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Markets. Broadly speaking, valuations are high. There are a couple of groups, especially financials, where valuations are not high and they still look good. A lot of stocks are at the extreme ends of their spectrum, and a lot of them are just going on momentum. To navigate this, you have to go down to the cheap stocks and hope that they start to work out. US investors are all over us on the banks and the housing sector, thinking we are going to collapse. This is a tough market to navigate. Of the energy stocks, including pipelines, only 5 of them had what he would call Fair Market Value. Japan is basically in the stage of collapse. China is slowing down. Europe is pretending that they are recovering, and they are not and their numbers are painfully slow. Globally we have a slowdown. This means that the people in charge are not the politicians. It is the bankers. If we get into 2016 and things are still slowing, he doesn’t think the US Fed is going to stand aside in an election year and do nothing. Some more QE may be on the way.

COMMENT

In energy, this turned out to be #1 in his valuations, with good potential of about 40% on the upside. He thought that the stock would base at about $14-$15. It got there and then dropped to $10, and then just as quickly shot back up again, so didn’t give him time to get the stock when it was cheap. If you are looking for a cheap oil stock, this is it.

COMMENT

This kind of made a tactical error from a business point of view. When costs generally went up, they tried to raise their prices, and were somewhat surprised when consumers disagreed and their sales and earnings slowed down. This stock points up nicely if they keep their current point of view. Looking fairly attractive here at 8X estimated earnings. The upside potential, if those earnings come through, is more than 100%.

COMMENT

Trading at 28X earnings. This is in an interesting part of the business, retirement residences, where there is a lot of future demand. Looking at the balance sheet from his perspective, the BV has been steadily going down. Those kinds of companies make him queasy. He likes to see companies where the BV is rising. There are better yields out there than this.

COMMENT

Auto parts manufacturer. FM value is quite a bit higher than the current price. The P/E ratio is 10.5 times, which is not bad. The bad news, on a Price to Book basis, is that it is now trading at a high since the market bottom of 2008-2009 at about 2.5X BV. For an auto parts Company, that is getting up there. He typically sees them peaking at about 3.5X BV, so there is more room. He can see some upside, but don’t fall in love with it.

WAIT

This got way, way over what he considers their FMV. It was essentially running on momentum. When momentum runs out, the stock just plummets. You have to wait for the bad news to wash through. The bad news is that the US Congress is really ticked off at these drug companies for buying drugs and then ramping prices up. Let it find its footing in order to start to get out of this morass.

WAIT

This got way, way over what he considers their FMV. It was essentially running on momentum. When momentum runs out, the stock just plummets. You have to wait for the bad news to wash through. The US Congress is really ticked off at these drug companies for buying drugs and then ramping prices up. Let it find its footing in order to start to get out of this morass.

COMMENT

He liked insurance companies a whole lot better when there was a good possibility that US interest rates were going to be raised. Higher interest rates would have helped the insurance industry quite a bit. This stock has set back to a fairly attractive level. A small dividend of a little over 3%. It has lots of upside potential. Very reasonable PE. As an investment, it will probably work out okay.

COMMENT

Selling at about 1X his adjusted BV, which makes the stock fairly reasonable. It is sitting right in the middle of a long-term range with a top of about $25 and a bottom of about $12. Yield of nearly 10%.

PAST TOP PICK

(A Top Pick Sept 23/14. Down 5.8%.) All the banks have had a really difficult time except for the CIBC. This is terrific value.

PAST TOP PICK

(A Top Pick Sept 23/14. Up 6.37%.) If interest rates go up, he expects the stock to do even better. Still likes the stock as it is cheap.

PAST TOP PICK

(A Top Pick Sept 23/14. Down 13.54%.) He liked it when it was cheap a year ago, and he likes it now and it is still cheap. Earnings forecasts have held up. A good value stock. The kind of thing you can sit on and not worry about getting wiped out.

DON'T BUY

The problem is that the stock is very highly valued. Trading at about 4X its BV, and from a long-term perspective that is actually very good for the company. Looking at the P/E ratio it is close to 19. What attracts you to the stock is that the BV is growing at a pretty good clip, but that is all that you have left. You end up with a stock that is fairly risky, because once companies reach their FMV, they tend to stall out. You have to wait for BV growth.

COMMENT

Now may be a good time to have some gold in your portfolio. He has pushed his clients up to about a 10% weighting fairly recently. This is probably as good a gold company as any. Trading at a nice discount to its BV and even has a tiny yield. (See Top Picks.)

COMMENT

There is a reasonable chance of this doubling, probably by way of an eventual takeover. They have $3 billion in cash on the balance sheet, plus they have a massive amount of patents. The current price would probably be the breakup value of the cash and the patents.