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The only things working this year is everything that is defensive. On the back of that, this company has seen some nice price movement. 50% of their revenue comes from cereals, so the whole trend of people trying to get away from carbs isn’t really helpful to them. A good quality company. She doesn’t see a ton of upside.
They have changed the distribution in the last little while. Before they were paying out a lot of the capital gains on the balance sheet as well as the performance bonus. Have now decided to keep that in-house as they weren’t seeing the market paying up for that. With the dislocation in credit markets and equities, and the fear coming out of that, it is really going to impact this company. There is a lot of pain in the equity Price. But this is really the time of volatility where they get good prices, and really plant the seeds to grow the business on earnings going forward. From that standpoint there is a very good baseline yield. They are long-term assets they are collecting fees on. Likes the business and the alignment of ownership and the people that are making these bets in investments on behalf of investors, so she thinks there is a much higher share price coming.
Bank of America (BAC-N) or Citigroup (C-N)? The real driver is what interest rates are going to do. Stock had been performing pretty decently on expectation that the Fed would continue raising rates, but the Fed started reversing course. There were also fears of debt problems. She still prefers to own banks at a fraction of their BV, even if that comes off a little. A pretty good cushion here with trading at a fraction of BV. If one does well, the other will do well also.
Bank of America (BAC-N) or Citigroup (C-N)? The real driver is what interest rates are going to do. Stock had been performing pretty decently on expectation that the Fed would continue raising rates, but the Fed started reversing course. There were also fears of debt problems. She still prefers to own banks at a fraction of their BV, even if that comes off a little. A pretty good cushion here with trading at a fraction of BV. If one does well, the other will do well also.
What percent of funds would you put in US versus Canadian stocks? She is about 70% in the US and 30% in Canada. Finds the US to be a structurally sound market at this time. In the Canadian market there is a lot of money locked in Canada that simply can’t leave. Looking at the top 10 performers in 2015 in Canada, 9 out of 10 had less than 20% revenues tied to Canada. She is concerned that because those stocks did well, it seems dislocated from underlying fundamentals of the company, and more of a fund flow question. Feels US companies are trading more on their fundamentals.
SEC is looking into the accounting that airlines can do, in spreading costs over an entire project. Not a lot of details the company can disclose on this. This stock is a great example of the amount of fear in the stock market. Since mid-December, it is off about 20%. Backlog has increased to about 7 years, they’ve increased the dividend, and demand of travellers continues to be strong. There are not a lot of negative points on the name, and yet the fear in the market is kind of predicting that there is going to be a slowdown.
(A Top Pick Dec 8/14. Down 22.62%.) This has a lot of great things going for it, which started showing up this quarter. About 12% of operating income is from Latin America with a large portion of that being from troubled Brazil. She likes this company because the really good spot in the US economy is their housing. This last quarter they have started to see a pickup. Also, initiatives in Europe and Asia are starting to pick up steam.
She is curious about what is going to happen and is watching from the sidelines. We are now getting into a replacement cycle, where everybody already has the product, so instead of growing into new demand, you are essentially replacing what you had. She doesn’t like betting on the consumer.
This has been a phenomenal story. They have gotten so much right. Recently this has been selling off because of concerns about ESPN. Given the run-up in the share price and the valuation it is trading at; she would use any weakness as a cause to Sell. Run with a good story so long as it is good. At this point, it’s a Sell.
This has been a really tough part of the market. For the Eastern rails in particular there is the coal exposure. With natural gas prices as low as they are, there was a 15% decline in coal volume last year, and another 20% this year. This quarter has guided really weak, and then improving from there. Has cost initiatives that they still have to get down. Right now this is a tough place to be. Looking forward to infrastructure that the rails have, especially at this time with how much they have pulled back, she is still Long the stock.
US Market. Corporate earnings are not that bad. People are taking in expectations for things to slow down, when we really haven’t seen much evidence of that. A lot of the focus is on Chinese growth and the type of growth they are having, so more to consumer led from infrastructure and a lot of the commodity implications that there has been globally. A lot of money going into places that in hindsight are not economic, and there are questions as to whether they are going to be able to pay debts back. Fear is just exploding through the market and attacking equities as well. There has always been this credibility of the Central Banks that they fix everything, and you don’t fight the Fed. Now people are questioning, and figuring out that they don’t know everything. It really didn’t help raising .25%, and then looking like they were backpedaling. Still believes the US is the strongest place to be, but a lot of that is being muddied by the huge currency movements that we have seen. A very dynamic environment, and when you have a lot of moving parts, that is what leads to the market volatility.