Best and Worst Stocks in the Last 30 Days

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Decorrelation is the word of the month in the stocks that I follow.  Some are rising dramatically, others are falling back.  Flash back one month, and North American markets were in the midst of a mini-correction (~5%) as investors positioned themselves for the usual “Sell in May and go away” phenomenon.  Turns out, it hasn’t materialized, at least yet.

Let me profile some index returns and highlight some top performers and top losing stocks in the last 30 days.

Index Returns

To benchmark, let’s look at what the indexes have returned since April 17th.  Both the Canadian and US markets had similar performances.

Dow Jones: + 5.34%

TSX Composite: +5.57%

S&P 500: +7.4%

Key Gaining Individual Stocks

Momentum-type investors are interested in these stocks – ones with big recent gains. Take a look at my best performing large cap and small cap stocks.  Some of these have been previous dogs, even trading below book value (BPO)

Large Caps

Brookfield Office Properties (BPO.TO): +7.17%

Manulife Financial (MFC.TO): +16.1%

Husky Energy(HSE.TO): +9.1%

Small Caps

Autocanada (ACQ.TO): +28.9%

Chesswood Group (CHW.TO): +20.6%

Melcor Developments (MRD.TO): +6.6%

Biggest Price Declines

Value investors sometimes invest in unloved stocks even though they’ve decreased in value.  Timing this is nearly impossible, but it is true that last year’s loser is often next year’s winner. I am holding these stocks which are down in the last 30 days:

Wajax Corp (WJX.TO): -11.2% (40% below 52 week high)

Home Capital Group (HCG.TO): -3.5% (13% below 52 week high)

Bird Construction(BDT.TO): -5.5% (21% below 52 week high)

Home Capital Group, which I have taken a position in contrary to the stock being as much as 23% shorted, closed the week at $53.69.   I am already up 2.5% in my position, plus received a 26 cent dividend. Wajax and Bird both had poor quarters. The stocks have been beaten up a bit, especially Wajax, which is now 40% below it’s 52 week high. I still like both companies, and will wait out for the next quarterly report before making any changes.

If you have any questions, feel free to comment or send an email to inbox@dividendblogger.com.

Notice of Dividend Increases #3 – May 2013

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This is my third post this month on dividend increases.  Just in May, I’ve profiled 19 different companies that have raised their dividend.  Companies that raise dividends are showing a cash commitment to their shareholders and I believe are potentially worth investing in.  I am also looking for low P/Es, growing revenues and earnings and a decent yield, preferably greater than 3%.

This Week’s Increases

Ticker Name Dividend Increase New Yield P/E Payout
RME.TO Rocky Mtn Dealerships 48.15% 2.92% 10.6 31%
MRD.TO Melcor Developments 8.70% 2.70% 11 30%
LAS.A Lassonde Industries 25.60% 1.76% 14 25%
FTT.TO Finning International 8.90% 2.76% 11 30%
T.TO Telus 6.25% 3.65% 18 66%
AIM.TO Aimia Inc 6.25% 4.50% 17 77%

Commentary

Rocky Mountain Dealerships is an interesting company that is consolidating agriculture and construction dealerships primarily in Alberta.  They are a growth company with a great P/E.  The company was discussed on Canadian Money Forum and a number of posters are investors.  I am not, but with this massive 48% dividend boost and a 40%+ increase in earnings since last year, they’re definitely looking attractive.

Melcor Developments is a real estate company on my list of dividend stocks. Not only have they increased their semi-annual dividend by 8.7%, but there’s a special dividend of 50 cents coming, which is exactly double their annual dividend. In total, investors will receive over 4%. The stock hasn’t moved much on the news, you have until 14 June to become a shareholder of record to receive it.

Lassonde Industries is a dividend achiever in the soft drink / juices market. The stock is hitting new 52 week and all-time highs while still at a reasonable P/E and great payout ratio.  The dividend yield is a little low for me but 25% is a significant increase.  I’ll maintain my watch on this one.

Finning International is a major Caterpillar dealer and service provider.  While not a true dividend achiever, they do regularly increase dividends.  The yield is a quite attractive 2.76% with a payout of net earnings of just 30%.  Finning is closing in on a 3% yield that would really get me interested and has a fantastic P/E of 11.  I’ll be keeping a closer watch on them now in case a buying opportunity arises. The stock is down almost 20% off the 52 week high.

Telus is continuing on its dividend growth path.  They intend on maintaining 10%+ annual dividend growth with twice-annual raises until at least 2016.  I have 282 shares (post-split) and have no intentions of selling.

Aimia is the company that owns and operates Aeroplan in Canada.  While the yield is attractive, net earnings were down last quarter despite higher revenue.  With a P/E of 17, I would expect 10%+ increases in both to maintain a good growth profile, so I would be cautious despite the solid 4.5% yield.

If you have any questions, feel free to comment or send an email to inbox@dividendblogger.com.

CDB Vs Eisman on Home Capital Group

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On Friday, I decided to purchase shares in Home Capital Group, a company I have been following for a number of years.  I have been waiting for an opportunity to invest and that time arrived last week, thanks to Steve Eisman, a US Hedge Fund Manager.

http://www.cnbc.com/id/100726168

Mr. Eisman suggested last week, in a very public forum, that investors bet against Canadian housing, and singled out Home Capital Group.  Copycat investors, primarily in the US, have now shorted 10% of the stock.  US investors are listening because Mr. Eisman successfully shorted US housing stocks in 2008 before the crash.

The effect can already be seen in the stock.  It is down from a 52 week high of $61.50 to $50.79.  In the last week, 2.65 million shares traded, 900% more volume than normal.

Reasons to Short Canadian Housing

According to Eisman, there are a few reasons behind his thesis:

  • Housing prices have doubled in Canada in 10 years
  • The surge in prices has stopped in the last year
  • CMHC’s balance sheet of insured mortgages is too large

Therefore, the theory goes, Home Capital Group, which specializes in providing mortgage lending to individuals who do not qualify for normal big bank mortgages, is particularly vulnerable.

Reasons Why I Think He’s Wrong

In my opinion, I think he’s wrong both on the macro front and for Home Capital Group in particular.  On the economic side:

  • There is no recession in Canada or the US.  Without a recession, the housing market will continue as is (perhaps at a stagnant level).  In fact, the US economy grew 2.5% in real terms last quarter.  This is positive for the Canadian economy.
  • Money is cheap; 5 year mortgages are easily available at 3% and 10 year mortgages at 3.6%.  There is no end in sight for cheap mortgage money, certainly not within the next few years
  • While housing sales have slowed, this is due to changes in qualification rules introduced by the Federal Government.  Money remains cheap, and there is a “new normal” for real estate sales which is about 15% lower due to less people qualifying for mortgages.  Due to cheap money, prices have been stable or growing across Canada although specific markets are lower in some cases (like Vancouver).

For Home Capital in particular:

  • Although many of Home Capital’s customers do not have credit history, they have cash and assets.  They are often wealthy self-employed or immigrants who put down large cash deposits, on average 33% of the house value
  • Home Capital’s Tier 1 capital ratio is 16%, double that of most Canadian banks
  • Home Capital is trading at a P/E of 7.0 based on last quarter’s adjusted earnings, with revenues and earnings both up more than 10%
  • Home Capital has a normal course issuer bid outstanding and can now purchase shares back at a very attractive discount
  • With a 15% dividend payout ratio, Home Capital can easily outpace dividend increases at all major Canadian financial institutions.  I would expect an increase next quarter or the quarter after (they average one increase every 3 quarters)

The CEO of Home Capital also agrees. You can watch a 6 minute interview with him on BNN at this link (BNN does force you to watch a 30 second advertisement)

http://www.bnn.ca/News/2013/5/10/Home-Capital-shrugs-off-shorts-amid-housing-pessimism.aspx

Actual Risks

What could actually cause a collapse in real estate?

  • A major recession, larger than in 2008
  • A major collapse in commodity prices. Think oil below $50, gold below $1000 and other commodities at rock bottom, multi-decade lows

While this is not out of the question, I would also point out Home Capital Group has survived multiple recessions including the 2008 financial crisis quite well.  The true risk is an economic recession and millions of Canadians out of work, not housing prices in particular.

Conclusions

The earning yield of Home Capital Group is now 14%.  If they can maintain 10% revenue and earnings growth, which they are projecting, returns could be up to 24% per year for shareholders.  Of course, returns are never that straightforward.  More than likely, the stock will continue to be under pressure from short sellers until they get tired or bored in the next 6 to 12 months.  Likely, there will be a 50%+ jump very quickly rather than a consistent 20-30% per year.  It is hard to say when this will happen, but my prediction is within 18 months.  Meanwhile, I am considering adding another 25% to my position now that it is closing in on $50.

If you have any questions, feel free to comment or send an email to inbox@dividendblogger.com.