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Sell or hold? This has been a tough one, and every quarter there are so many reasons that the shares should go up, and they just haven’t. They moved their business to becoming more focused on wealth management, which provides reoccurring revenues. Did a great acquisition of Standard Life and picked up instant clients that they could sell more cross products to. Also, have been able to penetrate in China where 30% of revenues come from now. Look at your portfolio and see what weighting you have in financials. If you are not overweight, that money would be better served in other financials such as Canadian banks.
Many retailers suffer, but overall some of them are actually doing well. If there was too much optimism priced in, or a lack of recognition of how much online was going to take from their business, that is when the stock really gets hammered. This has economy of scale with over 11,000 stores. Part of the challenge is that they operate with very thin margins, which doesn’t leave much of a buffer to cut prices when they start to sit on inventory. To combat online shopping, they are using price matching. Also, getting into the organic space in groceries. He wouldn’t be in a rush to buy this, because it is still unclear how the disruption in the retail space is going to take place.
He likes the company and is looking for an entry point. There is some sort of stability or base building at these prices. Have executed on what they said they were going to do in getting rid of their financial assets, which means they can give up their FDIC insurance which required them to hold back capital. Great dividend.
Concerned about their ability to sustain their dividend. When they cut it earlier in the year, that was the time to do a proper cleanup and cut more than what they did. It is not going to be well received if they have to cut it again. Looking at their CapX spend and the rate at which they are paying out cash flows on the dividend, it is not a very compelling ratio. Doesn’t believe there is going to be a significant improvement in the space overall. A strong US$ is going to continue putting pressure on the company. Also, China is sitting on stockpiles of potash.
Portfolio construction for a small investor? The biggest consideration is the amount of capital you have. With larger amounts of capital, you can properly diversify. Buying good quality stocks makes sense, however with that customization ability, comes risk that you are not diversified enough or that you start to become really excited about 1 or 2 companies putting more of your capital in that. A more conservative way is to have the broad market. This will not give you the customization ability, but if you are someone not managing on a daily basis, then a passive strategy like an ETF or a mutual fund would be a better way. You want exposure to the US and Canada, but don’t be too heavy in Canada because it is a small percentage of overall GDP growth.
Strategy for mitigating risks because of market fluctuations? This is something investors wrestle with on a daily basis. He generally never goes to more than 25% cash and doesn’t do it because he is making a big call on the market. If you are wrong, it is hard to recover. The idea of using cash is to add some insulation and reduce volatility. Anything more than 25% means you are making a call on the market. Over the summer we are going to have volatility, but is not expecting a major pullback.
Has done better than some of the other big money centred banks in the US. He is fairly cautious on the big banks in the US. Doesn’t think all the bad news is priced in. This bank missed expectations in Q1 by about 5% year-over-year. A big part of that was growth in the loan loss provisions because of oil and gas. Prefers regional banks such as Columbia Banking System (COLB-Q) and City Holding (CHCO-Q).
Held this until recently, but sold earlier this month because he had been overweight in the utility space and wanted to take some profit. He owns Emera (EMA-T) which owns 25% of Algonquin. They recently did a large acquisition, and already had quite a bit of debt, so that added to their debt load. Because of this, their ability to raise their dividend is going to be somewhat impaired in the coming months and years. Thinks the dividend is safe.
One of the few in the retail space that he feels has figured out how to combat some of the disruption that is taking place with technology. They have done that by participating in it. Just recently shipped out their catalogue, the 1st time in 9 years, to 12 million households. Although print structure is dead, they have sent out the catalogue but have integrated it to the app that you have to download to really get the full experience. With that, their e-commerce sales have moved considerably to the upside. Trading at about 16X and has a low payout ratio. Dividend yield of 1.63%.
With the Internet of things, demand for their products continues to be on an incline. We are doing more and more with our smart phones every day, and the networking tools that this company provides helps with that, especially the carriers to stay spectrum efficient. They have been growing through acquisitions. Valuation is reasonable and you are getting a 3.92% dividend while you wait.
(A Top Pick June 5/15. Up 37.16%.) There was a lot of pessimism priced into this company, and they have had a few things go their way. The main one is Steve Eastbrook who took over the business, and understands that the company needs to have a clear identity, as opposed to just being a generalist. Don’t expect the same upside. Pays a great dividend. Has a low beta.