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(Christopher O Driscoll/iStockphoto)
(Christopher O Driscoll/iStockphoto)

Schizas’ Mailbag

Bullish signals, generous dividend make this mortgage lender a buy Add to ...

Greetings Lou,

I would much appreciate getting your analysis on First National Financial.

Many thanks and regards,

Robert

Hey Robert,

Thanks for the assignment! First National Financial Corporation (FN) is Canada’s largest non-bank lender. They focus on originating and underwriting residential and commercial mortgages and have $77-billion in mortgages under administration. The company has developed the Merlin Mortgage Application system to serve the mortgage broker channel. On July 16, 2014, the company closed a deal to provide a customized version of Merlin to Toronto-Dominion Bank to improve their deal flow through the broker channel. It’s always a good thing when a company can earn income from systems developed in-house .

A probe of the charts will help identify how best to proceed with the shares of FN.


The three-year chart provides the outline of a stock that had been oscillating in a gentle up channel that began in October of 2011 and ran until August of 2013. As the shares broke above the upper resistance line of the channel they then began a more robust uptrend taking the price from $18.00 in late September of 2013 to a high just above $25.00 by February of 2014.

The stock started to pull back in April of 2014 but maintained support along the 200-day moving average. Note the symmetrical triangle that has formed since April. A symmetrical triangle is a continuation pattern which indicates that the shares have consolidated and that there is buying pressure building to send the stock higher.


The MACD and the RSI on the six-month chart signalled a buy in late March as the shares of FN were oversold. The momentum generators produced another buy signal in late June as the stock bounced off the 200-day moving average.

The next flex point for FN will come on July 29, 2014, when the company reports its second-quarter results. With the symmetrical triangle in play and a dividend yield of 6.47 per cent, First National offers a reasonable opportunity for a profitable trade.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it in to lou@happycapitalism.com.

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