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Markets. Looking at Price to Book Values on the TSX, it looks like a market bottom. There are lots of value signs, but stocks can stay cheap for a long time. Valuation is not a great catalyst for things to change. A 3rd of our market now trades below Price to Book. That has only happened 3 other times, 1982, 2000 and 2008. All 3 near cyclical lows for value stocks, 2000 being the exception where the market continued lower, but it was the high growth Internet stocks that rolled over, and more traditional cyclical value stocks did very well for the next couple of years. We are also 21 months into the bear market in Canada, which is well beyond the average of 11 months. From a US investor perspective, which does matter, Canada is down 45% from its highs. That should ultimately attract them. A US buyer not only gets the currency play, but also access to stocks that are well below Book Value in many cases. $7 trillion of government bonds globally are now trading at a negative yield, so the world is now pricing in this deflation scenario, this risk of global negative interest rates. It took a Fed rate hike to get treasuries to rally and yields to fall off. There is irony that the Fed is trying to raise rates, and the only thing that has happened is that rates have gone down. This is because Japan, Europe and other countries are using negative interest rates as a policy tool, which is what is crushing their banks. Overall the market is discounting this scenario of a US recession, which probably isn’t in the cards. He sees weakness currently in manufacturing in the US. Not particularly surprising given that energy is a large part of CapX. Energy is dragging down that part of the market, but we are seeing strong employment growth and wage pressure increase, which ultimately translates lower profit margins for companies, but more discretionary spending by consumers, and we are seeing a really strong service sector. The overall economy, when you combine it, is still strong. Doesn’t think we are on the precipice of a new recession, and thinks stocks are starting to discount that.

COMMENT

You need a high risk tolerance for this stock. Holding one like this for a long period of time is pretty risky, and the stock is extremely expensive. Price momentum has started to fall off and is down about 45% from its recent highs. There are no valuation metrics on this, because they have no cash flows. Purely speculative.

BUY

Cemeteries. Price momentum on this is decent. A little too small for him. Good balance sheet and pays a 4% dividend yield. ROE’s are decent at 14%, and it is a nice, stable stock. He would feel comfortable holding this.

HOLD

Have been approached on a preliminary basis about a transaction to take them private, but thinks the problem is that the price range is lower than what people were expecting. It scores well on valuations, so the buyer at this price is potentially getting a good deal. Trading around 7X Price to Free Cash Flow. There might not be a lot more upside from here.

COMMENT

Definitely a “go to” name for the Canadian retail space, but would not be his 1st pick for energy. You can get companies cheaper that have better price momentum. Pays a good yield, but that alone is not a good reason to own energy stocks. Reasonably valued, kind of the middle of the pack, but high volatility, negative ROE’s and they don’t make money yet at these oil prices. Would prefer something like Raging River (RRX-T) or Granite Oil (GXO-T). Has a small Short on this. (See Top Picks.)

BUY

A good Buy at these levels. This has been hurt with the resource selloff, as they have a fair amount of Latin America exposure. All the banks are discounting or have already discounted the oil price decline in Canada. There has been US Shorting on our bank names because of assumed real estate exposure. However, he thinks valuation is attractive on pretty much all the banks. Yield of about 5%.

BUY

A good Buy at these levels. All the banks are discounting or have already discounted the oil price decline in Canada. There has been US Shorting on our bank names because of assumed real estate exposure. However, he thinks valuation is attractive on pretty much all of the banks.

DON'T BUY

Gaming stocks had their run about a year ago, and since then they have all come off. He would not recommend this, strictly on a valuation basis. Price momentum is okay, but is volatile. Value is not there. A lot of these gaming companies don’t really have a lot of cash flow today. You are banking on cash flow materializing in the future, which makes it really hard.

COMMENT

This scores in the top 10% for him. Valuation is great and is in the top 15%. A low volatility stock. ROE is 20%. It is defensive in nature. Pays a small dividend.

PAST TOP PICK

(A Top Pick Sept 8/15. Down 4.49%.) More or less flat, but pays a nice dividend yield of just over 9%. A feeder for Air Canada (AC-T). This remains a cheap stock. Solid ROE’s at 20%. 5X EBITDA.

PAST TOP PICK

(A Top Pick Sept 8/15. Down 9.87%.) Hasn’t worked out as well, but is still one of his largest holdings in 2 of his funds. Ironically, as markets get harder, auctioneers’ volumes of resales actually pick up. Great balance sheet with no net debt. Score in the top 10% for him on valuation.

PAST TOP PICK

(A Top Pick Sept 8/15. Up 9.72%.) Light oil. Pristine balance sheet. Also, has some of the best netbacks in the business. At $30-$35 oil, they can actually increase production. Still a buy. (See Top Picks.)

BUY

This has been a beneficiary of the parent Transalta (TA-T) pushing assets down, so they have a built-in growth model. TransAlta probably needs to push more assets into this. Valuation and price momentum are okay, kind of the middle of the pack, but you wouldn’t expect super cheap valuation for a utility. Quite stable and low volatility. Relatively safe and pays a good yield.

DON'T BUY

Had been Short this. An expensive company and has got pretty lousy price momentum, and given its status as a pseudo-utility, it is pretty poor. High yield of about 7.5%, but has a high payout ratio, which should be questioned. Could be at risk of having a dividend cut. Reasonably low ROE and trading at 26X Free Cash Flow. Not something he would want to hold here.

BUY

One of his largest holdings in 2 of his funds. This has always been a stock with good valuation, and they continually beat on earnings. Pristine balance sheet. Fantastic ROE at 55%. Quite a defensive, stable stock.