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Home Capital Group (HCG)

164K views 715 replies 74 participants last post by  hboy54 
#1 ·
Hi guys

Is anyone else following HCG? HCG is a mortgage lending business in Canada. I became interested in the stock after it was recommended on BNN. I'm still fairly new to investing and the majority of my money is in indexes, however I want to branch out into stocks that are fundamentally sound with dividends that I can hold for a long time.

So I did some research on HCG dating back from 2009.

It has increasing revenues and EPS each year.
Rates as a buy or strong buy by all analysts.
PEG is 0.89.
ROE consistently over 20%. Not increasing but decreasing over the past two years however.
Earning surprises have been positive or neutral over the years.
Earnings also better than the average industrial earnings.
Earning forecast also positive.
Consistent dividend increases
PE is 11.3 and the TSX is like 13-14?

Cons:
Insider buying is negative.
Some economists are expecting an eventual pull back on the Canadian housing market.
Increase interest rates resulting in decrease housing demand
Its currently at market highs and I don't expect the big jump in stock price like we've seen in the past year.


I'm also interested in Canadian banks but they all seem expensive at the moment too
 
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#2 · (Edited)
I own 250 shares that I bought at $52.33 back in May after Steve Eisman, a US hedge fund manager, recommended to a large group of hedge fund managers to short it specifically to take advantage of a Canadian housing crash. I thought his analysis was wrong and took a contrary position.


http://www.cnbc.com/id/100726168


I still own the shares, which are now at $77 and up 47%. I can't say I'm thrilled about the 1.45% yield, but I'm not selling anyway; the company continues to do well and is still at a P/E of 11. I know there's people on here that have owned HCG for much longer and have much larger gains. Good company. It is essentially at an all time high right now which is always a downside if you are a value investor.

National Bank has a lower P/E than Home Capital Group. I also own shares in it.
 
#3 ·
Lol I know. I googled HCG blogs and read your website and then while reading your post I got a sense of deja vu.

Is Scotia Bank (BNS) a better buy because its more diversified? I am more comfortable holding that stock for a long time because I feel like the major Canadian banks are too big to fail.

At the same time, I feel like since I don't know much about investing, I should just put cash in my indexes and wait for a pull back. Is there a point in buying a major bank stock if I'm already putting money into an index? It seems like since I started in May, I keep buying market highs here and I'm comfortable buying market highs with indexes, but I'm not that happy when it comes with stocks and I want investing to be an enjoyable learning experience.
 
#4 ·
I have owned shares in HCG for five years, purchasing them initially during the 2008 credit crisis. I have trimmed my position a couple of time along the way, but will continue to hold the balance. There are very few legitimate growth companies in Canada; this is one.
 
#5 ·
BNS is also a good buy, a good P/E of 12 and a 4% yield with lots of recent increases. While it is at an all time high, these and other metrics on the company are about as good as they get from a historical basis. If you own a Cdn index fund then there is a lot of overlap. Just BNS itself is 6.1% of XIU and 4.6% of XIC. I don't personally see anything wrong with holding a subset of the index, especially if you're buying a lower P/E subset, and the banks all fall in that category. But if you have both then you're probably overweighting Canadian banks in general.
 
#7 ·
I decided to put $1000 in BNS. My reasoning is that HCG I don't expect much growth, and there is too much uncertainty regarding the Canadian housing market and rising interest rates. HCG may be a good stock to hold for 1-2 years, but afterwards I'm uncertain about it.

With BNS, its a stock I'm comfortable holding for a long time and collecting dividends.
 
#8 ·
Home Capital Group reported 4th quarter and year end results including

- EPS up 15%
- $7.32 in earnings in 2013, giving them a trailing P/E of 10.5 and a total dividend payout ratio of 14.7%
- Second dividend increase of the fiscal year, now $0.32 or up 14% - dividends up 23% over a year ago
- 2 for 1 stock split

Not sure what the stock will do tomorrow, but it's 11% below the 52 week high and in my opinion a definite buy at current levels. Steady 15% EPS growth on a stock with a P/E of 10 is outstanding value. Also, this marks it their 11th consecutive calender year with a dividend increase.

http://www.newswire.ca/en/story/130...-stock-dividend-effecting-a-two-for-one-split
 
#9 ·
Own this stock at about the same time as you did, doctrine. I think my cost base is about $52 per share. Absolutely love this company and the performance. The management is top notch and definitely proving the shorters wrong. Because of the shorts, this company does tend to dip every year before bouncing back. I intend to buy more when the dip comes.
 
#11 ·
Yes, there are risks with any investments. However, I'm not overly concerned with regards to the real estate market and HCG because I don't think we will experience a real estate meltdown like the US did. I do believe our real estate market is slowing but steady. With regards to the company, it's trading at very reasonable valuations, has an excellent ROE of 20%+ even through the 08-09 recession, and has low payout ratio. I think this company will do really well and deserves consideration for those who are looking for growth & yield companies.
 
#12 ·
The risk-reward is quite good. It would take a real major correction for HCG to suffer, and that kind of correction would just be a great buying opportunity for all kinds of real estate assets, not just HCG who are arguably as good or better positioned due to outstanding capitalization and loan risk profile. If that doesn't occur, you have 15-20% annual gains possible with HCG. If it does crash, well, you can always buy more. I wouldn't mind if HCG dropped like it did in '08-09. Looking back, they also had four dividend increases in those two years - and overall the dividend has nearly tripled since mid-08.
 
#21 ·
James Hodgins shorting HCG.... what do you think?
Can’t recommend any of these subprime mortgage providers. Canada is between 70 and 80 % overvalued compared to rest of G7. If housing market pulled back HCG would be worth zero as they have 8 times leverage. He is short a small amount on this.
 
#13 ·
HCG is my largest position, with an average cost in the low 50s. I initially bought shares in March 2013 at $58 and then tripled down in May while in the low 50s.

Watching the shorts get squeezed on this one has been very satisifying. The "common knowledge" (see Argumentum ad populum) about Canada's housing market and HCG has been consistently wrong and the contrarians have won big. Distressed loans make up 0.35% of the entire book and this has been very consistent over the past few years. HCG is a well run financial institution that doesn't make stupid loans, contrary to the belief that they are a major sub-prime lender.
 
#14 ·
Are you not concerned about the amount of debt that HCG has on the balance sheet at the moment? There's a reason that a consistent 15% earnings grower is selling at such a modest P/E and the debt is more of an impact to my way of thinking than the quality of their loan book.
 
#23 · (Edited)
Hodgins started shorting HCG in Dec 2011. By Dec 2012 his short was down 22%, at which time he recommended the short again.

When they did an Top pick update on that move at the end of 2013, it was obviously a disaster (down 38%). But he covered his bad call with "well I closed my short in May, when it was down".

He is also now short CSU, which was a top pick of his in Dec 2012.
 
#25 · (Edited)
Maybe Hodgins is recommending a short because he wants the stock to go lower, so that he can cover his shorts and reduce his losses. His past record speaks for itself. I am not a fan of shorting at all since your potential losses are unlimited. Don't buy if you don't like it, is my opinion.

I don't know where he gets 70-80% overvalued compared to G7 - houses are expensive elsewhere, especially in Europe. As for the US, well, I think its far more likely the US is in for years of 10%/year real estate growth, which will just be a start in bringing them back to where they were 10 years ago. i.e. it is far more likely the US will catch up to Canada through gains, than Canada will fall to the US through a crash. Of course, I have bet on this by investing in companies like Norbord as I expect new house construction will double there in the next few years, which again is only back to pre-recession levels.
 
#27 ·
I bought HCG in 2001 at $8.10. In 2004, I let someone convince me that a huge correction/crash/recession/end of the world etc was imminent. So I sold.
Big, big mistake. If I hadn't sold, then today, my cost would be about $2.00 per share plus a terrific dividend yield.
I should have bought it again in 2008/2009 but didn't have the funds at the time.
 
#28 ·
Excellent company. Has and will likely maintain a ROE greater than 20%. It doesn't have a high dividend yield, but has grown its dividend payout every year. Trading at reasonable valuations, and is probably cheaper than some of the banks. IF the housing market does crash, there may be a correction. However, a housing market crash would likely negatively impact all banks. I think this company is worth the long-term hold.
 
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