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Oil Sands. Alberta just announced they are going to leave the oil sands royalties unchanged, but are going to implement a 5% flat rate for non-oil sands output, until their costs reach payout status. Then it will become a sliding scale. They are also going to simplify the payments and incentives. New drilling completion costs will be based in Cdn$ rather than volume or time, which will recognize the cost of producing crude and natural gas, and make it consistent across the board, so that it is easier for everyone to understand. If and when the oil price does go up, then the effect of the increased drilling programs will start to benefit all of Alberta. They are set to increase royalties in Alberta by 50% by 2023, which is when they will start to really reap the reward.
The difference between US and Canadian banks is that the US banks don’t generate as much revenue from retail banking, personal and consumer. They are quite heavy in the investment banking and wealth management. This bank tends to operate more like what we know in Canada, in the sense that 60% of its revenue is retail and 40% is wealth management and investment banking, a nice mix. He has targeted regional banks, in order to trim the fat of the lumpy revenues from investment banking. Although the US economy has been improving, it hasn’t been improving at the same pace in all regions. This is a high-quality name with a reasonable dividend, but hasn’t done well over the last 52 weeks. Wouldn’t be in a rush to buy this, but would look at some of the regional names, such as Columbia Banking System (COLB-Q).
(A Top Pick Feb 27/15. Down 18.1%.) The story hasn’t changed. With the increased usage of smart phones, there is a need to stay spectrum efficient. This company is helping the carriers do that with networking solutions. Also, with the Internet of Everything, this company tends to benefit in terms of integration of networks. He is excited about their cyber Security side of things. Pays a great dividend, so you need to be a little more patient with this.
(A Top Pick Feb 27/15. Up 15.5%.) Involved in medical liability, so with Obama Care and more and more Americans accessing healthcare, there is growth in this space, and the need to ensure medical professionals. Have been doing acquisitions over the last year, and feels they are done with spending money and integration. Likes the cross selling opportunities and the expansion of their geographical footprint. A good entry point.
He wouldn’t be opposed to this as an entry point. They have a new CEO, who has made it clear that he is not going to make any drastic changes. 70% of revenues comes from commercial jets. What is going to determine where the stock price goes over the next 6-12 months is the 787 plane. Deliveries have been going well which is the positive. The challenge is that they spent more money than originally anticipated, so there has been a bit of margin compression on the 787’s. He is not concerned about the 3.7% dividend yield.
Coca-Cola (KO-N) or PepsiCo (PEP-N)? The key difference is that Pepsi has a more established non-beverage business. Coke has not done as well, but has a more established bottling business, with about 15% of business coming from this. It is a low margin high capital business and there are rumours that they will be getting out of this. Would prefer Dr. Pepper Snapple Group (DPS-N) which has about a 10th of the market share of these 2, so there is an opportunity to steal market share.
Coca-Cola (KO-N) or PepsiCo (PEP-N)? The key difference is that this company has a more established non-beverage business. Over 50% of revenue comes from non-beverage items. They have been busy doing acquisitions on that front. Would prefer Dr. Pepper Snapple Group (DPS-N) which has about a 10th of the market share of these 2, so there is an opportunity to steal market share.
Concordia Health (CXR-T) or Magna (MG-T)? He prefers Magna. In a world of uncertainty, it tends to be a little more stable. It gives you exposure to the auto sector, without having to take the risk of choosing an auto manufacturer. There has been a recent pullback in this, which he likes as an entry point. Also, with the commodity downturn there have been growing margins, especially because of their input costs going down. Pays a good dividend.
Looking at US telecoms, there is good news and bad news. The good news is that you are getting big, fat, juicy dividends. The bad news is that the stock hasn’t really gone anywhere. Prefers Canadian telcos. Although the dividend yield might be lower, on an after-tax basis it becomes more attractive.
A great brand and a great business. They are making money in several different ways. His favourite part in their business is probably ESPN. That side doesn’t seem to get as much attention as it should. If you bought this at any time in the last 4 years, you have done really well. He is bullish on the US consumer, but is less excited about them than he was a year ago. Doesn’t think you will go wrong with this name, but wouldn’t be loading up on it at these levels.
There was a lot of cash on the sidelines last year, as investors weren’t convinced the company could turn things around. But after the results we have seen recently, that conviction has started to diffuse into the market. Thinks there is going to be a new round of capital coming in from new investors who feel better about the story. They are still early in this turnaround. There is probably 10%-15% upside at the most, and then you want to get out. Dividend yield of about 3%.
The challenge is that the stock just keeps going up and it is very difficult to find an entry point. It is now down about 15% since January, and is at an entry point that many have waited for. Their core business is niche acquisition strategy, so they are acquiring small software companies. The average acquisition size is about $3 million, and they are focusing on a space that the bigger players are not interested in.
Markets. History has shown that if there is one thing the market doesn’t like it is uncertainty. Volatility has been mostly attributed to how wacky oil prices have been. There are a lot of rumours and a lot of chat, but until we see production cut, everything else is just noise. Saudi’s have come this far, and he doesn’t see them changing their tune at this point. It is not just an oil issue, it is a geopolitical issue, so you are taking a matter that is already complicated and adding a few layers to it, just to add more volatility to the market. He has been underweight energy because he had thought it was overvalued by $15-$20 a barrel when it was $80-$90. There was a lot of geopolitical uncertainty and a risk of supply disruption, but had no idea $30 oil was in the cards. Thinks this is year when there are going to be fewer players remaining online, because it just doesn’t make sense anymore. This is what OPEC and Saudi Arabia are waiting for, and until we get that, oil prices are going to remain volatile.