Home Capital Group (HCG)
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  1. #1
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    Home Capital Group (HCG)

    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

  2. #2
    Senior Member
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    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.
    Last edited by doctrine; 2013-10-27 at 03:17 AM.

  3. #3
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    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. #4
    Senior Member scomac's Avatar
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    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. #5
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    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.

  6. #6
    Senior Member
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    I was looking at this years ago and didn't bite.
    Seems to have been a big miss on my side.

    Haven't looked too much now, my financials allocation is a bit high, but HCG is still looking pretty good.

  7. #7
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    Quote Originally Posted by scomac View Post
    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.
    Add HCG to Bloomberg's Luke Kawa (twitter @LJKawa) "never trust a Canadian growth stock" meme ...

  8. #8
    Senior Member
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    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.

  9. #9
    Senior Member
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    Are you not concerned about real estate market, and potential impact on HCG?

  10. #10
    Senior Member
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    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.

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