December 30, 2015

On Wednesday, the S&P 500 fell 0.7% and Toronto fell o.8%.

Preferred shares mostly rose, for example the Canadian Western Bank preferred share was up 3.8%.

Oil prices fell as oil inventories rose. Apparently, the North American oil producers are mostly maintaining or increasing production while hoping that the OPEC countries reduce consumption. Meanwhile OPEC may be hoping that some North America oil producers will be driven out of business and that they will stay out of business even if oil prices rise because they and their lenders will live in fear of low oil prices. No longer will oil companies be able to borrow money on the basis of projections of oil prices at $100 or anything close to it. If OPEC (or maybe just Saudi Arabia) stands its ground then we are going to need to see significant oil production in North America come out of production before oil prices will rise. Alberta laments that future oil sands projects will no longer happen. The reality may be that even some current oil sands production or some projects that are well underway will need to be canceled.

Updates for RioCan

The report for ReoCan REIT is updated and rated Buy at $24.24.

When I first added RioCan to the site on July 9, 2011 rated Weak Buy (essentially a Hold) it was trading at 1.53 times book value. Now it is trading at a much more attractive 0.98 times book value. The unit price may be volatile in the next six months as the market digests the impact of its sale of its U.S. properties. For those looking for yield this seems like a reasonable bet.

The report for the RioCan preferred share is also updated and rated (lower) Buy at $18.59. These were shares were added to the site on July 9, 2011 also rated Weak Buy at $25.70. The appeal of rate reset shares at that time was that they would not fall in value if interest rates rose (as expected) due to the reset. Instead, interest rates unexpectedly fell a lot. Time has basically run out for these shares as the reset date is now only three months away. They may be of interest for those who seek yield and who expect rates to rise. In that case the buyer would choose the option of converting this to a floating rate on March 31, 2016 yielding a projected 4.2% and hope for rates to rise.

December 29, 2015

On Tuesday, the S&P 500 rose 2.3% while Toronto fell 0.5%.

Toronto’s decline was caused in part by Valeant’s decline of 11.1% which was due to news that its CEO is in hospital with pneumonia. Valeant is down 60% in U.S. dollars (which it reports in) since I added to the list rated Sell in late July. At this point I don’t have any strong opinion on Valeant. It has made changes to its business model and it will take time to see how that will affect its profits. I am not going to attempt to update the rating on Valeant and will remove it from the list. According to Yahoo finance the forward P/E is 10.3. But I suspect that is an adjusted earnings figure and that the P/E based on GAAP earnings will be far higher than that. I would consider it to still be a speculative stock.

Almost all the stocks on our list were higher on Tuesday.

I will have a few more updates to the stock ratings before the start of trading for 2016.

December , 2015

On Monday, the S&P 500 fell 0.2% while Toronto was closed in lieu of Boxing Day.

Our next update will likely be for RioCan Reit as well as the RioCan preferred share series A. The preferred shares are set to reset to a materially lower dividend on the reset date which is now only three months away. There is also an option to convert to a floating rate preferred share on the reset date. That option may be viewed as preferable to locking in for five years at the fixed rate.


Updated Onex Corporation Report

Onex Corporation is updated and rated Speculative (lower) Buy at $85.68. This entity is not a normal operating corporation but is a combination of a conglomerate holding company that invests mostly in private companies (the value of which is difficult to estimate but which ONEX reports) and a hedge fund management company that invests money for others in return for a management fee plus performance fees.

ONEX has gained 27% on Toronto this year. However, that was largely due to the decline in the Canadian dollar. ONEX reports in U.S. dollars and has most of its investments in U.S. companies and therefore should be judged on its gain in U.S. dollars, which is about 7% this year. I am not trying to diminish the gain in Canadian dollars but the fact is that this should not really be considered a Canadian dollar investment. In this respect it is a bit like an investment in an S&P 500 fund in Canadian dollars on Toronto. Such an investment if unhedged has risen far more than the S&P 500 in 2015 simply due to the currency movement.

ONEX is a strong company. It will likely continue to do well long term. Canadian investors face currency risk if the Canadian dollar rises. It may face some weakness in Q4 due to its investments in higher yield debt. It is likely a good long term investment but it does not seem compelling at this time.

December 26, 2015

On Christmas Eve, the S&P 500 fell 0.2% while Toronto rose 0.2%.

Boston Pizza Royalties was up 2.4% to $17.70. Last week, co-founder Jim Treliving bought 5000 units at $16.97. Combined with other recent insider buying, it seems clear that management views these units as under-valued. The entity itself will likely resume buying back shares as soon as this week.


Updated Wells Fargo Report

Wells Fargo is updated and rated (higher) Buy at $54.82. Despite being the world’s most valuable bank Wells Fargo’s operations are mostly concerned with the traditional lending out of depositor money. It does not engage in the large-scale investment banking or creation of structured products that the Wall Street banks engage in. It has relatively little pretense outside of the United States. These features lower its risks.

We first added it to this site at the very height of the financial crisis (just prior to the bottom in stock prices) and rated it a highly Speculative Buy at that time. It is up 402% since then. It’s price was fairly volatile for several years after the bottom but has risen steadily since the summer of 2011 although with some volatility in 2015. We had rated it a Speculative (lower) Strong Buy in February 2010 and it is up 104% since then.

Wells Fargo is an excellent company with excellent management. It appears set to continued to grow and provide good returns to its owners over the years. For Canadian investors there is currency risk. Currency risk is something that should be considered in an asset allocation context and is not part of the individual securities selection process. That is, our rating here (and for all U.S. companies on our list) does not consider currency risk but is based on investing U.S. dollars with the return to be accounted for in U.S. dollars. I recently reduced my own position in this company in order to free up U.S. dollars to convert to Canadian dollars. I retain a large position in Wells Fargo.

December 23, 2015

Wednesday was a positive day in the markets with the S&P 500 up 1.2% and Toronto was up 1.5%.

Oil (West Texas) was up 4.8% to $37.89. This was apparently due to a surprise decease in oil inventories.

AutoCanada was up 4.7% although it had not released any news.

Retail sales were reported for October and were about flat. They were up 0.1% in dollars but down 0.3% in volume. The impact of the lower Canadian dollar is starting to be seen and is causing some inflation. There will surely be more to come. The figures above would appear to suggest inflation of 0.4% in the month – that’s equivalent to 4.8% annualised.

Restaurant sales were reported for October and were up 0.3% in Canada although down 1.7% in Alberta. This is slightly negative for Boston Pizza but does not suggest any material decline in sales.

Boston Pizza is in the process of renewing its unit buy-back program. I don’t expect a lot of buybacks but any support for the unit price is welcome given that the units appear to be under-valued in the market.

I transferred some funds from U.S. dollars to Canadian dollars in my RRSP. In this transaction, I was completely captive to my broker TD Direct and the exchange rate was about 0.93 cents under the wholesale rate, or about 0.66% below. I only got that good of a rate by transferring what amounted to more than $30,000 Canadian. Apparently even at $25,000 Canadian the rate would have been closer to a charge of 1.5%.

In a non-registered account it might be possible to set up an electronic transfer of U.S. dollars to an external currency broker, make the exchange at a much lower fee and then transfer the Canadian dollars back to a Canadian dollar brokerage account.

Canadian Forex offers something like this and I am investigating exactly how it works. The banks are smart though, they know that I might rather just pay the 0.66% rather than risk sending say $25,000 off to Canadian Forex and trusting to get it back in U.S. funds or the opposite. It’s not clear to me why Canadian Forex would not transfer the money instantly rather than taking four days as their site indicates they do.

December 22, 2015

The S&P 500 was up 0.9% on Tuesday and Toronto was up 0.4%.

The five-year government of Canada bond yield was down to 0.72% on Monday and edged up to 0.75% on Tuesday. This very low yield continues to keep rate reset preferred shares trading at low prices since the dividend will reset at the reset date based on the five year Canada bond plus a contractual spread. For rate reset prefs that are trading at low prices I would favor those that have a longer time before the reset date. Those could provide a capital gain in two possible ways: 1. If the five-year Canada yield rises in the intervening months and years then the reset dividend could be more attractive. 2. If the five-year Canada bond yield remains low in another two or three years then perhaps the market yield on preferred shares will return to close to the 4% level reflecting what might then be an expectation of relatively permanently low rates. I am hoping for scenario number 1. On the other hand capital losses are always possible if the credit condition of the issuing company deteriorates.

Q4 is coming to a close. Many companies are going to report large currency gains and losses. U.S. multi nationals like Costco, Walmart, Fedex, Berkshire and Visa will see negative currency impacts.

Canadian companies that sell into the U.S. or that own subsidiaries in the U.S. will benefit from the lower Canadian dollar. This includes Stantec, Onex, Element Financial, and TransForce.

Bombardier and Couche-Tard are interesting in that they are Canadian companies that report in U.S. dollars because they do the majority of their business in U.S. dollars but also do substantial business. The lower Canadian dollar will have a negative effect on their reported earnings but when translated back to Canadian dollars the impact would be poitive. This should be beneficial to the Canadian dollar share price.

Canadian Tire which sells in Canadian dollars exclusively but which faces buying about half or more of  its products in U.S. dollars should be negatively impacted by the lower Canadian dollar. This is particularly true because Canadian Tire has not raised its prices (at least it had not as of Q3). So far, it has managed to overcome the dollar impact by working on its purchasing strategies and also by cost cutting. It also had a certain amount of hedges. I strongly suspect that the sharply lower Chadian dollar will finally start to hurt Canadian Tire by Q4 unless they can raise prices to compensate. Some of the same comments apply to Dollarama but I understand it has already raised some prices and with its strong growth and given its products may be in a better position to raise prices without scaring away customers.

All of the companies mentioned may have some hedging in place. But as Canadian Tire stated a year ago. Hedging only provides a “glide path”. Hedging is generally not done for more than a year in the future and so it only delays currency impacts. It simply can’t permanently eliminate the impact. Hedging is expensive and ties up balance sheet assets or borrowing capacity and so it is rare to go much beyond one year or certainly beyond two years. Hedging can also leave a company at a disadvantage if the currency moves in the other direction. Competitors could have a beneficial currency move that the hedged company has hedged away.

Some companies do have a certain amount of natural permanent hedge where revenues and expenses are both in a foreign currency. In that case it is the profit that will not be permanently hedged.


December 21, 2015

On Monday, the S&P 500 was up 0.8% and Toronto was up 0.1%.

Canadian Western Bank was up 1.6% after announcing an acquisition of an commercial and equipment finance company that it believes will be quite accretive although not for several years. The initial payment is $30 million in shares and $19.5 million of cash. In addition another $70.5 million will be paid in future over the next three years contingent on performance of the business.

The great majority of the target company’s existing loans are off-balance sheet as they have been securitised and are not being acquired. It appears that what CWB is purchasing in the management team and its ongoing ability to generate new loans and also the renewals of existing loans which CWB will now fund. It appears that the majority of the purchase price is for goodwill although that is not entirely clear yet. If so, this is in contrast to CWB  which is trading not much over book value.

Up to 50% of the total contingent consideration may be settled with CWB shares, provided the share price at the time of issuance exceeds $30, with the remainder to be paid in cash.

I view this transaction as a positive event and something that suggests that CWB is confident about its finances and continues not to expect to run into a problematic level of loan losses.

The initial addition to CWB’s share count will be about 1.6%.

The market continues to value Canadian Western Bank’s rate reset preferred shares at what appears to be a low price and also to value Boston Pizza Royalties Income fund at a low price. I added to both these positions today.

The fear appears to be that Boston Pizza Royalties franchise revenue per share could decline. In its history since inception in 2002 this fund has only cut its distribution once and that was when Income Trusts lost their income-tax free status in 2011 at which time it also became eligible for the dividend tax credit. History suggests that the current distribution which generates a yield of over 7.6% will increase slowly over the years. However, it is true that a severe recession leading to sustained lower same-store sales could cause a decrease in the distribution. And if the recession led to restaurant closures exceeding restaurant openings then a distribution cut would be likely. The fund is currently not at risk for store closures as long as openings exceed closing since BP International receives new units for new restaurants net of closed restaurants. Anything is possible but I continue to think that this 7.6% yield is attractive.

December 20, 2015

On Friday, the S&P 500 fell 1.8% while Toronto was up 0.1%.

Bombardier was up 16% after announcing that it received the expected certification for the smaller version of its new C-Series plane and also announcing a significant rail car contract. I expect Bombardier to announce some additional sales for the plane before too long but unfortunately the buyers will likely get significantly discounted polices as Bombardier is desperate for sales. I would think also that Bombardier should be benefiting from the sharply lower Canadian dollar.

I reduced my Wells Fargo position in order to free up some cash to transfer back to Canadian dollars to lock in the exchange rate gain on a portion of my portfolio.

December 17, 2015 (with a correction Dec 18)

On Thursday, the S&P 500 was down 1.5% and Toronto was down 1.2%.

The Canadian dollar is down under 72 U.S. cents. This seems bizarrely low. It certainly seems to be driven by low oil prices. I don’t know why low oil prices have quite so much impact on the value of the dollar.

This Canadian dollar spent most of 2011 and 2012 around par and sometimes above. It has now been declining for three years. The decline in terms of the U.S. dollar has been about 28%. And it now cost 40% more to buy an American dollar with Canadian money. One place the value  of the Canadians dollar has not fallen much is in Canada. There has not been much inflation overall. For example automobile prices are not anything remotely close to 28% (correction, 40%) higher.

If there were no frictions between Canada and the U.S. we might have expected that inflation would have been 28% (correction 40%) higher in Canada versus the U.S. You will notice that if a stock trades in both Canada and the U.S. then the Canadian price immediately reflects the currency difference. For every dual listed stock, the U.S. stock price is now about 28% lower than the Canadian price (and the Canadian price is about 40% higher than the America price). That’s because there is little friction and arbitrage requires the prices to react that way. Can you imagine the impact if all prices in Canada had risen by an extra 40% just due to the currency impact?

There will be pressure for Canadian consumer goods prices to rise. (A lot!) Otherwise people could buy goods in Canada and bring them into the U.S. at a profit. Despite some frictions that is happening with automobiles.

Canadians should and will reduce their travel to the U.S. and Americans will and should increase their travel to Canada.

Overall I think that the Canadian dollar is well below purchasing power parity and I don’t expect it to keep declining. (Then again I never would have dreamt it would get this low).

I am really starting to think I should sell some U.S. stocks and move some funds back to Canada. But I really HATE to give TD Waterhouse about 1.4% for simply changing the money (a far charge when it involves a thousand in cash, where I can shop around, but usurious when it involves an automated electronic transfer of $50,000 or whatever trapped in a RRSP account where I am a completely captive customer.)

Melcor was up 12.2% today but  I won’t chalk that up to anything other than volatility on this thinly traded stock. The company has finally started buying back some shares but they are limited to a paltry 3057 shares per day because of the thin trading.

The Canadian Western Bank rate reset preferred share was down 5.0% to $16.59. At that price it yields 6.6%. If the Bank of Canada 5 year rate remains at about 0.8% at the reset date in about 39 months then the yield at this price would reduce to 5.4%. It seems to me that if the five year Canada rate is still so low in three years then 5.4% is going to be an attractive rate.

It might be argued that the Royal Bank rate reset pref just issued at 5.5% is the better investment. It might be if one considers that Canadian Western Bank is likely to face financial difficulties. (I don’t, but it could) But assuming that neither bank is headed for financial difficulty I like the Canadian Western pref. The Royal bank pref issued at $25 is not going to be worth much more than $25 upon its reset in five years because the bank will have the right to repurchase it and that will limit any upside. In contrast the CWB pref could rise in value towards $25 if market yields on this product decline.

Kevin O’Leary said today that these rate reset preferred shares are “toxic”. But the only reason he gave was that the existing crop had fallen from about $25 to $17. But that happened mostly because the five year Canada yield fell. Kevin did not say if he expects the five year Canada rate to fall again despite the FED having now raised rates.

Bombardier has a press conference Friday morning. Presumably they got the certification on The C-Series.

December 16, 2016

The Federal Reserve Bank in the U.S. finally raised its overnight inter-bank target rate by 25 basis points.

The S&P 500 rose 1.4% and Toronto rose 1.9% despite about a 4% drop in the oil price.

The Canadian dollar fell but only moderately.

Canadian rate reset preferred shares were mostly up 4% or more as they partially removed from what were likely irrationally low levels.

Almost every stock on our list was up today.

I was impressed hat Wells Fargo announced within 12 minutes of the FED release that it was raising its prime rate by 25 biases points to 3.50%. They obviously had that announcement ready to go but I still think it is impressive when a huge company (or any company) can move that last. It also seems obvious that someone had the authority to announce the rate increase without any meetings or the like.

Wells Fargo, I suspect, wanted to let the other big banks know what it was doing and at least two others followed suit with a couple of hours.


Update to Constellation Software Report

Constellation Software is updated and rated Speculative (lower) Buy at CAN $581 and U.S. $423 (this was based on yesterday’s closing price and it is at CAN $585.43 as I post this as stocks rose on the FED news).

Constellation is one of Canada’s very best managed public companies. The ONLY concern I have had with constellation is that it generally trades at a very high P/E ratio. That leaves it vulnerable to a price decline if the growth falters. At the moment the P/E ratio at 26 based on adjusted earnings is lower than it was at my last update.

My analysis is in U.S. dollars because the company reports in U.S. dollars. Strangely enough a rise in the U.S. dollar tends to lower its earnings in U.S. dollars but increase those earnings if measured in Canadian dollars.

I don’t happen to own any shares as I sold too early on the way up. If I had the cash I would be interested in taking a small position now and then hoping to add to that on a pullback. (Or if it kept rising that would be okay too, although I would then regret that the position was small)




December 16, 2015

On Tuesday, the S&P 500 was up 1.1% and Toronto was up 1.7%.

Preferred shares were particularly strong.

Melcor bucked the trend and was down 4.8% to $12.36. And the trading volume was a bit higher today at 31,329 shares. It is now at just 44% of book value. So 56% below book value, which seems remarkable. If the financial statements are to be believed then those selling are “selling dollar bills for 44 cents”. And they may be doing this out of fear that soon the going market price for these particular “dollar bills” will be 40 cents or whatever. To my mind, if Melcor is going to run into such serious trouble that half of its book equity is going to be wiped out then Alberta would have to be in extremely dire shape for that to happen. At present the unemployment rate in Alberta is 7%. That is not a dire unemployment rate, nor even close to dire.

Melcor usually reports strong lots sales and profits in Q4 and quite possibly that will not be the case this year as builders will surely be more cautious and lot price s will be down somewhat. But a cyclic earnings decline hardly seems to justify such a fire sale share price.

Regarding Boston Pizza Royalties, I notice that founder George Melville grabbed 10,000 shares yesterday at $17 and just under. As a major owner in Boston Pizza International he receives free Boston Pizza Royalty Trust units for every new restaurant that opens and often sells part of the shares received. I take it as a good sign that he is buying Royalty Trust units in the market.

Regarding the Alberta economy, I have for many years been watching  the 90-day mortgage delinquency rates published by the Chadian Bankers Association. Annoyingly, they publish at least three months behind and the latest we have is the August numbers. Even as of August we were about 12 months into lower oil prices. And these delinquency figures for Canada and for Alberta have not budged at all. In fact, for both Canada as a whole and for Alberta, these 90-day montage delinquency rates are down very slightly in the last year. Really, these numbers look too good to be true (roughly, only one in 400 mortgages is at least 90 days late, these numbers were closer to one in 100 in early 2011 and even that did not create any big problems for the banks) I have long wondered if the banks are somehow hiding the delinquencies by allowing customers to skip payments or something. I certainly expect these figures for Alberta to go up somewhat as the layoffs mount and as severance packages run out. But there is no indication whatsoever that these delinquencies will reach problematic levels. I will continue to watch…

Wednesday afternoon should be interesting after the FED decision comes out.

December 14, 2015

Monday was another non-boring day in the markets.

The S&P 500 was up 0.5% while Toronto was down 0.78%

Oil is at $36.26. The Canadian dollar is worth just under 73 U.S. cents.

Natural Gas is at a low last seen in 2002 at U.S. $1.89 in New York

Notable decliners today included:

Melcor, down 3.7% to close at $12.98. As usual, this was on a small volume, just shares.

AutoCanada was down 5.7% to $20.66. A Statistics Canada report released today shows that new motor vehicle sales across Canada increased by 4.6% from the prior year in October. But they declined 15.7% in Alberta where AutoCanda has about 43% of its dealerships. Perhaps November and December will be far worse these sales figures would not seem to justify the huge slide in the share price here.

The preferred shares on our list were mostly down including the RioCan rate reset preferred share down 5.7% to $17.31. This particular share will reset in less than four months on March 31, 2016. It the Bank of Canada five-year rate stays around 0.75% then this share will rest to pay (0.75 plus 2.62 or 3.37% on a $25 face value yield about 4.9% at its current price.

Normally, in a world of 0.7% five-year bond rates a 4.9% rate reset yield might seem attractive. But last week Royal Bank sold a rate reset pref yielding 5.5% and which will reset at the five year plus 453 basis points. That would seem superior to the RioCan share although the bank preferred share I believe is subject to being converted into common shares of the bank in certain dire circumstances.

For whatever reasons it appears that buyers of rate reset preferred shares have gone from accepting yields around 4% and less on new issues about a year ago to now requiring 5.5% even from a very strong issuer. In part this is due to a fear that the Bank of Canada five-year yield will remain low and that the reset yields will be low even five years from now.

I added to my positions in Melcor, the Canadian Western Bank preferred share and Boston Pizza today. It’s always been my practice to try to add to positions of companies that I consider to be under-valued as they become cheaper. At the moment there seems to be more opportunity to do that than I would like. Time will tell if buying at these prices will turn out to have been wise.

Perhaps a FED move on Wednesday will put a different sentiment into the markets.



December 13, 2015

On Friday, the S&P 500 declined a hefty 1.9% and Toronto was down 1.7%.

Overall, 2015 has not been a good year for stock investors, especially for investors in Canadian stocks. The Toronto index is down 12.6%. The average Buy (or higher) rated stock on this site was down 12.3%. Most years, we have done materially better than the Toronto market but that has not been the case this year.

Due mostly to a generous exposure to U.S. stocks my own portfolio is down “only” about 5%.

For 2016, I will be continuing with the same analysis approach but plan to add more companies to the list.

Experienced stock investors know that it is unrealistic to expect every year to result in gains. But they also know that it is realistic to expect to make gains and build wealth at a reasonable rate over the years. Lower stock prices today may very well set us up for superior returns in the future. As long as corporations keep earning strong profits, investors are going to benefit from that over the years.

The moods of investors very much affect stock prices in the short term. But in the long-term it is companies and their customers that affect profits and ultimately stock prices.

I have updated my detailed analysis of the valuation and attractiveness of the Dow Jones Industrial Average. The results indicate that it is likely about fairly valued at this time. But that depends, among other factors, on the forecast for earnings growth that is assumed.

These last few weeks of the year could prove interesting as the market reacts to the FEDs move (or, less likely, lack of movement) next week.

There has seldom been a dull week in the markets in the last several years and that seems set to continue.


December 10, 2015

On Thursday the S&P 500 was up 0.2% and Toronto was up 0.6%

Dollarama was down 5.3% to $77.37. That is down from a high of almost $94. I read that latest quarterly press release and the company continues to grow very strongly. But it was a very expensive stock and so it was vulnerable to a decline for that reason. It is still expensive at this price and is pricing in a lot of growth.

Rate reset preferred shares have been getting hammered again as the five year bank of Canada yield has been declining. Also Royal Bank and Bank of Nova Scotia issued new five year rate rest shares at 5.5% and these will reset in five years at the five year plus about 4.7%. That is far richer than many existing rate reset shares. Correspondingly the existing rate reset shares had to go down in price so that their yields could compete.

The CWB five year rate reset is at $17.10 yielding 6.4%. It resets in a bit less than 41 months from now at the five year rate plus 276 basis points. We would need the five year Bank of Canada rate to go back to about 1.50% or higher before this would ever get back to the $25 level. At the moment there seems to be no increase in sight and instead there is talk of further Bank of Canada rate decreases. Perhaps the picture will change if the FED finally raises rates next week. Things can change rapidly in the markets and are seldom predictable.

It is amazing that the same market place that attracts some entities to buy a five year Canada bond at 0.8% refuses to buy a five-year Royal bank rate reset preferred share unless the yield is 5.5%. It seems like there is not one pool of investors who choose between these two. Given a choice it would seem clear the 5.5% preferred share is highly likely to be the better investment. But there seems to be a pool of captive investors or a pool of money that will ONLY invest in government bonds and so will accept the ultra low rate of 0.8%. At the end of the day there is some small chance that the Royal Bank could run into huge financial difficulties. It is probably exceedingly unlikely but there are some pools of money that are mandated not to take ANY chances. Even at that it is surprising that there is not enough other investors who are willing to take some risks and who would have been willing to take the Royal Bank pref shares at some level well below 5.5%. Consider that a five-year bond issued by banks yield only about 2.1 to 2.3%. The pref share would seem to be only slightly riskier and yields a lot more at 5.5%.

In the absence of financial troubled at RBC it is hard to conceive of how there would be a risk of that pref share trading under $25 when it resets at the five-year plus 4.7%. Say the five-year bank of Canada rate falls to zero, then would our RBC pref share not be attractive at reset at 4.7%? Or do people think the five-year Bank of Canada yield will be minus 2% in five years or something like that?

As noted yesterday, markets do not always seem to be rational.

December 9, 2015

Wednesday’s action had the S&P 500 down 0.8% while Toronto was up 0.1%.

Dollarama fell 7.3%. I will update that report soon and definitely before the end of this year.

Costco was down 5.4%. I would want a bigger retreat than that before I would be a buyer.

Canadian Western Bank fell another 2.0% and is almost down to its book value.

AutoCanada fell another 3.3% to $22.24. Presumably this is on continued fears of a soft vehicle market in Alberta where 43% of its dealerships are located. This stock had topped out briefly at $90 in June of 2014. It’s quite a drop for a company that has not reported any losses. (profits were down 35% in the latest quarter). Perhaps the market’s view is that Alberta is never going to recover.

Toll Brothers was down 3.0%.

When stock prices decline I remind myself that I own shares in actual companies and not mere squiggles on a screen. Lower stock prices provide buying opportunities. And if stock prices were not at times irrationally high and at other times irrationally low, then there would be no point trying to select individual stocks. Irrational prices are very much the friend of the rational investor.

I have been checking for insider trading on certain companies.

At Boston Pizza, Jordan Melville, presumably related to founder George Melville purchased 2000 shares (units) at $17.99 on December 8th (Monday) to hold 7100 units.

Melcor Developments finally bought back a few shares 300 on December 8th at $13.28 and 2000 today December 9th at $13.50. They had announced a buy back program last Spring when the stock was considerably higher but only now finally bought some shares. An insider at Melcor exercised 3333 options at $12.76 and sold the shares at $14.77 which is a bit of  a negative sign.

A Bombardier insider sold all his 47,000 shares at $1.23 in November. Not exactly a display of confidence.

Update of Toll Brothers Report

Toll Brothers is updated and rated (higher) Buy at $33.84. Sales for a homebuilder are hard to predict. However, in this case the revenue is relatively predictable because it is driven by signed home sale contracts about one year earlier. Based on that I had expected Q4 which it just reported to be a bit stronger but possibly the deliveries will show up next quarter. For the next year it should be reporting revenues in the order of 25% higher based on signed contracts in the four quarters of 2015 and based on a backlog interring the year that is up 29% in dollars. If its margins are relatively constant then earnings should also grow by about 25% in 2016. The company continues to believe that the home building industry in the U.S remains in recovery mode as housing starts are still well below historical averages. With a P/E of 16.6 and with a potential 25% increase in profits in the next year the stock seems attractive. In addition, the company has bought back shares fairly aggressively when the price dips under about $35 as it now has.

Comment About Oil Production and Oil Prices

Here is the latest on Canadian Crude Oil production from Stats Canada figures released this Wednesday morning, December 9th.

Canada produced 17.2 million cubic metres of crude oil and equivalent products in September, down 3.5% compared with the same month in 2014. (So a decline in September)

Total exports of crude oil and equivalent for September were up 12.0% from the same month a year earlier to 15.3 million cubic metres. At the same time, imports of crude oil and equivalent were relatively flat, edging down 0.4% to 2.5 million cubic metres. (So Canada has added to the world supply glut)

For the quarter ending September 30, production of crude oil and equivalent products increased 4.8% from the same quarter a year earlier to 57.1 million cubic metres. At the same time, exports of crude oil and equivalent products increased 7.9% to 45.4 million cubic metres, while imports were up 4.2% to 8.4 million cubic metres. (So, on the quarter Canada has increased production and net exports).

This increased Canadian production while bemoaning a supply glut brings to mind the old saying from Pogo “We have met the enemy and he is us”. This is classic behavior for commodity producers during a supply glut. Each one wishes the others would curtail but each one tends to produce like mad even at the lower prices in an attempt to grab cash flow.

What I find strange about the current situation is that the Saudies (alone or with OPEC) are thought to have had the ability to single-handedly maintain the high price but they chose to let it crash. Possibly they had in fact lost the ability to control the price but they may think they can regain control after they show OPEC and others the pain that comes from a free market price in this commodity.

Sadly, if Canada can’t compete on a free market basis then there is not much to be done. Should we really be hoping for a restoration of the OPEC price-fixing cartel? In the absence of either shortages or cartels, commodities are a game where low cost producers win, not high-cost producers. For Canadian oil producers cutting costs may be the only option available.


December 8, 2015

Tuesday was another down day for the markets. The S&P 500 fell 0.7% and Toronto fell 0.9%.

Among the more notable decliners were certainly some that I have rated as Strong Buys or Buys and which I have a heavy allocation to in my own portfolio.

Melcor was down 6.0% to $13.30. That was on small volume but clearly some investors are throwing in the towel. That will almost certainly prove to be a mistake with this company trading at under 50% of book value per share. I added a small amount to my position today.

Canadians Western Bank was down 1.2% to $23.28 and now trades at just a 5% premium to book value. Banks are highly leveraged and can be risky for that reason. But this Bank has not reported a single quarter of losses in about 27 years. And it does not expect to do so in 2016 either.

Boston Pizza Royalties fell 0.6% to $17.40 and now yields almost 7.5%. This entity simply collects and passes along (with almost no operating expenses) a share of the franchise fees. I don’t think there is much risk of a dividend cut here in the near-term. In fact I am expecting a small increase before too long. Even in the event of moderately slower same-store sales we would likely see the distribution maintained. If the downturn was longer-lived a modest cut would likely be made. In the event of a really large decline in same-store sales and/or a net reduction in the store count then a larger cut in the distribution would be needed. I don’t think that is likely at all. It’s hard to imagine a scenario where more than a 10% cut to the distribution would be needed, though anything is possible. Investors can bid the unit price down or up, but the distributions are affected by customers not investors.

Toll Brothers was down a hefty 7.0% as it released Q4 earnings that were somewhat below expectations. However, based on signed contracts for houses sold in 2015 which will be recognised in earnings upon delivery in 2016 we know that its revenues will be up by about 25% in 2016. Barring major cost increases it appears to have as much as a 25% increase in earnings per share basically baked into the numbers in 2016. I will update the report for this company tomorrow and it looks like it will be rated (higher) Buy.

Wells Fargo was down 1.8% to $54.40.

These five stocks are my largest holdings and all five were down today. Such is life in the markets. At least the lower Canadian dollar partially offset the losses on the U.S. stocks.

I notice that TransAlta was down 7.5% to $4.35. I don’t have that stock on our list. Despite its poor management and its coal plants, I suspect that at $4.35 it would be a good speculative pick. At this price it seems quite possible that it would be acquired at a decent premium. Berkshire Hathaway Energy surprised me greatly by having some joint ventures with this poorly-managed company dating back a few years. So Berkshire is a possible purchaser although they may decide they just don’t want the coal plants at any price. Capital Power would be a logical purchaser except that the government would not like the market concentration that would result. AltaGas is smart and might be a buyer. Surely there is some company that could pick this up on the cheap. It’s amazing how toxic the very notion of coal fired power plants has become. Contributing to the company’s woes is the fact that the wholesale power price in Alberta is currently incredibly low. But that will change.

Among the few winning stocks. Costco was up another 1.75% to $168.87 in advance of releasing earnings which it did after the close. Costco was briefly under $120 on that market dip of August 24. It had been above $140 just prior to that day. This goes to show that having some stink bids in can be a good strategy. Costco is a fantastic company but it won’t go up in straight lines. Pull-backs of 10 to 20% tend to occur and have been buying opportunities. The stock is too expensive for my tastes at this time.

Returning to the topic of oil. Energy analysts moan that Saudi Arabia has lowered the price by increasing supply. They decry this as politics. But that is what normally happens with commodities. The keeping of prices high via a cartel was the anomoly. As Kevin O’Leary has said may times, commodity prices rise quickly on shortages and then when there is a surplus, prices fall “without touching the sides”. Based on the last figures I saw, Canadian oil producers have not decreased production but have increased it. They seem to expect Saudi Arabia to eventually cut production. The price of oil is what it is and remains unpredictable. Wise oil companies would not have taken on much debt. The unwise did and must pay the price which for some means insolvency. Given that the oil is still flowing there is still a LOT of work and spending and jobs in the oil patch. Some bank or other today was projecting that the Alberta GDP will still grow 0.8% in 2016. That’s not great but it may mean that the collateral damage to companies like Canadians Western Bank and Melcor and even Boston Pizza is being over estimated. If Alberta starts shutting in a major amount of oil rather than merely canceling planned projects then the collateral damage would be greater.






December 7, 2015

On Monday, the S&P 500 was down 0.7% and Toronto was down 2.4%.

A decline in the price of oil in the oder of 6% to $37.65 was the main driver for the decline.

OPEC met on Friday. My understanding is that most OPEC members wanted Saudi Arabia to curtail production but that most of them were not willing to also do so. I refuse to believe that the Saudis have driven down the price of oil simply to “maintain market share”. Why would they do that at the cost of halving their oil revenues? Instead, I believe that they are doing it to hurt others. It could be to hurt all other OPEC members and to teach them that life is painful when they don’t abide by the production quotas of the OPEC cartel (which they generally did not over the years). After a period of sufficient pain the Saudis may convince its all OPEC members to adhere to production quotas and the cartel can be effective again. Or perhaps the Saudis want to punish and weaken certain oil-producing enemies. One popular theory is that the Saudis want to drive North American shale producers out of business. That may be, but it seems to have inflicted a huge toll on the Saudi revenue and in any case the shale oil will still be there. Another possibility is that the Cartel is simply broken. With increased North American oil production, it may be that OPEC simply cannot control the price of oil even if it wanted to. The Cartel may lack the cohesion needed to be a Cartel. It’s my sense tht OPEC decided nothing on Friday, rather OPEC failed to be cohesive enough to act together to restore their cartel.

Alberta laments the loss of revenue. However, if oil can be imported at $38, it simply does not make any sense to spend money on projects that require $60 oil. Lower oil prices are good for most of the world’s population. If supply and demand rather than cartels are driving the price of oil then that seems to be a good thing for the world at large. If it was the OPEC cartel that lifted oil to artificially high prices over the 15 years from 1999 to 2014 then Alberta owes an unacknowledged and huge debt of gratitude to OPEC for those boom years.

Most of the stocks on our list were down today. For example TransForce down 2.4%, CN rail down 2.4%, Canadian Western Bank down 3.8%, Melcor down 5.7%, Liquor Stores N.A. down 5.3% and AutoCanada down 3.0%.

Among the few gainers was Walmart which was up 1.4%.

Days like this test the resolve of investors. However, what is ultimately important is not the price at which stocks trade at on a given day but rather what they should logically trade at. That’s because actual trading prices are more volatile than true value and because stocks ultimately will trend towards their true value which is the price that they should logically be trading at.

Canadian Western Bank update

Canadian Western Bank is updated and rated Strong Buy at $23.66. This bank’s earnings remain strong despite lower oil prices. Q4 profit did decline about 8% versus the previous year. But the bank is not expecting any unmanageable level of loan losses. The share price is down about 45% from the highs reached in August 2014. Experience suggests that buying a well-run bank at 1.07 times book value tends to be a good investment. However, patience is required.

December 6, 2015

On Friday, the S&P 500 was up a hefty 2.0% and Toronto was up 0.3%.

Notable gainers included Berkshire Hathaway, up 2.9%; Bank of America up 2.9%; Visa, up 2.7%; Toll Brothers up 2.3% and Valeant up 2.3%. Also, the Canadian Western Bank rate reset pref shares were up 3.7% but that is on a tiny volume and it has fallen a lot earlier in the week.

A number of Canadian stocks were down on the day, perhaps in part due to the weak jobs report.

Liquor Stores N.A, down 2.9%; AutoCanada down 2.5%; TransForce, down 1.7%. Also Canadians Western Bank was down 0.9% and Boston Pizza was down 1.1%.

For those of us who try to invest in under-valued stocks it is certainly frustrating to see such stocks slip even further even while other stocks rise.

My own return this year is about negative 3%. While I’d like to have made a better return I take comfort from the fact that the valuation aspect of my portfolio has seldom or never been better. The average price to book value of the stocks I hold is 1.3 and the average P/E is 12.3. My average dividend yield is 3.3%. The silver lining in lower stock prices has been the ability to invest at lower prices.

I have updated the break down of my personal portfolio.


December 3, 2015

Thursday was another negative day in the markets with the S&P 500 down 1.4% and Toronto down 1.0%.

The biggest loser on our list was the Bombardier preferred shares down 5.5%.

Among the rare gainers on our list were three retail stocks, Canadian Tire up 1.1%, Walmart up 1.2%, and Costco up 1.6% on its strong same-store sales results.

Canadian Western Bank reported decent earnings (earnings per share were down 6% in Q4 versus the prior year but that was largely due to lower gains on securities, a slightly higher credit provision versus the abnormally low level in Q4 2014 and a lower “other income” result). A 6% decline, especially in the midst of the Alberta recession is not a bad result. The bank also increased its dividend by 4.5%. Despite what appears to be decent earnings and a decent outlook whereby the bank is not projecting any problematic spike in credit losses, the stock was down 1.4% on the day.

This stock trades at 1.12 times book value and management is expecting an ROE of 12 to 15% over the next three to five years. If that happens and the P/B remains constant at 1.12 then investors would earn about 11 to 13% per year. And any rise in the price to book value would create an additional return. However the projected ROE could certainly fail to materialise and the P/B ratio could fall. But banks traditionally trade at higher P/B ratios than 1.12. Overall, I think the math suggests that investing in these shares is likely to provide a good or very good return over the next few years unless loan losses become a LOT larger than management is expecting.



Visa Report Updated

Visa Inc. is updated and rated Weak Buy at $79.04 (it closed today at $78.29 but my analysis was done earlier at $79.04). Visa is clearly an excellent company and is exceptionally profitable. And it sits at the center of the conversion of monetary transactions to electronic forms. Nevertheless at 31 times earnings it does not seem like good value. And its VISA Europe transaction is going to cause it to report lower growth in the next two years before that transaction becomes accretive. I would prefer to wait and hope for a pull-back in this stock rather than buy now.

December 2, 2015

Wednesday was a down day for the markets with the S&P 500 down 1.1% and Toronto down 1.3%.

Almost all the stocks on our list were down.

Meanwhile Royal Bank became the first Canadian company to report an annual profit over $10 billion. I think it was only about six  months ago that Valeant had ever so briefly displaced Royal Bank as the most valuable company on the Toronto Exchange. I guess that never made a lot of sense.

Costco just reported same-store sales for November. They had 3% in the U.S. and 0% overall. But excluding currency and fuel prices they were up 6% which is stellar growth. The same-store growth in Canada in Canadian dollars and excluding fuel price changes was 8%. Apparently, Canadians are still spending apace, at least at Costco.

Canadian Western Bank reports earnings tomorrow morning. I expect the earnings will be reasonably good. But given fears about the Alberta economy, I suppose it is unlikely that the stock will rise even if the earnings are strong.


December 1, 2015

On Tuesday, the S&P 500 rose 1.1% and Toronto rose 1.2%.

Notable gainers included Valeant Pharmaceuticals up 9.6%; Stantec, up 2.0%; Couche-Tard up 2.7%, Toll Brothers up 2.4%; Bank of America  up 2.2%,  Constellation Software up 2.2%; Liquor Stores N.A. up 3.5%. and Amazon up 2.2%.

Decliners included TransForce, down 2.2%, Melcor down 3.1%, and Bombardier, down 3.8%.

I added to my margined Boston Pizza position today. Boston Pizza Royalties units were down 0.9% today to $18.54. Since I only expect the yield spread to be something less than 4% per year, it’s clear that I could lose more than that in a few days. But I have confidence in this investment and am prepared to stay in for several years. I might reduce the position if the units rise back to about the $22 range. It’s one thing to talk about potential returns and losses ahead of time, but I always find that making an actual investment focuses the mind. I already had substantial Boston Pizza shares. But now it will be on my mind that I borrowed money for these shares. I made sure the amount borrowed was not large in relation to my portfolio.


Amazon Report Updated

The report on Inc. is updated and rated Sell at $680. I had added this company to the site only five months ago and rated it a Sell. It’s up an amazing 55% since then. I added it to the site because I was curious how its financials looked. It has a reputation of huge growth but essentially no profit. Using fundamental analysis there was no way that I could rate it a Buy. Perhaps it will keep rising. But there is always some danger that it will instead prove to have been over-valued. It’s difficult to gauge what the value should be when a company has virtually no earnings per share but holds the promise of substantial future earnings.


November 30, 2015

On Monday, the S&P 500 fell 0.5% while Toronto rose 0.8%.

Agrium was up 2.8% and Melcor was up 4.7%.

FedEx was down 3.4% but that comes after two months in which it gained about 14%.

Walmart was down 1.8%

The Canadian Western Bank rate reset preferred share was down 3.9% to $17.86. These share’s trade very thinly. At $17.86 the yield is 6.16%. To me, that seems attractive and I expect these shares to trade higher in the coming months. But there is always the risk that they will trade even lower if Canadian Western Bank reports credit losses or their is fear that they will. This bank announced last month that it was going to redeem $300 million of debentures on November 30 (today).  It looks like they may have had the cash to do this but they may also decide to issue new preferred shares at a higher yield and with perhaps a guaranteed minimum reset level and if they did, that could also cause these existing shares to fall. Or the Bank of Canada could reduce interest rates. There are ALWAYS scenarios under which any investment can fall in price. Which is why many people never invest in stocks at all.

The Canadian Banks report earnings this week. CWB is scheduled to report by Thursday morning. I don’t think they will report much of an increase in actual credit losses. But they might report an increase in reserves for such losses.

I did purchase some Boston Pizza shares on margin today, having indicated yesterday that I planned to do so. I did not get as many shares as I wanted as I did not want to chase the price higher so I will likely add to this in the next few days.

I added an article about this strategy as well as a new article on management capital allocation skills. You likely received my newsletter email about these two articles.

The Alberta Securities Commission extended Canadian Oil Sands bid review period from 60 days to 90 days. Suncor had wanted it to stay at 60 days while COS wanted it extended to 120 days. It’s typical of regulators to seek a middle ground. They will have stated many reasons why 90 days is correct. But at the end of the day the human tendency to compromise is likely what drove them to the 90 days. It will be interesting to see Suncor’s next move. I’d like to see them refuse to extend their bid beyond Friday as planned. That would likely cause the COS shares to fall and would be entertaining if nothing else. Those who are convinced COS is worth more than the Suncor bid could then show the courage of their convictions by buying more.

Bank of America Report updated

Bank of America is updated and rated (higher) Buy at $17.48. This bank has finally put (hopefully) virtually all of the large financial crisis related litigation settlements behind it. If earnings in these next two quarters can match the performance of the previous two then the trailing P/E ratio is going to decline to about 11 (at the current stock price), which is attractive.  The bank is selling at 84% of book value and 119% of tangible book value which is attractive.

I added to my position today. I used funds in the U.S. dollar part of my account. Canadian investors should use funds that they have more or less permanently allocated to U.S. dollars or, if not, they should consider the currency risk.

November 29, 2015

On Friday, the S&P 500 rose 0.1% while Toronto fell 0.4%.

I am now planning to make use of my margin account to buy some additional Boston Pizza shares. The distributions will easily pay the monthly interest on the margin borrowing leaving about a 4% profit before tax. There is always a risk that these units will decline in price. However, I feel there is a higher probability of the units rising in price. I have not used margin or borrowed to buy stocks for a few years. This margin amount will not be large compared to my portfolio and the amount will not represent a large risk.

Bank of America will be the next report updated and it will likely be rated Speculative Buy. I will likely add to my Bank of America position tomorrow (Monday).

Agrium report updated

Agrium Inc. is updated and rated Speculative Buy at U.S. $97 or Canadian $128.

This stock is up 2.5% this year in New York, but 16.6% in Toronto.

Although headquartered in Calgary, I consider this to be more of a U.S. dollar investment than a Canadian dollar investment. (And that is unaffected by whether it is purchased in Canada or the U.S.). Most of its revenues and earnings and earnings are in U.S. dollars and for that reason it reports in U.S. dollars. The stronger stock performance in Toronto was due to the drop in the value of the Canadian dollar.

Agrium is an inherently volatile and cyclical company. Demand for its products varies from year to year with weather and farm income levels. In addition , revenues and earnings can vary greatly with its product prices that change rapidly based on the market price for its products which are mostly commodities. On top of that its costs vary greatly with the price of natural gas  which is a major input into some of its products.

It has a strong long-term profits history and appears to be reasonably priced at this time.


November 26 , 2015

On Thursday, the S&P 500 was closed and Toronto rose 0.2%.

One thing that investors can give thanks for is that while stock prices can rise or fall on any given day the majority of companies on the stock exchange make an additional profit each and every business day of the year.

After updating Element Financial earlier today, I bought some shares in that company.


Element Financial Report updated

Element Financial is updated and rated Speculative Buy at $17.50. This company has grown by acquisition at a huge pace. Barring higher loan losses or other problems it should report significantly higher earnings in the next year based on its current book of business. I am bothered that he company seems too aggressive in adding back items (stock options and compensation related to acquisitions) to arrive at its view of adjusted earnings. But overall I consider it to be a Speculative Buy. I would take a huge position but I would be comfortable with making a modest investment.

November 25, 2015

The S&P 500 and Toronto were both essentially unchanged on Wednesday.

U.S. markets are closed on Thursday.

Bombardier had a 12% rebound. The Bombardier pref share that we follow rose 3%. I suspect these shares will rise somewhat as it becomes apparent that Bombardier is not going to actually go broke.

AutoCanada fell 6.8% to $25.54 as the company announced a share sale at $25.50. At $75 million ($86.25 million with over-allotment option) this is a fairly large share sale in relation to the existing $626 million market cap. The number of shares will increase by about 14%.

It was only a week ago that AutoCanada negotiated an increase to its credit line for $200 million to $250 million. As of September 30, it had $133 million drawn on the then $200 million credit line. It subsequently purchased or announced the purchase of about four dealerships.

Overall, it appears that the equity issue is not any sign of financial duress but rather is to provide continued funds to make acquisitions. RBC was involved in the increase to the credit line and it will benefit from the fees to raise this equity.

At this point considering this equity raise and considering that Q4 is likely to be a poor quarter, it does not seem likely that there would be much reason for these shares to rise until and unless the company can resume earnings per share growth perhaps in Q2 of 2016.

I think this company should do well longer term based on its acquisition strategy but the near-term does not look encouraging.

November 24, 2015

On Tuesday, the S&P 500 was up 0.1% and Toronto was up 0.2%.

Oil bounced back to $42.85.

Bombardier wasted some money to host an investor day in New York City (the stock does not even trade in New York) and their attempts to reassure investors were enough to cause the stock to fall another 4.8%. The company said that 2016 revenues would fall and that the company was working on a five year turnaround plan.

Alimentation Couche-Tard released another good earnings report and the stock rose marginally.

My next update will be for Element Financial. The growth in its balance sheet has certainly been enormous. The company asks investors to focus on its view of adjusted earnings rather than GAAP earnings. That can be appropriate but I don’t agree with all their add backs. They seem proud to forecast that they won’t pay cash taxes for about the next 12 years.

AutoCanada closed at $27.40 but after the close announced a share sale at $25.50. This is annoying. However, if the money needed to be raised for acquisitions it is perhaps at least forgivable. This company pays a dividend and fundamentally that does not make a lot of sense. Why pay out money only to raise it back in while paying heavy fees to underwriters?


November 24, 2015

On Monday, the S&P 500 was down 0.1% and Toronto was down 0.4%.

As expected TransAlta got a bounce due to the Alberta climate change report and rose 9.4%. I don’t have TransAlta on the list but have mentioned it a few times lately.

I also mentioned Capital Power yesterday. It fell 10.3%. Capital Power issued a statement that seemed to indicate that it agreed with the Alberta Climate change approach.

I am not sure why this would be bad for Capital Power but good for TransAlta.

Perhaps TransLAta’s boost was more related to a leak of some news that it released very hnear the close of trading, after which the stock was halted for the day. TransAlta will get an investment from its partly owned subsidiary, TransAlta Renewables and from the Alberta Pension Management company.



Alberta Climate Change Report

Alberta has released a climate change report. It includes higher carbon taxes and a phase out of coal fired generation by 2030. And there will be a cap on oil sands emissions.

Clearly, we have arrived at the point where there will be financial incentives to reduce CO2 emissions and to reduce consumption of fossil fuels.

There was an indication that coal generation companies will be at least partially compensated with a promise not to “unnecessarily strand capital”. That seems like a promise to compensate although the word unnecessarily weakens the assurance.

Perhaps TransAlta will bounce on this news. That depends how much of its low price was simply due to its horrible track record and how much was due to fears of a phase out of coal without adequate compensation. At best TransAlta is a cigar-butt type stock, it looks cheap in some respects. But it remains a poorly managed company.

Capital Power could also get a boost on the news. It has had a relatively poor track record also but not nearly as bad as TransAlta.

There are also other companies that own coal generation in Alberta.

If there is any bounce on this news it may not be much of a bounce became the details and the level of compensation for early retirements of coal-fired electricity plants are far from clear at this point.



November 22, 2015

Friday’s markets saw the S&P 500 rise 0.4% while Toronto fell 0.3%.

West Texas Intermediate oil is down to $39.39 which is negative for the Toronto stock index.

Liquor Stores N.A. rose 3.4% which probably indicates that some analyst or other was impressed with their announced small expansion into New England.

Valeant recovered another 8.3%.

The Bombardier series C preferred shares rose 8.5% to $10.58. This is logical given that having arranged for two large cash investments, it seems unlikely that the company will fail to pay the distributions on these shares at least for the next several years.

The Bombardier common equity B shares failed to rise upon the announcement of the $1.5 billion investment by the Caisse. At this time the equity market value of Bombardier is $2.8 billion. On that basis, the Caisse paying $1.5 billion for 30% of the Transportation segment would suggest that the whole company is worth considerably more than $2.8 billion. I understand that some analysts are disappointed that the Caisse investment has onerous terms for Bombardier and dilutes the eventual upside for common share owners. But onerous terms were to be expected. Bombardier remains highly leveraged and produces products upon which it struggles to make any profit. I had expected the common shares to rise somewhat as this latest investment lessens any risk of bankruptcy at least for the next several years.

Melcor fell 4.5% to $14.90. There can be no doubt that Alberta is in recession. These shares offer the opportunity to buy into assets at a bargain price. But owning these shares will likely require patience.

Walmart update

Walmart is updated and rated (lower) Buy at $60.07. Walmart is currently experiencing declining earnings per share due to the high U.S. dollar and particularly due to the substantial wage increases that it announced early in 2015. The company projects that earnings per share will decline 6 to 12% in fiscal year 2017 that begins on February 1, 2016. They project earnings will grow 5 to 10% in fiscal year 2019. The stock price and P/E ratio already seems to reflect this news. It still makes a very attractive ROE and will be buying back shares ar a strong pace and is in a position to increase the dividend. Therefore, the share price could still rise in 2016. But certainly it is not going to soar. I have 100 shares that I bought recently at $60.27 and may add another 100.

I was curious about the prices I had bought and sold Walmart at so I looked that up. More detail than anyone needs to see but anyhow it illustrates a bit of buying lower, selling higher.

I note from the daily comment records that I had sold Walmart at $75.13 back on April 6, 2013 (and also April 3 that year at a similar price)  to raise cash for something else and so that worked out well. My comment from November 19, 2012 indicates I bought those shares at $68.09. Previous to that the comment from November 15, 2012 indicates I had sold my Walmart shares at $73.63. I also sold some on July 12, 2012 at $72. And some sold on June 12, 2012 at $67.70. I had bought some Walmart on April 24, 2012 at around $58. Around this time I had a large position in Walmart and some of that I bought on April 1, 2010 when the price was about $55. and some December 17, 2009 when the price was about $53. And bought some on September 16, 2009 at around $50. Bought on April 27 2009 when the price was around $48. And April 13, 2009 at around $51.

November 19, 2015

On Thursday, the S&P 500 was down 0.1% and Toronto was up 0.5%.

The Canadian Western Bank preferred share bounced up 3.2% on a small trading volume. Melcor was up 2.2% but that was also on light volume.  Boston Pizza Royalties was up 1.5%.

Valeant had a strong bounce, up 15%.

Liquor Stores N.A> had about a 4% bounce earlier int he trading day as it announced an acquisition in New England. But it ended up about unchanged on the day, possibly because the market realised that it was only buying half of two (larger) stores and planning to build two more large stores in that area. The CEO of Liquor Stores actually lives in Massachusetts and has hired some (I believe) high-priced American executives in the past year or so. My recommendation would be that they sell the U.S. operations to this CEO and part company with him and his new American executives and get back to running the Canadian stores. Also, the dividend needs to be cut at least in half. Selling the U.S. operations might be timely, given the high U.S. dollar.

Hall of shamer, TransAlta was down 6.6%. At its current bargain basement price it might be worth considering as a highly speculative bet. I have not ran an analysis of the company.

The market was unimpressed with Bombardier’s deal regarding its rail unit. Apparently the deal is extremely difficult to understand and involved a high interest convertible bond, but where reportedly the interest will not be paid with cash but rather with additional equity in the rail unit. Perhaps the Bombardier B shares will react more favorably after analysts have some time to digest the deal. The Bombardier pref share that we have on this site rose 6.0%, which I think makes sense as this deal presumably increases the chances that Bombardier will survive long-term and continue to pay the dividend on this preferred share.


November 18, 2015

On Wednesday, the S&P 500 was up 1.6% and Toronto was up 0.9%.

Stocks that rose included CN Rail, up 2.2%; Berkshire Hathaway, up 2.3%, Bank of America, up 2.4% and Visa Inc. up 2.0%.

The Canadian Western Bank preferred share was down 3.8% to $19.17. It’s yielding 5.7% and is worth considering.

Markets are always unpredictable in the short term. My strategy is generally to say relatively fully invested except that I occasionally have a relatively high cash allocation, such as 20 to 30% at times when it appears that stocks are over-valued or when I have taken a lot of profits after a big run up in the markets. At this time I have very little cash and am relatively fully invested in equities.

November 17, 2015

North America stock markets ended Tuesday with the S&P 500 down 0.1% and Toronto down 0.3%.

Stocks that rose included Walmart, up 3.5%. Canadian Western Bank was up 1.7% and its rate reset preferred share was up 2.1%.

Valeant fell another 4.3%.

AutoCanada Update

The report for AutoCanada is updated and rated Speculative Buy at $28.64. This company was added to the site on July 14 rated Buy at $40.36. It had at that time fallen by 55% from highs around $90 in May of 2014. Since being added to the site the stock has fallen 29%. Same-store new vehicle sales declined by 13% in Alberta where 43% of its dealerships are located.  Meanwhile the company continues to make acquisitions and has announced the purchase of five additional dealerships in four transactions since July. The near-term earnings growth outlook remains weak for this company and owning it is likely to require patience. When it comes to auto sales at least, there is clearly a recession in Alberta and it appears set to get worse as layoff announcements continue.

November 16, 2015

Markets were surprisingly strong on Monday with the S&P 500 up 1.5% and Toronto up 1.8%.

Among the bigger gains were Couche-Tard, up 4.6%, Canadian Tire; up 3.8%; Toll Brothers, up 3.2%; Boston Pizza Royalty units up 2.2%; Stantec up 2.1%.

Stocks that fell included most or all of the rate reset preferred shares on our list but most notably, the Enbridge rate rest pref shares which were down 4.4%, perhaps on leak of news of their layoffs that came out after the close. Also Valeant was down another 2.7%.

AutoCanada is continuing to make dealership acquisitions. It is facing declining sales in its all-important Alberta market but it seems the company is still confident of the future. I plan to update the report on AutoCanada in the next day or two.

Berkshire Hathaway’s NetJets subsidiary is taking delivery of the first Bombardier Challenger 650 business jet as the launch customer. It is very important for Bombardier to remain on good terms with NetJets which is a major customer. Several years ago NetJets had placed a HUGE order for up to 275 Challenger aircraft. It may have cut back that order since then but certainly remains a very important customer. I suspect NetJets is not too pleased with the fact that Bombardier is on such shaky ground financially.

November 14, 2015

On Friday, the S&P 500 fell 1.1% and Toronto fell 0.4%.

Bombardier was down another 7.3% as its conditional sale of C-Series planes to Porter Airlines will not be happening since the Federal liberal Transport Minister indicated the runways there will not be extended as hoped. For the same reason, its pref shares were down 8.9%.

Canadian Tire was up another 2.2% due to its excellent earnings report.


November 14, 2015 Liquor Stores Shares and Debentures updated as Sell and Strong Sell

The report for Liquor Stores N.A. is updated and rated Sell at $8.55. The dividend appears to be running at double the earnings level which seems highly unsustainable. In addition, I have lost faith in management.

The report for their convertible denture is also updated and rated Strong Sell at $102.31. In the latest Q3 they noted in the management discussion that they have the right to pay out these debentures in common shares (as opposed to cash) anytime after April 30, 2017. Previously this right was disclosed in the annual financial statements notes but not in the management discussion. When I first added these debentures to this site I had read that note and I noted in my report their right to pay these out at par in 2017 but I had failed to notice that they could pay in shares or cash at their option. It seems to me that the option to pay in shares weakens the value of these because the very payment in shares would likely cause the share value to drop due to dilution concerns and also due to fixed income investors selling the shares. In some ways these debentures seem well protected in that company would have good cash flows if they suspended the common dividend. But overall, I would definitely hasten to sell these debentures if I owned them. I see no upside for them and plenty of possible downside and on top of that the yield is not particularly attractive.

November 12, 2015

On Thursday, the S&P 500 fell 1.4% and Toronto was down 1.6%.

Valeant was down 6.2%. Based on my view of adjusted earnings as of Q2 (which was a lower number than the company provided as I did not agree with all of their add backs) Valeant is trading at 11.6 times earnings which would seem to be attractive. However, we don’t know how much the earnings will be hit by their troubles. This company is likely to continue to be volatile. My own concerns about trusting management have certainly not gone away. Overall, this is a highly speculative company and I am not too interested in buying. If I did buy shares I would take only a small speculative position.

The Canadian Western Bank pref shares were down 4.2% to $19.80 and seem attractive.

Canadian Tire released earnings which I think it is fair to say were much better than expected – a blowout quarter. The shares rose 2.1% on a day when very few stocks were up. I continue to be surprised that they are not being hurt by the lower dollar as they indicate they have found offsetting savings in purchasing and in cost control. I still think there may be some delayed impact as merchandise being sold in Q3 may have been purchased earlier this year or the price may have been contracted for when the dollar was higher. Based on the numbers Canadian Tire would have a rating of Buy. Listening to the conference call management sounds very confident and they believe the shares are under valued.

Stantec is updated and rated Buy at Canadian $32.75 and U.S. $24.66. Stantec has seen a significant slowdown in its oil and gas related business to the point where this dropped from 25% of revenue down to 15%. But acquisitions and growth in other business areas and a huge boost from the lower dollar allowed Stantec to post an adjusted earnings per share gain of 7% in Q3. The only adjustment is that I add back amortization of client relationships and backlog because those are like goodwill and in reality are not declining in value. Stantec may struggle to show much growth in the next few quarters but its business model of (significant) growth by  acquisition along with (usually) modest organic growth remains in place and I expect this company to continue to be a good or very good investment.

It’s interesting to note that Stantec’s operations in the U.S. benefit immediately from the lower dollar in that the revenue and profit is translated back to Canadian dollars at a higher rate. In contrast Canadian manufacturers that sell into the U.S have often not seen an immediate benefit. The reason for that may be that the manufacturers are pricing in Canadian dollars. In that case it is their U.S. customers who get the immediate benefit. Over time these manufactures will likely gain market share against U.S. competitors or can raise their prices to U.S. customers.

November 11, 2015

On Wednesday, the S&P 500 was down 0.3% and Toronto was down 0.5%.

Canadian Tire was up 4.2% ahead of its earnings report tomorrow (Thursday) morning.

Melcor was up 3.3% after posting reasonably good earnings. It remains very thinly traded with less than 6000 shares traded today even with the earnings release. Basically almost no one is paying attention to this company.

Boston Pizza Royalties rose another 1.0%. It is also very thinly traded with less than 12,000 shares traded today and also attracts very little attention. On their conference call yesterday only one analyst had any questions. It has a 7% cash yield and that distribution appears to be safe and is likely to grow modestly over time.

Element Financial was up 8.8% after reporting earnings. I will update the report on this company soon. It’s new strategy of focusing on the service aspects of fleet financing sounds logical as I never did understand how it would compete in a straight lending operation as other entities have lower costs of funds.

Toll Brothers has been bouncing around but was up 2.4% today.

Melcor report updated

Melcor is updated and rated a Strong Buy at $15.25. It has a long history of earning good returns on equity and it is on sale for close to half price due to fears related to lower oil prices and the Alberta economy. In addition it is thinly traded and almost no one is paying it any attention.

November 10, 2015

On Tuesday, the S&P 500 rose 0.1% and Toronto was down 0.5%.

Canadian Tire was down another 2.1% to $108.93. It’s probably a Buy at that price but it would probably be best to wait for it to report earnings on Thursday morning. The earnings may be good but the concern is the impact of the sharply lower dollar. Are they starting to have to pay a lot more for their stock now? And what would happen to sales if they had to increase prices to compensate? Earlier they had apparently found ways to offset the currency but I can’t believe it is possible to compensate for such a large change in the currency.

Liquor Stores N.A. fell another 6.2% to $9.05. I plan to update the report on this company soon to see if it is starting to look more reasonable. The dividend certainly seems unsustainable. I did not see any indication that they plan to cut costs, which may be what is needed.

Melcor fell 2.5% to $14.61 and then reported earnings after the close. The earnings and lot sales appeared to be quite strong given the slow-down in Alberta. They report the book value per share as $28.47. And that is for solid assets with no purchased goodwill on the books. Yes, the land and building asset values could fall. But for now, $28.47 should be a moderately conservative calculation of the book value and we are able to buy shares at pretty much half that, or a 49% discount to book value. And the company has relatively moderate debt leverage such that it is very unlikely to run into financial danger. This is the sort of scenario that can often be confirmed later to be a golden opportunity. There are never any guarantees but this looks like a bargain to me.

Boston Pizza Royalties Income Trust rose a modest 1.0% to $18.50 after reporting better-than-expected same store franchise (royalty eligible) sales growth of 2.6%. This was strong growth in spite of the slow-down in Alberta where it apparently gets one third of its revenue. The simple math here is you get a 7.0% cash yield where the cash yield seems not only safe but very likely to grow slowly over the years. I added to my position today.

The Bombardier pref shares fell 4.4% to $10.00. With a yield of 15% (It was 6.25% when these were issued at $25) these are clearly quite speculative and the market views them as highly risky. The common shares are at $1.45. Bombardier has the right to convert these to 12.5 common shares per pref. That would be okay at the moment as it would mean we would be paying in effect $10/12.5 = 80 cents per common share. But if they did that and then the common plummeted we could still lose badly. And maybe they should do that. Since they issued the pref at $25.00 the conversion would seem to be equivalent of issuing common shares at $2.00 from the point of view of Bombardier. It is possible that Bombardier could simply eliminate the dividend on these shares. But the dividend is cumulative and so cutting it would likely be done only in the case of an even more desperate situation. It would certainly not do much for confidence in the company and I believe the company needs to project confidence to its (potential) customers. If one were to bet that the worse is over for Bombardier then perhaps these shares are a reasonable speculation. It would not seem wise however to take a very large position in these. And perhaps any position at all is unwise.

Boston Pizza Q3 earnings (10:10 am eastern)

The Q3 report for BP Royalties is out and same store sales were stronger than I would have expected given the thinking that Alberta would be a drag. Franchise sales upon which the royalty is collected were up 2.6% on a same store basis. Distributable cash is up strongly. The distribution was not increased but there appears to be room to increase it and that will likely occur in early 2016. Meanwhile the unit price was up only a few cents this morning. I may add to my position today.

November 9, 2015

Monday saw a negative start to the level of stock prices in north America, on average. The S&P 500 was down 1.0% and Toronto was down 0.5%.

Liquor Stores N.A. was down 11% to $9.65. We had rated this a strong Sell on March 13 at $15.26. We had lost confidence in management some time ago.

Canadian Tire was down 3.3% to $111.25. This has been a great company and appears to be very well-managed. However, our concern for a least the last year has been about the impact of the sharply lower Canadian dollar. Its REIT subsidiary of which it owns over 80% reported after the close what it claimed was a strong third quarter and increased its distribution by a modest 2.6%. Canadian tire reports earnings on Thursday morning.

Stocks that rose on Monday included AutoCanda up 3.4%.

With rate reset preferred shares having risen a lot in the past five weeks but still being mostly well below issue price the thought arises as to whether one should trim positions here. Logically it may make sense especially if there are better uses for the cash. But it’s always emotionally difficult to sell below issue price. With that in mind I have not sold any of the pref shares that I bought at $25. But I did today sell at $21.54 a third of my Canadian Western Bank preferred shares that I had bought early last month at $16.80. These rate rest shares should continue to rise if Canadian interest rates rise due to the FED possibly finally rising its rate in December.

The Melcor REIT which is about 55% owned by Melcor Developments reported what appeared to be good results this morning. The REIT rose 3.2% while Melcor ended the day down slightly. Melcor will report tomorrow, likely after the close.

November 8, 2015

On Friday, the S&P 500 and Toronto were both about unchanged at the end of the day.

Stocks that were on the rise included most rate reset pref shares, including the Canadian Western Bank rate reset pref shares up 4.5% to $21.30.

Bank of America was up 3.7%.

AutoCanada fell 5.4% to $29.34. I understand that was because it said that the outlook in Alberta was uncertain and might remain weak. (Apparently that was a surprise to some.) Earlier in the day on Friday it was down about 10% and I grabbed some additional shares at $27.83.

Liquor Stores N.A. fell about 10% after reporting earnings. They continued to add modestly to sales but same store sales were about flat and they continue to have  a dividend that is higher than earnings which is not a sustainable situation.

Last week there was big excitement about a better-than-expected U.S. jobs figure. I do think the U.S. economy is clearly doing well. It’s official unemployment rate is down to 5.0% and it topped out at 10.0% in 2009. Many people argyle the official number is way too low and reality is higher. But even if that is the case it’s hard to argue that things are not a LOT better when the official unemployment rate is half what it was in 2009.

But as far as the excitement over the October jobs creation figure of 272,000 jobs, the financial press should stop to ask about the precision of the number. It’s not as precise as they make out. Also I saw where it tends to go up in October most years. That simply means the seasonal averaging is not working as it should. These numbers are always reported after seasonal averaging. While the jobs number was good it should be taken with some caution due to its inherent lack of precision.

I have been studying the 2014 annual report of RBC. It is no more complex than might be expected for such a large bank. But that still leaves a lot of complexity. I see it as potentially risky but the risks are managed like a finely tuned instrument. As long as the risk management is as good as the bank thinks it is then RBC is probably a bargain at its current price of around 11 times earnings. But I would be cautious about getting over loaded on Canadian Banks because they really do have some risks that could materialise in certain circumstances.

The MELCOR REIT will report tomorrow. I don’t follow it but will check out its results because they will impact MECLOR Developments itself which reports after the close on Tuesday.




November 5, 2015

Thursday’s action saw the S&P 500 down 0.1% and Toronto down 0.8%.

Valeant was down about 15% after big investor Bill Ackman sent a letter expressing frustration to the company. Last week he tried to explain why the company was still solid in a 4 hour presentation – which caused the market to decline. The company may be thinking it has enough enemies without having a friend like Ackman.

I took a look at my July analysis of the company to see if the share price was now getting down close to book value. Not even close, as I have the book value at U.S. $18.69 as of Q2. So, it seems the company still looks very expensive compared to what it paid for its assets. Based on the company’s view of adjusted earnings it would look quite cheap. I would not be prepared to put any significant amount of money, if any at all, into these shares at this time.

Rate reset preferred shares have continued to recover in recent days and weeks. Most recently due to a rise in the government five year bond yield. The Canadian Western Bank preferred share is now at $20.47 up 3.9% today. I had mentioned these on September 30 and for a  couple days after that when they could have been bought for under $17.00.

Melcor fell 3.0% today. The Melcor REIT will report on Monday and it could very well report lower occupancy and possible some loss in market value of its buildings. Melcor Developments owns about 56% of the REIT which represented 13% of Melcor’s profits in 2014.

Melcor itself will report earnings after the close on Tuesday. No-doubt Melcor’s lot sales and profits will be lower than in the year ago quarter. But I suspect they are still selling lots and that the situation is far from dire. They are financially strong and are very well capable of surviving even steep declines in their sales and have done so many times over their long history.

Stantec reported decent earnings this morning Profits per share were up 4% despite the slower economy and the company continues to grow. The stock rose only 0.6% and may rise more tomorrow after analysts have had more time to digest the earnings and provide their assessments.

AutoCanada reported earnings after the close that were down as would be expected but still well into the positive territory. Apparently the earnings were a shade lower than expected.

I have removed Fortis Inc. from the list due to a possible conflict of interest as I am doing a few hours per week of contract work that involves an analysis of the earnings of one of their subsidiaries. They report earnings tomorrow and I had indicated in early October in the daily comments that I expect those earnings to be strong due to their recent U.S. acquisitions.

I will be updating a number of companies in the next couple of weeks for Q3 earnings and also I hope to add Royal Bank before too long but first I need to take a lot of time to carefully read their extensive annual report.

November 4, 2015

Wednesday’s markets closed with the S&P 500 and Toronto each down%.

And oil gave back much yesterday’s gains but remains above $46.

Couche-Tard was up another 2.7%.

Bombardier was up 6.5% after one of its C-Series customers, the Latvian flag carrier, Baltic Air, which has ordered 13 planes, got an $87 million bailout which it needed due to its negative equity of 75 million euros. It’s pretty sad when this is the sort of thing that makes Bombardier’s stock rise. Bombardier has negative equity of $4.0 billion and only got a bailout/investment of $1.0 billion. Perhaps now they should call for a level paying field with Latvia.

There has been talk that this is one of the worst earnings seasons in some years in the United States. Just how bad is it? GAAP earnings share on the S&P 500 are expected to be down 4% year-over-year and operating earnings per share are expected to be down about 7%. And, about 75% of the companies in the S&P 500 have already reported. Actually this is not a very large drop in earnings and is explained by lower oil prices. We should not expect reported earnings to rise like clockwork every quarter. And Q4 earnings are projected to show a 10% increase. So I am not exactly losing sleep over this one quarter of earnings slippage.

I have a statistics Canda report that shows the average profit and equity of the various industries in Canada. In six quarters of data through Q2 2015, the only negative profits on this report are for the oil and gas industry which on average lost money in each of the last thee quarters. All of the other industries made money. And, based on the Q4 numbers the ROEs were mostly at 9% annualized  or higher with some higher than 15%.

I take comfort in this because if companies are making good returns on book equity and I own companies (shares) and if my shares are not trading too far above book value (and they are not) then it seems logical (even inevitable, unless the corporate earnings decline or P/E ratios decline dramatically) that I will make good returns. Stock market returns will always be far more volatile than the underlying corporate earnings, but over time corporate earnings drive stock market returns.



November 3, 2015

On Tuesday, the S&P 500 rose 0.3% and Toronto was up 0.6%.

Oil (West Texas Intermediate) was up 3.7% and is just under U.S. $48.

Alimentation Couche-Tard partially recovered some recent losses and was up 3.8% today.

Visa was up 3.6% as this largely unregulated-as-to-fees giant with monopolistic characteristics continues to grow including by purchasing Visa Europe. The difficulty with this stock is that it always seems to look very expensive.

The Canadian Western Bank preferred shares fell 2.5% giving up yesterday’s gain. The Bank’s common shares were up 2.1%.

I am now taking a very close read of the annual report of Royal Bank of Canada. I have not had any of the large Canadian Banks on the list here in about ten years.  I had given up attempting to analyse them years ago due to the complexity and in favor of the far simpler Canadian Western Bank.

So far, two things strike me about the RBC annual report. First, the disclosure seems very good and very clear. Second, I am surprised at just how incredibly leveraged it is. Banks are regulated as to their leverage but are still allowed a huge amount of leverage (low equity compared to assets).

From my very first look at a bank on this site (CIBC in February 2000) I have always noted that banks have very high leverage. Still, I am surprised just how high the leverage of Royal Bank is. As long as its assets are low enough risk the high leverage works out well.

On the face of it, I suspect Royal Bank will rate as a (higher) Buy or Strong Buy based on its earnings and book value and growth but it is difficult to know what to make of the risk.

Bank debt always seems to be given the highest ratings by the debt rating agencies in spite of the leverage. Banks do enjoy a lot of government support including mortgage insurance and including deposit insurance (which vastly lowers the risks to depositors allowing them to attract deposits while these days paying little or no interest). Still, it is a bit of a mystery to me how they can be considered so very low in risk.

November 2, 2015

Monday was a strong day in the markets with the S&P 500 up 1.2% and Toronto up 0.7%.

The Canadian Western Bank preferred shares that I updated yesterday were up 2.6%. I notice the volume is very light in these shares. It was up about 2.6% early in the day on just 100 shares traded. That low volume was a bit disturbing to see. I would hate to think my Buy rating had anything to do with the increase today. It’s never ever my intention to cause stocks to rise. I wish to identify under-valued stocks and then ride them up due to their earnings growth or as their P/E multiples increase as the market perhaps begins to recognise the value.

Some advisories are in the business of actually pushing stock prices up. In the worst cases they are engaging in “pump and dump”. (Garbage will rise if you blow on it hard enough.) I would never engage in or condone pump and dump nor do I wish my advice to affect the price of any stock. What would be the point of the InvestorsFriend subscribers pushing a stock price up with our buying? To whom would we then sell? If the price rise was justified then there would be nothing wrong with pushing the price up. Still, that is not something that I am comfortable engaging in other than perhaps temporarily and inadvertently on some of the thinner trading stocks (of which we have only a few).

In the case of very thinly traded stocks it could occasionally happen that the buying of the InvestorsFriend subscribers pushes a stock price up. But that is never the intention. And for the most part we don’t cover stocks with very low trading volumes. But it could happen with Melcor and probably some of the preferred shares.

On thinly traded stocks we should all be careful not to just buy at the market but rather we should probably enter a fixed price when buying those stocks.

Certainly Canadian Western Preferred shares did not rise all that much today but still I wanted to point out that I would never intentionally push a stock’s price up.

Canadian Western Bank Preferred Shares report updated

The report for the Canadian Western Bank rate reset preferred shares is updated. These preferred shares now yield 5.7%. The reset date is not until April 2019. At that point if the five year Canada bond rate remains at about 0.86% then the distribution on these shares would drop but the yield on the current price would still be attractive (assuming the bank is still financially strong) at 4.7%. In fact, if the government bond rates remain at about today’s low levels in three years then I would think that all fixed income yields would come down and that 4.7% might be seen as very attractive.

There is no doubt that investors have been “burned” by rate reset preferred shares. They were bought because they would perform well if interest rates rose which is what was expected. Instead, rates decreased and these shares fell in price as their reset distributions would fall with lower rates. It appears that the prices were driven lower than justified as many investors “bailed out” due to the surprise losses. (“Cleverly” locking in such losses).

Rate reset shares have had some recovery in the past month. They should increase in price if the FED finally raises interest rates in December.

October 31, 2015

On Friday, the S&P 500 was down 0.5% and Toronto was down 1.9%.

Valeant’s decision to “sever ties” with Philidor (a company that it had an option to buy and which it consolidated and which therefore in a sense was part of Valeant) would seem to be basically an admission that the short seller was right. The short seller is in good measure vindicated by this action by Valeant.

Bill Ackman came out and compared the troubles at Valeant to American Express’ “Salad Oil Scandal” back in the early 1960’s which Warren Buffett made a fortune on by going in and buying after the fall in Amex’s share price.

I don’t think it is a good comparison at all. AMEX was purely a victim in the Salad Oil Scandal. Valeant is cast as villain in the present scandal.

After the Salad Oil Scandal had pounded down the price of America Express shares, Warren Buffett did research (he talked to his friend that owned a restaurant) and found that customers were still using their American Express cards as normal. He concluded that there was a strong underlying business there and that American Express would recover. He was so confident that he put about 40% of his partnerships money into the stock and made a huge return.

In the case of Valeant, customers have abandoned the part of its business that went through Philidor and it’s not yet clear whether these large institutional drug buyers might also abandon other Valeant companies. There is concern that doctors will be less likely to prescribe Valeant products. So, for many reasons Bill Ackman’s analogy is not a valid one.

I am looking forward to Q3 earnings reports from Stantec, Melcor, Boston Pizza Royalties and others in the next two weeks or so.

Stantec will benefit from the lower Canadian dollar but this will be offset by slowness related to the lower oil prices. Boston Pizza Royalties units have fallen significantly due in part to fears of lower sales in Alberta. On Friday statistics Canada reported that restaurant sales in Alberta rose about 1.5% in August after two months of decline. I view Boston Pizza units as low risk and I believe there is a good chance the price will rise in the short term. They may even report a distribution increase. Melcor has declined due to the oil price situational and will no doubt report lower lot sales. It may also report some mark to market losses on its rental buildings. It will be interesting to see how cautious they are on future sales. In any case, I believe its shares represent good value.


Bombardier Pref Share report updated

The Bombardier pref share on our list is updated and rated Highly Speculative Buy at $10.75.

This has been a terrible investment due to Bombardier’s troubles. It’s yielding 14.5% which is indicative of very high risk.

However, if you think it is unlikely that Bombardier will declare bankruptcy then this may be worth considering. The investment by Quebec would appear to signal that the company will likely not be allowed to go under. But governments are concerned about job protection and might ultimately find a way to protect the jobs while letting the pref and common shares become worth even less. If the common shares significantly lower than there is a chance that pref shareholders will be given 12.5 common shares for each pref share and that could be worth even less than the present $10.75. It may be this aspect of the pref shares that is holding the price down so low. As of today if the company exercised the option to redeem these shares in return for 12.5 common shares, the 12.5 common would be worth $17.75. But if the common shares get low enough it is possible that the 12.5 common shares could be worth far less than $10.75.

While, there are no guarantees I think the odds are reasonably good that these shares will continue to pay their dividends and will ultimately rise in price.

I must admit though that I have not bought any additional Bombardier pref shares at prices below about $16. I have a modest exposure to these shares but did not want to go over board.


Bombardier Stock Report Updated

Bombardier is updated and rated highly speculative (lower) Buy at $1.42.

Clearly, this has not been a good investment for many years.

I added it back to this site on September 23, 2012 rated Speculative Buy at $3.71. It’s down 62% since then. I had noted that it had many problems but it nevertheless looked like a reasonable speculative pick.

Prior to that it was also added back to the list on June 14, 2010 as a Speculative Buy at $4.62 and removed at the end of 2011 at $4.06

It was first featured on this site back in our earliest days in the Fall of 1999 rated Buy at $12.80 for the multiple voting A shares. It actually rose to $23.10 by December 1, 2000 and we rated it Weak Buy/ Hold at that point. By December 1, 2001 it was down to $13.95 and we rated it Speculative Weak Buy. It cratered to $5.72 by the end of 2002 and we removed it from the list. It was then absent from the list until 2010. It is down 92% since we first looked at it in 1999. Truly an abysmal record.

Bombardier remains an extremely poorly managed company. One that is anything but on its game. One that now focuses on mere survival.

It should only be considered for those looking for a highly speculative stock. Now that it has dumped out a tremendous amount of bad news, it may actually have some positive news to report in the next nine months or so. Customers may now be more willing to place an order for a plane since it seems more clear now that the Quebec government is not going to let the company fold up operations or anything of that sort. (It’s not certain however that the government would not be willing to let the shares go to zero. It’s employees that the government cares about, not share owners.)



October 29, 2015

The S&P 500 was about even and Toronto was down 0.5%.

Constellation Software was up 4.8% after releasing a strong earnings report. Like I mentioned yesterday, some companies just seem to always be on their game.

Bombardier made the news with a U.S. $4.9 billion dollar loss. To put that in context a report yesterday indicated that the entire Canadian oil sector would lose Canadian $2.1 billion in 2015. In fairness that $2.1 billion must exclude write-offs but still Bombardier has posted a truly mammoth loss. (It’s world-scale really.) Most of it is in the form of write-offs of money previously spent on the C-Series plane and, while they were at it, $1.2 billion for new line of Learjets that they have now scraped.

In rough numbers, Quebec will own half of the C-Series program. Quebec is paying $1 billion for its half. Bombardier will have paid at least $4.2 billion for its half and it may be more like $6 billion. Some people say governments are bad investors. Clearly they are not as bad as Bombardier.

This does not look like much of a gift from Quebec. Rather it looks more like it could be an astute investment. But that remains to be seen.

This investment by Quebec leaves Bombardier to live on, and at least be able to pay its bills as they come due. The company brags of its $2.3 billion cash. I find that to be less than comforting when I see that their cash plus accounts receivable is somewhat lower than their accounts payable. This $2.3 billion does not exactly look like surplus cash to me.

They also go to brag or at least attempt to reassure investors by pointing out that they have $1.3 billion in available credit facility. To me this looks similar to someone with no cash pointing out that they still have “room” left on their credit card.

In any case they are able to move forward and hope for better times ahead.

One thing that this massive write-off will do is make their profits look a lot better when they ultimately do start delivering planes. Previously they would have been expensing say $6 billion in program costs and spreading that cost across the future plane sales. Now that should be more like $3 billion spread across future plane sales. I am not sure what kind of percentage reduction in costs per plane that leads to but it will surely be a material amount. This is sort of accounting trickery as they have just booked $3.2 billion in development costs  today which reduces the amount to be booked in future and makes the reported profit per plane higher in future. (Or turns what would have been losses into profits) Trickery or not, it is legal, even required accounting and if they can start reporting profits on these planes the market will lap that up.  Bombardier will surely have a better year in 2016.

I am not clear if they revealed whether or not the early plane sales will now be reported as profitable given this write-off. Without the write-offs I understood the planes were going to result in accounting losses in the first few years of sales. (Which is normal in this tough industry) Either way the delivered planes will surely result in cash flow gains on sales before deducting amortization of development costs.

Clearly Bombardier remains a highly speculative investment. Hopefully the bad news is out of the way for now and the next news such as some new sales contracts and then the certification and then the delivery of planes in 2016 will cause at least some recovery in the share price. There is also the planned sale of part of the Transportation division. Hopefully not at a fire-sale price.


October 28, 2015

Wednesday was a strong day in the markets with the S&P 500 and Toronto each up 1.2%.

The FED once again did not raise rates but appeared to hint that it probably would in December. Maybe. The market ultimately decided that this was good news and pushed stock prices up.

Bank of America was up 5.4% and Wells Fargo was up 2.5%.

In Canada the market was boosted by a close to 7% rise in the oil price fueled by a lower-than-expected oil inventory increase.

CN Railway was up 2.9% on its earnings and on the general market rise.

Canadian Western Bank was up 2.5% perhaps due to the Alberta budget and the oil price rise. Stantec was up 2.8%, probably for the same reasons.

Bombardier was up 11.0% on reports that the Quebec government would announce financial assistance of some kind tomorrow. After the close came a story that they would abandon their Learjet 85 program – which would mean more job loses and write-offs. (This company cannot seem to keep anything secret – recall its talks with Airbus were recently leaked). The pref. shares rose 15.9%. Also, after the close, came a decision by Toronto Transit to sue them for late deliveries of subway cars. I have often found that some companies are constantly “on their game” and others constantly stumble.

Bombardier will release earnings and be much in the news tomorrow, Thursday.


American Express update

I have updated the American Express report for Q3 earnings. It’s rated (lower) Buy at $75.25. It’s had some “headwinds” lately due to loss of the Costco affiliated card in Canada and the pending less of same in The U.S. in march and also due to the higher U.S. dollar and due to ramped up marketing spending to attempt to replace the lost Costco business. It is not expensive on a P/E basis, which supports the lower Buy rating, but is facing at least a year of lower growth. Overall it is not compelling at this point. It has lost 14% since it was added to this site almost two years ago. It is a strong brand and may recover but not likely very soon. Longer term investors could consider a small position in this stock.

October 27, 2015

On Tuesday, the S&P 500 was down 0.3% and Toronto was down 0.7%.

TransForce was down 7.0% for probably no good reason. I initiated a small position in this stock today (I bought when it was down more like 4%) and have an order in that will fill if the stock drops just a bit further.

Many other of our stocks declined today including AutoCanada down 4.2%, Element Financial down 5.2%, and the Bombardier pref share down 5.9%. Such is life in the stock market.

CN Rail was down 3.8% and then after the close posted a better-than-expected 18% increase in earnings per share. Look at the earnings per share graph for CN rail, it is a thing of beauty. Earnings were boosted by currency which we had expected. I first added CN to this site in the earliest days of this web site in 1999. It’s up 10 fold since then. CN provides a vital transportation service and is well managed and does not really face intense competition. It seems fair to predict that it will continue to grow its earnings over the years though it may face occasional earnings declines. As to the stock price, that will be left to the sometimes madness of the market. Stock prices can certainly be far more volatile than earnings. But looking back, CN’s stock price has been relatively well behaved.

The Alberta budget released today, with its stimulous spending could be a positive catalyst for some Alberta stocks on Wednesday. I am thinking of Stantec and maybe also Melcor and Canadian Western Bank. It certainly should not be a negative factor.

The U.S. market may breath a sigh of upward relief if the FED keeps interest rates unchanged tomorrow (Wednesday) and especially if it signals that “lift off” may be delayed into 2016.


October 26, 2015

Monday saw the S&P 500 down 0.2% while Toronto was down 1.2%.

AutoCanda was down 4.9% and Melcor was down 3.7%.

TransForce was up 3.8%.

Valeant was down 4.8% as it failed to convince investors that all is well. With its debt and all its troubles, this is a stock I am steering clear of.

Bombardier issued  a “media advisory” indicating that it will host a conference calls for investors and analyst ONLY on Thursday, morning and that they will no longer be taking questions from the media at the end of their calls.

Hmm, seems like they don’t like taking questions. Maybe they should go a few steps further and not take any questions from anyone. The earnings release should speak for itself. They could consider getting rid of their investor relations people to save money. Some companies don’t conduct conference calls or bother having an investors relations group.

Markets this week are expecting the FED to announce on Wednesday  that it will, once again, not raise interest rates. Markets are perhaps a bit jittery waiting for that confirmation.

In terms of the economy, rail car loading figures are often considered to be a good gauge.

In the U.S. rail car loading are down somewhat versus last year but ahead of 2013 and 2012. In part this is due to low natural gas prices which has led to less coal being shipped to power plants as they switch to natural gas.

In Canada rail car loadings are down noticeably from last year. And also down versus 2013.

The link here has options to show which types of carloads are up or down. (grain, coal, crude, automobile’s,…) It seems that metallic ores and minerals have really plummeted…

CN Rail will report earnings after the close on Tuesday.

October 23, 2015

Friday was another positive day in the markets. The S&P 500 was up 1.1% and has clawed its way back to a small positive gain for the year to date. Toronto was up 0.5% but remains down 4.6% year to date.

Melcor was up a hefty 9.0% but we should not read much into that because the volume, although somewhat larger than a typical day, was still very thin. Still, it’s nice to see.

Amazon released earnings and rose 6.2% to $599. The GAAP earnings were 17 cents per share and year to date were 24 cents. Apparently there are big market value gains to be had while selling massive quantities of goods at basically a break-even level. Apparently its okay for Amazon to basically keep on promising profit tomorrow while offering basically no profit today. This for a company that is about 20 years old now.  It reminds me of the White Queen who offered Alice jam yesterday and jam tomorrow but said there would never be jam today. Except with Amazon there was also very little jam yesterday as well as approximately none today. Perhaps special rules apply to such a game-changing company as Amazon. The likes of Walmart and Best Buy must feel like they are the victim of a competitor who is completely mad. Or perhaps the jam will indeed flow with great abundance tomorrow.

American Express was up 2.9%.

And Valeant rose 6.0%. I don’t know if there is anything to the accusations of accounting irregularities. I think, probably not. But I still had my own concerns about the company in regards to how it calculates cash earnings, how it avoids income tax and how it pays obese executive compensation. And I think the investigations into price gouging are very serious matters. Also there is the very high debt level. We may see a nice bounce when they explain things on Monday but I am not touching this one myself.

TransForce Inc. is added to our list, rated (lower) Strong Buy

TransForce is the largest trucking company in Canada and gets about one third of its revenues from the U.S. It has a very successful track record of both growth by acquisition and of generating strong earnings and cashflow from its operations. It appears to be forecasting flat to slightly negative earnings growth in Q4. And it may be less acquisitive in the next year or two as it digests recent acquisitions and pays down debt. But overall it appears to offer quite good value and it seems reasonable to forecast that it will continue to grow relatively rapidly in the longer term and to achieve high returns on equity.

This is the first time I have had a trucking company on the site in a long time. Way back in late 2001 and early 2002 when Contrans was on our list. We got a big gain on that as it rose 140% in 15 months. It became an Income Trust at that time which pushed up the price. We added it back to the list in early 2004 rated Sell. We did not follow it for long after that as it looked too expensive at that time. Coincidently it was recently purchased by TransForce.

There was no real reason that we went so many years without a trucking company on the Site. I had thought of adding TransForce but until now did not find the time or have enough inclination to do so.

On my recent road trip across Canada I noticed how many trucks were on the road. It seemed like a surprisingly large percentage of the vehicles on the highways are trucks. I can’t guess what percentage other than to say a lot. Most of my driving for many years has been City driving with occasional trips to Calgary from Edmonton and also some driving in the Maritimes on vacations (I flew there but did some highway driving). For whatever reason I just never really thought before that with all those trucks someone was probably making good money in the business. I have also heard that trucking is a huge employer, truck driver is one of the most common occupations. For whatever reason I also always had the impression that trucking was very competitive and not a lucrative business (my Contrans experience notwithstanding). I may have picked up that attitude some decades ago perhaps during a recession or otherwise at a time when some trucking company or other was in the news complaining of poor profits.

In fact, it seems like almost every company will claim that it is in a highly competitive business. Yet it seems like very few companies are losing money (some certainly manage to) and extremely few companies trade at less than book value which one might expect them to do if profits were hard to come by. In fact the ROEs of companies are surprisingly high as I documented a while back.

In addition to TransForce I also hope to add the parent company of Peterbilt. I also noticed on my cross country trip that many communities along the way had a prosperous looking Peterbilt outlook. I started thinking, who services all these trucks? Maybe Perterbilt? I have also long noticed that here in Edmonton there seems to be a lot of very prosperous looking truck dealerships. The parent of Peterbilt is called PACCAR and they build and service trucks under several brand names. It looks to be an interesting company and might be another good addition to our list.




October 22, 2015

On Thursday, the S&P 500 rose 1.7% and Toronto was up 1.3%. These are hefty gains.

Individual winning stocks today included CN Rail up 2.5%, Canadian Western Bank up 2.0%, Berkshire Hathaway up 3.1%, Constellation Software up 3.4%, and AutoCanada was up 7.6% to $36.01 AutoCanada’s stock traded under $26 on several days in the last few months and as recently as October 1. Some “clever” person managed to catch the very bottom and sell a few shares at $22.10 within the last few months.

Declining stocks today included Valeant Pharmaceuticals, down 6.6%. And American Express which was down 5.2% after releasing earnings yesterday. Buffett still sings its praises and Berkshire holds a huge amount. But Berkshire established its position in 1994 and 1995 with a small additional purchase in 1998 and not a single share bought or sold since then. Berkshire’s ownership has nevertheless increased as the company bought back shares and stands at about 14% of the company. I believe Berkshire is precluded from buying any additional shares as normally no one company or person is allowed to own more than 10% of a bank. And I believe American Express is registered as a bank holding company.

In my own investing I had an order in to sell the 100 Costco shares that I scooped on August 24 at $125 if the price hit $154.90. It did so yesterday and so my shares were sold for a quick profit. I may regret selling shares in such a wonderful company (which closes at $158.15 today. When the trade settles I am going to consider moving those U.S. dollars back to the Canadian side of my accounts. I hate to pay the high currency trading fee which cannot be avoided as this is RRSP money and so is totally captive to my broker. Well, I could try buying a Canadian stock that trades in New York and then having the stock “journaled” to the Canadian side of my RRSP and then selling that in Canada. But meanwhile it takes three days to settle and the price can move and the whole thing is generally a big Hassel and not worth it.



American Express comment

America Express was down about 6% to about $72 after posting Q3 earnings that were down 11% per share. Analysts had apparently expected a smaller decline.

I am not exactly shocked by the 11% decline given that one third of its revenues come from outside the U.S. and given the sharply higher U.S. dollar. Also we know it lost the Costco card in Canada.

The company had said earnings would be flat to down in 2015. Given that earnings were up  in the first half of the year this was an indication they would be down in the last half of the year. The company also indicated it was ramping up certain marketing expenses. In my own report I should have focused on that.

I did say:

“The short term outlook is negative as the company grapples with the loss of its large Costco co-brand business in early 2016 and ramps up marketing expenses in 2015 to attempt to replace that business and also due to the negative impact of the higher U.S. dollar.”

I had noted in my October 13 post that I have an order in to add to my position if it falls to $70.10.

Overall I don’t think it was the company that “missed expectations” in Q3, rather it was the analysts who “missed” the guidance that Amex had provided. Analyst predict earnings but no company is obliged to target to meet those external expectations. To say that a company missed analyst expectations is like saying the Weather missed the forecast rather than the other way around.

American Express, perhaps like the weather, is becoming somewhat harder to predict.

October 21, 2015

On Wednesday, the S&P 500 was down 0.6% and Toronto was down a full percentage point.

Valeant Pharmaceuticals, which was added to this site rated Sell on July 30 at $331 is down to $154.  I had concerns about both the valuation and the trustworthiness of management, so I am not interested in buying even at this much lower price.

Many of the preferred shares on our list have risen noticeably of late after having fallen to levels that certainly seemed too low. The Canadian Western Bank Preferred Share rose 8.4% today to $19.52. It was about two weeks ago that I reported buying some of these at $16.80.  The Enbridge Preferred share that is on our list was up 5.2%.

The Five Year Canadian government bond yield was 0.88% as of yesterday. Ponder that. At that rate you could double your money (before taxes and inflation) in 114 years with simple interest. But to be fair, counting compound interest it would only take 79 years. Why would anyone lock up their money for five years to earn 0.88% per year? Perhaps banks and life insurance companies required to do so by regulators? Or pension funds that blindly must allocate a certain percentage of their money to five year government bonds no matter what the yield? Or someone that just has such huge piles of money that they don’t need for at least five years and are unwilling to take any risk whatsoever.

I continue to be somewhat flabbergasted to see Melcor continue to decline. It was around $14.15 this morning and I entered an order to buy yet a few more shares at  $14.10 and I got a partial fill on that order. Under accounting rules, Melcor marks to market the value of its revenue properties each quarter. We could certainly see a loss in that area this quarter and probably a higher vacancy rate as well. But I don’t expect anything too negative. It seems to me that if Melcor is really only worth half of its book value then surely a lot of developers of the new condos and office towers and industrial and retail buildings around Edmonton will be in bad shape. And yet the new building continues apace. Despite lower oil prices and a certainly a slower economy I am not seeing the evidence that would come close to justify Melcor being so low. New home building has certainly slowed, but it has not disappeared. But we shall see, in investing there are no guarantees. It will be another three weeks or so before Melcor reports earnings.

After becoming interested in the trucking business I have decided to add TransForce to our list and my analysis is in progress. So far I quite like the story and the valuation. It will almost certainly be rated Buy or (higher) Buy. It will report Q3 earnings tomorrow after the close. I don’t have any insight into the earnings for this quarter but I suspect they will be reasonably good. If I had cash I would be tempted to buy some tomorrow. However, it might be safer to wait for the earnings report.


October 20, 2015

The S&P 500 was down 0.1% and Toronto was up 0.6%.

Stantec was up 2.8%. AutoCanada was up 4.6% after announcing it will acquire two Nissan dealerships in Ontario.

Melcor fell 3.4% to $14.34. I had placed an order a couple of weeks ago to add a few shares to my position if it fell to $14.51. So that order got filled today.

Subscribers may tire of me noting that this stock is under-valued. The book value was $27.58 per share at the end of June. So basically, you can buy this at about half of book value. Most companies trade at something in excess of book value. It is always possible that some of its land assets are worth less than book value (price it paid plus investments in developing the land plus capitalised interest). On the other hand, I have not heard of any big decline in land values in Alberta. And it may not be able to continue to its practice of creating value by developing new rental buildings (retail and office) at least not for a while. While Melcor does own land and buildings it is something of an asset light operation when it comes to actually developing land and buildings. It contracts that work out. That may make it easier for it to scale back costs if that business is to be much slower. There is no doubt that this is a cyclic company. However, I fail to see any evidence to suggest that it is only worth half of its book value per share.

October 19, 2015 – Election Day

A big win for Justin Trudeau. The fact that it is a majority government should be a positive for markets.

Who would have thought Margaret Trudeau could get another PM in her family?

Businesses are not about to stop making money, that’s for sure.

October 18, 2015

On Friday, the S&P 500 was up 0.5% and Toronto was up 0.1%.

The Canadian market will have the results of tomorrow’s election to ponder and should react somewhat to that on Tuesday.

The U.S. Q3 earnings reports will be pouring in these next two or three weeks and the Canadian Q3 reports will start to come in this week but most will be late October to early November.

I sent out to the free newsletter list an update of my Exchange Traded Funds list. (It’s a separate list but most paid subscribers are on that list as well. You can add an email to the free list or remove an old email address at this link)

I knew that the P/E ratios would be looking better than at my last update but I was surprised at just how many segments of the market look attractive. Even the global gold shares ETF reports a low P/E ratio and low P/B ratio and that is the first time I ever recall that. As I recall, Gold companies looked expensive even when Gold was near its peak.


October 14, 2015

On Wednesday, the S&P 500 fell 0.5% while Toronto rose 0.2%

Walmart announced that its earnings per share would fall 6 to 12% in the fiscal year that begins in February due to previously announced wage increases. On that news the stock fell 10%.

The Walmart earnings news release was poorly handled by the company and I have the following concerns:

  1.  The press release title was “Walmart strategy drives growth and sustainable returns…” The part about the earnings decline was buried in the middle of the release. I consider that to border on misleading and to just generally be a poor way of communicating.

2. The news was released during an institutional investment conference in the middle of the trading day. The trading in the minutes after the release clearly shows that some people were lucky enough to sell early before the news was fully reflected in the stock price. That is unfair since it easily have been avoided by releasing the news before the market opened.

However, overall the market may be over reacting here. I bought 100 Walmart shares after the decline.

Other stocks on the move today included Valiant up 5.6% and Toll Brothers down 2.3%.

Wells Fargo released Q3 earnings with earnings per share up 3% which is not bad considering that lower interest rates have been a drag on earnings.

This evening, Valiant released a press release titled “update regarding government inquiries”. It stated that valiant had responded to a letter from a Senator and also revealed that Valiant had been subpoenaed for documents from the attorneys general of New York and Massachusetts. The response to the Senator also appears to indicate that some of the recent drug price increases would be refunded to certain hospitals. (They said they were “beginning outreach to hospitals where the impact of a price change was significantly greater than the average.” — I guess they have not heard of plain language. ) I would take all this as not surprising but mildly negative news.

October 14, 2015 – Walmart 2:30 pm eastern

Walmart is down almost 10% after forecasting an earnings decline for its fiscal year that begins in February. The company indicates that sales would continue to increase and that earnings per share would grow 5 to 10% in fiscal 2019 which ends in February 2018. Its profit this year has been hit by the higher U.S. dollar. I decided to buy a 100 shares on the decline. However, these shares could certainly go lower or lanquish for some time before any recovery.

October 13, 2015

The S&P 500 was down 0.7% and Toronto was down by 0.9%.

Canadian Western Bank was down 4.9%, CN rail was down 3.0%, AutoCanada was down 4.5% and Melcor was down 2.9%.

The Q3 earnings season is underway and Wells Fargo will report tomorrow.

Raymond Pare, the CFO at Alimentation Couche-Tard has resigned. He was a key executive and had been with the company for 13 years as an executive. He was CFO for the last eight years and a VP finance prior to that. He owns at least 45,000 shares or some $2.7 million worth and it may be at least twice that. The insider holding report is difficult to interpret. He may have felt somewhat hard done by as the four founders of Couche-Tard hold vastly more shares and have reaped truly staggering wealth from Couche-Tard.

My assumption is that Pare had a conflict with the new CEO who took over after the main founder Alain Bouchard stepped back from the CEO role. The new CEO also holds many more shares than Pare and so Pare may have felt he was not being treated fairly.

Couche-Tard’s success is mostly due to its operations and not to any magic in financing and so I don’t think this will be a major problem for the company.

October 13, 2015 American Express Update

American Express is updated and rated (lower) Buy at $76.78. It is facing a loss of its Costco card business in the United States in 2016 and has already lost the Canadian Costco card. Also the higher U.S. dollar is a negative. Nevertheless it has the ability to control marketing and promotional expenses and managed to increase earnings per share on an adjusted basis in Q2. It’s valuation seems relatively attractive. It will likely be a good long-term investment. It will report Q3 earnings in a week or so. I hold some and have entered an order to add modestly to my position at $70.10 if the price happens to fall to that level.

October 13, 2015 – Hydro One IPO

This Initial Public Offering of shares in the Ontario electricity transmission and distribution is open as I post this. I have not done any analysis but regulated utilities tend to provide  returns over the years that are at least acceptable. I put in for a small amount of shares. If it is over-subscribed I may get less than the amount I put in for.

October 12, 2015

The S&P 500 rose 0.1% and Toronto was closed for the holiday.

Oil was down 4.4% to $47.44.

The Baker Hughes report of active drilling rigs shows that the number of active drilling rigs in North America is down 59% compared to the year ago figures. That is a remarkable decline by any standard. I am not familiar with the supply and demand data for oil but this report would certainly seem encouraging for those that expect the lower oil price to curtail supply and to eventually result in an increase in price.

October 11, 2015

On Friday, the S&P 500 rose 0.1% and Toronto fell 0.1%.

Costco added to the gains of the previous day and rose 1.5% to $153.97.

There were a few things in the news that struck me as surprising:

  1. Alberta added 12,000 jobs in September according to Statistics Canada. The net addition was in part-time jobs. This seems very surprising given the lower oil prices. I am not convinced that this was a real gain. It might have more to do with the lack of precision in the stats Canada estimates and the process of seasonal averaging. Still, Alberta’s economy has not yet taken a really huge hit so far and those who think Alberta is sort of down for the count are likely quite wrong.

2. Another somewhat related piece of news was that the Edmonton Catholic school Board is looking to hire 200 teachers and will recruit in Ontario as there are not enough suitable candidates locally. School enrollment at the Board is at a record high. Again, rather surprising amid talk of an Alberta recession.

3. It was reported in the Globe and Mail that Bombardier’s loss in 2014 was its first in a decade. I found that surprising but upon checking my own report and graph on Bombardier shows it to be true. It is then a bit of a puzzle as to how the company ended up with negative common equity at the end of 2014 after just one year of losses. Looking into this I found that Bombardier has had a fairly weak balance sheet with inadequate common equity and too much debt for at least a decade. Even when its share price was briefly at the $30 level back in 1999 its common equity level was moderately thin. When equity is thin it can be wiped out fast as happened to Bombardier in 2014. They restored equity to a positive level in 2015 mostly by issuing shares. It is sad that they did not issue shares in 1999 and 2000 when their share price was at a peak. Instead, amazingly enough, they bought back significant amounts of shares in the year 2000 at prices near the top of the historical range.


October 8, 2015

The S&P 500 was up 0.9% and Toronto was up 0.8%.

Stantec was up 3.8%, Costco was up 2.5%, Canadian Western Bank was up 2.3% to $26.50 and CN Rail was up 2.1%.

Melcor fell 4.5% to $15.42.

Oil is trading at $49.54.

Costco released same-store sales figures for September. The raw numbers did not look that great because they were hurt by currency impacts and lower gasoline prices. Adjusted for those factors the September figures were stellar with U.S. same-store sales up 8% and Canadian adjusted same-store sales up 11%.

Some of the Canadian increase might be due to higher prices as I believe they are saying the increase was 11% in Canadian dollars after adjusting for lower gasoline prices. If the volume increase was anything close to 11%, that is absolutely stunning. Clearly many Canadians love shopping at Costco. Some refuse on principle due to the fact that an annual membership must be purchased. In general, I don’t like to pay a membership to shop at a store. But Costco’s prices make the membership fee well worth the price.

Costco’s shares almost always seem expensive. It would be one to buy if its price pulled back significantly due to a something like a bad day in the markets as it did on August 24 when it briefly plunged as low as $117 from the $146 range at which it had been trading a few days previous. I grabbed some that day at $125. I had thrown in what seemed to be a low-ball bid before the market opened that day and it got filled.  It’s now at just under $152.

October 7, 2015

S&P 500 up 0.8% and Toronto up 1.6%.

Stocks of note: Melcor up 6.2% (but on thin volume as usual), AutoCanada up 2.8%, Toll Brothers up 2.8%, Boston Pizza up 2.6%, Canadian National Railway up 2.5%. Bombardier down 13%.

Car Prices and currency:

About two weeks ago a car dealer was telling my that a lot of cars were being bought and shipped tot eh U.S. because they are now significantly cheaper in Canada because prices did not rise as our dollar fall. Today, this story was confirmed as Nissan warned its dealers not to sell cars to people planning to ship them to the U.S.

In some ways car prices in Canada should be adjusted promptly when the currency changes. But the industry apparently follows an archaic practice of setting most of the prices in January and then  sticking with that. They also seem to try to smooth out currency variations. Imports did not get remarkably cheaper when the Canadian dollar soared from 70 cents up past a (U.S.) dollar nor have they gotten expensive on the way down.

The only way the industry can maintain vastly different prices on the two sides of the border is if there are restrictions and costs on customers moving cars across the border. Clearly there are some costa and then the car companies try to erect additional barriers such as banning cross border sales.

It will be interesting to see what happens to Canadian car prices when prices are adjusted again which I understand will happen in January. We could see quite a jump in prices. This would be a negative for AutoCanada.

October 6, 2015

S&P 500 down 0.4%, Toronto up 0.7%

Oil rose several percentage points and is trading at $49.07.

Among the gainers: Canadian Western Bank up 3.0%, and AutoCanada up 2.8%.

Bombardier surged very near the end of the trading day to close up 14.9% on rumors it would sell a stake in its C-series plane program to Airbus. This surge then prompted both companies to announce that they HAD been in talks but the talks were over and there was no such sale pending. So, it appears the talks were leaked. Another example of Bombardier’s inability to do things properly? There should not have been a leak and when there was the stock should have been halted.

Regarding Canadian Oil Sands Ltd. There are reports that the price that Suncor is proposing to pay (albeit in Suncor shares) is well below replacement cost of the assets. Checking the Canadian Oil Sands balanced sheet the offer is in fact at about book value. That could be below depreciated replacement cost given older assets on the books at lower historic costs and given accelerated depreciation. Seymour Schulick who owns 5% of the company is apparently most unhappy with the offer (which is valued at just under $9 per share) and figures the shares are really worth more like $20. Really Seymour?  Is the market rally quite THAT dumb? Seymour Schulick made his fortune in mining ventures and is a smart investor, so maybe he is right, maybe the market really is THAT dumb. If so, it means there are opportunities to buy shares at far less than their true value at least from time to time.


October 5, 2015

On Monday, the S&P 500 was up 1.8% and Toronto was up 1.6%.

Notable gainers included TransAlta up 5.7%, Canadian Western Bank up 6.2%, America Express up 3.9% and AutoCanada up 6.2%.

Valeant pharmaceutical was down 11.1%. Valeant is being accused of price gouging. Even in competitive non-regulated markets there are legal restriction’s on price gouging. These restrictions in law date back several hundred years in the English common law. I am not a fan of this company as I noted on July 30.

The Suncor deal is being described as Suncor buying Canadian Oil Sands Trust for about $4.3 billion for the equity and $6.6 billion including the assumption of debt.

But this is an all-share deal. Suncor would issue shares to pay for this rather than paying cash such as by borrowing the money.

Using the method that Warren Buffett has used to describe such deals it would be described as follows: The current Suncor share owners would collectively give up 7.7% off the current Suncor (share count to be increased by 8.4%, in order to gain 92.3% of Canadian Oil Sands Trust. The current owners of Canadian Oil Sands Trust will own 7.7% of the combined entity and are thus giving up 92.3% of what they already own in order to gain 7.7% of the current much larger) Suncor operation. If there are synergies  and cost savings then perhaps the deal will work out well for both groups. Or perhaps the deal is more favorable to the buyers.

Canadian Oil Sands is trading somewhat above the value of the one quarter of a Suncor share to be received for each COS share and were up 55% today.

It is perhaps remarkable that in a so-called efficient market, Canadian Oil Sands shares were apparently under-valued by at least half (correction, should read by at least one third as in 0.55/1.55=0.355).

Some of us indirectly owned Canadian Oil Sands shares when we owned the Oil Sands ETF that traded as CLO. Sadly, that ETF was wound down last month by BlackRock and we received cash for our CLO shares. Presumably, BlackRock wound it down because there was too little buying interest. That is typical, the investing public no longer wanted CLO or Canadian Oil Sands Trust when the price of oil fell. Even though these were very long term assets they were priced in the market as if oil was going to stay down.

Perhaps what we can take form this episode is that the market trading price certainly does not ALWAYS represent a reasonable price for a company. Sometimes it is way high and sometimes way low. Most of the time it is probably reasonable and one has to be cautious when they are betting that they know better than the market. But sometimes it is a good bet.

October 4, 2015

I am currently working to add Fortis Inc. to our list. It’s a “pure-play” regulated electric and gas utility which owns a number of utilities in Canada and the U.S. (and a small amount further south). It looks like the rating will end up being Buy of (higher) Buy. It appears set for excellent earnings growth in the next few quarters.

Fortis is getting an extra boost from the lower Canadian dollar as it translated back U.S. dollar earnings. It made significant acquisitions of U.S. utilizes in the relatively recent past but at a time when the Canadian dollar was higher. The lower dollar will be a benefit to reported earnings and even more so to the reported book value per share.

Another company that will benefit from the lower dollar when it reports Q3 earnings is Stantec. Also CN rail, Valeant and Agrium. There are many other factors at play, but the currency impact will be favorable for these companies.

Another beneficiary will be Alimentation Couche-Tard, However it is an odd one in that it reports in U.S. dollars. The lower Canadian dollar will hurt its U.S. dollar reported earnings but if the earnings are translated back to Canadian dollars the currency impact will be favorable. Overall it will be unfavorable in form but favorable in substance. Substance is what matters though the market can sometimes fail to see substance in the short-term. Bombardier also reports in U.S. dollars and the same comments apply.

There is speculation that the Caiise Depot which is owned by the government of Quebec will possibly buy some equity shares in Bombardier such as in a private offering. The share price reaction, if that happens may depend on the price per share paid and also whether it is accompanies by the Bombardier family reducing the multiple of votes that the A shares have as compared with the B shares. The reaction of Bombardier’s debt and pref shares should be to increase if this equity injection occurs.

U.S. market commentators seem worried that the Q3 earnings reports will be weak due to currency impacts. This should not be a surprise but also it tends to create just a blip in earnings growth. In most cases where the currency has impacted the translation of profits from foreign operations (as opposed to profits from exports), it does not signal a downward trend in earnings since the impact on growth in EPS from foreign operations would be gone once the U.S. dollar stops rising. It does sort of move the long-term earning graph down but the upward slope or growth rate should resume once the currency stops moving. Of course growth could also be decreased by many other factors.


October 2, 2015

On each daily post I mention the percentage gain or loss in the S&P 500 and the Toronto stock index for the day. Everyone tends to focus on the closing numbers. But sometimes the closing number has little to do with how the markets traded for most of the day. For example today, the market was down noticeably before finishing the day with a gain. So, really the closing numbers are just where the market was at 4:00 eastern time and may not be all that much more relevant than where they were at, for example, 11:45 am. If the S&P 500 closes at say 1951 it is sometimes said that the market will start the next trading day at that level. That is completely false. The market opening each day is based on bid and ask prices just before the market opens and can and often does diverge greatly from the previous day’s close.

Having said that, for what it is worth, on Friday, as at the close, the S&P 500 was up 1.4% and Toronto was up 0.7%.

Earlier in the day the market had been down due to the weak September jobs report in the U.S. And it did look weak at 142,000 versus an expectation of a bit over 200,000 and especially as it came with a downward revision to the numbers for July and August as well. But it’s probably too early to tell if this is the start of a slowdown in the U.S. versus a one-time blip in the modest upward trend they have been on.

One thing that never ever seems to be mentioned is the precision of the numbers.

A quick check a the source of these numbers shows that they are sample-based and seasonally adjusted.

The source data indicates “An over-the-month employment change of about 100,000 is statistically significant…”. So one might question how the financial press can get so very excited about the number coming in 60,000 too low when it takes 100,000 to be statistically significant.

Then there is the seasonal adjustment. Without that we might see a big increase in September as the season changes. Certainly in November and December the raw numbers would see big job increases due to the Christmas season and all that leads up to that. So, the numbers do indeed need to be seasonally adjusted. But that must be an imprecise process. It cannot be known with precision how many jobs were affected simply by the seasonality impact.

Overall, while I would not want dismiss the notion that the jobs growth in the U.S. is slowing, I would caution against getting too excited about one month’s reading and about ascribing unrealistic levels of precision to a seasonally adjusted sample-based number.

Turning to individual stocks, most of the stocks on our list closed higher today. In particular I notice that the Canadian Western Bank preferred shares that I bought yesterday for $16.80 closed at $17.73, up 2.8% versus yesterday’s close.

I won’t get too excited by my little gain on these preferred shares given that overall our stock picks this year are somewhat trailing the TSX index. Hopefully our picks can play catch-up in this fourth quarter. In any case, an evaluation of whether we doing better than the TSX requires more than nine months or a year and we remain significantly ahead of the TSX index in the longer term.

October 1, 2015

Today, the S&P 500 rose 0.2% (although it was down for most of the day) and Toronto fell 0.5%.

TransAlta managed to gain 2.6% after agreeing to pay a penalty to one of its regulators. I have not added TransAlta to the list but I have mentioned that it might be getting down to good value though I also think it has been one of the worse managed companies in Canada in the past 20 years (Other contenders for that title would include Barrick Gold and Bombardier.). TransAlta also announced it will shed about 250 jobs mostly in head office. It seems clear it will report a huge loss for Q3 due to this penalty and the employee severance costs.

Today I bought the Canadian Western Bank rate reset preferred shares that I mentioned yesterday. I paid $16.80.

Boston Pizza Royalties was down 2.7% to $16.75. Investors may be concerned about its sales in Alberta. I would not be surprised if they report a small decline in same-store sales overall for the chain in Q3 (nor would I be very surprised if it is instead a small gain). But I would be very surprised indeed if that led to a cut in is distribution. Boston Pizza Royalties is probably a safer bet than the Canadian Western Bank rate reset preferred shares and it yields a bit more.


September 30, 2015

S&P 500 up 1.9% and Toronto up 2.1%…

Notable gainers included Valiant up 12.3% (in a partial rebound from recent large losses). Dollarama, up 2.3%, Liquor Stores N.A. up 3.6%. Couche-Tard up 2.2%, AutoCanada up 4.0%.

I had noticed today that Canadians Western Bank’s rate reset preferred share was down as low as $16.45. At that price it would yield almost 6.7%. And it can’t reset to a new and possibly lower distribution until April 2019. I put in an order at $16.60 but did not get a fill. About six months ago it was trading at near $25 and yielding 4.4%. At that time the government of Canada 5 year yield was 0.86%.

Today that government of Canada 5 year yield is 25 basis points lower at 0.51%. But that does little to explain the 230 basis point increase in the market yield. (Correction, today’s yield is only about 5 basis points lower so the increase in the yield on CWB pref shares is not explained by any material change in what it might reset to)

The higher yield would appear to be based on a general distain for rate reset shares and an increased fear that the 5 year Canada yield could stay low for a very long time and this the reset distribution on these shares could be lower than the current distribution. It is also likely based on fears that Canadian Western Bank could run into financial difficulty due to loan losses linked to the low oil prices. However, I note that according to the CWB web site the credit rating on these preferred shares is the same as I saw in March when the yield was so much lower.

Every so often the market offers what later can be recognised were clearly bargain prices. For example in early March of 2009 at the bottom of the financial crisis and around August 2011 in the debt ceiling “crisis”. It remains to be seen if the rate reset preferred share prices of September 2015 will later be recognized as being clear bargains. I suspect they will…time will tell.


September 29, 2015

S&P 500 up 0.1% and Toronto up 0.2%.

Bombardier was up 7.0% on comments from the Quebec government that Bombardier’s contribution to the economy is highly valued by the government and the company would be supported (though there were no specifics). That is of course positive. But one should remember that the company and its jobs could possibly be supported in ways that fail to protect equity share owners.

Valiant was down another 4.4%. As I hear stories about price gouging I think back to my reading of its reports. I don’t remember the company indicating that its strategy was to raise prices on drugs. I thought it high-lighted “synergies”. In any case this latest news is another reason for me not to trust this company. It seems bizarre that the United States would not have any regulation at all on drug prices. That would seem to be an invitation to gouge in certain cases. Traditional economic logic is that monopolies need to be regulated as to price. And Valiant has a monopoly for certain drugs. The whole notion that Valiant was suddenly worth more than the Royal Bank seemed a little strange to me.

My previous order to add to my Boston Pizza position which I had placed last Wednesday at $17.26 was filled today. I continue to marvel at the ability to buy this with a 7.5% yield. Recall this is a top-line entity which simply collects a portion of the franchise fee and distributes it to owners of Boston pizza Royalty. It’s basically a toll booth on all food orders at Boston Pizza. A long as people keep eating at Boston Pizza the toll will be paid. And if the volume of people or the menu prices rise over time then the “toll” (the franchise fee) rises. (The opposite is true as well of course.) I am not seeing much chance of down-side for those buying at this price and holding, though there are never any guarantees.

I have mentioned insider buying at this entity. About ten insiders bought in August at prices from about $16.50 to $18.00. Two of them added a bit more in September at about $17. The entity itself has been buying back shares since August 21 (after it took a long break from doing so) and has paid about $16.80 to $17.50. The entity is buying relatively small quantities but this still seems like a positive indicator.

One thing that the plunge in this entity and in particular the plunge in rate reset shares has demonstrated is that there is no substitute for cash. If you absolutely need the money back for spending in a short period of time (like a year or two or less) or if you are absolutely unwilling to chance any loss in market value then you must restrict investments of that money to cash and cash equivalents including savings accounts GICs and government guaranteed investments of the required term. But for those willing and able to stomach some risks then the various rate reset preferred shares that have declined in value and entities like Boston Pizza Royalties that have declined in price would seem like good choices. With rate reset preferred shares though, one has to be aware of the reset date and the yield that would result if the five year bank of Canada bond yields stays around its current level of about 0.8%.

Consider the Enbridge pref share that we last rated as (higher) Buy at $19.27. These have now declined to $16.85 paying $1.10 and yielding 6.5%. The negative part is that the reset dividend could be in the order of 84 cents at about the current 5 year Canada rate. But that would still be a 5.0% yield at the current price. And the reset does not happen until December 2019 or about four years. So, one scenario is that you pay $16.85 today. You collect about $4.40 in dividends over the next four years and then the yield falls to about 5% on your original $16.85 if interest rates remain at todays low levels. And if rates are still near-zero in 2019 then I expect the market yield on pref shares will be less than 5% and so the price on these shares could rise.

But almost everyone is expecting interest rates to rise in which case the reset dividends could be closer to today’s $1.10 in which case I would expect the value of these shares to rise. So, I am just not seeing much chance of down-side here if held for the four years.

Then again, I did not in any way expect the fall to $16.85 either.  And perhaps these share prices could drop even further as people sort of capitulate or do some tax-loss selling. But to me the price already looks irrationally low.

And one more thing to add to this lengthy post: Costco came out with earnings after the close that looked very strong. Same store sales figures were hurt by lower gasoline prices (which should not affect the profit) and due to currency impacts on Canadian and other international locations. Adjusting for those two items the same-store growth was stellar at 6%. I notice already some stories that suggest Costco “missed revenue estimates”. Well, one can spin this negatively if they want but at a quick look I think the report was strong. I think it is appropriate to adjust for currency and gasoline prices in looking at same-store growth trends. I would not however adjust the earnings for that (because the lower gasoline prices and the exchange rates might stay where they are) but in any case the raw earnings per share were up a healthy 9%.

By the way, one segment that will be hurt by the lower gasoline prices is credit card companies (Visa, mastercard and Amex) . Their take at the pump is generally some fixed percentage of the price of gasoline and so their revenue from gasoline retailers declines at lower gas prices. I am not sure if that is all material to them overall but it is a negative.


September 28, 2015

Stock market indexes declined on Monday. The S&P 500 was down 2.6% and Toronto was down 2.8%.

This year to date, the S&P 500 index is down 8.6% and Toronto is down 11.1%. That is certainly a poor year, but really, it’s not disastrous. If all the annual returns on the market were lined up this one would be in the lower half of the group to be sure, but I am pretty sure it would not be in the bottom 10% of years.

Somewhere along the line Warren Buffett noted that corporate profits do not necessarily grow each time the earth circles the sun. And certainly stock market indexes do not grow each and every time the earth circles the sun. They do most years but they don’t increase anything close to every year. So, there is nothing unusual about the stock index performance in 2015 to date.

The most notable declining stock in Canada today was Valeant Pharmaceuticals, down 16.5% to Canadian $221.81 and U.S. $166.50. I take a certain amount of satisfaction in that given that I added to this site rated Sell at U.S $253.91 and Canadian $331 on July 30 this year. I did notice today that our report incorrectly states the currency used was Canadian but given the price in the report it was U.S. dollars which the company reports in, which it does because it is in reality an American firm in substance. See our comment that day as it was added. For those with patience and the ability to stomach “volatility” (which, let’s face it, really means “losses”) there are certainly bargains to be had. And anyone who can’t stomach losses, even those which are likely to be temporary, should not be invested in individual stocks or perhaps really in anything but cash and cash equivalents.

Costco will report earnings on Tuesday. I expect all to be fine with Costco except for two things. Revenues will be hurt by lower gasoline prices. But not profits so that is unimportant. Revenues and profits will suffer a bit due to Canadian store results being translated back at a the current weak currency level and the same applies to most other international operations though I believe Canada is biggest one that has had a large and unfavorable currency move. This is basically a one-time blip in the earnings growth rate since currencies do not keep trending down (really, they don’t.)

I am currently reading the financial materials for Fortis Inc. and will add that company to this site within the next week.


September 27, 2015

Friday saw the S&P 500 about flat while Toronto was up 0.3%.

Individual stock movements which seem worthy of note include Canadian Western Bank up 3.4% and Bank of America up 2.2%.

I noticed that Melco issued a press release about a change to its stock transfer agent. This is of no real significance to investors. The reason it happened is that its form stock transfer agent Valiant Trust formerly owned by Canadian Western Bank was sold to a larger Torrent stock transfer company called Computershare Canada. The assumption in such sales is that the customers will stick with the business after it is sold. In this case Melcor apparently decided to instead switch to a different small Calgary based stock transfer agent company called CST Trust company. I don’t know the reasons for the switch but it could involve someone at Melcor management knowing someone at CST Trust or maybe a desire to deal with an Alberta provider if possible. To me it points out the potential falisy of the notion that customers of a company like Valiant Trust can effectively be sold to a different company and expected to be docile and stay on as customers with the new owners. As consumers we experience this as well when companies of which we are customers get bought. I applaud Melcor for not being docile in this case.

Tomorrow we will start another day and another week of investors frantically selling shares back and forth to each other. More importantly, on Thursday the third quarter will end and soon thereafter we will start to see the Q3 earnings reports roll in which will give some insight into how the various companies are doing in terms of profit growth or decline. The days ahead will also yield the usual economic reports. There is always future news to look forward to in the markets. And there is always past news to attempt to digest.



September 24, 2015

S&P 500 down 0.3% and Toronto down 0.3% (after bigger losses earlier in the day)

Bombardier was down again, this time down 8.2%.

I grabbed a bit of Toll Brothers shares at something under $36. This buys back some Toll that I had sold a couple of months ago at $41.

September 23, 2015

The S&P 500 was down 0.2% and Toronto down 0.8%.

And oil fell about 3.8% to $44.61.

Canadian Western Bank was down 3.0% presumably due to fears related to oil prices.

Bombardier was down 8.6% possibly because it is so hard to know what the future holds for this debt-ridden and exceedingly poorly managed company that on the other had tends to have the support of government and which does have good products to sell.

All in all it was just another day in the markets with stocks moving somewhat unpredictably which is really what they are supposed to do – it’s called the random walk theory.

P.S. I entered two orders to add to my Boston Pizza position. One order just a little below the market and another order a little further below the market.


Dollarama update September 23, 2015

Dollarama is updated and remains rated Weak Buy.

I have said repeatedly that Dollarama is one of Canada’s very best managed companies.

It’s profitability is so high that any economist would tell you the profits should not be sustainable. Somehow it sells everyday products that it buys from others and charges less than other retailers but makes significantly more money doing it. It was recently making 13.5% bottom line after income tax  profits on sales. This is unheard of for a retailer selling non-proprietary products. It puts in stores at a cost of about $700,000 (fully stocked) and the company trades on the market with a value of $12 million per store. The stores have a payback period of about two years. Its ROE is running at 47%. Its profit in the latest quarter grew by 43%, up from the “mere” 28% of the past three quarters.

In theory, its competitors should learn from it and replicate its model and drive down profits. Why would WalMart not have a large dollar store section and why couldn’t it source products as cheap as Dollarama?

So we are left with Dollarama trading at 34 times earnings. That seems very expensive. It also seemed expensive over the years (I was never able to rate it higher than a (lower) Buy) and yet its growth has justified buying at expensive prices in the past. And not only is it 34 times earnings but it is 34 times an earnings level that really should be competed lower – but that has not happened.

In the end the company has my greatest respect. But I cannot bring myself to invest at this price. Neither would I dare short it though. If it continues along its past path and if smarter competitors don’t emerge then its earnings should continue to rise. And it may even have the ability to replicate its success in other countries over time. I would not be comfortable holding a large position in it. But those who did so have done exceptionally well. The reality is that if I held I would have sold it a long time ago and if I held it today I suspect I would sell it all.

I am sorry that I cannot have a more definitive Buy / Sell position on this company but I have provided my analysis and my thinking.




September 22, 2015

Stock prices mostly traded lower today. The S&P 500 was down 1.2% and Toronto was down 2.1%.

Valiant Pharmaceuticals (which I last rated Sell at $331) was down 5.4% to $287 in Toronto.

Stocks that rose included Stantec up 1.7%, and Boston Pizza up 1.7%.

I may add to my Boston pizza position tomorrow.

I had an order in to grab 200 more shares of Melcor if it fell to $15.76. It fell 1.8% and my order was filled as the last trade of the day. It trades very thinly and only 971 shares traded hands today. According to Yahoo Finance, the forward P/E for 2016 earnings is 10.4 and the price to book value is 58%. I figure that if I can buy on that basis a conservative company that has been on the stock market since 1968, things are likely to work out well.

I notice that the Bank of America CEO won a vote to allow him to remain chairman. I am fine with that. I own some shares and they had the computer share stock transfer company call me several times looking for my vote. This has happened before with Bank of America. I don’t recall if any other company has ever called me soliciting my vote. This is rare. But it shows that they know how to get the vote out when they need it. I don’t have a problem with them calling me either. As a result of their call I went online and voted in favor of the CEO remaining chairman. Buffett was in favor of it too. Best governance practice might call for separate rolls but I would also say that good governance is not strictly a matter of following trends like that. At the end of the day the most important role that a Board chair has is to work to replace the CEO when needed and that is not even in discussion here. The CEO is running Bank of America. Period. I don’t have a problem with that. Bank of America is on the mend. Why mess with that?


September 21, 2015

S&P 500 up 0.5% and Toronto up 1.0%.

Gainers included CNR up 2.7%, Canadian Western Bank up 1.5%, Canadian Tire up 1.8% and Element Financial up 2.9%.

Boston Pizza Royalties was down slightly and I believe it represents excellent value at its price of not much over $17. It yields 7.5% and the cash distribution is likely to rise slowly over time. At its current price I believe it represents a good yield investment and should also provide a capital gain. Certainly I did not expect it to fall in price to this level but the only sensible reaction to that as far as I am concerned is to take advantage of the lower price if possible.



September 17, 2015

On Thursday, the big news (or at least confirmation of what was expected by most) was that the FED did not raise interest rates as it continues to await and expect further improvement in the U.S. economy and as it awaits and expects inflation to move up towards its 2% target. The reaction of the market to the news was volatile, as the market first fell, then rose and then ultimately fell modestly on the news.

The S&P 500 ended the day down 0.3% while Toronto was up 0.2%.

Stocks closing higher included Boston pizza Royalties up 3.3% and Canadian Western Bank up 1.6%.

Stantec was down 3.6%.

The FED non-move was seen as negative for Banks as Bank of America was down 2.9% and Wells Fargo was down 2.8%.

Oil basically stood it ground and is at about $47.

There was a modest increase in the Canadian dollar which is now at 75.9 cents.

Liquor Stores NA update September 17, 2015

Liquor Stores NA is updated and remains rated Strong Sell, now at $11.25. It appears to have a highly attractive dividend yield at 9.6%. However this dividend appears to exceed its earnings by close to double. It would appear to be at a high risk for a cut to the dividend unless it can sell off some assets such as some of its licenses at a good price. Its cost structure appears to be too high. It appears to have bulked up its management team in anticipation of a major growth initiative but it is not at all clear that it could finance such growth.

September 16, 2015

On Wednesday, the S&P 500 was up 0.9% and Toronto was up 2.2%.

Oil was up about 5% and is at U.S. $47.27 which is really not such a low price.

Most of our stock picks were up: Stantec up 4.3%, Canadian Western Bank up 2.5%.

TransAlta is a troubled company with apparently very poor management. But it was up 5.6% to $6.05. It might be what Buffett refers to as a cigar butt type company. Fundamentally a poor company but selling at such a low price that it might just provide a decent return at this point.

Thursday’s excitement will be about whether the FED raises rates or not. It would be nice if they would get on with it and raise interest rates by a small amount.

September 15, 2015

On Tuesday, the S&P 500 rose 1.3% and Toronto was up 0.8%.

Oil is at $45.08 U.S. which is about $60.00 Canadian. At that level it may be that the western Canadian economy will remain stronger than the market expects. Calgary home prices rose modestly in August.


CNR Update September 15, 2015

The report on Canadian National Railway Company is updated and remains rated Buy now at CAN $74.43 or U.S. $ 56.18. The lower Canadian dollar will continue to benefit its results in Q3 and Q4 due to its U.S. operations and will offset what will likely be modestly lower car loadings. In July and August Bill gates substantially increased his already massive investment in this company.

CN is down 7% this year but is up 181% since we rated it a Strong Buy in early 2007 and is up 821% since it was first added to this site 16 years ago though we rated it only a weak buy initially. Its earnings per share have powered higher over the years like a train climbing a mountain. There can be the occasional switchback but overtime it just keeps on rising.

September 14, 2015

On Monday, the S&P 500 was down 0.4% and Toronto was down 0.8%.

Canadian Tire was down 2.6% to $118.10. Possibly the decline has something to do with the impact that it will face from the lower Canadian dollar, which is a concern that I have been noting for about nine months.

Melcor was down 2.0% to $15.62. However this was based on a tiny share volume of 1320 shares traded (Melcor is a notoriously thinly traded stock). The market cap is about $520 million having been reduced today by some $10,000,000 based on trades of 1320 times $15.62 or about $21,000. This math illustrates how just a few shares trading hands can push the market cap around by a large amount. When the trading is thin the market price is simply less reliable. This is a stock that can easily move 2% simply by one trader buying or selling say 1000 shares. Those who hold Melcor should be prepared to hold for a longer period because the lack of trading means that an attempt to sell your shares could push the price down.

Toll Brothers Update September 14, 2015

Toll Brothers is updated and remains rated Buy now at $37.23. Its latest quarter reported revenues and earnings were weak with a small decline. However that was related to a decrease in its signed home sales contracts from one year prior. This company has a somewhat unique one year average lag between making a sale (contracting to deliver a house) and ultimately completing and delivering the completed house and booking the sale. It’s signed contracts in the past were up an average of over 20% in the four previous quarters. This means that a 20% increase in earnings or more in the next year would appear to be basically baked in.

Alimentation Couche-Tard Update September 13, 2015

The report for Alimentation Couche-Tard is updated and rated Weak Buy / Hold at $60.12.

As mentioned previously, this is one of Canada’s very best managed companies. Since it was added to our list on March 31, 2005 rated (lower) Strong Buy at a split-adjusted $5.80 it has risen 937% or a compounded average of 25% per year. It went public as a very small company in 1986 at a split-adjusted price of 9.375 cents per share and the stock price has increased by a compounded average of 24% annually for 30 years  for a total gain of 640 times or 64,000%!

It now appears to be about fully valued although it would continue to be a strong investment if it can continue to grow rapidly. The stock price certainly did not increase in a straight line over the years and it is possible that there will be opportunities to purchase it at a better value in future.

September 10, 2015

Thursday saw the S&P 500 up 0.5% and Toronto up 0.3%.

Bombardier was up 29% as it showed off its new plane in Toronto. This stock is on something of a knife edge. It’s been like a plane in  nosedive. It could crash or it could truly pull out of the dive perhaps with government help. I would not read too much into this stock move.

Dollarama rose 6.7% after another stellar earnings report. The stock always looks expensive. I have mentioned before that it is one of Canada’s best-managed companies. I plan to update the report for this stock soon.

September 9, 2015

On Wednesday, the S&P 500 finished the day down 1.4% and Toronto was down 0.7%.

Bombardier was a notable gainer, up 23% on rumors that there was some offer for its rail transportation business which offer was rebuffed but might indicate they can get a decent price when they spin off part of that unit later this year. In some ways I would hate to see part of the company sold at a fire sale price but on the other hand anything that gets assets out of the hands of current management is a good thing especially for the employees and pensioners.

My next update will likely be for Alimentation Couche-Tard.

September 8, 2015

Canadian Western Bank is updated and rated Strong Buy at $22.78. I have studied the latest earnings report and read the earnings call transcript. Given the low oil prices I could not have hoped for a better report or outlook. The market however remains quite fearful of this stock. In my opinion, this is the stuff of which excellent investment opportunities are made.

September 6, 2015

The software that controls the logins and passwords has been mostly restored and the need to login with a password should be restored very soon. I apologise for the confusion that this has created. For now, you are able to access the material here without logging in.

Friday’s markets had the S&P 500 down 1.5% and Toronto down 0.5%.

I will update the Canadian Western Bank report in the next few days. It is exasperating to see people part with their shares for prices around $22. Investors who merely follow stock prices and not earnings may tend to sell as prices decline. That is certainly not my game and never will be. If a stock looks like good or excellent value I will be tending to buy and not sell. While anything is possible in the economy, I see no reason to lose faith in Canadian Western Bank.

September 3, 2015 (8:00 am eastern time)

Canadian Western Bank’s earnings are out. Very positive in my opinion. Stock set to open about $1.00 higher or say 4% (and this 4% will change by the time the market actually opens in about 90 minutes) and remains a clear bargain in my opinion. But yes, if Alberta really sinks into a bad recession then the company could see much bigger loan losses. So there are always risks. But after almost a year of much lower oil prices this bank is doing very well. They expect to continue to be profitable.

September 3, 2015

On Thursday, the S&P 500 was up 0.1% and Toronto was up 0.4%.

Oil is at $46.55.

Melcor was up 4.6%.

Canadian Western Bank fell 2.5% despite reporting earnings that were about as good as could be hoped for given the low oil price. As of the close someone had sold at $23.28 but someone else had bought at that price. History will show, I strongly suspect, that the buyer got the better deal. Book value is about $22 and the company expects to continue to be profitable. The fact is that the market periodically prices stocks too high and at other times too low. Buffett teaches that we should use the market to our advantage. If you conclude that a stock is undervalued and you own it, rather than fret about that consider buying more at that price if you can. I added a little to my Canadian Western Bank position today. I suspect that stock will do better than the market tomorrow as analysts get a better chance to digest its earnings release.

September 2, 2015 (8:40 eastern time)

On Tuesday, the S&P 500 fell 3.0% and Toronto fell 2.7%.

I’d rather see rising markets but declines are undeniably a fact of life for investors. As I have said many times, I don’t particularly try to predict declines or step aside. I try to build cash as markets rise and spend it as markets fall. Over time that has worked. Also over the years I have learned not to get too bothered by market declines. I don’t lose sleep over it.

I added yesterday to my small position in CN rail.

Yesterday after the close the futures on the DOW were down another 400 points or so but last evening were up 150 points or so. As of now they are up 120 points.

Perhaps the watchword is “Get in, sit down, shut up and hang on tight”. But others are free to follow a different approach.

P.S. Big kudos to Penn West for cutting director pay by 40% and chairman Rick George’s pay by 50% as part of yesterday’s cuts. It won’t hurt those rich directors much but it is a welcome move and shows a better attitude. I don’t recall any other company doing this although I am sure there has been a few over the years.

September 2, 2015

On Wednesday, the S&P 500 was up 1.8% and Toronto was up 0.5%.

Canadian Western Bank will report earnings either tonight or tomorrow morning. I expect certainly some increase in the allowance for bad debt and in delinquent loans. And I expect them to express some concern about future bad loans. But I also expect them to reassure that they don’t expect bad debt to get out of hand at all. Well, we shall see what they see.

Lately it seems like the market reacts strongly to negative news and not so much to good news so perhaps I should not expect any big increase in the stock no matter what the news but again, we shall see.

August 31, 2015

On Monday, the S&P 500 fell 0.8% and Toronto was about flat.

Oil surged 8% to over $48 but now sits at $47.60.

AutoCanada was up 4.3%.

Toll Brothers is at $36.97 which is down from recent highs of $42.19 due to both the overall market decline and a somewhat weak earnings report last week.

BUT the weak earnings in this latest quarter were related to house contracts signed about a year ago. Meanwhile house sales contracts were up 12% in numbers and 30% in dollars. This basically bakes in earnings growth next year as revenue is booked only when a house is completed and delivered. I was surprised that earnings were down this quarter and I have not completed my analysis of why but my initial assessment is that the upward profit march for Toll Bothers remains in place. I would still consider the company to be a Buy. Last years Q3 had a large surge in earnings (like a double) and so the decline this year compared to that may be partly a result of volatility or lumpiness. There was a lot of good news in the report such as a record high in the price of house sale contracts signed. That profit will show up when the houses are built.

August 30, 2015

Happy birthday to Warren Buffett who turns 85 today and who remains extraordinarily sharp. In fact part of his success that is seldom recognised is that he has a sort of photographic memory for figures and all things business. And he combines that with an ability to do math in his head. Figures just mean so much more to him at a glance because of these abilities. It allows him to make decisions on his own at tremendous speed.

On Friday, the S&P was about flat and Toronto was up 0.7%. Lots of individual stocks jumping around though. Some preferred shares such as Canadian Western Bank and Enbridge up 3 and 4% in partial recoveries. AutoCanada up over 9% on the day, again as only a partial recovery from the depths of earlier in the week.

Oil is at $45.26. I have never (ever) claimed any ability to predict commodity prices especially in the short term. I don’t really think others can either. Most forecasters just seem to go with the recent past trend which they will predict will continue. Depending how far back they look (days, weeks, months) they will see the trend as up or down. I guess most would see it as down.

August 27, 2015

Well it certainly has not been a dull week in the markets. On Thursday the S&P 500 rose 2.4% and Toronto rose 2.9%.

Just about everything on our list was up. So, as of now at least, it looks like a policy of hanging tight on this market correction has worked out not so bad. Combine that with some buying on dips and the market correction may have been a bit like a plunge on a roller coaster – scary but harmless.

August 26, 2015

Wednesday’s action saw the S&P 500 end the day up 3.9% in partial a rebound from recent losses. Toronto was up 1.7%.

Almost everything was up. Apparently some very nice bargains were picked up in the past few days.

Meanwhile my road trip continues as I was in Peterborough yesterday with a stop-over with relatives (where my computer refused to connect to the internet. Quebec City tonight.

As I traveled the highways I see that both Canada and the U.S are sparsely populated in many stretches and I also seemed to see a lot of prosperity. Most of the businesses certainly seem to be in newer buildings. The housing stock is mostly newer and there are very few junky looking cars on the highways.

I don’t understand all the reasons why but it is apparent that the Cities are more prosperous than the rural areas. Certainly there are some poor areas but really the two countries look in good shape to me as far as the installed bases on commercial buildings, houses and highways.

I don’t expect the increase in average living standards to end any time soon nor do I expect the markets to stop trending up over the longer term.

August 24, 2015

On Monday, the S&P 500 was down another 3.9% and Toronto was down 3.1%.

Every stock on the list I monitor was down.

I entered orders before the open to pick up a few shares of Costco at $125 and Berkshire at $128. Both were filled. Apparently there were some really big drops at or near the open such as Costco down to $117.

Futures are now indicating that markets will open significantly higher tomorrow.

Meanwhile… my road trip continues. North Dakota and Minnesota featured light traffic but that is likely normal as the population is spare. Chicago appears to be booming with quite a bit of building construction and heavy road construction. Tourists appeared to be in abundance. No mark downs evident on “the magnificent mile” where mid to high-end retailers abound.

Toll Brothers reports tomorrow (Tuesday).

August 22, 2015

So the S&P 500 ended the day on Friday down 3.2% and Toronto was down 1.9%.

Every stock on our list was down with the strand exception of Bombardier where the pref shares were up 17% and the common up 1.6%.

I have not changed my opinion on the higher rated stocks and will continue to add to positions as funds allow.

I started a road trip today. In Regina tonight. Ramada Hotel in Emerald Park is full. Nearby Boston Pizza was busy and the service very fast and everything about it was excellent. As an owner of the Royalty Trust units and as a customer I was well pleased. 7.5% yield on this? certainly looks like an excellent investment to me. Overall not seeing much sign of slowdown though I would say the highway was not crowded.

August 21, 2015

My IT provider indicates the login server will be fixed soon meanwhile I have opened all the reports for your access without logging in, just click the links.

August 21, 2015 (12:40 pm eastern time)

Market declines continuing. I have added to Boston Pizza and Melcor today. Market declines are a fact of life. I have always followed a policy of buying on dips and not trying to jump in and out of the market. That has worked for me. Market declines always feel awful at the time but looking back they usually are not such a big deal unless one sells after declines and locks in losses. Other people have different approaches but this is my approach.

My web site developed a new problem today and the usual three recent daily comments went away which is why I have pasted them back in here. My IT providers are working on all the issues.

August 20, 2015

On Thursday, the price of owning a share of Corporate America or of Corporate Canada fell 2.1%.

It will be said that investors pulled money out of stocks. Not really. For every share sold there was a buyer. Investors as a population trade shares with each other and no net money flows in or out in the trading process. Money does flow into companies when they issue shares through IPOs, secondary offerings and DRIPs. And money flows out of company’s through dividends, share buy-backs and the occasional dissolution and liquidation of a company.

So, what happened today was that investors bid the prices of stocks down by an average of 2.1%. It is rational for investors to do this in the event of lower growth expectations or when interest rates are expected to rise. Whatever growth expectation that investors had (on average) as of yesterday it appears that they have a lower one today.

Investors may or may not be correct. At any given time the “true” value of corporate America and corporate Canada or any individual company is likely to be above or blow the trading price.

It is always up to individual investors to decide if the market or any given individual stock is attractive at any given price.

Stock market declines are nothing new. Many of us have lived through several cycles. Some people claim to know which way stock prices are headed on average. I have never claimed to know that. I merely try to find some individual stocks that seem cheap or reasonable compared to an estimate of their true value. Over time buying such stocks has worked out well. In the shorter term it has sometimes certainly produced temporary losses on the portfolio and sometimes permanent losses in certain stocks.

Almost all of the stocks on our list were down today. Bombardier was a rare exception with a little bounce up on news that 80% of the test flight hours on the C-100 are complete.

AutoCanada also managed to be up a small amount today.

P.S. Just checked and three of the Boston Pizza insiders that had bought in the past few days added more shares today. They appear to think BP Royalties Income Fund is a fine value here and increasingly so as it slipped below $18, closing at $17.47 today to yield 7.4%. And what is the worst case in terms of the dividend here? I expect the distribution to rise. But say restaurant sales fell off by 10% which is a LOT then the distribution might have to be cut to $1.17 per year from $1.30 and would still yield 6.7%. I mean maybe there is a remote case of something worse but the risk reward looks very good to me. Of course the share price can fall further because if people sell in fear then the price has to keep dropping to attract new buyers. If you owned a Boston Pizza restaurant and were paying that 7% or so royalty fee every month (BP Royalty gets 5.5% and BP International gets the rest) as a top line skim off the top would you feel like the guys receiving that were at much risk? If your sales fall 10% your profits could fall much more (you could even move into a loss given many of your costs are fixed)  but your royalty bill is only falling that 10%. And I am not expecting BP sales to fall anything like 10% except maybe in a few locations.

August 19, 2015

My server problem continues but should be resolved soon. I use a local small business to host the login page. Over the years the up-time has been very good and I am confident that they can correct this soon. The main site is hosted by Telus and very seldom ever goes down.

On Wednesday, the S&P 500 was down 0.8% and Toronto was down 1.1%.

Most of the stocks on our list were down.

This can certainly get depressing. Particularly things like Melcor down 5.3% to $15.30. And Canadian Western Bank down 2.4% to $23.45. And AutoCanada down 6.8% to $26.09. In all three of these cases it is due to fears about what will happen to the Western economy and their earnings given the low oil prices. Meanwhile they are all still reporting profits in their latest quarters. These are not like some of the oil companies that are reporting losses. These are strong companies. I certainly expect these to recover but that does not mean they can’t go lower before that happens. Back in 2009 Melcor and Canadian Western Bank certainly went down more than I expected. I tended to buy on the way down and certainly bought some too early as it turned out. I am doing the same thing this time. I have been around the block a few times seeing strong companies have their share prices pushed down. If one can stomach the volatility it tends to work out quite well over time.

I suspect that many investors are not really that familiar with these companies and they just sell as the price goes down. Long term success in investing tends to require keeping a cool head when the mob panics.




August 19, 2015 – Canadian Tire updated

Canadian Tire is updated and rated (lower) Buy at $127. This is a very well-managed company. For the reasons indicated in the report it will likely struggle to show profit growth in the next couple of quarters and could certainly report lower profits. But in the medium and longer term it should continue to grow. I hold some shares in a taxable account and will not sell. I would welcome the chance to buy at a lower price if that were to occur. But I would not be inclined to Buy at this time. (lower) Buy is a sort of luke warm buy rating. As always there is a lot of information in the report and a simple two word rating does not do justice to all the information. Subscribers should read the report to understand the reasons for the rating. With this update I added a description of how the assets on the balance sheet break out. It’s always nice to have an understanding of what assets you are buying into.

August 19 (7:20 am)

On Tuesday, the S&P 500 was down 0.3% and Toronto down 0.4%.

Individual stocks of note from our list included Walmart down 3.4% and Bombardier continuing its nose dive. However, AutoCanada managed a 2.1% gain and Toll Brothers rose another 2.8%. I sold about one sixth of my Toll Brothers just to trim that large position. I may move some of the funds received back to Canadian dollars.


August 17, 2015

On Monday, the S&P 500 was up 0.5% while Toronto was down 0.2%.

Boston Pizza fell 2,4% to $17.96. I added modestly to my position at $18.03. In the past two trading days six insiders have bought shares mostly at about $18.50. They would have been “blacked out” from buying from July 1 until approximately these last two trading days as generally insiders cannot buy between the end of a quarter and the time the earnings are released (and perhaps a day or two after).

AutoCanada fell 3.3% to $27.41. I would be comfortable adding to my position and may do so in the next few days.

Toll Brothers was up 2.3% to $40.75 and made another 52 week high. This was on news that the Home Builder confidence index was at a ten year high. Toll Brothers reports earnings on September 25. (correction a week today, August 25)  Four years ago this company had dipped under $15 during one of those U.S. government debt ceiling crisis times. As I reported back then, I was buying around that time even though (or because) it has fallen from my June 2011 Speculative Buy rating at $21.03. In that case the sharp dip turned out to be a buying opportunity as the stock recovered above $21 in early January 2012 and never looked back. Once it got above $30 it fluctuated between about $30 and $40. Some people call that sort of thing a “trading range” but I consider that term and concept to be less than useless. I am not trying to figure out where stocks will trade but rather what they are worth which can be two different things.

August 16, 2015

My login server is still down and so I have opened access to the subscriber page without logging in. I had thought that this was also giving you access to all the reports but that was not the case. I have now opened up access to the recent updates such as Boston Pizza. I will press my vendor harder to get this server fixed ASAP.

On Friday, the S&P 500 was up 0.4% and Toronto was up 0.3%.

AutoCanada was down 5.2%. to $28.33 I bought this stock too early it seems but nevertheless I think my investment will work out and certainly it makes increasing sense at these lower prices. Management here has owned car dealerships going back as far as 1994 (when they bought Crosstown Chrysler one of the very largest dealers in Edmonton). They lived through the scary days of circa 2008 when Chrysler and GM went broke and were closing dealers. Even with a concentration in Alberta, I don’t think the conditions today in any way approach the scary days of 2008. AutoCanada was still nicely profitable in Q2 despite the slow-down in Alberta and so I suspect this company will continue to be profitable and to grow over the years. They may not be profitable every quarter but over time they are likely to do well. I observe that in every community car dealers always appear to be prosperous businesses over time. They are not exactly located in run-down buildings. I like the opportunity to own a piece of these prosperous businesses.

Bombardier and especially its preferred shares continued its face plant. It certainly seems like the family management here has been a disaster this past 15 years or more. They basically blew their brains out with debt. Hopefully they can come up with some drastic action like a government debt guarantee and or a sale of part or all of the company. At this point I would not be surprised if they layed off thousands of people. They need to restore some level of confidence that they are not headed for bankruptcy.

Liquor Stores N.A. reports on Monday and we will see if they were somehow able to improve profits despite the ultra competitive market they are in.

Boston Pizza Royalties Updated Report

Boston Pizza Royalties Income Fund is updated and rated Strong Buy at $18.40 to yield 7.1%.

This entity has declined about 20% since it was around $23 in March of this year and also it was $23 in the Spring of 2013.

Several months ago it announced an usual transaction whereby it was increasing the royalty it receives from Boston pizza food sales to 5.5%. This was a substantial increase from the 4.0% that had applied since inception of the Trust in 2002. This was to be paid for mostly by issuing new units to the founders of Boston Pizza but was to be about 9% accretive to distributable cash per unit. That was a substantial rise considering that normally the distributions per unit might be expected to rise at more like just 2% per year due to food inflation.  After the transaction the company did increase its cash distribution by 6.2%. All else equal, this might have been expected to increase the unit price by about 6.2% for a price of about $24.50. For that reason, I was a buyer when they issued new shares at $22.10.

The reasons for the decline in price may include the following:

The share or unit count increased by about 30%. Therefore there are many new owners who were not previously owners. When the share price did not immediately go higher than the $22.10 price they paid many of these new owners may have been inclined to sell, pushing the price down

The economic outlook for Canada has weakened somewhat and perhaps there is a fear that the distributable cash flow could decline with lower restaurant sales.

The market spreads or required return on commercial debt has increased and this could mean that the market simply is requiring a higher yield on an entity like Boston pizza.

My thinking is that Boston Pizza yielding 7.1% and where the distribution has a history of rising slowly over the years is too high a yield. I expect the market to push that yield down by pushing the unit price up. This will be assisted when Boston Pizza (likely) continues to report strong increases in distributable cash per unit for the next three quarters due to the recent accretive transaction. Given the yield was bumped up only 6.2% on a transaction that was about 9% accretive I expect that the distribution could also be increased another couple of percent in the next nine months.

In summary, not in spite of, but because of the price drop here I continue to find the Boston Pizza Royalty units to be attractive.





August 13, 2015

A server problem is preventing access to the login page so I have temporarily redirected that link to this page.

On Thursday, the S&P 500 ended the day down 0.1% while Toronto was down 0.7%.

West Texas Intermediate oil is now at U.S. $42.95.

AutoCanada was down 4.0% to $29.87. I am a buyer at this price.

Canadian Tire released earnings and fell 3.2%. The company indicated that adjusted profits were down 4.9%. In part this was due to the partial sale of the finance business to Scotia Bank which is something I had mentioned was a negative, al else equal. They also face higher lease costs due to the REIT. Most of the higher market lease costs are eliminated away on consolidation but the 20% or so share owned by the public is not consolidated away. In addition their admin costs were up. The report briefly mentioned the impact of the lower Canadian dollar but the impact appears to still be somewhat hedged. I expect larger impacts from the low dollar as time goes on and hedges mature and as new imported product is ordered at presumably much higher prices (higher in Canadian dollars). Although I last rated Canadian Tire a Buy I did note some concerns and my concern about the Canadian dollar impact is much greater now tha the dollar has fallen substantially since my last update.

Melcor was down 1.6% to $16.11. It takes patience and confidence to hold and continue to buy this stock but I believe such confidence will be rewarded. However my report does note some risks.

The Bombardier preferred share melted down a further 6.9%. Clearly the market perceives significant risk of bankruptcy for this company. I am hoping that the company can come up with something drastic to restore confidence. They now may need something like a government debt guarantee. They are talking about selling off a portion of the train / subway car division late in the Fall or early next year. Perhaps they need to think more in terms of selling that whole division as soon as possible. It’s truly a sad state of affairs and a testament to terrible management.

Boston Pizza Royalties Income Fund was down 1.6% to $18.80. The yield is now 6.9%. This entity has a consistent history of slowly raising the distribution over time (the exception was when Trusts became taxable in 2010). The yield could be cut if same-store sales fall more than a little or if the chain experiences net closures of restaurants. I am not expecting the distribution to be cut. Management has been able to boost the distribution through share buy-backs and more recently when the Fund acquired a larger interest in the Franchise Royalty and did so at an accretive price. While there are risks, this entity seems relatively predictable. Barring a significant increase in interest rates or an (unexpected) cut to the distribution I suspect the units will eventually trade back above $22. That, combined with the yield would be a good return. I added to my position in this entity today.

In more positive news, Toll Brothers rose 2.0% and hit a new 52-week high. The thesis that home prices continue to rise in the United States and that Toll Brothers continue to benefit from this remains intact.

August 12, 2015

Melcor is updated and continues to be rated Strong Buy now at $16.37. And the report continues to indicate that the stock is not without risk. This company is trading at 59% of book value and I believe that buyers will be rewarded as the company has a history of profitability even in most recession conditions.

On Wednesday, the S&P 500 was up 0.1% while Toronto was down 0.5%.

AutoCanada was up 3.7%.

Boston Pizza Royalties Income Fund was down 2.0% despite the fact it reported a decent Q2. Same-store sales were up only modestly but that is not too bad considering the fact that Canada appears to be in a mild recession. I continue to like this for the yield which is now about 6.8% and I expect the distributions to continue rise slowly over the years.

Bombardier has reportedly received another credit down grade. It was already well into junk territory and I have mentioned that this could be a big problem for it. Who wants to order a plane or a train from a company with such a poor credit rating much less give a deposit to such a company?

August 11, 2015

A server problem is preventing access to the login page so I have temporarily redirected that link to this page.

Monday’s stock market rally was short-lived and on Tuesday the S&P 500 was down 1.0% and Toronto was down 0.4%.

AutoCanada was down 2.5%. Toll Brothers was up 0.9% despite the negative day on the markets. Toll Brothers reports earnings on August 25 and I expect they willreport further progress in revenues and profits as the housing recovery continues in the U.S.

Melcor came out with earnings that were markedly lower than Q2 last year. But they still made a profit. There are lots of moving parts and so the earnings are somewhat hard to interpret. This company does not do conference calls and generally does not say much at all about the outlook. I will update the rport after I see where the stock price heads on this news.

Melcor’s results included:

Revenues down 30% – They indicated this was partly due to timing of getting subdivisions registered to sell lots but also due to softer markets in land sales. (There was no break-out tot he two factors.

There was strong growth of 22% in revenues from income-producing properties.

They sold 202 single family lots to house builders. This was down 17% from the prior year. That does not seem like such a big decline given the oil price in Alberta. But the average price was also down 16% and there was little discussion of whether this was due to a different mix. They did say that gross margin (for the entire company) declined from 49% to 46% due to mix of lot sales and also due to targeted “programs” (read price reductions) to increase sales in select communities.

There were apparently no market value declines in its portfolio of income properties.

Overall the report indicated that the company is being cautious and reducing its risks and is well prepared to get through a period of lower economic activity in Alberta.

The company reports its book value per share as $27.67. This reflects income property marked to market and reflects the book value of the investment in land held for future development and for sale as lots (This includes the cost of developing the land).

With the units trading at a recent $16.57, they are trading at 60% of book value.  In my experience, it is rare for profitable and strong companies to trade below book value. However, Melcor has a history of usually trading somewhat below book value although usually not to this extent.


August 10, 2015

On Monday, the S&P 500 rose 1.3% and Toronto rose 1.1%.

Toll Brothers was up 2.3%. Agrium was up 2.2%. Liquor Stores N.A. was up 2.9% (it reports earnings next Monday)

AutoCanada was one of the few decliners on out list and was down 2.6%.

Sunday’s leak about Buffett being “in talks” to buy Precision Castparts was true but the deal was already done by the time it leaked. What likely happened is that as the deal was about to be announced the circle of people who knew about it started to widen beyond the trusted few and so a leak happened. But in any case the leak occurred when markets were closed and the deal was going to be announced before the open in any case. So not a major leak as probably no one had the opportunity to trade on the news. Still Buffett will not like that the news was leaked.

Buffett acknowledged that the deal was not cheap from a valuation perspective and indicated that the current CEO of Precision was a key reason to do the deal. That is always the case with Buffett. He only buys companies where he judges that exceptionally good management is in place and will stay on.

I’d like to see Buffett take an interest in Bombardier but its poor management history probably totally precludes that. And possibly owning Precision Castparts which sells to all the big plane makers would also preclude owning a plane manufacturer.

Melcor reports tomorrow, after the close. Due to the cyclical nature of the company and due to the impact of market value gains and losses on its properties it may not be immediately apparent if the earnings are good or not. I am optimistic that they will have had a pretty good Q2, but the more important thing may be their views on the quarters ahead. In any case, they have the ability to withstand recession conditions and I am confident that the shares will offer a good return over time.

August 9, 2015

On Friday, the S&P 500 was down 0.3% and Toronto was down 0.7%.

Most stocks were down but there were some gainers:

American Express was up 6.3% on reports that an activist investor company had taken a large position. I’d prefer it to be up on earnings. I am not sure that AmEx has anything wrong with it that could benefit from an activist. I considered reducing my position after the gain on this news but decided to hang tight.

Stantec was up 4.1% bouncing back from the 11% decline the previous day.

Berkshire Hathaway released earnings after the close on Friday. Earnings declined mostly due to volatile gains as there was a large gain last year in Q2. The auto insurance profits were down somewhat. Most of Berkshire’s businesses showed gains and to me the earnings report looked reasonably good. Shares were down in “after-hours” trading on Friday but that would be trades done ahead of any detailed look at the results.

There are reports that Berkshire is in talks to buy a company called Precision Castparts in a $30 billion deal, it’s largest ever (Though Burlington Northern was nearly that large).

It’s unusual for Buffett’s deals to be leaked. He positively HATES leaks. There may not actually be a deal. Anyone close enough to the deal to really know would be an absolute fool to incur Buffett’s wrath by leaking it.


August 6, 2015

Thursday was a down day for markets as the S&P 500 fell 0.8% and Toronto fell 0.7%.

Most of the stocks on our list declined. Notable decliners included Valeant Pharmaceuticals down 6.0% and Stantec down 11.0% on its earnings report (see my previous post)

Melcor was down 3.3% to $16.71.

AutoCanada was up 2.3%. It released earnings after the close that showed a modest decline in earnings per share versus the prior year. It was clear that the recession conditions in Alberta had a negative impact. However, overall, the company still made 56 cents per only modestly below last year’s 61 cents. Generally, to me this report looks like a good improvement over how things were looking in Q1. We shall see how the market reacts to this news.

August 6, 2015 – Comment on Stantec’s Earnings

Stantec reported earnings before the open and the stock is down about 10.5%.

I just added to my position. I would consider it to be A strong Buy but I continue to consider a good Buy for the long term.

I read most of the earnings report and the earnings per share were down 2.1%. This was due to a combination of some lowering of gross margin. Also due to a bit less professional time charged to projects and a bit more charged to admin and general. The resource sector suffered a decline. None of this should have been any surprise. Perhaps the decline is based on a recognition that there will be no speedy recovery.

Stantec remains a very strong and diversified company and I am confident it will continue its pattern of growth over the years. But it does have its cyclic components and so a decrease in earnings at times should not be a shock.





August 5, 2015

In Wednesday’s markets the S&P 500 was up 0.3% anf Toronto was up 0.1%.

Walmart was up 2.4%. RioCan REIT was down 3.7% even as it announced authorization for some share buy-backs (though that does not necessarily mean it will buy any, at least anytime soon).

Bombardier was down another 3.6%.

TransAlta was down another 4.7% to $7.51. It seems quite possible that some company will come along and make an offer or that activist investors will move in. It has no controlling owner. However some companies may be precluded from buying it because the Alberta government and the electricity regulator would not wasn’t to see more concentration of ownership of power plants in Alberta.

AutoCanada was down 3.1% to $31.34. It reports earnings after the close tomorrow (Thursday). A report out today indicated that auto sales in Canada reached a new monthly record in July. On that basis it may be that sales in Alberta have not slowed that much in Q2. I await the earnings the report to find out.

August 4, 2015

On Tuesday, the S&P 500 fell 0.2% while Toronto rose 0.15%

TransAlta (which I have mentioned before but do not have on the list) was spanked down another 5% to $7.88. Even though it seems to have suffered from exceedingly poor management these last 20 years or so, this stock is likely cheap at this point.

Boston Pizza Royalties was down 2.4% to $19.90. This continues to look like a good investment to me.

The RioCan rate reset preferred share that is on our list was down 4.7% to $18.35. That’s a yield of 7.15% but only for the next eight months or so. After that the distribution is set to be reduced sharply from the current $1.3125 to about 84 cents if the 5 year Canada bond remains at about 0.76%. But that would still be a yield of about 4.6% on the $18.35 price. Perhaps investors have been at least “twice bitten” by these rate resets and therefore are “three times shy” and so there are few investors that want to hold them. I would think that the $18.35 the price is attractive. But then again I thought the price was reasonable in February at $20.70. At some point if the five year Canada Bond is going to stay under 1% then it may make sense new or reset five year pref shares will be bid up in price to bring their yields down well under 4%. For now, it seems investors are not willing to bid prices up to that extent.

Dollarama was up 3.3% today, apparently on no news, at least no official news.

August 4, 2015, RioCan updated and rated Buy

RioCan Real Estate Investment Trust is updated and rated Buy at $26.79.

The report here contains a great deal of information about the company and the factors that went into the rating of Buy. But the main factors are a yield of 5.3%, a price to book ratio of 1.07 and the fact that strong management with a strong track record is in place. Risks include recession, higher interest rates and possibly at some point loss of the income tax exemption for REITs although that does not appear to be on the table at this point.

I first added RioCan to this site on July 11, 2011 rated Weak Buy (essentially a hold) at $26.00. At that time I did not like the pice to book ratio of 1.53. That rating seems appropriate in hindsight as the unit price has basically not risen and also there were much better buys to be had in July 2011.

At the end of 2012 I updated it and rated it (lower) Buy at $27.52 with a price to book ratio of 1.31 and indicated I was not buying but that it might be a reasonable investment for yield.

At the end of 2013, start of 2014 it was rated Buy at $24.77 and the price to book was down to 1.11.

At this time (August 2015) I may be a buyer as I think it is attractive, especially for yield. However, the unit price is certainly not immune from declining if the Canadian recession deepens to interest rates rise much.

August 3, 2015

On Monday, the S&P 500 fell 0.3% while Toronto was closed.

Oil is trading at $45.81 and the Canadian dollar is at 76.02 U.S. cents.

With Berkshire Hathaway down a bit today I doubled the small position that I had in that company.

I am working on the update to RioCan REIT and it looks like I will rate it a Buy. When I first looked at it in 2011 it was expensive at 1.53 times book value (see comments of July 7, 2011). Now it is trading at 1.07 times book value. So we can basically buy into it at a small premium over its estimate of the value of its rental properties. All else equal, some premium to reflect managements ability to add value o the properties is probably reasonable. Book value could decline (if interest rates rise or the economy is softer) but at least by paying just 1.07 times book value we don’t start out over-paying.

August 2, 2015

On Friday, the S&P 500 fell 0.2% while Toronto rose 0.6%

The Canadian Western Bank preferred shares fell 3.4% to $20.76. At that price I would definitely be a buyer. These shares were close to $25 as recently as early May and have fallen with interest rates and oil prices. I don’t think the decline is justified.

Bombardier fell another 7.4% as the market was apparently not reassured by its earnings report and conference call on Thursday.

Canadian markets are closed on Monday.


July 30, 2015

On Thursday, the S&P 500 was about unchanged and Toronto was up 0.6%.

AutoCanada was up 4.3%.

Bombardier fell 9.7% after reporting a fairly weak quarter. While earnings were weak they were at least positive. But their orders for new planes were extremely weak in the quarter. I mentioned earlier that it may be at the point where no one wants to place an order, much less put down a deposit at such a weak company.

In the earnings release there was really almost no information on what the company intends to do to make things better. They did confirm plans to sell off a portion of the Transportation business before year-end and to do some cost-cutting and also they are delaying the in service date for the next generation of their large business jet. They did mention that they still have some room left on the company credit line. There was not much indication of any big initiatives from the new CEO although he has replaced some of the executives.

For whatever reason the preferred shares were at first up on the day and finished the day unchanged.

I have not seen or heard the conference call. Perhaps a few more details came out in that.

Another weak and exceedingly poorly managed company is TransAlta. It’s been beaten up mercilessly of late including most recently being found guilty by the Alberta regulator of manipulating the Alberta power market on a few occasions back in 2010 and 2011.

I am loath to invest in another possible turn-around situation, especially under present management. But this company is now trading just under book value and at a $2.4 billion equity value could potentially become an easy take-over target. For unfathomable reasons Berkshire Hathaway Energy is already in partnership with them on some proposed new plants. So possibly Berkshire could make an offer. Any buyer of the whole company would likely have to have little or no existing generation in Alberta since the regulator would not want to see any added concentration of generation ownership in Alberta. Existing management and the Board is likely tired of all the bad press and would likely be willing to sell if a decent offer came in and if they themselves would get a nice severance. There is no controlling shareholder and so really management would not have much say in the matter anyhow.


July 30, 2015 Valeant added to our list

Valeant Pharmaceuticals International, Inc. is added to our list but is rated Sell at U.S. $253.91 or Canadian $331.

I spent considerable time to attempt to understand this company. My description cell near the top of the report may be of interest as hopefully a concise description of this company.

One thing I learned it that this is really not a Canadian company at all except in legal form. In substance it is a U.S. company. I have analyzed it in U.S. dollars because it reports in U.S. dollars and incurs the vast majority of its revenues and expenses in U.S. dollars. The Canadian stock price has gotten an extra boost due to our lower dollar.

I rate this a Sell based on valuation and also the fact that I have trouble trusting management due to their aggressive approach to calculating adjusted earnings or “cash EPS” and also their aggressive approach to avoiding income tax. I may be wrong but I figure that a management that is very  aggressive about avoiding paying income taxes today might also put its own interests ahead of shareholders at some point. Their management compensation is also very high. I am not sure that their stated goal of increasing the stock price (albeit over a three period) is the best goal as that could lead to pushing the stock price up past a reasonable level which likely be temporary. I am also concerned about the high debt level and the below investment grade credit rating. Also they self-insure their product liability risks which is not only risky but could be over-stating earnings if they are not expensing a reserve for liabilities each year.

In rating this a Sell I am going against market sentiment and momentum but those are factors which simply do not enter into my fundamentals-based approach.

Certainly, the stock price could continue rising. But those who own it and have accrued a large gain should likely consider at least trimming their position.

July 29, 2015

On Wednesday, the S&P 500 gained 0.7% and Toronto gained 1.6%.

Canadian Western bank was up 5.3%. Constellation Software was up 3.1% to $598 dollars. Constellation released a good earnings report after the close although the revenue growth may have been lower than expected.

Bombardier will release earnings and have a conference call before the market opens tomorrow morning. Hopefully the company can offer some reasons for optimism.

Yesterday I mentioned Home Capital. Its earnings were down but only 2% so I am not sure that will satisfy the short-sellers although certainly the stock had recently been pricing in continued growth. The stock was halted after the close and if there is any sanity (and there may not be) it will remain halted until after the earnings conference call tomorrow morning. The stock may gyrate but I am not sure that it should sink too much, but we shall see.

I am near completion of my analysis of Valeant. I am leaning towards a rating of Sell. The stock just looks too high to me and I have concerns about management’s view of “cash EPS”. Investors are effectively paying up front for an expectation of pretty strong growth. Also this is a highly leveraged company with a debt rating of BB minus. I am not sure that investors are taking into account the risk here.

But then again management has certainly grown the company at a tremendous rate.

I have trouble with the concept that the company buys out  another company at a premium to the recent share price and a big premium to book value of that acquired company and then investors pay a multiple of quite a few times the book value that Valeant has paid. It’s premiums on top of premiums. Clearly book value may not be relevant to a drug company (The value of the proverbial “cure for cancer” would have NOTHING to do with the book value of that cure.) But how do we explain Valeant paying $x dollars for the equity in a company and then that turns into shareholders shortly paying some large multiple of “X” like 10 times! No one has suggested that Valeant has in the meantime found anything like the cure for cancer and so it all seems just too good to be true to me. I mean it would take a LOT of synergies to explain how Valeant has added so much value by means of the acquisition.

July 28, 2015

Tuesday’s markets provided a modest reversal of recent losses. The S&P 500 was up 1.2% and Toronto was up 0.5%.

Most of the stocks on our list were up but there were no dramatic increases.

I continue to work on adding Valeant Pharmaceuticals to the list. If nothing else it will be a good illustration of how an adjusted earnings figure can deviate very far from a GAAP earnings figure and do so consistently for several years.

Home Capital (which was on our list many years ago) will report earnings tomorrow, probably after the close. For what it is worth, I will go on record as predicting that the short sellers will be disappointed. It may very well predict slower growth but I doubt that it will be reporting losses or any major earnings decline. I have not looked at all closely a the company and I base my prediction on my understanding that home prices continue to hold up well and that Canadian mortgage delinquency and default rates remain low.

July 27, 2015

Monday was another day that was good for picking up stocks at lower prices but not so good for those already fully invested. The S&P 500 was down 0.6% and Toronto was down 1.3%.

Showing the courage of my convictions I added to my Canadian Western Bank, AutoCanada and Boston Pizza Royalties positions today.

July 25, 2015

On Friday, the S&P 500 was down 1.1% and Toronto was down 0.6%.

Declinming stocks included AutoCanada, down 3.6%; Canadian Western Bank down 3.0%.

Stocks that rose included Amazon, up 9.8% to $529 dollars on news that it made 18 cents per share in Q2. The stock trades at 284 times trailing earnings according to Yahoo.

Visa was up 4.2% after reporting strong earnings in Q2.

I am continuing to analyse Valeant Pharmaceuticals. It did not yet release a Q2 balance sheet. Based on its own view of cash EPS is it trading at about 23 times 2015 earnings which is perhaps not so high given its growth. However what they call cash EPS is really an adjusted view of cash flow and appears to over-state a more reasonable view of adjusted earnings.

With oil at $48 there is probably no catalyst for Alberta-linked stocks to rise, at least not until they report earnings. Auto Canada does not report until August 7, Melcor is August 11.

Canadian ire will report in the next week or two and I am interested to see if there is any sign of damage due to the lower Canadian dollar. I believe the lower Canadian dollar has to hurt them at some point as their costs of goods sold should rise and they may not be able to pass along all of the cost increase. They contract to buy merchandise at least six months ahead and that along with some hedging may explain why their has been no noticeable impact as yet.

Any American company with substantial profits earned outside the U.S. should be reporting a negative impact due to the higher U.S. dollar on their international business although in some cases such as Walmart the cost of goods sold for their American sales should be noticeably lower due to lower import costs. The U.S. should also be seeing low goods inflation due to lower import costs.

July 23, 2015

On Thursday, the S&P 500 fell 0.6% and Toronto fell 0.3%.

Markets appear to be testing the patience of value investors.

Amazon came out with a surprise profit of 19 cents per share and the stock price soared 18% in “after hours” trading to $482 dollars. Certainly the 20% jump in revenues is very impressive. But it’s hard to imagine why a profit that basically rounds off to zero in term of the share price has generated so much excitement. Clearly Amazon is a market darling at least for now.

In Canada, Valeant Pharmaceuticals is another market darling. It came out with a GAAP loss of 15 cents per share. But the company added back a number of items and calculated a “cash earnings per share” of $2.56 and the stock gained 9.2% to $341 and the company is now worth more than Royal Bank. I have been reading the annual report and the quarterly press releases and to me the add backs to “cash earnings” look aggressive. At very least I would say that I don’t yet understand a number of the adjustments and so I can’t have confidence in them. I believe the company may also be aggressively avoiding income taxes through inter-company debt to European subsidiares. Overall this is one market darling that I would not be comfortable holding despite its apparent massive success.

Meanwhile American Express came out with earnings that looked pretty good. The earnings were about equal to last year but that was in spite of the expected hit from the higher U.S. dollar and because they divested their travel services business. The company showed decent growth absent those two items but the stock declined 2.5%.

AutoCanada fell another 6.7%. This stocks seems to be down quite a bit in a week despite not issuing any news. Presumably this is linked to lower oil prices and fears about the Alberta economy. Or perhaps there is non-public news regarding how its dealerships are doing. Statistics Canada announced today that new auto sales in May were up 2.0% across the country but there was no separate figure for Alberta. Canadian Western Bank was down another 1.25%. I added once again to my positions in these two stocks.

The Bombardier preferred shares fell another 6.2%. I decided I had enough exposure to that one and refrained from any buying today. This company really needs drastic help such as government guarantees on its debt or on its customer progress deposits at this point. They are scheduled to release earnings (more likely GAAP losses) on July 30.



July 22, 2015

On Wednesday, the S&P 500 fell 0.2% and Toronto fell 0.5%.

Several of our U.S. stock picks continue to rise. Toll Brothers was up 2.5%, Wells Fargo was up 1.0% and Bank of America was up 2.0%.

Meanwhile Boston pizza was down 3.0% to $19.90 and AutoCanada was down 4.3%. (I added to my positions in both of these today.). Stantec was down 2.3%.

A definite wave of fear has swept over Bombardier. Its B shares were down 5.6% and its preferred shares were down 10.1%. Apparently the latest decline happened when Bombarier held a conference call with CiteGroup bond analysts (which sounds like selective disclosure but that is another issue) and reassured the analysts that Bombardier had at least three years worth of liquidity (which is I believe basically cash plus room on the credit card I mean credit line). Bombardier was unable to answer any questions about the C-Series plane and most other matter because they must wait until July 30 when they release earnings and inform all investors at once. This conference call seems ill-advised. Possibly the fear here is over-blown but is is clear that Bombardier has been a terrible investment. It appears to be in a tough industry and to have horrible management. I contacted them today to let the company know what I think of them. The difficulty now is that this whiff of real fear could be self-fulfilling. If there is now a real fear that the company will go under then why would any airline place an order? (much less put down the deposits and progress payments that Bombardier relies on) payments Why would any supplier give them credit? At last report, Bombardier did have substantial cash. But that cash was largely offset by payables.

In other news, Canadian Pacific Rail reported that car loadings were down in every category except forest products. I have not analyzed CP as a stock and have no opinion on that but the lower car loadings are another sign of a softer economy. Whereas CN had reported an increate in automotive car loads, CP reported an 18% decline and also a 6% decline in Canadian intermodal car loadings. I believe that CP is more exposed to the Western Canadian economy than CN is.




July 21, 2015

Tuesday was another negative day for Canadian markets. The S&P 500 was down 0.4% and Toronto was down 0.3%

Bombardier was down another 4.8% to just $1.79.

This company has been a disaster for both investors and for the extended Bombardier family for the last 15  years.

At $1.79, its common equity market value is $2,404 million. It’s assets are $29,085 million. On its books, the value of its common equity is shown at a palty $200 million (this is after deducting preferred shares of $347 million)

It has debt of $9,046 million.

Its corporate governance is abysmal. Its Board of directors is stacked with five family members, three of who have been on the Board since 1975 (and probably prior to that at predecessor companies). Some other Board members I would describe as political hacks or celebrity appointees (former Premier Daniel Johnson, Jean Monty of Nortel infamy, Vikram Pandit of CEO of CitiGroup at the time of the financial crisis, and the CFO of Google). Some years ago it appointed a then relatively young family member as CEO. But investors are not blameless, they continue to elect this Board with only a small percentage of votes withheld. I would imagine that the large extended family is not too happy with this Board as they see their family fortune melting away.

I don’t know what is going to happen with this company. If it were to become insolvent it is likely that the Quebec government would work to save the jobs. But that does not mean that shareholders would be rescued.

Canada’s low dollar should be a major positive for this company but it may be that the company was “clever” enough to have hedged away the gains.

I still cling to some hope that the company can pull out of this dive and begin to report significant earnings. However earnings on the C-Series appear to remain at least a year away and meantime there are reports that it may take yet another restructuring charge in Q2 in relation to its plans for the next generation of its largest global business jets. The new CEO has been in place for only a few months and it is possible that he will be able to give some confidence to the market when it reports its Q2 results. This would include plans to sell off a portion the rail car business.


July 20, 2015

On Monday, the S&P 500 rose 0.1% but Toronto fell 1.5%.

Canadian Western Bank fell 4.2% to $24.41. In part, this was likely due to a decline in oil prices which briefly dipped below U.S. $50. Also it may have been due to the overall decline in the Toronto market. It may be that “the market” suspects that Canadian Western Bank will face large loan losses. At last report, the Bank was not expecting that to happen. Canadian Western Bank actually has a very long history of earning money literally every day.  Each day they accuse more interest income than they do interest expense. I will be holding firm to my usual practice of buying on dips. (I added to my position today) Unless the Alberta economy is in for a major economic down-turn, Canadian Western Bank will be a more valuable company in the years ahead. I note that house prices have not budged much to the downside in Alberta.

AutoCanada fell 4.8% today. This again could be due to a general fear of all things Alberta.

Canadian National Railway reported higher-than-expected earnings growth today. However that was largely due to the benefit of the lower dollar as U.S. earnings are translated back to Canadian dollars.

The two consumer-driven load categories auto and intermodal both had increased car loadings.

All five commodity load categories had lower car loadings (grain, coal, petroleum, metals and forest products)

While the commodity sector is weak, the consumer sector has not gotten the memo.

The question remains, will consumer consumption decline or at least fail to grow in the next six months?

I have been taking a look at Valeant Pharmaceuticals. It may be sour grapes on my part for not owning it, but I don’t like some of what I see. They seem to be very aggressive in adding back items to arrive at what they call cash earnings per share. They have a stated goal of getting the stock price higher. That might seem good but might not be so good it if the stock price is pushed up higher than is justified. Overall the stock is too rich for me. Not because it over $300 which matters not at all, but because I am not sure the earnings justify the stock price. However, I have more reading and analysis to do and so I have no actual rating on the stock at this time.

July 19, 2015

On Friday, the S&P 500 rose 0.1% and Toronto fell 0.6%.

Stocks on the rise included the Canadian Western Bank rate reset preferred share up 4.8% to $23.36. Similarly, the RioCan rate rest preferred share on our list was up 4.9%. Both of these had fallen to what were likely unjustifiably low prices.

Q2 earnings reports from U.S. companies continue to come in and the Canadian reports are starting to come in as well. Canadian National Railway reports on Monday, after the close.

On Friday I added a small amount to my AutoCanada position. And I bought a small additional amount of the Bombardier pref. shares. These pref shares are highly speculative. Bombardier has so much debt that if it were to go broke the pref. shares could quite possibly be worthless. My hope is that the company can limp along until it sells off a portion of its rail unit which it hopes to do later this year and until orders for its C-series airplane ramp up and it starts making delivery of that plane in 2016. Possibly I am just being stubborn in adding to my position here.


July 18, 2015 Enbridge Rate Reset Preferred Shares (see correction)

An Enbridge Inc. rate reset preferred share has been added to our list rated (higher) Buy at $19.27. At that price it yields 5.7% but only until December 1, 2019. At that point the dividend will be reset to yield 266 basis points plus the 5 year government of Canada bond yield. If the government yield were to remain at today’s 1.15% (correction, should read, 0.69%) then these shares would reset to yield 3.81% (correction, should read 3.35%)on $25.00 or 4.9% (correction, should read 4.3%) on today’s price of $19.27.

Rate Reset preferred shares have recently suffered losses. The idea of these shares was that investors would be protected from sharp declines if interest rates rose materially because the rate would reset after five years. However, what happened was that interest rates continued to fall. But the market yield on new and existing rate reset preferred shares did not fall as much. The spreads over the five year bond increased. The result is that rate reset preferred shares that have reset recently have done so at dividends that are less than the market yield on new $25.00 rate reset preferred shares and therefore are worth materially less than $25.

The fear now, is that even those rate reset preferred shares that have three or more years to go before they reset will suffer the same fate. This could happen if interest rates on the 5 year Canada bond continue to fall or refuse to increase and if in particular, the market spread on these rate reset preferred shares is less than the spread at which they will reset.

I believe those rate reset preferred shares like the Enbridge one that we have added that have three or more years before the reset date have likely already priced in the scenario of a reset below the market yield at that time and that therefore their is now a reasonable chance that these shares can offer a capital gain if turns out that the reset yield is closer to a market yield than is currently expected.

Note that the RioCan rate reset preferred on our list now has less than 9 months before its reset date and so it is now running out of time for interest rates to increase or the market spread to decrease. This means there is less chance for it recover towards $25.00.




July 16, 2015

On Thursday, the S&P 500 0.8% to 2124. This puts it back very near its high of 2134. Toronto was up 0.5%.

Gainers today included Amazon up 3.1%, Liquor Stores N.A. up 3.4% and Constellation Software up 2.1%.

AutoCanada declined 2.3%.

It seems that the nonsense about Greece is over with for now and the market is turning its attention the Q2 earnings reports.

Canadian Exports Have not benefited from the lower dollar 

The lower Canadian dollar should be helping exports. If the exported good is left at the same price in Canadian dollars then it becomes far cheaper for American to buy it in terms of U.S. dollars and sales should rise. If the exported good is priced in U.S. dollars then the volume should be unaffected but the profit for the Canadian firm improves.

Statistics Canada reported that for May 2015: Export volumes decreased 2.5% and prices increased 1.9% (as compared to April 2015). The traded deficit widened.

On the face of it this means the lower Canadian dollar is not helping.

Possible explanations include:

For many exports the volume and Canadian dollar price may have been contractually set (or hedged) many months ago when the Canadian dollar was higher.

Canadian exporters may not have raised their prices to reflect their improved competitive position versus America competitors.

In addition, the trade deficit is affected by many other factors including most notably lower U.S. dollar prices for oil and other commodities. The value of the Canadian dollar versus the U.S. is only one of many factors.

With the continued drop in the Canadian dollar, I suspect we will see the benefit show up in higher export dollars and volumes in the coming months.



July 15, 2015

On Wednesday the S&P 500 0.1% while Toronto rose 0.4% The Canadian dollar fell to a value of U.S. 77.3 cents after the Bank of Canada cut its benchmark overnight interest rate by 25 basis points to 0.50 in order to attempt to stimulate the Canadian economy which is thought to have edged into recession territory. Stocks on our list that rose today included CN rail up 2.6%, Couche-Tard up 4.4%, and Bank of America up 3.2%. Stocks that fell today included Canadian Western Bank down 3.3% to $25.51, and Bombardier down another 4.0% to $1.90.

I added to my CWB position today. It’s book value per share is $20.18 or $21.56 counting a special gain for that it has already announced for its next quarter. It has a long history of increasing its book value each quarter. The stock appears to be pricing in a high probability of significant loan loses.

I also bought some AutoCanada today based on my analysis of yesterday.


July 14, 2015

On Tuesday, the S&P 500 rose 0.4% and Toronto was up 0.5%

Oil was up modestly to $53.25 as I write this. Oil rose despite fears that Iran will soon have the green light to pump more oil now that U.S. sanctions are to be lifted.

Tomorrow’s big excitement is whether or not the Canadian central Bank will cut interest rates. It seems most people hope not but think it will do so.

July 14, 2015 – AutoCanada added to our list

AutoCanada Inc. (which owns 48 auto dealerships) is added to the list and rated Buy at $40.36.

I will likely buy some tomorrow.

I found it interesting to see that the gross margin on new cars sold to retail customers averages 10.2%. However the margin on fleet sales is only about 0.9%. Apparently the dealers are ager to get the fleet business in order to get their numbers up and therefore sell them at next to no profit.

I was surprised to see that the margin on used cars sold to retail customers was lower than the new car figure at about 7.7%. This may partly reflect the fact that the a dealer may in a sense over-pay a customer for a trade-in in order to sell the new car.

Not surprisingly the gross profit is much higher an parts /service and especially on finance/insurance products.

It’s a popular notion that a car dealer might give you a better price if you pay “cash”. In reality you generally already are getting a better price since you won’t be paying interest. Also the dealer may strongly prefer that you finance through the dealer since the dealer then makes a commission on the financing but still gets paid cash immediately by the lender. Even when there is a zero interest offer you won’t likely get a deal by paying cash. The reason for that is that the zero interest would be a marketing promotion from the manufacturer and if you choose not to avail of it that probably does not affect he price the dealer paid for the vehicle.

Another interesting fact about the car business is that apparently the manufacturers set the prices in the first quarter of the year and do not therefore usually adjust them even when the Canadian dollar is changing substantially in value.

I like the idea of owning some shares in dealerships. When I look around any municipality some of the most prosperous looking businesses are car dealerships. Warren Buffett recently bought an auto dealer business and that is another point in favor.

AutoCanada has been beaten way down in price due to a weak Q1 and due to worries about the Alberta economy. At this this point the valuation looks reasonable.



July 14, 2015 9:20 am eastern

Markets rose on Monday after a conditional debt deal was worked out for Greece apparently in the middle of the night. The S&P 500 rose 1.1% an Toronto was up 0.8%.

On Tuesday the market was set to open down about 0.2% on the S&P 500.

I am currently working to add AutoCanada to the list. It is down over 50% from its peak.

Wells Fargo is out with Q2 earnings which the market is viewing as mildly disappointing at the moment (the stock was down about 1% pre-market trading)

July 12, 2015

On Friday, the S&P 500 rose 1.2% and Toronto rose 0.9%. This was due to optimism over a Greek debt deal. Almost all the stocks on our list rose. The Bombardier preferred shares were down 4.6% to $15.10. This would seem to suggest that “the market” views Bombardier as being in quite dire shape.

As of Sunday afternoon there is no Greek debt deal but it sounds like there may have been some progress except that the lenders are demanding that Greece actually pass the pension cuts and tax increases in their legislature before any money flows and even before the terms of the deal are finalized. I was under the impression that Greece had made some major concessions here and at this point a failure of the creditors to agree could basically cause riots in Greece. I have seen lots of material about Greece asking for $60 billion or so. What I have not seen is how much of that would be non-repayable. I understood Greece was going to ask for a certain amount of debt forgiveness. In any case all of this creates “volatility” in North America. My approach is to use the volatility as a time to add to positions as prices fall and not a time to sell in a panic.

Apparently most of Canada’s big bank economists are predicting and or calling for the Bank of Canada to lower interest rates on Wednesday. I find that ironic given that they were all so angry when the Bank made a surprise cut earlier this year. Why was the earlier surprise cut so bad but yet they want another cut now? I think these bank economists are most interested in simply being seen to have made accurate predictions. I hope The Central Bank does not cut interest rates and I don’t think it will do so this week.


July 10, 2015 comment on Bombardier

Bombardier shares have fallen under $2.00. This is appears to be a terribly managed company although possibly the new CEO will ultimately be an improvement. Our report for this company has almost nothing good to say but I did conclude it might be a okay as a highly speculative bet.

With the shares under $2.00, the company now has the right to convert the pref shares to class B subordinate voting common shares. At the moment that would not be such a bad thing for pref holders as they would get closer to $25 worth of common shares (assuming he price stays close to $2.00) for each pref share which are trading at $15.25.

Bombardier has been a horrible investment for many years. If it pulls through it could offer a good return. But it has to be considered high speculative. I did add to my class B share position today. I am not at all sure that was a wise move.




July 10, 2015 10:40 eastern time

Yesterday I added to my Boston Pizza Royalties Income Fund taking advantage of the lower price.

Markets are up today, presumably on progress on a Greek debt settlement.

Bombardier has been declining. It’s obviously a highly speculative stock. It might be worth taking a bet on given that it could rise if it is able to partly spin off its rail transportation unit as planned for late this year. I certainly would not bet the farm. While the Quebec government will work to protect the jobs there is no guarantee of any protection for share owners. Possibly I will add a small amount to my position.

July 8, 2015

On Wednesday, the S&P 500 was down 1.7% and Toronto was down 1.5%.

Just about everything on my stock list was down.

I grabbed a few more Canadian Western Bank shares.

I also trimmed my large Toll Brothers position by about 20% and will likely transfer those U.S funds back to Canadian dollars.

If stocks are down tomorrow, I will do a bit more buying.

It is certainly possible that in the next few days there will optimism about the next Greek debt proposal and markets could rebound.

Today’s closure of the New York Stock Exchange for about three hours was nowhere near as bad as it sounds. These days there are competing exchanges and all those stocks kept right on trading elsewhere. The S&P 500 continued to be updated and calculated for example. So, this closure sounded really bad and was bad for the NYSE but it really did not affect trading all that much other than it likely scared some people.

As of about 11 pm eastern time the futures markets are suggesting that stocks will rise 0.5%.



July 7, 2015

Stocks were volatile on Tuesday as the indexes had been down mid day but finished the day with the S&P 500 up 0.6% and Toronto up 0.2%

Costco surged 3.4% to $140.50 on a favorable analyst report. This stock always seems expensive but the company has powerful economics and perhaps it would have been worth grabbing some on the recent dip to about $135.

Canadian Western Bank was down 1.6% to $27.31. I placed an order to buy some today when it was at 26.82. But my order was “declined” because a cheque from another financial institution had not yet cleared. Apparently it takes 7 business days for a cheque to clear. I deposited that cheque on June 25th. But with the holiday it will not clear until July 8th. I was not used to this because on day to day banking I believe my deposits are set to be available immediately or I have overdraft protection so this has not come up before. It really shows how cheques have become archaic. soon all money transfers will be electronic. For that matter so will all money be electronic, but that is another story.

With oil having taken a sudden drop to about $52, it is understandable that the Western Canada based companies are being bid down in price. But certainly Melcor and Canadian Western Bank look like good value to me. They are only indirectly affected by oil prices and the questions include, where will oil go and what impact will it have. Obviously no one really knows.

Toll Brothers was up 1.9% to $39.07. It’s up 14% this year to date in U.S. dollars and a lot more than that if measured in Canadian dollars. It’s my largest position and I may start to trim it back for that reason and also partly just to raise some U.S. cash some of which I might then transfer back to the Canadian side of my portfolio. I do think it remains a good way to participate in the recovery of U.S. house prices but it has also been quite volatile and not everyone would agree that the U.S. house price recovery will continue.

Canada’s trade deficit was in the news today. I would think that our lower dollar would certainly increase our imports substantially as most of what we import is priced in U.S. dollars and certainly not Canadian dollars. Meanwhile the dollar value of some but not all of our exports also rises with a lower dollar. To the extent that we sell products where the price is effectively set in U.S. dollars then our exports rise in Canadian dollar terms as our dollar sinks. But some exports are likely priced in Canadian dollars. Overall I suspect a lower dollar tends to increase the trade deficit even as it does definitely benefit exporters.

July 6, 2015

On Monday, the S&P 500 fell a modest 0.4% despite the Greek vote to reject the creditors’ offer. Toronto was down 0.6%.

And as of this evening futures are predicting that the market will open modestly higher on Tuesday.

The bigger move was in oil which is down to about U.S. $53 partly due to a slight increase in the drilling rig count in the U.S.

Taking a look at rail car load reports, they are down somewhat from the year ago figures. This is not a positive indicator for growth.

The next company to be added to our list will likely be Auto Canada. I am curious to learn more about the margins on car sales and the economics of the dealership business.


July 5, 2015 – Greece votes no

On Friday, the S&P 500 was about unchanged and Toronto was up 0.3%.

On Sunday, Greece voted no to a debt deal that was apparently not even on the table anymore.

As of close to midnight eastern time the Dow futures are down about 200 points — which is not a particularly big deal.

This does not look like it will have any major impact on North American markets at this time.

It is quite possible that a debt deal will be worked out in the next few days.

In any case, this is not something that changes my investment approach in any way.


July 4, 2015 – inc. added to our list

Amazon is added to our list but is rated Sell at $437.71.

As a customer I am a big fan of Amazon. (Especially because I recently saved over 80% by buying a generic printer toner cartridge through Amazon when other sources only had the over-priced HP brand — and by over-priced I am talking about $160 to $215 depending on the source for a printer cartridge, the generic which was new and not refilled was a stunning $17.50 each plus shipping when I bought two).

Amazon is changing the retail game. It also provides web services to businesses. It is a unique and truly amazing company. However based on the numbers I could not rate it a Buy.

Due to its position in the economy and what it is doing to other businesses it is certainly worth understanding even if the stock is not a Buy at this time.

July 2, 2015

On Thursday, the S&P 500 was about unchanged while Toronto, in catch up mode for the holiday, was up 0.6%.

CN railway was up 1.9%.

Canadian Western Bank was down 2.6%.

Times like this when stocks have been flat or down in the past year are often better times to buy than times when stocks have risen. But emotionally it feels best to buy when stocks have been rising.

If I had substantial cash in my accounts, the stocks from our list that I would buy include firstly Melcor, Canadian Western Bank and Boston Pizza Royalties. After that also any of the stocks on the list that are rated Buy or higher. (i.e., this excludes the (lower) Buy rated stocks). I would include ONEX although it seems a bit more speculative. I would exclude RioCan REIT at this time since my rating is out of date.

With the Canadian dollar taking a sudden dip under 80 cents I would be inclined to move some U.S. cash back to Canadian dollars. But as I have said before the transaction fees to do it are a bit onerous and so I have no immediate plans to do so (partly because while I have substantial U.S. investments, I have little U.S. cash).

With the U.S. dollar having risen against most currencies dueing Q2 we can expect U.S. multi-nationals to report a currency hit in their Q2 reports. This would include Wal Mart, Costco and VISA.

Canadian companies with substantial U.S.  and international revenues will benefit from our lower dollar. This includes CN, Stantec, Couche-Tard and Bombardier. Couche-Tard and Bombardier are a bit complicated because they report in U.S. dollars and the currency move will lower earnings as reported in U.S. dollars but it will be an increase in Canadian dollars.


July 2, 2015 ONEX update

ONEX Inc. is updated a rated speculative Buy.

It’s an usual company in that it is mostly an investment fund but also an investment manager. For a number of reasons its GAAP earnings and balance sheet are not helpful. Our speculative Buy rating is based on management’s view that the company has about $67 per share in investments (unencumbered by debt at the parent company level) and that there is a further $18 to $20 value in its stream of investment fees that it collects.

July 1, 2015

On Canada day, the S&P 500 was up 0.7% while Toronto markets were closed.

On Tuesday the S&P 500 had been up 0.2% while Toronto had been up 0.4%.

The Canadian dollar fell on Canada day and sits at 79.45 U.S. cents per Canadian dollar, or 125.9 Canadian cents per U.S. dollar.

Oil has fallen and is at U.S. $57 per barrel for West Texas Intermediate on the August contract in New York.

The first half of the year has not been great or even good for North America stock markets. But is has not been that bad either. Experienced investors know that markets don’t rise in straight lines.

Investing is often a game of waiting. Markets now await further news out of Greece. And they await the Q2 earnings reports and also the various economic data that arrive weekly, monthly and quarterly.

Since investing is so often about waiting a good approach is to favor companies where time is on the investors side. Companies with good economics that provided needed products and services at a profit and that can be expected to grow their profits over the long term even if the next quarter is hard to predict. Costco is certainly one such company though it does seem expensive.



June 29, 2015

On Monday, North American markets fell about 2.0% on the news from Greece.

Just about every stock on my list was down.

I have learned not to get stressed out by these things. As usual, in pull-backs I am more interested in buying than in selling.

As of late Monday night, futures markets are predicting a slight bounce back on Tuesday.

My next update will likely be to add Amazon to the list. I am not sure if it will be rated a buy but it is certainly an interesting company that is worth understanding.

June 29, 2015 1:20 pm eastern)

Markets are down (1.3% U.S. and 2.0% in Canada) due to the Greece situation. If I had ample cash I would likely add to positions including Canadian Western Bank, CNR and Berkshire. But with limited cash I am trying to be patient and see how the week develops.

I am not thinking of selling anything at this time.

June 28, 2015

The reference article listing Global ETFs is updated. However, none of these appear to be compelling investments.

As of about 9 pm eastern, the DOW futures are down 247 points on the Greek situation. I am not inclined to buy stocks in the next few days unless they happen to be down at least 5%. It should prove to be an interest week ahead.

June 26, 2015

On Friday, the S&P 500 was flat while Toronto was down 0.6%.

Monday’s markets may be driven by the Greece debt situation unless markets finally decide they no longer care what Greece does.

June 26, 2015 FedEx update

The FedEx report is updated and the rating is (lower) Buy at $172.85. This is a strong company. The valuation is not compelling but it may be worth taking a small position in at this time. I marvel that the company charges an average of only $12 for an overnight express (air) envelope within the United States and $21 for an overnight express (air) parcel. (Meanwhile Canada Post charges about $18 to deliver a greeting card to the other end of Canada on an “expedited” basis which arrives after three business days!). The efficiency of FedEx and UPS is what makes online retailing feasible. FedEx also notes that as it expands into various countries such as in Europe it provides a benefit to those economies by facilitating speed in business and by offering affordable delivery service.

June 26, 3015 (9:15 am eastern)

On Thursday, the S&P 500 was about flat while Toronto was down 0.3%.

Melcor was down 2.5%. Oil was down moderately and is currently at $59.24.

The Dow is set to open slightly higher despite the Greek debt issues.


June 24, 2015

On Wednesday, the S&P 500 fell 0.7% on fears that a Greece debt deal was not so near after all. But Toronto rose 0.3%.

Melcor rose 3.6% but as usual that was on a small volume.

Canadian Tire rose 1.5% to $136.81. This company was in the low to mid $50’s in August of 2011.

Canadian Western Bank was up 1.9% and Stantec was up 1.7%.

June 23, 2015

On Tuesday, the S&P 500 rose 0.1% and Toronto rose 0.8% (as oil rose about 25).

I continue to view certain stocks that have been driven down by oil prices as buying opportunities. These include Stantec, Melcor and Canadian Western Bank and to some degree also CN rail.

A report today indicates that new home sales in the U.S. are running some 24% higher than last year in the first five months of the year. This bodes well for Toll Brothers.


June 22, 2015

On Monday, the S&P 500 rose 0.6% and Toronto was up 0.9%. This was on optimism about the Greek debt deal.

Most of the stocks on our list were up.

Melcor managed to fall 1.5% to $17.25. In my view that is “Mr. Market” offering to sell a stock cheap. Oil (West Texas) is at about $73 Canadian. Prior to 2004 oil had never been as high as $60 Canadian. This according to monthly data from¤cy=cad

Yes, we spent about seven years above $70 Canadian and sometimes above $100. But really $73 Canadian is not that low for oil, it’s just lower.

A Stats Canada report released today said that investment in residential home construction (includes multi family)  in Alberta was up 8.3% on the year. I certainly don’t expect Melcor to be selling increased numbers of building lots right now but there is no indication of a huge slow-down at this point. Also Melcor relies on subcontractors to do the actual work of developing land and their prices for the subcontractors are down. There are always scenarios to think about where the stock goes lower but I have had good success over the years buying stocks when they seem to be cheap. I grabbed another 150 shares of Melcor today.

June 21, 2015

On Friday the S&P 500 was down 0.5% and Toronto was down 0.8%.

However, Canadian Western Bank was up 1.8% and Toll Brothers was up 1.6%.

As of Sunday evening the DOW futures were up 73 points on optimism about the Greece debt talks — but that can change direction quickly.

June 19, 2015 Walmart update

Walmart is updated and rated Buy at $72.98. Its earnings per share have declined in the past two quarters due to the higher U.S. dollar (which reduces earnings from Canada and other international locations) and also due to increased wages and benefits. The decreases will cease as the company “laps” previous year quarters that also had the same impact. However in the case of the wage increases that lapping nay not occur for another nine months. In any case at a P/E of 14.7 with a dividend yield of 2.7%, Walmart is worth considering. The company has an extremely strong balance sheet and could easily undertake an international acquisition if it wished to move into additional countries. Meanwhile it is adding stores in most of the 27 countries in which it operates. Same-store sales growth has been modest but positive.

June 18, 2015

In a further reaction to the FED statements of Wednesday, the S&P 500 rose 1.0% on Thursday and Toronto was up 0.3%.

Berkshire Hathaway was one of the bigger gainers, up 1.9%.

Melcor managed to fall 1.3% to $17.50. I grabbed another 200 shares. This is company that has a book value of over $27. The book value was $9.00 per share at the end of 2008. So that is a gain of $18.00 per share in book value in six years albeit some of that was mark to market gains on rental building. Melcor earned $2.64 per share in 2014 on an adjusted  basis and about $3.00 per share on a GAAP basis in each of the last three years. It lived through 2008 without reporting a loss on an annual basis. I don’t recall it ever having an annual loss since I started watching it in December 2002 at a stock price of $3.60. The share price shot up to over $30 in 2007 (THAT was far too high) and then back down to close to $3.60 in the scary days of early 2009. THAT was a tremendous buying opportunity. It seems to me that things would have to get awfully bad in Alberta for Melcor at the $17.50 range not to work out to be a good investment. If things are as bad as those selling their Melcor shares at $17.50 seem to think then I wonder how much Alberta house prices should be down? 30% rather than just around 3%? West Texas is at U.S. $60 per barrel or $73 Canadian. I am not convinced that that qualifies as a low price in comparison to the average price of oil in the past 15 years. I don’t have the data at hand but I would be willing to bet that $73 Canadian per barrel for West Texas is higher than the average over the past 15 years. I believe Oil dipped briefly to U.S. $10 in 1998. Alberta may be headed for a recession but it’s not a depression.

June 17, 2015

On Wednesday the S&P 500 was up 0.2% while Toronto was down 0.1%

Janet Yellen, chair of the FED, said she expects the FED to start to increase interest rates before the end of  this year. Also the indication is that the rise in interest will be slow. Stocks responded positively to this.

Stocks on the rise today included RioCan REIT up 2.1% and Canadian Western Bank up 1.9%.

FedEx was down 3.0% as higher costs resulted in lower-than-expected earnings.

My next update will be for Walmart. I plan to soon update a few more companies as well and then to add some new ones to the list.

June 17, 2015 (11 am eastern time)

On Tuesday the S&P 500 was up about 0.6% and Toronto was relatively unchanged.

Dollarama which I judged on Monday as too expensive for my tastes rose another 2.9%. Today it indicates that some of its share buybacks will be by private placement with arms-length third parties. One interpretation of that is that these third-parties who own a lot of shares are selling due to the high price.

Markets are off to a positive start today but the news and comments from The FED later today will likely impact the market in one direction or the other.

June 16, 2015 (11:25 am Eastern time)

Markets this morning are mixed with New York up slightly and Toronto down slight.

It sounds like Hudson’s Bay Company made another good deal yesterday buying the a big German retailer and then doing a partial sale of the real estate by putting the real estate into a joint venture. I have unfortunately not analyzed Hudson’s Bay but I have been very impressed with them over the past few years. Selling those Zeller’s leases to Target for $1.8 billion was brilliant and there were some other real estate sales as well. They sold the flagship Hudson’s Bay store in Toronto in a sale and leaseback deal for $650 million. The Baker family of the United States bought Hudson’s Bay for less than the value of the real estate some years ago and then bough Saks 5th Avenue also apparently for less than the value of the real estate.

June 15, 2015 Dollarama update

Dollarama is updated and rated Weak Buy at $72.01. I first added Dollarama to the list in early 2012 rated Weak Buy at $21.75 (all stock prices mentioned here are split adjusted). I considered it then to be very well managed but it seemed too expensive at a P/E of 22 and the valuation of over $5 million per store seemed too rich. Also Bain Capital which had owned 80% of the company had sold all of its shares at prices from $12 to $16.25. It turns out that Bain apparently made a mistake in selling all of their shares and that I was far too conservative in projecting the growth of the company (I considered it could grow at 12% based on new stores and same-store growth plus some additional growth beyond that 12% for economies of scale).

Earnings per share growth has been closer to 30%, which is remarkable. This growth came from a combination of same-store sales growth, new stores, share buybacks, economies of scale and some additional financial debt leverage.

It seems clear that Dollarama has been one of the very best managed companies in Canada. The problem is that the market is well aware of the performance and has pushed the P/E up to 31. The value per store is now a remarkable $10 million. The total value of all the shares is $9.4 billion. To put that in some context, Canadian Tire has a value of $10.3 billion. And recall Canadian Tire includes Sports Chek and other sports stores as well as Mark’s and owns most of the real estate of the Canadian Tire brand stores and has a huge and profitable MasterCard operation.

Despite the performance of Dollarama, I am not a buyer at 31 times earnings. At the same time I won’t rate it a Sell but if I owned it I would reduce my position especially if I had a large position.

While I have never owned it, I enjoy reading its financial reports and learning how it has been so successful. Every retailer should study this company.

Some analysts have commented that Dollarama’s success is a reflection of a poor economy. That is not the case. I don’t think consumers have suddenly become more value conscious. Most people have always looked for value. What is new is the availability of the value provided. Dollarama is delivering every day products at notably lower prices than traditional retailers and, at the same time, making far higher profits. That is a combination which greatly benefits consumers. One analyst said that Dollarama is the best dollar store operator in the world. Its remarkable success is something to celebrate and to learn from.


June 14, 2015

Friday’s action saw the S&P 500 down 0.7% and Toronto down 0.6%.

Almost all the stocks on my list were down but Melcor managed a 2.2% gain albeit on practically no volume.

I notice TransAlta (which I have not had on the list in the last dozen years due to a conflict of interest with the job from which I recently took early retirement) is down under $10 per share. To put that in context, the earliest price shown on Yahoo Finance is $13.75 over 20 years ago on January 12, 1995. I have long had a very (very) low opinion of the company. Its managers and directors over the last 20 years or more would appear to belong in some kind of Business Hall of Shame. I normally try to avoid negative comments on companies not on my list but I feel compelled to make an exception here. It may in fact be good value at its current low price but it seems clear it has been very poorly managed. The dividends were reasonably good over the years but I don’t think that makes up for the share price. That this record occurred by a utility headquartered in Alberta which has boomed for much of the past 20 years is stunning. If current management should see my comment and be offended I would only invite them to demonstrate good returns over the next few years. The past record is what it is.

Investors in TransAlta (owners) are partly to blame. All the directors were recently voted in with at least 95% voting in favor and most getting 99%. Of course many owners don’t bother to vote but those who did gave a ringing endorsement.

Last month, TransAlta announced it sold $1.8 billion of assets to a related subsidiary company, TransAlta Renewables which trades separately and which has a decent track record,  and of which TransAlta now owns 76% of. I was looking to see what the gain or loss on the sale was but it’s not mentioned. Perhaps that is because in effect TranAlta sold these assets mostly to itself. Brilliant? With consolidated reporting there may not be a gain or loss reported. It may be beneficial if the subsidiary trades at a higher valuation multiple.

I am working now on an update for Dollarama whose managers would belong in a  Business Hall of Fame.

June 11, 2015

On Thursday, the S&P 500 rose 0.2% and Toronto was down 0.4%.

Canadian Western Bank at $28.02 is trading at 10.5 times trailing earnings according to Yahoo. The dividend yield is 3.1%, I calculate the P/E ratio as 10.2. The book value per share is $21.56 after adding in a special gain of $1.38 that will be booked in the current quarter. The ROE has been running at about 14%. This stock appears to be an attractive investment. There is some risk due to bad loans but based on its past history I expect this to be a good investment.

June 10, 2015

On Wednesday, the S&P 500 was up 1.2% and Toronto was up 0.5%.

Most of the stocks on our list were up. Some notable gainers were Dollarama up 2.7% after releasing an earnings report. Visa up 2.5%. Canadian Western Bank up 2.0%.

Oil was up but then slipped back in evening trading and is presently at $61.10 for the July West Texas Intermediate futures contract in New York.

As always, there is a lot of noise and volatility (in both directions) in the market. Meanwhile corporate profits tend to grow relatively steadily. For example earnings for the S&P 500 are up 75% since 2004 and 171% since 1998. With companies in the stock exchange increasing their earnings relatively steadily over the years it should not be that hard to go along for the ride and make money in stocks. Worrying excessively about the next threat to stocks and losing sight of the big picture is why so many people fail to make much money on their investments.

I look at Melcor trading at 5.6 times trailing earnings. Now that included some unusual gains to be sure. But I calculate Melcor as trading at 6.9 times adjusted trailing earnings. Also it’s trading at about 68% of book value. And yet buyers are not rushing in to bid this stock up due to fears about the Alberta house building outlook due to lower oil prices. Even Melcor itself does not want to buy its own shares. It announced a share buyback 10 weeks ago and then promptly bought exactly no shares since then. There are always risks, but this looks like excellent value to me.




June 9, 2015

On Tuesday, the S&P 500 was about unchanged while Toronto was up 0.5%.

Oil was up about 4% and is now at $60.85 for the July West Texas futures contract.

Dollarama will report earnings tomorrow. I plan to update the analysis for Dollarama in the next few days. Its margins may have suffered somewhat due to the higher Canadian dollar but overall it probably had another strong quarter. Its one of the very best-managed companies in Canada.


June 8, 2015

On Monday, the S&P 500 was down 0.7% and Toronto was down 1.4%.

Lower prices provide the opportunity to buy shares at better prices. For example, CN railway, Boston Pizza, Melcor, Canadian Western Bank  and Berkshire Hathaway.

June 4, 2015

On Thursday, the S&P 500 and Toronto were each down 0.9%.

Among the few stocks rising in price was Constellation Software up another 1.5% after announcing an acquisition on Tuesday.

The May job creation report will be out tomorrow and will no-doubt be a driver of market direction.

June 4, 2015 Canadian Western Bank update

The report for Canadian Western Bank Group is updated and the stock is rated Strong Buy a $28.27. The Q2 report showed continued good growth and only a minimal increase in bad loans. The market remains worried about the low oil prices and potential recession and bad loans. The shares are already down significantly (35%)  from the 52 week high of $43.30. While there are never any guarantees, I am very comfortable holding these shares and expect them to provide an excellent return over the next several years.

The Canadian Western Bank rate reset preferred shares are also worth considering for a yield investment.

June 3, 2015

On Wednesday, the S&P 500 rose 0.2% and Toronto was up 0.3%.

Couche-Tard was up 2.8%.

Canadian Western bank is expected to release earnings this evening but the report has not come out yet. It was up 1.4% today.


June 1, 2015

On Monday, the S&P 500 was up 0.2% and Toronto was up 0.4%.

Dollarama was up 3.6%. Element Financial was up 2.4%. There were no major declines for the stocks on our list.

The Canadian dollar was down about 0.6 cents and is currently at 79.9 cents.


June 1, 2015 CNR Update

Canadian National Railway Company Ltd. is updated and rated Buy at CAN $74.88 or U.S. $58.98. It had reached a high of CAN $88.89 in February and returned close to that again in march. It then fell about 17% despite an excellent Q1. The fall was likely due to reports of lower car loadings for energy, cola and grain in Q2. I would view the pull-back as a buying opportunity. I plan to buy some CN tomorrow.

May 31, 2015

On Friday, the S&P 500 and Toronto were each down 0.6% apparently due to weak figures for GDP growth in the first quarter.

Melcor was down 4.2% to $18.30. Due to its low trading volume, Melcor is inherently volatile and I would not read anything into this particular decline.

Other notable decliners included Liquor Stores N.A. down 2.7%, Canadian Western Bank down 1.6%, Canadian Tire down 1.9% and the Bombardier Pref share down another 1.8%.

Oil, however was strong. It was up about 4% and CNBC is currently showing West Texas at $60.23 on the July contract trading on the New York Mercantile exchange.

This week I look forward to the earnings release from Canadian Western Bank and the market reaction to the earnings. I suppose however if they show no real damage from lower oil prices the market may just conclude the damage is coming later so there may be no short-term recovery in the stock. Longer term I am quite confident that Canadian Western bank will do well.


May 31, 2015 VISA update

VISA Inc. is updated and rated Weak Buy at $68.68. I have said many times that it has monopoly characteristics to some degree in that most retailers have effectively no choice but to accept its cards and pay the merchant discount fees. And those merchant discount fees are unregulated in most parts of the world. VISA now faces more competition but the extent to which payments are moving away from cash and cheques and towards electronic payments in increasing the size of the market. VISA is expensive at 29 times trailing earnings. But it may not be a bad thing to have some exposure to the stock. I’d be more interested at a lower price.

VISA was added to this web site at the bottom of the financial crisis April 15, 2009 rated Buy at $14.56 (split adjusted price) and has risen 372% since then. It was rated (lower) Strong Buy on May 6, 2011 at $19.85 (split adjusted) and is up 246% since then. Personally, I bought it twice and then sold too early. But it generally continued to be rated a Buy on this site although occasionally only a Weak Buy. It’s been in most of our wallets. It should have been in our portfolios as well, it seems.


May 28, 2015

On Thursday, the S&P 500 was up 0.1% and Toronto was about unchanged.

Rising stocks included Couche-Tard up 2.0%, e-Bay up 2.0%, and Onex up 1.9%.

The Bombardier pref share on our list fell 2.8% to $17.40. Whole it is definitely a riskier preferred share, I suspect it will be a good investment at this price.

Toll Brothers rose 0.8%. I read the conference call transcript and the company certainly seems optimistic. It’s reasonably priced and provides a way to benefit from the increased U.S. house prices and new home sales. I will update the Toll Brothers report tomorrow.


May 27, 2015

Berkshire Hathaway is updated and rated Buy at $144.75. What Buffett has accomplished with Berkshire is almost beyond comprehension (stock price up 1.8 million per cent from the 1965 starting price which was in the range of about $12 for the A shares, which today are $217,000 or equivalent to about 0.8 cents for the B shares which did not exist in 1965.) And the accomplishments of the last decade are also remarkable given that it was not easy to keep increasing in size when the company was already one of the largest companies in the world.

We will definitely NOT see gains in the range of 20% per year like in the old days but Berkshire can be expected to grow in the range of perhaps 8 to 10% per year over the next decade. I consider it to be worth buying. I had sold the shares I owned due to a potential conflict of interest when Berkshire bought an electric transmission utility in Alberta. That possible conflict of interest has ended and I plan to buy at least a small position in Berkshire.

On Wednesday, the S&P 500 was up 0.7% and Toronto was up 0.4%.

My own portfolio did not do well because Toll Brothers fell 2.2% to $36.16 after it released earnings this morning. I thought the earnings report was good based on contracts for home sales being up 10% in units and 25% in dollars versus the prior year. Toll Brothers is unusual in that its revenues are booked about a year after it makes a sale contract to build a house. It was known that earnings would not grow much this year because signed contracts from the prior year were relatively flat. The market seems to be focusing on reported earnings when in this case the new signed contracts may be more relevant. I plan to update the Toll Brothers report in the next day or so and I expect it to remain rated Buy. It’s one of my two largest positions.

I escalated a complaint to TD Direct about the high exchange spread fee and they got back to me and seem interested. However, there is not a lot of incentive for them to reduce the fee unless they get a lot of complaints or bad publicity about it. All the big bank brokerages charge similar high spreads over and above the wholesale exchange rate and in my opinion the fees are unjustifiably high. These fees are not regulated.

May 26, 2015

Tuesday was a negative day in the markets with the S&P 500 down 1.0% and Toronto down 0.9%.

Melcor was one of the rare stocks on the rise and it was up 2.7% to $19.00.

Element Financial was up 4.7% on confirmation that it is in talks to buy “fleet assets” from General Electric.

Constellation Software was up 1.8% to $516.

The Canadian dollar was down eight tenths of a cents and now sits at about 80.5 cents. I would be very tempted to rebalance by moving some of U.S. dollar investments back to the Canadian side except for two reasons. First, I don’t have much cash in my American dollar accounts and I don’t particularly want to sell any of the American stocks I own (though I probably should for the sake of rebalancing.

Second, TD Direct (formerly called TD Waterhouse) will charge me a fee of about 1.65% to move cash from a U.S. account to a Canadian dollar account. And this applies even to moving funds between the U.S. dollar and the Canadian dollar portion of an RRSP. I consider this to be an outrageous fee and have complained about it.

Using a stock that trades in both Canada and the U.S. has been suggested as a way around it. I did that once and with a fee of I believe $80 to do a manual transfer it did not work out much cheaper at all when moving $10,000. It would have been cheaper though if moving more like $20,000.

The bottom line for me is that paying 1.65% to move money one way makes it very difficult or futile to try to get ahead by moving money between U.S. and Canadian dollars as the dollar moves around. For me, it seems that moving money to the U.S. account is something of a one-way trip. I move it there and then leave it and trade in U.S stocks.

This fee is no different than the standard 2.5% that most Canadian credit cards tack onto the U.S. exchange. They do it because they have a captive customer. And because customers don’t complain enough about it. I have no problem at all with a reasonable fee.

Toll Brothers is set to report earnings before the open on Wednesday. I am hoping for a good report with a good outlook. The earnings it reports will not be as important as its figures (number and average price) for contracts on new homes. Contracts take about a year to show up as revenue and earnings after the house is built and transferred to the buyer.

May 25, 2015

Monday was the Memorial Day holiday int he U.S. and stock trading was closed. Toronto was down 0.1%.

Melcor was up 2.3% on higher-than-average (but still low) volume.

May 25, 2015 Wells Fargo Preferred Shares

The report on the Wells Fargo preferred shares is updated and rated Weak Buy / Hold at $24.49

I had first mentioned these shares on December 19, 2013 when I had bought them at $19.90. At that time they looked like a bargain because they had fallen from the May 2012 issue price of $25.00. I could not see any reason for the fall and since Wells Fargo was a strong company I figured they might recover. They made a quick recovery to the $22 range by April 2014 and I sold. They have now recovered to $24.49 and so these have been a good preferred share investment.

At this time yielding 5.2% they may still be a reasonable investment for those looking for U.S. dollar fixed income but they will fall in price if long-term interest rates rise. Those who expect long-term interest rates to rise more than a modest amount should sell if they hold these.


May 24, 2015

On Friday, the S&P 500 was down 0.2% and Toronto was about flat.

Element Financial was up 3.4% to $18.34. The stock price ahs done well as the company continues to grow by acquisition. It appears to be expensive but could continue to do well if it does not run into problems including bad loans. I consider it to be a riskier stock.

Wells Fargo is updated and rated Buy at U.S. $56.00. Reading its annual report I very much like the way the company is managed and how it makes money and how it is able to explain its business. I am not particularly expecting any big rise in its earnings as it struggles with low interest rates. But over the long term it will likely continue to do well.

I had first added it to this site at the height of the financial crisis (bottom of the market, February 22, 2009) as a highly Speculative Buy at $10.91. A year later on February 26, 2010 with the financial crisis resolved I rated it a Speculative (lower) Strong Buy at $26.88. Since then it has been one of my largest holdings and I have done a fair amount of buying on dips and some selling on rallies as the share price certainly did not move up in a straight line to $56.00.

May 21, 2015

On Thursday, the S&P 500 was up 0.2% while Toronto rose 0.9%.

Oil (West Texas Intermediate July futures contract) was up almost 3% to $60.61.

The biggest gainer on my list today was Agrium, up 2.5%.

My next update will be for Wells Fargo, which is likely to remain rated Buy. It’s annual report seems to be much easier to read than Bank of Americas. Wells Fargo is the least complex of the large U.S. banks. It has truly been on its game. Warren Buffett has been adding to Berkshire’s already massive position in this stock. Wells Fargo is benefiting from the continuing housing and economic recovery in the U.S.

May 20, 2015

On Wednesday, the S&P 500 was down 0.1% and Toronto was down 0.3%.

Most of the stocks on my list were down. The seemingly unstoppable Constellation Software was up 2.7% to $511 after announcing another acquisition.

May 19, 2015 (sent by email)

Yesterday, it was reported that new home starts are up sharply in the U.S. This should bode well for Toll Brothers which reports earnings on May 27.

The Canadian dollar has recently declined about 2 cents. This was after having risen about five cents from the lows earlier this year. I don’t have any ability to predict such trends. Instead I like to try to add funds to my U.S. account when the Canadian dollar is high and then either leave it there permanently (on the basis that I will eventually spend money in the U.S.) or repatriate some when the Canadian dollar is low. A difficulty with switching back and forth is the high exchange fees charged by most brokerages.

May 18, 2015

Monday was a holiday in Canada but not in the U.S. The S&P 500 was up 0.3%.

Toll Brothers was up 1.4% to $37.90. It’s my second largest position and should continue to do well over time. It reports earnings on May 27.


May 17, 2015 Stantec

Stantec is updated and remains rated Buy, now at $35.78.

Stantec is a wonderful business (has earned ROE in the range of 17% to 19% for years despite a rapidly growing equity base). It has excellent management. And its available at a reasonable price. It’s a Buy. It has many years of growth ahead of it.

The stock price had not increased much in 2009, 2010 and 2011. It then increased a lot in 20012 and 2013. It was flat to declining in 2014 and early 2015. It recently rose from lows around $30. Meanwhile over that period earnings were steadily growing on an annual basis. This is not unusual, stock prices often move far differently that stock earnings as investors try to predict the future and react to things outside of the company. Good companies like Stantec tend to rise over time. But they don’t do so in straight lines.


May 16, 2016 Market Comment

On Friday, the S&P 500 rose 0.1% to a new record high close and Toronto was up 0.5%.

Canadian Tire was up 4.2% and this was on top of yesterday’s rise of 1.7% after it released earnings on Thursday morning. It appears that after having time to study the earing’s release the reaction to it improved on Friday. (See our update to this report at the link).

Stantec gained 3.2% after also releasing earnings on Thursday. We plan to update that report shortly.

Melcor rose 2.5% on higher than usual (but still low) volume.

Canadian Western Bank fell 0.5%, presumably due to fears of loan losses related to the oil price situation and to Alberta companies that face difficulty.

May 16, 2015 Canadian Tire

Canadian Tire is updated and rated Buy at $133.55

It just released earnings which were exceptionally strong in terms of same-store sales.

We have been rating it a (lower) Buy since last year (May 10, 2014 at $111.29). It has done better than I would have expected. Prior to that we were rating it in the Strong Buy range in 2011, 2012 and 2013 including at just $52.40 in August 2011.

In Q1 I expected that earnings would suffer due to the fact that it sold 20% of its lucrative credit business to Scotia Bank effective October 1, 2014. That did occur to some degree and after adjusting for gains on real estate sales adjusted earnings per share were down 8% on the quarter. (The company however did not adjust for this and claims earnings per share were flat and some analysts appear willing to overlook the drop in earnings due to this sale in any case). I also worried that with the sharply lower Canadian dollar this company which imports most of its goods was going to have to raise prices or see profit declines. However this does not seem to have happened probably due to currency hedging. Possibly, some of the same-store sales rise was simply due to price increases rather than volume but the company has not indicated that such is the case. The company has not revealed the extent to which it is hedged and has alluded to the fact that its buyers can somehow largely offset the currency impact but has not explained how.

I was a bit hesitant to raise this to a Buy but the same-store sales growth does support a higher rating. Possibly we were too conservative in our rating over the past year.

Keep in in mind that stock has almost doubled from where it stood in early 2013 when we rated it a (lower) strong Buy at $68.65. The price had not done much for several years and then started a steep rise in early 2013 which has continued. I suspect that the big money has now been made. It represents 5.1% of my portfolio. I find myself with mixed feelings about how well the stock has done because it once represented over 20% of my portfolio and I sold most of it too quickly on the way up.

While the stock does seem to merit a Buy rating there are some risks in terms of the lower Canadian dollar and possible higher credit losses on its credit card operation.

May 14, 2015

On Thursday, the S&P 500 rose 1.1% and is basically at its record high. (Which is in no way a danger signal.) Toronto was up 0.3% and is about 4.5% below its all time high.

Stantec was up 4.6% to $34.52 after reporting good earnings. We had last rated it a Buy in December at $31.15.

Bombardier which is a speculative near penny stock was up 5.12% after announcing some layoffs due to weakness in business jet sales. The layoffs and weakness were not unexpected and had been telegraphed in recent news stories. I hold some Bombardier as a speculative pick.

Canadian Tire was up 1.7% after releasing a good earnings report.

I plan to have several reports updated in the next few days.


May 13, 2015

On Wednesday, the S&P 500 was about unchanged and Toronto was down 0.4%.

Canadian National Railway was down 3.2% to $74.11. I think it would be good value at this price.

Couche-Tard was down 2.3% to $46.08. It still seems expensive at that price but is a great company.

Melcor’s price did not react much at all to the earnings report but the volume was higher than normal (though still small at 29,000) shares. I have very little cash to make buys at this time but I threw in an order (a little below the market price) to add a little to my Melcor position. I will be interested to see if the company starts to buy shares now under its issuer bid. Most profitable companies trade at least somewhat above book value. Melcor’s book value is over $27.00 but the stock trades under $18.00. Possibly we have here the proverbial $1.00 of value trading for 50 or 60 cents. Last year RBC pegged the value at $35 but later dialed that back. And it may be that the price will simply continue to trade under its true value in part due to the family control position. But I don’t mind riding the family’s coat tails and if the profits are higher in five and ten years (which I certainly expect) then the stock price will be higher as well.

May 12, 2015

On Tuesday the S&P 500 fell 0.3% and Toronto was down 0.7%.

But oil (West Texas Intermediate on the futures market) rose around 1.5% today and is currently up another 0.45% this evening to $61.20.

Melcor reported earnings after the close and everything looked quite positive with increases in revenues and profits versus last year. Given that and given that oil has recovered considerably from the lows it seems to me that there is ample reason for the stock to rise. But sometimes it seems like “the market” wants to focus on the negative. In terms of negatives Melcor sold less lots that the year ago quarter (albeit at higher prices) and the company mentioned that it is proceeding cautiously on some of its projects. Overall, I certainly found that the report reinforces my view that the stock is significantly under-valued. We shall see how the market reacts. The stock continues to be very thinly traded and basically just not well known and this hampers the valuation. That can be considered a negative. But it can also be considered an opportunity to buy at an excellent value. Certainly the stock could always go lower if the Alberta outlook dims but I feel good about my investment in this company.

May 11, 2015

On Monday, the S&P 500 fell 0.5% and Toronto was down 0.1%

Bond yields were up modestly (10 year U.S. Treasury up to 2.28% from 2.16% on Friday and from 2.12% on May 1. That 2.28% is still an incredibly low rate and I am not sure the increase constitutes a “spike” but some reports are describing it that way. There was worry today apparently about the Greek debt situation. I don’t think is usually pays to worry much about things like the Greek debt. If we got out of the market every time something like this came up, we would never be in the market.

Melcor is scheduled to report earnings tomorrow. That will likely be after the close. I look forward to their thoughts on the outlook for their business.

There has been news that some of the former Target stores will live again as Canadian Tires, Wal-Marts and Lowe’s.

You may recall that I was incredulous several years ago when Target paid something like an average of $15 million per store to take over the Zellers leases and then an average of another $10 million or so per store in renovations. Canadian Tire is now paying not much over a million per store to take over some leases. Walmart and Lowe’s however appear to be paying something over $10 million per store. (Presumably they are taking bigger stores and /or the leases will last longer or are otherwise more attractive than the Canadian Tire spots.)

It is good to see that at least some of the stores will be occupied again. It would be a bad sign if the space sat empty.

It would be hilarious if Zellers resurrected itself and grabbed some spots back.





May 10, 2015

Friday was a good day to own stocks. Actually, on average, most days are good days to own stocks. When you own stocks you own a slice of the corporate world. Most large corporations are profitable. The gyrating prices of stocks often makes them seem risky to own but over the longer term they tend to provide more than satisfactory returns to owners.

On Friday, the S&P 500 was up 1.3% and Toronto was up 0.5%.

Notable gainers from our list included Visa up 4.3% on news that it may buy its former subsidiary Visa Europe. In the past few years VISA has generally looked expensive. But it has also looked like a (largely) unregulated-as-to-price monopoly. A wonderful toll booth business. It is up 377% since I added it to this site rated Buy on April 15, 2009 near the bottom of the financial crisis stock crash. It is also up 250% since I rated it a (lower) Strong Buy on May 6, 2011. I sold my own shares far too early and at times it was not on our list at all but I don’t think it was ever rated it lower than a hold on this site. I rated it a Weak Buy to start 2015 and it is up 6.0% this year.

Liquor Stores N.A. was up 3.4% after releasing strong same-store sales in Q1. I have been negative on the company due to the low level of annual earnings and the intense competition.  I did visit their flagship Wine and Beyond Store in south Edmonton recently. It is certainly a spectacular store with a far better and more relaxed shopping experience than is typical. The question is whether people will pay for that type of shopping experience when it comes to liquor. Liquor Stores N.A. wants to move the shopping experience upscale while a number of competitors including Costco offer lower prices and lower cost operations.

Bombardier was up another 3.5% as the market digests its plan to sell a minority portion of its train division into an IPO creating a second public company as a controlled subsidiary. This is clearly a speculative stock.

Wells Fargo up 2.3% and Berkshire Hathaway up 2.1%.

Boston Pizza Royalties Income Fund is updated and rated (higher) Buy at $21.75. I am becoming increasingly enamored of this entity as an investment. It has a cash yield of 6.0% and that yield can reasonably be expected to rise slowly over time. This royalty fund is basically a share of ownership in the franchise fees paid on food (but not liquor) at Boston Pizza restaurants. This franchise fee gets paid off the top. As investors we are not at risk for the profitability of the restaurants unless profits fall to the point where the restaurants simply can’t make the franchise fee and begin to close. There is that risk. But Boston Pizza has been doing well for years and there is no sign of that changing. The unit price is certainly at risk of falling if interest rates rise. And interest rates will likely rise somewhat. But the chance that interest rates will rise substantially seems to be fading. And the distribution would not change with interest rates.

As I leave the world of paid employment and start to think more about sources of fixed income this entity with what appears to be a safe yield of 6% and where the yield can reasonable be expected to rise slowly over the years certainly seems like a good choice.

It is not risk-free but I like the risk-return tradeoff here. It’s currently 5.9% of my portfolio. I will consider raising that when I have the cash available and particularly if I can get it around the $22 level or less.

May 7, 2015

On Thursday, the S&P 500 rose 0.4% and Toronto also rose 0.4%

Bombardier rose 6.7% after announcing it would sell a portion of its Transportation (rail) business in an IPO while retaining control. The company also announced first quarter earnings that were weak but better than last year.  And it announced that a Swiss airline will be the initial customer of it’s new C-series plane to enter service in the first half of 2015 (which seems like a delay from a prior target of late 2015). The market reaction was weaker earlier in the day and I added to my position. Bombardier is speculative but at its current price seems like a reasonable speculative pick.

I notice that Bombardier’s directors received votes mostly around 99% while most of the family member directors were a bit lower at 97 to 98%. It makes me wonder just how badly a company has to do and how poor its slate of directors has to be before they a high percentage of owners will withhold their votes. I guess people don’t mind the multiple voting shares and the fact that some of the family members have been on the Board for about 40 years and have presided over a horrible track record these past 15 years.

Liquor Stores N.A. released Q1 earnings after the close. Sales were strong with same-store sales growth in Canada of 4.3% and 1.1% in the smaller U.S. operation. But they still lost money in Q1 and have continued to add to their administrative costs. I don’t know if the market will take this news as positive or not. There was also a mention of “head winds” in the core market which it is “starting to face”. This could offset the positive same-store sales results. The conference call is scheduled for 10 am mountain or noon eastern time on Friday.

The five year Canada bond interest rate has risen noticeably in recent days to 1.13% from lows under 0.75%. This has led to a partial recovery in rate reset pref share prices and the recovery will continue if the interest rate continues to rise.

Boston Pizza royalties was up 2.1% to $21.68 and may continue to rise somewhat. It has fallen when the company issued new shares to buy a bigger slice of the franchise fee royalties. The May distribution will rise 6.2% and barring a stronger rise in interest rates I suspect these units will get back to the $23.00 level. Based on the new higher distribution it is currently yielding 6.0%, which is attractive in this very low interest rate environment especially considering that the distribution should continue to rise (albeit very slowly) over the years.

Agrium was up 2.3% today.


May 6, 2015

On Wednesday, the S&P 500 was down 0.5% and Toronto was down 1.0%.

Agrium was one of the few stocks on our list that rose and it was up 3.2% to $129.01 This was due to the dividend increase and the increase came despite a projection that earnings will be somewhat lower than previously expected. I like the company but would not be a buyer at the recent price.

Oil prices (which are measured by the next month’s price on futures markets – which tend to be somewhat lower than the spot physical price of the moment) have risen recently. In addition the discount for Alberta heavy oils in relation to West Texas has fallen. Despite this the Alberta oils sands companies were generally falling this week and today and most other Alberta stocks were down more than the overall markets. I suspect there has been some selling related to the NDP victory in Alberta. I am not sure that is rational in the face of higher oil prices. On that basis, I modestly increased my position in Canadian Western Bank and in the oil sands ETF CLO today.

Longer term interest rates in the U.S. are up noticeably in the past couple of week. Shorter term rates such as six months and one year have not increased. Still, the move in the longer term rates may suggest some hint of a modest return to higher rates, although there is no sign that that any increase will be more than quite modest.

May 5, 2015

On Tuesday, the S&P 500 fell 1.2% and Toronto fell 1.3%

Melcor was up 4.9% on higher than usual volume.

Agrium reported earnings after the close which were apparently below expectations but if also raised its dividend 12%. I am not sure which way the stock will move on that news. I last rated it a Speculative (lower) Buy at $132. On that basis, I am not particularly interested in buying at this point.


May 4, 2015

On Monday, the S&P 500 rose 0.3% and Toronto was up 0.2%.

Notable gainers included Couche-Tard up 4.6%, Liquor Stores N.A. up 3.2%,  Constellation Software up 2.8%, and Bank of America up 2.0%.

In the next two weeks we will get a number of Q1 reports from Canadian Companies.


May 3, 2015

The report for Bank of America is updated and the stock is rated Speculative (higher) Buy at $16.11. The thesis for owning Bank of America is that its stock price could rise substantially once it is able to string together four quarters without a large litigation settlement to matters dating back to the financial crisis. Also it may soon announce an increase to the dividend. (It has to have permission from the Fed to do that and I am not sure where that stands.)

On Friday, the S&P 500 rose 1.1% and Toronto was up 0.8%.

Canadian National Rail was up 2.8%. The RioCan pref share rose 2.5% and the rate reset pref shares in general had a strong week.

April 30, 2015

On Thursday, the S&P 500 fell 1.0% and Toronto was down 0.8%.

Notable decliners included Couche-Tard down 5.1%, Constellation Software down 4.1%.

I don’t hold any Berkshire Hathaway but am tempted to grab some with the price now at about $141 down from a high of $153. I would do that in my U.S. dollar accounts. I am not interested in buying U.S. stocks with Canadian dollars at this time ands I already have a high exposure to the U.S. It’s the 50th anniversary meeting of Buffett’s take-over of Berkshire and is going to be a mob scene.

If I did not already own so much, I would likely add to Toll Brothers. Berkshire’s mega annual meeting weekend starts tomorrow.




April 29, 2015

On Wednesday, the S&P 500 fell 0.4% while Toronto was about unchanged.

Melcor recovered some of yesterday’s decline and was up 3.0%. I found out today that, to my surprise, Melcor has not bought back any shares under its normal course issuer bid that was announced on March 27. It turns out that they were not allowed to because they are in a blackout period pending release Q1 results. I had taken their press release of March 27 as meaning that they would in fact be buying back shares. It was only going to be a maximum of 3057 per day anyhow but I think they should have been somewhat more clear on the press release. In fact the press release mentioned that up to 1.6 million shares or 5% could be repurchased. In Fact the 3057 per day limit meant that it would only be 0.6 million maximum. And given that they are not allowed to purchase in periods after the end of a quarter until earnings are released, we are looking at a maximum of more like 0.3 million shares. That’s a far cry from the 1.6 million shares indicated in the press release.

U.S. GDP grew at only 0.2% in Q1. GDP is always reported after adjusting for inflation. In nominal dollars GDP was up somewhat more than 0.2%. I would not read too much into this unless it were confirmed by another weak number in Q2.

April 28, 2015

On Tuesday, the S&P 500 was up 0.3% while Toronto was about unchanged.

I was surprised to see Melcor down 5.4% to $17.00. Most of the decline was in the last hour of trading but was on more than a tiny volume. It could be that someone was just in a hurry to unload several thousand shares for some reason.

A month ago Melcor announced a plan to buy back up to about 3000 shares per day. However, no such buy-backs are indicated on the SEDI system. I have now emailed Melcor for an explanation.

Melcor will release Q1 earnings on May 12. Q1 is usually a seasonally weak quarter for Melcor. It is not facing a “tough comparable” from last year. There may be market value losses on its properties although that may not be the case given the continuation of low interest rates. The most important news from the earnings release may be management’s views on the outlook. Unless some negative information surfaces, I would view the decline to $17 as a buying opportunity.

April 27, 2015

On Monday, the S&P 500 was down 0.4% and Toronto also declined 0.4%.

Among the decliners was Melcor, down 2.1% to just under $18.00. I continue to think it offers excellent value.

Bombardier was down 4.7%. I did not see any news to cause that. I have been thinking of possibly adding to Bombardier on speculation that it will sell off part of the rail division as has been rumored.

Most rate reset preferred shares had a good day today.

I have updated my article that looks at the long-term performance of stocks, versus bonds and gold.

I just received the year-end data that I need and will be updating some related articles as well.

April 26, 2015

On Friday, the S&P 500 was up 0.2% and Toronto was up 0.1%.

Most preferred shares rose which was likely associated with a rise in interest rates in the bond market in the past few days.

My pace of updates to the stocks reports has been quite slow. The pace will quicken noticeably as I am retiring from my day job on May 20. It would have been tempting to keep doing the day job and this investment site but its been hard to always find the time for investments on evenings and weekends.

While my pension from work is part of the reason I am able to retire from that job at age 55, and this web site business is another large part, my success in building up significant investments is also a large part of the reason I can take my leave from the world of working for wages. Working for wages is great and I am grateful I was able to be gainfully employed in a good job, but it’s also legitimate to have other aspirations. I look forward to having more time for both recreation and this investment web site.

April 23, 2015

On Thursday, the S&P 500 was up 0.2% and Toronto was up 0.4%.

Toll Brothers was down another 4.2%. I did not see any reason for that. Then again, stocks have NEVER really needed a reason to rise or fall. Much of the fluctuations are essentially random, which is what makes investing perplexing and challenging.

News that the “flash crash” was caused by someone apparently manipulating the futures markets will be fodder for those convinced that “the markets are rigged”.

As far as I am concerned anyone who sold that day simply because the market was falling and locked in a loss has themselves to blame. The 99% who simply held through that little crash and who were mostly unaware it happened until the decline was over saw the market rise the next day or so and were not harmed. I spent zero time worrying about that flash crash.

I don’t condone trying to manipulate markets. I simply ignore it. In most cases it does not hurt me, in other cases it provides a buying opportunity and in any case there is nothing I can do about.

April 23, 2015 (11:05am eastern)

With Toll Brothers down a bit more I grabbed a few more shares this morning. I see a couple of Home Builders reported good earnings reports, one today and one yesterday. So it seems to me that buying on this dip could work out well. Toll Brothers should have a reasonably good earnings report at the end of May although that remains to be seen.

April 22, 2015

On Wednesday, the S&P 500 was up 0.5% and Toronto was down 0.3%.

Visa was up 4.1% on news it might be free to do business in China before long. Visa has acted as a financial toll booth for years now. The stock has looked expensive for some years but it is hard to keep a good (mostly) unregulated-as-to-charges monopoly down. American Express was up 1.5%, probably related to China as well.

Melcor was down 4.6% to $18.50. I did not see a reason for that.

Toll Brothers was down 3.0% and that is on top of recent weakness.

I consider Melcor and Toll to both be buys although no stock is without risk.

April 21, 2015

On Tuesday, the S&P 500 fell 0.2% and Toronto fell 0.4%.

CN rail was down 3.1% after reporting earnings. Melcor was up 2.0%.

The federal budget was investor friendly. It’s nice to get a bigger opportunity to shield investments from tax including a lower tax for those with profitable small businesses. But I don’t see why investors needed any more tax breaks. I doubt if more than 1% of people were able to use all of the already substantial breaks available such as TSFA, RRSP, pension contribution deduction, and RESP.

And I have not been in favor of lower RIF withdrawal minimums. Contrary to some opinion the RRSP offers big tax savings even net of taxes on withdrawals. As noted before an RRSP in substance at a 40% marginal tax means the government contributes 40% at the outset through the refund and then gets 40% in the end. In that scenario (setting aside clawback etc.) your 60% share grows completely tax free. It’s a great deal already and did not need to be sweetened, especially when if there was more money withdrawn than needed it could be put into RRSP. (A better change would have been to lower the clawback impact)

Overall, the budget looks like gains for retirees at the expense of younger people. And I say that as one who will benefit from several of the budget measures. (TFSA and small business changes)


April 21, 2015 (9:15 am eastern)

Markets were strong on Monday.

Boston Pizza Royalties as down about 1% to $21.30. I was perhaps over-zealous buying into the recent rights offering at $22.10. But it was as high as $23 before the rights offering and with the planned distribution increase of 8% I suspect it will return to the $23 range assuming that interest rates stay low. It seems like a reasonably secure source of yield. At the moment the number of unit holders has been increased and some of the new owners may be disappointed by the decline and therefore inclined to sell. This creates a temporary selling pressure.


April 18, 2015

On Friday, the S&P 500 was down 1.1% and Toronto was down 0.2%.

A notable decliner was American Express down 4.4% to $77.32. Its earnings per share for Q1 were up 11% but “the market” seemed to have been taken somewhat by surprise by the currency impact. I have been noting that U.S. companies with substantial business outside of the U.S. would report an impact from the high U.S. dollar (unless hedged for which is short-term at best). I did not highlight this in the case of American Express but in retrospect I should have recognized that this was one of the companies to be hit. In any case the company still seems somewhat attractive and I added 100 shares to my position on Friday.

One of the few stocks on our list that rose on Friday was the RioCan preferred share up 4.4% to $20.88


April 18, 2015

Constellation Software is updated and rated Weak Sell at $491.30.

There is no doubt that this is a great company and one of the very best managed Canadian companies. Nevertheless, the stock may now be too expensive in relation to earnings. For the next few quarters its reported earnings, which are in U.S.dollars, will be lowered (but will still almost certainly show an increase) by the recent sharp increase in the U.S. dollar.  In addition its new debentures will noticeably increase its interest costs. This already started in Q4 but they are set to triple the size of the debenture on September 30. The annual interest will be about $25 million Canadian. This is not huge given its adjusted earnings of U.S. $274 million in 2014 and also given that the $25 million in interest will be partially offset by savings on the former short-term bank debt. Still it would appear to be somewhat of a drag on earnings growth.

As for the debentures, they are ostensibly attractive paying currently a yield of about 7% based on the $122 debenture trading price. And the fact that the interest rate will float up if inflation rises (The rate is 6.5% on $100 plus or minus CPI adjusted April 1 each year). Offsetting this attractive rate is the fact that the company can call in the debentures at $100 although only on five years notice. They are also allowed to call in part of the debentures. At the moment calling them in seems unlikely. But it’s hard to say what the company might decide in another year or two. On balance, the debentures at $122 are probably reasonably attractive.

As for the rights; 10.6 rights give you the ability to purchase $100 of debentures for $115. The rights were recently trading at 51 to 65 cents. That would mean you could buy the debentures for $120.40 to $121.90. I am not sure that this attractive given that the new debentures will not issue until September 30 and it would seem that interest would not accrue until then. On that basis I would sell the rights if I owned any and if I wanted the debentures I would buy on the market. When you buy bonds they are normally adjusted for accrued interest but I don’t believe that is the case for these exchanged traded debentures.

April 16, 2015

On Thursday, the S&P 500 fell 0.1% and Toronto fell 0.4%.

The Canadian dollar rose and now sits at 82.0 cents. Oil (West Texas Intermediate futures New York) rose and now sits at $56.13.

The dollar had bottomed out at just under 78 cents and so is now up 5% in the few weeks since it bottomed. I probably should have transferred more U.S. funds back to Canadian. I did transfer some as the dollar fell and near the botton. But as the Canadian dollar rose I suffered somewhat from the common problem of getting a reference number stuck in my head. In other words when it rose to 79 cents I became reluctant to transfer more U.S dollars back to Canadian because I had missed out doing it at 78 cents and at that point it was natural to hope it went back to 78 cents. I think most of us suffer from this sort of referencing or anchoring tendency on stock prices as well. It’s hard to buy at “X” plus something when you had thought about buying at “X”. Such anchoring is usually illogical and it’s best to overcome it by thinking rationally about whether an investment or trade is still a good trade at today’s price and not worry about some other price that is no longer available.

Oil (New York WTI futures) had bottomed out at just under $45.

I don’t keep track of predictions about the dollar or oil but it’s safe to say that predictions have been all over the map. When oil was $45 there were some analyst suggesting it would go to $20. and many said the dollar was headed to 70 cents. Others said oil and the dollar would rebound. In my view, they were all basically guessing. My own approach to investing does not rely on trying to predict these things. It’s more a matter of buying when things appear to be low or offer good value. If they go lower, so be it, I am then often inclined to buy more. This seems to be easier to do with stocks (businesses) than with commodities.

Canadian Western Bank and Stantec both edged up again today. Toll Brothers, however, fell 3.1% on a report about housing starts that was judged to be a bit weak. My understanding is that the housing recovery in the U.S. is continuing and I am not worried about my investment in Toll Brothers.

April 15, 2015

On Wednesday, the S&P 500 rose 0.5% and Toronto rose 0.4%

The Canadian dollar rose 1.2%, Oil rose several percentage points to just under $56.

Canadian Western Bank was up 1.5%. Melcor was up 1.4%.

Rate reset pref shares have continued to slide including, for example the Canadian Western pref share that does not reset until 2019, which fell 3.5% to $23.54. These declines seem overdone to me because if interest rise then the reset yield ont hese shares will become more attractive and they should rise for that reason. And, inf interest remain at current levels in several years then the market yield of 5 years pref shares will likely fall and these shares could rise for that reason.

TD bank issued a five year rate reset pref share today at 3.7%.

It’s not easy to compare newly issued rate rest pref shares to the existing rate reset pref shares that will have higher yields for now (4.7% in the case of the CWB pref) but which will reset to a lower yield upon reset if the 5 year bank of Canada yield remain very low. However in general I suspect the recent declines in pref share prices is overdone.

April 14, 2015

On Tuesday, the S&P 500 was up 0.2% and Toronto was about flat.

There were no big gains among the stocks on our list but Canadian Western Bank and Stantec each edged up 1.2%.

Meanwhile FirstService declined 3.4%. It will soon split into two separate companies.

Wells Fargo came out with earnings that were slightly better than expected but also a slight decline from last year and the stock ended the day down 0.7%.

The Canadian dollar rose about 1 cent today as oil rose and perhaps because the market is more convinced that the Bank of Canada will not cut interest rates in its announcement Wednesday morning.



April 13, 2015

On Monday the S&P 500 was down 0.5% while Toronto was about unchanged.

The RioCan pref share that I mentioned yesterday was up 3.3%. But that is a bt misleading . Upon checking it was really just a few low traces on Friday that has pushed it down,. It trades quite thinly and that usually leads to extra volatility.

The Q1 earnings reporting season kicks into higher gear tomorrow when Wells Fargo along with J.P. Morgan report. I find it very impressive that they can get their earnings out that fast considering it comes complete with a very lengthy and detailed discussion of the numbers and dozens of tables. The Board of directors have to approve the numbers and the top executives have to discuss them in the conference call and be prepared to take questions. You can be assured that a lot of people have worked a lot of extra hours to get the earnings out that fast. Apparently “the Street” is expecting Wells Fargo to report 98 cents per share down from $1.05 last year due to tighter interest spreads.

Regarding Melcor, I suspect it may have had a good Q1 since housing starts in Alberta have not fallen off according to reports that I recall. On the other hand builders may be cautious about buying additional lots for new starts. Q1 is usually the lowest income quarter for Melcor. Last year its Q1 was particularly weak so possibly it will be easier for Melcor to show an increase this year. Interest rates have been low and that should meant there will be no market value loss on its rental properties (which are marked to market based (indirectly) on interest rates each quarter. In terms of book value it should get a gain in comprehensive income on the value of its U.S. investments due to the lower Canadian dollar. All-in-all there is some reason for optimism. On the other hand if the company reports it is seeing a slow down then that would be a negative.


April 12, 2015

On Friday, the S&P 500 rose 0.5% and Toronto was up 0.4%.

Element Financial was up 4.8%. Constellation Software was up 2.2%.

The RioCan rate reset share was down 2.5% to $19.36. This decline appears to be related to the fact that these shares are expected to reset to a lower dividend in one year due to the low rate on the Canada five year bond which drives the reset and which is apparently not expected to rise much by March 31, 2016. We recently rated these shares a Buy at $20.70 and would consider them to be even more of a Buy at this price.

The next update will be for Constellation Software. The CEO Mark Leonard has an approach that is very similar to Warren Buffett. Nevertheless I suspect that the share price is going to look too high as it is pricing in continuation of a lot of growth.


Bombardier rose modestly this week on rumors it could sell off its rail division. Controlling family member and former CEO and now executive chairman, Pierre Beaudoin denied any such sale is under consideration. But the thing is, he is no longer CEO and there is nothing to stop the new CEO from exploring this option. Bombardier also turfed a couple of executives this week.

April 9, 2015

On Thursday, the S&P 500 rose 0.4% and Toronto was up 0.7%.

Costco fell 2.1% as it reported lower same-store sales in March due to the lower U.S dollar. Its international same store sales were down 9% due to currency but would have been up 4% if not for lower gasoline price and the currency impact. You can see the currency impact is fairly huge. Any U.S company that earns a lot of profit outside the United States is going to suffer noticeably in Q1 due to currency impacts – unless it is hedged. And hedges are only a temporary fix since companies are rarely able to hedge out more than a year or so. I love Costco. It’s a fantastic company, but my latest rating was on the Sell side due to the high P/E and the currency issue.

April 8, 2015

On Wednesday, the S&P 500 was up 0.3% and Toronto was up 0.2%.

Toll Brothers followed up its 2.6 % loss of yesterday with a 2.6% gain today. I chalk this sort of thing up to random noise in the market. Constellation Software was up another 3.3% and almost touched the $500 per share level. Element Financial was up 2.4% to a record high.

I grabbed another 100 shares of America Express today. I had only a relatively small position in it and I figured I might as well show the courage of my conviction as I rated it a Buy a few days ago.


April 7, 2015

On Tuesday, the S&P 500 was down 0.2% and Toronto was up 0.6% as oil rose about 3%.

FedEx was up 2.7% on news of an acquisition.

Canadian Western Bank was up 1.6%.

Toll Brothers fell 2.6% to $38.86 apparently because some advisors suggested taking profits after the recent gains. I don’t pay any attention to such things. (I mean after all I am here to give advice, not to follow what others do.)


Constellation Software was up another 4.2% to $480. It’s hard to believe that a few years ago a major pension plan was pushing this company to sell itself and that pension plan sold its shares at around $70, as I recall. This was a pension plan that had members on the Board of Constellations. So much for “the smart money” in that case. I owned it at least twice and sold far too early both times. At least I never wavered in saying it was a very well managed company. I don’t think I ever rated it a Sell. (Sometimes I personally sell a stock that I rate a (lower) Buy or whatever simply to raise cash.)  I’ll plan to update this one soon but I suspect it will look rather expensive.

April 5, 2015k

American Express is updated and rated Buy at $79.70. It has suffered a blow due the upcoming loss of its co-branded Costco card. Sometimes it pays to buy good companies when they suffer a problem. On Thursday, the S&P 500 was up 0.3% and Toronto was up 0.6%. Toll Brothers was up 2.0% to $39.90. It was last over $40 back in the hey day of the housing boom in 2005 when it briefly had a needle spike to over $55. Canadian Tire rose 1.7% to $132.88 and is basically at its all-time high. It’s done spectacularly well since a fear of Target pushed it down to $52 in August of 2011. At this time I am leery of the impact that the lower Canadian dollar will have on its product costs. I am not a buyer at this point but continue to hold some in a taxable account partly because I don’t like to trigger taxable capital gains.

A weak U.S. jobs report released on holiday Friday has the market spooked and the futures are down almost 1%. I find it a bit hard to believe that the U.S. can count its jobs gain to the accuracy of a 100,000 let alone 1000 as the market seems to believe. A one month figure is hardly a trend or a reliable sign of weakness. The U.S. unemployment ate was still reported at 5.5% which is down from close to 10% in 2009.

There are always things to worry about in the markets. Another worry is Greece which could default on some of its debts. If we sold shares or declined to buy due to each of the many worries about the world economy we would never own any stocks. That would be a poor plan.


April 3, 2015

Agrium is updated and rated Speculative (lower) Buy at U.S. $104.83 or CAN $131.72. While I am not a buyer at this time, I do like this company. It makes its living in a very honest way. Manufacturing and distribution fertilizers is something that is clearly needed and it creates value and profit in doing so. It appears to be well managed. It seems reactively sure to grow in the long term. But it is cyclical company and its short-term earnings are hard to predict. At this time the value does not appear to be compelling.

April 2, 2015 7:20 am western (9:20 am eastern time)

U.S. markets are set to open slightly to the down side.

Gainers yesterday included FirstService up 2.3% and RioCan REIT up 2.1%.

Target is now set to have all its stores closed by April 12. Most Canadians will say good riddance. They leave a path of destruction in their wake in terms of displaced employees and unpaid bills. This will also put a negative dent in Canada’s economic figures.

Another dent will come from the exodus of temporary foreign workers. That program was a boondoggle, unfair to everyone.

I will have some updated reports over the weekend.

March 31, 2015

On Tuesday, the S&P 500 fell 0.9% while Toronto was relatively flat.

Melcor was up 2.5% to $19.45. This stock has risen modestly from the $18.00 level since the company announced on Friday a modest share buy-back program and indicated that the shares were under-valued. Melcor has generally not been in the habit of buying back shares but chose to do so now due to the attractive good valuation. The modest rise in the stock price was sustained in spite of lower oil prices this week. Clearly the stock could drop lower if oil prices decline. But it is also the case that buying stocks that are good value generally pays off over time.

Bombardier, is a speculative pick but rose 4.2% to $2.50.

Element Financial was up 2.2% and is at an all-time high.

Toll Brothers ended the day up 0.3%. It should continue to do well as long as the U.S. housing market recovery continues.

In the first quarter of 2015, U.S. and Canadian Markets have been relatively flat.


March 30, 2015

On Monday, the S&P 500 rose 1.2% and Toronto rose 0.6%.

FirstService was up another 2.25% to $81.68 I have often indicated a great respect for the management of this company but I thought it looked somewhat expensive in December at $58.49. Most of the reason for the gain was an announcement that the company would be split into two separate companies and the associated enthusiasm for that. It also benefits from the lower Candia dollar since it gets most of its revenues in U.S. dollar’s. If I held this, I would sell it, particularly in non-taxable accounts.

Canadian Western Bank was down 2.25% to $27.42. It looks quite attractive at that price but suffers from worries about the Alberta economy.

March 28, 2015

Alimentation Couche-Tard is updated and rated Weak Buy / Hold at $50.54. This company just reported exceptionally strong growth in Q3. It is one of the very best managed companies in Canada and has an exceptional history of growth. It is one of very few Canadian companies that has managed to be successful outside of Canada. It’s valuation has looked too high for several years but it managed to grow earnings at rates that more than justified the high valuation. Still I am hesitant to “pay up” in advance for such growth. Currently its earnings appear to be unusually high due to abnormally high margins on gasoline. If gasoline margins return to historic lower levels then the earnings would drop. They may be able to offset that with growth due to a recent acquisitions. But I expect this current quarter to be weaker due to the high U.S dollar and due to a possible return to more normal gasoline margins. It will likely continue to do well in the long term but I would be more inclined to sell or reduce my position at this time if I held it.

On Friday, the S&P 500 was up 0.2% and Toronto was down 0.4%.

Melcor rose 5.7% to $18.97 after announcing a modest stock buy back program and indicating that it views its shares as under-valued. Due to its thin trading volumes the company is restricted to buying back a maximum of just over 3000 shares per day. There was not much trading in the stock on Friday (most of the increase came late in the day)  and it could easily decline to $18 or lower and I expect it to continue to be volatile and to react to news on oil prices and the Alberta economy.

Toll Brothers was up 2.3% on Friday.

March 27, 2015 7:10 am Mountain time (9:10 eastern)

U.S. markets are set to open slightly to down side which would add to the declines of this week.

Oil markets are “volatile” due to escalating conflicts in Yemen.

As the first quarter draws to a close there is increasing emphasis on the earnings hit that certain multi-national U.S. companies will take on the higher U.S. dollar (exporters and also those that make significant profits from operations outside the U.S.)

The Alberta budget could be seen as a negative for consumer spending in Alberta. Liquor Stores N.A. will not welcome the news of an extra 90 cents in tax per case of beer. But there were no increases to corporate taxes.

March 25, 2015

On Wednesday, the S&P 500 fell 1.5% and Toronto was down 1.0%.

One of the few stocks going the other way was Dollarama, up 2.7%. While Dollarama had a great Q4, it also reported that the sharply lower Canadian dollar is hurting its profits in Q1. Nevertheless it also intends to continue to expand aggressively.

Warren Buffett has teamed up with 3G Capital once again, this time to buy Kraft. According to Yahoo Finance the P/E on Kraft (after today’s increase) is 48 which seems extremely expensive. However the forward P/E based on forecast earnings is much more reasonable (but still not cheap) at 24. Buffett is once again showing his confidence in the American economy. He is very much looking at the long term. It seems likely also that he is counting on 3G to achieve synergies and cost-cutting. Buffett wants to make sure that Berkshire has plenty of subsidiaries and investments that will gush cash long after he is gone from the scene.

March 24, 2015

On Tuesday, the S&P 500 was down 0.6% while Toronto was up 0.8%.

Notable gainers included Couche-Tard up 4.0%, Melcor up 2.2% (on typical low volume), Stantec up 1.9%, CN rail up 1.7%.

Boston pizza Royalties Income fund was down 3.6% to $22.12 after it added about 37% to its share count in an offering at $22.10 as described in yesterday’s post. It will soon raise its dividend distribution by 6%. But the flood of new shares has pushed the price down to the new issue price. As long as interest rates stay low, and all else being equal, I would expect this entity to increase in price modestly over the next two months or so. In any case it pays a yield of about 5.5% and is somewhat like a perpetual preferred or perpetual bond except that the distribution should rise (although very slowly) over the years. Overall, I think it has a place in a portfolio.

March 23, 2015

Overall markets were relatively flat today.

Melcor is updated and rated Strong Buy at $17.82. It’s earnings will almost certainly decline in 2015. However, that appears to be more than fully priced in. But those that believe that Alberta is more or less down for the count indefinitely would likely want to avoid this.

There was a big development at Boston Pizza Royalty Income Trust today. This entity came into being in 2002 as a way for investors to own a share of the franchise fee that Boston Pizza restaurants pay to the privately owned franchise company, Boston Pizza International. BP Royalty received 4% of food sales (alcohol is excluded). Meanwhile BPI continued to receive the other 3%. Setting up the Royalty entity allowed the private owners of BPI to cash out a part of their investment in BPI which had grown very large. BP Royalty was not a growth entity since when new restaurants opened that was almost entirely offset by BP Royalty having to issue new units to BPI. Still, BP Royalty grew the distribution over the years as same-restaurant sales increased. They also borrowed money at low rates to buy back units and that also allowed the distribution to increase. The unit price increased an additional amount due to lower interest rates.

Now, BP Royalty is going to be getting 5.5% of food sales instead of just 4.0%. But new units will be issued to largely offset that. But instead of paying for the additional 1.5% entirely with proceeds from new units about 30% of it will paid for through borrowing. The result is that the transaction will add about 37.5% to the unit count. I am unclear why the unit count would not increase by less than 37.5% given that the revenue will increase by 1.5/4.0 = 37.5% and that it’s being partly paid for in cash and not entirely in units.

BP Royalty indicates that the transaction is about 9.0% accretive and that the distribution will be increased by 6.2% upon closing.

In isolation a 6.2% distribution increase might be expected to increase the unit price by a similar amount. However, new units are being sold at $22.10, which in isolation would tend to pull the unit price down to that level. Where the price falls out will depend on the demand for the new units.

The offering which came out at about 3:45 pm eastern time today was still open several hours later (and may still be open tomorrow morning). This may indicate that the demand for the units is somewhat weak or at least is not generating much excitement.

I have placed orders to purchase from this offering in several accounts and if it is still open I believe it will be a good investment for those seeking yield.

Prior to this announcement, I was actually thinking that I might reduce my BP Royalties position somewhat above $23.00 just to raise some cash. But, with this development I will put that idea on hold.


March 22, 2015

On Friday, the S&P 500 was up 0.9% and Toronto was up 0.5%.

I spent time reading Melcor‘s annual report today. Based on the numbers Melcor appears to be a clear bargain. There are always scenarios that could happen involving sustained low oil prices and a sustained recession in Alberta where Melcor’s price could fall significantly. But I have generally found that buying companies that appear to be good or great companies selling at what appears to be bargain prices tends to pay off over time.

March 19, 2015

On Thursday, the S&P 500 was down 0.5% and Toronto was down 0.5%.

Melcor fell 2.5% to $17.40 which is no surprise really given the drop in oil prices and announced layoffs in Alberta. Couche-Tard was down 2.7%. Element Financial was up .5%.

Canadian National Railway Company is updated and rated (lower) Buy at $87.11. This is a company with wonderful economics and excellent management. However the price is probably fair but not compelling. It could report quite good results in the first three quarters of 2015 due to the lower Canadian dollar and lower oil prices. After that I would not expect growth above 10% to continue and there could be some weak quarters certainly.

I am not sure I will buy any but it is worth considering.


March 18, 2015

On Wednesday, the S&P 500 ended the day up 1.2% and Toronto was up 0.4%

The Candadian dollar rose more than one cent.

Oil has fallen and there have been more layoffs. Canadian interest rates are lower and this hurts bank profits. On the other hand, all else equal it drives up the value of all assets that throw off cash.


Most stocks were up today.

In Puerto Vallarta, I can report that things are busy. There are dozens of large resorts here and the one I am in is particularly huge and is quite busy. No lack of money. The Tourist areas of the City were very busy this evening. The Canadian and American tourists here seem to have plenty of money to spend.


March 18, 2015 (9:45 am eastern)

Markets are down moderately at this hour but as always some stocks are up, Couche-Tard and the Bombardier pref share are up. Melcor is hanging in at about the $18 level. I have an order in for a family account that I just took over at $17.55 but may need to raise that. Melcor can bounce around so it is entirely possible it will bounce down again, perhaps even likely but it may not.

The next update will be for CN which had a great year in 2014.

The internet connection at the Vidanta company resort (Grand luxxe) here has been weak so I was unable to connect last evening.

March 16, 2015

Greetings from Puerto Vallarta (which in on the West coast of Mexico south of the baha peninsula).

On Monday, the S&P 500 was up 1.3% and Toronto was up 0.9%.

Most stocks were up today. Notably, Melcor was up 4.0% and this despite oil being down 2%.

The report for Costco is updated and rated Weak Sell at $149.56. Costco is a fantastic company but seems quite expensive. It might be okay to hold it but if I held it I would sell it or at least reduce my position. But I would hope to buy in latter at a better price.

March 13, 2015

On Friday, the S&P 500 was down 0.6% and Toronto was down 0.3%.

Oil was down about 4%.

The report for Liquor Stores N.A. is updated and the company is rated Strong Sell at $15.26. Perhaps I am too negative on this company and perhaps I am biased because I lost money on it in the past and sold at too low a price. But as explained in the report the dividend looks unsustainable and it is clearly the dividend that keeps the stock price this high.

Currency Exchange woes:

I had occasion to be exchanging currency this week and it seems pretty clear that the exchange fees are excessive, at least in some cases

In the past I found HSBC had the best rate when I needed to obtain U.S. currency for a vacation.  This week HSBC was charging 250 basis points and a nearby currency exchange window in the shopping mall was charging about the same. Perhaps that is reasonable given that they have to maintain an inventory of paper currency, upon which they face the risk of exchange rate movements, and they have staff costs.

Much more bothersome is the fact that TD Direct was charging 139 basis points today to transfer $10,000. That is a pure electronic transaction that I can do online with no human intervention. I am not convinced that TD faces much if any inventory risk because they could offset the trade in wholesale currency markets multiple times per day after aggregating the trades of their customers.

I have documentation that in 2007 they were charging 85 basis points which seemed more than high enough. I like to occasionally move money back and forth to take advantage of moves in the exchange rate. But that is pretty futile when the round trip cost is 2.8%.  I am a captive customer. The banks do not appear to compete on these fees. They know we don’t choose a discount broker primarily based on exchange fees. Once they have us as customers they can charge almost whatever they feel like. Generally I am not one rto complain about fees in a competitive market. But in this area there appears to be no competition.

To avoid the 139 basis points I tried using the Norbert Gambit. In the U.S. portion of my RRSP I bought a Canadian dollar fund called DLR.u on Toronto. I then had this “journaled over” to the Canadian portion of my RRSP where I could sell it in Canadian dollars. This ended up taking two phone call with the first agent telling me it could not be done and the second doing but charging $80. He calculated that I saved 10 basis points or $9. I would not bother doing that again unless I was moving at least $20,000. Even then it hardly seems worthwhile. As far as I know there is no way to avoid high fees if moving money back and forth. I asked the agent to pass along a complaint to management at TD Direct. Perhaps if we all complain every time we pay this fee it will have some impact.


March 12, 2015

On Thursday, the S&P 500 was up 1.3% and Toronto was up 0.3%

Notable gainers included Wells Fargo up 3.5%, American Express up 2.7% and Onex up 3.1%.

Melcor gained 3.2%. This is a thinly traded stock and even after releasing earnings it traded only 15,000 shares which is just an average daily volume for this stock. I bought 500 shares for the account of a family member.

March 11, 2015

On Wednesday, the S&P 500 fell 0.2% while Toronto was up 0.7%

Canadian National Railway was up 2.6%, The Bombardier Series 4 preferred share was up 2.3% to $19.00, Bombardier was up 6.4% to $2.49. The RioCan preferred share was up 3.5% to $22.00. Constellation Software was up 3.8% to $441.

Melcor was down 2.8%. Melcor released earnings after the close. From my read of it, the earnings were earnings were quite good and the long-term outlook was positive. Management noted that there will be an impact from lower oil prices but also noted Melcor’s long history of dealing with the cyclical economy and noted its strong financial position. To me, the shares look very cheap. I would absolutely be a buyer at this price. One can always come up with a doomsday scenario where the Alberta economy absolutely collapses but that is certainly not something I expect.

I have started to run the numbers on liquor Stores N.A. and it does not look good. Q4 is their best quarter of the year and in that quarter, earnings were about equal to the dividend. Over the year earnings are not much more than half of the dividend level. Disturbingly, they appear to have changed the report this year to no longer talk about adjusted earnings which (coincidently?) are down about 34% whereas the adjusted operating margin that they do focus on this year was down only about 3%. They did however have strong sales results in Q4 and their margins or markup have improved slightly. It seems to me that they have bloated the company up with higher head office costs. They face a lot of capital expenditures while paying out a dividend that is 85% larger than earnings. The industry in Alberta is becoming even more competitive. On top of that it would be a surprise if the provincial government does not increase taxes on Alcohol in its budget on March 26. The yield at 7.2% certainly seems good but has to be considered to be at risk. If I held this, I would sell it.

March 10, 2015

Stocks declined on Tuesday. The S&P 500 was down 1.7% and Toronto was down 1.4%. Of such a day, it is often said “investors sold off stocks”. But of course, as always, for every sale there was also a buyer.  I would describe today’s action as “investors bid down the value of stocks”. For most stocks today, those who wished to buy  were not willing to pay a price as high as was paid yesterday. And those who wished to sell were willing to accept lower prices than prevailed yesterday.

Some of the notable decliners today included: Canadian Western Bank down 3.6%, Couche-Tard down 3.3%, FedEx down 2.9 and Berkshire down 2.9%.

One of the few gainers today was Liquor Stores N.A. up 2.5%. This company released “okay” earnings last week but did have a very good same store sales increase. In my view, its earnings are still sub-par and well below the dividend level. I plan to update the report shortly.


March 9, 2015

Today marks exactly six years since the market bottomed out after the financial crisis. We were buying stocks near the bottom and that certainly worked out well.

You can see what we were saying in March, 2009 by clicking this link and scrolling to the March 2009 comments.

On Monday, the S&P 500 rose by 0.4% while Toronto fell by 0.7%.

Canadian housing starts were down about 16% on an annualized basis compared to January. But the great majority of the decline was in multiple family housing. Single family housing starts were down only 4%.

This decline will no-doubt hurt Melcor’s lot sales. But it would seem that this prediction is already more than priced into the stock.


March 8, 2015

Toll Brothers is updated and remains rated Buy at $36.92. In June 2011, I added this company to the site and rated it Speculative Buy at $21.03 as one way to “play” the expected recovery in U.S. house prices.  The share price has been volatile but the basic investment theme has worked out well and will likely continue to work (though the volatility may continue as well). Adding to my position on dips and sometimes selling on rallies has worked out well with this stock.

On Friday the S&P 500 fell 1.4% and Toronto fell 1.0%. Markets were weak because the U.S. jobs number was unexpectedly strong. The market thinking a step or two ahead worried that this could lead the Fed to raise interest rates which tends to be negative for stocks. Among the declining stocks was Toll Brothers, down 2.6%.


March 7, 2015

Canadian Western Bank is updated and rated Strong Buy at $27.06. The price has fallen due to concerns about bad loans due to lower oil and gas prices. The bank indicates that it does not expect to experience excessive bad loans. It seems reasonable to expect that this bank will grow over the years. The opportunity to buy it at a modest premium to book value (about 36%) will likely work out well in the long term although not at all necessarily in the next year.

March 5, 2015

On Thursday, the S&P 500 was up 0.1% and Toronto was up a similar amount.

Canadian Western Bank fell 7.1% despite releasing a fairly good earnings report and despite the fact that it is still expecting to grow earnings in 2015. The stock appears to be quite attractive at $27.00. It could certainly decline in the short term if higher loan losses materialize. But those who buy for the long term are likely to do well.

Costco, which is a truly great business but which always seems to look somewhat over-priced was up 2.7% after a stellar earnings report.

March 4, 2015

On Wednesday, the S&P 500 was down 0.4% and Toronto was down 0.3%.

Bombardier was down 4.6% after QATAR Airlines said it was no longer interested in the C Series after all the delays and had basically forgotten about it (ouch).

Canadian Western Bank rose 0.7% and then released earning’s after the close. The bank reported lower growth than previous quarters but did still manage to grow about 3%. It did indicate the Alberta economy was weaker but pointed to strength in BC and Manitoba. It also noted that it will have  again of more than $1.25 per share due to the two pending sales of two small non-core divisions. To me the company looks like good value. Where the market will push its price tomorrow really depends on whether investors focus on the positives or the negatives.

March 3, 2015

On Tuesday, the S&P 500 was down 0.5% and Toronto was down 0.9%.

Couche-Tard was down 2.5%. The Liquor Stores N.A. convertible debenture was down 6.8% to $102.54 indicating that yesterday’s rise to $110 was, as suspected, some kind of anomaly.

After the close, Canadian Western Bank announced it is selling its stock transfer, corporate trust and employee plan business (what kind of employee plan was not stated) for a maximum of $33 million (no minimum was indicated). This will likely be positive as far as the short term stock price of CWB goes since there is likely a substantial gain on the sale. It indicates that management is active in looking to strategically change the business. It also provides (in my opinion) the second clear message in a month to employees that CWB cannot be counted upon for loyalty to either its employees or its customers. I am not sure that this is a good approach.

In any case, it may boost the stock price somewhat. Also, after the close tomorrow, CWB will report earnings. I expect the earnings to be strong but the outlook could be somewhat muted. I suspect that overall the stock price will rise after the earnings report but that remains to be seen.

March 2, 2015

On Monday, the S&P 500 was up 0.6% while Toronto was up 0.2%.

Notable gainers included the RioCan preferred share up 3.0% to $21.66. Visa, up 2.6% on news it will be the new exclusive credit card at Costco. Constellation Software up 2.9%.

The Liquor Stores N.A. convertible debentures were up 6.3% to $110. (That does not really strike me as correct. It could be some kind of trading anomaly).

Overall, in the first two months of 2015, it has continued to be a good thing to own a slice of corporate America and corporate Canada.


March 1, 2015

On Friday, the S&P 500 fell 0.4% and Toronto was about flat.

Canadian Tire is updated and rated (lower) Buy at $131.72. On the numbers it would be a Buy but I it also faces almost certain headwinds due to the sharply lower Canadian dollar. The immediate impact has been hedged but the impact should be visible sometime in 2015 unless the Canadian dollar climbs above the 90 cents level.

February 26, 2015

On Thursday, the S&P 500 was down 0.1% and Toronto was up 0.1%

Canadian Tire rose 8.8% to a new record high on a very strong earnings report. This company has been very well managed and has been firing on all cylinders for at least several years. The biggest concern is the impact of the sharply lower dollar. On the conference call, the company acknowledged that this will be a drag on earnings and indicated that whatever hedging they have in place can only delay the impact but not eliminate it. If the dollar stays low, their prices have to rise or profits fall. They alluded to their buyers being smart and offsetting this in some way, but I doubt there is anything that can be done. I will plan to update this company in the next few days. I suspect it will stay rated (lower) Buy. If I owned  it in a tax-free environment I would reduce my position (take profits). I own some in a taxable account and may just hold on.

Constellation Software was up 6.3% despite an earnings report that on the headline number looked somewhat weak. I will have to look into the reason, possible it was based on the outlook.

Element Financial was up 3.3% on what were likely good earnings on an adjusted basis.

Bank of America was down 2.7% after it announced that two directors will not stand for reelection and that its chief accounting officer will leave basically immediately. That is a possible red flag. The two directors were said to be busier in other outside roles of late. But people don’t often simply leave the Boards of giant banks just because they are busy. And a chief accounting officer leaving suddenly, is always a worry. It appears that this news came out after hours so the stock reaction may not be over.

February 25, 2015

On Wednesday, the S&P 500 was down 0.1% while Toronto was up 0.4%.

It seems my comments of yesterday that the banks could suffer due to low interest rates and bad loans related to oil prices and the weaker economy may have been misplaced. Royal Bank reported strong results which pushed up the Canadian Financials.

Canadian Western Bank was up 4.8%.

TD Bank as well as CIBC report earnings on Thursday and will likely be a driver of market direction.

February 24, 2015

On Tuesday, the S&P 500 rose 0.3% while Toronto fell 0.2%

Toll Brothers released a good earnings report and the stock rose 3.8%. I plan to update the report by Sunday. It will remain rated Buy or possible drop to (lower) Buy. I am not planning to sell to take any profits at this point.

Bombardier showed a bit of life and was up 6.4% to $2.50.

Couche-Tard was up 2.7% and Agrium was up 2.9%.

Boston Pizza was up 1.3% to a new high of $23.00 and is probably still a good Buy at that price for income.

Bank stocks were down somewhat today. They face the head winds of possible loan losses in the energy sector, a slower economy and perhaps most important, low interest rates that squeeze their margins. In order to keep growing profits they may have to increase service fees or start charging negative interest on deposits (which would cause a revolt) or cut costs. Banking may be ripe for even more automation to cut costs. A positive should be higher profits from their U.S. operations when translated into Canadian dollars.


February 23, 2015

On Monday, the S&P 500 was about flat while Toronto was up 0.2%.

Canadian Western Bank was down 2.8%, Melcor was down 3.6%. I continue to believe that these will be good long term investments but the short-term is hard to predict. (They are already “pricing in” in a weaker Alberta economy to a good extent but that does not mean they can’t “price-in” even more pessimism.)

On the plus side, FirstService was up another 1.4% to $77.09.

As somewhat expected, the Bombardier preferred shares series 4 rose today. It was up 3.0%.

Agrium released earnings after the close today. The earnings were apparently better than expected despite being down by some 50% from last year. But the outlook was quite strong.

The Canadian banks report Q1 fiscal 2015 earnings this week and that will likely push the market in one direction or the other.

February 22, 2015

On Friday, the S&P 500 was up 0.6% (to another new record high) while Toronto was down 0.1%.

Stocks (from our list) that were on the move included Melcor up 2.2% and the Bombardier Preferred share up 6.6%

The RioCan preferred A share report is updated with a rating of Buy at $20.70. One interesting aspect of the update is that previously insiders did not own any of these shares. On Thursday the CEO bought 10,000 at $21.20. Apparently he thinks these are under-valued at this point.

I was active buying preferred shares on Friday.

My order to buy 500 RioCan preferred A share was filled at $20.80.

As I suspected it might, the Bombardier preferred share Series 4 rose somewhat on the news that Bombardiers issue of B shares was well received in the market. Interestingly there was a delay and the preferred shares at first did not move. I got 200 shares at $16.60. It closed at $17.48. I should have grabbed more than 200 but was a bit stubborn in my offer price. That was not smart on a day when I expected the preferred share to rise in price. I suspect these will go a little higher on Monday. However, it may be that when Bombardier issues the debt that it is planning to issue these shares will then decline somewhat. The debt issue should already be “priced in” but often things that “should be” priced in are not.

Coincidently I saw an IPO for Fairfax Financial preferred shares at 4.75% and I placed a modest order for those as well.

February 19, 2015

On Thursday, the S&P 500 was down 0.1% and Toronto was down 0.2%.

Stocks on the move included; Canadian Western Bank down 2.5%,

FirstService up 6.0% (illustrating once again that it can be good to stick with high quality companies even when they seem expensive) It looked expensive at the start of this year at $58.49 but it is now up 30% to $76.35. Despite the quality I would sell at this price.

The Bombardier Pref share that I follow (the series 4) was up 6.4%.

The Bombardier B shares were down 2.8%.

Bombardier shares were halted near the end of the trading day as Bombardier announced it was selling $750 million Canadian of B shares on a subscription basis at $2.21. This is down from today’s price of $2.45. This low price is the result of Bombardier having gotten itself into a terribly weak position. If I did not own any I might buy as a speculation, but I already have a modest position in this weak company.

All else equal, this should push up the price of the preferred shares. But then again they plan to also issue a lot of new debt which could hold back any tendency of the pref shares to rise. I do think the pref shares are a safer speculation than the B shares. But a speculation they are. Do not buy for yield, this is not a safe investment. (Yield investments are usually in much safer investments). I own some pref shares but again am not too interested in doubling down on this risky investment.

In other news SBC Lavalin has been charged with corruption. (Not surprisingly, it seems there were indeed other cockroaches in the kitchen). I said when their troubles first surfaced a few years ago that I suspected that the corruption ran fairly deep and wide. This company could end up being sold off for parts yet. (Stantec would likely grab some of it).

February 18, 2015

On Wednesday, the S&P 500 was essentially unchanged while Toronto was down 0.5%.

In yesterday’s post I said that the yield on a 5-year Bank of Canada bond was 0.42%. Actually, I should have said 0.73%, and the latest update is 0.79%. If the rate remains unchanged then the RioCan pref shares would reset to 3.35% on $25 or a dividend of 83.75 cents per year. If the current price of $20.82 is based on the reset yield then that implies a yield of 4.02% and a spread of 323 basis points versus the original spread of 270 basis points.

These shares seem attractive at $20.82. There are no guarantees at all, but the hope in buying these is that the price would climb back somewhat towards $25.00. Failing that one would at least collect the small dividend.

This morning Cenovus Energy sold $1.5 billion worth of shares at $22.25. I find this interesting for a couple of reasons.

First, $1.5 billion is a huge amount of money. It’s worth asking where is the money coming from? What part of the system (if any) will have $1.5 billion less cash after this deal is done?

If institutional investors use “cash” to buy these shares then it would seem that the banks’ deposit bases will be reduced by $1.5 billion in deposits. That might mean the banks draw down their reserves at the central bank. If the banks loan part of the money for the shares then that money will effectively be created by the banks and loaned for the share purchase. It could be argued that people and institutions will sell other shares and bonds to get the cash to buy these shares. But in that case the buyers of those shares have to pay for the shares and no net cash leaves the stock and bond market. Of course once Cenovus, gets the money they will initially put it in the bank or pay down debt, so perhaps the banks will not be out any deposits after all.

Another question to look at is, what does this say about Cenovus Management? Cenovus is effectively selling about 9% of the company to new owners at $22.25 per share. In the past two years the shares had been mostly around the $30 range and got as high as about $34. So they could have got a better price last Summer. But, all in all with a 50% drop in oil prices, it may not be a bad deal to sell these shares at “only” anout a 30% discount to the $32 or so they could have got when oil was higher. At the end of Q4, Cenovus had $5.5 billion in debt and $10 billion in equity. So it’s probably a wise thing to issue the shares.

I have not looked at Cenovus as an investment and rarely if ever look at commodity stocks, I was just curious about where $1.5 billion is coming from and about the wisdom of the share issue.


February 17, 2015

On Tuesday, the S&P 500 was up 0.2% and Toronto was up 0.1%

Stantec and Canadian Tire were each up 2.0%. Couche-Tard was up 2.2%, Liquor Stores N.A. was up 5.3%.

Meanwhile the RioCan pref shares REI.PR.A were down 3.2% to $21.23. These are rate reset shares and will reset to the five year Canada bond rate plus 262 basis points on March 31, 2016. Based on today’s five year Canada bond yield of 0.42% the new dividend would be 3.04% of $25 or 76 cents, down from $1.3125. On that basis it may be logical for these shares to trade at $21.23.

However, this implies that the spread on these pref. shares over the five year Canada has risen from 262 basis points to 316 basis points.

It seems to me that if the five year Canada bond is going to stay at 0.42% then investors may (reluctantly) conclude that more like 3.0% is reasonable on a five year rate reset pref. If so, these pref. shares may return to the $25 range.

I am not sure why the spreads (over the five year Canada bond) on these  rate reset prefs should be so much higher than previously.

I do know that spreads on five year bonds have not widened and that the yield on high quality five year corporate bonds is in the area of 1.25%.

At this time last year I was buying five year rate reset prefs as an alternative to holding cash. In some cases they soon rose to the $26.00 range and I sold so that worked out well.

The lesson learned from seeing these rate reset shares drop well below $25 is that, really, there is no substitute for cash. When cash is paying 1.25% and you reach for a 4% yield you are no longer in something as reliable as cash or a short-term deposit.

The bottom line for me, is that I may grab some of these RioCan pref. shares at the $21.23 range if I decide I have enough cash to do so. It’s not as safe as cash but I suspect it will work out better than cash over the next year.

I notice the new Burger King / Tim Hortons company, Restaurant Brands, is out with a big loss for Q4 due to the merger costs and they probably also got absolutely hammered on the lower Canadian dollar. It seems they lost $514 million on revenues of $416 million (which is impressive in its own way). I have no opinion on Restaurant Brands as an investment but honestly I would not mind seeing them fall on their faces. The stock was up 8% today because the same-store sales and revenue were quite strong. I know one person who is definitely making money on this deal and that is Warren Buffett (Berkshire Hathaway) because the pref shares he has in this deal have to pay out even while the company loses money. Similarly, so far, 3G is losing money on the Heinz deal while Buffett is making money.


February 15, 2015

Bombardier Inc. is updated and rated Highly Speculative (lower) Buy at Canadian $2.58. I just spent many hours reading its brand new 2014 annual report. This is a sad story. It’s a huge company with 74,000 employees. It’s profitable on an adjusted basis. But write-offs and special charges and balance sheet re-valuations have pushed the common equity into the negative range. The founding family has clung to control with multiple voting shares and even placed a third generation family member in the CEO chair and left him there (until this month) as the common equity in the company melted away. It unfortunately appears that the Aviation side of the business has particularly horrible economics. They sell planes at very skimpy margins and often have to guarantee the financing for the purchase and the customers often have below investment grade credit ratings. The subway car and train side of the business is moderately better.

This company now appears to be a pure speculation. It cannot be considered to be investment grade. It might bounce on news but that is quite speculative. Its next hurdle is to try to raise the equity and debt that it now needs.

On Friday, the S&P 500 was up 0.4% to a record high close. Toronto was up 0.2%.

Ebay was up 3.2%, Couche-Tard was down 2.5%. American Express was down 3.0%.

February 13, 2015 12:20 p.m. eastern time

With American Express down another 3% today to $78, I decided to add a small amount to my relatively modest position. Basically I am showing the courage of my convictions in having recently rated it a a Buy at $93. I don’t know the impact of losing the Costco contract and I do know that payment cards are a technology-based industry. Credit card companies have been extremely profitable for decades. But it is the type of industry that could be disrupted. Still, the industry, including American Express also has the benefits of the “the network effect” and “sticky customers” so I am not expecting an imminent decline in the industry. For the most part, retailers have had no choice but to accept the Visa and Mastercard and many also feel forced to accept American express. Costco is the rare case of a retailer that has the upper hand and can decide to accept only one credit card and can squeeze for razor thin merchant fees.

February 12, 2015

On Thursday the S&P 500 rose 1.0% and Toronto rose 0.5%

Notable gainers included Canadian Western Bank up 1.7%, Boston Pizza Royalties up 1.7%, Wells Fargo up 1.8%, Toll Brothers up 1.5% and Bank of America up 1.9%.

America Express was down 6.4% on news that American express would no longer be the exclusive accepted card at Costco’ U.S. stores and will no longer be accepted. This decline may be over-done. It does not take effect until next year. Apparently is impacts 8% of the spending on Amex cards. That is a lot. But I suspect Costco has a super-thin merchant fee and so the revenue loss to Amex could be significantly less than 8%. But given fixed costs perhaps the profit loss will be significant. And, Costco may have been the only reason a lot of people carried Amex. But Amex will likely continue to survive and thrive. Costco is in a powerful negotiating position and will no-doubt squeeze Visa and Mastercard in a bidding war for an ultra-thin merchant fee.

The big news today was that Bombardier has kicked its CEO upstairs to be executive Chairman and has hired a new CEO from outside the company and will issue shares and debt.

I had emailed the company on January 15, under the subject “New CEO Needed?” and included the following sentence:

“Maybe get a new CEO and bite the bullet and issue a pile of new shares while eliminating the multiple voting shares. It’s time.”

I am not sure that anyone other than investor relations saw my email. I am sure a lot of people were suggesting a new CEO. I also suggested they clear out some of the six or so family members on the Board.

The common shares fell 11.5% to $2.60 and the Series 4 preferred shares that I follow fell 13% to $15.30. The common dividend has been eliminated but the preferred share dividends continue.

They hope to issue $600 million in new common shares. That is going to increase the share count by about 25%. Such share issues are usually termed “dilutive” because they spread profit over more shares. But, it is usually accretive to book value per share and that will be the case here.

If they can issue these shares in the $2.50 range then it seems quite possible that the pref shares will do well since the added common equity adds some “cushion” to protect the value of the pref shares. However, they have the right to call in these pref shares and replace them with common shares. That might be beneficial since pref holders would receive $25 worth of common shares per pref share. Except however the maximum common shares tio be received is capped at 12.5 and so if the common go much below $2.00 there is a danger of a disadvantageous conversion.

All in all this is a risky company. It should be considered only as a quite speculative investment and that includes both the common and preferred shares.

February 11, 2015

On Wednesday, the S&P 500 was unchanged and Toronto was up 0.3%.

FirstService jumped 7.1% after announcing earnings and that it will split into two separate companies.  Onex was up 2.2%.

Bombardier was up 4.8% (albeit to just $3.04) after an industry group indicated that Bombardier had a very strong Q4 in deliveries of business jets. It reports earnings (okay, in its case losses) tomorrow and perhaps there will be some good news.

Canadian Western Bank was down 3.1%. This could be partly due to lower oil prices. But clearly the market was not too excited by its sale of its insurance operation. I continue to like Canadian Western Bank. It will almost certainly be around and be bigger in five years and in ten years.

February 10, 2015

On Tuesday, the S&P 500 rose 1.1% while Toronto rose 0.1%.

Couche-Tard was up 3.0%. The seemingly unstoppable Constellation Software was up 2.7%. Toll Brothers was up 2.1%.

After the close Canadian Western Bank announced that it will sell its property insurance operation to Intact Financial for $197 million or 2.5 times book value. Canadian Western has a book value of $1570 million. It was not clear if Intact was taking on any debt of the insurance operation. It appears that this insurance operation amounted to at most 12.5% of Canadian Western Bank’s operations. Since CWB was recently selling for 1.5 times book, this deal looks good from that perspective.

Overall I am not sure if this is a positive move for the bank or how the market will react. I suspect a mild positive reaction.

In the long-term it may harm CWB’s reputation with its employees and potential acquisition targets. This is what Warren Buffett refers to as a Gin Rummy strategy – discard your least promising card (business) when your turn comes.

However, back when CWB acquired this business It thought it was a strange fit and so they may well be right that it is a non-strategic asset. (But that won’t make the employees of this business fell any better.)  In any case some advisors and lawyers will certainly have had a good pay day.

This will leave the bank with so-called “excess” capital which it says will lower its ROE from continuing business in 2015 (Overall ROE will be up). Possibly it will use some the excess capital to buy back its shares, we shall see. This pending transaction may in fact have prevented CWB (and the insiders) from buying back shares at attractive prices in the past month or two.

February 9, 2015

On Monday the S&P 500 was down 0.4% while Toronto was up 0.1%.

Liquor Stores N.A. was down 4.25% Onex, Dollarama and Boston Pizza were each up 1.6%. And that is about the extent of the excitement today in the stocks on my list.

February 8, 2015

Boston Pizza Royalties Income Fund is updated and rated Buy at $21.80 to yield 5.6%. It it somewhat like a perpetual preferred share except that the cash distribution can be expected to increase at perhaps 1 to 2% annual but could fall in the event of deflation in menu prices or if the restaurants, or eating out in general, fall out of favor.

On Friday, the S&P 500 and Toronto were each down 0.3%

However our stock picks had a good day and most were up. Canadian Western Bank was up 2.2%, Boston Pizza was up 2.6% after releasing a good earnings report. Bank of America was up 3.3%.

Earnings reports will be coming in hot and heavy in the next few weeks and this will no-doubt affect individual stock prices when the earnings and/or outlook are different than expected.

I have not looked at RioCan in over one year but I found it strange that the rate reset pref shares on the list above are at $21.90 in this low interest rate environment while the actual Trust units have done very well. I would have thought that the REI.PR.A shares are good value at $22, as they yield 6.0%. It seems that rate reset pref shares in general fell in January as interest rates plummeted. It appears that market “spread” for such shares has widened as the Canada bond yield fell.  The five year Canada bond is at 0.68%, this RioCan pref would reset at 262 basis points above that or at 3.3% and that may explain the price drop, presumably the market yield on this type of pref is well above 3.3. I think I have just talked myself out of thinking that these pref shares are good value at $22. I had thought hat the rate reset shares would tend to trade back to $25 when the rates reset unless the particular company was seen as less risky. But it seems that as the 5 year Canada bond rate has plummeted the market yield on 5 year rate rest pref shares has not similarly plummeted. If it had these shares would likely be somewhat over $25 at this time. I certainly agree that any thing like 3.3% is a low yield on a pref share. But what is truly bizzarre is the 0.68% yield on the five year government of Canada bond. 

The bottom line is that if the five year Bank of Canada interest rate stays at 0.68% then the dividend on these shares is going to be cut from the current $1.3125 to $0.825 on March 31, 2016 in order to yield 3.3% on a $25 price. If the market yield on such shares at that time is 4.0% then the price would be $20.625.

Maybe the market yield on such shares will fall. After all homeowners can get five year mortgages at under 3.0%

At this point anyone buying the RioCan pref shares can not count on them being repurchased a by the company at $25, cannot count on the market price going back to $25 on the reset date and has to understand that at the current Bank of Canada 5 year rate, the distribution on these shares would be cut to 82.5 cents on the reset date in just over one year.

It seems that the market price of these shares will rise if government interest rates rise and that is the opposite of what normally happens to a fixed income instrument. But a rate reset share is not a fixed income investment it seems. 

At this point I am liking the Boston Pizza units a lot more than these rate reset shares.

February 5, 2015 Comments

On Thursday, the S&P 500 was up 1.0% and Toronto was up 0.9%.

Most of the stocks on my list were up roughly 1 to 2 percent.

Costco was down 4.4% a day after after reporting that January’s international sales were down 4% due to currency impacts though up 6% in local currency. Apparently the stock was “down-graded” by Deutsche Bank. I don’t know why analysts would be surprised by this, I am mentioned this would be the case U.S. companies with international operations. Costco has a big operation in Canada and the recent sharp decline in the loonie should have been a known negative factor.

My position on Costco remains that it is a fantastic company but has recently looked quite expensive. I have wanted to Buy it for quite some time but it always looks too expensive — but then it kept rising. If I owned it I might very well have sold at recent prices or lower. But for those holding, it is still likely to be a good investment in the long term even if it falls temporarily. Costco had really leapt in the past few days and so some kind of a pull-back is certainly not a surprise.

Suncor was in the news report sharply lower profits today. And let’s remember oil was still a lot higher in October and November and even (as I recollect) much of December than it is now. Then again the Canadian currency is lower now also which is positive. Still, if oils stays around $50 then Q1 will likely be worst than Q4 for oil companies.

Radio Shack in the U.S. is declaring bankruptcy and selling its stores to a Hedge fund. Recall their former Canadian stores switched over to become the “The Source some years ago. The company had been struggling financially for a decade or more.

I see Target Canada is managing to continue to show its incompetence. Why did they need to bring in a liquidator to sell off their stock? Is selling their merchandise not their core skill? They were only allowed to discount by 30% which is not too exciting. But then customers today found things marked down only 10% in many cases. I think these bozos have poisoned their brand name with Canadians. I will not be interested in visiting their stores when I am in the U.S. Apparently their staff have no idea how much longer they will have a job nor if their will be any severance despite initial talk of 16 weeks severance. I am generally in favor of free markets, but in this case I’d almost like to see the government put the run on these people and go after the parent company for any losses imposed on Canadian creditors as well as for the severance payments if possible. They are an embarrassment to the U.S. really.

February 4, 2015 Comments

Wednesday was another non-boring day in the markets. The S&P 500 was down 0.4% and Toronto was down 0.5%.

Notable losers included Canadian Western Bank down 3.7%, Canadian Tire down 2.0% and FirstService down 2.3% and CLO the oil sands ETF down 4.7%. (Yahoo Finance was just now showing CLO to be up 5.5%; I should really stop using Yahoo Finance it is not the most reliable source of information).

However Toll Brothers was up 1.9% and Visa was up 2.0% and most of the preferred shares on my list were up.

The Canadian dollar fell about 1 cent as oil fell about 8%.

It was interesting to hear in the news that the West Jet CEO had bluntly said that the company had no plans to pass along fuel savings to its customers. It’s completely normal behavior for companies to attempt to to pass along such savings. They tend to pass savings along only due to competition. (A concept that about 98% of the population does not seem to believe in) The airline industry is famously brutally competitive. Air Canada has gone broke at least once and there have been at least a half dozen airlines in Canada that went broke in the last 20 years or so. (Canada 3000, Greyhound – I kid you not, Jetsgo, and CanJet are three that leap to mind). Canadian Pacific was also basically broke when Air Canada bought it, as I recall. So, I think we can count on the fact that West Jet will pass on the savings if competition forces it to and that competition will indeed most likely force it to. I suspect the message of not passing along savings was meant more for Air Canada’s ears than anyone’s (i.e. I won’t lower mine, if you won’t lower yours) The only thing odd about this message was that it was said out loud to the public.

February 3, 2015 Comments

Tuesday was another good day for stocks.

The S&P 500 was up 1.4% and Toronto was up 1.1%.

Stocks on our list that gained the most today were Canadian Western bank up another 5.6%, Stantec up 4.0%, Costco up 5.3%!, and the oilsands ETF, CLO, up 5.7%.

Interestingly, Canadian Tire was one of the few on the decline, down 1.5% and Couche-Tard was down 4.9%. (I have been wondering how gasoline margins are going to fare. With the price of gas down I think most drivers are paying more attention and –paradoxically — shopping around more than normal and that could push margins down. Gasoline margins have been unusually high for some time and I would think at some point we would get a bad quarter for these margins.)

February 2, 2015 Comments

Monday was a positive day as the S&P 500 rose 1.3% and Toronto rose 1.5%.

It was nice to see Canadian Western Bank rise 7.2%. Other notable gainers included Canadian Tire up 2.4%, Costco up 2.1%, Bank of America up 2.0% and Onex up 2.1%.

Oil has staged a bit of a recovery with West Texas Intermediate being close to $50.

I finished an article that explains the reasons for Warren Buffett’s spectacular success with Berkshire Hathaway over the past 50 years. Warren Buffett and Charlie Munger are each set to address this topic in Berkshire’s annual report at the end of this month. Hopefully I covered the main points and included some insights not seen elsewhere. (Tough to do when so much has been written about Buffett and Berkshire) They will also address the next 50 year for Berkshire.

Reports are that Liquidation sales at Target’s Canadian stores could begin as early as Thursday. Target Canada will seek court approval Wednesday to allow a group of liquidation companies to start to sell off the contents of its Canadian stores. Court files specify the liquidation companies are not to advertise the sales as “bankruptcy” or “going out of business” sales.

The last sentence there is quite odd. What, are they afraid of the publicity around the bankruptcy and going out of business sale? (Like, we don’t all already know that is happening?) Or are those terms reserved for cases where it is not really true? (How many times have you seen furniture stores and the like advertise sales that sounded like going out of business sales (liquidation sales) but then they repeated the same thing periodically for years on end? It’s a strange world when the liquidation companies are not to advertise the sales as exactly what they plainly are. In any case, I expect there should be some bargains.

February 1, 2015 Comments

On Friday, the S&P 500 was down 1.3% while Toronto was up 0.3%.

Notable losers included Canadian Western Bank down 3.1%, Walmart down 3.1%, FedEx down 2.2%.

Gainers included CLO, the oils sands ETF up 6.2%, Couche-Tard up another 3.2%, and Visa up 2.8%.

I added modestly to my Canadian Western bank position. Clearly I had begun buying this one too early as it declined.

It was interesting that the Canadian dollar declined on Friday even as oil has a significant rise of about 8%.

Costco rose 1.7% to $142.99 after announcing a special $5.00 dividend.

Our report includes the following sentence “We think it could easily increase its ROE through added debt leverage but chooses not to.” Well, it turns out that this is what they ARE doing, they are going to have somewhat more debt than would otherwise be the case. They did the same in late 2012.

To some degree the extra dividend also means that they have more than sufficient funds to build their new stores. They are growing organically without having to issue new shares. In fact their share count is down by 8% due to buy-backs and despite any stock options granted. Costco is a wonderful business. The only regret is that is does not look to be selling at an attractive price. Since the only business they are in is their warehouse stores and since they have excess cash (after using an appropriate amount of debt) they have wisely chosen to return cash to their investors.

This week will see many more earnings reports which will push stocks in one direction or the other. Among other market-moving events will be the reaction to Greece and it attempted repudiation of its debt.

It is indeed remarkable that government bond yields for most western countries are at record lows at the same time as default is in the air for Greece and with apparently several other European nations possibly following after that.

January 29, 2015 Comments

On Thursday, the S&P 500 ended the day up 0.9% and Toronto was up 0.2%.

The amazing Couche-Tard was up 4.0%. Agrium was up 1.9%, and Toll Brothers was up 3.2%

Meanwhile, Canadian Western Bank fell 2.7% to $26.60 and its rate reset preferred share fell 3.4% to $24.49.

A number of the preferred shares that I follow have been falling. The RioCan rate reset preferred share on the list above fell 3.2% to $23.24 even though the RioCan REIT units have been doing well and are near a 52 week high.

I don’t know why these rate reset preferred shares have been weak even as interest rates fairly plummeted this month.

Visa reported strong results after the close and reported it will split its stock 4 for 1. It rose almost 5% in “after-hours” showing once again that it is hard to keep a good (relatively) unregulated monopoly down.

Yesterday, Element Financial issued a press release indicating it was increasing its profit outlook for 2015. This can be looked at in a couple of ways. On the one hand it can certainly be viewed as good news and could be viewed as the company being fair in letting everyone know that it’s outlook is improved. That way those in know can’t trade at the expense of those not in the know. On the hand however, I prefer companies to “show” me achieved earnings as opposed to tell me about hoped for future earnings. And the earnings they speak of are not actual GAAP earnings. Instead they speak of operating earnings and pre-tax adjusted earnings. The skeptic in me worries that this is an attempt to push up the stock price in order to issue more shares.

The Canadian dollar having fallen to the 80 cents range and below is a VERY big deal for many companies. Imagine you are in Ontario, facing Canadian costs but selling in the U.S. market. Two years ago each sale of U.S. $1.00 translated into about the same $1.00 in Canada. Now the same $1.00 U.S. translates into $1.25 Canadian. Happy days indeed. Meanwhile a Canadian importer with costs in U.S. dollars and revenues in Canadian dollars faces the opposite situation. Sad times indeed. There will be some big winners here and some big losers. We should see some impact of this in the Q4 reports and the full impact later in the Q1 reports (assuming the dollar stays low). Some of the impact will be hedged away by some companies. But hedges are expensive and tie up a lot of money or borrowing capacity and so even companies that hedge do not tend to be hedged for more than about a year.

I plan to have some updates soon for some of the companies that have reported their Q4 earnings.

January 28, 2015 Comments

Wednesday was not a good day in the markets. The S&P 500 was down 1.4% and Toronto was down 1.6%.

Notable decliners included Constellation Software, down 4.7%, Canadian Western Bank down 2.9%, and Bank of America down 2.8%.

The preferred shares that I monitor mostly declined today and have done so in recent days as well. This despite lower interest rates. This indicates a higher perception of risk.

Stocks gaining today included Couche-Tard, up 1.2% (Part of that is likely due to the currency move due to its large U.S. operations), Bombardier up 2.9% and the oils sands ETF, CLO up 1.2%. Actually all three of these benefit from a lower Canadian dollar.

I saw a Statistics Canada report today that rail traffic in Canada was down about 7% in November and that bulk rail car traffic was the main reason as it was down 8%. Inter-modal (container) traffic was also down 2%. Perhaps the lower bulk traffic had to do with lower oil shipments. Rail traffic can be a good indicator of economic activity. (In this case weaker activity)

There seemed to be some confusion created by Statistics Canada’s labour force survey today. Some reports indicated that Stats Can had lowered the job growth estimate in 2014 from about 186,000 down to 121,000. But Stats Can seemed to be trying to explain it was due to updated census data (moving from 2006 census to 2011 census). There were a couple of reports from Stats Can and it all seemed quite confusing. Some parts looked like good news. They said that the Canadian unemployment rate if measured on the same basis that the U.S. measures their’s was only 5.7%. But the market took it as decidedly bad news and sent the Canadian dollar down. Labour Force participation was down, but only because all seniors of all ages are counted as available to be in the labour force and the population has aged and a higher percentage are seniors and not as likely to want to participate in the labour force. It seems to me that Statistics Canada released a confusing message.

If the higher rated stocks on my list continue to decline, I will find myself in a buying mood. But right now I am holding off from deploying the modest percentage amount of cash I have left. I have plenty of exposure to these stocks already if they should rise.

We are in the middle of the U.S. year-end earnings reporting season and various reports could send the market in one direction or the other in the next week or two. The Canadian year-end earnings reporting season has started but is not in full swing yet.

Interest rates continue to decline. With the 30-year government of Canada bond rate under 2%, this is hugely negative for the solvency positions of pension plans.

Few would agree, but the simplest explanation for low interest rates is that the world is awash in savings (not debt). This is due to demographics. Many seniors have money to invest (i.e. lend) and there are not enough young people coming up to borrow all that money unless rates are lowered. Simple supply and demand. Rates went lower to bring up the demand for borrowing and down the supply of lending. I have stated this many times overt the past few years. Central Bank policies also have surely had an impact, particularly when they buy long term bonds. But even without that, interest rates would be low due to demographics and a huge supply of money to lend. Yesterday I saw a report from Michael Walker of the Fraser Institute saying just this.

The bottom line seems to be, don’t hold your breath waiting for interest rates to rise much.

January 27, 2015 Comments

On Tuesday the S&P 500 lost 1.3% but Toronto was up 0.2%

Some disappointing earnings reports in the U.S. pulled the market down. In particular Caterpillar and Proctor and Gamble had earnings that were hurt by the high U.S. dollar (or the decline in almost all other currencies if you consider the U.S. dollar as the reference point). I had mentioned under January 8, that I was expecting to see this impact.

Among the losers today were Visa down 2.2% and eBay down 2.4%.

One of today’s headlines talked about mortgage price wars at the Canadian Banks. That is as it should be in a competitive market. But while it lowers borrowing costs it is clearly a negative for the banks.

There has been a lot of talk the past few days of how the banks were refusing to pass along the saving from the 0.25% bank of Canada rate hike. (Although some have started to now but not the full 0.25% they are alleged to be saving). The problem with this logic is that there may very well have been little or no net savings to pass along. The Banks do not normally borrow from the Bank of Canada (though they can in emergencies). Instead they have deposits at the Bank of Canada – which may be earning less with the rate cut

The Bank of Canada target rate is the rate that the Bank of Canada encourages banks to lend to each other at. If banks are lending to each other and the rate drops, then the savings for one bank is a revenue reduction for another bank – and nets to zero for banks overall. Also I am not sure if much money is actually loaned between banks.

Here is how the Bank of Canada defines the overnight target rate

“The target for the overnight rate is the average interest rate that the Bank wants to see in the marketplace for one-day (or overnight) loans between financial institutions. Changes in this rate influence other interest rates, such as those for consumer loans and mortgages.

As I understand it banks fund at least a portion of variable rate loans with the type of deposits on which they were already paying precisely nothing. That being the case the drop in the Bank of Canada rate would not lower the funding cost for those deposits. The funding cost was already sitting on the floor.

People can say what ever they want about banks, but the FACT is that the spread or gross profit earned by Canadian banks declined from an average 2.70% in fiscal 2012. to 2.41% in fiscal 2013 and from 2.52% in October 2013 to 2.39% in July 2014. These figures are from the Canadian Bankers Association.

The internet is a wonderful thing and allows everyone to have their say. The down-side of that is that a great deal of misinformation is published and passed along every day. Any just because the press is full of stories about banks failing to pass along a reduction in costs does mean there is much truth to it. (As noted there may actually have been little or no cost reduction to pass along)

Banks in fact lowered their longer-term fixed rate mortgages this past week because their funding costs were lower in the bond market (not due to the bank of Canada) and because competition forced them to.

Most Canadians and most of the financial press are very fond of describing the Canadian Banks as an oligopoly with very limited competition. Yet these banks are offering the lowest interest rates in history. And there are 6 major banks in Canada and a handful of smaller schedule 1 banks and quite a few foreign banks operating here and lots of credit unions. I am hard pressed to think of any industry that offers more choices of competitors than the banks do.

The reason banks are quite profitable is that they tend not to compete aggressively on many of their service fees. And that is due in large measure to the fact that we all as customers find it inconvenient to shop around and switch banks frequently.

Those who want lower bank fees need to shop around more aggressively and be prepared to put up with the inconvenience of switching banks frequently for the best deals.

January 26, 2015 Comments

On Monday, the markets started off the week with the S&P 500 rising 0.3%
and Toronto up 0.1%.

Canadian Western Bank was down 2.5%. This could be due to continued fears of weakness in the western-Canada economies due to low oil prices. It could also reflect continuing decline in “spreads” that banks are earnings as interest rates fall. The reason spreads decline is that banks have a lot of deposits that they pay no interest on. As interest rates decline the profit banks make on lending out zero-cost deposits declines.

Melcor was also down 1.7% to $16.50. Again, this is likely related to fears about the western economy.

Some people might think I should know rather than merely suspect the reasons for stocks moving up or down. But the reality is that the market price reflects the individual buy and sell decisions of many investors. It’s impossible to know what each was thinking and basically the market is never under any obligation to explain itself at any time. On bigger moves the reasons can be fairly obvious. Smaller price moves are often nothing more than random noise.

Royal bank was out with a five year rate re-set preferred share yielding 3.6%. It seems we have to continuously get used to lower yields and interest rates. But I decided a while back that 4.0% would be my absolute floor on these shares. I will not buy at yields under that.

Some of the rate reset preferred shares that I mentioned earlier this year were yielding over 4% at their $25.00 issue price. This included Brookfield Asset Management at 4.5% series F, now trading at $25.80. I had mentioned the series 9 and series 11 Enbridge five-year rate rest shares that initially yielded 4.4%. I would have expected these to trade at $26.00 or more given the decline in interest rates since they were issued. But Enbridge Inc. did a reorganization that weakened its credit worthiness and these are trading at just under $24. There was also a Brookfield Office pref that I mentioned that initially yielded 4.75% and current trades at $25.40. Overall, I would have expected higher prices here as interest rates fell.

Royal bank is considered to be more credit worthy than the others I mentioned here witch would explain its lower yield.

January 25, 2015 Comments

On Friday, the S&P 500 was down 0.6% while Toronto was up 0.1%

About the only notable winners on my list was Constellation Software up 3.0% and Element Financial up 3.3%.

As far as losers FedEx was down 3.0% after UPS reported lower profits due to hiring so many extra staff for the Christmas rush. (Which really does not sound like much to be concerned about). Agrium was down 2.3% but that was after recent strong gains. CNR was down 2.1% but had recently hit a 52 week high. Bank of America was down 2.2% and continues to be volatile.

As I write this, the futures markets show the DOW futures down 100 points. That’s only 0.6% which is not really a lot. In any case the direction often changes by the time the market opens.

Warren Buffett has just marked the end of the 50th year since he took control of Berkshire Hathaway in 1965. When his annual letter comes out at the end of February, it’s sure to be a most interesting read. The annual meeting in Omaha will, I am sure, be the biggest yet by a large margin. I’d love to be there but I can’t imagine battling the crowd that will likely approach 50,000 or where I would get a hotel room.

Buffett’s letter this year is apparently going to address the question of how Berkshire achieved its success as well as whether it will continue.

I am working on a new article that addresses the how did they do that? question. It’s still in progress but the first half of the article is finished and I think you may find it offers some insights about Berkshire that you have not seen before.

I have also been documenting a list of all the stocks that Berkshire has disclosed owning since 1976 and when the stock was sold. I may be able to organize this into some kind of article to display the kind of stocks Buffett has chosen over the years.

January 22, 2015 Comments

Thursday was a good day to own stocks. To own, that is, your share of the largest and most profitable companies in the marketplace.

The S&P 500 was up 1.5% and Toronto was up 1.4%

Some of the notable gainers on our list were CNR, up 3.9% , Stantec up 2.2%, Canadian Tire up 2.6%, FirstService up 3.3%, Wells Fargo up 3.2%, the Bombardier series 4 pref shares up 5.8% and the B shares up 4.9%, Riocan up 3.3%, Bank of America up 4.4%, eBay up 7.0%, the oils sands ETF CLO up 3.2%, and Agrium up 5.6%.

The only significant loser on our list was American Express down 3.8%.

Capital spending in the oil and gas “space” in Canada is of course being trimmed back by billions.

Yesterday I saw an interview where the head of the Canadian Petroleum Producers Associated said that the capital spending was being cut from $69 billion to $46 billion. And this is heavily concentrated in Western Canada, and particularly Alberta.

One interesting aspect of this is just how HUGE these numbers are and still remain even after the cut. To be meaningful one has to put numbers into context.

Here are some numbers that help to show just how large $6 and $69 billion is.

Alberta’s total budget revenues in 2014 were $44 billion. Canada’s Federal budget total in 2014 was $279 billion. Canada’s total exports run at $480 billion annual of which energy is $113 billion (or WAS in 2013 before the recent price drop).

Berkshire Hathaway, which is number 4 on the Fortune 500 list and which owns a giant rail road and giant utilities has capital spending that runs at $12 billion annually.

Canada’s GDP in total was recently running at $1651 billion. At $69 billion the country was plowing over 4% of its entire GDP into capital spending just in the energy sector.

Looking at these other numbers for context, I would suggest that it shows that $69 billion in capital spending by the energy sector may well have been unsustainable. The $46 billion that is now predicted for 2015 remains gargantuan and outsized compared to the Canadian economy. It’s scary really because what will the capital spending be when some of the current mega projects are over and we return to more sustainable levels? And what would it be if they REALLY started to cut to the bone?

I would hope that Alberta’s economy, and the other provinces benefiting from that $69 billion in cap ex, has not been overly reliant on what appears to have been an unsustainable burst (although it has lasted for some years) of capital spending.

If it’s a problem when “only” $46 billion gets plowed into capital spending for the energy industry, and when we understand that that amount is still gargantuan, then something does not seem quite right and maybe the problem runs deeper than $50 oil.

January 21, 2015 Comments

It really does seem that there is never a dull day in the markets. Today we got the surprise interest rate cut followed by a steep drop in the Canadian dollar which in turn was seen as positive for stocks.

The S&P 500 rose 0.5% and Toronto was up 1.8%

Notable gainers included, Canadian Western Bank up 4.3%, CNR up 2.6% and Couche-Tard up 2.5%

And, the Bombardier preferred shares gained 8.4% even though the Bombardier B shares were down another 5.7%. Bombardier CEO and (not coincidently) member of the controlling family Pierre Beaudoin is reportedly “refusing to panic”. Hopefully there is no need to panic. Current conditions certainly make it harder for Bombardier to borrow more money or to issue shares. But if it can generate cash flows such that it does not need to do that then the lower share price is in theory not a real concern to the company. In theory a company is not really affected when its owners start trading their shares with other for less money. But in reality there probably are some impacts. Moral suffers. Employees have lost wealth in terms of stock options and stocks. Certain suppliers may be reluctant to even offer normal payment terms on accounts payable. Air plane customers often have to pay large deposits and progress payments in advance of an airplane being delivered. Airlines will be reluctant to do so if Bombardiers credit gets too weak. The CEO really can’t say he is worried. A lack of confidence on his part would surely make things worse.

We really need Mr. Buffett to come and buy this thing but as I have said before he probably would not like the industry economics or management even though he would, I am sure, love the products. His NetJets already buys a lot of planes from Bombardier. And the family might never sell, but then again the main family shareholders are elderly now and who knows if the third and fourth generation would want to try to keep this beast going given its troubles. Still, I imagine its a lot of fun controlling a huge important company like this, so that would be hard to give up.

With the lower Canadian dollar I transferred some more cash from the U.S. side to the Canadian side in my RRSP account. So far, I have been too early doing that but I figure selling American dollars as they rise is not a bad strategy. And I originally transferred that money from Canada to the U.S. when eh American dollars were considerably cheaper than today. And some of what I am transferring back to Canada is gains from the likes of Wells Fargo. Also this RRSP had gotten over weight to the American side due to the exchange rate change and partly due to very strong performance on that side and weaker performance from my Canadian stocks. One down-side as I have mentioned before is that I have to pay a relatively hefty (although hidden) fee through TD Direct to make the transfer.

January 20, 2015 Comments

On Tuesday, the S&P 500 was up 0.1% and Toronto was about unchanged.

Agrium was up an impressive 4.5% to $124.22. The only news that I see is that a former Board member with apparently very good credentials is returning to the Board after an offer for a CEO job at a a commodities company fell through.

Canadian Tire was down 2.3%. Possibly the market is starting to worry what the lower Canadian dollar is going to do this company which imports most of its merchandise.

Bombardier’s common shares managed a 3.2% gain today but that is not much given its recent slide. At this point is should be considered highly speculative.

The Bombardier preferred shares that I have on the list (They have other pref shares as well) were down another 4.7% today to $15.49. In what is perhaps a ray of hope this was however up from the day’s low of $13.60. I have updated the report and rated them highly speculative Buy at $2.80. I hold these shares and did not sell. However at this point anyone buying should probably be buying on speculation of a recovery in the price rather than based on the yield. I would think if the price does not recover it will be for reasons that would also potentially affect the dividend.

I am certainly hoping that the decline in price here was over-done. I knew Bombardier’s finances were weak but they still don’t look to me like they are in much danger of going under. They appear to have sufficient cash for this year. I listened to part of a conference call from a few days ago and did not get the sense that the analysts were expecting the company to run out of cash. It seems to me that if cash got really tight then they could curtail some production and curtail some capital spending and let cash from sales build up. The stronger U.S. economy should be beneficial as should the lower Canadian dollar.

January 19, 2015 Comments

On Monday, the New York stock markets were closed for the Martin Luther King holiday. Toronto was open and finished the day about unchanged.

Bombardier took another tumble. Melcor was down 2.6% to $16.55.

So, let’s take a look at both of these.

Melcor is trading at 64% of book value per share. It’s book equity is $726 million and it has debt of $589 million. The debt plus equity adds to $1,315 million. With the $726 million of equity trading at 64 cents on the dollar that is $465 million. Based on the trading price, the sum of the debt plus equity is trading at (465 + 589) = $1054 million. This assumes the debt is worth booth value. This means that the sum of the debt plus equity is trading at 80 cents on the dollar. In effect the assets of the company are trading at about 80 cents on the dollar. Now it is worth thinking about whether this is a good deal.

The worry, of course, is that these assets are falling in market value and earnings poewer due to lower oil prices and a possible recession in Canada.

The assets that are trading at this 80 cents consist as follows:

45% of the assets are investment properties which have high occupancies. These assets are marked to market and so they are certainly susceptible to a fall in value if interest rates rise and/or the “cap rate” at which these type of assets falls. I do not watch the REIT market carefully or the cap rates at which western Canadian office and retail properties trade hands. But I have certainly not seen and indication that these assets would trade hands at a 20% discount.

42% of the assets consists of land inventory. This includes raw land, partially developed land and fully developed building lots. IT would also include capitalized interest and administration costs associated with developing this land. Historically Melcor makes significant profit when it sells developed lots and so I would think that this land would be worth perhaps 30% more than book value. It is certainly possible that the price of building lots will drop in a recession and certainly that the pace of sales would drop. This could lead to Melcor having to sit on and carry the land for more years and it could lead to lower profits. But, overall it would take a deep recession before the value of this land would slip down as low as book value.

8% of the assets consist of receivables, most of which are longer term receivables from home builders. These assets should be worth close to book value, perhaps 90 to 95% of book value allowing for the time value of money and allowing for some bad debt especially if new home sales slow significantly.

The remaining 5% of assets consists of cash, equipment and some tenant improvements.

In addition to the assets on the books I suspect the company would have sopem goodwill value reflecting its value as a goping concern.

Overall I would certainly think that the assets are worth somewhat more than book value perhaps int he range of 20 to 50% more than book value but that is a rough guess.

But I think the opportunity to buy these assets at 80% of book value is attractive. And since share holders are not buying the whole company with debt plus equity, I think the more relevant figure is that the shares at=re trading at 64% of book value. Arguably that is about 50 cents on the dollar to what these shares “should” be worth.

It is true that Melcor has often traded under book value. This past Summer it had been trading above book value and there was some expectation aht that might continue as the company grew and become more noticed by larger investors.

Still, we don’t know how deep the slow-down or recession in Alberta will be and so these shares could certainly decline further and could take a long time to recover. But one has to be fairly pessimistic about Alberta’s long term future to think that Melcor would not recover at some point.

Turning to earnings. It should be pointed out that Melcor has a history of trading at a low multiple to earnings. At the present time Melcor is trading at 5.2 times trailing GAAP earnings and 7.5 times trailing adjusted earnings. And that is not based on any particularly large spike in earnings in the last 12 months. At $16.55, the market appears to be assuming that Melcor’s earnings will decline significantly and will not recover for quite some time such as several years.

Overall, there are always scenarios by which we (and certainly the market) can convince ourselves that shares are still too high. But I think Melcor offers excellent long-term value at this price.

Turning to Bombardier…

The common shares were down 6.2% today to $2.71

The one series of pref shares that I follow and own were down another 9.2% today to $16.25. At that price these shares are yielding 9.6%. It appears that the market is now seriously worried about a default on these shares or at least a temporary suspension of the dividend.

Our report on thes shares states “The company can convert these into a non-voting Class B common shares at any time at a 5% discount to the class B share price and at a minimum price of $2.00 per class B share.” That may also now be a concern because this could mean that if the the price of the common shares goes below $2.00 they could force the pref share holders to take 12.5 common shares per pref. and with the common now at $2.71 this is perhaps starting to loom as a possibility where s until this month that did not seem like something to be concerned about.

According to one site I just checked a Bombardier bond due in 2016 is trading at 103% of par to yield 6.97%. So that is actually a bit of a positive as that would not indicate imminent bankruptcy at least. TD Direct does not show any bonds for them. probably considering them too risky.

Bombardier’s credit rating is below investment grade.

The bottom line is that this a weak company. I have also long thought it to be poorly managed. Still, I had rated the pref and common shares as a speculative Buy while also indicating many of the weaker points particularly in the report on the common shares.

If this were a stronger company I would likely buy at the lower prices. But this is a weak company and so I hesitate to do that.

At last report the company indicates it has sufficient cash and lines of credit to see it through the year, as I understand it at which point presumably it expects profits to be looking up.

It’s very difficult to know what to do with this one. On the balance of probabilities I don’t expect Bombardier to default but that is certainly a possibility.

January 17, 2015 Comments

On Friday, the S&P 500 was 1.3% and Toronto was up 1.9%.

It has only been two week but our Stock picks have not started the year off well. Canadian Western Bank and Melcor are each down about 15% since December 31 (and down a lot more than that from their highs). I believe these to be well managed quality companies that will grow in the long term and that therefore will rebound. I can’t say when because the earnings are tied to the performance of the western economy which in turn is tied to oil prices. The stock prices are already effectively pricing in a significant decline in earnings. The stock price is also effected by the level of fear or confidence of investors.

Bank of America is down 14% since December 31 and is more speculative but is tied to the America economy which has been performing well. I expect the share price to rise here as long as the American economy stays strong.

We had Bombardier as a speculative pick and had noted it was poorly managed. It’s down 32%. Even its pref shares which we also rated speculative Buy are down 18%. It announced a “pause” (read suspension) in the development of a new model of its Lear Jet. This would also be accompanied by a large write-off and that was serious for a company with an already weak balance sheet. I am hopeful that this company will see better days ahead but that is far from certain. It is very weak financially and therefore bankruptcy is not out of the question although I don’t think that will happen.

Given the declines in some of our higher rated stocks, my own portfolio is off to a poor start this year as well, down about 5%. (I own all of the five just mentioned.)

As investors we know that stocks don’t rise in straight lines. And we tend to think that once our portfolio has reached a certain level it should only grow from there or at least stay level. But that is not realistic. “Volatility” (i.e. decline) is the price we periodically pay in order to be in the equity markets and enjoy gains in the long term. Not every investor who loses money gains it back but I think it is safe to say that there are no long term investors, no matter how successful they are, that have not experienced significant losses along the way and usually a lot more often than once. Lower markets and lower individual stock prices also often present opportunities to buy at attractive prices.

January 15, 2015 Comments

Markets continue to be anything but boring.

On Thursday, the S&P 500 was down 0.9% and Toronto was down 0.3%

I was shocked to hear that Target will close up.

I did point out way back (see Sept 19, 2011, August 1, 2012, February 27, 2013) when it was announced and multiple times after that that they had paid what seemed like an excessive amount for the Zellers leases ($1.8 billion, or about $10 million per store) and that they were spending a lot on renovations (about $15 million per store). For that reason I correctly predicted that they would not be a low cost operation. (And I saw no other analysts comment at the time about the huge costs they were sinking into each store and how that might prevent them offering low prices).

But I considered the lease costs to be basically fixed by contract and the renovation costs are already spent and I figured that SURELY they would make what is called an operating profit before considering these fixed costs. Normally you would not shut down a store that was generating an operating profit even it it was not covering some of the fixed costs. The reason for that is the fixed costs don’t go away when you shut down.

Well in this case maybe some will. Target Canada has filed for bankruptcy. I would not have guessed they would do that, not when the parent is financially healthy. It sounds like they are willing to stiff their landlords and creditors. Target USA has a new CEO from outside of the company (a warning sign in itself) and I suspect this new idiot is shutting down Target Canada even though it may not make sense to do so. By shutting it down he gets to take a “big bath” write-off and then suffer no further losses. Even if the one-time loss is WAY bigger than the expected losses over the next ten years he might prefer that as it puts the problem behind him. This is also why this was announced now before they close the books on 2014.

Overall I judge Target to have displayed colossal incompetence from start to finish on this Target Canada deal. The old CEO was rightly turfed as was the executive in charge of Canada. Next, every Board member who approved the original deal should immediately be ousted.

Hudsons Bay / Zellers who sold the leases to Target are to be heartily congratulated. It would be nice if they could come back in and grab the leases back for a song and say thank you Target for the free and spiffy renovations. They could use some stores for the Bay and reopen some as Zellers. These are now very good retail spaces and I do hope someone can fill them. (Watch for Dollarama to grab some of the smaller ones or least part thereof.)

This is a slap in the face to the many thousands of workers. Absolutely despicable. Frankly, the Canadian government should complain to Obama about his. It’s a black eye for the whole United States the way this played out especially the filing of bankruptcy.

Meanwhile Bombardier announced it will suspend work on a new model of its Lear Jet and take a $1.4 billion “charge”. That is a LOT considering its book equity value is $1.6 billion and its market cap (before today was just over $6 billion). The stock declined by 26% to $3.07. This is absolutely pathetic. It is stunning that Pierre Beaudoin son of the former long-time CEO and grandson of the founder is allowed to remain as CEO despite a dismal record. They recently fired their top sales executive. Not the first time they ousted a sales V.P. The real problem is in the CEO chair. The family controls the company with multiple voting shares. It’s real shame. I’d certainly like to see the company do well. It is a very tough industry. But still when the CEO can’t deliver for years and years on end, he has to go. I had thought this might be a good year for Bombardier as the C-series jet comes into service late this year. But what I have observed over the years is that winning companies tend to keep winning and losing companies usually manage to keep losing.

I have thought for years that it would be great if Berkshire Hathaway would buy them. Buffett would love the products and the storied history of the company. And his NetJets company buys a LOT of planes from them. But Buffett would hate the economics of the company and I suspect he would have no use at all for top management and he only buys with good management in place. If Berkshire owned it it would slash its debt and interest costs immediately.

I am not quite ready to write them off for dead as yet. One reason for that is the the Canadian government is unlikely to let it go under. So the shares might be okay as a speculative pick. The pref shares also took a big hit today. Again the may be okay as a speculative fixed income pick. But certainly there is substantial risk here. I may be biased to the upside here because I own both equity shares and pref. shares. I (stubbornly) added to my pref position today.

January 14, 2015 Comments

On Wednesday the S&P 500 was down 0.6% and Toronto was down 0.7%.

Melcor was down 5.7% to $17.06. Canadian Tire was down 3.0%. Agrium was down 3.0% as was Walmart, Liquores N.A> down 3.2%, Element Financial down 3.3%.

Clearly there is some level of fear in the market.

Wells Fargo reported Q4 earnings that were 2% higher than the prior year which was apparently about as expected. They continue to grow their loans and deposits but the interest spread continues to lower with low interest rates. The CEO is apparently quite optimistic about the next year.

Long-term interest rates in Canada are at record lows. This means that long-term government bonds have made gains lately. However with the yield on a 30-year government bond at about 2.17% these are destined to be abysmal investments in the long term. Meanwhile consider that it is very easy to find corporations with P/Es of 15 or below and growing earnings. That’s an earnings yield of 6.7% or higher. And cheap borrowing costs help companies to continue to grow earnings. It seems clear that stocks will offer a better return that government bonds in the long run.

Corporate earnings may set the tone of the U.S. market in the next couple of weeks.

January 13, 2015 Comments

On Tuesday the S&P 500 ended the day down 0.3% and Toronto was down 0.6%.

Onex was up 6.0% on the announcement of an acquisition (I wish my overall net worth would jump 6% instantly when I bought an investment, but such is the strange world of corporate acquisitions).

Liquor Stores N.A. was down 4.8%.

The debate is starting to rage as to whether Alberta is going to just have slower growth or in fact will enter at least a mild recession. Certainly some big energy companies have announces big cut backs in capital spending and some job cuts. But so far even individual companies are still planning to spend amounts measured in the billions, which is still a LOT of capital expenditures. Suncor will cut $1 billion but still spend over $6 billion. That is still gargantuan.

On Wednesday, (probably in the morning) Wells Fargo is scheduled to release earnings. I expect the earnings will be good. But what really matters is whether they are better-than-expected. In case if the analysts want to focus on negative, they will do so, and if they wish to focus on positives that will do that. What really matters is the long term outlook and the continued growth which I think will indeed continue.

The Canadian Bankers association updated its mortgage delinquency figures today. Unfortunately they run some months behind with the data and so the update was for October. It showed once again that the 90-day mortgage delinquencies at the big banks in Canada are very tiny and show no sign of rising, at least not so far.

January 12, 2015 Comments

On Monday the S&P 500 was down 0.8% and Toronto was also down 0.8%

Some notable decliners included Canadian Western Bank down 5.4% to $27.73, Stantec down 3.2% to $29.79 and the oil sands ETF, CLO down 5.5% to $8.40.

I will freely admit that I did not predict that oil would decline well under $50 or that it would drag down these Alberta-based stocks so far.

In regards to Canadian Western Bank I have always said that banks can be risky due to their high leverage. But they are also cash generating machines most of the time. Despite occasional sharp declines, Canadian bank share holders have done very well over time. Based on past earnings Canadian Western Bank is attractive at this price. It seems to me that the only scenario where Canadian Western Bank will not recover to new highs is if Alberta and the West go into a very severe and quite prolonged recession. I suppose anything is possible but it is not what I would expect. Meanwhile it is certainly possible for the price of all stocks exposed to the Alberta economy and oil to go lower. At this point that is a function of how fearful investors become. I added to my Canadian Western Bank position today.

At this time it good to remind ourselves that stocks are not mere squiggles on a screen. They represent real ownership in corporations. In the long run it is the profitability and growth of those corporations that will determine the returns made by owners. Buffett, quoting Benjamin Graham has said that int eh short run the stock market is a popularity contest (a voting machine) int eh long run it reflects valuation is a weighing machine). Anyone attempting to beat the market has to be willing act somewhat contrarian at times.

I also can’t predict where the Canadian dollar is headed. Several years ago when the Canadian dollar was around par, and sometimes above, I transferred a significant proportion of my investments to U.S. dollars. Basically it was a Buy the U.S. dollar low strategy. In addition at that time U.S. stock markets looked more attractive than Canada’s and there were specific stocks that I wanted including Wells Fargo and Toll Brothers. Now with the Canadian dollar much lower it seems prudent to me to transfer back some U.S. dollars essentially selling them high in terms of Canadian dollars. In addition at the present time the higher-rated stocks on my list are in Canada. On that note I transferred some money back to Canadian dollars today. This was in an RESP where I don’t have to worry about income tax on the exchange gain.

Alcoa kicked off the 2014 Q4 earnings season by reporting higher-than-expected earnings after the close today. Perhaps the market will focus on that good news tomorrow.

January 11, 2015 Comments

On Friday, the S&P 500 was down 0.8% and Toronto was down 0.5%

The U.S. unemployment rate among those in the labor force and actively looking for work is down to 5.6%. Many people will argue that the true rate is far higher. But the thing is that rate topped out at 10.0% in October 2009 and now it is down to 5.6% and it is measured in the same way. People can point to food bank use and a smaller percentage of people in the workforce. But anyway you look at it, a decrease in the unemployment rate from 10.0% to 5.6% is quite a dramatic improvement.

I sent out an article to those on the list for the free newsletter. If you did not receive it, try adding your email to the list here.

Also all the free newsletter editions can be seen here.

Those of you who travel east-bound into Edmonton on the Yellowhead highway may have noticed that I have sign on the side of a semi-trailer truck out near Stony Plain. It reads simply IN HUGE LETTERS, Canadian Stock Picks (At least that is my recollection, I have not seen it in some time)

I’d be interested to know if that sign was the way that any of you found your way to this site. I’d also be interested if anyone has at least noticed it. Let me know at  I have had that sign on the truck there by the side of that highway for about three years. As far as I know it has not attracted very many visitors to this site. In part that may be because the message is not exactly compelling. (But being compelling can easily slip into making misleading claims about performance)

January 8, 2015 Comments

On Thursday, the S&P 500 was up 1.8%, and Toronto was up 1.2%.

That makes a gain of 3.0% for the S&P 500 in two days and certainly makes for a different feel to the market than Tuesday.

The reason for the gain int he U.S. was apparently in anticipation of a good jobs report on Friday morning. If that is not the case then presumably the market would fall on Friday. And if it is the case the market may not rise because it already anticipated the news.

Some of the more notable gainers today were CN, up 3.0%. First Service up 3.1%, and Bombardier up 3.5%.

Stantec bucked the trend and was down 1.0%.

There was news that Bombardier’s chief vive president for aircraft sales was leaving the company effective immediately. That’s a bit surprising as he was only in the job for one year and the year’s sales were, I believe, quite a bit better than the prior year.

I notice the Euor is now worth U.S. $1.18, A year ago it was $1.36. That means if a year ago a U.S. company exported goods into Europe and received say one million euors, that translated back to U.S. $1.36 million. This year the same sale of one million euros is worth just U.S. $1.18 million. That could easily mean the difference between a profitable sale and a loss. And the U.S. company can’t simply raise its prices in Europe because it may be competing with companies that face costs in euros so the market price of the goods in Europe may be unchanged in euros. The point of this is that I would expect a lot of U.S. multi national companies to report profits and sales have been hurt by the lower value of Export sales due to the higher U.S. dollars. Canadian investors in U.S. companies may be somewhat protected fromt that because we have benefited from our lower dollar when it comes to the Canadian dollar value of our U.S. stocks. But the problem is we have already seen that benefit and if the U.S. companies not report lower profits then their U.S. dollar stock prices could fall and Canadian investors would effectively give back some of the exchange rate gains they have received to date. Some of these U.S. multi-nationals may be proteted by currency hedges, but such hedges tend to be for a limited period of time.

Some of the U.S. stocks on my list have no earnings outside the U.S (Toll Brothers) or very little outside (Wells Fargo). But certainly Walmart, eBay and Fedex and Costco would be exposed to this.

Couche-Tard and FirstService are a bit complicated. Their earnings in U.S. dollars would be weaker but when translated back into Canadian dollars the Toronto stock trading price could rise – except that the rise part has already happened. A lower Canadian dollar results in an immediate rise in the Toronto share price of these two, all else equal. But the negative aspect on the U.S. dollar reported earnings (due to their outside of teh U.S operations) shows up only later.

The earnings of Stantec and Canadian National should rise simply due to the lower Canadian dollar. They report in Canadian dollars.

It is not easy to predict how the currency changes will affect earnings or the extent to which this is already reflected in the stock prices. However, with the really large currency swings that have happened, the impacts could take the market by surprise to some extent. I suspect it will be a noticeable drag on the overall S&P 500 earnings growth rate in 2015.

January 7, 2015 Comments

On Wednesday, the S&P 500 was up 1.2% and Toronto was up 0.3%. Almost all the stocks on my list were up.

Liquor Stores N.A. was up 4.5%. I have to admit that this stock fell when I thought it was a Buy and lately it has risen when I thought it was a sell.

Agrium was up 3.7%. Toll Brothers was up 2.3%.

Walmart was up 2.6% to an all-time high. Walmart’s stock price had languished for most of the 2000’s because it started the millennium in an over-valued state. It bumped around the low $50’s for years. Earnings were trending up and eventually it was no longer over-valued. We added to this site as a Buy on April 20, 2006 at $46.79. It then fairly soon rose to $60 but then got whacked back under $50 in the 2008 / early 2009 debacle and was at $52 as recently as July 2011. It then started to rise fairly rapidly and is now at $88.60. It has been a good investment these past few years given the price increase and given that it also pays a modest dividend. It seems a bit expensive now so I am not a buyer at this price. Like any U.S. company that makes a lot of its profit outside of the U.S. the higher U.S. dollar is going to be a significant drag on profit growth in the near future.

January 6, 2015 Comments

Tuesday was a nasty day in rated (higher) Buy on NOvember 17, 2012 at $68.12the markets (except for new investors or those who were otherwise largely in cash and who were looking to buy)

The S&P 500 was down 0.9% and Toronto was down 1.0%

Notable decliners on my list included Canadian Western Bank down 4.5%, Melcor down 4.8%, Couche-Tard down 4.1%, Onex down 3.0%, Bank of America down 3.0% and Wells Fargo down 2.1%. There were not many gainers but Costco was up 1.3%, and RioCan was up 1.8%.

I was going to buy some more Canadian Western Bank at just over $29 today. But when I was ready to do the trade it had moved to $29.60 so I instead placed an order to buy a small amount at $29.05

The Canadian dollar is down to 84.5 U.S. cents.

Having a material exposure to U.S. stocks, bonds or cash has been quite beneficial to portfolios (as measured in Canadian dollars) in the past few months.

I transferred some cash from the U.S. dollar portion of my RRSP to the Canadian dollar portion of the same RRSP today. That was because most of my cash was on the U.S. side and I wanted some Canadian dollars to buy Canadian stocks. With TD Direct I was able to do this transfer instantly on line. The problem is I paid approximately 90 basis points over the wholesale rate for the exchange. That seems excessive for a pure electronic transaction. I considered doing it by buying DLR-U ((A fund of US. dollars that trades on Toronto in U.S. dollars) and then transferring that to the Canadian side and then I could apparently sell it as DLR in Canadian dollars (the same fund put priced in Canadian dollars again trading on Toronto). And I would have faced $20 in trade fees plus very likely a bid/ask spread on both trades and I would have had to call TD to do it. When I looked at the trading history of DLR and DLR-U it appears that the buys/sell spread as measured by the daily fluctuations iin DLR and DLR-U can easy be 10 to 30 basis points. I am not sure if it could have been done instantly or not. I think I would have saved money but it seemed like quite a hassle so I just chose to pay the 90 basis points. I had also mentioned the DLR strategy under January 12, 2014 below.

There is of course much speculation about the reasons for the lower price of oil and how much lower it will go.

Some have argued that certain countries are pushing oil lower to maintain market share. However, when you think about it, a country would need to double its market share to make up for an oil price falling by half so the idea that any producer would consciously push the price down by half to just stay at the same market share but with half the revenue does not seem rational.

If certain countries pushed oil prices down to economically harm their bitter enemies that is another thing and may be true.

The idea that certain countries have pushed oil prices down to push the U.S. shale oil out of the market is also a bit hard to understand. They would only be kept out of the market permanently if oil prices are to stay down. Again it is hard to see how pushing their revenues down by half would benefit any oil producing country.

Logically, some production and supply should be pulled off the market as oil prices drop. Certainly no company should continue to produce at a cash loss (selling at less than the marginal cash cost of production). However, if most oil producers happen to face high fixed costs and low variable costs then we may not yet have reached the point where the price is less than the marginal cash cost of production. In the short term most costs of an oil producer may be fixed. However as time goes on the costs can be thought of as variable. Even labor costs are fixed in the very short term. You can’t lay people off today and then expect to re-hire next week. And the costs of layoffs can be quite large. You can’t shut down production today and then restart next week very easily. But if you think oil prices will be too low for the next six months or longer then it may make sense to shut production and keep your oil in the ground for another day.

Hedging also comes into the picture. If an oil producer has contractually sold all production for the next number of months at much higher prices, then that producer has no immediate incentive to curtail production.

All in all, the factors that impact oil prices are no doubt complex and it may take some weeks or months before any significant supply is pulled off the market. But ultimately I would expect that to happen and that the oil price decline would come to an end and start to reverse.

January 4, 2015 Comments

On Friday, the new year of trading started off with the S&P 500 about flat for the day but with Toronto up 0.8%.

Today the Canadian dollar is at 84.63 American cents. That is $1.18 Canadian to buy one U.S. dollar. Add in the bank fee and you are probably at $1.20 or so. That has to hurt for anyone heading South on vacation. But the good news is that Canadians who hold U.S. stocks or real estate have seen an increase in the value of those assets when measured in Canadian dollars. At the start of 2014 we were at 94.16 cents or $1.062 (wholesale) to buy an American dollar. This change alone, added 11% to the value of American assets when measured in Canadian dollars. This also added 11% to the value of U.S. dollar revenue received by Canadian companies. This should be a real boost to the competitiveness of Canadian manufacturers, especially those who face few expenses in American dollars and whose expenses are largely in Canadian dollars.

On the other hand it will hurt a retailer like Canadian Tire that imports most of its merchandise. They will have to raise price or lower their profit margins. Higher prices would likely lower their sales.

I don’t have much faith in the ability of anyone to predict where the dollar exchange will head next. My general approach to the exchange rate is to try to largely ignore it. For example I have put a certain amount of my investment portfolio into U.S. dollars and I try to think of those dollars as being more or less permanently in U.S. dollars. At some point I will need to spend money int eh U.S. and so reality in that case the exchange rate would not affect me if I use money that has already been in U.S. dollars for some time.

Layered on top of that sort of thinking, I also sometimes (not often) transfer money back and forth. It seems logical to me to favor bringing some U.S. dollars back to Canada at this time. In doing so I would be selling U.S. dollars high (or at least higher) in term of Canadian dollars. Then if the Canadian dollar happened to go back up to say 90 cents or certainly 95 cents I would then favor moving money the other way. At this time I do have cash in my U.S. dollar investment accounts and very little cash in my Canadian dollar accounts. It therefore seems opportune to move some U.S. cash back to Canada at this time. This would be especially true in RRSP accounts where there would be no tax implications on the gain in currency value. There is however usually a fee of about 0.75% (as I recall) to transfer money in each direction. One technique to avoid that is to buy a Canadian stock that also trades in the U.S. (buy it U.S. funds) have the stock transferred to a Canadian account and then sell it in Canada. I believe this can work very well in those RRSP accounts that have both a U.S. and a Canadian component. But there is also the risk that the stock price declines from the time you buy to the time you sell or you face a bid/ask spread. It can also be done with certain currency ETF’s and that may reduce the risk of price changes. Overall this so-called “Norbert’s Gambit” is probably not worth the effort unless we are talking a large amount of money. Google Norbert’s Gambit for more information.

January 1, 2015 Comments

I have updated many of the Stock Picks as we start a new year. For performance tracking purposes for 2015 (just like the other years) I will use the closing prices from December 31 as the starting prices for 2015. I will use the ratings above. In four cases I have lowered the ratings for 2015 tracking purposes as noted in the table above. In those four cases I did not do a complete update but the stock prices had risen since the last update such that I judged that a lower rating was appropriate.

It’s unfortunate that I don’t have more Strong Buys and (higher) Buys to start the year. But the fact is that there are times when there are many bargains in the market and other times when there are not so many.

I do hope to find more good buys to add to the site before long.

Best wishes to everyone as we start a new year of investing.

The Liquor Stores convertible denture is updated and rated Sell at $105.

Liquor Stores N.A. is updated and rated Sell at $15.40.

Boston Pizza is updated and rated Buy at $21.61 to yield 5.7%. This entity is more like a bond than an equity since it pays out a share of the franchise fee collected from the restaurants. It pays out about 100% of what it collects and the distributions tends to be quite stable but to grow very slowly over the years. It could shrink if same-store sales at the restaurants decline. The unit price could decline for that reason or because interest rates rise. In 2014 it rose 4% in addition to paying out about 6%. If it pays out 5.7% this year and if the price stays flat, that would be a a perfectly acceptable result. I have about 6% of my portfolio invested in this. It will likely provide stability to to my portfolio although that cannot be guaranteed. I hold it mostly in RRSP accounts where the fact that it is a cash yield is not important but I like the stability. Basically, for me, it is alternative to cash which would guarantee stability but would return more like zero to 1.25%.

The final 2014 numbers are in. At the start of 2014 we had 15 stocks rated (lower) Buy or higher. The average gain for those stocks in 2014 was 11.7%. This excludes dividends. It also excludes trading costs and the impacts of currency fluctuations (some of the stocks were U.S. stocks). My own portfolio was up 10.6% in 2014 and that includes dividends, and deducts trading costs and includes currency impacts.

Click here for the details by stock for 2014

For the year, the S&P 500 gained 11.4% and the Toronto stock index gained 7.4%. Both gains exclude dividends.

On Wednesday, the S&P 500 was down 1.0% and Toronto was down 0.1%. A notable gainer was Toll Brothers up 2.9%.

I was wondering if I was too harsh on Element Financial in my update yesterday. The thing is this ambitious management may continue to grow the company aggressively and shareholders could do quite well. Perhaps that is even a the most likely outcome. But as I ponder what I consider to be huge executive compensation (much of it in stock options) combined with management’s view that stock-based compensation should be added back (ignored as an expense) and other aspects of what seems to be an aggressive view of adjusted earnings, I think the correct response, at least for me, is to stay well clear of this company.