Canadian investing: Home Capital cuts risk with prudent loan policies

One of the strong points of Canadian investing in the past few years has been the reliability of our financial institutions compared to those in many other countries. That can even apply to companies that appear risky at first glance. Home Capital Group Inc. (Toronto symbol HCG; www.homecapital.com) offers mortgages to borrowers who don’t meet the stricter criteria of larger, traditional lenders. Even though Home Capital caters to riskier borrowers, it has avoided the huge credit losses that have crippled many U.S. banks. That’s because it continues to do a good job of identifying problem loans early. It then uses this information to restructure a borrower’s repayment terms and adjust its lending policies. Home mortgages account for 90% of the company’s loan portfolio. The remaining 10% consists of other loans, such as non-residential mortgages and credit cards. Home Capital offers its loans through five retail branches in Toronto, Vancouver, Calgary, Montreal and Halifax. [ofie_ad]

Canadian investing: low interest rates fuel gains for Home Capital

Home Capital’s revenue rose 89.0%, from $282.5 million in 2006 to $533.9 million in 2010. Earnings rose 166.7%, from $1.95 a share in 2006 to $5.20 a share in 2010. These gains were mainly fuelled by low interest rates, which have pushed up demand for mortgages and other loans. As well, the company is shifting its focus to more-profitable mortgages that are not insured by the Canada Mortgage and Housing Corp. Uninsured mortgages entail greater risk than insured mortgages. That’s why Home Capital set aside $1.2 million to cover future loan losses in the three months ended June 30, 2011. Even so, bad loans fell to 0.23% of its total loans from 0.34% a year earlier. Even with the jump in loan-loss provisions, Home Capital’s earnings rose 34.5% in the quarter, to $48.2 million, or $1.38 a share. Revenue rose 16.5%, to $198.6 million from $170.4 million.

Canadian investing: demand grows for home equity credit cards

Besides mortgages, Home Capital is seeing strong demand for its Equityline Visa credit cards, which let cardholders borrow against the equity in their homes. On June 30, 2011, receivables on Equityline Visa cards totalled $372.1 million, up 23.3% from a year earlier. Home Capital Group is in our Aggressive Growth Portfolio. In the latest edition of our flagship advisory on Canadian investing, The Successful Investor, we take a close look at the added risk of the company’s uninsured mortgages. We also look at whether Home Capital Group can keep its operating costs low. We conclude with our clear buy-sell-hold advice on the stock. You can get our latest risk-cutting strategies and clear, plain-English analysis of dozens of Canadian stocks in The Successful Investor. What’s more, you can get one month free when you subscribe today. Click here to learn how.

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Pat McKeough

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Blue Chip Stocks

Blue chip stocks are big, well-established, dividend-paying corporations with strong business prospects. These are companies that also have sound management that should be able to make the right moves to keep competing successfully in a changing marketplace.

Dividend Stocks

Dividend stocks make cash payouts that serve as a way for companies to share the wealth they’ve accumulated. These payouts are drawn from earnings and cash flow and paid to the shareholders of the company. Typically, these dividends are paid quarterly, although they may be paid annually or even monthly as well.

Value Stocks

What are value stocks?

One of the sweetest and most profitable pleasures of successful investing is to buy high-quality “value stocks” (or stocks that are reasonably priced, if not cheap, in relation to its sales, earnings or assets), then hold on to them as mainstream investors recognize the value and push up the share price.

Growth Stocks

Growth stocks are companies that are likely to have sales and earnings growth well above market average. Frequently they pay few, if any, dividends. Instead they typically reinvest any extra cash flow to promote further growth. Chosen wisely—according to Pat McKeough’s advice—high-quality growth-oriented stocks can be worthwhile additions to most well-diversified portfolios.

ETFs

What are ETFs?

ETF is an acronym for exchange traded fund.. These exchange traded funds are used to track indexes as closely as possible, since investors cannot actually buy an index outright.

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Pat McKeough has been making investing for beginners simple—and profitable—by helping investors make big gains for more than 25 years. His advice to beginning investors is the same as it is for all investors: buy high-quality, mostly dividend paying stocks (or ETFs that hold these stocks) and evenly spread your investments over the five main economic sectors (Resources, Manufacturing, Finance, Utilities and Consumer). Pat also believes investors should avoid stocks in the broker/media limelight and focus on those with hidden or little-noticed assets.

Wealth Management

Wealth management is the practice of putting your savings to work so that it continues to grow over your lifetime and will also benefit your heirs. Wealth management encompasses many different areas of investing like long term investment planning and retirement planning.

AI Investing

Artificial intelligence (AI) is essentially the merging of today’s big computing with big data. This has resulted in breakthroughs in everything from creating machines to recognize faces with more accuracy than a human, to the development of chatbots able to collect, organize and simplify all the Internet has to say on any topic.

Spinoffs

One of the ways a company can try to unlock its own hidden value is by creating a separate company out of a corporate subsidiary. The parent company can either sell stock in the new company to the public, or spin it off—hand the stock out to its own investors.

Penny Stocks

A penny stock in general trades for under five dollars a share, and as the name implies, sometimes for pennies. Most of the time they’re young companies, or start-ups in speculative markets like mining or technology.

Mining Stocks

Mining stocks are investments in companies that produce or explore for minerals. Some of these minerals include uranium, coal, molybdenum (which is used in steelmaking), copper, silver and gold. They are affected by fluctuating commodity prices in addition to their own business and operating risks.

Energy Stocks

What are energy stocks?

Businesses that work in the extraction, refining and delivery of energy sources such as natural gas, oil, uranium and coal, are considered energy stocks.