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US Market. The big question is, has it already been bought and paid for. US market is riding this wave of liquidity that has been pumped in since the bottom of 2009. Money drives interest rates lower, and when that happens, people look for alternative places to put their money, and stocks have been the place to be. Up to this year, the US stock market has been the best market in the world. From a valuation perspective, it looks a little rich. Canadian market is not a bad place to be.
Energy. Up 30% year-over-year, and is now trading at 29X earnings. Keeps wondering if this is a little rich. However, 1-1.5 years ago, differentials between the different types of oil, were very, very wide and have now narrowed. This means more money for Canadian producers, which gives a lift to stocks. International investors are now coming back.
Stock has acted incredibly well. Owns this primarily for its yield, and is quite comfortable that it will be maintained for a while. Stock is being driven lately because it is becoming a sort of quasi-oil service company (because of piping), so it is getting a kind of run that many companies in the oil service patch have enjoyed. A perfect type of stock for a portfolio. Historically pays dividends as a percentage of revenues.
Has to go through consolidation pains/gains, and hope that the synergies materialize. Going forward it offers some interesting opportunities. Multiple expansion would be a significant help to them. Unfortunately, trading in the Canadian marketplace, it has a richer multiple than its US peers. Before owning he will want to see their ability to raise the dividend a little bit more.
Biggest question facing them is “Is the dividend secure?”. Had been a 2 trick pony, and is now down to a 1 trick media pony that you divide into 2. Harlequin is gone now, so they have a lot of cash on the balance sheet. The question is, what are they going to do with that cash. Traditional media is hurting, particularly the newspaper business, which is half their cash flow. They now have to do something to break out. In the meantime, they are paying a high level of dividend out of that cash. If they do something that requires cash, they may cut that dividend. 6.6% dividend yield.
This is really a good, long term Hold. Has a decent yield, and a very interesting collection of oil properties giving you international diversification. Getting a lot of their oil prices in Brent which is $8 more than West Texas. In the near-term, they have the Irish gas play, which gives them more growth. Very attractive yield of 3.5%, which should be able to go up.
(A Top Pick July 4/13. Up 19.48%.) Likes to own cyclical mining companies when everybody hates the commodity. Half of the global, sea borne metallurgical coal capacity can’t make money. This is a precursor to a rise in coal prices. Copper is on a bit of an upswing. There is also the hidden gem of zinc which is $1, where they make a lot of money. 3.5% dividend yield.
Barrick (ABX-T) or Goldcorp (G-T)? Gold is around $1200-$1300 an ounce, about equal to the cost to profitably bring on a new mine today. If gold goes any lower, you’ll see capacity fall off, which ultimately will turn the gold price around. The issue is which company can do better in a rising gold market. This company has been languishing because it has a balance sheet that isn’t very good, particularly compared to Goldcorp’s. It had to raise equity to fix the balance sheet whereas Goldcorp didn’t, except where they have to make acquisitions.
Barrick (ABX-T) or Goldcorp (G-T)? Gold is around $1200-$1300 an ounce, about equal to the cost to profitably bring on a new mine today. If gold goes any lower, you’ll see capacity fall off, which ultimately will turn the gold price around. The issue is which company can do better in a rising gold market. Barrick languished because it had a balance sheet that wasn’t very good, and had to raise equity to fix it. Goldcorp has some of the best growth opportunities, which is ultimately what you are buying.
Copper and zinc. Copper is at $3.25, and looks like it has put in a bottom. Zinc is closer to $1 a pound, which is close to a two-year high. They’ve done a very, very good job in telling investors what they do and what they are going to do. CEO has a great long-term plan on how to create value.
US Economics. Had a nice Jobs Report which reversed the 1st quarter softness that seem to have people worried and concerned. There is some improvement in higher paying wages, which gave him some comfort.