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Exchange Income Corp.'s fortunes appear to be turning

A Bombardier Q400 NextGen turboprop. Montreal-based Bombardier says Nigeria’s Arik Air has placed a firm order worth $297-million (U.S.) for three CRJ100 NextGen regional jets and four Q400 NextGen turboprops.


Hi Lou,

I am considering investing in Exchange Income Corporation. It seems to have had a troubling year but has bounced back of late. It has an attractive dividend. It is rated a buy but I was wondering about your take on the opportunity.


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Hey Kevin,

Thanks for the assignment.

Exchange Income Corporation (EIF) is in the business of acquiring profitable businesses in three segments aviation, manufacturing, and infrastructure. Management searches for companies that have attractive margins, defensible market positions, low maintenance capital requirements, competitive advantages, and barriers to entry. Another driver in the strategy is to look for family-owned businesses with no succession plans which makes sense given that many founders are looking for a liquidity event to fund their retirement and estate planning. The yield on dividends is 7.3 per cent, which will attract income hungry investors. The market capitalization is $501.72-million.

An audit of the charts for EIF will inform my take on the investment.

The three-year chart provides the outline of a stock that peaked near $26.00 in late February of 2013 and retreated to a retest of support in the $18.00 range by May of 2014. EIF caught a bounce off support and made an aggressive move higher. The advance breached resistance along the downtrend line as well as along the 50-and 200-day moving averages. The MACD and the RSI both generated buy signals in May. The issue at hand is the resistance that exists near $23.00 and if the stock can move past it and start another leg up. The company will report second-quarter results in August.

The six-month chart depicts the jump up in May which the research indicates was triggered by the release of first-quarter 2014 results on May 10. Make note of the buy signals generated by the MACD and the RSI ahead of the release. Also worth mentioning is the support along the 200-day moving average that came into play in June as the stock took a breather and pulled back. Finally it appears that a golden cross is in the process of forming.

From the evidence at hand my take on EFI is that you should accumulate the shares and average in your purchases and reinvest the dividends.

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Make it a profitable day and happy capitalism!

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