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Ray Rich Buy List: CHR.B

|Includes:Air Canada (ACDVF), CHRVF

Over the coming weeks and months I will be compiling a Ray Rich buy and watch list. This is the first post on my instablog and I have chosen to discuss a little known Canadian Equity known as Chorus Aviation.

The Ticker is only available on the TSX and is CHR.B - B class shares are the actual voting shares, the A share are available but don't have voting rights, they basically mimic each other in share price.

Currently shares are trading in the 2.68 range. I would consider this a strong buy, but I could also see a good point in buying a half position now and waiting to around the 2.50 range to purchase the second half position.

Chorus is a Canadian regional airline that has a contract with Air Canada (AC.B) and does their regional flights for them. They are one of the top small regional airlines for sustained profitability and always turn a profit into free cash flow.

Currently paying a 7.5 cent quarterly dividend this company has a yield of over 10% which is sustainable and will likely double over the next year.

The current price to earning is around 5.5. This is incredibly low for the airline industry. In fact many airlines don't even turn a profit.

The debt ratio is maybe a little high but the airline business is a very capital intensive business and most airlines have a low coverage ratio.

So why does the market dislike Chorus Aviation. Simple reason Chorus (the little guy) is involved in a long standing arbitration with Air Canada (the big guy). They decided to slash the dividend in case the arbitration does go Air Canada's way. They wanted to save the free cash flow in case there is a large payment needed to be made to AC.

They have been talking about increasing the dividend back up to its normal level - Which is about 15 cents per quarter in the coming quarters. This will be a catalyst to push the stock back up and will likely double from this point.

Additionally Chorus has given on multiple occasions the impression that AC will lose this arbitration and the feeling out there is this should happen within the next quarter or so.

If Chorus wins the arbitration there will be a large sum of money saved from the cut dividend, I do not know if this will go back into the company and improving the fleet or if this will go out as a special dividend.

In any case this is a strong buy in the Ray Rich world, and I would say it should double within a year. Also, at the present time a lot of the bad news is priced in so there would be less downside risk involved.

Best of luck, comments are appreciated.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: i AM LONG CHR.B