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Market. Kicking us out of NAFTA would hurt so many US consumers that he believes something will be worked out in NAFTA. Donald Trump is a tough negotiator but it would not be possible for the auto industry to go forward without NAFTA. Regarding the growth of Amazon, this company is doing remarkably well and is extremely well managed. He sees it as priced for perfection and, despite is continuing growth, he would wait for a pullback. Generally, he sees the market as highly valued. With rising interest rates, the deceleration of growth in China and the tariff issues affecting China, he sees some dark clouds on the horizon that should not be ignored. Investors should be prudent and should hold some cash.

Comment on Dividend-Paying Stocks. The caller asked how to compare the value of companies that pay dividends, versus those that do not. Consider two companies that have identical cash flow and other comparable characteristics. The one that does NOT pay a dividend MIGHT be worth more, if it does a good job of reinvesting the money that it is not paying out in dividends. However, if the company is not investing the money well, paying dividends provides more value to the investors than sinking that money into ventures that don’t cause the company to grow its value quickly enough. In general, he likes to get dividends from companies that pay them out of their free cash flow. He does not like it when a company borrows money to pay dividends or buy back shares. Borrowing for dividends or buybacks has been commonplace recently but it is not sustainable.

Ford has discontinued most of its sedan models for North America. More significantly, Moody’s has downgraded Ford’s credit rating and put it on negative credit watch. He has seen this movie before. He thinks Ford will survive. He thinks the debt level is not onerous. However, Ford has eliminated its dividend in the past to survive and he thinks a prudent management will want to cut its dividend now, before a recession that really hurts this company. He thinks that at this time, there are better industries and better places to be. No auto makers show up in his screens at this time. Majors like Toyota would be a better bet than Ford, but at this time, this is too tough an industry. A recession will be a big negative for all these companies, but the stronger ones will survive. He thinks that in major cities, car sharing is making the two-car family a thing of the past. Millenials are also not owning cars to the degree that earlier generations did, partially because of car sharing and partially because of scooters and bikes. Global auto demand is declining.

Everything is going right for ING. It is growing earnings by 10% and it offers a healthy dividend yield. European financials have been under pressure, but ING is extremely well capitalized and it is benefitting from the European recovery. They are a retail bank with no exposure to investment banking. There are no messes at ING. This is a clean company trading at less than 10x earnings. He sees it as an extremely compelling long-term investment.

Still has way too much debt, as they have had for too many years. He likes the new management changes. The CEO has been doing a good job. Aircraft is in a good place now. They have raised some cash recently, by a building sale or a sale-and-leaseback. This is probably a good time in the cycle for Bombardier, but the only way this company can create long-term value is to figure out how to get their debt down and generate free cash flow. If he owned the stock, he MIGHT hold it, especially because of rumours that they might sell a division (transportation), which could create shareholder value.

This is a big player in recycle paper products and tissue. This is, historically, a very well run company. It is a cyclical business. They have a manageable level of debt, but a cyclical business should have a stronger balance sheet. They are currently suffering from tissue prices and not getting enough from recycled products, so they are facing margin pressure. He likes the company but there are better places to invest.

He would not buy this because the stock has done incredibly well. A slowdown in housing in Canada will affect all the banks. There is not much negative to say about ScotiaBank. They have investments in emerging markets, especially Latin America, which could cause them a bit of pain, but this would create opportunities for investors rather than taking down the bank. Scotia has a strong retail presence in Canada. It will ride up and down a bit with the economy and currency. He sees this company as a well-balanced operation. He just wants a better entry point.

This is a large European insurance company with large US operations. It has a healthy dividend that is well-covered by its cash flow. They are suffering from the flat yield curve but they are the cheapest among the major global insurers. Trades at half of tangible book value. The company has survived through bad times, it operates conservatively and he sees it as having significant upside potential. His target valuation is double the current share price.

This is one of the largest South Korean banks. Like Canada, there is a small number of very large banks. The Korean economy has been improving, but the banks are dropping. This bank sells at about half of book value. They all benefit from a decent Korean economy and are major banks to the large Korean companies like Samsung.

US Banks are very successful and are trading at reasonable valuations, but he prefers Morgan Stanley to BAC.

US Banks are very successful and are trading at reasonable valuations. He prefers Morgan Stanley to Bank of America.

This is an Indian outsourcing company. The question is whether it can get things done cheaper than anyone else. They don’t do anything special, though they have executed well. He cautions that Indian companies and many other emerging market companies do not have the governance rules that American and Canadian investors have come to expect. Infosys is a huge player but its CFO recently left and there has been other management turnover. He does not see this as positive. This stock has had a big recent run, but this is not a growth stock like Amazon or Google. He would not invest at this price.

A Top Pick October 23, 2017. Down 9%). The merger has gone through. The company will be split into several pieces over the next 24 months. Free cash flow and earnings are growing at 10 to 15%. He expects dividend increases while the company goes through its restructuring. The breakup value of the company would give a 25% gain and the company has stated that it is headed in that direction. The company has been under pressure on the commodity chemical side and the agriculture side. There had been disappointment, though recent earnings were strong and caused a bit of a recovery. In addition, institutional investors are shying away from the company because, in general, they are shying away from owning conglomerates.

(A Top Pick October 23, 2017. Down 6%) All insurers are suffering from the yield curve (the low difference between short-term and long-term rates). The worst is over for the entire sector. Manulife should have 10% earnings growth over the next 10 years even with the current environment. He likes the insurance sector generally and he likes the US and Asian exposure of Manulife.

(A Top Pick October 23, 2017. Down 18%). They make medical supplies, such as catheters. Japanese small-cap stocks were hit hard over the last while by the Trump threats of tariffs against the Japanese auto sector. This company is so cheap that if you take the company’s cash and subtract its liabilities, the result is positive. You are buying the company for free. He has owned 25 of these undervalued Japanese stocks and sees them as buying opportunities. Foreign inflows and outflows have a huge impact on valuations of Japanese stocks. The Trump tariff threats created a huge outflow. The whole Japanese market is taking it on the chin. This is a Warren Buffet dream. End of PAST Top Picks