ValueTrend portfolio manager Keith Richards (valuetrend.ca) takes note of five of the larger conglomerate stocks in Canada. He offers a brief bio of their divisions, and (of course!) a technical view of the stock. He’s bullish on two, neutral on two and bearish on one.
Conglomerate stocks appeal to some long-term investors because of their diversified holdings. Some conglomerates have holdings that are so different 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 being held. A bad management team that overpays for underperforming assets, or that makes a series of incorrect calls on market trends can lead the company astray.
Below, I take note of five 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 that such stocks should be owned for a long term, I’ll only look at patterns on the weekly charts. Near-term timing signals will be of less significance in this summary.
BULLISH: Brookfield Asset Management
Brookfield Asset Management (TSX—BAM.A) is a financial stock that we’ve held for a while in the ValueTrend Equity Platform. The company operates in eight divisions. Many of these divisions have been split off into separate stocks and are by themselves fairly diversified. As such, BAM.A is considered a bit of a hard stock to analyze from a fundamental analyst’s perspective. Technical analysis to the rescue!
BAM.A operates divisions in: Private Equity, Corporate Activities, Infrastructure, Residential Services, Asset Management, Property Management, and Power. Whew! This is the “everything including the kitchen sink” stock!
Its price chart shows us a shallow, yet obvious uptrend since 2015. It’s coming off of its trendline and breaking through near-term resistance as I write. This inspired me to put it on my BNN Top Picks on the last show.
BULLISH: Fairfax Financial Holdings
We own this financial stock in the ValueTrend Equity Platform as well. Like BAM.A, it’s a Top Pick for my BNN appearances. FFH Fairfax Financial Holdings (TSX—FFH) is diversified in different 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 waiting 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 Corporation
If you can’t remember financial stock Onex’s stock ticker (TSX—ONEX), there’s no hope for you. Another jack-of-all trades, Onex owns companies in Electronics, Healthcare, Building Products, Insurance, Packaging, Food, and other small diversifications. Peter Lynch used to say that such massive diversification could sometimes lead to “di-worsification”. Perhaps he was right. This stock was 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 stays above $96 for a while.
NEUTRAL: Power Corporation of Canada
While we don’t hold financial stock Power Corporation of Canada (TSX—POW) in our Equity Platform, we do own one of its divisions, Power Financial Corporation (TSX—PWF) in our more passive, dividend-orientated Income Platform (5% + dividend). The price charts illustrate 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 interests in Canada (IGM Financial Inc. and Great-West Lifeco Inc.) while also holding some European interests in minerals, cement, oil and gas and alternative energy sectors.
BEARISH: George Weston Limited
Consumer stock George Weston Limited (TSX—WN) holds a variety of food services including bakery and grocery, as well as pharmaceutical services, asset management, apparel, financial & insurance, wireless, and property management. This stock peaked in 2007. Since then it has been in a downtrend, as illustrated by its weekly chart’s consistently lower highs and lows. The stock has not begun to base yet. It should be avoided for the time being, unless you are a near-term swing trader. The trend is not your friend here.
Keith Richards, Portfolio Manager, can be contacted at firstname.lastname@example.org. He may hold positions in the securities mentioned. Worldsource Securities Inc., sponsoring investment dealer of Keith Richards and member of the Canadian Investor Protection Fund and of the Investment Industry Regulatory Organization of Canada. The information provided is general in nature and does not represent investment advice. It is subject to change without notice and is based on the perspectives and opinions of the writer only and not necessarily those of Worldsource Securities Inc. It may also contain projections or other “forward-looking statements.” There is significant risk that forward looking statements will not prove to be accurate and actual results, performance, or achievements could differ materially from any future results, performance, or achievements that may be expressed or implied by such forward-looking statements and you will not unduly rely on such forward-looking statements. Every effort has been made to compile this material from reliable sources; however, no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please consult an appropriate professional regarding your particular circumstances.
This is an edited version of an article that was originally published for subscribers in the June 2018/Second Report of The MoneyLetter. You can profit from the award-winning advice subscribers receive regularly in The MoneyLetter.
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