Best Buys’ from leading analysts

Analysts follow as many as 20 stocks, most of which are rated “buys.” Of those buys, an analyst has one or two special favorites seen as most suitable for new buying. This column is devoted to those one or two favorite “best buys.”

With 90 per cent of its shares owned by its CEO, NorthWest International Healthcare Properties (MOB.UN-TSX/VEN, $2.17) gives new meaning to the term illiquid. So, should you avoid it?

No, says Mike Vinokur. Mr. Vinokur is vice president and chief portfolio manager for Toronto-based Trapeze Asset Management.

And he thinks healthcare stock NorthWest, which specializes in buying hospitals and medical office buildings, is a great stock to own.

For one thing, he says, it boasts a good, reliable cash flow.  In fact, because it leases out the properties it does buy, it frees itself from the many development and maintenance costs that are the common lot of any real estate investment firm.

Operating expenses are non-existent

Indeed, all NorthWest pays for its holdings are the mortgage, interest charges and property taxes, says Mr. Vinokur.


Admittedly, given its many properties outside Canada, the company could potentially get squeezed by foreign exchange rates.


But in Brazil, which now accounts for over 50 per cent of NorthWest’s revenue, the company has moved to minimize currency risk by financing the properties it has there with loans that are also Brazil-based. As a result, it’s able to use the same currency, the Brazilian real, to offset debt with revenue.


Yet how do you play a company whose stock is so illiquid? By buying its A series convertible debentures, says Mr. Vinokur.


For starters, the debentures, which mature in September 2018,  are a source of income, given that they carry a coupon of 7.5 per cent.


But because they’re convertible into NorthWest common shares at $2.40 each, they also provide a cheap way to buy stocks –  particularly if the company’s common shares rise to $3 over the next 12-18 months, as Mr. Vinokur believes they will.


For Mr. Vinokur, NorthWest, which is based in Toronto,  is a best healthcare stock buy – one  he sees logging cash flow of $0.25-plus a share over the next 12-18 months.


For the three months ended Sept. 30, NorthWest’s total comprehensive income jumped to $29.6 million from $956,700 for the similar period in 2012.


For the nine months ended Sept. 30, the company’s comprehensive income was also robust, zooming to  $44.1 million from $4.8 million over the similar period the previous year.


Total occupancy rate tops 90 per cent


Besides Brazil, NorthWest owns properties in Germany, Australasia and Canada. All told, it boasts 128 buildings representing 8.1 million square feet of gross leasable area. With more than 2,000 tenants, its total occupancy rate is  96.2 per cent.


Mr. Vinokur may like a company like NorthWest that owns hospitals to which people go when they’re sick.

 But he also has a soft spot for an outfit like Counsel Corp. (CXS-TSX, $1.96) whose stocks in trade, mortgage origination, allows people to to stay in their homes when they’re well.

For starters, Counsel, through its own company, Street Capital Financial, is a force to be reckoned with, being the third-biggest originator of residential mortgages in Canada through the broker channel.


Moreover, should interest rates rise, Counsel stands to benefit from a widening spread between the cost of its capital and the rate it charges for mortgages.


Then, too, the company will likely log an upside in margins, as its five-year mortgages come up for renewal.

Mr. Vinokur believes Counsel’s margins will also get a lift if its application to become a schedule one bank in Canada is OK’d by the Office of the Superintendent of Financial Institutions.

Another Counsel plus is its deep bench strength, given that Street Capital’s three top officers boast extensive experience in Canada’s mortgage industry.


For Mr. Vinokur, Counsel Corp. is also a best stock to buy – one with a 12-18-month price target of $4.50. For 2014, he’s predicting net earnings of $0.22-$0.23 a share; for 2015, EPS of $0.27.


For the three months ended Sept. 30, Counsel’s net income rose to $3.6 million, or $0.04 a share, from $1.9 million, or $0.02 a share, for the similar period in 2012.


Revenue, not surprisingly, was also higher, rising 32.8 per cent to $38.5 million, while total expenses rose 43.9 per cent to $34.4 million.


For the nine months ended Sept. 30, Counsel’s net income slid to $8.8 million, or a dime a share, from $9.3 million, or $0.11 a share, for the similar period in 2012.  Revenue, however, was higher, climbing 29.1 per cent to $110.6 million.

 

Investor’s Digest of Canada, MPL Communications Inc.
133 Richmond St.W., Toronto, ON, M5H 3M8. 1-800-804-8846

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