Canadian conglomerates: what to buy, what to avoid

June 5, 20187 Comments

Conglomerates appeal to some long termed investors because of their diversity. Some conglomerates are so widespread in their corporate interests that they act much like a diversified mutual fund or ETF. Only without the fees, and often WITH a management team holding significant skin in the game.

That doesn’t mean that all conglomerates are worthy of holding. A bad management team who overpays for underperforming assets, or who illustrate a series of incorrect calls on market trends can lead the company astray.

Below, I take note of 5 of the larger conglomerates in Canada. I’ll offer a brief bio of their divisions, and (of course!) a technical view of the stock. Given the longer termed nature of owning such a stock, I’ll strictly look at patterns on the weekly charts. Neartermed timing signals will be of less significance in this summary.

 

BULLISH: Brookfield Asset Mgmt. (BAM.A-T)

BAM is a stock that we’ve held for a while in the ValueTrend Equity Platform. The company operates in 8 divisions. Many of these divisions have been split off into separate stocks – and are by themselves fairly diversified. As such, BAM is considered a bit of a hard stock to analyse from a fundamental analysts perspective. Technical Analysis to the rescue!

BAM operates divisions in: Private Equity, Corporate Activities, Infrastructure, Residential Services, Asset Mgmt., Property mgmt.,  and Power. Whew! This is the “Everything including the kitchen sink” stock!

The chart shows us a shallow, yet obvious uptrend since 2015. It’s coming off of its trendline and breaking through neartermed resistance as I write, which inspired me to put it on my BNN Top Picks on the last show.

 

BULLISH: Fairfax (FFH-T)

We own this stock in the ValueTrend Equity Platform as well. Like BAM, it’s a Top Pick for my BNN appearances.  FFH Fairfax Financial is diversified through many areas including investment management, insurance and some exposure to India. Prem Watsa tends to act a bit like a hedge fund manager in buying “cheap” assets and waits it out to realize value. He also hedges things like inflation etc. Because of that, it might be a little non-correlated to the market, should you be concerned of a market correction. The breakout through $700 targets $780 for the stock.

 

NEUTRAL: Onex (ONEX-T)

If you can’t remember Onex’s stock ticker, there’s no hope for you. Another jack-of-all trades, Onex owns divisions in Electronics, Healthcare, Building products, Insurance, Packaging, Food, and other small diversifications. Peter Lynch used to say that such massive diversification can sometimes lead to “di-worsification”. Perhaps he was right. This stock had been in an uptrend until mid-2017. Then, it took a pretty good hit on the chin, and is now struggling through a basing phase. I wouldn’t buy this stock until it breaks $96 and stays there a while.

 

NEUTRAL: Power (POW-T)

While we don’t hold POW in our Equity Platform, we do own one of its divisions, Power Financial (PWF-T) in our more passive, dividend orientated Income Platform (5% + dividend). The chart illustrates why we don’t think of POW, or PWF for that matter, as growth stocks. The chart is choppy, with no real direction as to future upside. POW holds financial interest in Canada (IGM and GWO) while also holding some European interests in minerals, cement, oil & gas, and alternative energy sectors.

 

 

BEARISH: George Weston (WN-T)

WN holds a variety of food services including bakery, grocery etc. It holds pharmaceutical services, asset management, apparel, financial & insurance, wireless, and property management interests as well. This stock peaked in 2007. Since then, it has been in a downtrend, as illustrated by the weekly chart’s consistently lower highs and lows. The stock has not begun to base yet. This stock should be avoided for the time being, unless you are a neartermed swing trader. The trend is not your friend here.

 

Keith on BNN/ Bloomberg MarketCall Wednesday June 6th, 12:00 noon EST

Tune in to BNN Bloomberg MarketCall to hear Keith answer viewer questions on the technical analysis of stock trends, and to provide unique insights on the factors of technical analysis used in successful investment management.

(Note: Times and Dates may be subject to change)

If you have questions about the technical analysis of stock trends for individual stocks, be sure to phone in with your questions for Keith during the show.

Call Toll-Free 1-855-326-6266

Or email your questions ahead of time (specify they are for Keith) to [email protected]

 

Equity Platform Results

Click here to go to the ValueTrend Equity Platform performance page, updated to the end of May.

7 Comments

  • Good morning Keith,

    On your appearance on BNN this week a viewer ask your technical views on teck.b. I have been following this company for a little while now because I was seeing a cup/handle formation. Naturally I am wrong. Explain to me the criterias for a cup/handle formation?

    Thank you

    Reply
    • Paul–the best advice I can give is to read my book Sideways—in it I describe that formation and others. Basically – cup & handles are bottom formations that typically occur after a downturn. I do see the cup/handle that you are looking at when I view the weekly chart–and there was a mark down in price from January to April. So yes, it might be looked at as a cup and handle – but the setup is not typical–ie cup handles are usually over a longer period of time and after a longer more drawn out bear market on the stock.
      Still, the stock has strong technical resianance at $40–or thereabouts. It needs to break that to be bullish no matter what you call the recent formation.

      Reply
      • Thanks Keith. I read Sideways once per year over the summer months to prepare myself for the fall trading session. Actually, on teck.b I am waiting for the break over $40.

        Reply
  • I am currently out of the US Financials. When do you think is a good time to look at them again?

    Reply
    • US banks are best owned Nov- April, so that’s a point to consider. Also, the bottom of ZUB’s range is $29 –so I’m inclined to look for that as a potential buy spot. Translate that to the individual stocks and their chart patterns.

      Reply
  • Hi Keith,

    I enjoy your presence on BNN shows. Every time I learn some new from you. I am a buy and hold investor and own some BAM.A and PWF shares in my portfolio (also own few BAM.A subdivisions – BIP.UN, BEP.Un, and BPY.UN for income purpose).

    What is the good time to buy some U.S dollars and invest in U.S stocks? Majority of my investments in Canada, and I am looking to diversify my portfolio.

    Reply
    • Thanks for the kind words Arun
      You absolutely need to diversify outside of Canada. There are so many more opportunities in the USA – and even abroad via “ADR’s which represent foreign stocks trading on US exchanges. Google that term and you can get lists of them.
      As far as the USD–yes, we like the USD very much. Do a search on my blog search engine-I’ve covered the technicals – I think we will eventually see the low $0.70s on the loonie – no thanks to the current moves on oil, the NAFTA breakdown, and the incompetence of the current Federal government to contain its non-productive spending and penalizing of productive business and unwillingness to embrace free markets to compete.
      So, to hedge against all of that, I have been holding plenty of US stocks, and have even moved into some USD cash in the recent months. So far, its been a good move, and I think it will continue to be so for the foreseeable future.

      Reply

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