Don’t Short the Canadian Banks – Bank of Montreal

Summary

  • BMO released its Q4 and FY2017 results on December 5, 2017 to mixed reaction from Bay Street analysts.
  • Results were negatively impacted by a $0.112B charge related the hurricanes in the Gulf of Mexico area.
  • BMO has a US presence which needs to be beefed up. “Bolt-on” acquisitions are more likely given that reasonably valued decent major acquisitions are hard to come by in current market conditions.
  • BMO is exposed to the over-indebted Canadian consumer and to a correction in the Canadian housing market. Risk, however, is very well managed and the probability of a correction to the magnitude of that postulated by PAA Research is remote.
  • Some investors might be able to make money shorting BMO. It just happens to be a tough way to make money. Most investors should just buy, hold, and reinvest the dividends.

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Don’t Short the Canadian Banks – TD Bank

Summary

  • TD is akin to some of my grade school classmates who consistently generated B+/A- grades versus my grades which were a different letter of the alphabet.
  • TD shareholders should give thanks to former TD executives who had the foresight to acquire Canada Trust in 2000 and 2 US banks (Banknorth in 2005 and Commerce Bancorp in 2008).
  • TD is exposed to the over-indebted Canadian consumer and to a correction in the Canadian housing market. Risk, however, is very well managed and the probability of a correction to the magnitude of that postulated by PAA Research is remote.
  • Some investors might be able to make money shorting TD. It just happens to be a tough way to make money. Most investors should just buy, hold, and reinvest the dividends.

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Don’t Short the Canadian Banks – Scotiabank

Summary

  • BNS recently reported strong FY2017 results which coincided with a recommendation by PAA Research that investors short the Canadian banks.
  • BNS generates 50+% of its revenue from Canada but its international operations are in 4 key countries where the GDP growth outlook is superior to that for Canada and the US.
  • BNS continues to diversify internationally with the announcement of an offer to acquire the 7th largest bank in Chile for $2.9B. BNS currently owns the 6th largest bank in that country.
  • A retracement in BNS’s stock price is likely to occur within the year but shorting BNS is a tough way to make money. I recommend a buy, hold, and reinvest the dividends strategy.

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Don’t Short the Canadian Banks – CIBC

Summary

  • While CM recently reported solid FY2017 results, its higher exposure to the heavily indebted Canadian consumer relative to its peers does make it more vulnerable to an economic slowdown.
  • PAA Research in the US recently released a report suggesting that CM faces headwinds which will likely result in a 30 – 40% pullback in its stock price.
  • CM’s senior management is well aware of its risks, and therefore, is in the process of diversifying its business into the US. Growth targets for its US business suggest another US acquisition will be required.
  • A retracement in stock price to the magnitude suggested by PAA is highly improbable. An investment in CM should be approached from the perspective of it being a long-term investment.

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Don’t Short the Canadian Banks – Royal Bank of Canada

Summary

  • RY recently reported solid FY2017 results. It does, however, face headwinds which may result in slower growth in 2018.
  • PAA Research in the US recently released a report suggesting that RY faces headwinds which will likely result in a 30 – 40% pullback in its stock price with the potential for a 50% correction.
  • RY has multiple lines of business which reduces earnings volatility. It is an extremely well managed bank and depending on your investor profile, is an ideal long-term investment if your seek dividend growth and capital gains potential.
  • A retracement in stock price to the magnitude suggested by PAA is highly improbable.

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FFJ Portfolio – November 2017 Dividend Income Report

 

November is one of the 4 months of the year in which the FFJ Portfolio generates the least amount of monthly income. In November, CDN $510.44 and USD$778.42 was received.

I augmented this income by writing 4 covered calls on J.M. Smucker (NYSE: SJM) which expire July 20, 2018. After taking into consideration the commission and the USD to CDN FX conversion I netted $1,463.86. This transaction makes up the bulk of the CDN $1579.75 cash in Investment Account #5. Continue reading “FFJ Portfolio – November 2017 Dividend Income Report”

Hormel Foods Corporation – High Quality, Steady Growth

Summary

  • HRL recently reported its FY2017 results and also announced its 52nd consecutive increase to its annual dividend.
  • Challenges persist in a couple of HRL’s divisions but its diversified portfolio of products and geographic presence mitigates some of the volatility.
  • Growth by acquisition continues with 2 acquisitions completed subsequent to July 2017 and another expected to close December 2017.
  • Shares are not inexpensive but you can typically expect to pay up when you invest in a high quality company with steady long-term growth potential.

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