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Our crystal ball is often murky, but at this juncture, it looks relatively clear. We would be amazed if a recession does not bite before the end of 2021. So many ingredients are in place. A bevy of these include the longest bull run in history, the inverted yield curve, government debts that are ballooning, individual debt in Canada that is at its highest level ever and tariff wars. Throw in the Brexit tumult and it looks like a lethal brew.

The strategy at Contra has been to buy less and be heavy on the sell button when stocks reach our targets. Unfortunately, the latter has not been happening as often as we would like. But selling only because a major downturn might be in the wind is not our modus operandi. While we do most of our tax-loss selling in the spring, for those with losers that they wish to dispense, now is a better time than at the end of the year when the laggards finally get their act together to peddle. They will join many others in the end-of-year selling, pushing up supply, thereby lowering the price. Not a wise strategy to be sure.

One stock we wrote about three years ago that appears to remain a good buy today at around the same price of $8.30 is Extendicare (EXE-TSX). Benj purchased this at $7.01 in 2014, when the risk was higher as the enterprise was dealing with litigation from the U.S. Department of Justice and the Office of the Inspector General of the U.S. Department of Health and Human Services. Those are a couple of heavy hitters. Ultimately, EXE paid US$38-million to wash its hands of the affair, sold the U.S. operations and moved on with corporate pockets fuller by about $1.2-billion, once again focusing on the company’s Canadian roots.

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Since our last article, revenue has increased by about 12 per cent and growth should continue when the Barrieview facility is opened in the fourth quarter. Already, there are deposits for 71 per cent of the suites. The bottom line has remained black. Debt, although higher than our preference, has remained both stable and manageable. The weighted average interest rate is only 4.8 per cent and could potentially go down in the not-too-distant future.

There are two primary reasons to be far more excited about this stock than others during these particularly iffy economic times. The first is that this is a fabulous demographic play. The Canadian population is getting older and places are needed to house seniors during their geriatric years. Governments recognize that this is an area that they must subsidize.

The second reason is the fat dividend. Currently, it pays about 5.75 per cent. Add onto that the dividend tax credit and that return is very handsome compared with most alternatives. It also appears that the dividend is reasonably secure. Meanwhile, it seems quite feasible that the stock price could move up 50-per-cent plus from this level, near where it traded a number of years ago. Ultimately, this concern registers with us as a relatively defensive play during these very volatile times.

Many people have been asking when they can meet us. Well your chance is coming up as both of us will be at the Toronto MoneyShow Sept. 20 and 21. Benj will be speaking on the Saturday at 9:15 a.m. and we’ll be lounging at our booth waiting to yak with you. Admission is free at Benj.TorontoMoneyShow.com.

Benj Gallander and Ben Stadelmann are co-editors of Contra the Heard Investment Letter

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