- Page 1/4
- Next Page
Volatility. Commenting on the current pullback and volatility, he says that people are paying too much attention to short-term price action. Over a few days, the market can drop significantly and then come back. The last few years have been unusual in having low volatility and no negative years (years in which the market ends at a lower point than the previous year). It is normal for the volatility to come back.
Yield Plays. The pullback is creating yield opportunities as it drives down the price of stocks. In the decline of 2008, the Canadian banks were paying 5% dividends. There has been a significant pullback in the price of Telcos, as much as 9%. This has to do with rising interest rates, not with the business itself. Higher yields as a stock pulls back must be evaluated in the context of a rising interest rate environment. If there is no possibility of growth of the company or of the dividend, the price of the stock will drop further as bond rates rise.
Utility names, and interest-sensitive stocks generally, including Telcos, have been under pressure. If you own it, there is no rush to sell it. He prefers Algonquin Power (AQN-T) and Emera (EMA-T) because they have good growth profiles and that will give them better ability to raise their dividend.
He does not think the dividend is sustainable over the long term. It looked better 6 months ago, but their Q4 revenues were decimated. They do justify their dividend with cash flows, it is not in danger today, but with ad revenues declining, the dividend might be threatened three or six months from now. Watch out for a dividend cut if ad revenues continue to be under pressure.
He thinks CIBC is one of the two best opportunities in the financial space in Canada, on a valuation basis. The other is National Bank (NA-T). With the selloff, CIBC currently trades at about 10 times, giving about a 4.5% yield. It is difficult to think of an environment in which a Canadian would not have this stock in their portfolio. You can enhance your return by buying at opportune times. This pullback gives a good buying opportunity.
It’s one of the few names in the retail space that has done quite well despite the current challenges to bricks and mortar. Their share price has outperformed the TSX since 2010-2011. They have diversified, with Canadian Tire stores generating 65% of sales, FGL Sports generating about 20% and Marks generating 15%. They have lots of cash,they have slowly loosened up the purse strings by raising the dividend and they have a very healthy balance sheet.
Stock price has done well, in the face of the disruption from Amazon. Has done many innovative things, including purchase pickup and even using Lyft and Uber for home delivery of groceries. Has done a great job of executing the acquisition of jet.com. Two things to consider before buying Walmart today. The share price has risen 50% over the past year. It trades at about 23 times earnings with a reasonable dividend. There is no rush to buy it but no need to wait until it trades at a deep discount. Second, they are investing heavily renovate their stores. This capex will put pressure on their ability to raise their dividend. Would not be a buyer here but he likes the name.
US national banks all trade around 13x and have a yield of about 1.5. For WFC, you pay a bit more but get a higher dividend. If you are very yield focused, Wells Fargo is attractive, but if he was going to buy an American bank, he would pick Bank of America (BAC-N). He prefers its balance of commercial and investment banking versus retail banking. Between WFC and BAC, he prefers BAC but does not own either.
Canadian Banks. At this time, he prefers Canadian banks to U.S. On a valuation basis, U.S. and Canadian banks both trade at about 12x earnings. The big U.S. banks cheaper than Canadian banks a year ago but they had such a run that the two groups are now comparable. Canadian banks pay higher dividends and the Canadian investor is better off receiving the dividends from Canadian banks for tax reasons.
(A Top Pick August 26, 2016. Up 46.65%.) He continues to like the business. Sold it late last year because it appreciated so much and wants to get back in. It is starting to give an entry point with the recent selloff. This was a surprise because sales were pretty good, but he thinks investors are taking profits. Does not believe that Apple’s admission that it was slowing down phones will drive customers away because customers are integrated into the Apple ecosystem, owning many interdependent devices.
(A Top Pick August 26, 2016. Down 30.04%). He sold it early last year. Bought it on valuation catalyst. Owns Applebee’s and IHOP. They were expanding both brands into Latin America and these should appeal to the emerging middle class in Latin America. However, DIN could not execute this well, and he sold the stock soon after its CEO left.
(A Top Pick August 26, 2016. Up 4.09%). This is a leader in the diabetes space, and that market is growing. The trend is up considerably, especially in emerging market companies. NVO pays a modest dividend, they have a very large market share and a profit margin that is much higher than their competitors because of their scale and size. They can afford to cut prices more aggressively than competitors when they enter new markets. The consumers in emerging markets are price-sensitive so this is an important advantage.
