Out-of-Favor Favorites from Canada
Benj Gallander is well known for his contrarian strategy, seeking undervalued companies with the prospects of high returns over a multi-year period. Here, the editor of Contra the Heard four out-of-favor Canadian stocks poised for long-term turnarounds.
Steve Halpern: Our special guest today is contrarian investing expert Benj Gallander, editor of Contra the Heard. How are you doing today, Benj?
Benj Gallander: I'm doing very fine, sir. How are you doing?
Steve Halpern: Very good. Thanks for taking the time. Now as the name of your newsletter implies, contra the heard, you tend to buy stocks that are out of favor or under-recognized by the general investment community. Could you talk a little more about your investing strategy?
Benj Gallander: Yes, we invest in companies that are out of favor that have been beaten up. We typically buy companies that are under $10 in price and have been around for a minimum of ten years -- so nothing potentially new and exciting.
And a lot of times we can buy into very, very big names that are beaten up. We particularly like when a whole sector is out of favor and we think that that sector will rebound.
Steve Halpern: And you're not looking for quick losing stocks? As I understand your whole approach is long-term in nature.
Benj Gallander: Absolutely. We're looking at returns on each investment of better than 100%. Often 200%, 300%, plus. Now none of that though is pie in the sky.
The stocks have always traded above that level in the past often for a long period of time so to get that kind of return often takes a few years. I believe our average hold time last that I check was about three and one-half years.
Steve Halpern: Now your portfolio is typically split between both US and Canadian stocks. Do these markets generally move together or are there specific factors that you need to consider when balancing a portfolio made up of both US and Canadian stocks?
Benj Gallander: They do not necessarily move together. A number of years ago the Canadian market was quite hot as was the Canadian economy to some degree. The US economy was having a lot more difficulties than we're having in Canada so it's a bit of a balancing act.
As a matter of fact, right now about 75% of the portfolio that I manage is in the States. Ideally before the end of the year during tax loss season, I'll acquire some Canadian companies and rebalance to some degree.
But we have to find good values and I only have in the portfolio between 15 and 25 stocks -- so not looking to have an awful lot of companies, but instead to cherry pick those that I think can have tremendous returns.
Steve Halpern: Now given that this upcoming weekend you'll be speaking at the Toronto MoneyShow, let's cover the Canadian markets. Could you share your thoughts on the general economic outlook for the Canadian economy?
Benj Gallander: Well, Canada has been badly hit. Part of it is because of oil and gas prices. There's the fire in Fort McMurray and Alberta so that really hurt us. At the same time commodity prices went way down. There has been some recovery to be sure, but when that happened it hurt us further.
The Canadian government, the Federal government has said it will put $36 billion into infrastructure. I personally think they're over-reacting because we are growing to some degree, but not as quickly as they would like.
And all levels of government here have a tremendous amount of debt and the Canadian consumer has the highest level of debt in our history so that means there's not a lot of wiggle room for expansion based on governments or individuals spending money.
Steve Halpern: Let's take the chance to go through a few of the Canadian stocks you like and one that's been out of favor in recent years is Blackberry (BBRY). What do you like about this story now?
Benj Gallander: Well, it used to be a darling, that's for sure and then they ran into hard times. Just less than three years ago they brought John Chen in. He did a tremendous turnaround of Sybase and then that company was sold at a lovely premium.
I think that he's doing the same kind of thing here.