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They sell into telecom equipment, either wireless, cable, etc., and inspect the zeros and ones that go through to understand what is going through the network. Thinks it is starting a new leg of growth here. Will be reporting on Thursday. This space grows at around 20% and this company is the market share leader and they believe they can grow faster than the space. Not expensive given their revenue growth.
Have been growing their assets at about 20% a year but haven’t been getting much credit for the fundamentals because their interest rates have come down so much. They typically make a lot of money on margins. When somebody buys stock and they don’t want to pay for it in full, they can use other stock as leverage and there is a fee to that. This is a great play for a rising yield play. Yield of 1.36%.
Markets. He is very constructive on the market. As the market was selling down, he was buying. Doesn’t believe that the US government problem really leads to anything. There has been a lot of sabre rattling over the last 3 years and this is about the 4th time Congress has actually pulled something like this. He would get a little concerned if it lasted for longer than a week and it got into a debt ceiling with a potential default.
Economy. We have been in a period of wage deflation for over 10 years. That was going from an agricultural-based economy in China and Brazil and to some extent, Russia and then to an industrial sector. Had a tremendous effect on global wages. That is basically done now and for the most part, wages have stopped going down. Wage growth in China is something like 20%. Believes we are going into a reflation cycle. In 5-6 years is where the threat is going to be in portfolios. You want to be looking to invest now to stem that off. You want to be in industrials, technology, media, financials and everything that will improve in a higher monetary environment where liquidity is slowing down and there is potential for inflation to come back.
Likes aerospace and what is happening with the main airplane companies. The commodity cycle is very muted this time around, and we won’t see commodity inflation for 5-10 years. As a result, the main lines will do very well. They will have more cash flow to spend and will spend it on upgrading their fleet. If it came off 7%-8%, that would be a great buying opportunity.
If you own this and your entry point was a couple of months ago, your timing was probably poor. He wouldn’t give up on this. The natural replacement of homes in the US is something like 1.5 to 1.7 million homes and for the past 6 years or so, Canada has been producing homes closer to 1 million per year. Construction hasn’t caught up to the natural replacement cycle yet. Renting has been a huge factor and he thinks this is going to change. It is now cheaper to buy a home than to rent. Over 2-3 years this is going to be a good holding. Keep an eye on the 2-10 year yield and when that steepens up a bit, that is when it is very advantageous for homebuyers as well as home construction.
Chopping over 8500 jobs so the stock took a jump. Although he doesn’t own this, he likes the healthcare space in general, which has lots of pricing power. Healthcare has been really focused on management. They all thought they were growth stocks in the 90s and flooded the family doctor sales process but didn’t have much in their pipeline to show. They have slimmed down and have focused on high ROE and investment cash flow.
Pretty expensive at this time. They have been a growth by acquisition story for the past 5-6 years. Did very, very well, but their multiple is now stretched for the kind of growth they are going to deliver. Feels they are tapped out in terms of their balance sheet and are going to have to consolidate their recent acquisitions. Believes they will start to bring their numbers down over the next couple of years. He is Shorting this stock right now.
Generally not a big fan of Canadian or US telcos. They are slow growers and this is one of the slowest. However, you are probably better off with this then you are in most corporate bonds. Has a higher dividend and does have some growth to its cash flow. If you are holding this for a bond like return or better, it is not a bad place to be. If you are holding it because you want to be in equities, this is probably not the right position.
(A Top Pick June 5/13. Up 8.35%.) Vice Chair left the company 15 months ago, sold all his stock and got severance. Now trying to retake control. Company has been aware of his allegations and there could be one executive that is at fault, but in terms of a major disruptive event that would affect earnings power, he doesn’t see it happening. Trades at about a 25% discount to other auto stocks and growing just as well, if not better. He is still Buying. $10 is an excellent buying opportunity.
(A Top Short June 5/13. Up 1.74%.) Still a Short. Feels it is your classic trap. Trading at 15-16 times earnings and their earnings growth rate is less than 5% a year and could be a lot less than that. Don’t have much of a dividend yield anymore. This was a safety play on its own in a declining interest-rate environment. He believes we are now in an opposite environment.
What percentage of profits have you made on your Long positions as well as on your Short positions? When he Shorts a position, which is usually 20%-40% of his NAV, he uses the proceeds from the Short to add to his long positions. Example; a 30 cent Short position allows him to invest $1.30 in his long position rather than just $1. That gives him more leverage.
(A top pick June 5/13. Down 0.11%.) This is going to follow airline stocks. There is a very strong move in the aerospace cycle. Believes this is going to be priced as a growth stock again. Could be a double and continue to go on after that. Yield of 2.11%.