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He likes the look of this. Insurance companies have all had a big move post election, on the premise that we are going to see increased rates. They’ll be big benefactors of that. A dividend increase is a very likely possibility. It’ll be modest and not likely as large a magnitude as the past 3 years. Valuations are very reasonable. Dividend yield is 3%, which is certainly adequate to hold in this environment. This and Sun Life (SLF-T) have the biggest exposure to international markets, which is going to be a key to them.
Trading around 25X earnings this year, and 21X next year’s earnings. Not cheap, but has a huge runway of opportunity ahead of it with the conversion of cash to electronic currency, as well as international markets. A great growth company. You can still buy it comfortably over the next 3-5 years. Dividend yield of .8%.
North American investment strategy? Has not changed his strategy since the election. The concern is that on any given day, the president can do or say something irrational and send markets in a tizzy. There are checks and balances in place that will sort of moderate things, and you can’t start making investment decisions on what might happen. To change your investment strategy over a 3-5 year period, would not be in keeping with your best interests. His portfolios are basically 50-50 between Canada and the US.
Got a little undervalued. There were a couple of quarters where results were not as robust as they had been, and there were some concerns they had made too many acquisitions a little too quickly. The market for their product is huge, and they have great opportunities with some of their new processing plants and their new rail lines getting their product to market. Valuation is reasonable. Looking out a year or 2, he expects to see much higher prices. Dividend yield of 1.7%.
In the midst of finalizing their merger with Potash (POT-T), which is slated to close some time mid-year. There are obvious distractions that come with that, and he doesn’t see a big move in the stock between now and when the merger finally closes. You are able to look forward to some synergies upon the closing of the merger, which is a positive. Also, you will now have a very, very dominant player.
(A Top Pick Jan 27/16. Up 18.6%.) It did well after he bought it, but then struggled in the last couple of months. Had a disappointing 3rd quarter earnings result in November, and took a big hit. That was followed a few days later by the resignation of their CEO. Part of the problem in their earnings was just the slowness in the infrastructure spending following Trudeau’s campaign. This is looking for a great year in 2018, and a big jump in earnings. He would be a buyer at these levels.
He is very interested, but hasn’t pulled the trigger yet. It has grown a lot, the price has gone up a lot, but earnings have gone up even faster. Valuation is a lot more reasonable now. It is still a fast grower and still trades at a modestly high multiple in the mid-30s, but it is in line with its growth rate.
Natural gas. Announced some production results for the 4th quarter. A lot of oil companies tend to announce production results immediately after the end of the quarter, but without the corresponding cash flow and earnings numbers, and the financial report usually comes about a month later. Some of this company’s production numbers were a little below what analysts were looking for. That, combined with a softer natural gas market, took a toll on the stock, and it has been very much an under performer for the last 4-5 weeks. Still one of the few energy companies in Canada with a pretty decent growth profile, and trades at a pretty reasonable multiple in cash flow. Ably managed. He wouldn’t be overly concerned.
He would rate this as a Sell to a Hold. He is concerned about the long-term future in terms of generating the earnings growth. They are pretty saturated across North America. Expansion is going to have to come internationally, and they had to give up in Britain. They can only tighten margins so much. Where they are really going to be in jeopardy is if some huge protectionist bill comes in. There are a lot of better places to be.
If an aggressive investor looking for speculation, this is probably a decent speculation. On the other hand, if you are a more conservative investor, there are too many things that can go wrong. The main problem is the debt load they have. They have a debt to equity ratio of over 7 to 1. It is still making money, but it has a gun to its head with respect to selling some assets to pay down some of that debt. Also, president Trump has a target on the pharmaceutical industry.
Along with a lot of other financials, it has had a big run post the US election. One of the attractive parts is that it has got the biggest US exposure of all Canadian banks. About 40% of its business comes from the US. With higher rates and bigger spreads and thoughts of more deregulation in the US banking industry, this is in a very, very good position. Trading in line with its historical multiples, so it is not cheap. Pays a good dividend yield.
Market. This has been a great 5 years. It is not a cheap market anymore. We’ve gone from very cheap to pretty fairly valued right now. PE multiples on the index are pretty much in line with historical averages, but he feels that the next stage in the market comes from earnings growth, which we are starting to see with some of these fourth-quarter reports that have been coming in.