Home Capital Group’s stock gained more than 8% from its intra-month lows in September, and has now gained over 41% since the start of June. The company has continued to benefit from a strong Toronto real estate market.

During the second quarter, single-family residential originations at Home Capital grew by 15.6%, while total loans issued also grew, by 9% compared to the same period last year.

Last year, concerned by the possibility of an overheating housing market, the federal government enacted several pieces of legislation that made it more difficult for Canadians to buy homes, particularly for first-time homebuyers. Now, close to a year later, however, those restrictions have begun to roll off. So far, the results have been mostly positive for homeowners and lenders alike.

Demand for housing has begun to show signs of life again this fall, particularly in the Toronto market. Prices reached near-record levels in September.

Home Capital Group has reported that since the implementation of the new regulations, which are referred to as the B20 rules, not only are its approved customers showing higher credit scores but it’s beginning to win more business from customers with better overall credit histories.

That’s an overall win both for Home Capital Group as an alternative lender, and for the entire real estate market as well. For the most part, Canada’s real estate market continues to be a fairly conservative lending and real estate market, which could be put at risk by loose credit standards and negligent underwriting.

Readers who are not familiar with Home Capital’s tumultuous past may want to catch up with a brief history lesson. The story that besieged Home Capital and its shareholder base, including how the world’s most famous investor Warren Buffett ultimately stepped in to save the day, makes for interesting reading.

Meanwhile, Home Capital Group stock closed Tuesday at just under $25 per share, and today still trades well below its all-time high from 2014, which at one point briefly touched north of $50 per share.

Foolish bottom line

However, despite the fact that the HCG stock still trades well below its all-time highs just north of $50 per share, I don’t know that this presents a buying opportunity.

Of course there are exceptions to the rule, but typically stocks don’t typically move up (or down) in straight lines, and as such, it could be that some of those investors who were fortunate enough to have been participants in HCG’s great 2019 rally may be looking to lock in and cash out on at least some of those gains while the opportunity is there.

Personally, I wouldn’t be all that surprised we were to see a modest pullback in Home Capital stock, potentially even before the year is over, to something in the neighbourhood of $18 or thereabouts. That would be the time I would be looking to initiate a position in this particular company.

The post Why Home Capital (HCG) Stock Rose 8% in September appeared first on The Motley Fool Canada.

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But first, a brief history lesson…

For those readers that may be asking themselves who or what Bausch Health exactly is, this is far from your run-of-the-mill penny-cap or small-cap biotech stock.

BHC formerly went by the moniker Valeant Pharmaceuticals (ring a bell?) and was an absolute darling of the stock market, skyrocketing from below $10 per share in 2009 all the way to more than $250 per share by 2015.

At that time, the company’s business model was dependent on an aggressive M&A strategy; rather than investing millions of dollars in research and development to find the next big pharmaceutical breakthrough, Valeant’s managers instead went into the free market to buy out the stock of companies that had already discovered and developed powerful biotech IP.

However, that all came to a head in 2015 when it became rather apparent to all that Valeant wasn’t going to be able to sustain that strategy any longer, as it was just getting way too expensive for the company to continue to pay such high premiums to take over the control of the target companies it sought to acquire.

Fast forward to today…

Well, when it rains, it pours, and that was certainly the case with Valeant over the couple of years that ensued, not ignoring the fact that the company went so far as re-brand from Valeant to the new and unencumbered Bausch Health moniker.

But beyond just getting a fresh makeover, BHC in recent years has been aggressively focused on using its available cash flows generated from operations to pay down its outstanding debt.

That’s no small order, however, as the run up in M&A activity that led to the company’s downfall has ended up saddling BHC with an absolute mountain of debt.

But good news … is bad news?

Just last month, BHC announced that it had put plans in motion to pay down another $200 million of its outstanding debt — a move that will leave the company with no more mandatory principal repayments until 2021.

That certainly sounds like welcome news to the company’s tried-and-tested, loyal shareholders, so why has the stock sold off since then, including a 10% fall this week alone?

It’s anyone’s guess, but I tend to suspect that this week’s reaction might be a confounding (but not all that uncommon) case of “buy the rumour, sell the news.”

At least for the time being, BHC’s management team has been able to get the company out of hot water by eliminating the threat of unmanageable debt principal repayments.

But while it’s true that it now has virtually no debt due until 2021, looking ahead to 2023 and a couple of years later in 2025, there is another absolute mountain of debt coming due to credit holders somewhere in the neighbourhood of $20 billion, give or take.

Foolish bottom line

BHC has done a remarkable job to dig itself out of the hole it found itself in a couple of years ago, and those shareholders who had the foresight to stick it through with the company over that period have been handsomely rewarded for their courage and patience.

Long term, I believe that the Laval, Quebec-based company has a fighting chance of making it and achieving sustainable and meaningful prosperity.

However, in the very near term, I have to wonder if investors in BHC stock might be about to bear the brunt of a fairly serious reality check.

The post Why the Epic Rally in This Biotech Stock May Be About to Come to an Abrupt End appeared first on The Motley Fool Canada.

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Now, some readers may not appreciate this point fully, but the fact remains that banks have been (rightly so) anticipating and planning for the scenario of a secularly lower interest rate environment for quite some time now, as is evidenced by the shift to more fee-based revenues in recent years and away from relying so heavily on interest sourced revenue streams.

That factor should help banks with stronger service-oriented business units weather the storm of lower interest rates, at least on a relative basis going forward.

In particular, Royal Bank of Canada (TSX:RY)(NYSE:RY), Toronto-Dominion Bank (TSX:TD)(NYSE:TD) and Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) immediately come to mind, thanks to some fairly significant investments in their respective wealth management and advisory divisions over the course of the past decade.

However, the constant demands placed on banks to grow their revenues and earnings at all costs could also have some detrimental consequences.

For example, the need to continually raise fees on traditional run-of-the-mill banking products – things like every day checking and savings accounts – runs the risk that one day (if not already) the average Canadian is no longer getting a fair bang for their buck out of their every day banking institution.

It’s not at all unreasonable to suggest that this is a trend that could continue to pressure some Canadians – and probably younger ones in particular – to seek out newer, more disruptive banking models that have come to the fore in recent years thanks to advances in technology, fintech and robo-advisory services.

That potential development coupled with the fact that home-ownership – and by direct proxy – the mortgage lending business is increasingly becoming a rich person’s game, and, by the same token, out of reach for many middle-class Canadian households suggests that the long-term future of Canada’s banking system may not resemble today’s picture.

The one thing we do know, however, is that banks are increasingly lending out larger sums of money to clients than ever before, and at cheaper borrowing rates than they ever have before in their entire and longstanding existence.

Now I’m not typically a cynic nor am I much of a naysayer – far from it, in fact!

But at some point, there’s an underlying reality of economics at play that we’re dealing with here, and one would think that eventually at some point, something will have to give.

No reason to panic

However, it’s critically important to point out that banks not just in Canada, but around the world have come under immense scrutiny in recent years in the wake of last decade’s financial crisis.

That’s in addition to the fact that Canada’s financial regulations even prior to 2008-09 were already among some of the most restrictive in the world.

All of which gives me good reason to believe that an outcome like we saw in the U.S. a little more than a decade ago isn’t all that likely to happen a second time here in Canada.

Lower growth for longer?

But between a rock and very, very hard place – is Canada’s banking sector running out of room to move?

Perhaps.

I continue to like the Canadian banks for their reliable dividend payouts, which still have plenty of room to grow sustainably thanks to their conservative payout versus earnings ratios.

But if you’re intent with an investment is to look ahead to the future, there are many other industries out there that continue to welcome, indeed even embrace, technological change, disruption, innovation and growth and all at a much more rapid pace than what the banks have been able to offer Canadians – both as their customers, and investors, thus far.

The post Part 2: The Impact of Lower Rates and a Potential Recession on Canada’s Banking Sector appeared first on The Motley Fool Canada.

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• Current income
• Capital preservation

Fixed-income investments in the debt of publicly traded companies, sovereign governments of developed countries, and even mortgage debt have traditionally been some of the more popular avenues that investors have pursued to achieve these aims.

However, interest rates have sat — and, for the most part, continue to sit — at historically low levels, making the prospects of delivering meaningful income streams for bondholders a daunting challenge for financial advisors and representatives, to say the least.

Another option out there is for savers to throw their cash down as a down payment on an attractive rental property.

In this case, the saver essentially will become a net borrower after taking out a mortgage to help pay for the purchase price of the property.

However, if a purchase is properly researched and financed, the rental income that could potentially be generated by a reliable, trustworthy (and creditworthy) tenant can, in some individual’s cases, be enough to more than offset the cost of carrying the mortgage and associated property taxes, all the while providing the homeowner with a positive, and desirable, exposure to the threat of inflation.

Yet the risks and commitments involved with a secondary property ownership, in addition to maintaining and renting to tenants, can be numerous and complex even at the best of times.

In that respect, an investment in a professional real estate management company like Brookfield Property Partners (TSX:BPY.UN)(NASDAQ:BPY) looks like it makes a whole lot of sense for retirees and would-be income investors.

BPY shares currently pay a 6.90% annual dividend yield, well above the TSX Index average of 3.12%, coming off the back of 4.7% and 6.8% hikes to its payout in 2019 and 2018, making this a solid blue-chip dividend play for income-oriented dividend investors.

And then there is Brookfield Renewable Partners (TSX:BEP.UN)(NYSE:BEP) currently yielding a 5.02% annual dividend following a 5.1% hike earlier this year and another 4.8% hike in 2018.

Controlled by the same parent company as Brookfield Property Partners, BEP is instead focused on the investment in renewable energy power sources, including hydroelectric (which generates the bulk of its current revenues), solar, wind, and energy storage.

Management is fixated on its internal target of delivering 12-15% annual returns to its shareholders, underpinned by a disciplined approach to unlocking value, operational expertise, and a prudent capital-allocation program.

Delivering those types of returns consistently will no doubt be tall ask by anyone’s standards, particularly in light of the fact that BEP’s stock is already up an incredible 63% so far this year.

Yet if last week’s worldwide climate protests were any sign of a changing public debate towards the issue of global warming and fossil fuels, the next century could be transformative as far as our planet’s energy markets are concerned.

In the meantime, BEP remains arguably one of the pre-eminent plays within the renewable energy space today.

The post 2 Dividend Stocks Paying Yields Over 5% That Should Be in Every Canadian Retiree’s RRSP appeared first on The Motley Fool Canada.

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However, in addition to the undeniable success that we’ve seen in recent years on the part of robo-advisors, ETF passive investing, and other fin-tech disruptions, one of the major breakthroughs among financial industry professionals in recent years has been the merits of a dividend-growth investing strategy — in particular, for younger investors with longer investment time horizons.

Historically, investors have tended to get grouped into either the “value” or “growth” style categories; however, recently, more and more research is suggesting that the optimal strategy for investors with multi-decade investment horizons is an approach that carefully balances the strengths of both stylistic disciplines.

For example, value investing has tended to focus on companies whose shares pay out to their investors high dividend yields, while growth investing has largely been hell-bent on a “growth-at-all-costs” mentality at the expense of virtually all meaningful financial metrics (particularly so over the past decade or so).

Yet evidence is emerging that supports the merits of investing in the shares of high-quality, defensible (note, that doesn’t necessarily mean “defensive”) companies that, while they pay a dividend, have the capacity available to meaningfully grow their dividends — sustainably — over time.

Two Canadian companies that fit this bill neatly are Magna International (TSX:MG)(NYSE:MGA) and Molson Coors Canada (TSX:TPX.B)(NYSE:TAP).

Magna is a leading North American auto parts manufacturer and supplier while Molson is one of the world’s largest alcoholic beverage manufacturers and distributors.

Magna stock currently pays its shareholders a 2.88% annual dividend yield, and while that’s actually slightly less than the TSX Index average of 3.12% as at the end of June, what’s more significant is that Magna increased that dividend by 10.6% in March of earlier this year.

But thanks to some disciplined capital management on the part of the company’s senior officers, MG stocks current payout ratio sits well below the 50% threshold, indicating that it still has ample runway left ahead of it in order to accommodate future dividend hikes.

Molson, meanwhile, is another company that is offering investors plenty of reason to believe in the prospects of significant and meaningful dividend increases for (hopefully) years to come.

Actually, Molson had suspended its policy of regular dividend increases a few years ago following the company’s acquisition of the MillerCoors joint venture and Global Miller brand portfolio back in 2015 for $12 billion.

Rather than dedicating its available funds to increasing its dividend payout, management and the board of directors made the decision to maintain the current payout but use its available excess cash to pay down its outstanding financial obligations.

A few years removed, and with debts now in what management views to be reasonable levels, in August TPX’s board of directors announced a major 35% increase to the current payout — a sure sign that this company means business as far as its shareholders’ long-term interests are concerned.

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Trade talks between the world’s two largest economic superpowers, China and the United States, continue, leaving loads of uncertainty among investors and businesses leaders alike in terms of what the future could eventually hold.

And while earlier this year, we appeared set for a period of gradually rising interest rates intended to moderately cool off a strong economy, those plans have not only since been put on hold but actually reversed course with 87% of analysts now expecting the U.S. Fed to cut its policy interest rate by another 25 basis points at its next upcoming meeting.

Falling interest rates — although it may seem counter intuitive — are usually not the best sign for an economy, as it tends to suggest the need for external stimulus or support.

Meanwhile, in Canada, we have seen rates fall nearly in lock-step, mimicking those of our southern neighbour, which is almost a necessary evil to support our very important trade economy; however, sharply lower rates have had the (possibly unintended) consequence of sending home prices skyrocketing once again, including one of the strongest months on record in September.

So, what does this all mean for Canada’s ever-important banking sector?

In this two-part series, we’ll take a closer look at some of the more likely scenarios that could play out as well as what it could pose for Canada’s banking sector over the short, medium, and long term.

All else equal, banks prefer interest rates to be higher and not lower…

There are few different factors at play that, taken together, suggest that all else equal, commercial banks like Canada’s “Big Five” tend to favour environments featuring higher rather than lower borrowing costs.

• Higher rates generate higher interest income in nominal (reported terms)
• Higher rates tend to facilitate wider spreads between borrowing and lending costs
• Higher rates tend to be most commonly found in healthy, growing economies

In times when rates are depressed, like they are presently, banks essentially need to give out larger loans to earn the same nominal returns on their investments (investments including quarterly earnings per share are virtually always quoted in nominal terms).

In order for banks like Royal Bank of Canada, Toronto-Dominion Bank, and others to appease the market’s demand for consistent year-over-year earnings growth and dividend increases, they are essentially forced to decide between lending out more money at lower rates (not desirable) or not lending out money at all (almost unthinkable).

So, with Canada’s largest financial institutions essentially finding themselves squeezed between a rock and a very hard place, in part two of this series, we’ll take a look at what the current environment may or may not be implying for the rest of the Canadian economy at large and how Canada’s banks continue to play a critical role in that development.

The post Part 1: What Lower Rates for Longer and the Risk of Recession Mean for Canada’s Banking Sector appeared first on The Motley Fool Canada.

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Thanks to major advancements in hydraulic fracturing over the past decade, the U.S. (the world’s largest consumer of energy, including oil and gas products) has gone from being a net importer to a net exporter today.

While environmentalists may be quick to point to the dangers of hydraulic fracturing and the risks that it presents for our natural environment, the one thing we do know is that the widespread acceptance and adoption of  “fracking” technology among oil and gas exploration companies in recent years has played a major role in reducing the financial burden of energy for consumers and businesses alike. Well, maybe for some out there more than others.

Because while the price of a barrel of crude oil has fallen from north of US$100 a few years ago to frequently below US$50 in recent years, prices for refined crude products like gasoline and diesel haven’t fallen by nearly the same amount.

Sure, the cost to fill up your fuel tank at the local gas station might be a little cheaper than at its peak, but in most major Canadian markets, drivers today are paying roughly what they did back at the start of the decade when the price of oil was still above the US$80 mark.

That isn’t great news for the average Canadian commuter, but it is pretty good news for the oil and gas refining and marketing companies that buy crude stock from producers at cheap prices and pass it along to consumers along with a hefty mark-up.

Down to brass tacks

There are two companies on the Canadian side of things in this space that I really like right now.

One of them is Cenovus Energy (TSX:CVE)(NYSE:CVE) and the other is Husky Energy (TSX:HSE).

Both stocks have been punished in recent years (in my opinion, not quite fairly).

CVE lost the faith of markets after it took on mountains of debt to pay for the ConocoPhillips assets that it did not already own in a massive, multi-billion-dollar deal.

Husky, meanwhile, is a more highly levered operation, and as gas prices have come off their highs over the past 12 months or so, HSE stock has suffered an outsized punch to the throat (so to speak).

Still, the HSE shares pay a 5.52% dividend, trades at less than 0.5 time its reported book value, and has a price-to-earnings ratio of just 6.5 times.

The fact that its shares are now in a deeply oversold condition and trading at their lowest point in the past 52 weeks only serves to make this a more appetizing value play for contrarian-minded investors.

CVE is generating hoards of cash at the moment, and while it still has a way to go before it gets its books completely back in order and sufficiently raises its dividend payout to the point where it can truly be on par with a company like Husky, investing is very much a forward-looking endeavour. In this respect, I have to believe that with CVE, it’s more a matter of being patient with the market’s disposition to this company than anything else.

Foolish bottom line

Long term, I’m a Cenovus bull for the reasons outlined above, but if you were to ask me which stock I thought would outperform over the next few weeks or so, I would probably have to put my money on the side of HSE stock.

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But to be fair, that doesn’t make the company’s current situation a whole lot worse – or different for that matter – from so many of Canada’s other licensed recreational producers who have seen their shares plummet rather quickly since around October of last year when pot officially became legal for recreational purposes.

But what does make ACB different from the rest of the pack is, frankly speaking, the degree of aggressiveness that its management has taken upon itself as the race to scale plays out.

Arguably more than another other licensed producer, ACB has been the most assertive in pursuing strategic investments in companies other than itself.

Those investments include more than 16 acquisitions in addition to more than 10 outside investments, no the least of which included the company’s 25% stake in Alcanna Inc (TSX:CLIQ) a leading alcohol distributor (and now cannabis retailer) serving Canada’s western markets.

As well, the company has ambitious plans to build a 1.6 million square foot production facility in Medicine Hat, Alberta (expected to come online in mid-2020) and another planned one million square foot facility located in Denmark, putting itself that much closer to what remain mostly untapped European markets.

It’s obvious that the company has grand plans for itself as a leading player in the international market for cannabis, part of the reason it situated its Aurora Sky facility (capable of producing more than 100,000 kilograms annually, and already under full operation) in such a close proximity to the Edmonton international airport.

While I applaud management’s confidence, what happens if things don’t work out exactly as planned?

Less than one year into legalization, sales have yet to materialize, with the company reporting just $98 million in revenues for the quarter ended June.

As well, those sales of less than $100 million helped to *generate* for ACB and its shareholders $50 million in operating losses, $193 million in net losses, and a $205 million one-quarter cash burn.

That’s not exactly going to help inspire investor confidence over the near-term or at least until those investors have good reason to believe things are about to start changing for the better.

Meanwhile, less than $500 of reported clean book value (after backing out goodwill and intangibles) means those investors can’t exactly expect to get much support out of ACB’s balance sheet position either.

Foolish bottom line

Back in late 2017, ACB stock was consistently trading in the $2-$3 range per share.

I remember thinking that the ACB shares could represent a real bargain for those willing and able to speculate on the opportunity for legal cannabis, and could even fetch as much as $10 per share, representing a close to 300% gain.

I didn’t end up buying any stock in ACB, opting for purchases in both Canopy Growth Corp and Aphria Inc instead.

But as crazy as this sounds, two years later, my perspective on Aurora Cannabis stock hasn’t really changed very much at all.

Should ACB stock happen to fall back down to the $2 or even $3 mark I may get (very) interested in this company again as a prospective investment opportunity.

But until that happens, my concern with ACB -– and the cannabis sector as a whole — remains that despite all the current talk of grandeur and expectations on still yet to be delivered promises, that this is the type of prospective opportunity that runs the risk of ending up as real as smoke billowing in the air.

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HEXO is a large cannabis company, granted, it’s not quite at the same levels as the likes of Canopy Growth, Aurora Cannabis, or Cronos Group, each of which are multiple times larger than Hexo’s market capitalization of $1.35 billion but still big enough to qualify as one of Canada’s 10-largest cannabis stocks.

Hexo’s size make it a real player within the space, big enough to be active in M&A markets and big enough to achieve real meaningful scale in terms of its long-run production potential, but not so big that it isn’t unreasonable to project that perhaps even within a couple of years (if not sooner) this could be a company that one day trades at multiples of its current valuation.

HEXO also partnered up with Molson Coors Canada a little over a year ago to form a joint venture aimed at developing cannabis-infused adult beverages, similar to the strategy followed by the aforementioned Canopy Growth when it agreed to partner a larger, more experienced investor in Constellation Brands in 2018.

However, cannabis stocks have seemingly found themselves on hard times as of late — a trend which goes all the way back to last October when recreational cannabis officially went above board in Canada.

Just earlier this week, the aforementioned Constellation Brands announced that it had recognized a loss of US$484 million in the second quarter thanks to its investment in WEED stock, on top of a US$839 million write-down on the fair value of its equity investment in Canopy.

But volatility was always to be expected in this still nascent market for pot stocks.

And in addition to the advantage that HEXO currently enjoys in terms of being in the “sweet spot” of publicly traded market values, the fact that’s aligned itself alongside a corporate partner with over 200 years of experience, I really dig the angle that HEXO is taking with respect to the market it’s planning to target with its product line.

You see, even though it does currently sell the traditional “dry flower” product that most will instinctively associate with the marijuana plant, HEXO’s grand vision in all of this is to become “the premier branded ingredients for food cannabis company in the world.”

Because cannabis edibles aren’t legal in Canada yet, not only does this mean that Hexo is going after a market that doesn’t even exist yet but also one that some experts could one day completely dwarf the size of the estimated recreational cannabis market today.

At present, the Canadian medicinal market is valued at close to $3 billion annually, while recreational use is valued at a figure approaching $10 billion annually.

However some experts are anticipating that the market for cannabis products globally, including not just dry flower, but concentrates, edibles, creams, and even beverages, could reach as much as US$115 billion annually and potentially within the next decade.

Even if HEXO can carve out just a small but loyal niche within this massive market, there’s good reason to believe that before the next decade is over, its annual sales could be wildly above management’s current forecasts for achieving a $400 million run-rate by fiscal 2020.

An opportunity that would represent not just an outstanding opportunity for HEXO, its employees and management, but its shareholders as well.

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It’s been a wild ride for the company’s shareholders, without question, but is the latest sell-off a sign that it’s time you finally bailed on one of Canada’s largest technology companies?

Or conversely, has this latest sell-off created what is now arguably the best opportunity in recent memory for investors to go all-in on the company’s stock?

Q2 results a mixed bag … to say the least

To say that BlackBerry’s latest quarterly results — and the market’s corresponding response — were a little confusing would be an understatement.

GAAP revenues were up 16% in the quarter year over year, and non-GAAP earnings were essentially break even and right on target with analyst consensus for an expected loss of one penny per share.

Yet shares have continued to sell off very heavily following BlackBerry’s latest earnings release, and here are the best justifications I’ve been able to come up with as to why that might be.

Investors are losing patience (and confidence) with the turnaround narrative

BB’s CEO John Chen arrived on the scene in 2013 and recently had his contract extended through to 2023.

Chen is lauded within the investment community for his track record of turning around failed companies, yet the reality is that we are now in 2019 and more than five years into Chen’s tenure.

Alongside the company’s second-quarter earnings release, management reaffirmed fiscal 2020 revenue guidance to be up in the neighbourhood of 23-25% year over year. That news also came with the announcement that the company has hired a new chief of revenue.

In the wake of that announcement, there have been whispers among some in the analyst community that it could take time for the new revenue chief’s plan to really take hold — a prospect that could delay Chen’s ambitious turnaround plans that much further down the road.

Skepticism concerning the frequent use of non-GAAP reported numbers

This was an issue that first came to light earlier in the year.

However, at least to date, management has done little, if anything, to address concerns among some analysts and investors that the problem is being rectified.

By adding emphasis on non-GAAP measures, some could make the argument that BlackBerry is making things to appear better than the underlying reality.

Focusing on non-GAAP measures like billed sales rather than focusing on sales that have already been delivered helps to showcase future demand for the company’s product offerings, but also runs the risk of over-promising and under-delivering against expectations down the road, not to mention that the costs associated with those sales have still yet to be incurred.

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