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Markets. The vast majority of gains are normally in the seasonal aspect from October and into May time frame. There is also the 3rd year presidential cycle, which is the strongest, which has a lot of successful history from a probability standpoint. On top of that you have the real micro seasonality, which tends to give a negative week, this week in particular. This is usually followed by the Santa Claus rally for the rest of December, which could create some opportunities if history repeats itself.
Markets. 9 out of 9 years going way back shows the Canadian markets are up in years ending with 5. When he found this, he was a little surprised. Years that end in 3 tend to be fairly good, years that end in 4 tend to be lacklustre, and years that end in 5 tend to be really strong. That seems to be the same in the US and their data goes back further. 2013 was a really strong year for markets. 2014 is shaping up to be an OK year, but not a stellar year. It looks like things are going to shape up to follow that pattern into 2015. He couldn’t find any specific reason for this.
At this point in time, with everything going on in the oil patch, this would not be one of his favourites. Have a fair bit of debt on their books, and he wouldn’t be looking at this right now. There are so many other companies that offer better value, especially in the dividend space. You could look at Whitecap Resources (WCP-T) or Cardinal Energy (CJ-T) if you are looking at it from a straight comparison standpoint.
You can’t argue with what the management team has done. Phenomenal job. Great return on equity growth. They continue to build the market up. For a longer-term investor, it certainly has good prospects. Had a recent selloff. Their latest quarter was not as strong as the market was anticipating, because so much expectation had been built in based on what they had done in the past. Also, as capital has moved out of Canada, it has been targeted a number of times by US institutions as a Short sale, because of their exposure to the housing sector. Bank of Canada just came out with a report saying the housing market in Canada is probably 30% overvalued. This company is very careful about the sectors and the areas that they take clients in. With its pullback, the P/E ratio and the metrics it is trading at. For an investor with a 3-5 year timeframe, this is probably a great entry point. It will probably go lower.
A Top Pick in October and one he continues to really like. Basically the “shazam” for everything else. Since October, they’ve had a great number of news releases out. One of them being their Pounce app, which basically allows people to take a picture of anything. It brings up a picture of a website to find an exact or close match. They continue to add on new retailers. Right now their retailers are 300 deep. They get revenue from a number of different sources, and we haven’t really seen that fall to the bottom line, but that is going to start to happen. Retailers pay them in a number of ways including service fees, per picture fee and per transaction fee. Great entry point here.
Stock Price has really been hit in the last few days, which he thinks is a function of a number of different things, including the overall market. He is seeing real sloshing around of capital right now. With everything that has happened in energy and even in the financials, he thinks there are people that have been trying to shore up their accounts by selling down and raising up cash levels. People are targeting something like this, which has had such a great move. Also there continues to be rumours circulating about their next transaction. Have publicly said there are a number of transactions they are trying to execute on and are probably going to have to try and raise money. If you don’t own, consider doing this in 2 tranches. Probably buy some at this level, and wait to see some type of news from the next acquisition, which will be the next catalyst to move the stock forward.
Before the current stock price drop, there were a number of issues. The value is now really starting to show up. For the majority of the year and even into last year, this was a stock that was always priced at a premium because they had such a high growth rate. The growth rate hasn’t stopped, but they have certainly come into line with their peers. The 2015 estimates are trading significantly cheaper than a lot of their peers. Have a very high exposure in Alberta which is part of the reason for the drop in the stock. However, new vehicle sales make up a big portion of their revenue, but from an EBITDA earnings standpoint, it doesn’t make up as much as you would think. It is only about 26%-27% of that. Basically down in price from what it was a year ago, and they have acquired over 15 dealerships, including their 2 largest in Québec. Starting to diversify outside of Alberta. There is lots of room for them to keep acquiring. If you have a longer-term time horizon you could get invested now.
(A Top Pick Jan 15/14. Up 25.39%.) Still likes. Obviously energy is a huge tailwind for them. For every $0.01 that jet fuel drops, it falls right to the bottom line. Have also been doing other things. Introduced a baggage fee, which is great from a profitability standpoint. Figured on some things with their unions and from a pension standpoint. If oil prices start to slow down the economy, that will have an impact on them. Analysts continue to revise their target prices up based on their earnings estimates for next year and the year beyond.
(A Top Pick Jan 15/14. Down 50.32%.) High definition surveillance cameras. Sold his holdings in the $28 range in February, when it broke down from a supply/demand perspective. Revenue numbers were great on the quarters following that, but they were spending a lot of money to generate that revenue, and the earnings numbers were a lot weaker than what the street had expected. Still has this on his radar screen. They continue to grow and execute very well. Another quarter like the last one, and there is a pretty good chance that he could be looking at this again. Have started to integrate their systems, so it is not just the cameras that they were once selling, but their whole software solution as well.
(A Top Pick Jan 15/14. Down 34.11%.) Still has a lot of respect for management. They are still executing the way he thought they would. The price of oil really started to go against them and capital flows moved out of the stock. It broke down from a technical standpoint, so he sold his holdings. He continues to like it and is still on his radar screen. They are seeing some significant cost reductions happening in their facilities, but also in their drilling costs, which will bring down their production costs. This means that their netbacks, even with the price of oil dropping, are still going to remain fairly high. There is also a pretty good chance that they might sell some of their facilities to give them extra capital, as opposed to having to go to the market.
From what he understands, this is hedged at a much higher level, from a total production standpoint, than what most other firms are. He understands it could be north of 50% of their production that is hedged. The obvious issue is that once those hedges roll off, they are going to be realizing lower prices. Everyone is trying to play leapfrog and get ahead of everyone else by selling before those hedges come off and the cash flow drops down. Very well-managed company. Management has said that if lower prices continue, they will protect their balance sheet rather than protect their dividends.
Recently acquired Nerds out of Vancouver, which just builds their library up that much more. Every day he looks at this and feels it is expensive, but they’ve done such a great job of growing their revenue over the last number of years. He thinks that is going to continue going forward. He would like to get it on a pullback, but has never been able to. Netflix (NFLX-Q) has just announced they want to globally launch their service, which means that they have to go to a company like this to get their rights for all of those countries. With all the video-on-demand services that cable companies are launching, they also have to go here to get licensing.
Stock tends to be very volatile and can have $.40-$.50 swings in the share price pretty routinely. If he didn’t own it, he would probably take a piece here, and would look to add another piece on either a pullback or any significant type of news. Just did a financing which is a great move from management’s perspective, in that now they shore up for all the trials they are going to do. Have a number of different orphan drugs. This $25 million plus the cash they have on hand, helps to really smooth things out. Their base plasma business revenue tends to be a little bit lumpy, as drug companies order from them and build their supplies up. If you don’t own, consider taking a position here and adding more on either a pullback or more positive news.
Has pulled back an awful lot. Was quite surprised at how much it had pulled back. Has a large exposure to energy, but the majority of their exposure is actually on natural gas, not oil. There are a lot of catalysts coming. Putting together another great quarter and are still super busy. Still seeing lots of gravel crushing, road construction and well sites preps being done. The catalyst for them is the Site C Hydro dam where preliminary work is expected to be announced very soon. They are also part of the bidding group for the main project. Stock sold off quite a bit when Petronos announced they were delaying their decision on the LNG project into 2015. He was a little surprised with this since they had leased 10 floors of office space in Calgary, close to 400,000 ft.². He wonders if they are just playing a little bit of hardball with the BC and federal governments. Really likes this one here.
Energy. He is steering clear for right now, but there are going to be some amazing values. He is pretty much out of the energy sector and has been for a couple of months, but is looking at where some of the stocks are getting to and seeing some amazing opportunities. It is just a matter of where the bottom will be. He doesn’t want to jump in and try to time the bottom. Would rather wait for things to settle. From a consumer’s standpoint, the price of oil dropping is great, but from a GDP standpoint, there is an awful lot of economic activity that goes on in the oil business in Western Canada, but also in central and eastern Canada. It is going to be very interesting to see where things go next year from an overall GDP standpoint, and if one outweighs the other. It is too early to know where that is going to be. In 2015, we could certainly see the price of oil going up. In reality, the whole energy trade in 2015 could be phenomenal, even if we saw oil go from current prices to $75-$80. There could be a huge move in some of the stocks because they have sold off so hard.