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COMMENT
The Canadian banks: yes, there are concerns, but are already reflected in the stock prices which have been flat--though earnings are rising and solid. In fact, based on earnings, the banks are a third cheaper than in 2007-8. He doesn't see much downside going forward, and the bank dividends are safe and growing. The banks are good long-term holds. True, loan losses will hurt the stock one day, but the market isn't currently paying a high multiple for these stocks. Energy stocks vs. crude oil prices: it's an opportunity to buy Canadian companies as they report their latest earnings in May. It's a pity that foreign investors aren't buying Canadian oil stocks, but we'll see if they take notice with these reports.
BUY
A well-run company. Zero debt. Yields close to 7%. It had a nice bounce off the bottom recently. It's a safe company even though it's in Canadian oil/gas. FRU benefit from oil companies struggling to raise capital; these companies can. instead, sell a royalty on their production to FRU and supply them with capital. It's a good cash-flow business.
Financial Services
DON'T BUY
Pays a big yield, but the stock has done poorly. Can they sustain the yield? He doesn't like restaurant stocks--we're at the top of the cycle, so people may eat out less. PZA is struggling with its market position against competitors. They need re-branding or new management as a catalyst.
food stores
STRONG BUY
The CEO did a stock disposition recently. One of his largest holdings. A leader in off-shore wind energy. Their issue has always been attracting capital. They need to partner or be owned by a pension fund, which they almost did a few years ago. It's odd the CEO founder sold his shares recently as opposed to a few years ago when the stock price was nearly the same. That sale has created an overhang, though. It's been in the $25 range in the past 3-4 years while NPI has de-risked and built up several projects. The future looks good, so what's next for them? Maybe raise the dividend; they haven't done that, because they've been hoarding capital to build projects. He's adding to it as it pays over a 5% yield, and he predicts the stock will rise.
Utilities
BUY ON WEAKNESS
It's more expensive than Rogers, but he prefers it. They have more wireline and more media. Well-managed. The 5% yield is very attractive. It won't rise much beyond $60. It's a safe place to park money and collect the yield. If it comes off, he'd add more, but not at current levels.
telephone utilities
HOLD
Last fall, it got hit especially hard to $90, but has rebounded to around $105. Has the richest valuation of the big 5. But they are doing a great job. They're a steady eddy, not doing acquisitions, and sticking to their core business--and that's fine. He sold BMO and bought CIBC because it pays a higher divdend. Otherwise, you can hold this.
banks
PAST TOP PICK
(A Top Pick May 10/17, Up 10%) He's still buying it. It's priced and pays its dividend in USD, so his return is actually higher. It has US assets. It's a little known stock. They partner with CPP and Alberta Investment Management, where they build facilities, mostly warehouses for traditional and online retail and manufacturing. Similar plays in this real estate play have been bought out or taken higher valuations--but he thinks WIR will.
0
PAST TOP PICK
(A Top Pick May 10/17, Down 23%) He kept averaging down as it plunged last year, so it's been a strong performer as it has bounced up. That bottom should never have happened. problem was, they reported in Q3 when utilities report their weakest earnings in the warmest weather; you don't use as much lighting and heating then. So, ALA made a major acquisition at this time when they reported weak, and the market didn't like that. A good Q4 report then triggered a rally. He predicts Q1 will push this further up. What's under the radar is their new propane exports terminal starting now, which will help ALA recover. Sometimes the market is focused on the short term. Be patient.
oil
gas
COMMENT
Is the dividend safe? The dividend is safe, unless oil prices plunge and stay below $50. All oil stocks are beaten down. He doesn't like their asset base or well-abandonment liability (wells they leave behind) that may or may not hurt them decades in the future depending on the government. That said, companies like WCP use their wells for a long time and re-purpose them. You could wait it out and collect the 5.9% dividend though.
Oil and Gas (Integrated Oils)
COMMENT
What proportion of bank earnings are not from the loan book? Much less than 50% of their revenues come from loans. But if those loans good bad, they will overwhelm earnings. This is what short-sellers are arguing--big loan losses. Provisions for credit losses in the US are double than in Canada; this shows how competitive their lending environment is. We have a different attitude here from walking away from loans, so he doesn't see a mass exodus from paying off loans in Canada unless there is a massive macro-economic shock globally, largely American.
