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Stock Opinions by Brian Madden

COMMENT
US bank deposits being guaranteed.

Two words: moral hazard. Not good. Banks operate in the private sector and earn profits for their shareholders. The operate under a social and regulatory license to provide safe and stable banking. They should be able to do that without the government backstopping depositors. Otherwise, it encourages undue risk-taking. Regulators do whatever it takes to shore up confidence in the banking system, but you wouldn't want to see a habit being made of it.

Unknown
COMMENT
Once confidence is lost, it can reinforce itself.

For banks, the #1 asset on their balance sheets are the goodwill and trust they have with their customers. If they lose that, they can't continue to operate even for a single day, as SVB and Signature found out the hard way. When a bank experiences a liquidity issue, there are measures that regulators can and should take to alleviate that short-term stress. But if there's a solvency issue, that's another matter altogether. 

Unknown
COMMENT
Canadian banking oligopoly is the price we pay for a stable banking system?

Yes. Increasingly, little banks and credit unions can't compete with the technology required. But huge mega-cap, global, systemically important banks can. That's why the big banks are getting bigger and the small ones are losing market share. The tremendous profits that the banks earn are the price we pay for a more stable and secure banking system, which is an important pillar for the economy to grow and flourish. We're quite fortunate that Canadian banking has a model for the world to emulate. Our banks have better management, better competitive positions, and better government regulation than both the US and European banks.

Unknown
COMMENT
Earnings estimates too optimistic?

They remain too rosy, shaking off economic headwinds. History shows that banking tremors can create credit contraction, which ripples through and has a slowing effect on the real economy.

Unknown
BUY
Royal Bank

Dividend yield is pretty good at 4.1%, and it's grown at an 8% compound pace over the last 10 years. Leading personal and commercial banking franchise in Canada. Big presence in US. Should benefit from skittish deposits in Silicon Valley. Top 10 global e-capital markets business. 12% compounded shareholder return over a decade, sees more ahead.

banks
DON'T BUY

Parabolic during pandemic. Mighty fall from grace. Better ways to capitalize on secular growth of payment solutions. Not profitable, no real earnings or cashflow. Not what you want in a slowing economy.

0
DON'T BUY
Air Canada

Stay clear. Better financial shape than previously, but still very highly leveraged. B rated credit, which is deep into junk. There will be a reckoning when they come to refinance. High beta. Cyclical. Business travel won't be the way it was.  Consumers tightening belts will dampen demand. Intense competition.

Transportation
BUY

Pleased by approval of KSU acquisition. Shares popped last week. Synergies. Longer term, this completes its network nicely, right into the industrial heartland of Mexico. Even more important with de-globalization and near-shoring. An industrial, but one that tends to fare well in difficult economic times. Buy, hold, and keep.

Transportation
DON'T BUY
3M Co.

Big, diversified manufacturing conglomerate. Safety, industrial, transportation applications. Terrible chart, losing money. Paltry 10-year return is only from the dividend. Balance sheet strong, dividend not at risk. A show-me story. Stay on the sidelines.

mngmnt / diversified
COMMENT
Economic environment.

Be mindful of the environment you're operating in. There are times in market conditions where a rising tide lifts all boats, but this is not one of them. Don't stick your neck out and buy a stock with a chart like a ski slope, and 15-16 Holds or Sells and one very lonely Buy. You can like a stock, but you have to be macro-savvy and pay attention to the environment.

Unknown
WATCH

He's been watching it, as it's regained momentum. Streamlined from its legacy business, now focused entirely on private aircraft. Business prospects are getting better. Private aircraft are big-ticket, discretionary. Order book could get cold if corporate profits decline. Facts have changed, he's changed his mind, and the company is now investment-grade at least.

transportation equip & components
COMMENT
Share consolidation.

Don't worry about getting back to your original share count. You may have fewer shares, but each is trading at a higher price. Sometimes companies do this because it's a reputational embarrassment to have a stock price below $1. Instead, pay attention to the overall dollar amount of your position. 

Unknown
PAST TOP PICK
Agnico-Eagle Mines
(A Top Pick May 04/22, Down 5%)

Gold companies are slaves to the price of the commodity they produce. Gold is enigmatic. Inflation is waning, bond yields have peaked, and that's good for gold. Likes the diversification and scale. Great dividend grower. A laggard that will catch up.

precious metals
PAST TOP PICK
CVS Health Corp
(A Top Pick May 04/22, Down 25%)

Disappointing. Two good acquisitions pending. Insurance division is losing market share. Covid gains downstream have waned. Growth lull, but almost a record low at 8x earnings. Huge addressable market. Will get mojo back.

specialty stores
PAST TOP PICK
Quebecor Inc (B)
(A Top Pick May 04/22, Up 13%)

Waiting to buy Freedom Mobile, a good transaction that adds diversification. A value play. Deeply discounted compared to other telco names. Continues to buy here.

publishing / printing
Showing 1 to 15 of 1,304 entries