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(A Top Pick Oct 28/15. Down 0.95%.) A light asset, industrial company. It has about 43 different businesses in the Warren Buffett model. When they make an acquisition, they keep the president in and the management stays. It is being held down this year because it has quite a bit of exposure to the oil patch through medium technology names. A well regarded company.
This does the whole pulse crops business. It corrected in the summer because they had some problems with crops. This is a pivotal Canadian company that he thinks will be making a bigger and bigger difference in portfolios as it grows and matures into more of a mainstream company. It’s on his radar.
A very controversial part of the US market right now. The dividend market, which has been a darling for a very, very long time, may start encountering a little bit of stumbling when rates start moving back up. This is generally an excellent investment, but it is going to cause you a bit of grief in the short term. When you add on the covered call side of it, that is fine in a very volatile kind of sideways moving market. It will probably hold its own for a little while, but you are going to have a lot of people telling you that you shouldn’t own it. He would keep your weighting at about 4% of your portfolio.
This whole new mortgage rules coming down has obviously caused a lot of consternation, and there has already been a bit of follow up from it. No matter what happens with all these mortgage rules, we know that Canadian banks are probably going to have a slowing mortgage business. They are also going to be seeing more intense capital requirements to back up some of the mortgages. Also, if interest rates start to rise that will become a good thing.
The insurance sector is another one of these situations where they want a rising interest rate. This is the only insurance company that he would be interested in. The good thing is that most of the bad news and sentiment in this sector is really all priced in. You are really, truly buying it at a very, very fair democratic price, and you are just going to need the environment around it to get it going.
The grocery business is tough. Razor thin margins and very competitive. Food inflation is starting to fall back a little. This started to decline 5 months ago when there was changed guidance on the name, expecting things to fall off a little. This is also showing up in Canada. Also, he understands that Walmart had taken a lot of market share from them, not only in a general basis, but in very specific regional markets.
Conditions are ripe for the US banks. His 1st attraction to the banking sector was when he started noticing that on conference calls, the CEO’s on some of the big names weren’t having conversations about litigations anymore and the ghosts of 2008. A steeper yield curve is going to help the situation. Be patient on this.
The positive effect is when Trudeau announced he was going to legalize marijuana. However, we all know that when government gets involved, prices, supply, profits get controlled, and the opportunity suddenly shrinks down less than what you initially thought. He thinks it is going to be a collision case in what happens.
A Cdn$ denominated ETF holding about 50 banks in about 17 different countries. About 25% exposure to the Northern European banks, and 40% to the US banks. The real key is the money manager, Rob Wessel, who has 20 years in the business. The valuation of the European banks is incredibly low. They are also buying some banks in India and Australia.
One of the best performers in the S&P 500 going back 20 years. Thinks it has never had less than a 22 PE multiple, but has typically been in the 26 to 30 range. The valuation has always been a reason for people to not own the name. The real big growth area for them is their acquisition of Teavana in China. The 2nd area, that nobody is giving credit to, is that they own about 15 or 16 standalone consumer goods. There are still good days ahead of them.