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Stock Opinions by Jim McGovern

N/A

Market. The market was already poised to head higher before Trump was elected. The trends were already in place. What is interesting is that the Trump bump everyone was looking for i.e. get Long banks and get Short bonds, etc. had a really nice run up until the middle part of the new year, and has subsequently given everything back. People are now very much in a “wait and see” hold pattern with respect to the whole reflation trade. Several sectors are really propelling the S&P 500 narrow rally, the consumer discretionary and technology. The backdrop for technology is really conducive. We are in a period right now where you have inflation falling, real GDP growth accelerating, and that backdrop is about as good as you can get for the technology sector. Inflation is still benign. Technology has now moved up to about 25% of the S&P, which is really, really substantial. People should be rebalancing portfolios now. At some point there is going to be a real reversion trade. He has Short positions now on the broad indexes of Canada and Australia.

Unknown
COMMENT

The classic category killer. In his funds, he is Long this company and Short the things that Amazon is killing, certain retailers, etc. Not a cheap stock at 28X enterprise value to EBITDA. It certainly has a lot of runway in front of it. They are getting involved in every vertical with respect to retailing. He is nervous.

specialty stores
COMMENT

Like a lot of Canadian banks, it has US operations, which would probably be the one area he would be most excited about, in part because the US banks find themselves in a better environment than they do in Canada. Thinks there will be legislation changes in the US, which favours bank shares in general. The flipside is the constant buzz on the Canadian real estate market. This bank operates in the prime mortgage market. Doesn’t think you’re going to make a lot of money in any of the Canadian banks right now. He would much rather focus on banks internationally rather than domestically.

banks
COMMENT

Has been very favourably disposed to this area. The stocks in this area are all very expensive. If you look at the geopolitical environment we are in now, the US doesn’t want to be the policeman or watchdog of the world. Feels the wind is at your back in the sector. You want to go with the major players, including Lockheed, Northrop Grumman (NOC-N), Raytheon (RTN-N).

Transportation
BUY

Has owned this for a long, long time. It is basically in the crosshairs of Amazon (AMZN-Q), but it is a retailer he would prefer over all others. They focus on the lower end of the market, which he feels still has decent growth ahead of it. The company is putting in the effort to fight back on the online side. Their e-commerce sales are doing very, very well. Not a super cheap company. They buy back oodles of stock every year.

department stores
PARTIAL BUY

The market cap is around $12 billion. In the grand scheme of things, everyone knows that Amazon (AMZN-Q) is eventually going to buy these guys out. The growth of this thing internationally is fabulous. He would scale into this and not buy into it all at once.

0
COMMENT

Lloyds (LYG-N) or ING (ING-N)? He would favour ING, the Dutch insurer, over Lloyds. In the UK, Lloyds has had a big restructuring coming out of the financial crisis, and clearly that is now behind it. The problem is the political and economic uncertainty background in the UK.

banks
COMMENT

Lloyds (LYG-N) or ING (ING-N)? He would favour this over Lloyds. In the UK, Lloyds has had a big restructuring coming out of the financial crisis, and clearly that is now behind it. The problem is the political and economic uncertainty background in the UK. ING is a terrific business and is a very, very inexpensive stock. Thinks interest rates in Europe are set to go up, which should put the wind at the back of this bank.

investment companies / funds
PAST TOP PICK

(A Top Pick Oct 3/16. Up 35%.) This is firing on all cylinders. The lithium market is a market that is underappreciated, both from the constraint/supply side and the expectations on the demand side. Lithium is very much an Asian story, and probably is why this company has been undervalued for quite some time. Still a Buy.

Mining
PAST TOP PICK

(A Top Pick Oct 3/16. Up 14%.) *Short* At the end of the day, all retailers are going to suffer the same fate from the Amazon (AMZN-Q) affect. A cheap stock, but a bit of a value trap. He covered his Short on the earnings disappointment, but would look to re-Short if it bounced materially from here.

clothing stores
PAST TOP PICK

(A Top Pick Oct 3/16. Down 3%.) You have to own gold all the time. It’s a form of currency and a proxy to the US$, which he thinks is bottoming out. Has reduced his gold exposure materially, but always has some on.

investment companies / funds
COMMENT

Investing in Ireland? This is an iShares ETF for Ireland, which will give you a diversified basket of stocks. The Irish economy is a little like the Canadian economy, a small market, basically financial, building, construction and agriculture. He wouldn’t make this a cornerstone of a portfolio.

E.T.F.'s
N/A

US banks versus Canadian and European banks? US banks in general are cheaper, comparing some of the money centred banks like Wells Fargo (WFC-N) and Citi (C-N). On the general outlook, there are some real positive tailwinds, whereas in Canada there are a few headwinds. Also, he would be playing more of the bigger cap money centred type banks, as opposed to regionals. The European side does look good, and there is an ETF iShares MSCI Europe Financial (EUFN-Q) which is a broad composite of European banks. These are banks that have not moved that much. There is a big opportunity in European banks. He would choose banks in the order of 1) European, 2) US and 3) Canada.

Unknown
BUY

One of the finest alternative asset management teams globally. By buying the top company, you are getting investment stakes in all the different subsidiaries. Good management.

management / diversified
COMMENT

The biggest bank in Germany, so there is no way this would ever be put into receivership. The government would step in. Despite that, it is a very risky bank. They have multiples and multiples of their BV in all kinds of strange things. It’s like J.P. Morgan (JPM-N) on steroids. They are a massive player in the capital markets and the banking markets globally. He would prefer using a broader basket of banks through an ETF like iShares MSCI Europe Financial (EUFN-Q).

banks
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