Leon's Furniture (LNF.TO)

(A Top Pick August 3/2017, Up 4%) A cult stock. Not that liquid. Great company, along with the Brick. A tough business, but they are the best. Own a ton of real estate under the business, which they will eventually do something with. Hard to buy furniture online, so they have some protection. Earnings next week, he’s assuming decent numbers.

Done right, furniture is a great business. Most of them are private because they generate so much cash that they don’t need to go public. Leon’s is one of the best furniture businesses in the country. However, the furniture business is cyclical with the housing market. To the extent that housing purchases or renovations might slow down, this company will suffer. At this time, investors should wait to buy it later. It is a great business, but the cycle is turning.

He has owned this for a long time and thinks they are a survivor. Leon’s will service Sears appliance contracts and has great real estate holdings that may eventually be spun off. Yield 3%. (Analysts’ price target is $20.50).

Somebody bought this at the old high of 2015 want their money back. You have to get through those guys. Not everybody is going to sell, but there is a certain amount of selling pressure in and around the old high. It is probably trying to break through that old level. He would probably approach this somewhat optimistically, but wouldn't throw his full allotment into it. There is still a chance that the break out won't last. You need another week or 2.

They are in retai,l but will not be displaced by AMZN-Q because you have to go sit on the couch, etc. They have a tremendous amount of miss-valued real estate that they might someday spin out. You are now starting to see synergies from The Brick. (Analysts’ target: $19.00).

The big box furniture business has a huge competitive advantage. They took over the Brick a while ago which is slowly working out. The Cdn$ hurt them a little. Very good operators. Also, owns a lot of the properties they are situated on. Every so often, they build up cash and pay a special dividend.

Their merger with the Brick took a while to get the synergies out of it, but now it seems to be working pretty well. Valuation is cheap and it is a well-run company. However, there is now a psychological issue with it being a retailer. All the US retailers are getting decimated, and there is a bit of a valuation gapping down, and investors are just not paying what they used to pay for retailers, even if they are doing a good job. You are going to be fighting this for a period of time until something changes.

Still owns and still likes it. They own much of the real estate underneath a lot of their big box stores. He had valued the real estate at about $8-$10 a share, which effectively gives you the furniture business for free. A great story.

Acquired the Brick which he had not been particularly fond of. Hasn’t looked at the balance sheet lately, but this is on his radar list. Extremely well-managed, but in the context of the Canadian consumer, you want to be very careful as there are going to be patches of weakness in the West. As Canadian debt levels rise, he expects there will be less credit purchases and you may see some weaker spending.