mat. Not a huge fan. It has been very poorly run for a number of years.

transportation equip & components
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Paul Tepsich

Portfolio , High Rock Capital Ma...

Price Price
$1.800
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Unknown

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PARTIAL SELL

Lost 28% in this. Sell or Hold? Last year the preferred market was down. This should not be a large part of your fixed income portion, and you should take some off the table, and reapportionment into a traditional fixed income security such as government or corporate bonds.

E.T.F.'s
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Lost 28% in this. Sell or Hold? Last year the preferred market was down. This should not be a large part of your fixed income portion, and you should take some off the table, and reapportionment into a traditional fixed income security such as government or corporate bonds.

E.T.F.'s
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Paul Tepsich

Portfolio , High Rock Capital Ma...

Price Price
$9.860
Owned Owned
Unknown

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COMMENT

Probably a good way to get exposure to the high-yield market, because it is extremely opaque. He currently has around a 10% weight in high-yield debt in his private client portfolios. High-yield in general has a strong risk adjusted return over a 5, 10, 20 year timeframe as an asset class.

E.T.F.'s
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Probably a good way to get exposure to the high-yield market, because it is extremely opaque. He currently has around a 10% weight in high-yield debt in his private client portfolios. High-yield in general has a strong risk adjusted return over a 5, 10, 20 year timeframe as an asset class.

E.T.F.'s
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Paul Tepsich

Portfolio , High Rock Capital Ma...

Price Price
$13.860
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Unknown

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COMMENT

He likes this. He doesn’t mind being further out on the curve.

E.T.F.'s
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He likes this. He doesn’t mind being further out on the curve.

E.T.F.'s
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Paul Tepsich

Portfolio , High Rock Capital Ma...

Price Price
$126.670
Owned Owned
Unknown

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TOP PICK

7.5% bond maturing Nov 19/17. Probably one of the only exploration/production companies on the continent that is in a net cash position. It will have about $900 million in cash when they do the Murphy Oil joint venture, and have about $800 million of debt. The bond is worth $550 million. More senior to it is a bank debt of about $250 million. The $250 million debt matures after the bond in 2019, which is not a position that bankers usually like. The loan has a “springing” maturity, which means if any of the bonds are outstanding 6 months before they are due, the bank debt becomes due immediately. The company likes the bank debt which has a very attractive terms. Thinks the company is going to do a combination of paying down all this bond and maybe refinance with the new bond for $150 million.

oil/gas
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7.5% bond maturing Nov 19/17. Probably one of the only exploration/production companies on the continent that is in a net cash position. It will have about $900 million in cash when they do the Murphy Oil joint venture, and have about $800 million of debt. The bond is worth $550 million. More senior to it is a bank debt of about $250 million. The $250 million debt matures after the bond in 2019, which is not a position that bankers usually like. The loan has a “springing” maturity, which means if any of the bonds are outstanding 6 months before they are due, the bank debt becomes due immediately. The company likes the bank debt which has a very attractive terms. Thinks the company is going to do a combination of paying down all this bond and maybe refinance with the new bond for $150 million.

oil/gas
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Paul Tepsich

Portfolio , High Rock Capital Ma...

Price Price
$1.180
Owned Owned
Yes

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TOP PICK
Canexus Corp(CUS-T) 

April 25, 2016

A chemical company. Waiting for approval of a merger with Superior Plus (SPB-T). This is an all share deal. Once the regulators approve this, shareholders will end up with .135 shares of superior for each share they own. Trading at a 15% discount right now. Thinks there is huge upside synergies once the 2 companies are merged. Dividend yield of 2.84%.

INDUSTRIAL PRODUCTS
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A chemical company. Waiting for approval of a merger with Superior Plus (SPB-T). This is an all share deal. Once the regulators approve this, shareholders will end up with .135 shares of superior for each share they own. Trading at a 15% discount right now. Thinks there is huge upside synergies once the 2 companies are merged. Dividend yield of 2.84%.

INDUSTRIAL PRODUCTS
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Paul Tepsich

Portfolio , High Rock Capital Ma...

Price Price
$1.400
Owned Owned
Yes

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