Latest Stock Buy or Sell? Make More Informed Decisions!
Today, Larry Berman CFA, CMT, CTA and Stockchase Insights commented about whether CM-T, TCN-T, DND-T, AEM-T, ASTL-T, STPZ-N, SIA-T are stocks to buy or sell.
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Expecting Bank of Canada to raise interest rates this week.
Canadian & US employment numbers stronger than expected.
Inflation sticky, remains a problem for Central banks.
Cost of money (interest rates) major factor in corporate decisions.
A.I. euphoria will remain, as we are early in cycle for this new technology.
Question is how to much to pay (P/E ratios etc.) for certain A.I. stocks.
Very excited about long runway of A.I. technology - believes is early days for potential.
Thinks US Fed should keep raising interest rates, and sell publicly owned debt.
US Fed has expressed goal for quantitative tightening the next 5 - 10 years.
$10 trillion needs to come off US Fed balance sheet in order to stabilize.
Higher interest rates is going to make US Federal debt very expensive.
Inflation will not allow US Fed to stimulate economy.
We think DND is quite cheap given the quality of the portfolio of legal software businesses they possess strong competitive advantage positions (few competitors). The company is also actively repurchasing shares recently at an aggressive pace, and management also believes shares are significantly undervalued. However, the leverage is high.
The recent lawsuit is relatively minor, we think it is just normal business issues. On the other hand, the business model is quite controversial as DND will acquire niche legal software companies that possess strong pricing power (only one or a few providers) through a leveraged balance sheet, and raise prices to create shareholder value (the practice similar to Valeant in the past or TDG). DND did raise prices quite aggressively but we don’t think DND gouges its customers like Valeant in the past.
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To assess the company's financial health, we look at its balance sheet. The company has a small cash balance of $142.4M, a decent equity position of $3.8B, a current ratio of 0.2X (quite low), and a high net debt/EBITDA ratio of 11.9X. The company generates a good level of free cash flow, more than is needed for its dividend, however, it issues shares frequently and takes on a lot of debt. Given its real estate holdings, it has a large asset base, but also it carries a significant amount of debt. It is not without its risks, but it generates good cash flow, and is profitable.
The company seldomly forms joint ventures to scale its business and acquiring housing, and via its expected joint ventures the company is anticipating doubling its portfolio of single-family rental homes to 50,000 over the next three years. In 2021, it entered a joint venture arrangement (SFR JV-2) with three institutional investors to acquire single-family rental homes targeting the middle market demographic in the US Sun Belt. TCN serves as the asset manager and property manager of the JV.
Despite its high debt levels, we continue to like the name here.
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Around 65% of CBIC's loans have exposure to real estate, with 55% consumer and 10% commercial. CIBC's higher exposure to real estate does make it relatively riskier, and it is one of the smaller banks. Still, its valuation of less than 8X earnings reflects some, or even all, of this risk. We would still be comfortable owning the stock, but until recession fears go away or rates peak it may not do much.
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The Power of Consumption Deferral and Early Investing for Retirement Savings.
A reminder to those that are still in the early years of accumulation that time is on their side. Even though the leverage in the later years is much lower than those at the age of 20, at the age of 55, $1 invested growing at 7% per year still represents a 2X return on that investment, certainly nothing to scoff at. Understanding the power of consumption deferral and early investing is crucial for building a successful retirement plan. By capitalizing on the advantages of time and compounding, individuals can maximize their wealth and ensure a secure financial future. Start early, harness the power of compounding, and set the stage for a prosperous retirement.
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There are many more job openings than long term unemployment so it's hard to have a recession when everyone's working. Basically if there is more unemployment then there would be a reduction in wage pressure and consumer spending. There have been wage increases for the lowest 20% of income earners which is a good thing for the economy. There is a report that over half of Canadians are $200 away from not being able to pay their bills. Many Canadians are living paycheck to paycheck but this was the same situation 3 to 5 years ago. Financial stocks are unlikely to be in trouble because we are not expecting a wholesale default on mortgages in Canada. Also a large proportion of Canadians don't own their own homes. There has been a modest increase in defaults on credit card debt and auto loans.
