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Earlier Discussion

Talk to a top-ranked stock picker Add to ...

Steve Hansen, analyst with Raymond James Ltd., joined us for a live discussion Wednesday. Mr. Hansen was ranked No. 1 by StarMine in its 2011 awards for his accuracy in identifying winners and losers in the diversified industrials sector. He widely covers transportation and agriculture - and answered your questions on selecting stocks within those arenas.

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The following is a full transcript of the discussion:

11:55 Darcy Keith - Good morning every one and welcome to this live Q&A discussion with Steve Hansen, analyst with Raymond James Ltd.

11:57 Darcy Keith - We'll be getting his picks and outlook for transportation and agriculture stocks - two hot areas on the TSX right now. It should be an interesting discussion.

11:57 Darcy Keith - Hello Steve, thanks for joining us today

11:57 [Comment From Steve Hansen]/b>

Good to be with you today.

11:59 Darcy Keith - We'll be starting in just a moment, but in the meantime, here's a link to the 2011 StarMine analyst winners.

11:59 Darcy Keith - And here's the link to Canada's top stock pickers by industry. You'll see that Steve was ranked as No. 1 for diversified industrials.

12:00 Darcy Keith - Just to start things off, I'm wondering if you have any general comments Steve on the equity market right now. Is the Canadian market reaching overvalued territory?

12:02 [Comment From Steve Hansen]/b>

Good question. The short answer is no, at least not within the broader Industrials universe. We continue to see a number of high quality enterprises within our landscape that still boast very attractive earnings multiples.

12:02 [Comment From Wes ]/b>

is CP looking like a value pick as a hold for the next 20 years?

12:03 [Comment From Steve Hansen]/b>

We are constructive on both CN and CP within the Canadian landscape. To be fair, CN is the better railroad. If I could only own one, it would be CN (without question). That being said, CP is currently beat up on a number of transitory issues that make the valuation very compelling.

12:04 [Comment From Steve Hansen]/b>

My colleague in the US is also very constructive on several of the US Class I railroads (KSU, CSX, etc.)

12:05 Darcy Keith - Just as a follow up: CP also announced a quarterly dividend hike a few days ago, following CN's hike several weeks ago. Do you think the railroads have further room to hike dividends at this juncture?

12:06 [Comment From Steve Hansen]

Over time, without question, but not in the near-term. CN, of course, has an impeccable reputation from this standpoint, having raised its divvy for 15 consecutive years...

12:06 [Comment From Steve Hansen]/b>

Both railroads boast an impregnable competive position that, when coupled with their pricing power, will lead to furthy divvy increases over time.

12:07 [Comment From Rick ]/b>

Hello Darcy and Steve. I would like to hear Steve's take on Mullen and ConAgra. Thanks.

12:07 [Comment From Steve Hansen]/b>

Remember that in a high fuel price environment (have you seen diesel prices lately???), railroads win out :)

12:09 [Comment From Steve Hansen]/b>

Mullen is a trucking outfit that my colleauge in Calgary covers given its heavy degree of leverage to the western O&G sector. That being said, it has gone through a great deal of change of late with recent acquisitions. Unfortunately

12:10 [Comment From Steve Hansen]/b>

In general, we view the name as fairly valued at current levels.

12:10 [Comment From Steve Hansen]/b>

ConAgra is not a name I cover specifically, but I can give you a sense for my view on the broader Ag complex if that helps.

12:11 Darcy Keith - Sure Steve, that would be great

12:11 [Comment From Steve Hansen]/b>

Our macro view is that the world will increasingly struggle with a number of large, often competing, secular forces that i tend to describe as 'the Clash of the Titans'

12:12 [Comment From Steve Hansen]/b>

That is the competing desires to Put Food on the Table, Feed in the Barnyard, and Fuel in the Gas tank.

12:12 [Comment From Steve Hansen]/b>

Unfortunately, for consumers, this is likely to lead to higher, sustained Ag commodity prices over time, with large doses of embedded volatility

12:13 [Comment From Steve Hansen]/b>

At the same time, this creates enormous opportunities for large Ag franchises

12:13 [Comment From Steve Hansen]/b>

In the Canadian midstream landscape, we currently like Alliance Grain Traders, and GLG Lifetech

12:14 [Comment From Steve Hansen]/b>

Viterra also stands to benefit enormously, although the valuation is a bit high at the moment in our view.

12:14 [Comment From Steve Hansen]/b>

The upstream Fert enterprises also stand to benefit handsomely (Potash corp, Agrium, etc)

12:14 [Comment From Steve Hansen]/b>

Hope that helps.

12:15 Darcy Keith - Thanks Steve, interesting. Just as a follow up on Viterra....some analyst reports I've read and wrote about suggest some nice upside for the company if the Tories go forward with breaking up the Canadian Wheat Board monopoly. What is your take on this?

12:15 Darcy Keith - Here's a recent story on this matter:

12:16 Darcy Keith - http://www.theglobeandmail.com/globe-investor/investment-ideas/features/eye-on-equities/big-upside-seen-for-viterra-if-wheat-board-monopoly-broken/article2028440/

12:16 [Comment From Steve Hansen]/b>

Yes, a highly controversial subject, but a move that seems to make sense, and one where Viterra would stand to benefit materially.

12:17 [Comment From Steve Hansen]/b>

The company stands to benefit in several manners, but the principal avenuie is through higher volume throughput.

12:18 Darcy Keith - Here's a question from Rod on Agrium. Perhaps you could elaborate a bit on your forecasts for the company?

12:18 [Comment From rod sorbo ]/b>

Good Morning, what does Steve and Raymond James feel about Agrium ?

12:18 [Comment From Steve Hansen]/b>

The way the system works at the moment is that the CWB, which has a monopoly on purchasing regulated grains from farmers in western Canada, sprinkles the volumes around to all different sizes of company's, irrespective of their cost position.

12:19 [Comment From Steve Hansen]/b>

Just to finish my last though: Under an unregulated system, where farmers have the right to sell their crops to whomever they want, they are far more likely to send their crops through the larger, most efficient operators (i.e. lower priced)...thus Viterra wins.....

12:20 [Comment From Steve Hansen]/b>

On Agrium, the outlook is very bright

12:20 [Comment From Steve Hansen]/b>

Margins at the moment are very , very attractive for the firm, particularly in light of the subdued gas prices we are seeing in N.America

12:20 [Comment From Steve Hansen]/b>

And demand meanwhile, continues to be robust. This is a very attractive combination.

12:21 [Comment From Steve Hansen]/b>

A similar thesis can be made on the demand side for potash producers globally, including Canada's own bellweather POT

12:21 Darcy Keith - A related question:

12:21 [Comment From Bobby ]/b>

What's your take on Potash?

12:21 [Comment From Steve Hansen]/b>

Both of these firms boast very attractive earnings growth profiles going foward.

12:22 [Comment From Steve Hansen]/b>

On the macro front, we have seen significant moves on the potash front, with BPC recently increasing granular spot potash prices to $550/mt

12:23 [Comment From Steve Hansen]/b>

Potash corp, as one of the worlds largest exporters of potash, stands to benefit from this rising price trend, which is really being dirven by the rich crop pricing environment seen globally

12:23 [Comment From Steve Hansen]/b>

Recent reports of poor plantings in several reagions of the world, for example, have been stoking wheat and grain prices globally.

12:24 [Comment From Steve Hansen]/b>

Drought, flooding, pest/disease....they all seem to be more regular occurences of late.

12:24 [Comment From Steve Hansen]/b>

And as supply is constrained, prices shoot upwards, which heavily incentivizes farmers to apply nutrients

12:25 [Comment From Steve Hansen]/b>

Hope that helps

12:25 Darcy Keith - Thanks Steve. Here's a related question:

12:25 [Comment From Guest ]/b>

What junior potash producer you see gaining more in mid term?

12:27 [Comment From Steve Hansen]/b>

Unfortuntely, my views in that arena are pretty limited....as the stocks tend to be driven more by drill holes and resource estimates...which is outside my area of expertise.

12:27 [Comment From Steve Hansen]/b>

That being said, most will benefit from the rising price trend I described earlier.

12:28 [Comment From Joe ]/b>

Hello Darcy and Steve what is your outlook on Sherritt

12:28 [Comment From Steve Hansen]/b>

Another mining story (Nickel, Cuba, etc.). Limited expertise in that segment. Apologies.

12:29 [Comment From Steve Hansen]/b>

Railroads, Airlines, Agriculture, Heavy Equipment, Aerospace, Chemicals all tend to be my sweet spots

12:29 Darcy Keith - Here's a broader question:



12:29 [Comment From ray ]/b>

Steve, how much longer you think this bull market runs from March 6th bottom? Dont you think it is over now, that the ultra perma bear David Rosenberg threw in the towel two weeks ago and went long now? http://www.cnbc.com/id/42782844

12:31 [Comment From Steve Hansen]/b>

Chuckle....I did notice that change of view recently. Our general belief is that the Canadian Industrials universe still has plenty of upside. Most of the macro indicators that we follow closely are pointing the right direction, and valuations still seem quite reasonable. This portends healthy upside in our view.

12:31 [Comment From Steve Hansen]/b>

I will highlight, however, to all of your readers that my lattermost criteria is critical....that being valuation.

12:32 [Comment From Steve Hansen]/b>

Great companies dont always make for great stocks in other words.....

12:32 [Comment From Steve Hansen]/b>

Price is what you pay, value is what you get....to quote a legendary value manager.

12:32 Darcy Keith - Let's switch gears a bit and tackle the airline sector. Here's a question from Anthony

12:32 [Comment From Anthony ]/b>

Just wanted to hear about Air Canada and the global airline landscape

12:33 [Comment From Steve Hansen]/b>

Sure, Air Canada is in a tough spot at the moment. While it has benefitted enormously from the global upturn over the past 1.5 years, it is now facing some pretty tough headwinds.

12:34 [Comment From Steve Hansen]/b>

Much of its growth , for example, is now centered on International markets, where competition is heating up quickly, with many carriers thorowing heaps of capacity at the market.

12:34 [Comment From Steve Hansen]/b>

As a result, the Revenue it gets per seat mile, otherwise known as RASM, has been falling in these international markets.

12:34 [Comment From Steve Hansen]/b>

The Canadian domestic market, on the other hand, continues to be very attractive.

12:35 [Comment From Steve Hansen]/b>

It remains, of course, a comfortable oligopoly for the most part, with Air Canada, WestJet, and Porter largely dominating the market, but staying rationale in the process

12:35 [Comment From Steve Hansen]/b>

This is why we currently favour Westjet

12:36 [Comment From Steve Hansen]/b>

Much to consumers dismay, they have had no difficulty in passing along fuel surcharges to cover the rising costs of jet fuel.....

12:36 [Comment From Steve Hansen]/b>

Hope that helps



12:37 Darcy Keith - Indeed. Do you have any price targets for AC and Westjet?

12:37 [Comment From Steve Hansen]/b>

Yes. Westjet is Outperform rated with a $17.50 target; Air Canada is Market Perform rated with a $3.00 target

12:38 Darcy Keith - Thanks. Just as a follow up on Air Canada....

12:39 Darcy Keith - the airline is considering launching a new discount airline. Do you think this is a wise move, especially the headwinds it faces internationally?

12:40 [Comment From Steve Hansen]/b>

Great question. The short answer is yes, the strategy makes sense, particularly if it can allow the company to reign in its cost structure (which is bloated). However, you must understand that this is the same strategy that is causing tremendous tension with its employees.....

12:41 [Comment From Steve Hansen]/b>

In other words, it is not an easy transition, and may not ever fly...

12:42 [Comment From Steve Hansen]/b>

Time will tell as we continue to watch current labour negotiations closely.

12:42 [Comment From Anthony ]/b>

Thanks Steve. How about the Asian Airlines like Cathay, JAL etc

12:42 [Comment From Steve Hansen]/b>

This is another key "headwind" that I described earlier for AC.

12:43 [Comment From Steve Hansen]/b>

The airline business is not for the faint of heart, but there are regions of the world where strong secular patterns (i.e. rising disposable incomes, deregulation, etc) favour very attractive growth profiles, particularly in the Asian, African, and South American markets.

12:44 [Comment From Steve Hansen]/b>

In general, we tend to favour the low-cost operators in these different regions (and globally), as the margin of safety tends to be higher.

12:45 [Comment From Steve Hansen]/b>

Legacy airlines can have their day (if you want to trade them), but they tend to be very slow moving, with inflexible cost structures that often bite very hard when key factors (i.e. fuel, demand) turn against them

12:46 [Comment From Steve Hansen]/b>

Ryan Air is just one example of a name we like.

12:46 [Comment From Steve Hansen]/b>

In the Low Cost Carrier universe that is.

12:46 [Comment From Guest ]/b>

Are there any sectors or companies that you are bearish on right now?

12:48 [Comment From Steve Hansen]/b>

Great question. Not specifically, no. Our general underlying macro assumptions are that we will continue to experience healthy (albeit slowing) global growth, which tends to benefit most of the core sectors we cover here at Raymond James. The one caveat, would be US defense spending, which despite sustained levels at the moment, has the potential to fall vicitim to sharp cutbacks

12:49 Darcy Keith - We have a few questions regarding your outlook on uranium. I'm not sure that's something you normally cover - but perhaps you have some general comments on the whole nuclear arena?

12:51 [Comment From Steve Hansen]/b>

My colleague Bart Jaworski covers the Uranium sector here at RJ. There is no question that the whole 'nuclear renaissance' ha been called into question in light of the recent catastrophe in Japan; however, our internal view is that nuclear power will continue to be a necessity going forward.

12:52 [Comment From Steve Hansen]/b>

As just one anectodal example, China is currently suffering rolling brown outs due to a lack of electricity generation.

12:52 [Comment From bonstar ]/b>

What is the best way to invest in the limited number of potash producers out there? Are there any lower cost alternatives for investors not comfortable with trading options?

12:53 [Comment From Steve Hansen]/b>

The easiest, low-cost way for investors to play the Ag sector is via Ag-specific ETFS. In Canada MOO is just one example, which is heavily influenced by the likes of Potash Corp and Agrium

12:53 [Comment From Steve Hansen]/b>

Sorry, COW is symbol. MOO is its US equivalent

12:54 [Comment From Rob The Unhedged ]/b>

ON a different note what do you think of Electrovaya and the electirc car market in general?

12:54 [Comment From Steve Hansen]/b>

There are also a number of other more specific commodity focussed ETFs that allow investors to gain exposure to a basket of corn, wheat, sugar, etc.

12:55 [Comment From Steve Hansen]/b>

Unfortunately, clean tech is not one of my focus areas (covered by my colleague Stephen Li). I will say, however, that we cover names such as Azure Dynamics, which we are positive on that continue to demonstrate very attractive growth prospects.

12:56 [Comment From ianik tousignant ]/b>

What is the corelation between potash and petroleum price?

12:56 [Comment From Steve Hansen]/b>

In a high fuel price environment, it is difficult to imagine electric vehicles not succeeding. The challenge, of course, is picking the winning technology.....(not easy).

12:57 [Comment From Steve Hansen]/b>

It depends.....is the short answer. In certain periods of the cycle it can be quite tight, in others less so.

12:58 [Comment From Steve Hansen]/b>

More recently, of course, the entire commodity universe has benefitted from the massive inflows of monetary stimulus facilitated by the US Fed.

12:59 Darcy Keith - I'm afraid we're just about out of time for today. To wrap up Steve, I was wondering if you could outline some of your very top picks in the sectors that you cover - and if you have any further points to make for our audience.



12:59 [Comment From Steve Hansen]/b>

There are better correlations to the Ag specific commodities (the softs) in general, but these too have also been heavily influenced by the large run in oil of late.

1:00 [Comment From Steve Hansen]/b>

Yes happy to. Top picks within my square at the moment include: Canadian Pacific (CP-T), Methanex (Mx-T), GLG Lifetech (GLG-G), Cervus Equipment (CVL-T)

1:01 [Comment From Steve Hansen]/b>

Alliance Grain (AGT-T) is one other in the Ag square

1:02 Darcy Keith - OK, thanks Steve

1:02 [Comment From Steve Hansen]/b>

My only parting comment is to echo a previous note in that Investors need to be highly cognizant of the valuation they are willing to pay when investing in the Industrials universe. Dont be afraid, in other words, to trim great companies when they are fetching lofty valuations

1:02 [Comment From Steve Hansen]/b>

On the other hand, dont be afraid to buy great companies when they are a bit beat up :)

1:03 Darcy Keith - Sounds like good general advice. With that, let's wrap up this discussion. Thanks again Steve - and to all our readers for submitting questions. Join us again soon at The Globe and Mail for more live discussions.

1:03 Darcy Keith - Good bye all

1:03 [Comment From Steve Hansen]/b>

It was a pleasure participating today. I wish you all the best.



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