Today, Peter Hodson and Ross Healy commented about whether D.UN-T, CSCO-Q, NA-T, BAC-N, BDGI-T, OSB-N, K-T, MBT-T, VLO-N, WJX-T, KEY-N, BCE-T, IPG-N, TWTR-N, RCI.B-T, MRK-N, IMG-T, GE-N, CPG-T, SU-T, HBM-T, CNR-T, FSV-Q, TSGI-T, CSS-T, LGT.B-T, DFN-T, EFN-T, GCL-T, E-T, MNW-T, YRI-T, CR-T, GSY-T, CLS-T, QTRH-T, HLF-T, CSU-T, DHX.B-T, PRW-T, KBL-T, FSZ-T, BYD-T, HWO-T, HBM-T, POU-T, TOU-T, SGY-T, CUS-T, BDGI-T, ECA-T, AVO-T are stocks to buy or sell.
Markets. He is not seeing any of the preconditions of a real market top. Even the 1987 plunge had at least 2 or 3 months of warning that something brutal was in the offing. He does not see it now. Unless something brand-new happens, then he thinks this bull market is going to head higher and head higher for some period of time. There are some stocks that are overdone such as the social media stocks, but that is much different than saying that there is a vast area that is set to collapse. Nothing like that on the horizon. Going forward, there will be some rotation, but that is standard in an ongoing bull market. There hasn’t been any rise in interest rates yet, and that is standard in a bull market. As the economic cycle wears on, a couple of areas in the market that are cheap, are materials, which had their big run at the beginning of the cycle and then let go, and have done nothing for the past 2-3 years. Also, interest-rate sensitive stocks like insurance companies are not too bad. Banks, by and large, have yet to see anything like a historically extended top.
Stocks like this and Canadian Pacific (CP-T) and Tim Horton’s (THI-T) have done very well, reaching very, very high valuations in Price to Book terms. What they all have in common is that they have all decided that they want to buy back stocks. Realize that when you’ve got a stock that is trading at 5X its BV, which means that for every $1 of equity that you are taking out of the treasury to buy stock, you are buying $0.20 worth of equity to cancel. This means your ROE on investment is worth -80%. You are actually subtracting value, and the BV is going down. This means that when you have a market correction, the downside risks are increasing in those stocks. What they should do is issue stocks, raise the BV and use the money to expand their existing business. If you have no use for the money, then at least give the existing shareholders a dividend. In the short term, these things are working out quite well. If you own, the stock could run further, but be ready to Sell.
Gold. Thinks gold is going higher. Governments of Japan, US and much of Europe are intent on trashing the value of their currencies. Longer-term they are not enhancing the underlying fundamentals of their currencies. In a long-term sense, that tends to be very positive for gold. Because of this, he thinks gold is a good buy. In juniors, if you pick them well, you get the best leverage, but there are many of the intermediates and seniors which make perfect sense. You just have to be patient.
Canadian Banks. First of all, Canadian banks are not a homogeneous mass. There are 6 of them and their valuations are all spread out. The one close to its historic peak is the Royal Bank (RY-T) and has been the leader all the way along, so he would still give that stock some decent upside potential of 10%-12%, but would be at a level where he would begin to look for another place to go. The potential of all of the banks is very, very strong, their balance sheets are superb, and bull markets never end until the banks top out, and our banks are not ready to top out. (See Top Picks.)
This is getting expensive from his Fair Market Value calculations. Has a target of $28-$29, which would carry it up to about 2X Book Value, which is all that the market is going to give you. This is a tired conglomerate. When that happens, the conglomerate starts breaking up and releases all kinds of phenomenal value.
A residential management company. They operate residential services, manage condos and look after things like security, concierges, etc. Just reported earnings showing a 16% revenue boost, 32% EBITDA boost. Instituted a dividend a couple of years ago. Still run by the founder who still owns lots of stock. Nobody talks about it, but just a very solid company. Yield of 0.73%.