One good idea: Onex, flush and no debt

Holding company offers safe haven

BY DIANNE MALEY
Globe Investor Magazine Online, April 7, 2009



The Source: David Baskin, founder, Baskin Financial Services Inc.

The Idea: Buy Onex Corp. shares.

Like any sensible person, Mr. Baskin has been investing a portion of the funds he manages for clients in pipelines, utilities and telephone companies - safe, steady stocks with exceptional dividend yields.

His favourite is Bell Canada, which he thinks might raise its dividend, but he also likes the banks. "Bank dividends are ridiculously high."

Still, his No. 1 choice for the "average, middle of the road, middle-age investor" is Onex Corp., a holding company that buys troubled firms, fixes them up and sells them for a profit. A prime example is Cineplex, which one analyst called a "spectacular" investment for the conglomerate. Onex is selling most of its stake in the movie chain for $185-million.

Investors in Onex "are betting on [founder] Gerry Schwartz to continue his track record as one of the most successful investors in Canada," Mr. Baskin said in an interview.

Analysts speculate Mr. Schwartz, armed with billions of dollars in cash and no debt, is on the hunt for new acquisitions in a field filled with easy corporate prey thanks to the credit crunch and recession.

Mr. Schwartz has expressed interest in gaming, building products, health care and aerospace acquisitions. The market may be starting to pay heed. Onex shares have rallied from a 52-week low of $12.86 to trade in the $17 range Friday. But they're still only half their 52-week high of $34.73.

"I think the Street is missing the story on Onex," Mr. Baskin says.

With money for takeovers in exceedingly short supply, Mr. Schwartz's competitors are mostly out of the market, Mr. Baskin notes. "This allows him to buy things cheaper than when he was competing with others."

Mr. Schwartz, in contrast, is "ready and willing to go," Mr. Baskin says. Onex has $540-million in cash and $3.6-billion of big investors' money to invest, for which it earns a fee. "He doesn't need bank financing . he has ammunition when everybody else is out."

The Payoff: The potential for a substantial capital gain in a relatively short time, Mr. Baskin says. "I don't see any reason why this stock is not worth $25. I think it's one of great bargains right now."

The Big Risk: "They could get it wrong" by acquiring a company they can't successfully turn around and make money on, Mr. Baskin says.

Why listen to David Baskin? Mr. Baskin has at least 25 years in the business. One of his better calls over the past few months was to buy shares of National Bank of Canada. "Everybody was ignoring it, saying it was stuck in Quebec," he says. "We like it for that reason." National has done better than any other Canadian bank, he adds. "Its earnings are spectacular. We still like it."

Special to The Globe and Mail