John Zechner is chairman and founder at J. Zechner Associates. His focus is North American large caps.
Hudson's Bay Company (HBC.TO)
Last purchased at $20.75
Real estate value accounts for more than total share value so investors are essentially getting the retail assets for free. The company recently closed a purchase of German department store chain Galeria Kaufhof. The purchase of Saks in 2013 helped add scale to the business and it expects to gain from the opening of new stores in North America, including Saks and Saks Off 5th in Canada. HBC recently raised forecasts for sales and EBITDA for fiscal 2016, incorporating greater synergies from cost cutting. CEO Richard Baker has engineered a strong turnaround in Bay operations since acquiring the company in 2007 and has taken market share away from Sears.
Last purchased at US$108.00
The company is successfully transitioning from a manufacturer of hardware to an owner of a software ecosystem that includes the IOS operating system, cloud services, Apple Pay, iTunes and many other recurring services. The company is also seeing strong penetration with the iPhone 6S in China and continues to dominate the tablet business. Apple has a massive cash position and generates excessive free cash flow that is being funnelled back to shareholders via increased dividends and share buybacks.
Concordia HealthCare (CXR.TO)
Last purchased at $29.00
Concordia has gotten swept into the "Valeant vortex," as the pharmaceutical giant saw its stock drop as much as 70 per cent in just over a month as worries about drug pricing, roll-up acquisitions, high debt leverage and health care accounting drove down valuations in the sector. The company has completed the acquisition of AMCo for $2.1-billion (U.S.) but has also put in place the debt and equity financing for this transaction, which will add substantially to its global product portfolio, lessen its dependence on any single product and generate more overseas sales. Debt is high after the deal, but free cash flow is also strong and we expect the Debt/EBITDA ratio to drop below 5x by the end of 2016. The stock valuation is extremely attractive on a free cash flow yield and forward earnings basis. As the current panic over the sector subsides, we expect the stock to outperform the market.
Past Picks: October 21, 2014
Alphabet (GOOG.O) *Price Adjusted*
Then: $526.54 Now: $722.16 +37.53% TR: +37.53%
Trinidad Drilling (TDG.TO)
Then: $7.61 Now: $2.48 -67.41% TR: -65.57%
Catamaran (CCT.TO) *DELISTED* Acquired by UnitedHealth
The final trade was at $80.18, a 71.3-per-cent increase from the $46.80 price it was trading at when I recommended in on October 21st.
Then: $46.80 July 27, 2015:$80.18 +71.32% TR: +71.32%
Total Return Average: +14.43%
After a trading bounce in stocks, our outlook has once gain turned extremely cautious as stocks have recovered to the high end of their trading ranges. We continue to see stock market risk due to over-dependence on the 'zero interest rate policies' of central banks that fuelled the rally, weakening global growth and stock valuations that remain above long-term averages. We continue to hold higher-than-average cash positions and an overweight position in preferred shares due to their attractive yields. Despite the strong returns last month, though, investors had to resort to the old 'playbook' to get the stock rally started. The 'bad (economic) news is good (stock market) news' trade was in full force in October, with investors once again believing that weaker growth increases the chances the central banks across the globe will continue on with their Zero Interest Rate Policies (ZIRP) which, in turn, will support higher stock valuations. We are still very skeptical about the current rally in stocks and have again reduced positions across the board. Weaker economic growth, missed earnings expectations and muted forward guidance are not the hallmarks of a bull market. While near-zero interest rates will continue to buoy stock valuations, we were once again reducing weightings in cyclical stocks into this strength in late October. The technical condition of the U.S. market also looks somewhat tenuous as the key moving averages have rolled over. We see downside to the 1,700-1,800 range on the S&P 500.