December 31, 2017 TFI and Dec 29 CWB

December 31, 2017: TFI International is updated and rated (lower) Buy at $32.86. I am comfortable holding this company at this price and will be inclined to add to the position on dips. It’s a very well managed growth-by-acquisition company. It is facing tough competition in its U.S. truck load operations at this time and therefore the company is only cautiously optimistic about short term growth. Like most good companies this has been a good company to buy on dips. It started 2017 at $34.89 rated Weak Buy / Hold. But it dipped as low as $26.44 during the year and we rated it (higher) Buy at $27.50 on May 21.

The report on the Canadian Western Bank rate reset preferred shares Series 5 is updated with a rating of (lower) Buy at $24.17.

These may be of interest for those looking for relatively safe yield and who would be prepared to continue to hold for the yield in the event the share price declines.

These shares certainly have a volatile history for something that would have been considered safe and considered by many to be “fixed income”. In reality preferred shares are not fixed income in the sense that they are not guaranteed to mature at any given price. Those who are truly interested in fixed income and not bothered by market value losses may consider them to be fixed income.

These were issued at $25 in February 2014 yielding 4.4%. This was the going rate for rate reset preferred shares at that time and in fact I believe some large bank rate reset shares were issued under 4.0%. They were supposed to protect against the expected rise in interest rates. But interest rates unexpectedly fell and rate reset shares plummeted. These particular shares bottomed out under $15 in early 2016. A review of our comments in 2016 will confirm we had positive comments on these shares throughout 2016 (and 2017 as well). Our highest rating was (higher) Buy at $16.61 posted about March 11, 2016 (the post is undated). These shares were rated Buy at $19.05 at the start of 2017. The capital gain of 27% in 2017 was certainly more than expected.


December 28, 2017

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

RioCan was down 2.8% to $24.69 and is an investment that I would consider for income particularly in non-taxable accounts since REITs are not eligible for the dividend tax credit.

Fortis Inc. is updated and rated (higher) Buy at $46.18. This arrears to be a low-risk investment that is trading at a reasonably attractive price. I intend to buy some Fortis Inc. shares.

Cannabis Stocks: I will have to admit to missing out on this investment in 2017. These stocks are mostly not yet at the stage where they have positive earnings or even much in the way of revenues. Their valuations are based on expected future earnings and sales. These types of companies are simply not a good fit for my analysis methods. It remains to be seen if future sales and earnings can justify their current share prices. If I held a large gain on these stocks in terms of percentage and especially if the gain was large in terms of dollars I would certainly sell at least some of the position. These stocks are heavily traded and so most (but not all) investors probably have harvested gains along the way.


December 27, 2017

On Wednesday, the S&P 500 rose 0.1% and Toronto rose 0.2%.

Canadian Western Bank was up 1.4% to $38.97

RioCan was up 1.7% to $25.41. Despite fears about the retail sector, this REIT seems likely to continue to pay its distributions and generally be an acceptable but unspectacular investment over the years.


I bought some shares in the Melcor REIT today. It has a cash yield of almost 8% and it trades with a price to book ratio of about 0.75. While it could decline if the Alberta economy declines, the opposite seems to be happening. I expect this REIT to continue to pay its distribution and there is a reasonably good chance of a modest capital gain as well. Checking insider trading, I note that one insider bought 3000 units at $8.50 in the very recent subscription receipt offering. I believe that offering sold out quickly and currently the shares trade at about $8.50 meaning we can buy in at the same price as the recent offering.

The Canadian dollar is at about 79.13 U.S. cents having risen somewhat in the past week or so. It seems to me that most analysts were predicting a decline. The exchange rate is always hard to predict especially in the short term. As I am holding a fair amount of U.S. cash I was hoping for a decline to transfer some cash back to the Canadian side.

A lower Canadian dollar also boosts the value of U.S. investments as calculated in Canadian dollars. But an argument can be made that perhaps we should simply calculate the U.S. investments in U.S. dollars since most investors will ultimately spend some of their investments in the U.S.

December 26, 2017

U.S. markets were open and the S&P 500 was up 0.1%.

Oil (west Texas Intermediate) is at $59.80. With oil at or near this level, I suspect the  Alberta economy will continue to improve. This should bode well for Melcor Developmensts and the Melcor REIT and AutoCanada and any other share prices that seem to be held back by fears that the Alberta economy will weaken or fail to recover.


December 23, 2017

On Friday, the S&P 500 was about unchanged (down 0.05%) and Toronto was down 0.1%.

CRH Medical was down 5.1%.

AutoCanada was down 2.2%

TFI International was up 1.6%.

It appears that we are set to close out 2017 with the S&P 500 up about 20%, the DOW up about 25% and Toronto up about 6%. Barring major bad news next week (which can happen anytime) 2017 will go down as an exceptional year for U.S. stocks. And, most are predicting continued good times in 2018.

Certainly the corporate tax cuts are a big positive for 2018. But there are other factors that could easily cause a sharp pullback. Those include higher interest rates, possible terrorist attacks and developments in the investigation of Trump and those close to him. Trump’s anti free trade policies could also harm many U.S. companies as well.

Statistics Canada reported that GDP was about unchanged in October. I believe there is some amount of estimation and statistical uncertainty in these numbers and so I would not be concerned about one month with no growth unless that was confirmed over several months.


December 21, 2017

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

CRH Medical was up 7.1% to $3.33 in Toronto.

Wells Fargo was up 2.4% to $61.61. This bank bottomed out at under $10 in early March 2009. There was a massive spike in volume as some investors rushed to sell as low prices as they feared even lower prices and other investors , enticed by the low prices, bought. The end result was a massive transfer of wealth from fearful to braver investors.

Statistics Canada released October figures for Food Service and Drinking Places which were up for the country as a whole. This report reinforces my expectation that Boston Pizza should continue to show modest growth. However, they do face competition. A newer chain, “The Canadian Brewhouse” was started in Edmonton in 2002 and now has 18 locations in Alberta and a total of 28 locations as it has expanded to the other three western provinces. Its locations are larger than Boston Pizzas. They do target a different market. I was at their newest location in St. Albert, Alberta on Wednesday evening and it was packed at 5:30 pm. The service and quality were excellent. If this business is any indication, then reports of the recession in Alberta seem to be somewhat exaggerated. (But yes, certainly some people have been very hard hit by the recession.)

Statistics Canada also released inflation figures for November showing a 2.1% annual inflation rate. If you click the link here and go into the CANSIM tables and use “add remove data” it is possible to explore the individual inflation rates for dozens of categories.

Costco Update December 20, 2017

Costco is updated and rated (lower) Sell at $187.51. (corrected from the original posting that said (lower) Buy

I hesitate to rate this exceptionally excellent company in the Sell range. But it does look somewhat over-valued at this time. I probably could have just as easily rated it Weak Sell / Hold. Its last three quarters have been exceptionally strong. And the current quarter may also show strong growth given that the prior year comparable quarter saw a decline in earnings per share of 5%. After that it will face tougher comparable quarters. It is quite possible that the income tax reduction will provide a boost in earnings to justify the price.

Overall, for all the reasons indicated in the report I settled on a rating of (lower) Sell and I sold my few remaining shares today. (I was selling in an RRSP account where triggering a taxable gain was not an issue)

It will be interesting to see if Costco will have a philosophy of using the lower income taxes to boost profits or will they be inclined to use some of it to reduce prices? After all, if they were satisfied with their 23% ROE this year, they might decide to target a similar ROE and drop prices. This will also depend on competitor strategies. Costco has never had a strategy of maximizing profits, so it is not a foregone conclusion that they would choose to have the income tax reduction drop to the bottom line. And, in any case, competition could force them to drop prices.


December 20, 2017

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

The U.S. income tax reduction bill has been passed.

While the market seems to expect all of the income tax savings to fall to the bottom line, that will not necessarily be the case. Wells Fargo announced today an increase in its minimum hourly rate to $15 from $13.50 In highly competitive businesses, we should expect some of the income tax savings to show up in lower prices to consumers.

Canadian Western Bank was up 1.9%. FedEx was up 3.5% after reporting earnings. This reflects a U.S. economy that is literally on the move.

It was disappointing today to see that Loblaws and its parent Weston have been involved in collusion and price-fixing for some 15 years. This is a failure of management and controls at those companies and also I think a failure of the Competition Bureau to be effective. This will probably end up being a much bigger deal than it initially looks like.

I notice that the Globe and Mail is no longer allowing comments on its Web site. The web site states: As of December 20, 2017, we have temporarily removed commenting from our articles. We hope to have this resolved by the end of January 2018. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to It’s because their partner “Civil commenting” is shutting down.  I sent an email to the feedback address and it bounced back! It’s been my experience that the Globe and Mail and its Civil Commenting partner was a terrible system for posting comments. It used to be far better. It always seems like companies that are on their game in one way are on their game in all ways. And companies that struggle in one way seem to struggle with everything. The Newspaper business is tough. But I don’t think that is an excuse to have a poor online system.



December 19, 2017

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

The republican’s income tax reduction bill is expected to be signed by the President tomorrow.

Costco was down 2.1%. I will be updating my report on Costco very soon.

CRH Medical was up 4.0% in Toronto. Checking insider trading, the company did buy back some shares in November. I think that is a sign of confidence. They bought back about $1.4 million worth of stock.

Linamar was up another 2.0%.

Statistics Canada reported investments in new home construction in October. In Alberta, investment in new single family homes was up 30% versus October 2016 but was still 25% below the 2014 level. The big increase versus 2016 would seem to bode well for Melcor Developments although I don’t know how the timing of Melcor’s lot sales relates to the timing of new home investments.

Money for Nothing? 

The S&P 500 is now up 20% in 2017.  The market cap of the S&P 500 is $24 trillion. At the start of 2017 it was about $20 trillion. That’s a gain of $4 trillion dollars. It’s interesting to think about just where this added $4 trillion dollars came from.

Only a little of the gain would have come from new money raised from investors by S&P 500 companies selling shares to investors including through the exercise of stock options. Especially considering that stock buy-backs would have offset some or possibly more than all of that.

Some of the gain would relate to retained earnings. If the P/E was around 20 then earnings would explain 1/20 times $20 = $1 trillion earned times about 50% retained or $0.5 trillion.

About $3.5 trillion dollars came from the fact that investors bid up the prices of shares as one investor sold to another. Not a penny in new money enters the market in that process as the money put in by the buyer goes to the seller. In effect this $3.5 trillion came out of thin air.

What a wonderful thing! The owners of the S&P 500 as a total population gained $3.5 trillion and it really did not cost any other group of the population anything!

And I am not suggesting that there was anything at all wrong with this. But I will say that it is a process that can’t go on indefinitely. When it goes the other way, money, or at least wealth disappears into thin air.

Perhaps some readers would like to comment on this.


December 18, 2017

Today, one week before Christmas, the S&P 500 was up 0.5% and Toronto was up 0.6%

The U.S. markets rose yet again on optimism that the income tax reduction Bill will be passed.

The top gainer on our list was Linamar, up 2.6%.

It should continue to be an interesting week in the markets. The Senate could pass the income tax bill tomorrow in a close vote (possibly requiring the Vice President to cast a favorable tie-breaking vote). Trump’s lawyers meet with the Special Prosecutor on Wednesday and Trump is apparently now confident of exoneration.

Regarding Melcor Developments: I happen to live very close to one of their largest Subdivisions, Jensen Lakes in St. Albert. This is a 50% joint venture with another property developer. There is certainly a lot of activity. It appears that many home lots have been sold. This large community will be under development for years to come. It includes an adjacent commercial development where building is well underway and a new theater complex will open in the Spring. It appears that two schools are under construction. Overall, while I don’t know the number of lots being sold this quarter or next year, the whole development certainly appears to be thriving.

With Melcor trading at half of book value I wondered if at some point we will be able to look back and see that as a very clear buying opportunity indeed.


Royal Bank of Canada update (Click this post to comment on it)

Royal Bank is updated and rated (higher) Buy at $101.92

Note that, as an experiment, I have opened this post to comments. Click to comment. I am thinking that once in a while it might be useful to allow comments on a post.

Large banks tend to very profitable. Royal achieved a 17.0% return on owner’s equity in 2017.  And, in its personal and commercial banking division it has been running at about a stunning 28% after-tax return on owners equity for at least the last three years.

In some ways the high returns on equity are surprising. Economic theory would suggest that competitors would come into the space and profits would be pushed down. And despite claims that Canadian Banking is an oligopoly, there are actually plenty of choices. In Canadian Airlines, three or even just two competitors have usually resulted in a low-profit industry. So why is Canadian banking so profitable with five large banks and numerous smaller banks and credit unions to choose from?

In my view, the biggest reason is that customers really don’t shop around that much. Once a customer has their main chequing account with a given bank, they tend to stay for many years. With pre-authorized debits it is quite inconvenient to switch to a different bank or even to switch to a different credit card. Banks take advantage of that inertia by charging lucrative fees.

Part of the reason, too is that smaller competitors tend to have higher costs due to their smaller scale.

As banking and money itself has become increasingly digital and self-serve, the operating costs for banks has fallen as a percentage of revenue. But so far, competition has not resulted in much in the way of fee reductions.

A possible reason for the high ROEs of banks is that it is a risky business. Banks operate with shockingly low levels of common equity. Royal Bank has a common equity ratio of just 10.9% of risk-weighted assets. (But this is considered high by banking standards.) On a non-risk-weighted basis, its common equity is only 5.71% (that’s leverage of 17.5 times!). After deducting goodwill, Royal Bank reports that its leverage ratio is 4.4%. That’s leverage of 23 times! On its face, that level of leverage looks risky. But Royal Bank has a very sophisticated and massive risk-management program that is designed to result in low risks. This includes limiting loans to risky businesses and having a material portion of loans in government insured residential mortgages. Credit rating agencies agree that the risks are low and have assigned Royal Bank a credit rating of AA minus despite the low equity / high leverage.

With an ROE of 17% and a price to book ratio of 2.2, and a P/E ratio of 13.8, Royal Bank appears to be an attractive investment.

But despite the risk management system, that high leverage could be a problem in certain scenarios. Royal Bank has estimated what its loan losses would be in the event of a sharp recession including a drop in house prices. But those numbers can only ever be estimated. Also, it is possible that new technologies will increase competition in banking and force a decline in fees and profitability.

Overall, an investment in Royal Bank and probably the other big Canadian banks looks attractive. It would not be prudent however to go “all in” on the banks even though such a strategy would have worked out well in the past. I can’t say what a reasonable exposure would be since it would vary widely due to individual circumstances.

December 16, 2017

On Friday, the S&P 500 was up 0.9% and Toronto was up 0.2%,

Linamar rose 11.5% to $72.50 with the news of its acquisition (see yesterday’s comment.

Costco was up 3.3% after releasing earnings. I will update the report very soon. I suspect it will be rated no higher than Weak Buy / Hold.


December 14, 2017

On Thursday, the S&P 500 was down 0.4% and Toronto was down 0.7%.

Linamar was down 2.7% and then, after the close, revealed that it will acquire an Agricultural equipment maker for $1.2 Billion. It is acquiring privately held MacDon of Winnipeg in a deal that it says will be immediately accretive to earnings per share. To put the size of this deal in context, Linamar has an equity market cap of $4.5 billion and assets of $5.9 billion. The $1.2 billion dollar purchase will be financed with debt. (Previously Linamar had a relatively low debt ratio) This is a large acquisition but not overwhelmingly large. Linamar already had what I believe was a relatively small agricultural equipment division in Hungary.

I don’t know how the market will react to this but to me it looks like Linamar taking another step on a growth path that has been very successful in the past. I’m happy to hang onto their coattails as they walk that growth path.

AutoCanada was down 2.6%. Statistics Canada released new vehicle sales figures for October which were lower than September, but that appears to be a seasonal pattern, and year-over-year for Canada sales were up 13% in dollars and 7% in units and for Alberta were up 25% in dollars and 17% in units – all of which seems rather positive for AutoCanada.

Alberta’s economy has been improving. However there were some “layoffs” announced today in the oil patch as some temporary pipeline issues have made the lack of export capacity even worse.

CRH Medical posted some insider trade information today. Two insiders were awarded 30,000 rights each and a third exercised options to buy 25,000 shares at 27.5 cents. So far, no sign of any share buy backs. If no shares were in fact repurchased in November then it would seem to be a mark against the credibility of management.

I was pondering my own portfolio today. I’d like to raise some cash for possible bargains and also possibly to diversify including possibly having some allocation outside of North America likely through ETFs. So, I sold the remainder of American Express shares which were just over 1% of my portfolio and which I had last rated only a (lower) Buy. I had a gain on it and it was in a non-taxable account.

I have what is probably a ridiculously high allocation to Melcor. But it would be difficult for me to trim that given that I am rating it Strong Buy. In fact, stubbornly, I have an order in to grab a little more if it slips to $14.50. It seems to offer an excellent margin of safety from a book value perspective. But it’s not clear when there will be a catalyst to push the price higher. Hopefully they will end up reporting a strong Q4. If that happens AND if the market for new home building lots and land prices in Alberta remains reasonably firm in 2018 despite the new mortgage stress test or other factors then perhaps there will be a share price improvement by the Spring. I did come across some information that home sales are still strong in one of their big subdivisions near Edmonton at this time.

December 13, 2017

On Wednesday, the S&P 500 was about flat while the DOW was up 0.3% and Toronto was up 0.1%.

With the Democrats grabbing the Senate seat last night, I had expected U.S. markets would likely fall today due to a somewhat lower probability of the Income Tax bill getting passed. However, I now understand that the new Senator may not take office for several weeks so perhaps that’s why the market remains highly confident of the passage of the Bill as well as the fact that either way the Republicans have a slight majority in the Senate.

The FED raised interest rates 0.25% today to 1.5%. With that, I thought that the Canadian dollar might slip somewhat even though the rate rise was very much expected. It started to dip very briefly on the announcement but then rose. This goes to show how difficult it is to predict exchange rates.

These rate hikes are starting to add up to something significant. The FED’s benchmark rate is now 1.25% higher than it was in 2009 to 2015. Warren Buffett (Berkshire Hathaway) has $108 billion in cash. An extra 1% on that amount is 1.08 billion per year (pre-tax). The big U.S. banks keep billions on deposit at the FED. The higher FED rate adds to bank earnings.



December 12, 2017

On Tuesday, markets were once again setting record highs. In round numbers, the Dow is now 25,000.  The S&P 500 was up 0.15% and Toronto was up 0.1%.

CRH Medical bounced down 4% in Toronto. I had understood from this company that they were going to buy back shares starting either November 9 (for ad-hoc purchases) or 20th (for purchases under an automated portion of the buy-back plan) and that the buy-back purchases had to be reported on SEDI by 10 days after the end of the month. So far? crickets. This certainly does not add to my confidence. The unfortunate reality is that when a company disappoints in one way they tend to disappoint in other ways as well. I thought this company had a good business model. Then they got bad news in terms of government regulated pricing for their services. But that bad news seems to have been made worse by their poor ability to communicate (or perhaps anticipate) the exact nature of and impact of the price changes. They also surprised the market in the spring with their treatment and disclosure of changes in their estimates of accounts receivable. I am still hopeful for a decent recovery in this stock. P.S. After I wrote this I got a response from the company indicating “We are having a setup issue with sedi that we hope to resolve tomorrow”.

On Wednesday, the FED is expected to increase interest rates. And even though it is already expected, I think it might push the Canadian dollar down if and when it gets announced.


December 11, 2017

On Monday, the S&P 500 was up 0.3% and Toronto was up less than 0.1%.

Canadian Western Bank was up 1.1% to $38.35. That puts it 51% higher than when it was rated a Strong Buy back on June 3. Not only was that a good return but it seemed like quite a safe bet back then.

Melcor was down 2.9% and trades at half of book value. Given the solid assets, that should make for a very safe investment with good upside. But so far, fear of a decline in land and building values in Alberta and/or a complete lack of interest has kept the price down. Perhaps we can hope for a decent increase to the dividend in 2018, but that announcement is usually not made until mid March.


December 10, 2017

How to profit from (correctly) predicting a lower Canadian dollar

The Canadian dollar closed on Friday at 77.88 U.S. cents.

Exchange rates are notoriously hard to predict. But, let’s say you are relatively confident, for whatever reason, that the Canadian dollar is headed lower. And, let’s say you are willing to make a financial bet in that direction.

One way to do that is through futures trading where you can use margin and leverage. If that is what you want to do, I can’t help you. I consider that to be dangerous and extremely speculative and I also don’t know how to do it.

But if you just want to do this with your own money and with no leverage, here are three ideas (I recommend the third):

  1. Transfer some Canadian dollars from a Canadian investment or bank account into a U.S. dollar investment account or bank account. If it turns out you were correct and the Canadian dollar falls then transfer the U.S. dollars back to the Canadian dollar account for a gain. A big problem here is that as I documented in yesterday’s post you would typically lose about 2.9% on the round trip with $10,000 transferred and even if you had $50,000 to do this with you would typically lose about 1.6% on the round trip. Therefore, you would have to have been correct on quite a large decrease in the Canadian dollar to make any money with this strategy. Furthermore if done in a taxable account you are required to track and report any gain.
  2. Same as 1. above but use the Norbert Gambit and DLR / DLR.u as I described in yesterday’s post to lower the round trip cost. This is better but still involves a round trip cost of around 0.6% on $10,000 or 0.4% on 50,000 and it still involves tracking the gain if done in a taxable account.
  3. In a Canadian dollar investment account buy DLR (Not DLR.u) which is an ETF holding U.S. dollars but trading in Canadian dollars. After the Canadian dollar (hopefully) drops, sell the DLR for a gain. The exchange cost will consist of the two trading fees say $20, plus the bid/ask spread on DLR, which is typically one cent on units trading around $12.80, so 0.08%. The total cost on a round trip, counting the two trade fees is about 0.28% on $10,000 and 0.18% on $50,000. The cost would rise slightly if the DLR.u is held for a longer time because of its management fee of 0.45% annually or about 0.04% per month which however does not show up smoothly but rather causes an occasional slippage of 1 cent on DLR.u or about 0.08% every two months on average. Just due to bid / ask price behavior there is probably a chance that the expected round trip cost can change up or down by an extra 0.08% at any time. An advantage of this DLR.u approach in a taxable account is that the gain (unlike the case for the two options above) will show up on your trading summary for easy tracking and reporting for income tax purposes.

Due to the lower cost, and the easier tax reporting, I like the third option here for cases where someone wants to make a short term bet that the Canadian dollar will fall. On the other hand it might be far wiser to simply not make speculative bets like this.



December 9, 2017 and currency conversion using Norbert Gambit and DLR

Note: I am now sending out the occasional tweet under @InvestorsFriend, and those who use twitter can follow me there.

On Friday, the S&P 500 and Toronto were each up about 0.5%.

Canadian Western Bank was up 2.2% as the market further digested its earnings report released Thursday morning.

Constellation Software was up another 2.3%. This has been a fantastic investment over the years.

The (high) Cost of Currency Conversion

I grabbed some figures on Friday to look at the cost of converting currency.

I looked at the cost to move money from a Canadian dollar investment account to a U.S. dollar investment account (or the opoosite direction) at my discount broker, TD Direct.

Option 1: Use the self-serve currency exchange feature in “EasyWeb”

The wholesale rate at the time was U.S. $0.77713 per Canadian dollar or Canadian $1.2868 to buy one U.S. dollar.

To move $10,000 Canadian to the U.S. account the rate quoted was $1.3066. That was 1.54% higher than the wholesale rate. For moving money from a U.S. account to a Canadian account the rate quoted was $1.2683. That was 1.44% less than the wholesale rate. On a round trip for $10,000 Canadian I would receive U.S. $7653. And if I then turned around and transferred it back to Canadian, I would receive $9707. So that’s a loss of $293 or 2.93% on a round trip

For a $50,000 transfer the exchange fee is lower and works out to 1.58% or $790 on a round trip or about 0.80% each direction.

I have said before that I consider this to be an outrageous fee on an all-electronic self-serve money transfer. I am basically certain that the bank can offset these trades electronically in the wholesale market at very little cost or risk.

This particular fee is simply something that banks don’t have to compete aggressively on at all. Not all bank fees are high. For example, I consider trading fees of under $10.00 to trade what seems to be any amount of shares to be very reasonable indeed. And Banks do compete aggressively on certain interest rates such as mortgage rates and GIC rates. But this exchange rate fee is something that they simply don’t have to compete on since it applies mostly to people who are sort of captive customers.

Option 2: Use the Norbert Gambit (works for investment accounts but not bank accounts)

This method uses an ETF which holds nothing but U.S. dollars and with units that trade in Toronto in both U.S. and Canadian currency. It seems to trade in sufficient volume (in my experience) to insure that the prices are very close to the wholesale exchange rate and there is only a small and stable bid/ask spread.

In this option, I would effectively buy U.S. dollars in my Canadian investment account by buying DLR.u which was trading at $12.80 ask. To complete the transfer I would need to call TD Direct and have them journal the DLR over to the U.S. side of the account where I could sell at the $9.94 bid. There would be a fee of $43 for allowing me to move the DLR before the three day settlement date.

I could buy 781 DLR.U at a cost of Canadian $9996.80. Then once the 781 units were moved the U.S. side of my account, I could sell it for the $9.94 bid netting U.S. $7,763.14. The exchange rate would be $12.80/9.94 = 1.2877 or just 9 basis points over the wholesale rate or just 0.07% or $7.00 on $10,000. However the total fees for the transactions would be $53, for a total cost of $60 or 0.60% which compares to the 1.54% indicated in Option 1 above.

If I turned around and used the Norbert Gambit to return the $7763.14 U.S. dollars to the Canadian dollar account, I would buy 780 units of DLR.u at the $9.95 ask (I would have to leave $2.14 U.S. not transferred back since I could not buy a fractional unit.)  I would then have the 780 units of DLR immediately “journaled” to the Canadian side (For a fee of Canadian $43) and sell at the $12.79 bid netting $9,976. My net cost including fees for the round trip would be the currency loss of $21 (or 0.21%) plus total transaction fees of $106 less the value of $2.14 left on the U.S. side for a total cost of $125 or 1.25% for the round trip which compares to the 2.93% round trip cost noted above if I simply used TD’s self-serve currency transfer system. That’s a saving of $168 on a round trip with $10,000.

For a round trip with $50,000 the exchange rate loss would remain 0.21% (assuming that this volume would not affect the bid/ask on DLR and DLR.u) so $105. The transaction fees would remain at $106 for a total cost of $211 or 0.42% which compares to the 1.58% or $790 using TD Direct’s self-serve currency transfer feature.


There are a lot of numbers above, but the point is that by using the Norbert Gambit via DLR and DLR.u I could save about $168 in transferring $10,000 into the U.S. and then back again which provides the cost of a round trip assuming no change in the exchange rate. And, I could save $579 on a round trip with $50,000. Since in reality, I would not do a round trip on the same day, think of it as about $84 saved in each direction on $10,000 and about $290 saved in each direction when transferring $50,000.


  1. Consider learning and using this Norbert Gambitt for transferring between Canadian and U.S. dollar investment accounts. (This does not work with simple cash bank accounts since you can’t buy and sell DLR in bank accounts. Also it would not be cost effective for less than about $3500 due to the transaction fees). And be cautious because it is easy to get mixed up with the multiple steps of this trade.
  2. It seems to me that the fact that we can save substantial amounts through this somewhat awkward Norbert Gambit process and despite the transaction fees, is strong evidence that the discount brokers could do this at a far lower charge and that they are making huge profits on currency transfers simply because the customers are essentially captive and most are not going to go to the effort of using the Norbert Gambit. In theory you could do the transfer outside of your broker through a currency broker if it involves a margin account but that would be inconvient. And, you have no ability to go to a currency broker if the money is locked inside an RRSP or other registered account. The fact that the banks are making very high profits on some of their fees provides an opening for the newer online competitors. Eventually, competition should drive some of the higher fees down.











December 7, 2017 and BitCoin

On Thursday, the S&P 500 was up 0.3% and Toronto was up 0.7%.

Canadian Western Bank was up 3.3% to $37.12 after releasing a strong earnings report. This stock is now up 22% in 2017. It’s also up just over 50% since hitting lows under $25 in May. There were two full weeks where it could have been bought under $26. But it also remains a bit below its highs of around $42 from July 2014. Its earnings per share are similar to 2014 and book value is higher but its price as a multiple of those fundamentals (and particularly the price to book multiple) is lower than in 2014. CWB shows the book value at $24.82. This puts the price to book value ratio at 1.50. The ROE was 11% in fiscal 2017 and 12% in the last quarter. Paying 1.50 times book value to access a 12% ROE will work out well if that ROE can be maintained or increased. But I would not consider it to be a particularly compelling Buy. It seems unlikely that investors will push the price to book value ratio back up to the 2.0 range anytime soon. But the price to book ratio may increase somewhat and the book value seems reasonably sure to increase over time.

Dollarama was up 5.3% as it partially recovered from a recent little dip.

CRH Medical was up 8.6% in Toronto as it continues a recent modest recovery.

AutoCanada was up 1.9%. Then, after the close it announced some chances affecting nine dealerships that it has had a majority ownership in but where the AutoCanda founder was a part owner and the registered earlier of record. The founder is basically no longer associated with the company. (I am not sure about his ownership of shares as he has ceased to be an insider and but should probably assume that he may have sold). AutoCanada will now control five of the dealerships and the AutoCanada employee who is general manager of each dealership will be required to own a minority interest in the dealership. The percentage size of such ownership was not disclosed and will likely involve AutoCanada loaning these general managers money to make the purchase. The founder of AutoCanada will own four of these dealers through his private company CanadaOne Auto Group. AutoCanda is receiving $23 million as part of this deal.

I don’t know if this new arrangement is positive or negative but I suspect it will be viewed as somewhat positive because it cleans up the way these GM dealerships were held.

I do however view the exit of the founder last May as a negative. It seemed rather odd. The founder had ownership of car dealers both within AutoCanada and outside of it. That was somewhat messy and it may e for that reason that he excited.

BitCoin comment

This mania around BitCoin seems rather crazy. One of the big attractions of BitCoin was the idea that it is decentralized with sort of no one in charge and at least government not in charge. That idea is attractive to at least a fringe group of society. It seems a bit scary to think that view might be mainstream. Most people in the Western world have actually done pretty despite government control over currency and a lot more.

BitCoin and crypto currency is not simple to understand. I suspect that most buyers do not have a good understanding. I’ve spent years trying to understand regular dollar money and its creation and it susceptibility to value loss through inflation. I have gained some knowledge about dollar money but I would not claim to have a full understanding. Most experts and certainly many non-experts were certain that that the FED’s money printing via quantitative easing and the debt of the U.S. treasury was sure to lead to rampant inflation. That did not happen. At least not yet.  Certainly some people think it did already happen in terms of asset price inflation and that the government is hiding the true inflation. But I think the evidence is that inflation measured by the price of a representative basket of goods and services has in fact stayed low. If so many people failed to predict that inflation in dollar terms would remain low, I wonder how they think they can predict the value of a crypto currency.

I understand that Bitcoin’s reported price is determined by the average price across, I believe, five exchanges. There are some 16.5 million coins in existence and each coin or tiny fraction of a coin is owned by someone or other at all times. Lately, the total trading volume has been about 200,000 coins per day across at least 10 exchanges. That is a a dollar volume at $16,000 per coin of $3.2 billion. This means (as I understand it) that on recent days about $3.2 billion worth of bitcoin was purchased through the exchanges and this required $3.2 billion to be sold.

Given its spectacular rise, a lot of people are interested in buying BitCoin. And equally given it’s spectacular rise those who hold BitCoin are somewhat reluctant to sell. Buyers have had to bid the price up in order to pry some loose from those already holding.

Whether or not BitCoin continues to have value and ultimately becomes accepted as a currency remains to seen. For now, it has value because a lot of people want in on the action.

Those suggesting that people stay away from BitCoin have so far looked to be wrong. But truly it is an extremely speculative thing.

There is nothing wrong with risking a few dollars on BitCoin. But I don’t think it should be anymore than a tiny percentage of a portfolio nor anymore than a very modest quantum of dollars.

Personally, I am perfectly happy to sit this one out. In investing there will always be many winning investments that we “miss out” on. Even Warren Buffett, who has taken Berkshire’s per share book value from $19.46 in 1965 to $187,442 and still growing, is said to have “missed out” on a great many obvious investments for Berkshire. And, he admits it is true. But such “missing out” did not prevent his turning each $1,000 of book value into $9.6 million. (And in market value the gain has turned each $1000 of market value into about $20 million). I don’t buy lottery tickets and I won’t be buying BitCoin.

By the way, any claims that the value of a BitCoin should be something like all the wealth in the world divided by 21 million are utter nonsense. That equation also does not apply to dollars.

Laurentian Bank comment
I have never looked closely at Laurentian Bank. But my sense is that the recent dip caused by its disclosure of some falsifications by mortgage borrowers is probably over-done. I suspect every bank would have some mortgages where the borrower has inflated their income or not been truthful about the source of the down payment. It seems a bit much for anyone to be overly surprised about that. I’d be inclined to be a buyer of Laurentian more so than a seller. But I will refrain from buying given I have not done any analysis of the bank.



December 6, 2017

On Wednesday, the S&P 500 ended the day about unchanged while Toronto was down 0.1%.

Dollarama was down 2.1%, apparently due to lower-than-expected same-store sales figures and in spite of another large increase in earnings. Results compared to expectations often matter more than results compared to the prior year.

AutoCanada was down 2.5%.

TFI Industries was down 2.2%

CRH Medical was up 8.2% in Toronto. I have been watching for it to report any share buy backs under its Normal Course Issuer Bid announced on November 7th and which appeared to be allowed to commence on November 9 for certain purchases and November 20 for purchases under an automatic Plan portion of this issuer bid. I emailed the company to clarify whether the purchases had started November 9 and when they would be reported. They mentioned the November 20 data and indicated that part had to be reported ten days after the end of the month. So it seems we should know by Monday if they bought back any shares in November.

Canadian Western Bank will report earnings before the opening of trade tomorrow, Thursday. I expect a good report including probably some recovery on oil and gas loans previously written off. Their comments on outlook could be at least as important as the actual results as the market is always looking ahead. (Not so much, “What have you done for me lately”, as “What will you do for me tomorrow?”)


December 5, 2017

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

Toll Brothers was down 7.4% to $46.93 after releasing Q4 earnings and 2018 outlook that “missed analyst expectations”. At a quick look the Q4 results look pretty strong to me and I think it is the analysts and not the company who have some explaining to do. This stock has been volatile and could certainly go in either direction. But I think it still offers good value. The U.S. housing recovery appears to be still in progress.

Constellation Software was up 2.5%.

The Melcor REIT was down 3.1% to $8.55 after it issued units yesterday at $8.50. This one is certainly worth considering given its yield of 7.9%. The unit price is below book value due to concerns about the Alberta economy including the potential for vacancies in its rental spaces and possible loss of market value on its buildings. A 7.9% cash yield never comes without some level of risk, but this seems likely to work out well over time.

To the extent that “the market” even noticed Melcor Developments today it was unenthused by the sale of the 5 buildings to the REIT.  It is unclear to me if the buildings were sold below book carrying value or not. It appears they may have been transferred at $1.5 million below or around 2% below book, given that was the discount to appraised value as at September 30 and they may have been carried at that value. Furthermore, since the REIT is about 53% owned by Melcor Developments and is consolidated into Melcor Developments balance sheet, it might be the case that no loss or gain would be booked. But I suspect there would be as the buildings would now likely be carried at the purchase price rather than appraised value.

Bank Profits

I am currently taking a very close read of Royal Bank’s Q4 and fiscal 2017 results.

Even after many years of looking at bank balance sheets, I remain shocked by the level of leverage employed. And I am stunned by the level of profitability that Royal Bank has in personal and commercial banking which represents 50% of its total earnings.

Royal reports a return on equity on personal and commercial banking of 28.5%. And that is not due to anything unusual this year. The prior three years averaged a bit higher than that.

Part of the reason is extreme leverage. In this business segment, Royal has assets that are 21 times higher than the common equity that it attributes to this business. That means its equity ratio is just under 5% of assets. Now, on a risk-adjusted basis they would be leveraged “only” a bit under 10 times and have common equity somewhat over 10% of risk-adjusted assets. But 10% is still low for any industry except banking.

I just find it ironic indeed that banks and the whole financial and credit rating system would insist that most companies need common equity of more like 50% and so may leverage more like only two times, but banks can apparently safely leverage with risk-adjusted assets at 10 times common equity and actual assets at 20 times common equity.

Also a 28% ROE seems very attractive indeed. It raises the question of whether banking is susceptible to disruption and new entrants who would be satisfied with lower profits in relation to equity.

And the high leverage raises the question of whether this is really safe. Is a bank leveraged like this as safe as it thinks? Maybe so, given federal mortgage insurance. But the safety of Canadian banks would remain to be seen in the event of a truly deep recession or in the event that housing prices were to go into free-fall. (What has rocketed up, may not be expected to come down, but the possibility may be there). The ability of Canadians to pay their loans is one thing in an environment where new loans to make payments on old loans are very easily available. If the lending taps were to be turned off, that ability would be somewhat different. I am not predicting anything here, but this sort of scenario is perhaps not impossible.






December 4, 2017

On Monday, U.S. markets opened sharply higher reflecting the Senate approval of the income tax reduction plan over the weekend. The excitement died down by the end of the day and the S&P 500 was down 0.1% while Toronto was down 0.4%.

I reviewed my own cash position on the weekend and found I was at 23% cash. I’d like that to be a bit higher but it is always hard to decide what to sell. This morning Berkshire was up sharply and so I decided to sell half of my remaining small position. And Canadian Western Bank was up and I have heavy allocation to it and decided to sell a small portion of that. Most or all of my selling in the past few months was likely a case of selling too early as stocks have mostly continued to move higher. Nevertheless, I think the trimming was prudent. I am often adding to positions when stocks fall and it makes sense to do the opposite as those same stocks rise.

In today’s trading: FedEx was up 3.6%. Costco was up 2.4%, Bank of America was up 3.4%.

Visa was down 3.3%.

Berkshire’s A shares got as high as $299,000 per share today. These are the self-same shares that were trading under $20 as Warren Buffett took control of the company in 1965. His average cost was $14.86 per share. The earliest price shown on Yahoo Finance for these shares is $380 in March 1980.

The U.S. markets seem to be pricing in a lot of optimism. Stocks can likely stay high and go higher as long as basically all the big news breaks to the positive. That is the income tax reduction gets passed into law, the spending bill gets passed to prevent the government shutdown, Trump does not get charged or impeached anytime soon and there is no other major bad news.

December 4, 2017 Comment on Melcor

Melcor Developments has announced it is selling 5 commercial rental properties to the Melcor REIT for $80.9 million. The properties are fully leased and are mostly retail but one of the properties is Industrial.

There was no disclosure by Melcor Developments of whether there was any gain or loss on the transfer. Since these properties were already marked to market, I would normally expect there was little or no gain or loss except possibly a small loss due to the transaction costs. But I see that the Melcor REIT disclosed it is buying the properties at a $1.5 million discount to appraised value. This would seem to imply a loss for Melcor Developments unless the properties were on the books for less than book value.

Melcor management indicated that the proceeds could be invested in new projects or raw land.

There was no mention of any of the money going to dividends or share buy backs.

The REIT will issue shares (units) and debt to pay for these assets and the share unit issue will reduce Melcor’s ownership from 56.7% to 53.6%.

For Melcor Developments $80.9 million represents 21% of the investment properties that Melcor owns that were not already part of the REIT.

Overall, there may be little reason for the moribund share price to react to this news.

Melcor REIT

The REIT is issuing $15 million in new units at $8.50 (approximately a 6.7% increase to the unit count) and $20 million in convertible debt paying 5.25%.

These new issues seem attractive as investments and the new issues both sold out quickly.

$2.5 million off the purchase price is paid by issuing a form of REIT units to Melcor. So it seems Melcor is not getting $80.9 million in cash. The external cash coming into Melcor appears to be $35 million.

There is also some debt on the properties which the REIT is taking over.

This transaction is probably moderately positive for the REIT’s unit price since it constitutes growth for the REIT.


The transaction and its impact is certainly not entirely clear to me. It’s all a bit confusing when a building is sold to an entity 53% owned by the seller. This transaction is in keeping with why the Melcor REIT was established.


December 1, 2017

What, me worry? (said the market)

On Friday, the S&P 500 ended the day down 0.2%. But at one point in the day it was very briefly down 1.5% probably due to Flynn’s guilty plea. Toronto also ended the day down 0.2%.

Linamar was down 3.0% and Dollarama was down 2.2%. Stantec was down 1.6%, Visa was down 1.7%, Toll Brothers was down 1.3%.

The Canadian dollar surged 1.8% after Statistics Canada reported (actually estimated) that the Canadian economy added (a statistically estimated) 80,000 jobs in November and that the national unemployment rate fell sharply to 5.9% from 6.3%. (Take that, doomers!)

The U.S. stock markets largely shrugged off Michael Flynn’s guilty plea and the implications thereof and continued to focus on the Senate passing the income tax reduction bill. That bill looked set to pass the Senate Friday evening but there would be a next step where the House and Senate bills have to be reconciled and (I believe) the reconciled version passed by both the House and Senate.

Perhaps by Monday the market will be focusing on the implications of Flynn’s plea and who he has now (quite rightly) tattled on. I tend to think this is truly the beginning of the end for Trump. At very least there would seem to be justification for charges of obstruction of justice in regards to Trump’s efforts to halt the investigation of Flynn. And despite the gravity of the situation, I think the Special Prosecutor would proceed because: 1. It is his job and 2. He would likely (wrongly or rightly) view it as doing a huge favor to America and the world. Any charging, impeachment or resignation of Trump is going to be a scary time. I would expect his supporters to riot in the streets – and for him to encourage that.

I did go ahead and sell half of my relatively small American Express and Costco positions this morning. I also then sold what amounted to just over half of my relatively small remaining position in Bank of America. All of these sales were in registered accounts where I don’t have to worry about paying tax or even reporting the transaction.


November 30, 2017

As November came to a close, the good times continued in the markets.

The S&P 500 was up 0.8% and the DOW surged 1.4% and Toronto was up 0.6%.

This came as it appears more certain that the Senate will pass the corporate income tax reduction bill in the U.S.

CN Rail was up 2.6%

Canadian Western Bank was up 2.3%.

Even Melcor came to life and rose 3.4%.

FedEx was up 2.4%.

Costco rose a hefty 3.9% after reporting blow-out same-store sales growth for November.

AutoCanada was up 4.0%.

Dollarama was down 2.1%.

Perhaps I am being too cautious, but for my own situation I am inclined to continue to think about trimming some positions. I’m up 20% on a small Costco position as well as 20% on a small American Express position both in a registered account. I may sell half of each.



Bombardier comment November 30, 2017

There are some things to like about Bombardier as a company. It makes great and exciting products. (Top of the line business jets, great commercial jets including the new C Series, fast trains and subway cars). The company employs many thousands of people and contributes greatly to the economy of Canada and some other countries and helps meet the transportation needs of the world.

I’d love to be able to say the stock is a good investment. Unfortunately, I can’t say that. It actually has a book value of NEGATIVE $2.71 per share. Now, that is a red flag but not necessarily a deal breaker at all. For example, Dollarama is so profitable that it is now financed entirely with debt and has a negative book value per share. But Bombardier is barely bringing in enough EBITDA to just pay its interest costs. Adjusted EBITDA of $689 million through Q3 2017 and finance (interest) expenses of $507 million. The company shows an adjusted  EBIT coverage ratio of 1.1. Normally anything under about 2.0 is considered unhealthy, I believe.

With these weak numbers it seems to me that a debt restructuring could occur. That would involve wiping out the common and preferred shares. Maybe the government would never let that happen and maybe pending improvements in profits and cash flows mean it will never happen. But maybe it could happen. I think governments would be want to protect jobs. But why should they want to protect equity investors?

The company has at times talked about wanting to achieve an EBIT margin of around 8.0%. From rough calculations it appears to me that close to half of that would go to interest costs leaving pre-tax earnings at 4% of revenue (and this is just an aspiration, what they HOPE to do). It just looks inadequate to me.

Based on its numbers I would have to continue to rate the shares as a Sell. And even the preferred shares I am now thinking should be rated a Sell given the weak balance sheet. But I am not very much inclined to update the reports and update the rating on these shares. Instead, I am inclinded to remove these investments from our list. The common shares (A and B) trade at low prices and any improvement in outlook could send the shares higher. This makes it very hard to predict which direction the shares will move in the next year. Maybe I am giving up on Bombardier just when things are looking better. But there is just nothing in the numbers that would give me much faith.

I have also long been bothered by what looks to me like poor disclosure. Over the years their reports hardly mention government assistance. How can that be? When they announce a new plane order it is always at “list price”. It turns out list prices seem to be grossly exaggerated compared to the actual prices. How is that honest reporting? Then they seem to deny that the C Series plane order from Delta Airlines was “dumping”. But they booked an “Onerous Contract” charge on that sale. (I had never before heard of a company making a sale and then immediately booking a huge loss on the sale). In my view, the company has not been honest with even itself for years.

Consider Bombardier’s Debt:

They just successfully raised one billion dollars of seven year debt at 7.5%. That is actually impressive, I suppose. But I find it strange that $600 million of this will be used to pay off lower interest 4.75% debt due 2019. Why pay off 4.75% debt with 7.5% borrowing? I think they have done this before and it may be they don’t want the risk of being UNABLE to raise debt in 2019.

What of these 7.5% bonds though? Are they worth the risk? Bombardier has a a credit rating of B minus from Standard and Poors which means “faces major uncertainties” but it is above the CCC rating which means “currently vulnerable”.

I don’t think I would risk buying these bonds. 7.5% is a very good return if it comes to pass and the bonds mature as scheduled in seven years. But I think it comes with a non-zero risk that this company could be forced to restructure at some point. (In which case  these bonds would likely take a permanent loss.) I think I would prefer a more certain 4 or 5% to this potentially risky 7.5%.

Here is something interesting from Bombardier’s latest report:

In Q3 they delivered 16 commercial planes (7 Q400, 4CRJ regional jets and 5 of the new CS300, the 150 seaters). Revenue was $525 million so $33 million per plane (and that assumes none of the revenue came from spares or anything other than plane deliverys). And they delivered 31 business jets (4 Learjets, 18 Challenger jets, and 9 Global jets). Revenue for business jets was $1095 million. So this appears to be $35 million per plane. I am shocked to see that business jets sell for more than commercial jets even with 5 150 seaters in the commercial figure. Commercial jets are being sold at a loss. Hopefully, Air Canada and Delta and Swiss Air and the others will send nice thank you cards to Bombardier for selling them planes below cost.



November 29, 2017

Never a dull moment… Wednesday was another interesting day in the markets. The S&P 500 was about unchanged and Toronto was down 0.4%. But there were certainly some stocks with bigger moves.

FedEx was up 3.4%. Costco was up 2.2%. Wells Fargo and Bank of America were each up over 2%.

Visa was down 3.1% and Constellation Software was down 3.1% and Amazon was down 2.7%.

Toll Brothers was up 1.2% and has finally gotten back over the $50 level for the first time since it briefly got that high in a needle peak back in 2005. With new home construction in the U.S. at the highest level since the financial crisis and with home prices rising, and given general optimism, Toll Brothers could certainly continue to rise. Still, with over 10% of my portfolio in this company, I decided to trim my position modestly today.


ATTENTION budding stock analysts:

If there is anyone living close to St. Albert who is interested in learning more about value investing analysis and perhaps even doing some analysis for InvestorsFriend, I would be interested in hearing from you at You would need to have relevant financial / accounting education and ideally already have some knowledge of investment analysis. Unfortunately, I need to restrict this to someone living nearby.


On November 26 I emailed an article about the valuation of the S&P 500 to those on the list for my free newsletter. Today, I sent my thoughts about Bitcoin. If you did not receive those click the “Free Newsletter” menu item at the top of this page and enter your email address on the list. The system will indicate if your email is already on the list.


I was checking fees to transfer money from Canadian dollars to U.S. dollars today. I have no plans to transfer money but was just interested in the fees. Here is what I found:

TD Direct would charge me 1.54% to transfer $10,000 Canadian. So about $154.

Alternatively, I could use the Norbert Gambit buying 782 DLR.u at the $12.78 ask price for Canadian $9,994 and then having that journaled to the U.S. side of my account and selling at the $9.94 bid. This would yield U.S. $7,773. That would actually be (strangely enough) only $2 less than the wholesale exchange rate that Yahoo was showing at that time. There would be a $10 fee to buy the DLR.u and a $43 fee for selling the DLR early before the settlement date. And the $43 might be in U.S. dollars. So, it would appear that the cost here would be just under $70 or 70 basis points and considerably cheaper than just doing the regular transfer described above,

Another option (not applicable to registered accounts) would be to go through a currency exchange firm. I used Knightsbridge foreign exchange inc. recently to make a payment in Australian dollars.  For $10,000 Canadian going to U.S. dollars, Knightsbridge quoted me a rate that worked out to a fee of $47 U.S. or about Canadian $61 so 61 basis points. I would have to wire the money to Knightsbridge which would cost me $30 and a trip to the bank branch. So this would be cheaper than straight TD online transfer but is a lot more inconvenient.

It appears to me that the Norbert Gambit with DLR.u and DLR is very cost effective. The precise cost could vary depending on the bid/ask spread on these units but in general this looks like a good approach. Due to trade fees this probably only makes sense for transfers of more than about $5000.

The Knightsbridge approach might be best when transferring money that is not in an investment account and so where DLR can not be used. Also I will use Knightsbridge again when making any large payments in Australian dollars.



November 28, 2017

Well then, Party On!

On Tuesday, the S&P 500 was up 1.0% and the Down Jones Industrial Average was up an attention-grabbing 255 points or 1.1%. The jump was fueled by optimism that the corporate income tax reduction bill is closer to getting passed. A version of the bill passed a Committee vote and will be debated I believe tomorrow by the full Senate.

I wonder though how many times the market can rise on the same news?

As an investor I suppose I should cheer for a corporate income tax cut. But I look at the fact that the after-tax earnings on the S&P 500 are up 20% in the last year on a GAAP basis and 17% on an operating basis – to, by far, new record highs. And I look at investors happily paying 24 times trailing GAAP after-tax earnings for the S&P 500 and I wonder how that indicates that American businesses are suffering under the current 35% income tax.

Sorry, but I have never been in the “any-tax-cut-is-a-good-tax-cut” camp.

If the tax cuts do come they will also benefit those many Canadian companies that earn a lot of their revenues in the U.S. These include Couche-Tard, Stantec, CN Rail, Fortis Inc., Royal Bank, CRH Medical, and Constellation Software as well as many companies not our list. CN rail in particular would likely get a large one-time gain due to a lower liability for its deferred income taxes.

Meanwhile as markets cheered the progress on the tax cut legislation, the North Korean Intercontinental Ballistic Missile test was ignored as was a looming possibility of a U.S. government “shut-down” that could apparently happen on December 8th if certain spending bills are not agreed to by then.

So, it is party on as investors keep dancing as the music keeps playing or something like that. The CEO of Citigroup in August 2007 prior to the financial crisis, in the midst of warnings about loose lending, famously said that one had to keep dancing as long as the music played even as he admitted that the then party would end at some point. It soon did.

Now, 2017 is not 2007 and there is nothing equivalent to the sub-prime lending crisis threatening the U.S. markets at this time. But there is the prospect of higher interest rates which will be a negative at some point. There is the potential for increased tensions with North Korea. There is the fact that U.S. protectionist policies could harm the U.S. economy at some point. Still, U.S. markets could certainly keep going up. And as Buffett would say, the S&P 500 is almost certain to be higher a couple of decades from now and probably substantially higher. But even so, there will be a decline in the market at some point. When that happens investors with some cash on hand may find some bargains.

In today’s market most of the U.S. stocks on our list were up.

Toronto missed the party and was down 0.1%. Stantec was down 2.1%.

Meanwhile, the Alberta government upgraded its economic outlook and estimates that Alberta’s GDP will have grown 4.0% in 2017 when the final numbers have been tallied.




Amazon is updated November 27, 2017 (Is it the only company left that actually has dot com in its official name? There used a bunch of them.) is updated and rated Sell at $1,196.

I can’t deny that my rating performance on this stock has been very poor. I first added it to the site on July 4, 2015 rated Sell at $438. Prior to today, my last update was Sell at $1004 on June 24 this year. In fairness, the reports I post consist of a lot more than the final rating and in that June 24 report there was certainly a lot of information and the concluding sentence in the rating cell was “Nevertheless, the shares could certainly continue to rise and some may wish to hold it but should be aware that its earnings need to grow massively to justify the stock price.”

I continue to look at Amazon to try to understand what I am missing. The stock is currently trading at 305 times trailing year GAAP earnings. That presents something of a mystery.

Several possibilities come to mind as follows:

  1. The stock is way over-valued, or
  2. GAAP earnings are going to increase at huge rates like 50 or 100% for quite a few years, or
  3. GAAP earnings vastly understate the “true” economic earnings of the company at this time, or
  4. Some combination of the above.

Looking at its income statement, I think a good case can be made that GAAP earnings are way understating the “true” earnings due to excessively conservative accounting (which most likely is required by accounting regulations). There is a large expense for “Technology and content”. The company explains that “Technology costs consist principally of research and development activities…”  Research and development will probably benefit many future years and is therefore in substance creating an asset. To the extent that some of this large technology and content expense is actually going to benefit future years, current earnings are under-stated. Similarly Amazon spends a lot of money on Marketing and some of that will surely benefit future years. The difficulty is that I have no way to guess how much of this expense should perhaps be added back to calculate an adjusted earnings.

Amazon itself likes to focus on various measures of free cash flow. Amazon is unusual in that it collects payment from customers before it has to pay its supplies. It also collects PRIME and Amazon Web Services revenue upfront. Most companies must invest in working capital as sales grow. Amazon instead finds that its cash balances grow with increasing sales even if the sales are done at break even. This creates a sort of “float” similar in some ways to Berkshire Hathaway’s float and to deferred income taxes. It’s a liability but it keeps growing over time. The question arises as to whether at least some of this component of operating cash flow is akin to earnings and should be added back in calculating an adjusted earnings.

In any case Amazon is trading at 73 times free cash flow so even if that were considered earnings the stock would be expensive.

One of the mysteries of Amazon is how does it finance its huge balance sheet growth?

Assets have grown by $51 billion from $64 billion at thne end of 2015 to $115 billion at Q3 2017. That required $51 billion of additional liabilities or equity. Only $4.2 billion came from added retained earnings. $6.8 billion came from issuing shares in “the issuance of employee benefit plan stock” (Which was not for cash but which allows for an expense to be paid without cash) and through the exercise of stock options and to a small extent by paying for some acquisitions with shares. I don’t think there has been any public offering of the shares in at least ten years. So, Amazon has not been issuing shares to the public but stock issued to the employee benefit plan exercises and or acquisitions paid in shares did finance a material portion of the growth. Debt is up by $16 billion and all of that increase came in 2017 with the Whole Foods acquisition. So, with the exception of the whole foods acquisition Amazon has not recently been financing growth by issuing debt. Accounts Payables are up by $5.7 billion and that financed most but not all of the growth in receivables and inventory. Accrued expenses are up by $5.5 billion. Unearned revenue is up by 2.0 billion (PRIME and Amazon Web Services upfront payments from customers). Other long-term liabilities, which consist mostly of lease obligations are up $9.6 billion.  I am not sure if I have solved the mystery here but Amazon is growing its sales faster than its assets and, despite relatively low GAAP profits, it has been able to finance the asset growth through operating liabilities and by issuing shares for a material component of compensation and without adding to debt (until the acquisition of Whole Foods).


The bottom line is that Amazon does look over-valued in relation to earnings and I don’t think any view of adjusted earnings that I could come up with would change that.

However a strategy of refusing to buy the shares on that basis has resulted in a missed opportunity here. A simply strategy of buying Amazon based on sales growth and share price momentum has done very well. The fact is that a value-oriented investing strategy will always tend to “miss” many stocks. But a value-oriented strategy may still still be superior in the long term. At some point, fear will return to the markets and a stock like Amazon could be vulnerable. Time will tell.






November 26, 2017

On Friday, the S&P 500 and the Toronto stock index were each up 0.2%.

The Boston Pizza Royalties Income Fund units were up 1.6% to $22.48. These units should be a good investment for the 6.5% yield. The price does fluctuate and the units have been a very good investment when bought on larger dips. There is some danger that the price could fall as interest rates rise. But growth in distributions per unit will likely cause the units to maintain or increase in value over the years. But that does not mean the price can’t fall temporarily.

Constellation Software was up 1.9%.

The Competitive landscape for Liquor Stores versus Dollar Stores:

Liquor Stores N.A. which is no longer on our list but which I continue to follow to some extent was up 1.1% to $10.06. I lost faith in this company some time ago and the fact that it is under new management does not change my view. I think they simply face a very tough competitive landscape.

Consider the competitive landscape that this liquor store chain faces. It’s the largest chain in Alberta but still only owns about 13% of the total stores (at my last check). Imagine if you wanted to get into business and compete against them. As a small one-location store you would have no trouble getting wholesale supply at exactly the same prices as this big chain. And it is no secret where to find that wholesale supply. I believe every liquor store in Alberta buys essentially everything (there may a few exceptions for certain specialty wine stores) from the provincial liquor wholesaler and I don’t believe there are any volume discounts at all. If you opened a store in a good location there would be no real issue with trying to establish a brand name or following. It would be obvious what you were selling and a convenient location would attract a certain amount of local traffic. You would be at a disadvantage in terms of scale for advertising. But you might choose not to advertise. Despite its larger scale, Liquor Stores N.A. has not been able to build up any big reputation for low prices – probably because they don’t have costs that are much lower than even a one-location store. The point is that you would not be at any insurmountable disadvantage. This is is proven by the fact that there are many one-location liquor stores operating in Alberta. Given competition, it may not be a very lucrative business, but the mom-and-pop stores do seem to survive.

Contrast that with what would happen if you thought about opening a one-location dollar store in competition with Dollarama. I don’t know where you would go to purchase your goods at wholesale. But I guarantee that you would not have access to the same low prices and the same store-brand proprietary merchandise that Dollarama sources (which is mostly in China). Even if you had a great location, it would not be obvious to customers exactly what you might be stocking. I suspect you would have  a hard time drawing in customers. Even the smaller dollar store chains, which include the Great Canadian Dollar store and Buck or Two Plus!, I suspect cannot access the same low-cost products as Dollarama. Certainly, unlike in the case of liquor, there is no requirement for Dollarama’s suppliers to sell to other dollar stores. The names of Dollarama’s specific Chinese suppliers are basically valuable trade secrets. Dollarama has built up a huge amount of brand awareness which is very difficult to compete against. The point is that Dollarama has established itself in a manner that is extremely difficult to compete against. I don’t think a one-location dollar store could easily survive. Only large chains would have much chance of competing successfully against Dollarama. Dollarama gets a huge advantage from being by far the largest of the dollar store chains and from the proprietary sourcing knowledge and relations that it has built up. In the liquor store business the fact that everyone must purchase from the same provincial wholesaler at the same price eliminates much of the advantage of scale.

Dollarama updated November 25, 2017

Dollarama is updated and rated (lower) Sell at $162.03. For a number of years I have described Dollarama as a great company and one of the best managed companies in Canada. But it has always seemed expensive and I believe the highest I have rated it is (lower) Buy. In 2017 it is up another 65%. Despite all its great characteristics the current P/E of 39 seems very high and may be pricing in too much future growth.

It will report its Q3 earnings on December 6th. That may be another strong quarter possibly boosted by the fact that it began accepting credit cards in all stores as of May 1.  Starting in January, it will face a significant boost in wages due to higher minimum wages in Ontario. That could slow growth. And overall, it could struggle to continue to show same store sales growth in the range of 6% quarter after quarter.

If I had a large position in this stock, I would at least trim the position. I do not own any shares.

November 23, 2017

On Thursday, U.S. markets were closed for Thanksgiving while Toronto was unchanged for the day.

There was no movement of note in any of the stocks on our list.

Oil rose a bit more and is at $58.37. That’s good except that part of the reason for the increase is the fact that the part of the Keystone pipeline that is operational is shut down due to a leak which lowered oil supply in the U.S. and caused the price to increase somewhat. So, that could be quite temporary.

November 22, 2017

On Wednesday, the S&P 500 was down 0.1% while Toronto was about unchanged.

Canadian Western Bank was up 1.7% to $36.73. This bank is benefiting from the strong recovery in Alberta. The recession in Alberta bottomed out around November of 2016. While the economy has not fully recovered, there has been a substantial recovery.

Oil jumped 2.2% today to $58.06. The Conference Board of Canada in a new report estimates that Alberta’s GDP growth for 2017 will come in at 6.7%! The Alberta Treasury Branch economists put the estimate lower but still strong at 4%.  Statistics Canada recently reported that the investment in single family housing in Alberta in September had risen 35% year over year although it was still down 23% from the September 2014 level.

With the continued recovery in Alberta and particularly with the market and pricing for new single family houses apparently doing well, I would expect Melcor’s share price to eventually react positively. AutoCanada has also been benefiting from the recovery.

The Alberta government has an “economic dashboard” web site. Clicking there you can see that most of the indicators that they are tracking are green which indicates improvement. I have also noticed that the government employee(s) responsible for this site seem to update it immediately when new data becomes available. Government workers are often maligned but I think they deserve credit in this case.


November 21, 2017

Markets were up “bigly” on Tuesday with the S&P 500 up 0.65% and Toronto up 0.45%.

There appears to be a lot of optimism in U.S. markets based on recent earnings growth and projections for continued robust earnings growth. GAAP earnings on the S&P 500 are up 20% in past 12 months and are projected to rise another 20% in the next 12 months. Analysts tend to focus on operating earnings which eliminate certain unusual items and those are up 17% in the past 12 months and are projected to rise another 18% in the next 12 months. That is a lot of optimism given that earnings a year ago were not in any kind of trough. If the projected earnings increase in the next year occurs it would put the S&P 500 earnings well above the trend line of growth. That could occur but I would not count on it. This kind of earnings growth would put the lie to the notion that large companies face stiff competition.

Toll Brothers was up 2.0% to $47.95. This is a record high other than the needle peak of just over $50 reached in 2005. After 2005, Toll Brothers plunged with the financial crisis and bottomed out under $15 in September 2011.

For Toll Brothers to be at a record high is not necessarily anything to brag about or to worry about. This is a company that until recently retained all of its earnings for growth and as of now pays out a dividend that only amounts to 11% of earnings. Any profitable company that retains a large portion of its earnings should naturally be expected to have a rising share price over the years just as a bank account will grow if interest remains in the account to compound.

Dollarama was up another 3.3%. It’s a great company but is too expensive for my tastes.

Linamar was up 2.6%. I added 30% to my position in this stock today.


Linamar update November 21, 2017

The report for Linamar is updated and rated Strong Buy at $68.50. The price has declined from about the $80 range after the release of Q3 earnings. Earnings per share were down 12% in Q3 whiles revenues per share were up 6%. The company indicated that earnings per share were actually up 9% on an adjusted basis but was not able to fully explain the source of the adjustments because part of it came from a boost to the prior year earnings related to a confidential payment from a customer to be released from a contract. Some of the adjustment related to variations in foreign exchange.

Overall the company appears cheap at 8.5 times earnings and they project double digit growth for 2018. However the market may perceive bigger risks from a NAFTA termination and in general is unwilling to pay a higher multiple for a company viewed as cyclic and with auto sales possibly at a cyclic high.

While, there are always risks, the company appears to merit a Strong Buy rating based on its numbers. As always there are many details in the report and subscribers are encouraged to consider the full report and not just the rating. I plan to add somewhat to my position today.


November 20, 2017

On Monday, the S&P 500 was up 0.1% while Toronto was about unchanged.

Home Capital was up another 7.0%.

Melcor was down 1.6% to $14.70. It is possible that there is some tax loss selling involved. With the shares trading right around half of book value it can be argued that the market feels that this company is worth significantly more dead (liquidated) than alive. It is disappointing that management does not see fit to buy back even a token number of shares. They recently added to land holdings so that would suggest that they could have spared some cash for buy backs. This stock has required a lot of patience. If the Alberta economy and oil prices continue to improve then that should pull the share price up. We won’t get another earnings / sales report until March. Meanwhile the dividend yield is good at 3.5%.

Shortly I will post an update for Linamar which appears to be undervalued after its recent decline.

November 18, 2017 (with comments on fixed income investments)

On Friday, the S&P 500 was down 0.3% while Toronto was up 0.4% Oil prices rose and West Texas Intermediate is at $56.68.

TFI Industries was up 1.4%.

Home Capital was up 3.8% to $15.67. It’s not on our list but I bought a small amount as mentioned on August 24 and I commented on the company on September 3 and September 11. Some analysts and observers thought that Buffett was crazy to invest in Home Capital. He paid $9.55 per share striking a deal when the shares were lower than that and the company was in extremely serious trouble. Buffett’s shares were purchased directly from the company and not other investors and so shored up Home Capital’s balance sheet and his seal of approval restored confidence in Home Capital. Confidence is something that deposit taking institutions absolutely must have. I have a theory that Buffett did this deal, very small by his standards, just to show people that he still has the skills and energy to do things like this.

Walmart was down 2.2%. Its 11% surge on Thursday may not have been justified. On an adjusted basis its earnings per share in the quarter were up only 2%. Its projected earnings per share for the full year that will end in January appear to be just 2% higher than the prior year. It is trading at about 22 times those adjusted earnings. Walmart is a great company but it has been growing earnings only very slowly in recent years. The main cause of the share price increase is likely the 50% rise in online sales that it reported. That is very impressive but online sales remains a very small proportion of total revenues. Also it was not clear how much of the 50% was due to the acquisition of that Walmart made last September. If a good part of it was due to that acquisition then it would seem that we could not expect a 50% gain next quarter since the prior year comparable quarter would then already include

A comment on Fixed Income

I was thinking this morning about whether there might be opportunities in corporate bonds. I would only be interested in relatively short term bonds such as up to about 5 years since I would not want to take the interest rate risk that is inherent in longer bonds. I thought maybe a company like Enbridge might offer an attractive yield because it has been viewed as having some weakness.

Looking on TD Direct at bonds up to five years duration, nothing seems attractive to me. There are very few that yield as much as 2.0%. One of the highest is a FairFax bond that has a yield to maturity of 2.62% and matures in June 2020 (so 31 months). The return is perhaps acceptable but is not overly compelling. If you had to sell the bond early it appears that you would lose 1.1% on the bid/ask spread in selling it back to the bank.

TD Direct also lists some high-yield bonds. Some of these are from riskier companies including Bombardier and Sherritt International. One that looked interesting to me was a Parkland Fuel Corp bond due just short of 7 years that yields 5.2%, or if called early in 5 years yields 5.0%.

In general most investors looking for fixed income might be better off to look at ETFs which offer diversification and probably lower bid/ask spreads. Our ETF list includes some fixed income ETFS, but admittedly there is not much yield to be had in the shorter term ETFs. The ishares 1- 5 years laddered corporate bond index ETF, symbol CBO is yielding about 2.3% (to maturity of the bonds held) and has a management expense ratio of just 0.11% for a net return of about 2.2%.

With these low yields, I don’t hold any fixed income as such and instead am content to hold some cash on which I can earn 0.95% in the “high yield” bank deposit offering of my brokerage account. I like having these funds instantly available for other investments. If I wanted to hold a higher level of cash/fixed income such as 40%, I might consider putting some of it into fixed income rather than cash.

Guaranteed investment Certificates could be considered rather than short-term bonds. TD Direct offers 1.8% on a TD 5 year GIC. But they also currently offer, for example, 2.71% on a Canadian Western Bank 5 year GIC or 2.70% from Laurentian Bank. Not only are these almost certainly safe issuers, these investments are covered by government deposit guarantees up to $100,000 per investment account. No doubt there are higher yielding GICs in the market but you will not typically find those available from a bank discount broker such as TD Direct. Keep in mind that these GICs would not be cashable before maturity.

It’s tempting to consider preferred shares or other higher dividend investments as a substitute for low-yielding bonds or GICs. If doing so be aware that those have no maturity date on which they would return the principal. The market price of these investments can decline below what you pay for them and stay down. The same criticism has been levied against fixed income ETFs. However, the fixed income ETFs are considered fixed income since they hold investments that do mature. Arguably this is not much different than an investor holding a portfolio of individual fixed income investments that mature, but not on the same date.

Fixed income distributions are taxed at the full marginal rate and therefore it is best to hold these in non-taxable accounts.




November 16, 2017

On Thursday, the S&P 500 rose 0.8% as the House of representatives passed a proposed income tax reduction bill. The Senate republicans hope to pass their different version of the bill in the next couple of weeks. If that occurs the two bills would need to be reconciled into one final version and passed by both the Senate and the House, as I understand it. It’s not a done deal yet.

Meanwhile, Toronto was up 0.4%.

Walmart was a huge winner up 10.9% to $99.62 after releasing Q3 earnings. The improved earnings and outlook has surprised the market. The Walton family still owns about half of the shares and they saw a gain in their wealth of around $16 billion today. 10.9% produces a really big gain when it is applied to something in the order of $155 billion. The Walton’s collectively are easily America’s richest family. The big excitement today was driven by online sales being up about 50%, store traffic being up 1.5% and same-store sales up 2.7%. It remains to be seen if this big share price jump will sustained.

CRH Medical finished the say up 11.2%. The company indicated to me that it has not yet bought back any shares. Ceapro finished the day up 5.4%.

TFI Industries (formerly TransForce) was up 2.8%. Dollarama was up another 2.5%.

Overall, it was a very strong day for the markets.



Visa Inc. Updated November 16, 2017

Visa Inc. is updated and rated Weak Buy / Hold at $111.25. The previous rating was Buy at $78.02 on January 1 of this year. It’s up about 43% since then. The gains were very steady all year. It remains a power house of course. But at 32 times trailing earnings it is expensive.

I have only a small position in it. I considered trimming my position today but decided that given the small size of the investment I would let it ride for now.

November 16, 2017 11:00 am Eastern, (9:00 am Mountain)

I notice that Ceapro released Q3 earnings yesterday morning before the open, The report has positives and negatives. Moderately higher sales but significantly lower profit. But keep in mind that when profits are low, the percentage swings can easily be large. The company reports some progress on its research efforts but there are no real break throughs. Recently it seemed to me that the company was focusing more on its research efforts and vieed its actual sales in the cosmetics business to be the source of funds for research and not the real driver of profit. Now it seems to be focusing more attention on the cosmetics business. It recently announced an acquisition. I view Ceapro’s research efforts as a sort of lottery ticket. It could pay off nicely but it might just turn out to be a waste of money. But meanwhile the base cosmetics business may be enough to justify the current share price. Ceapro is a penny stock and a speculative pick. Not a stock that I would put serious money into but one where I am content to have a small exposure.

CRH Medical is up 10% this morning. Hopefully we have seen the bottom for this one. It’s going to be well into 2018 before we can see its profit levels under the new lower fee structure.

P.S. 11:30 eastern

There is a vote on the income tax changes in the U.S. Senate today which may be why the market is up. Much of the upside for the hoped for corporate tax reductions must already be “priced in” – if so, we could see market declines if the tax bill does not get passed. And it is going to be tough to get it passed.


November 15, 2017

On Wednesday, the S&P 500 was down 0.6% and Toronto was down 0.2%.

Recent experience notwithstanding, the S&P 500 index does decline sometimes. Warren Buffett suggests that most Americans simply invest in the S&P 500 index and they will do well. But he means will do well over a lifetime of investing. He has said many times that markets can fall in the short term and that he has no ability to predict when or by how much and he very much doubts anyone else has that ability either.

CRH Medical bounced up about 12% today. The company has not yet reported any recent buybacks or insider buying despite the lower share price. It’s possible that insiders are precluded from buying due to their knowledge on non-public information – for example if an acquisition is in the works. Or maybe they simply lack the courage to act on their apparent view that the stock is under valued.

Canadian Western Bank was up 2.2% today.

FedEx was down 2.5% today.

I did end up trimming my Toll Brothers position somewhat today. It remains one of my larger positions. I sold in an RESP account where I had gains of over 80% some of which likely came from the currency change.

AutoCanda was down 2.3%. Statistics Canada reported new vehicle sales for September. sales had risen in the country overall as well as in Alberta. AutoCanada has already reported Q3 which included September so perhaps this report reveals little. But it still shows positive momentum going into October.

I listened to Donald Trump’s speech today about convincing all countries to put pressure (through trade sanctions) on North Korea and about doing Fair trade deals as opposed to just free trade deals. This was a good speech that will definitely play well with his supporters. And even those against Trump will have a hard time arguing against what he said today.

Trump’s views implicitly assume that Americans (or the citizens and businesses of any nation) are basically part of a giant “team”, where America wins or loses as a Nation. That’s an attractive notion but it may not be very true. In reality the people and businesses of a nation compete a lot with each other and do not win or lose as a collective team. Imports from China certainly hurt some businesses and cost some jobs. But those cheap goods also benefit millions of Americans. Economic theory suggests that free trade tends to have more benefits than costs. And there is absolutely no requirement to have balanced trade with each and every nation. Certainly, the overall trade deficit of the U.S. is a problem, but it probably makes no sense to think that there should be a balance with each country – even if that sounds logical.

As for Canada, I think Trump’s stance against NAFTA is a problem and is a risk for Canadian exporters and their employees. It depends how negotiations eventually play out.


November 14, 2017

Tuesday’s markets saw the S&P 500 down 0.2% and Toronto down 0.7% (as commodity prices fell).

Toll Brothers was up 2.2% to $47.05. It’s now up 52% this year to date. Our last rating was (higher) Buy at $42.81 on October 9th. The 10% price increase since then would likely be enough to reduce the rating to Buy or (lower) Buy if the report were to be updated.

Whether someone already holding this stock should add, hold or trim depends on more than just the rating. Such a decision would be influenced by the size of the position. I have a large position and would not consider adding more at this time. I trimmed this position to raise cash on October 17 at $43.10 which it seems fair to say was a prudent move but could now be viewed as a mistake. With a large position I think it is prudent for me to trim it somewhat and I may do so tomorrow. I hold some in RRSP and RESP accounts where triggering a capital gain is not a factor.

TFI International was down 3.1% to $30.76. Our last update rated it (higher) Buy at $27.50 back on May 21. This is a very well managed company and should continue to do well in the long term.

CRH Medical was down another 7.7%. Hopefully the stock is just being dumped by people who look only at price trends and not fundamentals. The company certainly claims that it still has a profitable operation and in fact that they are still growing by acquisition.  There is certainly a lot of uncertainty over how profitable it will be in 2018 under the new lower fee structure but I did not see any indication at all that it would not continue to be profitable and grow.

Boston Pizza released earning this morning that were neither particularly good nor bad. Same-store sales which is the absolute key driver of valuation were up only about 0.4%. Still, it is an increase and this entity that pays out about 100% of its distributable cash does not need much if any growth to justify the unit price.  Distributable cash per unit was up 3.5% but that appeared to be due to certain smaller items that are somewhat volatile. I would continue to consider these units to be worthy of a Buy rating and possibly it should be more like (higher) Buy.

November 13, 2017

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

AutoCanada was up 2.8% adding to Friday’s 9.2% gain which was in response to its Q3 earnings release.

Constellation Software was up 1.4%.

FedEx was up 1.5%.

CRH Medical was down 1.0%. It seems likely that tax loss selling is contributing to the recent declines. Last week, the company announced it had approval to buy back shares. No such repurchases have yet been reported which could be due to a lag between purchasing and reporting or it could be that no shares have been repurchased.

My next update will be for VISA Inc. It’s up 43% this year. I have long said that VISA functions as an oligopoly or duopoly when it comes to consumers choosing between it and MasterCard (and sometimes American Express or other cards). And I have said it is more of a monopoly from the point of view of merchants who in most cases have no real choice but to accept it. Its stock price reflects its remarkable market power and so it will not likely look like a bargain but I have not ran the numbers yet.


November 12 , 2017

On Friday, the S&P 500 was down 0.1% and Toronto was down 0.3%.

A big winner was AutoCanada up 9.2% after releasing earnings. Some observers predict hard times for auto dealers as the industry moves to more reliable electric cars and ride-sharing and as driverless cars potentially become so popular that fewer people feel the need to own a car. I don’t know if such predictions will come true. I do know that predicting the future is always tough. Meanwhile the auto sales industry is enjoying record sales in Canada and the West is once again outpacing the rest of the country. “Sales for the Company were up 9.4% in the third quarter, out-performing the national sales increase of 6.8%.” On a trailing year basis, the P/E ratio based on adjusted earnings per share seems reasonably attractive at 16 given that earnings could continue to increase on a year over year basis. According to Yahoo Finance, the stock is trading at 12.5 times the expected level of 2018 earnings per share. I have a relatively large exposure to this company and I am not thinking of reducing my position.

Stantec was up 2.0%.

Regarding Melcor Developments, I came across the following analysis of its value in an RBC update of a few days ago:

Our (RBC’s) $16.00 price target is derived through a sum-of-the-parts valuation, which includes: 1) a $9.25 value for Melcor’s Community Development division, derived though a ~0.50x price-to-book ratio, a discount to peers which trade at 1.5x, reflecting negative
investor sentiment due to the company’s exposure to the oil patch; and 2) a $6.75 value for the company’s Commercial Properties portfolio, derived though a ~0.55x multiple to our NAV per share estimate, which reflects a holding company discount and compares to the current P/NAV of Melcor REIT at 0.84x. Overall, our target price implies a ~0.56x multiple to our adjusted book value of $28.49. Based on relative risk-adjusted return expectations, we rate MRD shares Sector Perform, supported by our price

So RBC believes that due to its exposure to the oil patch Melcor’s lands should sell at just half of what those lands cost Melcor (including the costs of development and capitalized interest on the land). With this logic, when Melcor buys new lands or invests in developing raw land into lots, they are effectively as Buffett would say “turning dollar bills into 50 cents pieces”. Meanwhile “peers” (not exposed to the oil patch) sell at 1.5 times cost. And meanwhile oil prices have risen in recent months and activity in the oil patch is increasing. To me, RBC’s analysis looks like nothing more than using whatever multiple happens to basically explain the current share price. If one is to believe that the current share price of stocks is generally correct then why bother with analysis? If the market is always correct and there is no ability to identify under-valued stocks then it would be logical to simply invest in the index. In my view the $28.49 book value is likely a more reasonable estimate of the true value of Melcor. Even though the share price might not reflect that true value anytime soon, I like to think that buying Melcor around $15 is basically what Buffett would describe as “buying dollar bills for 50 cents” or something close to that. Well, only time will tell which view is more correct.


Melcor REIT updated November 12, 2017

The Melcor REIT report is updated and remains rated Buy at $8.73 yielding 7.7%.

This REIT was added to the site on September 25, 2016 rated Buy at $8.63.

Since then, the units have done their job paying an annual yield of 7.8% of the $8.63 and with the unit price remaining quite stable.

The Melcor REIT is arguably an investment that could pay out a dividend yield of 7.7% for a great many years with probably some modest increase to the dividend over the longer term. Even if so, that is not really that exciting. If you put $10k into this and it pays $770 per year or $64 per month, and if the unit price remains stable, that is not much to get excited about. And there is the chance the unit price will decline.

But what if you have a larger portfolio and are looking for income and willing to hold for years? If someone puts $50k into this and collects $3850 per year or $321 per month, that might be reasonably exciting. For taxable accounts the dividend tax credit does NOT apply. (This is a correction written November 13 at 10:15 am eastern) I originally wrote that the dividend tax credit does apply. It does not apply to REITs which are therefore probably best suited to RRSP and TFSA accounts. For some REITs the distribution may be return of capital but that varies year by year.

Some investors would be attracted to the idea of owning hard assets, which in this case is a portfolio of buildings with about 50% of its rents from office buildings (mostly in Edmonton) and 43% from mostly newer retail buildings (this includes bank branches) the great majority of which are in Alberta. Owning and collecting rents from buildings has been a strategy of wealthy people since time immemorial. The term Rentier is sometimes applied to such wealthy people. Rentier is often seen as a negative term – mostly, not coincidently, by people not in a position to collect such rents.

Certainly the unit price is not immune from declining. This could occur due to higher interest rates and/or due to a developing surplus of office rental space in Edmonton among other reasons.  But keep in mind that the traditional wealthy rentier family kept their lands and buildings for decades and even generations. They were not looking to make a quick capital gain and sell. So, perhaps investors in this REIT could take the same long-term view. The distribution is unlikely to be cut but that is always a possibility.

Overall, the 7.7% yield is quite attractive and many investors might conclude that there is a place for this REIT in their portfolio. To date, I have not bought it partly because I am already so heavily exposed to Melcor Developments. But I am quite tempted to buy at this time.

November 9, 2017

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

Canadian Western Bank was down 1.9% to $34.37. With oil having recently risen to the $57 level I suspect that they will report good results for their Q4 which ended October 31.

Canadian Tire was up 3.1% to $162.42 after posting another strong quarter.

After the close, AutoCanada reported strong results for Q3. The stock price reaction tomorrow will depend on whether the result was better than anticipated or not. I would think the price would rise on the news.

Also after the close, Liquor Stores N.A. reported results. This company is no longer on our list having last been rated as Sell on November 14, 2015 at $8.55. Once again this quarter, the company reported a loss.

The company has been reducing inventory. They hope to win back market share. I don’t think they can compete at a sufficient profit level. They face low-cost high-volume competitors in Costco and SuperStore. In addition there are a couple of small chains that have been very nimble and also pursue high volume lower price strategies. Liquor Stores N.A. has long appeared to have far too many stores in Alberta. In my area they have several small stores that appear to be very quiet in terms of sales traffic. Despite the possibility of a recovery here, if I owned this, I would Sell and move on.  They have a tentative deal to sell their Kentucky U.S.A. stores. That will provide cash but I have not seen any indication if they will book a profit on the sale.

November 8, 2017

On Wednesday, the S&P 500 was up 0.1% while Toronto was down 0.2%.

Stocks that rose today included Stantec, up 1.0%, Couche-Tard up 1.7%, Costco, up 1.7%, and Toll Brothers up 1.5%.

Spoiling the day, was Linamar down almost 14%. The company claimed that earnings were up 9.4% on an adjusted basis but it seems the market decided to focus on the drop in the actual GAAP earnings. Our graph for Linamar shows that it seldom claims much of an adjustment for earnings and on that basis perhaps its claim this time should be given the benefit of the doubt. But they got the 9.4% in part by now claiming that the year ago quarter should be adjusted down, something they did not reveal at that time. Analysts don’t take kindly to retroactive adjustments like that.

The decline in the price here would seem to be a buying opportunity but as noted in our last update, there are risks regarding NAFTA. The stock looks cheap on a P./E basis but this is an industry that is known to be cyclical.

Berkshire updated November 8, 2017

Berkshire Hathaway is updated and rated (lower) Buy at $186.21 which was the closing price yesterday. At the moment the price has dropped slightly to $185.04.

With earnings down somewhat in the past year and with the price up about 30% in the last 12 months the stock is not cheap. But it may get a large benefit from the proposed corporate income tax reductions.

I have sold half of my position on which I had a 39% gain and which was in an RRSP account so that no capital gains taxes are triggered by the sale. I wanted to raise cash and also sort of hedge my bet on this stock.

Berkshire continues to have a HUGE cash position at $109 billion. Even as a percent of assets, to put the figure in context, the cash position is quite high at 16% of assets. I suspect that if Buffett / Berkshire does not find acquisition to reduce the cash down under about $60 billion it may well finally introduce a dividend, either a regular dividend or a one-time payout.

Warren Buffett is 87 years old and shows no sign of slowing down. But of course health issues could arise and force him to step down at any time. It’s always possible that he will curtail his role at any time but so far he has given no indication that he will do that. The Board knows who would replace Buffett he were gone at any time.

Berkshire’s book value per share is up 963,100% since Buffett took over the company. I have information that Buffett has his eye on seeing that figure rise to one million percent (another 3.83% from here would do it). It’s always possible that Buffett would see attaining one million percent growth in book value as a convenient time to retire. But again he may just continue to march on. The share price gain is already up around two million percent, but Buffet has always used book value per share as his yardstick to measure progress.

November 7, 2017

On Tuesday, the S&P 500 was about unchanged while Toronto was up 0.25%.

Wells Fargo and Bank of America were each down 2.0%.

RioCan was up 1.7% to $25.35. It had released earnings late last week.

Linamar was down 1.9% and then released earnings after the close. On an adjusted basis the earnings were up 9.4% but were down on a GAAP basis.

On Wednesday I will post an update for Berkshire. The stock is up 14% this year to date (and up 30% since it was rated (lower) strong Buy one year ago) while operating earnings are down. It’s tough to get a handle on what its normalized level of earnings is. With a price to book value ratio of 1.49, the stock is not cheap. But it may get a big benefit from proposed corporate income tax rate reductions due to its huge deferred tax “liability”. So i would rate it probably (lower) Buy.  I hold it and I am inclined now to hedge my bet by reducing my position somewhat which will help me in my goal of raising my cash percentage. The Senate will reveal its income tax proposal on Friday which could affect the optimism for the tax cut and therefore the share price of Berkshire. Every time I have sold Berkshire in the past it later seemed like a mistake to have sold though that’s hard to say as it would depend where I invested the cash after selling.


November 6, 2017

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

Toronto was up 0.45% as oil (West Texas Intermediate) rose to $57.24, up 2.9%.

Toll Brothers was up 2.1%.

Stantec was down 1.8%. It reports earnings on Thursday.

CRH Medical fell another 7.6% in Toronto. Perhaps I am being reckless, but I added to my position today. This remains a profitable company and I will stick to my usual practice of buying companies that appear to be under-valued. Over time this has worked out well for me although not with every stock and there are never any guarantees.

Melcor is updated and rated Strong Buy at $15.05. In today’s trading the market was unimpressed with the earning and the stock traded as low as $15.00 and closed at $15.15. This is a company that has never failed to report a profit in the 15 years that I have been following it. Its assets consist mostly of real estate and there is no indication that these assets are worth less than book value and yet the equity trades at 51% of book value. I expect book value to rise over the years (though not every year) and I expect the price to trade up closer to book value at some point. This company looks good from a traditional “margin of safety” perspective. The market can ignore the value for a time but ultimately if the company continues to make profits and to slowly raise its dividend over time (currently the yield is 3.5%) then the market will reflect something closer to full value at some point. When the market ignores the value of a stock there is always the option of basically buying and being prepared to hold for the very long term. I would expect the dividend to be raised modestly in early 2018.

Melcor comment November 5, 2017

Melcor’s Q3 results were strong (in my opinion) with a year-over-year increase in funds from operations of 25%. The number of single family lot sales was up by 58% and the average price was relatively stable but it appears that somewhat more of the lots involved a joint venture partner. The gross profit on lot sales is lower than in peak years but is still reasonably good at 35%.

These shares are selling at just 51% of book value and about 11 times trailing adjusted earnings (which is similar to funds from operations in this case.)

I already have a huge exposure to this company but I would be tempted to add to that on this report if the share price does not increase on the news.

It’s always possible that market for new building lots in Alberta is about to collapse and/or that the market value of its rental buildings will collapse but based on the results reported here these shares appear to remain significantly undervalued. There are many indications that the economy in Alberta continues to recover from the 2014 decline in oil prices.

The report also indicates that while Melcor is owed $6.2 million by the recently bankrupt Reid Built Homes, it retains title to those lots and has concluded that this receivable is not impaired.

Unfortunately it may remain the case that great patience will be needed as the share price may take a long time to move back closer to book value (currently $29.30). Meanwhile I expect book value to increase most quarters though it would decrease if the market value of its properties declines such as due to vacancies or lower market comparable transactions.

November 5, 2011

I have updated the composition of my personal total portfolio. I wanted to see in particular what my cash position was. It’s 19% and I would not mind seeing it go somewhat higher. I have no fixed income. With no fixed income, a reasonable allocation to cash provides some stability to my portfolio and allows for buying on dips in individual stocks or the overall markets.

On Friday, the S&P 500 was up 0.3% while Toronto was about unchanged.

Bombardier was up 6.1%. Fortis was up 1.4%. CRH Medical was down 15% on Toronto as previously noted.

Melcor released Q3 earnings on Friday and I will be taking a close look at that report today. At a first look, the results look good and the company appears to be optimistic.


CRH Medical updated November 3, 2017

CRH Medical is updated and rated Speculative (lower) Strong Buy at U.S. $1.85 or Canadian $2.37. This one has been a huge disappointment as it is down 57%  since it was added to the site on October 9, 2016 rated Speculative Buy at U.S $4.32. And it is down about 80% since the high of about U.S. $9.00 that it reached in early April (and when I still thought it looked like good value due to the growth).

Its latest drop was about 16% today after government-mandated reductions (effective January 1) to the prices it charges for its services were finalised this morning and which included not only the expected reductions that had largely been responsible for the sharp share price decline but an additional important fee reduction. On the conference call yesterday it appears that the company was quite certain that only the expected reduction would occur.

In addition to the fee reductions in 2018 there has been a reduction in revenues per patient this year due to a change in payer mix (more government, less commercial insurance) that the company appeared to be very slow to realize was even happening.

So, clearly some reduction in the share price from the April highs was absolutely warranted. But it appears to have been over done. The company remains profitable and is generating good cash flows and its growth-by-acquisition strategy remains fully in place. Granted, it is not clear what the profit level will be after the fee reductions are in place in January but indications are that he company will still be profitable and generating good cash flows.

Overall, the valuation appears to be quite attractive. With good cash flows, the company is not in danger financially and in fact plans to continue to make acquisitions at the same pace as the past two years.

But this remains a speculative pick and the original indication from October 9, 2016 to consider making only a relatively smaller purchase is perhaps still wise.

It will be interesting to see if insiders step up and buy shares at this latest low price.

One analyst pointed out that there may be tax-loss selling which could keep the price depressed through year end. On the other hand the company mentioned yesterday that it hopes to take some action to boost the share price.

I added to my own position in this stock on several occasions as the price declined since April. At the current price it represents about 1.4% of my portfolio. I may add somewhat at this price although my enthusiasm to do so is certainly tempered by the experience so far.

In general, the analysts that recommended this stock at far higher prices have been embarrassed by the result and may be unlikely to recommend it again anytime soon. That could mean the stock will be a long time recovering. But ultimately earnings over the next several years will determine the stock price.



November 3, 2017 11:00 am eastern CRH Medical

CRH medical is down a further 12 % in Toronto trading this morning. And down 17% in U.S. trading.

This is due to finalization of government-mandated fee reductions for 2018 which included an additional reduction, not previously anticipated.

The company indicates that adjusted EBITDA previously expected to decrease 13.5% will now decrease 20%. But they also say that adjusted EBITDA margins will remain healthy at 43% and that they look forward to growing the business with more certainty.

It is not clear how much the adjusted net earnings per share will decrease but it would be higher than 20% perhaps far higher.

Unfortunately the margins have already decreased in 2017 for other reasons including the mix of customers. Clearly, I was overly optimistic about this company earlier this year.

I am working on an update but the difficulty is that we won’t know the new level of earnings per share until we see several quarters of results under the new fee structure.


November 2, 2017

On Thursday, the S&P 500 was about unchanged (though the DOW was up 0.35%) and Toronto was down 0.1%.

Alimentation Couche-Tard jumped 3.1%. There was no news so this may have been due to an analyst recommendation.

Toll Brothers fell 6.1% to $43.79 after the House republicans proposed income tax changes that included limiting mortgage interest rate deductibility to a maximum of a $500,000 loan down for the current one million. The decline is probably an over reaction since the package of tax changes is far from finalized let alone approved. And it may not have a huge impact in any case. In any case the decline only gives back about 3 weeks of gains.  This decline is a useful reminder that stocks don’t only go up and ANY stock could be hit with news causing a similar or larger drop at any time. That’s why at least some diversification is always called for. In my own case perhaps I should have trimmed a bit more Toll Brothers as it kept rising in recent days. Sometimes we all fail to do what is prudent out of concern that we might miss out on more gains.

CRH Medical was down 7.3% to $2.79 in Toronto after releasing earnings yesterday afternoon. I get the sense the analysts that cover it are a bit bitter about the company surprising them with certain bad news earlier this year.  If so, the company is going to have to fight its way back with earnings. (That is, it won’t get help from optimistic analyst projections.) The company did generate cash in Q3 and posted bottom line GAAP earnings of 3 cents per share (down from 4 cents the prior year). Or maybe the analysts are simply projecting lower profits in 2018 when certain government-mandated fee cuts kick in. Meanwhile it has strong balance sheet and has been continuing to make small acquisitions. I will be working on an update for this company tomorrow.

Bombardier posted Q3 earnings (well, losses, really). The stock rose 6.1% on the news that it had a letter of intent for some 61 C Series jets. I was curious to see if they would write-down any of the C Series development costs having recently agreed to sell half of same for zero dollars. There was no write down and I could not see any discussion of that. I listened to the analyst question part of today’s conference call and no analyst asked about the potential for a write-down on C Series investment. I would think that will have to be addressed in the audited statements at the end of the year. Well maybe it does not matter much, the book value per share is already negative and so maybe further negative is not a concern to analysts.

Perhaps I am giving up completely on the company too early but the company has had to sell off chunks of itself in desperation and is faced with selling the C Series at cash losses. I remain confident that the company will continue to exist. But it may end up at some point being owned by the debt investors.

Costco was up 1.4% to $164.95 after reporting same-store sales growth of 5.9% (adjusted for gasoline price changes). That is impressive growth. Costco always seems expensive in relation to earnings but it is a power house. Accumulating on dips has been a good strategy. The strong same-store sales also perhaps suggests strength in the U.S. economy.



November 1, 2017

Wednesday saw the S&P 500 rise 0.2% while Toronto was about unchanged.

Canadian Western Bank retreated 1.9% which was not surprising after its 4.8% gain of Tuesday which did seem a bit overdone.

Linamar was up 1.7%.

Toll Brothers was up 1.3%.

I mentioned this morning that I thought that the Competition Bureau looking into price-fixing was a good thing. Back in April I addressed in a newsletter article the lack of intense competition that many businesses face. (Good for investors, bad for consumers.)

CRH Medical reported Q3 results after the close. They did make a profit but not as high as the prior year. Overall, given how much the stock declined from its peak I think the report could support an increase for the stock. I will update the report in the next few days.

On a personal note, back in June I mentioned that I have a son who had just graduated in Geology / Earth Sciences from St. FX University in Nova Scotia. He has a strong resume, well rounded in academics, sports and life skills. A couple of subscribers have been very helpful pointing out possible leads on geology jobs. But, with the summer job over, he is still looking…  if anyone is looking to hire a Geology / earth sciences graduate or knows of someone looking or just wants to offer advice, email me at and I will pass on the information. Plan B, given the RESP account can handle it, is to go back for a masters, possibly in Australia or the U.S.A. No sense limiting things to Canada.



November 1, 2007 11:30 am eastern

On Tuesday, the S&P 500 and Toronto were each up 0.1%.

Our big mover was Canadian Western Bank up 4.8% to $36.34 after it announced the acquisition of a $900 million dollar portfolio of equipment loans and leases. This will add 10 cents per share in the fiscal year which starts today and another 10 cents the year after that. There could be continued gains after that to the extent that the customers stay with CWB after two years which they have no obligation to do.

On that basis, the approximate $1.70 rise in the share price was not really justified by this news alone. But it does signal management optimism about the future and that combined with higher oil prices could justify the stock price. I still expect CWB to continue to rise. But with this gain on top of all the other gains in CWB since it bottomed around $23 briefly in May amid the Home Capital scare I decided to sell what amounted about 12% of my CWB yesterday. It remains a very large position for me. Having added a lot to my position in the 20’s it seems prudent to trim somewhat now. This is particularly the case given that I have wanted to have a higher allocation to cash.

CWB is down 2.4% this morning.

This morning the Competition Bureau has raided grocery stores over possible price fixing. This is welcome and surprising news for the country. In my opinion, based on many years of observation, the Competition Bureau has done almost nothing to foster competition in Canada. In many products and services there seems to be only a small handful of competitors. Yet mergers and acquisitions are constantly allowed to happen. Recently the merger of the two giant potash producers was allowed despite the fact that the combined entity will totally dominate the market. I mean no one seems to notice that the potash producers are opening part of a price-fixing cartel operating outside of North America (CANPOTEX)! I believe the cartel would be illegal in Canada and the U.S. which is probably why it does not operate here.  Years ago I believe the two and only large propane distributors were allowed to merge.

I am an investor but I am also a citizen and there is a place for limits on market power and limits on price collusion. Ethical behavior needs to trump profits and that can include making unethical anti-competitive behavior illegal.

October 30, 2017

On Monday, the S&P 500 was down 0.3% while Toronto was up 0.3%.

TFI Industries was down 3.2% and I think it represents good value.

After the close, Canadian Western Bank announced an acquisition that they say will add ten cents per share to earnings in each of the next two years. That is positive. However, they also clarified to me that they have no intention of buying back shares at this time unless their share price drops. I was misled by a press release of a few weeks ago into thinking they would be buying back shares. It’s annoying to be misled by a press release that is legally accurate in form but misleading in substance (in my view).



Comment on RRSP savings October 30, 2017

I was just reading some blog comments about RRSPs. Lots of people are adamant that RRSPs are a bad way to invest. There was a complaint that the tax rate on death of the last surviving spouse was 50%. Truly that is a a heavy tax rate. But the complainer probably fails to understand the math whereby something close to 40% of the RRSP was contributed by the government in the first place via the refund (and growth on the refund). We should always be aware that the taxman effectively owns about 40% of our RRSP. But our own 60% share gros tax free and there is a huge benefit in that over time.

I won’t go through all the math but RRSP investing can be shown to be precisely equal to TFSA investing on your share (net of the refund) of the RRSP if the marginal tax rate is unchanged. (Say 40% at time of contribution/ refund and 40% at withdrawal). That being the case and the TFSA being tax free, the RRSP was also tax free growth on your net contribution.

My main observation is that once people get a certain idea about something like RRSPs then they tend to stick doggedly to that view. No amount of math or logic will change there minds. People tend to listen to views that agree with their current view. This is called confirmation bias and we all do it. In part we do it because we truly don’t have time to waste looking again and again at the same things. But we should all be aware we are have a confirmation bias and once in a while be willing to reconsider.

It is true that for some people, especially lower income people, RRSP investing is not the best idea. But any notion that it is a bad idea for middle and high income earners is simply false when the math is looked ito. But people tend to believe what they want to believe. If they have no RRSP savings, and probably little or no other savings than the idea that RRSPs are a tax bomb or a bad idea becomes quite convenient.


Florida, October 22-31, 2017

Visiting Tampa (and nearby areas including Sarasota) Florida this week I have a few observations about business and the economy:

Overall, this area of Florida has a mix of affluent, middle, and more than a few low income people judging by the housing stock. But overall mostly prosperous looking. Shopping and restaurants not overly busy this time of year but not exactly dead either.

I went to a PopEyes which is a growing popular chain recently purchased by Restaurant Brands International (owner of Tim Hortons and Burger King). Pretty quiet at 1:30 pm and overall with a very limited menu (think KFC). I was not impressed. I don’t think it has anything close to the sales power of a Tim Hortons location or even a Burger King.

I checked out a couple of Circle K locations (owned by the Canadian giant, Alimentation Couche-Tard). They are reasonably busy. Smaller and not as fancy as most Canadian locations but with beer sales they probably do well. Also, very friendly service. Behind on technology, since when your prepay gas inside the store you have to know the amount you want to pay whereas in Canada it just charges you for whatever you take.

We ate at Panara Bread which is now owned by a German company. Service seemed slow by nature of the way things are ordered. They had run out of the type of bread one of us wanted and the coffee was cold. So, unimpressive overall.

I went to a Walmart Neighborhood market store to see what those were like. This is basically just a big grocery store. It was all fine except the checkouts were all self serve and seemed prone to people needing help so it ended up slow to check out. Meanwhile the Walmart annual report said they were focusing on speed and convenience! (If so, they have work to do). My Canadian debit card would not work at Walmart. What year is this again? This is in Florida which has hordes of Canadians visiting every year.

Went into a Dollar Tree store to see how that compared with Dollarama. Nothing costs more than a dollar and it is truly impressive what they can offer for a dollar. But this store was a bit grimy perhaps mostly because it was old. Nothing like the cleanliness of a Dollarama – which in fairness are mostly all quite new.

A restaurant I would recommend (too bad it is not a publicly traded chain) is a small little chain called Boca ktchen bar market. I had “SMOKED CACHACA CHICKEN Tecumseh Farms chicken, Brussels hash, crushed chimichurri” Not cheap but healthy and exceptionally tasty.

October 28, 2017

Statistics Canada recently reported sales for food service and drinking places for August. The numbers look strong which bodes well for Boston Pizza’s Q3 report. Unless BP has lost market share it should show an increase in same store sales which is what drives the distributable cash.

Meanwhile as of Saturday afternoon, West Texas oil is just over $54 which is a strong increase and bodes well to all things Alberta.

October 27, 2017

On Friday, the S&P 500 rose another 0.8% and Toronto was up 0.4% finally reaching a new record high close.

In the U.S. in particular it starts to seem like stocks only ever go up. Obviously, this is wrong but with gains almost every day for the last year investors are mostly feeling good and most may be complacent about risks.

Amazon was up 13.2% to $1100 dollars after it handily beat earnings estimates by posting earnings of 52 cents per share. The math indicates that the stock is trading at 280 times trailing earnings and 144 times forecast earnings (the trailing earnings may not yet reflect the latest quarter but that won’t make much difference and no doubt analysts will boost forecast earnings).

I spend little or no time being concerned about stocks that I missed out on. In the case of Amazon I have looked at the numbers closely several times starting in July 2015 and it was far too richly valued for my blood. I have no regret about not owning it since it simply does not fit my value investing approach.

Another stock that is up hugely is Apple. I have some regret about that because I really should have looked at it a few years ago when it was trading at an attractive P/E level. But overall, I have done well in the markets and there is no sense lamenting what I did not buy.

Back to other stocks today:

Constellation Software was down 2.3% after posting earnings that were, it seems, a bit disappointing. I would not particularly mind a bigger pullback in order to buy. I own a few shares and will not be selling.

TFI Industries was down 1.5% after being down 6% earlier in the day. It is a well managed company and one I intend to keep for a long time.


October 27, 2017 comment

TFI International, TransForce is down about 6% on its earnings release. Adjusted earnings down a little. But overall the report shows growth in revenue and a gain on an asset sale. I am adding to my position this morning at just over $30.

Amazon is up 10%. It has a P/E of around 250 and so my methods see it as way over valued. I respect it but won’t buy it. I am not clear if Amazon can somehow shift into a higher profit mode or when that would ever happen.

P.S. Amazon earnings per share were 52 cents and the stock price is $1187. Presumably the market expects earnings per share to rise many fold (say 20 fold) at some point.

October 26, 2017

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

Stantec was up 2.2%, FedEx was up 1.6%, American Express was up 2.3%.

Ceapro, which is a risky penny stock was up 11.9% which only takes it back to 66 cents. This was after it announced a small acquisition. This would seem to be a sign of confidence by management. But it also drains cash which makes the company somewhat more susceptible to financial difficulties. I am interested to see if it report a profit in Q3 or at least positive cash generation.

CRH Medical was down 3.1% on Toronto. It announces earnings next Wednesday.

Melcor was down 2.2%. The continued weakness in this stock is annoying since it is trading so far under book value. Hopefully the Q# report will bring good news. The Alberta economy continues to improve but it is certainly possible that it will have non-cash mark to market losses on its rental building fleet. There was also the bankruptcy of Reid Built homes which likely owes at least some money to Melcor. But overall, I would think that the stock still has a good margin of safety due its assets.

I mentioned yesterday that I transferred U.S. dollars back to Canadian using the Norbert gambit, buying DLR.u on Toronto and then selling DLR. My overall exchange rate was 78.29 cents (Canadian $1.2773 per U.S. dollar) which was excellent considering the official exchange rate for yesterday was 78.06 cents (I believe that was the noon rate, and when I was doing the transaction the exchange rate was somewhere just over 78 cents). To Calculate the exchange rate using DLR I would take the offer price on DLR.u divided by the bid price on DLR. This seems to work out to a good rate compared to the official rate when going from U.S. to Canada.

As it turns out I would have got a better rate today as the exchange rate on the Canadian dollar went down.


October 25, 2017

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

Linamar was up 0.8% despite the down day in the markets and seems attractive although its not clear to me how it might be affected by any failure of NAFTA.

The Canadian dollar was down to about 78 U.S. cents today as the Bank of Canada held interest rates steady. I used the Norbert Gambit today to move some U.S cash back to Canadian. This was in an account that had a lot of U.S. cash and very little Canadian after I had sold out of Wells Fargo in late 2016 due to its troubles. (In retrospect I should have moved some of that cash much sooner, but today’s 78 cents is a better exchange than has prevailed in some months.) I left some cash on the U.S. side and may move that if the Canadian dollar sinks further.

For more information on Norbert search Norbert and DLR in these comments the past couple of years. TD Direct charged me $43 and it appeared to me I paid and additional $20 in bid/ask spread costs both in buying DLR.u and then Selling DLR. So total cost $83 (well a bit higher as one of those $20 was U.S. dollars). $83 was 0.35% on the Canadian amount I moved which is a good bit cheaper than the standard charge from TD. It might have been possible with a bit of patience to avoid the bid /ask spread but then the exchange rate could move while a person tries to get cute like that.

American Express update October 25, 2017

The report for American Express is updated and rated (lower) Buy at $93.86.

American Express lost the Costco branded cards in 2016 because they were not willing to cut the merchant fee down as low as Costco wanted. That caused a drop in earnings but earnings are now increasing.

American Express was first added to this site on February 8, 2014 rated Buy at $87. It’s only up 8% since then. But there was an opportunity to buy it in early 2016 at under $60 and even briefly at under $55. It’s always hard to buy when things are are looking dark but those are the best opportunities. When companies that are unlikely to stay down are on sale that is the time to buy.

At this point American Express looks like a reasonable buy and may do well but does not seem compelling.



October 24, 2017

On Tuesday, the S&P 500 was up 0.2% and Toronto was up 0.3%. And the DOW was up 0.7% after strong earnings reports from Caterpillar and 3M.

CN Rail was up 1.9% but may decline tomorrow as its earnings report after the close was disappointing due to higher costs. But its carloads were up 11% illustrating general strength in the economy.

Stantec was up 2.2% to $36.46.

Bank of America was up 1.9%.

It’s been a great time to be an owner of stocks. My approach is generally to react to market moves as opposed to predict them. I like to move a little towards cash as stocks rise and use that to buy when stocks fall. Most (by far) of my investing however is stock by stock as opposed to looking at the overall index.

The next update will be for American Express which is likely to be rated (lower) Buy at around $94. I already have a modest position in American Express which I will likely just hold.


October 23, 2017

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

Boston Pizza was down 2.3% to $21.63. It will be interesting to see their Q3 report to see if same store sales were up or down.

Melcor was up 3.5% but given its thin trading volume I would not read anything into this.



October 21, 2017

On Friday, the S&P 500 was up another 0.5% to yet another record high. Toronto was up 0.2%.

The S&P 500 is now up 15.0% this year to date. That is impressive especially considering it entered 2017 already at a record high and trading at 23.7 times trailing actual GAAP earnings and 21.0 times trailing operating earnings.

During 2017 S&P earnings have increased sharply which does provide support to higher stock prices. Despite being 15% higher this year, the S&P 500 right now is trading at 22.4 times estimated 2017 GAAP earnings and 20.4 times estimated 2017 operating earnings.

So, the good news is that the S&P 500 is slightly cheaper in relation to earnings than it was at the start of 2017. But the S&P 500 is nonetheless expensive.

There is a risk that the S&P 500 could fall if investors decide that a reasonable multiple is say 18 times trailing GAAP earnings. And GAAP or operating earnings could fall.

Back on March 9, 2009 the S&P 500 bottomed out at 666 as earnings were quite low due to the financial crisis. The P/E at the bottom was 11 times trailing GAAP earnings to March 31, 2009 and 10 times operating earnings. Pessimism abounded. THAT was a fantastic time to buy. The S&P 500 is up a staggering 287% from the absolute low. If I use the 798  level of March 31, 2009 (rather than picking the absolute low of 666) the S&P 500 was trading at about 13 times trailing GAAP earnings and the S&P 500 index is up 223% since then. Of course, the real doomers back in early 2009 were waiting for the S&P 500 to fall even further to eight times earnings or whatever. They are still waiting.

So, markets remain optimistic at this time and are relatively richly valued. But the P/E ratio is not at record highs. It is certainly possible that U.S. stocks can keep rising.

But surely, some caution is warranted. I have said often that it is ALWAYS the case that markets can move lower at any time. A 20% decline almost anytime should not even be considered much of a shocking event. But I also think it is impossible to accurately guess when that could happen.

Everyone’s risk tolerance and (more importantly) financial risk capacity is different. One approach is to never allow the equity allocation to get too high. Those with a balanced portfolio may be well advised to simply carry on. That tends to work well over time.

In my own situation, with a very heavy exposure to equities, I am inclined to try to build up more cash. That is always difficult to do in portfolio of individual stocks since it can mean selling some shares that I would rather not be selling. I think it would be easier to sell down an ETF than a particular stock since there tends to far less emotional attachment to ETFs. As previously indicated, I did sell some shares last week. I may do more of that this week.

Meanwhile as to how individual stocks on our list fared on Friday:

Canadian Western Bank was up 1.4%, Costco was up 1.5% and the U.S. banks did well.

The Canadian dollar was down almost a full U.S. cent.

I note that Concordia International, a Canadian pharmaceutical company is entering a process to restructure some debt. The company states that this is not a bankruptcy or insolvency. Perhaps not, but it surely represents an attempt to renege on some debt (albeit in a negotiated fashion). I am really not familiar with the company at all. Concordia’s shares fell 39% on Friday to 72 cents. But more importantly the shares are down from about $3.00 earlier this year and from all-times highs of over $100 in 2015. This is basically a total wipe out, an approximate 100% loss for those who bought near the high in 2015.

I try to avoid buying shares with any obvious risk of going to zero. That’s the main reason I always look at the balance sheet. A company with large debts compared to equity is a potential candidate for bankruptcy. If it has strong profits and cash flows it may still be safe. But a highly leveraged balance sheet is a red flag. I saw such a red flag at Valeant at its peak and steered clear. Last week I sold my Bombardier preferred shares. That company may limp along for a long time yet and may even always be rescued by government. And maybe it will even become profitable and restore its equity to a positive level someday. But I am happy to get clear of such an over-leveraged and generally unprofitable company. Someone else now owns my shares and has both the risks and rewards of that.

In contrast, a company with zero or very low debt can survive a period of losses. It is very difficult to go broke if you don’t have any debt.

Warren Buffett’s rule number one is “Don’t lose money.” That does not mean don’t invest in shares that might go down. Instead, he means don’t invest in shares with much of a chance of going down and permanently staying down. He also advises to be ready with ample cash for times when shares get very cheap.


Walmart Update October 19, 2017

Walmart is updated and rated (lower) Sell at $86.22. (Yesterday’s closing price, today it closed at $86.40) As always, the report gives the rationale for the rating. Under the rating system that I have always used a (lower) Sell is between a Sell rating and a Weak Sell/ Hold rating. To be clear, if I owned it, I would sell.

Walmart has risen 25% this year. I thought it looked overvalued at the start of the year. (I was not alone in that view;Warren Buffett sold almost all of Berkshire’s Walmart stock in early 2017 or late 2016.) Walmart’s revenues are up about 5% per share in the past year but earnings per share are down. To some extent, the stock has risen to share buybacks. I am a fan of share buybacks  if done at a reasonable share price but in this case it has not so far been enough to push earnings per share up and the share price may be too high now for buy backs to make sense. It looks like the share price is already pricing in a good improvement in 2018. Yet management is only projecting an earnings per share gain of 5% in the fiscal year that starts on February 1, 2018.

Management indicates that they want to lower costs and get back some of Walmart’s traditional reputation as the low-cost leader. But they seem to be having trouble getting that done. My impression is that management is not hungry enough to push this huge company to grow earnings at a faster rate. The founding and still controlling Walton family is rich beyond comprehension (easily the richest family in the U.S.A, collectively far richer than Buffett and Gates) and is unlikely to push management hard. And then there is the matter of competing against Amazon which may or may not have lower costs but which is definitely content to make far lower gross profits on sales.

October 19, 2017

On Thursday, the S&P 500 was about unchanged while Toronto was up 0.2%.

CN Rail was up 1.6% to $102.64. It’s interesting how some blue chip type companies like this seem to go on rising year after year. In an article I wrote in 2003 called Do As The Rich Do I noted that rich people invest in blue chip stocks and I mentioned CN and Manulife. Adjusted for splits, CN Rail was trading at $11.16 on the date of that old article.

Toll Brothers was up 2.0% after a report that home builder company confidence levels had risen.

AutoCanada was down 1.8%.



Bombardier preferred shares – sold October 19, 2017

This morning I have sold the rest of Bombardier preferred shares Series 4. I have wanted to raise cash to provide stability to my portfolio and for possible other opportunities. Bombardier’s latest move has given away half of the C Series project for a bit less than zero dollars (AirBus got handed 100 million warrants representing about 5% of Bombardier’s shares at $2.29 so that is worth something).

I was holding these preferred shares on the basis that they yield about 9% and it seems likely that the dividend will continue to be paid and that governments would not likely allow Bombardier to go out of business. There was certainly some risk but the dividend was attractive. And I was hopeful that the C Series would eventually generate cash and even profits and improve Bombardier’s balance sheet.

But the punitive tariffs imposed by the USA has apparently caused Bombardier and Airbus to value the C Series project at something close to zero. Any improvement in Bombardier’s balance sheet will likely take a few years – and is far from certain to ever occur .

And while governments will always want to protect jobs they will not necessarily protect the equity of preferred share investors or debt investors. It is always possible that Bombardier will enter creditor protection at least temporarily in order to “restructure” i.e. “partially default upon in an orderly way” some of its debts. In such a scenario, common and preferred equity could be wiped out. I am not predicting that but it is always a risk with such a weak balance sheet. The controlling family is likely very reluctant to ever renege upon the debt in this fashion since they would also presumably be wiped out of their equity and it would be a huge embarrassment. I don’t know what the risk of such a scenario is but it would not be zero.

I first added these preferred shares to the site in June 2010 at $21.75. The price today is $17.44 or $4.31 lower. But they have paid dividends of $1.5625 annually or a total of about $11.33 in the approximate 7.4 years since they were first added to this site. Whether an investor has lost or gained on these shares depends on the purchase date since the price has been quite volatile over the years.

In any case, what really matters is the future risk/reward on these shares, not the past, and I have decided to move on and have sold these in my own accounts.


October 18, 2017

Wednesday was another strong day for U.S. markets with the S&P 500 up 0.1%. The DOW surged 0.7% because IBM was up 9% after reporting better than expected earnings. Toronto was down 0.2%.

It’s worth thinking about which companies on our list would be harmed if NAFTA is canceled and tariffs between the two countries rise. This would hurt exporters and importers.

Many Canadian retailers that import U.S. products including Canadian Tire would be somewhat hurt but given that all competitors would face the same tariffs, Canadian consumers would take most of the harm and the stores would be hurt only to the extent demand fell due to higher prices.

Canadian exporters who face domestic America competition would be badly hurt depending on the tariff levels. Obviously Bombardier comes to mind. And Linamar would likely face some harm on a portion of its business.

Regarding Bombardier, I have not seen anyone ask whether the “sale” of half the C Series project for zero dollars means that Bombardier will have to write down the value of its share of the project to about zero as well. Bombardier has an extremely weak balance sheet. I am starting to think its preferred shares might be too risky. I may sell the remainder of the preferred shares that I have to get this weak company out of my portfolio.

After the close on Wednesday, American Express released a strong earnings report and announced the retirement of their CEO. This certainly seems to be a very smooth and planned transfer of the CEO role to an internal candidate. Meanwhile VISA is increasing its dividend by 18%. The credit card business continues to be a very lucrative business.




October 17, 2017

On Tuesday, the S&P 500 and Toronto were each up 0.1%. The Dow Jones Industrial Average crested the 23,000 level for the first time ever and closed just under that round number.

Bombardier had a good day up 15.7% and its preferred shares that are on our list were up 7.2%.  CRH Medical was down 3.5% on Toronto.

AutoCanada was down 2.6%. This came on a day when Statistics Canada released August new vehicle sales numbers that looked strong to me.

The Office of the Superintendent of Financial Institutions announced certain tighter mortgage rules today. When asked “what if this causes significant house price declines”? The head of OSFI basically replied “Not My Problem” (not in so many words of course, but that was the gist of his response). And I agree it is not OSFI’s job to support house prices. OSFI’s key role I believe is to insure banks don’t lend on such stupid terms as to endanger the safety of the bank deposits of Canadians. But OSFI would not likely want to cause a house price decline leading to mortgage defaults which would weaken bank balance sheets.

A lot of things have been tried to attempt to cool Canada’s hot housing market. Maybe this one will work. And once it starts to work it may be no soft landing. We shall see.


Risk Management October 17, 2017

I am in a mood to trim a few positions today because my cash position is low and it is always good to have some cash for opportunities or withdrawals and because U.S. stocks have been going up quite steadily for almost a full year now and are up 22%. In Canada the index gains have been smaller and more volatile but it is still up 9% from the lows of about a year ago.

There are stocks that I have bought somewhat aggressively on the way down. So, given that and given a desire to raise cash, it seems reasonable to trim some positions which are up significantly from their lows. I am trimming just a little of my Canadian Western Bank, Toll Bothers, Boston Pizza and TFI (Transforce) and also sold about half of my Bombardier preferred share position.


Bombardier October 16, 2017

So, Bombardier is selling half of its C Series jet project to Airbus for umm zero dollars.

What an indictment, what a testament to a colossal failure of management. Bombardier spent , as I indicated in 2016, at least $5.4 billion on the program before selling half of it to the Quebec government for $1 billion. And arguably that was really a sale for just a half billion since Quebec would own half of the billion dollars it put into the C Series partnership. Now they have given away half of the C Series for no cash whatsoever. Bombardier will apparently own 31% and Quebec 19%. Apparently Quebec’s share had slipped from 50% to 38% even before this deal presumably because Bombardier was continuing to put cash into the C Series partnership and the Quebec government was not.

The whole think looks like good news for the Canadian economy and jobs. As for Bombardier it looks like more evidence that the company is probably totally worthless just as its balance sheet says it is. Bombardier’s shares trade at a positive value due to some hope of a resurrection or whatever.

I have trouble seeing how Bombardier’s shares will rise on this news but who knows.

I don’t know what it means for Bombardier’s preferred shares. I would think they are riskier than ever on this news.

But maybe it is good news, it will be better to make some future profits or at least positive cash flows from 30% of a more viable C Series as opposed to owning all of a program that was facing years of losses. If the preferred shares happen to bounce on the news it might be wise to trim or eliminate positions.

Little attention has been paid to how much shareholder money has been destroyed by Bombardier’s management. Shareholders have actually lost more money than all the government subsidies combined.




October 16, 2017

Monday’s markets saw the S&P 500 up 0.2% and while Toronto was about unchanged.

Ceapro was down 4 cents or 6.3%. I have been very disappointed with what I view as poor disclosure at this company. It was always a speculative pick. When first added to this site last February 12, based on its results through Q3 2016 it was profitable. So it looked like the existing line of products alone, with growth, could justify the share price and if their research panned out that would add to the value. But in the three quarters reported since then sales on the existing products have fallen (with little to no explanation from management) and adjusted profits fell close to zero. The company has enough cash to carry on for some time but we now seem to be much more reliant on their research efforts leading to new products. It’s always possible that they will come out with exciting news about their efforts to develop new products but that could drag on for a long time. I am becoming less optimistic on this one. We shall see if there any good news in the Q3 results next month.

Couche-Tard was down 0.9% to $59.85. The recent share sale by Metro at $57.17 was apparently about 5 times over-subscribed. I had placed an order for 200 shares through RBC and was allocated none. It seems to me that initial public offerings and this secondary offering often seem to get the market excited with a scarcity premium.

Dollarama was up 2.5%.

Liquor Stores N.A. (no longer on our list) was up 2.3% to $10.00 as they have announced they are working on a possible deal to sell their Kentucky Stores. A couple of years ago I had thought they should maybe sell those stores to their America CEO (and turf him). It would have been more timely with the lower Canadian dollar at that time. I have not been following the company closely but I believe the profits are quite a bit lower than the dividend. I have thought for a long time that they need to close some stores as Alberta has too many and they face competitors with lower costs. Anything is possible, and they do have new management  which is good, but I would not bet on this company doing well.

Constellation software was up 2.2%.


October 14, 2017

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

AutoCanada was up 4.0% with no news during the trading day. But after the close, the company announced it was acquiring a large established Mazda dealership near Montreal. The family that built up and currently owns the dealership will retain a 10% ownership and will continue to be involved in running the dealership. It sounds like news leaked out on Friday during the trading day. Be assured that the Ontario Securities Commission takes that seriously and will be looking for unusual purchases that could be linked to insider trading. In this case adding one dealership is no guarantee that the stock price would rise. But anyone who knew about this deal and who bought it the past few days would be taking a risk doing that.

This is another indication that AutoCanada continues with its long-standing plan of growth by acquisition.

TFI Inc (formerly TransForce) was up 4.4% and had not released any news. This increase could be due to a positive recommendation by some influential analyst or other.

Linamar was up 2.1%.

BNN television hosts were giving thought to which companies might be harmed if NAFTA is scrapped. They listed Couche-Tard, Stantec, Shopify, CP Rail and one other (that I can’t recall) as having the highest portions of their revenue from the U.S. But they are very wrong to conclude that revenue from the U.S. indicates any dependence on NAFTA or even trade at all. Couche-Tard and Stantec earn most of their revenue in the U.S. but they don’t do it by exporting anything much. Stantec’s U.S. revenues would relate to staff employed in the U.S. And Couche-Tard’s U.S. revenues come from its U.S. stores, not exports. I am a bit surprised to see CP rail on the list. I don’t recall if they have much track in the U.S. CN rail has substantial track in the U.S. but again those revenues do not come from any exports by CN rail. Shopify might be at risk if there is a tariff introduced on their services sold into the U.S.

The Globe and Mail pointed out that the tariffs if NAFTA did not exist might not be very large in any case. (Then again, they might be…)



October 12, 2017

On Thursday, the S&P 500 was down 0.2% and Toronto was down 0.4%.

AutoCanada rose 3.8%.

Alimentation Couche-Tard was up 3.9% to $61.24. That surprised me given the announcement on Wednesday that Metro was selling 11 million shares in a public offering at $57.17. Anyone who grabbed shares from that sale would seem to have got a good deal.

Part of the reason for the increase was likely a story that Kroger might be selling its chain of 784 convenience stores and that Couche-Tard might be a buyer. Another possibility is that after the share sale at $57.17 sold out almost immediately there was something of a scarcity premium added to the shares?

This sudden increase in the face of the sale at $57.17 is an illustration of how unpredictable markets can be.

I am a bit skeptical that this higher price will last unless there is positive news from the company to support it. I mean I think the shares will do well over time, but I just wonder what would justify this increase. Couche-Tard will next report earnings in early December.

Melcor was down 1.6% to $15.39. This may have been related to the fact that ReidBuilt Homes has run into financial difficulty ReidBuilt is a customer of Melcor in at least some of its subdivisions (I have no idea what percentage of Melcor’s revenues they represent.) ReidBuilt likely owes money to Melcor since home builders typically do not pay for lots until after they build and sell a home on the lot. I don’t know if Melcor has any kind of lien on the land, I would think they would. This sort of thing is the reason why Melcor is a conservative company and maintains a strong balance sheet. This development could possibly cause a big hit to earnings in Q3 or Q4 but I don’t think it will be a very serious blow to Melcor.

Meanwhile, Statistics Canada reported new home price data for August and their data indicates that new home prices have remained extremely stable in Alberta with almost no change going back to the start of 2014. You would think if home builders were in trouble there would be price declines. And perhaps there have been incentives which don’t show up as discounts.

On May 29 I had noted a land Developer called Walton had gone into receivership.

In conclusion, this news about ReidBuilt is not good but I don’t think changes the fact that Melcor’s shares remain very much under-valued.

October 11, 2017

On Wednesday, the S&P 500 was up yet another 0.2% and Toronto was also up 0.2%.

Bombardier was up 4.4% to $2.35 after Delta Airlines said it would not be paying a 300% duty. Why is this news? Of course no one is ever going to buy a plane that comes with a 300% duty. Delta hopes the duty will never be imposed. And of course Delta hopes to take delivery of those jets at the agreed upon price. After all Bombardier sold those planes at a huge discount WAY below cost. The point is Delta is an AMerican company and will fight against the duties and so that is positive.

Also today  “A Russian employee (of Bombardier) in the Swedish branch of Canadian plane and train maker Bombardier was acquitted Wednesday of aggravated bribery in one of Sweden’s biggest corruption cases to date.”

One thing I am wondering: Porter Airlines has a contract to buy C Series planes but has been barred from using them as planed at the Toronto Island Airport. If the market price of Bombardier’s planes improves could Porter sell those delivery slots at a a big gain? I understand the C Series to be a great plane. But any airline that wants to order one today is looking at least three years out for delivery…and presumably less of a discount unless they went and bought the delivery slots from Porter (assuming that is allowed).

There was some interesting news about Alimentation Couche-Tard after  the close of trading. The stock had closed today at $58.94.

Due to Metro selling its Couche-Tard shares to buy Jean Coutu, the following is occuring:

Alimentation will buy back 4.37 shares from Metro at $57.17 per Class A share which represents a discount of 3% for subordinate shares on the Toronto Stock Exchange (“TSX”). In addition, Metro will pay a 1% commission fee. This represents a reduction in the share count of about 0.8%.

In a separate transaction, 11,369,599 Class A shares held by Metro will be acquired by Caisse de dépôt et placement du Québec.

Finally, 11,369,599 Class A shares held by Metro will also be converted to subordinate shares and sold through a syndicate of brokers. The price has been set at $57.17. The shares are available through TD Direct and presumably other discount and full service brokers as well.

So the bad news (for those who own it) is I would expect Couche-Tard to fall down close to $57.17 tomorrow since no one should pay more than that when they can buy in this offering at $57.17.

The share repurchase should be positive for earnings per share but only by a very small amount. The repurchase is also a strong indication that Couche-Tard believes its shares are under valued. Well, the management at most companies constantly think that but the Couche-Tard management is a lot smarter than most.

Overall, I see the share sales to the Caisse and to the public as just a switch of owners that will have probably no lasting impact on the share price after a few weeks. It certainly has zero impact on the true value of these shares. Some might even argue that this takes away an “over hang” since it has been known that Metro would sell and once it is done then there is no major owning looking to sell. Personally, I pay no attention to “over hangs” and instead simply try to understand if shares are under valued.

I had last rated Couche-Tard a Buy at $60.25 just last month. I will likely put in an order for a small amount of these shares to add to my position.

P.S. Whoops too late, the offering has already closed. In that case perhaps the price will not fall as low as $57.17. Apparently, I should have been buying instead of typing. As always with new offerings, one has to act quickly. I did not think 11 million shares would sell out so fast.

P.P.S Checking RBC Direct, (at 8:15 pm eastern) the issue was still open and I was able to place an order there for a family member. Interesting.






October 10, 2017

On Tuesday, the S&P 500 was up 0.2% and Toronto was up 0.3%.

Walmart was up 4.5% to $84.13 after announcing that it will buy back $20 billion in shares. That would represent about 8% of its shares which is quite substantial. It also announced that it expects earnings per share to rise 5% in its next fiscal year. It would seem to be the buyback that has ignited the share price. In general, I would not consider a buyback to be a very good reason to get excited about a stock unless the stock was under-valued and the buyback was a catalyst for the stock to move up to a fair value.

In Canada, the news is that Sears Canada will be closing all its stores after no buyer could be found. This is sad. It has been a long time coming.

I have not mentioned Sears too many times on this site over the years. Looking back I see that on December 19, 2012 I said: “Clothing retail in particular seems to be a vicious business. I don’t predict a strong future for Sears Canada or the Bay.” On March 4, 2012 I marveled at the “the news that Sears Canada has agreed to vacate the premises of three of its large stores and return them to the landlord in return for $170 million.” and I questioned the wisdom of whoever was paying that money.

On October 30, 2013 I noted: “Sears is selling the rights to five big store leases for $400 million. Good for them. This seems a smart move. If they can’t make much money at stores like Eaton Center in Toronto, why not grab that kind of cash?”

On January 31, 2013 I said: “I don’t have any good opinion of Sears Canada. At West Edmonton mall a week after Christmas, I walked through one of their stores at 3 p.m on A Saturday and the floors were full of mud that appeared to be left there from previous days. If they can’t even bother to clean the floors they are toast.”

Sears was no doubt in a tough business. But it also seems clear that it has been very poorly managed for years. It’s disgusting to see that current management have been paid large retention bonuses to stick around after they first filed for creditor protection a few months ago. It’s beyond me how any judge could approve that.

October 9, 2017

On Monday the S&P 500 was down 0.2% while Toronto was closed.

Costco was down 1.6%. It’s not cheap but may be worth nibbling at due to its recent decline.

Stock futures are up this evening.

Big insurance company AIG (American International Group) is reporting $3 billion in losses from the recent hurricanes. I have not seen much indication that Berkshire Hathaway had major losses (other than at its GEICO division). Presumably it had some losses but likely not enough to create a quarterly loss overall for Berkshire. I believe Berkshire had cut way back on catastrophe insurance as it viewed the going rates as inadequate. If rates have now risen substantially due to the recent hurricanes then Berkshire is probably back in the market. Berkshire did suffer significant losses in its GEICO division related to the hurricanes but again probably not enough to cause a quarterly loss overall for Berkshire.


Toll Brothers update October 9, 2017

Toll Brothers is updated and rated (higher) Buy at $42.81.

This stock is up 38% in 2017 and is up 55% since it was rated (lower) Strong Buy on February 27, 2016. It was rated Strong Buy 13 months ago on September 11, 2016 and is up 46% since then. It was first added to this site back on June 5, 2011 rated Speculative Buy at $21.03 as a way to benefit from the expected recovery in U.S. house prices. It proved to be volatile in price and certainly has not always moved in the expected direction. The price volatility has provided opportunities to add to positions at attractive prices. Despite the recent price increase it is still rated (higher) Buy based on our expectation for an earnings per share rise of perhaps 25% in the next year. Given its history, the share price could suffer a pullback in the meantime. And certainly if the overall market pulls back, this one is not immune. But overall, it appears to remain a good investment at this price.

October 7, 2017

On Friday, the S&P 500 was down 0.1% and Toronto was down 0.3%.

Stock markets, especially in the U.S. have been very strong indeed this year. But I would say that Donald Trump could do something at any time that would drive markets down. It’s not a bad idea to maintain balance in portfolios and to maintain some cash to take advantage of lower prices should they occur. At the same time, getting out of the market in anticipation of declines does not seem to be viable since there are always many many more scares than actual big declines.

Costco was down 6.0% to $157.09 despite posting a strong earnings report. This stock is never cheap but it is a power house. I added modestly to my position on this dip even though my last rating was only Weak Buy at $157.  I would add more on a bigger dip such as below $150.

Penny stock Ceapro managed to hang onto its gain of Thursday and added another 2 cents or 2.9%.

Statistics Canada reported employment figures for September. I don’t pay much attention to the monthly job gains and losses since they seem to be volatile and after all are subject to statistical error including seasonal smoothing calculations. The unemployment percentage rate however is fairly stable. It would surprise a lot of people to know that at 6.2%, the unemployment rate in Canada is almost at record lows in data going back to 1976. It did get to 5.9% and around 6% for much of 2006 through 2008. But other than that it is has usually been quite a bit higher than 6.2% and was over 10% all through 1982 to 1985 inclusive, peaking at 13.1% in January 1983. (This is when the youngest boomers were entering the labour force and supposedly had it so easy!).

Alberta’s unemployment rate is 7.9% which appears to be close to the historical average. It’s far higher than the lows of under 4% that happen in boom years but also far better than the 11 and 12% rates of 1983 and 1984.

The unemployment rate in the U.S. is 4.2% which is at the very low end of rates going back to the 1970’s. These low rates confound the many people who are certain that we live in terrible times and that the America economy is broken. Many of them will simply choose not to believe the official figures.


Linamar updated October 7, 2017

Linamar is updated and rated (higher) Buy at $77.93.

Linamar was added to the site on November 27 last year rated Strong Buy at $51.09. At that time it looked very cheap. It’s up about 53% since then. But it still looks quite cheap with a P/E of 9.4. It could be rated (lower) Strong Buy based on its numbers. However  earnings growth has slowed somewhat in 2017. Also the recently higher Canadian dollar will likely be a headwind in the near term. And there are risks regarding NAFTA and protectionism in the U.S. In my own trading, I may add modestly to my position and will be prepared to buy more if the stock dips into the $60’s. It is a very well managed company and should do well over the long term but its price can be volatile when investors turn pessimistic about the outlook for auto parts companies.

October 5, 2017

On Thursday the S&P 500 was up yet another 0.5%. Toronto was up 0.3%.

Ceapro was up 12 cents or 21%. I don’t see any news to explain that. And it was only on a relatively few trades later in the day. I would not read anything into that. This is a penny stock and they move around a lot in percentage terms.

Big news today was TransCanada’s official cancellation of the Energy East Pipeline. It’s not entirely clear if this was strictly due to regulatory barriers. One analyst on BNN claimed there won’t be enough oil to fill all the pipelines that were potentially in the works.

Certainly the regulatory climate is extremely difficult. I spent 13 years working for the utility regulator in Alberta. My view is that their process was becoming increasingly complex and suffocating over the years. The National Energy Board (NEB) I think suffered from the same massive information overload whereby it becomes almost impossible for any one human mind to read, much less comprehend and assimilate the massive amount of submissions. The scope of the proceedings has vastly mushroomed over the years. On top of this the NEB was more recently required to consider environmental impacts both of the project and then more recently of the end users of the oil. I think trying to determine if a pipeline is in the National Interest in that environment is almost impossible. A pipeline will always be very beneficial to a relatively small portion of the population. It might somewhat benefit a very large portion of the population. And there are some people who bitterly oppose pipelines. Whether it would contribute to pollution that harms the environment is perhaps impossible to know. It depends whether the oil in the pipe spurs new consumption or simply displaces oil produced elsewhere. And how exactly can one balance the harm and costs of pollution or possible spills against economic benefits? That’s an argument that could go on forever. There can never be a consensus on such matters. At some point, a regulator or government has to simply make a call on those matters. But governments seem less willing than ever to make calls which will be bitterly opposed by some.

The loss of this potential pipeline is certainly negative for Alberta.

Perhaps it is a positive for CN rail.

Statistics Canada reported that Canadian exports fell in August. Volumes decreased 1.9% in August, while prices were up 1.0%. This may be partly or largely due to the higher Canadian dollar. Products priced in Canadian dollars became less competitive. Perhaps we should wait to see if the volume decline is confirmed in the next month or two before reading too much into it. The price increase seems surprising but could be related to higher oil prices. It is volume rather than price which has the most impact on the economy and jobs.

October 4, 2017

Wednesday’s markets saw the S&P 500 up another 0.1% while Toronto was about unchanged.

Canadian Western bank was down 2.0%. Linamar was down 2.6%.

RioCan was up 1.7%.

The Globe and Mail reports that auto deliveries (I believe this is to dealers as opposed to sales to customers) were strong in September and will almost certainly be over 2 million vehicles delivered in Canada in 2017 which is a record high. This should be good news for AutoCanada. However, deliveries of Fiat Chrysler products (which is their main brand) were down 6% in September. Still, AutoCanada should report a strong Q3 compared to 2016.

Alberta has announced preliminary plans for marijuana sales. It looks like existing private hemp stores should be well positioned to get licensed. There will be no sales through Liquor Stores. I remain perplexed as to why Liquor Stores N.A. (no longer on our list) is trading at around $9.99. They have been paying out a dividend while losing money at least on a GAAP basis. The market is showing faith in the new management. I do not have that faith, but then again I am no longer following the company very closely at all.

FedEx updated October 4, 2017

FedEx is updated and is rated (lower) Buy at $223 (yesterday’s closing price).

FedEx has achieved strong earnings per share growth in the past few years. I focus on earnings adjusted for certain one-time or acquisition-related costs. The shares are worth considering but are not any huge bargain. For new positions, I would take a half or quarter position now and would be prepared to add to that on a dip.

FedEx is up about 16% since our last update of last December when it was also rated (lower) Buy. Looking back, our track record on this stock has been poor. On at least two occasions in the past we rated it Sell after some poor results and it went on to do quite well. In other cases it looked like a Buy based on results and then did not do well. Buying and holding (or better, adding on dips) would have worked out okay. The company has done well long term but has had volatility that has been difficult to predict.

October 3, 2017

Tuesday was another positive day in the markets with the S&P 500 up 0.2% and Toronto up 0.1%.

Linamar was up another 1.5%.

The Canadian Western Bank series 5 preferred share was up 2.0% to $23.77.These shares were issued at $25 in 2014 yielding 4.4%. They traded above $25 for most of 2014 but declined through 2015 and reached a bottom of just under $16 in early 2016. The recovery since then has been relatively steady.

I mentioned these share favorably at $18.85 on December 23, 2016 and at $19 as well as at $18.25 on September 4 and in an update on March 13 at $16.61 and on February 23. It was disappointing to see these shares decline the way they did (along with almost all rate reset preferred shares). But those the declines also provided opportunities for bargains.

At this point there is not much upside left in these shares. But if interest rates continue to rise they could get back to $25.

Warren Buffett / Berkshire Hathaway today announced it will acquire 39% of the company that owns the Flying J truck stops. Berkshire’s ownership is set to rise to 80% in 2023 with the controlling family continuing to be involved and owning 20% at that time. This is a typical Buffett acquisition, a very large successful and simple family owned business. It seems to me that the business has some similarities to Alimentation Couche-Tard. On highway trips most people like to stop at the biggest and brightest and cleanest service stations.

The news today was that Jean Coutu will be sold to Metro and the family will receive some $2.5 billion dollars. The family deserves great praise for the business it has built up. But one thing that never seems to be mentioned in situations like this is the income tax the founding family will pay. Possibly it’s not mentioned because they have managed to shelter most or all of that gain from taxes. Whenever the founder of a huge family-owned company dies you might think there would be a huge income tax bill. But maybe estate taxes are only for the little people? I really don’t know. (P.S. to clarify, I used the term “estate taxes” quite loosely here, I refer to the deemed disposition on death and resulting capital gains on cottages and investment rental properties and financial investments and small business value gains above the $830,000 exemption and the full taxation of the RRSP /RIF of a the last surviving spouse.)

RioCan announced on Monday that it will sell properties in smaller places to concentrate on the six largest cities in Canada. This will take place over a couple of years. They intend to buy back some units and will suspend their dividend reinvestment plan. I would definitely consider buying these units if I had much cash in my accounts. This REIT seems to be very well managed. I would not be surprised if they increased the distribution before too long. The unit price is up less than 2% on the news. Apparently analysts and the market are not overly excited by the news.


October 2, 2017

On Monday, the S&P 500 rose 0.4% and Toronto was also up 0.4%.

The U.S. markets were apparently unaffected by the mass shooting in Las Vegas. Sadly, the general public is mostly no longer all that shocked by such an event.

Canadian Western Bank was up 1.1%. It announced this morning that it has been approved for a “normal course issuer bid” under which it could buy back up to 2% of its shares.

Some companies announce such bids but then end up buying back few or no shares. My information is that CWB has NEVER bought back any shares and I am not sure it has ever had a normal course issuer bid for common shares. So, there is every reason to believe CWB is serious and will buy back shares. The share price is probably up somewhat since the CWB Board approved this and applied to the stock exchange for approval. Still, I am pretty sure they will be buying. It is unfortunate that CWB had to issue shares in 2016 at $24.50 only to buy some of those back now at much higher prices. But circumstances have changed. In 2016 there was apparently a need to shore up capital. Now the bank believes it has “excess” capital and can afford to buy back some shares. And it apparently believes the shares remain under valued.

Often companies are very poor judges of the true value of their own shares and are sometimes prone to paying too much in buy backs. But given that CWB has no past history of buying back shares, I think they do have a rational basis for doing so at this time.

In summary, this buy back would seem to be good news and should provide an added buoyancy force on the share price.

Couche-Tard was up 1.6%.

Linamar was up 2.8% to $78.28. I know it is a great company but I don’t know if it remains good value at this price.

The next update will be for FedEx. I will plan to update Linamar soon.

October 1, 2017

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

TFI International was up 2.2%.

CRH Medical bounced up 12.5% on Toronto and 10.6% in U.S. trading.

Alimentation Couche-Tard was down 1.2% to $56.90. I would be inclined to use this dip to add modestly to positions.

The terrorism attack in Edmonton last night hits somewhat close to home for all Canadians and quite close to home for those of us living in or near Edmonton and anyone who is familiar with the two locations of the attack. These types of attacks are unfortunately a part of life. I think the proper response includes a lack of panic and continuing to go about life as usual.


Canadian Western Bank updated October 1, 2017

Canadian Western Bank is updated and rated Buy at $33.71. This stock is up 11% this year. It’s also up 42% from the low it reached in May when it was dragged down by concerns about sub-prime residential real estate lending when Home Capital suffered a run on the bank. It’s up 33% since we rated it Strong Buy at $25.37 on June 3. On more than one occasion over the years, this bank has sold at very attractive prices when investors were basically in something of a panic mode. The stock remains well below its all-time highs of over $40 that it traded at in July 2014. I thought it was good value in the mid- to low thirties in the last half of 2014 but it has taken a long time to get back to that level.

At this time the bank is reporting progress on many fronts. I considered rating it (higher) Buy but I went one notch lower to pay respect to the fact that banks are highly leveraged and that additional bad news in terms of loan loses is possible. Subscribers should also review our report to get a better sense of why the stock is rated Buy.

It is my second largest position. Having added significantly to my position at various prices on the way down including around $28 and $26 (as I recall) it may be prudent for me to begin to trim the position at some point simply to raise cash and for diversification. For the moment, I am inclined to maintain my full position.

A Diversified Portfolio Using Exchange Traded Funds

Last Saturday, I sent out  an edition of the free newsletter and I followed up yesterday with a link to a new article on exactly how Canadians can put together a low-cost diversified portfolio using Exchange-Traded-Funds. This may be useful for less experienced investors in particular. Even those of us that prefer to pick individual stocks may wish to consider ETFs for fixed income and for international diversification. The management expense ratios for some bond ETFs have declined recently to very low levels.

If you did not receive those emails you can see the newsletter in our list of newsletters here. And you can add your email to the free newsletter list here.

September 28, 2017

On Thursday, the S&P 500 rose 0.1% to yet another record high and Toronto was also up 0.1%

The Bombardier pref shares recovered 6.2%.

Toll Brothers was up 1.8%, FedEx was up 1.9%, Canadian Tire was up 1.4%, Andrew Peller was up 2.2%.

Canadian Western Bank was up another 0.9% on top of yesterday’s 4.9% rise.

CRH Medical has announced another small acquisition. This would seem to be a positive development as the company continues to pursue its growth strategy just as it said it would.

I notice that Liquor Stores N.A. (no longer on our list) was up 2.1%. I saw someplace that there is speculation that it could be allowed to sell marijuana. There is some rationale to that given that Ontario is going to sell marijuana through the same body that runs government owned liquor stores. But those will be separate stores. I certainly would not count on Liquor Stores N.A. being allowed into the marijuana business. Meanwhile, its debts have risen and I don’t know that it would have the capacity to invest much into a new business. It if did get into the business, it would likely have to issue shares.

U.S. markets have been positive in the past couple of days partly due to Trump’s plans to lower corporate income tax. This positive reaction is in spite of the fact that he has trouble getting much of anything passed through the House and Senate. In addition, no one seems to remember that there is a thing called competition which in theory would flow much of the income tax savings through to customers.

Boston Pizza announced that Boston Pizza International has sold $33 million worth of fund units to founder George Melville for $20.64 per unit as part of a reorganizations that it announced on September 19th. The Boston Pizza Royalties Income Fund has always been a financially engineered entity with a complex structure. It is not entirely clear to me if this reorganization has much impact on the value of the units at all. It looks to me like it will lower distributable cash flow a little as a 7.25% loan to that the fund had made to a related entity is being paid off. But the fund will presumably receive cash and could use that to buy back units which is accretive to cash flows per units.

I am also a bit concerned to see how much of the BP Fund, Jim Treliving will end up owning. He will now fully control Boston Pizza International (BPI) and I would want him to continue to have ownership in the BP Fund to give BPI more incentive to treat the fund well. When you have complex structures and related entities there is potential for one entity to be treated more favorably than another. To date, it has always appeared to me that the founders of BP who controlled BPI have always treated the BP Fund very well, for example not burdening the fund with much in the way of administrative costs. And it looks like Jim Treliving / BPI will still have an incentive to treat the fund well as BPI has the option to acquire 10.2% of the units (but I am not at all clear on what if any price they would pay to exercise that option). The other founder, George Melville is basically getting out of BPI and will be the largest owner of the BP fund. So, presumably, he is confident that the reorganization will not be bad for the fund.

So far the market has not reacted in either direction to news of the reorganization. Perhaps the market is a bit unclear as to the impact of the reorganization.


September 27, 2017

On Wednesday, the S&P 500 was up 0.4% while Toronto was up a hefty 0.9%.

Canadian Western Bank was up 4.9% to $33.56. Just four months ago it had briefly dipped to just under $24 at the time that Home Capital looked to be circling the drain. It’s always scary to buy on dips but it can certainly pay off at times. I did not see any news to explain today’s 4.9% increase. Possibly some analyst has made a bullish call on the stock and that could be linked to the higher oil prices and recovering Alberta economy.

Speaking of dips:

The Bombardier preferred shares on our list were down 4.5% to $16.24. They now yield 9.6%. That’s tempting but Bombardier is a truly weak company. It is probably only by the grace of government subsidies and support that it has not long since declared bankruptcy. But it appears that government will continue to support it and so it will likely continue to pay the dividend on these shares. Still, there as no guarantees. I have about 2.6% of my portfolio in these shares and so I am not very tempted to add to that.

Couche-Tard was down 1.9% to $57.97. I believe that may have to due with Metro’s possible purchase of Jean Coutu since Metro might sell its substantial investment in Couche-Tard shares to pay for that. Such a sale would have absolutely no impact on the true value of Couche-Tard but could push the price down temporarily. I am somewhat inclined to buy on this dip but then again, I already have about 2.9% of my portfolio in Couche-Tard. I would be more likely to buy on a bigger dip. Couche-Tard has nothing close to the risk that Bombardier has. As Couche-Tard founder Alan Bouchard has said, Couche-Tard may not make planes, but it does make money.

Meanwhile, CN Rail was up 2.2% and Canadian Tire .and Boston Pizza were each up 1.7%.



September 26, 2017

On Tuesday, the S&P 500 was about unchanged while Toronto was down 0.3%

Bombardier ended the day up 6.1% but that was before a very negative (albeit preliminary) ruling came out in which the C Series jets could face a 220% duty in the U.S.

The Bombardier preferred shares on our list were down 4.4%, and again that was before the negative trade ruling.

It’s hard to keep up with the absurdities at Bombardier. The company must be one of the very worst managed large companies in the world. When it contracted to sell C Series planes to Delta and to Air Canada in 2016, the price was so low that it actually took a “onerous contract” loss in booking the sale. (So Boeing’s charges about dumping are not exactly without merit) Now we have the absurdity of a 220% duty. Will the USA protect Boeing from competing with this Canadian company that apparently is willing to sell jets far below cost? That protects Boeing, but what about the harm to U.S. airlines and their passengers?

CRH Medical was down another 5.3% on Toronto.

Global ETF article / list updated September 25th 2017

I have updated the article that lists some global ETFs and includes P/E ratios and dividend yields as well as the management expense ratios.

It would be nice if there were some regions of the world that looked like clear bargains. But I did not find that to be very much the case although China looks attractive.

My next article is going to look at the Canadian and Global asset classes and ETFs and build a table that could be used to put together an ETF portfolio which includes the major asset classes as well as some amount of global diversification. This may be useful particularly to newer investors who want to get started investing with ETFs rather than individual stocks. And it may also help those of us with a portfolio of individual stocks to think about possibly adding some level of global diversification.

Financial theory is clear that diversification is generally a good thing. In the absence of an ability to pick stocks (and at InvestorFriend our history suggests some ability there) or an ability to pick winning regions of the world (with the most attractive stock prices given growth) one would diversify perhaps as widely as possible. However, it is not as clear to me how much global diversification is called for when currency risk is considered. A widely diversified U.S. investor could concentrate fully half of their equities in the U.S. just based on market representation. And that takes care of a lot of currency risk. But I have never been a believer that Canadian investors should take their Canadian equity exposure way down to anything remotely close to the 3% or whatever that Canada represents of world equity markets.

I am not going to suggest what precise exposure Canadians should take to U.S. and world markets but I will include in my article some thinking that may help. In my portfolio, I have had extremely little to almost no exposure to companies outside of Canada and the U.S. and I have not regretted that lack of exposure. But, I do think there is room for some such exposure. In particular, index investors (as opposed to stock pickers) should probably have that exposure. In the case of picking individual stocks it is more difficult to become familiar with foreign companies and so more home-bias seems natural.



September 25, 2017

On Monday, the S&P 500 was down 0.2% while Toronto was up 0.4%.

CRH Medical had another weak day, down 7.1% on Toronto and 9.4% in U.S. trading. This was after announced several things in a press release on Friday.

The press release updated expected revenue and adjusted EBITDA attributable to shareholders (i.e. after deducting the share going to the minority owners of each Anesthesia provider which CRH does not own 100% of)  for Q3. Annoyingly, they did not say how the updated numbers compared to Q3 2016. When I looked it up, they are projecting a 20% reduction. They blame this on a reduction in commercial patients versus expectations and canceled procedures related to the Florida hurricane. And this in spite of the positive impact of recent acquisitions. The hurricane impact is truly outside of their control but the market will not like the fact that the number of commercial patients was over-forecast.

In positive news, they announced the acquisition of 51% of an anesthesia practice. This is the fifth acquisition in 2017 and suggests that their growth-by-acquisition plan remains intact.

Overall, it still appears to me that the underlying business is viable and that this should be a good investment over time going forward. However, it appears as if any material improvement to earnings could be at least a year away. The reductions in their pricing which drove down the share price do not come into effect until 2018.

I was somewhat tempted to continue to increase my position due to this price drop and given this latest acquisition. But I have enough exposure already and I was not impressed that I had to calculate what kind of reduction they were communicating for Q3. I would have thought the press release should have made that clear.

Bombardier was down 4.0% to $2.14 after news that Siemens will in some way combine its rail operations with Alstom rather than Bombardier. Certainly, Bombardier has been a terrible investment and I last rated it Sell at $2.05 in August of last year.

I retained some faith in their preferred shares which yielded 9.1% at my last update also in August of 2016. Since then there has been some good news in terms of deliveries and performance of the C Series plane. But Bombardier has also been in the news regarding corruption allegations in some of its marketing in areas of the world that do tend to be corrupt. And we have the spat with Boeing. Overall, the company and its preferred shares seem to be even more speculative. At the same time the Canadian government has its back and so I have not sold my preferred shares.

In other news, Statistics Canada released July figures for food services and drinking places. There was an increase in sales. This should be positive for Boston Pizza unless they have lost market share.

September 24, 2017

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

Canadian Western Bank was up 1.2%.

Linamar was up 1.5%.

Stock futures are slightly positive on Sunday evening perhaps relieved by Chancellor Merkel’s win in Germany.

The markets continue to shrug off the bombastic comments of President Trump.

Statistics Canada reported retail sales figure for July which were down slightly in volume terms but up slightly in dollar terms.

Statistics Canada also reported the August inflation figures. 

September 21, 2017

On Thursday, the S&P 500 was down 0.3% while Toronto was up 0.5%.

Canadian Tire was up 2.2%.

AutoCanada was up 2.2%.

Statistics Canada reported on investment in new home construction in July which as up 6.4% nationally from the prior year. I pay particular attention to investment in single family homes in Alberta. This was up 34% versus July 2016. That’s impressive but it would have been boosted by replacing homes destroyed in the Fort McMurray fire. And the amount remains 6% below the July 2015 level and 24% below the level of 2014 (which was likely a peak). Overall, the pace of single family housing investment in Alberta shows a good recovery from the depths of the energy recession and bodes well for Melcor Inc.

Statistics Canada also reported positive results for wholesale trade in July, with particularly strong growth in Alberta.

September 20, 2017

On Tuesday, the S&P 500 was up 0.1% and Toronto was up 0.6%

AutoCanada was up 3.4% to $23.96. Apparently some investors like the company at about $24. I wonder what they were thinking in late Spring, early Summer when it was available for $18?

FedEx was up 2.2%. What I found interesting about that was that yesterday when FedEx released earnings after the close, the headlines indicated FedEx missed earnings expectations and the stock fell in “after-hours” trading. It’s supposed to be the smart money that pounces and trades after hours on news. But the reality is that it usually takes a few hours to digest earnings news. In this case the smart money was not so smart.

After the close yesterday, the Boston Pizza Income Royalties Trust announced some changes involving its relationship to the operating company Boston Pizza International. There may be little impact on the royalty units but the changes are somewhat complex. It does appear that the fund will no longer collect the 7.5% interest on a $24 million loan to BPI as the loan will be “eliminated”. I have long listed this as a risk since why has BPI continued to pay this high interest instead of paying off the loan? But overall the press release seems to indicate the changes are positive for the fund. The royalty units rose 1.% today so perhaps the market judges the changes to be positive. But I would question the ability to understand the changes. I like the fund and it has been a good investment. But it has always been a financially engineered entity and has always been complex.

Warren Buffett said today (or it may have been yesterday) that the DOW will be over one million in a hundred years. What is astonishing about that is that it will only take a compounded gain of 3.87% per year for the DOW to rise from Tuesday’s close of 22,371 to 1,000,000 in 100 years. Buffett also noted that since Forbes started the list of the 400 richest Americas in 1982, some 1500 different people have appeared on the list. Buffet is always coming up with unique figures like that. I never heard of anyone else looking into how many different names were on the list. But Buffett’s point was that NONE of them were short sellers. Buffett has always felt that America will do well over the years and that while stocks can fall over shorter periods of time they will always rise over the decades.

Some years ago I came up with my Rule Number 1: “Always assume that Buffett is correct”, Rule Number 2 of course is “Don’t forget rule number one”.

September 19, 2017

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

Toys R Us declared bankruptcy. This has been expected. This will not be much of a concern to RioCan since Toys R Us was not listed in its top 30 tenants and therefore likely represents quite a bit less than 1% of RioCan’s revenues.

Statistics Canada reported weak manufacturing sales. But there was some indication that this was caused by by normal fluctuations in sales including shutdowns at auto factories. It remains to be seen if this data indicates a true slow down as opposed to statistical noise. But certainly the recently sharply higher Canadian dollar is a negative for manufacturing.

Wells Fargo was up 1.2% to $53.36. Its problems with sales practices and resulting regulatory sanctions are not over yet and so I would be reluctant to invest in this bank at this time.

Toll Brothers was up 0.6% to $40.20. There is nothing special about the $40 mark but I like to think it deserves to be over $40.

September 18, 2017

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

Canadian Western Bank was up 1.9% to $31.80. That is an increase of 25% since I rated it a Strong Buy on June 3. On the other hand it remains below the prices of around $40 and in the mid to high $30’s where I thought it was a good investment in the fall of 2014. It did not turn out to be a good investment at all that fall. But I mitigated the damage by buying on dips since that time.

AutoCanada was up 5.3% today to $23.08. This is another company that turned out not to be a good investment at the $40.36 price when it was added to the site on July 14, 2015. But it is now up from its lows and I believe that it will ultimately turn out to be a good investment especially for purchases near the lows and probably at the current price as well.

CRH Medical was down 8.6% on Toronto. That is disappointing but may ultimately turn out to extend the opportunity to buy near the lows. It appears to remain a good company that should be a good investment at these prices.

RioCan updated September 18, 2017

RioCan is updated and rated Buy at $23.84. The company provides a huge amount of detail on its various properties and growth initiatives. The bottom line however is a 5.9% distribution that seems very unlikely to be curtailed and which will likely increase slowly over the years. In addition the units are available at just a hair under book value. And book value is based on the RioCan’s income properties (shopping centers of various types) marked to the value that they trade at among big institutional buyers. That means we can apparently effectively buy into retail shopping infrastructure on the same terms that pension funds and other institutional buyers would pay. All of this is positive. On the other hand these income properties appear to be relatively low return assets reflecting their low risk. And, book value seems likely to decline (unless offset by growth projects) due to higher interest rates. And, there are worries about the future of bricks and mortar retail. Overall though at the current price RioCan looks to be a reasonable investment for those seeking cash yield in their portfolios. In taxable accounts investors should review the taxation of these units which is relatively complex and changes year to year. I would prefer to hold this investment in a non taxable account.

When I first added RioCan to the site on July 9, 2011 I rated it only a Weak Buy / Hold. In part I was concerned by the price to book ratio which at the time was around 1.5 despite the properties being marked to market. I feel more comfortable buying with the price to book at basically 1.0.

I have no immediate plans to buy most because I don’t  have much cash and since I have never had a preference for cash yield versus capital gains. I have generally always strived to maximise return and been agnostic as to dividends versus capital gains. In large measure this may be due to the fact that most (but not all) of my investments have been in non taxable accounts. In taxable accounts since I have not been withdrawing cash I prefer to buy and hold for capital gains (non-taxable until sold) rather than receive taxable distributions. On the other hand I do like the idea of a relatively reliable 5.9% return (assuming no capital loss) just to add stability to a portfolio.

September 17, 2017

On Friday, the S&P 500 was up 0.2%, closing at 2,500. Toronto was about unchanged.

The next update will be for RioCan. The rating will somewhere in the Buy range. It pays a 5.9% distribution and that distribution seems likely to rise over time. The units trade at about book value meaning you can buy in at a price that currently is about equal to the latest estimate of the market value of the buildings (net of debt). Their properties are marked to market value quarterly. You effectively pay no extra premium for the ability of management to grow the book value per unit over time. In part this is due to current fears that market values of the existing properties will decline with higher interest rates (which is true) and fears that retail shopping malls will see increased vacancies and lower rents over time due to online shopping – which RioCan managements seems to dispute. Overall, I think RioCan offers good value at the current price. I would not expect big capital gains but the distribution is attractive and the unit price seems likely to hold up or increase moderately over time. Due to the way the distributions are taxed (which changes from year to year), this investment is probably better suited to non-taxable accounts.

It was not obvious to me before, but I now understand that RioCan (and perhaps most REITs) probably contracts out much of the real operations of properties. They indicate in the Annual Information Form that they do the maintenance work with internal staff. But with 300 properties and only 669 employees, I suspect much of the maintenance is contracted out. They pay brokers when leasing out space. Apparently, companies are not required to discuss the work they contract out.


September 14, 2017

On Thursday, the S&P 500 was down 0.1% while Toronto was up 0.3%.

CRH Medical was up 11.6% to $3.47 in Toronto. It appears that some of the recent plunge in this stock was overdone.

Today I am looking at the reports from RioCan in preparation for an overdue update. Essentially this retail property REIT is down because of fears of the death of bricks and mortar retail, The CEO of RioCan believes such death rumors and fears are greatly exaggerated. I have not done the analysis yet but  I think he is probably right and that RioCan is attractive. RioCan has a yield of 5.8% and while the distribution has not increased since 2012, there likely will be increases at some point. On that basis the investment looks attractive. I have no real ability to predict the future of bricks and mortar retail. But I do think the RioCan CEO is both knowledgeable and sincere in downplaying that fear.

Yesterday, I was mentioning Stantec. In my files I have an old summary page from its 1998 annual report that shows that its gross revenue in 1994 was $89 million and net income was $3.9 million. 22 years later, in 2016, the gross revenue was $4,300 million and net income was $130 million or $181 million adjusted for certain amortization and acquisition costs. By any standard, this is HUGE growth. The share count however was up by about 155%. The shares that existed in 1994 represent about 39% of today’s shares. The adjusted earnings per share have grown from $09.25 to $1.69. Again that is a huge increase even over 22 years. Perhaps surprisingly that is 14.1% per year which may not sound all that high.

The fact is that compounding earnings per share at double digit figures for two decades produces remarkable gains. And every extra 1% in the compound return adds tremendously to the tally over two decades.

Anytime we can find a company that seems likely to continue to compound earnings per share at double digits for a decade or more it will turn out to be a great investment unless the shares are trading at a very high P/E ratio.

Stantec, at the end of 1994 was trading at $0.9375 (spit-adjusted) or 10.1 times trailing earnings. In retrospect, we now know that would have been a fantastic buy-and-hold stock. The stock has compounded up at an average 17.8% per year (faster than earnings per share growth due to an increase in the P/E ratio) . But even if it had been trading at 25 times earnings, it still would still have been a very good investment with a compounded annual growth rate of 13.0%.

For long term holdings that will really build wealth it is very important to select companies that can grow earnings per share at high rates. It is less important that they be purchased at bargain prices (though at some point a too high price ruins the investment).

Stantec is still growing in the same way that it has for decades. There are no guarantees, but it seems reasonable to assume that it could continue to grow earnings per share at 10% or more per year. Its P/E ratio at 19 is not the bargain it was in 1994 or 1999 but is also not unreasonably high.

If Stantec is purchased today, the wisdom of that should not be judged on the share price in six months or a year but rather based on the share price a decade from now.

September 13, 2017

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

Costco rose 1.8% which is relatively large increase for such a large company.

I no longer have Liquor Stores N.A. on the list but I keep an eye on its price. It was up 2.5% today. I took a quick look at its recent conference call transcript and did not see anything good. The company admits that certain family-owned discounts mini chains in Alberta have lower costs. It has tried putting prices up but has had to lower prices due to competition. New management is going to try to reduce costs. I suspect they will close some stores. If I still owned these shares I would Sell. Liquor is always going to sell but the problem is that the various competitors sell basically the same products. Customers can easily go to the cheapest location. The lucrative part of the liquor industry would be the producers of popular branded premium products. Having to compete mostly on price, as retail liquor stores do is not a road to great profits. And having to do that while not having the lowest costs is a very rough road to follow. Some years ago I thought Liquor Stores N.A. had cost advantages due to scale. But the monopoly provincial liquor wholesaler does not give volume discounts and it seems that a number of chains have lower costs than Liquor Stores N.A. Simply, Liquor Stores N.A. financial results for the last few years appear to refute my original idea that they had important scale advantages such as in advertising.

Note the update for Stantec in the post below.

Stantec updated September 13, 2017

Stantec is updated rated Buy at CAN $34.25. This has been an exceptionally well managed growth-by-acquisition company for many years. Its share price is up 2,642% since I first added it to this site way back in September 1999. Its growth strategies and overall approach remain consistent but it has expanded greatly geographically. The share price has been relatively stagnant for the past four years. Recently its revenues per share have surged due to a very major acquisition in mid 2016 along with other acquisitions and organic growth. Earnings per share were sharply higher in its latest quarter, up 37%.  It seems likely that strong growth will continue in the last half of 2017 although the recent sharp rise in the Canadian dollar will be a substantial drag on growth. I am very comfortable holding this stock and will consider adding to my position.

Stantec could pick up increased work related to repairing the recent hurricane damage.

Enbridge rate reset preferred share series 9 ENB.PR.A updated September 12, 2017

The Enbridge rate reset preferred share on our list is updated and rated Buy at $21.16.

These shares are similar to the Canadian Western Bank preferred shares updated yesterday. The Enbridge shares fell sharply in 2015 as interest rates declined and the projected reset yield therefore declines. In addition, I believe that Enbridge restructured in a way that weakened the balance sheet somewhat which further pushed these shares down and I believe this is why they trade somewhat cheaper than the CWB shares. With the recent rise in interest rates these Enbridge preferred shares have gained 13% in 2017.

These shares were briefly under $16 and even under $15 in early 2016.

At this time these Enbridge preferred shares at $21.16 seem more attractive than the similar CWB shares now at $22.73 although that may reflect higher risk. They could be purchased for the 5.2% yield. The possibility of a gain towards $25 would be a bonus and if the shares happen to fall they could continue to be held for the dividend.

Canadian Western Bank Preferred Share Series 5 updated September 11, 2017

The report for the Canadian Western Bank rate reset preferred shares Series 5 is updated and rated Buy at $22.50 yielding 4.9%.

Given the the two recent Bank of Canada rate increases the projected dividend at the reset date of April 30, 2019 has increased and the projected yield (at the current price) is 5.0%. Accordingly, the share price has increased. Given expectations of further rate increases these shares could increase towards $25. But I would not expect the price to go past $25 since the bank can redeem them at $25 on April 30, 2019. If the yield at that time was above the yield the bank could issue new prefs at then they would likely be redeemed.

Like many rate reset pref shares issued around 2014 and prior, these fell from their initial price of $25 as interest rates unexpectedly fell which lowered the projected reset dividend. Over the past few years there have been occasions when these shares become quite attractive. Our highest rating was (higher) Buy at $16.61 on March 13, 2016. These shares were rated Buy at the start of 2017 at $19.05. They would not have been a good investment at our initial rating of Buy at $25.64 in July 2014. However, there were good opportunities to invest at good prices in the later months of 2015 and in all of 2016 and the start of 2017 as indicated from time to time in the daily comments and occasional updates of the report.

These shares are worth considering for the reasonably good yield of 4.9% combined with a potential for as much as an 11% capital gain over the next 20 months. There is also always the potential for a capital loss if interest rates fall (seems unlikely) or CWB runs into financial difficulties (unlikely but always possible).


September 11, 2017

Monday was a strong day in the markets with the S&P 500 up 1.1% and Toronto up 0.4%.

CRH Medical was up 10.1% in Toronto after announcing another acquisition. My view was (and is)  that despite the recent government-mandated reduction in the revenues that it receives for each anesthetic procedure, it was still reasonably profitable and its growth strategy was intact. I continue to have confidence in this company. The higher Canadian dollar is something of a headwind but should be a relatively minor factor in the big picture as the company grows.

Home Capital (which I have mentioned, but which is not on our list) was up 3.4%. There is a vote tomorrow regarding whether Warren Buffett / Berkshire Hathaway can buy a second approximate 20% chunk of the company at the discounted price of $10.30. Home Capital has just announced that its Oaken Financial subsidiary has cut the rates on its GICs. This was completely expected since after the rescue by Warren Buffett the company does not need to offer abnormally high rates to attract GIC deposits. If the shares happen to fall after this vote, (no matter which way it goes) that would be a buying opportunity, I believe.

AutoCanada was up 2.3%.

CMHC released housing starts data for August. The annual run rate trend is very strong at 219,000 housing units per year. Given my large Melcor position, I am always most interested in the single family starts in Alberta. Those were up a hefty 45% from the prior year for the month of August. I believe that would still be well below the level of 2014 but is nonetheless quite positive.

Alimentation Couche-Tard updated September 11, 2017

Couche-Tard is updated and remains rated Buy, now at $60.25

I have been following this company since it was added to this site rated (lower) Strong Buy at $5.80 (split adjusted) on March 31, 2005. The gain has been 939%. It would have made a great buy and hold forever stock. At times it has looked too expensive but in fact its subsequent growth has always justified the price. The achievements of this once tiny Canadian company are truly staggering. Just in the years I have been watching, it has gone from (I believe) roughly 5,000 stores to roughly 13,000. And they still have the acquisition pedal to the floor!

The stock price has been relatively stagnant in the past two years. Now, based on recent large acquisitions that have taken its assets to $20.1 billion in Q1 from $14.2 billion in Q4 and $12.3 billion just 15 months ago, it appears poised for another very significant jump in revenues and earnings per share. In 2012 through 2014 it got a major boost from a very large European acquisition (the boost in revenues was immediate upon closing the deal but some of the boost in earnings was achieved only after cost-cutting moves). These recent large acquisitions may not be as lucrative as the European acquisitions but will almost certainly deliver significant earnings gains over the next couple of years.

Offsetting this somewhat is the higher Canadian dollar that reduces earnings when translated to Canadian dollars though it (paradoxically) increases reported earnings in U.S. dollars. There is also a near-term headwind in terms of damage to stores from the two recent hurricanes.

I am confident in buying or holding this company but I would also be prepared to buy more on a possible dip related to the above factors. Its margins on fuel sales can also be volatile which can lead to better buying opportunities sometimes.

On my just completed road trip from Cape Breton Nova Scotia to Edmonton I certainly found myself attracted to stop at the largest and brightest and cleanest of “gas stations”. The stations that have a large convenience store as well as a Subway or Tim Hortons are highly convenient. Couche-Tard runs many stations like that. And there is certainly room to add more or convert existing gas stations to this larger format.

It may be very simplistic and boring to look to this simple retail business as an investment. But I believe it will continue to do well. And this is a business that all investors can understand. An added benefit of buying these shares is a certain satisfaction that will come from shopping their stores as an owner.

And note that this is now a HUGE company. Its revenues are now running at $48 billion annually and poised to increase. Report on Business Magazine ranks it ninth largest company by revenue in Canada. But due to its April 30 year end that was based on revenues nearly a year old. Manulife had the highest revenue at $53.5 billion. It looks to me like Couche-Tard could possibly  make a run to the top spot in the next few years. In terms of net profit, Couche-Tard ranked 19th highest in Canada. It had only 15% of the profits of number one, Royal Bank. But still being the 19th most profitable company in Canada might shock a lot of people.





September 10, 2017

On Friday, the S&P 500 was down 0.2% and Toronto was down 0.3%.

Dollarama was up another 3.6% to $139.50. Usually I have said this is a fantastic company but looks too expensive. On November 2, 2014 I had it as (lower) Buy at $49.51 (adjusted for a subsequent stock split) That may have been the highest I ever rated it. It kept on growing faster than I would have been willing to assume. Sometimes it pays off to pay up for high quality. And despite its products, this was always a high quality company.

Alimentation Couche-Tard is another extremely high quality company. I am going to post another update for that company likely tomorrow since I think it is well worth considering at this time and given that it just released earnings last week. It is currently facing some store damage due to the Texas and now the Florida Hurricane. If it dips on that news, I think that would be a buying opportunity.

Statistics Canada reported unemployment and job figures on Friday. Some interesting facts. I never like to read too much into the one month changes since there is by nature a certain level of statistical uncertainty in the results since they come from a survey of a sample of households as opposed to say counting everyone paying into CPP in a month or something like that. I note that despite recent improvements in Alberta, the unemployment rate remains somewhat high at 8.1%. For Canada as a whole the unemployment rate is 6.2%. That is definitely lower than the average over the past 40 years.

It is often claimed that “the boomers” never had a problem getting a job. In part this is survivor bias. People look at those boomers that did get good jobs and have pension plans etc. They may be overlooking the many many boomers who were only sporadically employed or made little more than minimum wage. They do exist. Jobs have ebbed and flowed over the decades. The past often looks certain and rosy looking back. But in actuality people living in particular years in the past only seldom perceived the economy to be all that great. Today’s young people do face a tough job market. And some years in the past had far better job prospects than today. But over the past 40 years I can attest there were recessions and years with quite poor job prospects and high unemployment.


September 7, 2017

On Thursday, the S&P 500 was about unchanged while Toronto was down 0.2%.

Ceapro was down 4 cents or 6%. This is going to remain volatile and its ultimate future depends on its research panning out. Their CEO invited me to meet with them after I complained about poor disclosure. Due to travels I have not met him yet. It may end up being a phone call.

CRH Medical was down 3.9% on Toronto. In part this is due to the higher Canadian dollar. I remain quite confident that CRH has a good business model and is low risk at this point (though I never pretend that I can guarantee anything).

Dollarama was up an impressive 10.6% after posting earnings. I have for years said this is one of Canada’s very best managed companies. But it always seems expensive.

There are theories that higher risk companies make the highest returns. In practice some of the safest businesses in simple consumer businesses seem to make higher returns than most risky companies. There never was a theory that said ALL risky companies would make high returns (if so there would be no risk). But often it seems FEW risky companies make much money.

My road trip now has me in Kenora Ontario. Back home on Saturday.

September 6, 2017

On Wednesday, the S&P 500 was up 0.3% while Toronto was down 0.2%.

Couche-Tard rose 2.6% after releasing its fiscal Q1 earnings. AutoCanada rose 2.9%.

CRH Medical slipped 3.1%.

My road trip across most of Canada continued today from Ottawa to Wawa. A scenic route but not built for speed. The lack of a true highway (meaning limited access at a minimum and ideally at least two lanes each way) across this country can’t be good for trucking or businesses dependent on trucking. If infrastructure spending is contemplated, then a true TransCanada highway is an obvious candidate.

Tim Hortons and McDonalds with there multiple new and clean locations seem to be the obvious stopping points on the trip and are invariably busy. Subway and a few other chains also proliferate. The biggest service stations including those ran by Couche-Tard and Canadian Tire also are attractive stopping places and are busy. The “chainification” of all such consumer services has been ongoing for decades and will continue.





September 6, 2017 9:35 am easter

On Tuesday, the S&P 500 was down 0.8% and Toronto was down 0.7%.

Melcor is showing a bit of life, up 3.3% to $15.70

Wells Fargo down 1.7% and Bank of AMerica down 3.2%

AutoCanada was down 3.0%.

My road trip continues, Ottawa last night, stopped in Petawawa at the moment.

As always, auto dealers seem to be one of the most prosperous looking businesses that we pass. We passed no less than four large new looking Toyota dealers just in Nova Scotia and New Brunswick. It seems to me that owning AutoCanada with its 57 dealers is going to work out well especially as the recovery in Alberta continues.

Possible bank of Canada rate change today…

Oil hanging in not bad at $49.17 but Toronto is down for some reason this morning.

I may or may not have internet to post anything tonight/tomorrow morning.

September 3, 2017

On Friday, the S&P 500 was up 0.2% while Toronto was down 0.1%

Canadian Western Bank was up 3.4% to $29.99 in further reaction to its strong earnings report. It appears to me that this bank will continue to recover and remains good value at this price. It’s my second largest position representing a heft 13.5% of my portfolio as of August 28. I have no plans to trim it although having added a lot of shares when it swooned to the $26 and $25 level last Spring, it might be prudent to trim it somewhat. I own it partly in RRSP accounts where I don’t have to worry about triggering taxable capital gains.

Home Capital was up 3.2% to $13.97. I mentioned I grabbed a few shares about a week or so ago. The vote to approve Buffett/Berkshires added investment at $10.30 takes place September 12. Some investors oppose the discounted price. I think it deserves to go ahead since it will totally shore up the balance sheet. But some investors believe Buffett’s original investment has already done that sufficiently. Buffett will retain his original 20% stake no matter what. But I suspect he will feel insulted if the vote is negative. How smart is it for Home Capital owners to insult Buffett? Not very, I would say, but as a huge Buffetf fan I am biased.

Statistics Canada reports that

“Capital expenditures for the oil and gas extraction industries rose 14.9% from the second quarter of 2016 to $9.8 billion in the second quarter. This increase followed a 2.2% year-over-year gain in the first quarter of 2017.”

This is more proof of the partial recovery that has occurred in that industry.

I am on a road trip this week heading west from Cape Breton. Edmonston, New Brunswick on Monday night. Ottawa on Tuesday night. Next stop to be determined. Sault St. Marie or probably somewhat past that.

September 1, 2017 8:40 am eastern

Thursday was a positive day in the markets with the S&P 500 up 0.6% and Toronto up 0.5%.

Canadian Western Bank was up 1.1% to $29.00 on its strong earnings release and remains a good investment that is likely to continue to recover towards past highs.

Stantec was up 1.6% to $34.70 and is also a company that will almost certainly continue to do well.

Toll Brothers was up 1.9% and is another one that appears set to continue to do well.

Couche-Tard slipped down 0.7% which seems surprising given it is expected to report strong earnings on September 6. Earnings are rising as it integrates recent very large acquisitions.

Markets are expected to do well today as a U.S jobs report came in strong.





August 31, 2017 8:20 am eastern

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

Canadian Western Bank was up 2.1% to $28.69. This morning it has reported a very strong Q3 with adjusted earnings per share up 15%. The only negative I saw was gross impaired loans had increased but they indicated that his was as expected and previously forecast. The provision for bad loans was down which is positive. I would expect this stock to continue to do well. Earnings are up and in addition it is trending back to trading at a higher multiple of book value. CWB also raised its dividend by 4%.


TFI International was up 1.6% and continues to be a long term winning company.

Penny stock Ceapro was up another 6 cents or 10%. Presumably, some investors feel that its recent plunge was over done. But I expect this one to continue to be volatile and it is a speculative stock.

I had said that Couche-Tard was reporting on Tuesday. Actually, I now see that it will report on September 6.

August 30, 2017 8:15 am eastern

Tuesday saw the S&P 500 up 0.1% and Toronto up 0.2%. So the markets have shrugged off the North Korean missile shot.

Penny stock Ceapro bounced up 6 cents or 11%. But I would not read much into that as there was no news. The company does have cash and is in no danger financially and so the decline probably was over done. A substantial recovery in this stock is likely a long ways off and depends on the success of their research and development.

Alimentation Couche-Tard is expected to post strong Q1 earnings today, probably after the close.

August 28, 2017

On Monday, the S&P 500 and Toronto were each about unchanged.

Markets are forecast to be down on Tuesday due to a missile launched by North Korea that flew over a part of Japan. It’s anyone’s guess how markets will react and how far Korea will go with its provocative actions. If markets do fall, it would nice to be in a position to have cash to invest at the appropriate time.

I updated the breakdown of my own portfolio.


August 27, 2017

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

Toll Brothers was up 2.1%

As of Sunday night, oil prices have not reacted much to the Texas hurricane and shutdown of some offshore oil production in the Gulf of Mexico.

Canadian Western Bank will release earnings on Thursday. I expect it to be another good report.

August 24, 2017

On Thursday, the S&P 500 was down 0.2% while Toronto was up 0.1%.

Costco was down 5.0% on news that Amazon will close its acquisition of Whole Foods on Monday and intends to lower prices. For the same reason, Walmart was down 2.0%.

Costco has always been quite safe from competition because it had the lowest costs. It charges lower prices and still make a good profit. I don’t think Whole Foods under Amazon can achieve costs as low as Costco. But then again, Amazon has shown a strong tendency to seek sales even at low or zero profits. It is a scary thing to have a competitor like that. Traditional style grocery stores including Walmart probably have a lot more to worry about than Costco with its low-cost warehouse style approach. Costco has long been an expensive stock. Possibly its P/E will come down to account for the risk of Amazon. My strategy would be to nibble slowly at Costco if and as its price comes down. I hold a small position in Costco and am certainly not considering selling.

I happened to be looking at Alimentation Couche-Tard today and decided to add to my position. It reports earnings next Tuesday which are expected to be very strong.

I also on Wednesday made a small purchase of Home Capital shares just on the strength of the Warren Buffett investment. I do consider this to be somewhat speculative as the company has warned it could be hurt by new mortgage rules and also it could be hurt of home prices decline in Ontario which appears to be the case in Toronto. So, I will keep my investment small and revisit later.

August 23, 2017

On Wednesday, the S&P 500 was down 0.4% while Toronto was up 0.5%.

Constellation Software was up 2.0%.

Royal Bank rose 1.1% after releasing a good earnings report and raising its dividend. I am optimistic that Canadian Western Bank will also have done well in its Q3. I don’t expect them to increase the dividend as they usually do that (if at all) in December and also as a conservative bank they may wish to hang onto their capital.

Statistics Canada reported on food services and drinking places for June. Compared to June of 2016, sales were up 5.0% for Canada as a whole and 2.5% for Alberta but down 1.3% for Saskatchewan. I was surprised when Boston Pizza indicated continued weakness in Alberta and Saskatchewan in Q2, compared to Q2 2016. This data arguably supports that to some extent. To some extent rising food prices have been offset by lower customer counts. Over time I expect Boston Pizza Royalties Income revenues to rise moderately with higher food costs leading to higher menu prices.

August 22, 2017

On Tuesday, the S&P 500 was up 1.0% while Toronto was up 0.2%.

Toll Brothers was down 2.6% to $37.27 after reporting earnings. In may ways the earnings were strong, but the market found some aspects disappointing. I continue to view Toll Brothers as a good investment. The company itself bought back substantial shares at an average of $39.02 in the quarter. In the past I have found the company to be astute in buying back shares at good prices and so I think the fact that they are buying at $39 is a positive indicator. The company has recently been growing its revenues in the range of 20 to 25%.

Ceapro declined another 10%. This is a penny stock and it could certainly continue to decline. If its research and development of new products pans out then it could do well. But that is likely to take at least one or two years. I plan to hold onto my small position in this company. I don’t think I will add even at lower prices until I see some improvement or at least an end to the recent declines in revenue.

Statistics Canada reported that investments in new home construction increased in every province except Newfoundland in June. In that regard, the Canadian economy continues to do well. In Alberta the investment in new single family homes was about 23% below the June 2014 level but was above the June 2011 level. New housing construction in Alberta has recovered somewhat from the recession lows. But I would not expect it to return to the 2014 peak level anytime soon.


August 21, 2017

On Monday, the S&P 500 was up 0.1% while Toronto was unchanged.

CRH Medical was down 4.3%. There were no other particularly noteworthjy moves in the stocks on our list.

News reports today indicate that Warren Buffett / Berkshire “lost out” in its bid to acquire a large utility out of bankruptcy of the parent for some $9 billion. I am not sure Buffett would consider it a loss. He does not engage in bidding wars. Berkshire likely spent very little money or even time preparing their bid because the value that they would pay is very obvious to them from the financial statements. They never spend much if anything on consultants when they make a purchase offer. Buffett has cemented his reputation here for not upping his original offer. Companies learn that if you get an offer from Berkshire it is a take-or-leave it deal. He does not negotiate up. Usually it is the company that wishes to sell to Berkshire that must name a price and Buffett usually takes it or leaves it. Buffett is perfectly happy to pass on deals that are too expensive. He does not wish to suffer from “winners curse”.

And, oh yes, it seems Berkshire will get a $270 million breakup fee from the utility. For the financial press to view this as a loss to Berkshire merely illustrates how much smarter Buffett is than the financial press.

August 20, 2017

On Friday, the S&P 500 was down 0.2% and Toronto was down 0.5%.

Ceapro, a tiny Edmonton biotechnology company was down 12.7% to 69 cents after releasing Q2 earnings. An d this decline is in addition to a steady slide in the share price. I had mentioned on June 20 and June 7 that it could continue to decline. The report and comments here have indicated that I had some concern about disclosures.

A quick look at the Q2 report leads me to even more concern about disclosure. They say:  “The 35% difference in product sales volume relates primarily to lower sales of beta glucan.” And I think that is all the disclosure they give. No discussion of what customers have slowed their buying or why. I would have to look it up to see what product the beta glucan was going into.

At the moment I am not inclined to add to my position in this company.  It was always going to be a risky company. But increasingly I fear it is not being candid with investors.

Regarding Melcor, I have had some email discussion with management. I put it to them that with the stock trading at 50% of book value there are two possibilities. 1. The stock price is irrationally low and the problem lies with investors not valuing the stock properly. I hope this is the case and that management can work harder to communicate the value of the company including by buying back some shares or raising the dividend (rather than buying more land for $1.00 that the stock market then seems to value at 50 cents); or 2. The stock price is reasonably correct and Melcor has effectively turned each $1.00 of share owner equity (mostly retained earnings) into about 50 cents. If so, that is certainly a failure on the part of management. I hope by putting this to management (and I used extensive quotes from Warren Buffett where he indicated that it would be a fail if his stock sold much below book value especially for an extended period of time) that I can get management to realize that having a stock that trades at half of book value is not acceptable in the longer run. I don’t think they should not be patting themselves on the back and awarding bonuses while the stock is so far below book value. Either the stock is irrationally low, or the assets need to be written down in value. I think it is the former.


Canadian Tire updated August 20, 2017

Canadian Tire is updated and rated (higher) Buy at $151.46.

I had last updated Canadian Tire on April 1, based on its December 2016 annual results and rated it Weak Buy /Hold at $157.98. Since then it has released Q1 and more recently Q2 earnings which were very strong. On July 5, I mentioned it was worth nibbling on at $144. Given the strong earnings of the first half of 2017 it now appears to be worthy of a (higher) Buy rating (or at least Buy). I may not buy back into this name given that my cash position is relatively modest at this time.

Canadian Tire credit card customers pay a lot of interest

One of the interesting things I saw in the Q2 report is the following:

In the Finance segment, which is largely a credit card operation, the annual revenue as a percentage of the average accounts receivable was 22%. This suggests that the majority of these credit card customers are not paying off their balances each month. Rather, the Canadian Tire MasterCard customers mostly tend to run a balance. The average balance is $2761. This makes sense. The type of consumer who pays off their credit card monthly likely has a credit card from a big bank, often a gold card. The typical Canadian Tire credit card user is apparently not in a position to pay off the card monthly. These would be somewhat higher risk customers. In fact Canadian Tire writes off 5.6% of its credit card receivables yearly to bad debt.

The most lucrative credit card customer is the one who runs a balance and pays the 26% annual interest rate but who pays at least the minimum monthly and never defaults. These people are the bread and butter of the credit card industry. They don’t cost the card company in bad debt. They often don’t cause collection costs because they do pay the monthly minimum. Arguably it is unsavory to be charging these people 26% annual interest. But they incur these debts willingly and other credit card companies charge similar rates. I would advise these people to try to pay off these cards or to shop for a lower interest rate. But meanwhile Canadian Tire alone has 1.9 million such customers.

Customers who pay off their credit cards monthly are also profitable. The profits there come from the fees charged to merchants. But these customers are no where close to as profitable as those that run balances but pay monthly and never default.

Some customers do run up balances and eventually default. Credit card companies clearly lose money on these customers. It takes perhaps 5 to 10 good customers running balances and paying 26% interest to make up for every (average) customer that defaults. While Canadian Tire reveals that it writes off 5.6% of credit card receivables in a year it does not appear to reveal what percentage of the customer base that is. It is likely that some customers pay interest faithfully for years but then later default due to changed circumstances. The worst customer would be the new customer that runs up a balance and then defaults.


August 17, 2017

On Thursday, the S&P 500 was down 1.5% and Toronto was down 0.3%.

While 1.5% is  a sizeable one day drop I don’t really consider it to be that significant in light of how much the U.S market is up since November. When these dips happen, I never know if it is the start of something larger or not. And I don’t think anyone else knows either.

Regarding CRH Medical: I had a lengthy conversation with their CFO today. I had sent in a list of questions mostly to clarify my understanding of the business. I was satisfied with the responses which did clarify and increase my understanding of the company. I think the company will continue to grow. The reductions in the amounts it can collect from insurance companies for its services are a set back but I think the company remains quite viable. The stock price may recover somewhat as they make acquisitions in the next six months. But a bigger recovery will likely take a year or more as the company demonstrates where its earnings stand under the new billing regime. I also noticed that a Board member has bought about $100,000 in additional shares last week.


August 16, 2017

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

Boston Pizza Royalties was up 2.7%.

Costco was up 2.1% even after being ordered to pay $20 million to Tiffany’s for selling (very real) diamonds but using the Tiffany name which they were not entitled to do. Although I own Costco shares, it looks very clear to me that Costco is in the wrong and Tiffanys deserved to win this case.

A comment (okay rant) about Aeroplan/Aimia. Aeroplan was a good program when it was part of Air Canada. It was sold off years ago when Air Canada was desperate for cash. Later Aeroplan expanded and bought other loyalty programs in Europe. I have been collecting Aeroplan points for close to 30 years. I used to own shares in it. Over the years it became harder to redeem for flights and it seems to me that on their classic rewards there was a lot of extra taxes and fees that had to be paid in cash. Some years ago, Aeroplan announced a policy of expiring (in my view confiscating / legally stealing) points if there was no activity in a year. At that time I was in contact with the company top management and told them that I thought that was deeply unethical and unfair. Some people collected points mainly from flying and that is not always an every year thing. I simply consider their policy to be a form of “legalized theft.” I signed up to the program before the terms and conditions were changed to allow expiry of points on lack of activity for a year. I sold my shares years ago feeling that if they mistreated the points collectors, they might also mistreat investors.

More recently Air Canada announced it will no longer be a partner with Aeroplan in a few years when its contract runs out.

I had a CIBC Aerogold credit card for collecting points. CIBC sold my account to TD a few years ago. I kept the card out of inertia.

Today I finally switched my TD Aeroplan infinite card to a TD cash rewards infinite card. It was extremely easy since my credit card number will not change. I am tired of points cards. I would rather just have the cash back card.

The danger I now face is that my Aeroplan points will be expired (stolen from me) if I have a year of inactivity with Aeroplan. I will be trying to use up my points.

It’s my view that people should consider using up their Aeroplan points. I see little reason to stay with an Aeroplan credit card other than to generate the activity to insure your points are not expired for lack of a transaction in a year.

On top of being what I consider to be an unethical company, Aimia has a weak balance sheet. They owe $3,276 million in reward points (after deducting points they unethically expired). You might think that the money they collected for such points would be in cash and investments. No, they only have $790 million in cash and investments. Much of the money collected in selling points was invested in buying other loyalty programs. Aimia shows a net equity on its balance sheet of just $27 million. Assets (which are mainly goodwill and similar intangibles) are $4,295 million. I would have thought this should have been a strong cash generating business. I don’t know why they have a paltry book equity of $27 million. It is true that the actual debt is relatively modest at $449 million. But at a glance I would say the balance sheet is very weak. The share price recently plunged from the $9.00 range and is now at $2.14. The book value per share is just 18 cents per share. Possibly the cash flows justify the $2.14 and more, but I would not count on that.

I don’t know if the shares of Aimia will recover. When the shares plunged a few moths ago, I took a quick look and saw the weak balance sheet and tiny book value per share and decided I was not interested in owning shares.

In my view this is a morally and financially weak company.

It was supposed to generate loyalty to Air Canada. I believe it did the opposite.

This rant is an addition to my “Thoughts on Aimia / Aeroplan of June 14 this year”

August 15, 2017

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

It certainly seems possible that the market could react negatively to the fiasco that is the Trump presidency. The chances of Trump getting much legislation passed seems slim.

Melcor managed a 4% gain but as always, that is on thin volume. AutoCanada was up 2.1%, adding to recent gains.

August 14, 2017

AutoCanada is updated and rated Buy at $21.96. Many aspects of its Q2 report were positive and it now appears set to resume earnings growth.

On Monday, the S&P 500 was up 1.0% and Toronto was up 0.6%.

AutoCanada was up 5.8% as the market continues to react positively to its Q2 results.

TFI International was up 2.6%.

August 13, 2017

On Friday, the S&P 500 was up 0.1% (despite Trump / North Korea) while Toronto was down 0.3%.

AutoCanada had a strong day, up 10.4% after releasing earnings. This will be my next update. Reading through the report there were a lot of positives. Management continues to pursue acquisitions. It appears to me to be set to report good earnings gains in the next year. It will be lapping weak quarters which will make it easier to achieve growth.

Boston Pizza Royalty Units Updated August 13, 2017

Our report on Boston Pizza Royalty units is updated and rated Buy at $21.12.

There has been modest weakness in same-store sales, which is by far the main driver of distributable cash per unit, in the past year due to weakness in Alberta and Saskatchewan. I would expect some modest growth going forward as they lap the poor quarters of the past year. Higher interest costs will be a small drag on distributable cash as they have some modest debt. The main impact of higher interest rates, should that occur, would be a decrease in the P/E ratio for a given level of distributions. In other words higher interest rates could push the price of the units down even if the distributions rise somewhat. But I view a 6.5% cash distribution that could rise (it could fall but that seems unlikely) as attractive even in the face of interest rates that will likely rise moderately. For those seeking dividends, especially in taxable accounts, I believe these units have a place in a portfolio.

Melcor Developments Updated August 12, 2017

Melcor Developments is updated and rated (lower) Strong Buy at $14.50. Those of us who have put a material amount of our portfolios into this stock are no doubt frustrated by this stock. Despite posting what would appear to be good results in Q1 and now Q2 of 2017 and despite recent improvements in the Alberta economy the stock is unchanged year to date. And it is down significantly from its 2014 highs.

I rate it a (lower) Strong Buy for all the reasons indicated in the report including the 3.6% dividend yield and the fact that it is trading at just 49% of book value (and where the assets are primarily investment properties and land). The Alberta economy appears to be recovering. I am willing to hold this stock and collect the dividend. I expect the price to move closer to book value at some point. Of course there are no guarantees. It is always possible that home building will plummet, that lot and land prices will plummet and/or that the rents and vacancies on its retail and office rental buildings will cause a loss of value. But the company has a very long history of profitability and growth in book value over time. It seems to me that the opportunity to buy in at half of book value is a good opportunity. Due to the low trading volume and due to the history of the stock often trading under book value, investors who buy should be prepared to hold for some years.

August 10, 2017

Thursday was a negative day in the markets with the S&P 500 down 1.5% and Toronto down 0.9%.

Canadian Tire was a notable bright spot, up 5.4% after releasing a good earnings report.

CRH Medical also managed a gain, up 2.3%.

Boston Pizza Royalties units fell 7.3% to $20.60 after releasing earnings that showed a decline in same-store franchise sales of 1.6% leading to a decline in distributable cash flow per unit of 0.9%. I expect the long term trend to continue to be a slow increase in distributable cash per unit. The fund is distributing almost exactly 100% of distributable cash and plans to continue to do so. The current distribution is $1.38 per year (paid monthly) for a yield of 6.7%. Even given the fact that interest rates are going up somewhat, a 6.7% cash yield that will likely increase slowly over the years seems attractive. It is possible that the distribution would have to be cut if distributable cash per unit continues to decline. But I don’t expect that to happen given that the economy in Canada has been improving. If the distribution were cut, it would likely be a small cut. That would however, spook the market. I would consider adding to positions in Boston Pizza especially if the price stays under about $21.

There was essentially no market reaction to Melcor’s Q2 earnings report. The shares were down 1.1% to $14.20 There were only 700 shares traded. And 300 of those were me buying a bit more. It would appear that there is simply very little interest in this company. And there is likely still considerable fear about the future prospects for home building in Alberta. So, the stock languishes trading at just 49% of book value. And, that book value consists of solid hard assets.

Interestingly, the company indicated that its administrative expenses were up 27% based on discretionary bonuses given the strong results in the quarter. The company continues to add to its land positions and appears to be confident about the future.

August 9, 2017

On Wednesday, the S&P 500 was about unchanged while Toronto was down 0.3%.

I consider Trump’s tweets (taunts) regarding North Korea to be dangerous and this could turn into a catalyst for a market decline. But there is always the risk of a market decline. I try to be in a position to buy if the market declines. If you sold every time there seemed to be a risk of a market decline you would usually find that the dip never occurred and then as the market rose you would likely not buy back in. Or if the dip occurs what is the chance you would buy back at something close to the right time?

There was better news for our stock picks today. Stantec was up 9.4% to $34.40 after releasing better-than-expected earnings.

CRH Medical was up 2.7% on Toronto. Perhaps the bottom is finally in for this stock.

Melcor reported what appears to me to be strong results after the close.

This company is trading at just 49% of book value. Management is showing confidence in the future as they purchased additional raw land in Edmonton, Kelowna and near Phoenix. They also purchased an 80% interest in 294 lots in Phoenix. The price paid was apparently $16,200 per lot. Compare that to the average lot price they sold in Alberta in the quarter which was $174,000. Management presumably thinks that when they put equity into a land purchase they are not turning dollar bills into 49 cents.

I don’t know why they would not be buying back shares. (In effect buying a dollar of book value for continuing owners by paying just 49 cents to the exiting/selling owners.) It might be because the trading volume is so thin they would not get enough shares to make the purchase worthwhile. In fact they are only allowed a maximum of 2,158 shares per day which would amount to about $620,000 per month and so it would take quite a while to deploy much money that way. Or perhaps they fear that buying shares would push the share price up in an artificial manner only to see the price drop when they would stop buying.

I think Melcor’s share price suffers from some complexities in its accounting. Bizarrely, when the the unit price of the Melcor REIT rises, Melcor must report a loss since it consolidates the REIT and shows a liability for the non-controlling interest which is the publicly traded portion of the REIT. Ponder an investment that you have to show a loss in when its price rises! There are mark to market adjustments in the value of its investment properties which flow to income and then are adjusted back out in looking at funds from operations(FFO). It also creates value in its commercial property development division but this does not flow to the income statement until the property becomes a finished investment property. And at that time it gets lumped in with changes in market value on investment properties and tends to get ignored. Management suggests FFO is a good measure of performance. I think FFO understates performance since it does not include any profit from the commercial development activities.

Melcor is an inherently cyclical company and it seems that the market has a hard time getting the price to reflect the value and//or the market simply dislikes cyclical companies.

AutoCanada was down 3.3% and Linamar gave back 2.1% which was about the same amount it rose on Tuesday.

August 9, 2017 8:50 am eastern

On Tuesday, the S&P 500 was down 0.2% while Toronto was flat

Linamar was up 2% after another auto parts maker reported strong results.

CRH Medical was down another 7% in Toronto and 10% in U.S.A. trading. At this point it is likely going down simply because it has gone down. Some owners simply capitulate. I could be wrong, but as a company with substantial positive cash flow and that was recently able to substantially increase its credit line at the low rate of 3.25%, I do not see this as a company that is in danger of running into any financial difficulty. I fully expect some recovery here. But it may take quite a while as investors have been badly burned. Analysts too, feel burned. Insiders have stock options some of which will not pay off unless there is a very substantial recovery. The next announcement of an acquisition could push the stock higher. I have sent a lengthy list of questions to the company and they will get back to me this week. In what may be an act of stubbornness, I added to my position once again.

In better news, Canadian Western Bank was up 1.3% to $29.38. It had bottomed out at $23.68 just a couple months ago during the Home Capital panic. It’s all-time high is a bit over $40 and its history suggests it will surpass that level again. CWB has not reported a loss in any quarter in over 25 years. Banks however are highly leveraged and so they are certainly not without risk.

Melcor is scheduled to release earnings after the close today.

Stantec has reported relatively strong earnings this morning.


CRH Medical updated August 7, 2017

CRH Medical is updated and rated Speculative (lower) Strong Buy at U.S. $2.70 or CAN $3.42. $2.70 was the price earlier today in U.S. trading but it closed at $2.60, up 5.1%.

This stock has certainly been very disappointing recently. Therefore it seems fair that I review my history with this stock.

It was added to the site on October 9, 2016 rated Speculative Buy at U.S. $4.32. For the start of 2017 it was rated Speculative Buy at U.S. $5.25

On April 7, 2017 it was updated and rated Speculative Buy at U.S. $8.55.

Subsequently its Q1 earnings report in late April revealed a decrease in revenue per case at its largest subsidiary due to a “change in payer mix” (which really probably would have been more properly described as the loss of a major insurance payer customer). On April 30, 2017 I commented on the company and the price decline and indicated I might buy more.

The price continued to decline in June and I remained positive on the company in my comments.

On July 10 I noted that it was the subject of short selling and some analyst criticism.

In mid July the stock fell precipitously on the announcement that insurance companies would reduce the fees they pay per case by some 18%. I commented on July 16 and July 17. indicating I was adding to my position.

Around August 3 the company released Q2 earnings which were judged to be disappointing and the stock was pummeled down by about an additional 30%. See my comments of August 3 just below.

It’s fair to ask what went wrong here.

The risk that insurance companies could reduce the fees paid was noted in my report from the start. Risks don’t always materialize, in this case it did. As the bad news unfolded since late April, I did not anticipate that the stock price would continue to react so negatively.

When the company was added back last October 9, the comment included “Those buying should perhaps make only a relatively smaller purchase. Be prepared for volatility.” It’s fair to say that I basically ignored that advice in my own trading and made it a larger position than perhaps such a small company should be.

In the update of April 7 I had noted that it was pricing in considerable growth in the range of perhaps 20% per year. I had not anticipated that earnings growth was about to be at least temporarily halted or probably reversed by the fee reductions.

It now seems apparent that the company has had some issues in its disclosures and could do a better job and be more candid.

At this point it still appears to be a profitable company with a good plan for growth. But given the fee reductions coming in 2018 it may take quite a long time to recover much of the recent decline. And it is certainly not without risk. It may be too dependent on the actions of the insurance companies and the gastrointestinal clinics where it provides service. When I ran the numbers for today’s update the analysis indicated that the company is now substantially under valued. As always there can be no guarantee of that.

It’s interesting that despite the fee reductions it found that upon review it did not have to write-down the value of its purchased intangibles. The company does not appear to think that even in retrospect of the fee reductions that it paid too much for the acquisitions.


Constellation Software Updated August 4, 2017

The report for Constellation Software is updated and rated (lower) Buy at Canadian $704. That was the price I used in the analysis but it closed today at $698. The company reports in U.S. dollars. Therefore I do the analysis in U.S. dollars and converted the share price to U.S. dollars for purposes of analysis. This stock is not cheap. But it is has been one of the best managed companies I know of. It’s CEO is extraordinarily candid and focused on creating returns for shareholders. He has a great track record and those who have ridden his coat tails by buying and holding these shares have done very well. There may be dips in the share price but the overall direction will likely continue to be up.

August 3, 2017

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

CRH Medical got pummeled down by 29% after releasing Q2 results. I have read the release and listened to the conference call. To me the stock reaction continues to look over-blown. (But I thought that even before this latest plunge).

Changes in the revenue per patient that they receive from insurance companies will certainly reduce their earnings growth in 2018 or perhaps cause a decline in 2018. This is not good considering the stock was pricing in considerable growth earlier this year. But their acquisition and growth model remains intact and so growth in earnings should resume.

Management seems to be confident of the future. The analysts on the call seemed mostly polite but one or two had some challenging questions. It is quite possible that analysts feel somewhat betrayed after recommending the company and then being surprised by the reduction in revenues per case.

I found that management handled the questions well and seemed on top of their numbers.

There was certainly a concern about a significant one-time increase in revenue due to a change in accounts receivable estimates that had benefited Q1 but was not disclosed in Q1. The company explained the reason for that but the reason was weak. I believe it should have been disclosed in Q1.

I do think the company could improve its disclosure. It focuses too much on EBITDA with little mention of bottom line earnings. There did not seem to be any real discussion of the reasons for certain operating expenses increasing quite a bit faster than revenues.

A positive disclosure in the report was that despite the lower revenues per case that will apply in 2018 there has been no impairment in the value of its acquired companies.

Overall, this still looks like a good business to me. But 2018 will be a year of little earnings growth or perhaps a decline. 2017 earnings have also been impacted by certain changes in its payer mix. Recent acquisitions will offset some but perhaps not all of that decline. Earnings should grow substantially in 2019 due to acquisitions.

I will run the numbers to determine what the P/E now appears to be based on adjusted earnings.

I would expect that certain analysts reports will impact the stock price on Friday.



August 3, 2017 10 am eastern

CRH Medical down 23% in early trading. Apparently the market focused on the negative aspects of the earnings release. The conference call has starts at 11 am eastern and may change the tone. I am not sure if the RBC or Scotia analyts have commented yet. Certainly it is possible that I have completely mis judged the value of this company. Perhaps stubbornly, I bought more at this new lower price.

Meanwhile TD Direct is out with a 5.25% rate reset preferred share from Kinder Morgan Canada. That seems attractive but note that Kinder Morgan is likely considered somewhat higher risk.


August 2, 2017

On Wednesday the S&P 500 was up close to unchanged while Toronto was up 0.4%.

The Dow Jones Industrial Average breached the 22,000 point mark.

CRH Medical was up about 11% after announcing an acquisition and forecasting more acquisitions. It then releases earnings after the close. The earnings release seemed to be generally positive  Revenues was up strongly. Adjusted EBITDA attributable to share owners was up 4%. But actual bottom line earnings per share were slightly below zero. That may have been due to an unusual expense to pay off early some high cost debt. This is not great results but considering the huge drop in the share price the results seem positive and may suggest that the price drop was overdone. The company will justifiably face some criticism of its disclosure. It focuses too much on EBITDA and seems to ignore bottom line earnings. I believe the net earnings would be positive after making legitimate adjustments for amortization of purchased customer relationships (which is not likely a wasting asset) and for the unusual interest penalty paid. The company will host a conference call Thursday morning. It remains to seen whether the market will focus on the negative aspects of the report or the positive aspects. In part, this depends on how key analysts view the results. At this time I continue to believe that the shares represent good value but I also view the shares as somewhat speculative.

Constellation Software was up 3.6%. I am in the process of updating my analysis and I expect to rate the shares probably (lower) Buy. This likely remains a good long term investment but I am not much inclined to add to my position at this price.

August 2, 2017 10 am eastern

On Tuesday the S&P 500 was up 0.2% while Toronto was up 0.4%.

Toll Brothers was up 2.2%.

AutoCanada was down 3.6%. That was in spite of some news that July auto sales were very strong in Canada but weak in the U.S. However Chrysler sales were down and AutoCanada has more Chrysler dealers than any other brand. It does have GM dealers which did well. AutoCanada dealers should be doing well in comparison to 2016. We will find out with the Q2 earnings release next Thursday August 10, after the close.

CRH Medical will announce earnings after the close today, I understand. They just announced another acquisition this time of 55% of a anesthesia practice in Florida. And, they said the pace of acquisitions will accelerate. The stock price did not react to the news. It seems to me the market is pricing the company as if it is in trouble or badly wounded and yet the company appears to be forging ahead (albeit there will be a hit to profits in 2018 due to recent fee reimbursement reductions by medical insurance companies). I added to my position yesterday. I am not sure how prudent that was given the uncertainty of the Q2 report. But investing in stocks has never been a matter of certainties, more a matter of probabilities. Especially in the case of smaller companies.



July 31, 2017

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

Costco was up a hefty 3.7% gaining back some recent losses. Looking on Yahoo Finance (which has become increasingly useless) I don’t see any news to explain this. Not that the market ever owes anyone an explanation for price changes.

CRH Medical was down 2.6%. I  am quite eager to see its results on Wednesday. Most of the share drop related to decreases in what it will be reimbursed for its services by insurance companies starting in 2018. So, possibly even a good Q2 will not be rewarded. What may be more important is the companies outlook discussion. It is possible too that they will write-off some of their purchased goodwill. Despite uncertainties I am hopeful that the Q2 result will lead to an increase in the share price.

I am currently working on an update for Constellation Software. It’s clearly a great company. The question is whether all of its greatness is already fully reflected in the share price. It’s disclosure is interesting. The chairman’s letter is unbelievably candid and useful. The annual report MD&A however I found not to be very useful at all. I am going to look at the Annual Information Form which appears to have more useful information. In many years of investing I have never quite figured out why companies need an Annual Information Filing in addition to the annual report. If the information in the AIF is useful why not just include it in the annual report? Sometimes the AIF provides nothing much in the way of additional useful information. Other times the best information is in the AIF. At least that has been my experience. But I don’t always look at the AIF if the annual report seems comprehensive.



July 30, 2017 including update for CN rail

Canadian National Railway Company is updated and rate Weak Buy / Hold. It’s a great company and should be a good long-term investment. It had a blow-out quarter in Q2 with traffic and earnings up strongly. However they are projecting only very modest gains the rest of this year. My experience has been that they tend to exceed guidance.

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

Couche-Tard was down 2.0% and Wells Fargo was down 2.6%.

This week and next will feature a number of Q2 earnings reports.

July 27, 2017

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

Fedex was down 2.9%.

Constellation Software was down 3.5% after releasing Q2 earnings.

CN Rail really had a huge Q2. Carloadings were up as follows: Metals and minerals 32%! Grain and fertilizers 16%, Intermodal (which is generally consumer goods) 16%, Automotive 9%, Petroleum and chemicals 6%, Forest products down 2%, Coal was down 3% (but for whatever reason way up in revenue). CN however warned that the next two quarters will face tougher comparable and that currency will be a headwind. I would think that these huge increases in car loads suggest that the Canadian economy is truly on the move and growing.

Perhaps TFI International (TransForce) will also report a strong quarter given the increase in goods on the move. TransForce will also face a currency headwind in the back half of the year however as will Stantec. Couche-Tard is interesting in that a higher Canadian dollar increases its earnings which are reported in U.S. dollars but it is really a negative when translated back to Canadian dollars.

July 26, 2017

On Wednesday, the S&P 500 was about unchanged (even though the Dow Jones was up 0.45%) and Toronto was down 0.2%.

Ceapro was down 4.8% to 78 cents. This is a very speculative stock. I expect a poor earnings report in Q2. Unless they can announce big progress on their research efforts the share price may have no reason to recover. But the balance sheet is reasonably strong and so the company will be able to get through a year or so of low earnings or losses if that occurs. I own some but am not particularly inclined to add to my position. We will know more after the next earnings release.

CRH Medical was down 6.0% giving back most of the recent minor bounce.

CN Rail was down 2.4% to $99 after releasing Q2 earnings and its outlook. For some time it has looked expensive. But it remains a high quality investment for the long term. I will update the report for tis Q2 results within a few days.

AutoCanada was up 3.2%. I expect that its sales were reasonably good in Q2 especially the later part of Q2 as auto sales in general have been strong. It reports on August 11.

The cancellation of a $36 billion proposed LNG project  was much in the news yesterday. While the owner, Petronas explained that it was due to changes in world natural gas prices, many people were quick to blame regulations and a poor investment climate in Canada. I have been highly skeptical of the two largest LNG projects since the first one $40 billion in Kitimat, was announced. The idea of a $40 billion dollar project immediately struck me as WAY to large to make sense. I never thought these projects would proceed at $36 or $40 billion. However there has been confusion because the LNG terminal itself was apparently $11 billion which at least seemed (maybe) within the realm of possibility. I mentioned it here on September 28, 2016.   In any case world natural gas prices have declined and THAT primarily is the reason for the cancellation. We can’t expect projects to go ahead if they are uneconomic. If there is a way to build a smaller LNG terminal and one that does not require a massive new pipeline, then maybe that can go ahead.

July 25, 2017

Tuesday was a strong day in the markets with the S&P 500 up 0.3% and Toronto up 0.5%.

There will be a lot of earnings reports in the next few weeks to give direction to the market.

The yield on the 5 year Canada bond continues to rise and is now at 1.64%. That’s still low but is the highest since early 2014. It had bottomed out down near 0.5% which was insanely low.

July 24, 2017

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

CRH Medical had a modest bounce, up 10.6% in Toronto. They will report earnings a week from this Wednesday (i.e. August 2).

Constellation Software was up 2.8% after announcing another pending acquisition. It will report Q2 results on Thursday morning.

The yield on the government of Canda five year bond continues to rise. This is very positive for all those old rate reset preferred shares that have been trading under $25 due to the fact that it looked like they would reset at low interest rates. The higher the 5 year bond goes the gigher the reset goes. This is explained in our report on Canadian Western Bank Preferred shares.  

Also see the report on the Enbridge rate reset preferred share. In the case of the Enbridge shares I think they fell not only because of the lower 5 year bond yield but also because they were issued at a time when the market yield on rate reset preferred was particularly low (They were issued at the low yield of 4.4%). And Enbridge then restructured in a way that lowered the credit strength backing these shares as I recall.

Statistics Canada reported on Food Service and Drinking places for May. There were declines in sales in most provinces. The declines were in comparison to April and not to the same month in the prior year. I find it strange (an annoying) that Statistics Canad does not always make it abundantly clear if they are talking about a comparison to the month before or the same month a year ago. Their convention seems to be that the comparison is to the immediately prior period unless they say otherwise. They also by convention show seasonally adjusted numbers which is the best way to judge the change.  Investors are often more interested in the comparison to the prior year since that is how we usually look at corporate earnings growth. Looking at the same month a year ago sales for all of Canada were up 4.5% which is impressive and bodes well fro Boston Pizza. For Alberta sales in May were up 0.1% versus April and down 0.1% from May of 2016.

Statistics Canada also reported that wholesale trade had strong gains in May (versus April and seasonally adjusted)

July 23, 2017

On Friday, the S&P 500 was about unchanged while Toronto was down 0.5%.

Melcor was down 3.5% to $14.00. I am cautiously optimistic that they will report a decent Q2. Their views on the outlook may be more important than the Q2 numbers. It is always possible that they will have some non-cash mark to market losses on investment properties.

RBC upgraded CRH Medical to outperform at $4.07 with target $6.00 compared with previous sector perform with target $8.50 at $4.74. That report appeared to give CRH a little boost on Friday morning but it closed the day unchanged.

Statistics Canada reported investment in New Home Construction that was higher in May versus the year earlier period.

Statistics Canada also reported inflation numbers for June. They measured inflation at 1.0% since June of last year but 1.4% excluding food and energy. Contrary to popular opinion they don’t ignore food and energy they just give the numbers both ways. Also contrary to popular opinion the report here indicates that the cost of houses does factor into their inflation numbers. Providing an inflation number is a thankless task since everyone seems to expect the number should match what is happening in their own personal “basket” of goods and services rather than some average basket. In addition it seems like people see and remember price increases a lot more clearly than price decreases. I certainly see no reason to think that the numbers are manipulated for political purposes which is what a lot of people seem to think.

Retail Sales in May were also reported and were up . Motor vehicle sales were strong and Alberta was strong.

July 20, 2017

Thursday’s action saw the S&P 500 about unchanged and Toronto up 0.1%.

Limamar was up 4.4% to $71.56.

CRH Medical was down another 2.6% to $4.06 on Toronto. Scotia Bank precipitated the big plunge of last Friday when it warned about government-mandated reductions to the fees CRH receives for its services. It had closed last Thursday at $6.62. After the stock closed on Friday at $4.74, Scotia indicated its target was now $8.00 and rated the company a “Sector Perform” with a 69% upside to the target. It must be in one heck of a strong sector if a 69% upside is “sector perform”.

RBC meanwhile issued a report before the open on Monday lowering its price target from $10 to $8.50 on the news and also rating it “Sector Perform”. RBC however had a down side scenario of $3.75 and an upside of $10.

Some other analysts have spoken against the company including one at the Motley Fool.

It’s interesting that the stock has fallen so much with these $8.00 and $8.50 price targets. The company itself has now confirmed that revenue under the new billing codes on existing business would be down some 7.5% and EBITDA down 13.5%. The company expects the new lower billing codes to be in place on January 1, 2018. However, this would still appear to leave room for some of that to be offset by acquisitions and it appears to me also organic growth.

Certainly the lower billing codes are a negative for the company. And certainly some analysts are skeptical about its acquisition strategy. But it appears to me that the price reaction has been very much over done. But only time will tell if that is the case. Based on the timing of the Q1 report, I expect the Q2 earnings to be released around the middle to end of next week.

In terms of the Canadian economy I notice CP rail released earnings today that included some big increases in rail car traffic. I have a link to a site (toggle the radio buttons at this site to choose Canada, the U.S. or Mexico) that shows total rail car traffic in Canada and it is WAY up over 2016 levels and is back to similar levels as 2014. Any notion that the Canadian economy is stagnant is just not true.





July 19, 2017

On Wednesday, the S&P 500 was up another 0.5% and Toronto was up 0.6%.

TFI Internaltional (TransForce) was up 2.9%.

After the close, American Express reported earnings that were apparently higher than expected.

Statistics Canada reported that manufacturing was up strongly in May. Some industries had very strong gains. There are always lots of people ready to focus an the negative and tell you that the economy is bad. But the actual figures seem to tell a different story.

July 18, 2017

Tuesday saw the S&P 500 up 0.1% and Toronto down 0.1%.

CRH Medical was down another 10.5% on Toronto. It’s doing a good job of making my opinion on that company look very wrong. Well, time will tell if this was just some big dip from which it will recover or instead the company is simply worth a lot less than I had thought. We will know more when the Q2 earnings report is released.

In better news, Linamar was up 2.0%.

I notice Home Capital is reporting higher liquidity. That comes from higher GIC balances and from some big loans paid back by its borrowers. For whatever reason its high interest savings account balance has not gone up much at all. I think Home Capital is providing very attractive GIC rates (2.5% for on year) but at 1.5% its high interest savings account is not all that attractive. Presumably they prefer GIC deposits which are locked in rather than (so called) high interest savings account where the deposits can leave in a flash as they recently found out.

July 17, 2017

On Monday, the S&P 500 was about unchanged while Toronto edged down 0.1%.

There were not any particularly noteworthy movements in the stocks on our list.

CRH Medical issued a press release explaining that it will face lower revenues in 2018 due to lower reimbursement rates for its services which are mostly billed to various government and commercial health plans. The company estimates that the changes will reduce 2018 revenue by 8.5% and EBITDA by 13.5%. Net earnings would presumably decline more than that. But the company also stated that it would continue to have an EBITDA margin of about 47% and that it was continuing to focus on acquisitions and organic growth. Overall, I suspect this will turn out to be quite a good investment at today’s price but of course there are never any guarantees. I have perhaps already sunk somewhat more than a prudent amount into this name. Nevertheless I added to that today and bought some in the account of a relative for which I have trading authority.

Statistics Canada reported on non-residential building construction investment in Q2. For the country there was small gain but several provinces had declines. The comment on Alberta was interesting:

“The largest decline occurred in Alberta, followed by Saskatchewan. In Alberta, the decrease was mainly the result of lower spending on both institutional and commercial building construction. Despite the decrease in spending, Alberta had the second-highest total spending on non-residential building construction ($2.5 billion), accounting for 20% of total spending for the country.”

So Alberta still accounted for 20% of the nation’s non-residential building construction. That may or may not be sustainable. But for the moment, any notion that Alberta’s economy has ground to a halt is greatly exaggerated. There may not be much growth in the Alberta economy. But there is also not much if any decline overall. Yes, the unemployment rate is up but the rate has also started to improve. GDP declined in 2016 but will likely grow in 2017.

I just noticed that Statistics Canada had reported new vehicle sales on Friday for the month of May. There was an absolute surge in Alberta sales (up 17%). This should mean that AutoCanada will have done well in Q2.


July 16, 2017

On Friday, the S&P 500 was up 0.5% to another record high. Toronto was up 0.3%.

CRH Medical was down a withering 28% on Toronto and 27% in U.S. trading. I understand this was precipitated by a negative report from Bank of Nova Scotia analysts. I understand there is a concern about decreases in the fees it is allowed to charge certain large public health plans. The company discussed a decrease in revenue per case in Q1 due to a change in the payer mix but it did not seem to be a big concern. The analyst concerns may or may not be over-blown. I may add a modest amount to my position at this lower price but I don’t want to bet too much on it at least until after the Q2 results come out. I had taken some comfort from the fact that it was recently able to increase its credit line by $100 million. I viewed that as a show of faith by lenders. There may be other concerns that the analysts have identified. I do not have access to the negative analyst reports. The company has not commented on the price decline.

The report for Alimentation Couche-Tard is updated with a rating of Buy. This is a great company and I believe it is poised to report increased revenues and earnings per share due to recent acquisitions.

July 13, 2017

On Thursday, the S&P 500 rose 0.2% while Toronto was down 0.1%.

Linamar was up another 1.8%.

AutoCanada was up 2.8%.

I drove through a large Melcor development in St.Albert, Alberta today. This is Jensen Lakes which they own half of in a joint venture. There is a lot of building going on there. Mostly duplexes and some multi-family. Some single family too. In addition a lot of commercial development and Melcor is the developer for some but perhaps not most of that. All of which is to say that development in Alberta has certainly not ground to a halt. Melcor had sold a very surprisingly large number of building lots in Q1. I am cautiously optimistic that the same was true in Q2.

I mentioned CRH Medical a few times lately. I have added to my position in it.

I am now reading through the Couche-Tard annual report that came out yesterday. This company still has the pedal to the metal in terms of acquisitions.

Berkshire Hathaway to report huge Q3 gain – July 12 comment

On June 28th Berkshire announced:

On June 28, 2017, Bank of America Corporation announced that it plans to
increase its quarterly dividend to $0.12 per common share. When this occurs, Berkshire will exercise its warrants to acquire 700,000,000 shares of Bank of America Common Stock at the exercise price of $7.142857 per common share. Pursuant to the terms of the warrants, Berkshire expects to use its $5 billion of Bank of America Corporation 6% Preferred Stock that it currently owns as the consideration to acquire the common shares.

Bank of America closed today at $24.35. Therefore Berkshire / Buffett is looking at a pre-tax gain of about $17.21 per share or a staggering $12 billion dollars. This will NOT change Berkshire’s book value per share since that already reflects the market value of the these stock options. I am fairly certain however that it WILL lead to a reported pre-tax gain of an “extra” $12 billion pretax and perhaps $8 billion after tax in Q3. I don”t think it will hit the upcoming Q2 report.

This gargantuan gain came as a sort of “kicker” over and above the 6% return that Berkshire earned by investing $5 billion in preferred shares of Bank of America. This deal was done in 2011 when Bank of America was still very much struggling with the impacts of the financial crisis.

Many will “sniff” that only Buffett could get such a deal. But the fact is that the Bank of America shares were trading right around $7.00 as Buffett made that deal. And they closed 2011 at $5.56 even after Buffett had thrown his support behind the company. (At year end his options were under water). But it is true that Berkshire / Buffett were among the very few entities that could have given Bank of America that fast $5 billion equity. Still, any of us could have gained by following Buffett and buying BAnk of America at under $8 and even unde $6. In fact I made a large investment that year which for some time after that (and especially at the end of 2011) looked like a mistake but which turned out very nicely. Looking back I bought not long before the Buffett announcement and indicated I did so without fully analysing the company. (August 2, and July 26 comments). Bank of America was later added to the site as a Speculative Strong Buy on March 11, 2012 at $8.05. By the start of 2017 it was rated (lower) Buy at $22.10.

With this settlement of the options Berkshire will no longer own the 6% preferred. I suspect they would have liked to keep those but if he paid cash for the options Bank of America would likely have used the money to redeem the preferred shares in any case which I believe they have the right to do.

This whole episode is just one more in a huge series of brilliant moves that Buffett has made over the years. I truly believe that he has one of the most brilliant financial minds in history and that he is fact overall a remarkable genius. At the time of the financial crisis and for several years after there were many investors and analysts who screamed that the big U.S. banks were technically broke. They were wrong.

Notice the weird $7.152857 exercise price on this options. Buffett did that so that his investment $5 billion and particularly the resulting number of shares 700 million would come out to such nice round numbers. He memorizes an enormous amount of data and does most of the math in his head. Having a round 700 million shares makes the math and the memory easier. Buffett did something similar in his recent Home capital deal buying enough shares to own a round 20% of Home Capital after accounting for the new shares to be issued. At 86, the man still has it, believe me.





July 12, 2017

On Wednesday, the S&P 500 was up 0.7% while Toronto was about flat.

Alimentation Couche-Tard was up 3.7% to $62.40 after releasing earnings prior to the open.

As expected, the Bank of Canada increased its key interest rate by 0.25 percentage points.

“The bank’s target for the overnight rate — at which major financial institutions make one-day loans to each other — moved up by one-quarter of a percentage point from 0.50 per cent.” (to 0.75%)

It interesting that a central bank can set a rate at which banks lend to each other. I am not familiar with all the levers they have to encourage banks to lend to each other at their target rate but they do in fact have the tools to get the big banks to cooperate.

Rate reset preferred shares (especially those trading under their $25 issue price) edged up as the higher Bank of Canada rate (and more specifically a higher yield on the government of Canada five year bond) leads to a higher coupon at the next reset date for these shares.

Perpetual preferred shares should act like very long term bonds and decline with higher interest rates.

Boston Pizza Royalties is an unusual security that in some ways is similar to a perpetual preferred share. BUT, unlike perpetual preferred shares, its distributions tend to increase over time.  It would decline in value if long-term rates were expected to soar. But as long as rates are expected to rise only modestly it could certainly continue to hold its value and perhaps even rise. I hold it for yield not for gains at this time. It would also decline if same store sales decline such as in a recession. It’s distributions of about 6.0% may be relatively succulent but they do not represent a (risk) free lunch.

The Canadian dollar rose about three quarters of a U.S. cent in currency trading. My approach to the exchange rate has not been to try to predict movements. Instead I have basically committed a certain amount of my portfolio to the U.S. dollar side of my accounts and I (very occasionally) tweak that by moving some money back to the Canadian side when the Canadian dollar sinks  and do the opposite as it increases. At the moment I feel no great urge to start moving Canadian dollars to the U.S side. It there is such a thing as predictable momentum in the exchange rate (which is doubtful) then my approach may lead to short term regret as it will seem I should have waited longer to make each move but likely works out well longer term. This is similar to how buying good companies on dips can lead to short term regret as the dip deepens but usually works out well with an eventual rebound.

July 11, 2017

Tuesday’s action had the S&P 500 down a scant 0.1% and Toronto up 0.3%.

Linamar was up another 2.1%

Couche-Tard was up 1.2% after announcing another acquisition deal. They post earnings tomorrow, Wednesday.

The big news tomorrow is expected to be an interest rate hike form the Bank of Canada.

A stock I used to have on the list Liquor Stores N.A. was up 5.5% after announcing it will turf its CEO and has named a new one with excellent credentials. This was no surprise after the Board was ousted in a proxy Battle. I was not a fan of the departing CEO Stephen Bebis. It was my impression that Bebis poo pooed the approach of the two men who built the Liquor Store Chain and had grand ideas. I understood he ws going to try to avoid competing so much on price but it looks like the company abandoned that plan some months ago and are now advertising low prices. It was also my understanding that Bebis actually lived in the U.S. and not near the Edmonton headquarters. The former chair of this company was Jim Dinning who I used to think was a great manager and leader. But he was unable to do much with Liquor Stores and also did nothing with Western Financial Group except sell it at what seemed too low a price. My perception is that Liquor Stores N.A. suffers from too many stores and too much lower cost competition. We can probably expect them to sell off the U.S. stores. (May as well take advantage of the low Canadian dollar and bring in U.S. dollars at a gain)  I don’t really see a solution to the too many stores in Alberta problem. It’s not nice trying to compete with Costco and SuperStore and some other discount stores.

CMHC released figures on new home starts for June. For single family homes, Calgary was up 31% versus June of last year and Edmonton was up 70%. I would not read too much into this since monthly numbers can be volatile and last year was a low point. Still, this looks like good news for Melcor Developments.

Ever since the financial crisis Canada has continued to build way more houses in proportion to its size than the U.S.



July 10, 2017

On Monday, the S&P 500 rose 0.1% while Toronto was up 0.5%.

Linamar was up 2.2%. to $65.53 (Our report is out of date on that one as the stock is up 28% since we added it to the site in November.)

Toll Brothers was up 1.3% to $40.95. That’s its highest price since it crashed back in 2005 in the lead up to the financial crisis and housing slump in the U.S. I added it to this site in June 2011 at $21.03. It has been quite volatile but that has provided opportunities to buy a great prices. It was first rated in the Strong Buy category on February 27, 2016 at $27.57. I sold some of my holdings back on March 3 just to raise cash. I have no plans to sell any at this time.

Costco was down 2.0% to $151 and Walmart was down 2.8 to $73.23. I had bought a small amount of Costco on Friday and added half as much again today and also put in an order for more if it hits $146 (which it may or may not do) . Costco is a great company, not yet cheap but I am willing to buy a small amount on this pull-back.

CRH Medical was down 4.6% in the U.S. (and I analyse this one in U.S. dollars) and 3.7% on Toronto. As noted earlier, it was the subject of some short selling and criticism lately. I still think it is a well run company with a viable growth strategy. As a small company it is a more speculative pick for that reason alone. It would be safer to wait until its Q2 report comes out but I like it as a speculative pick now. I would not invest too large a portion of a portfolio (or an uncomfortable number of dollars) in it however. At last check I had it as less than 1% of my portfolio. But the exposure to any stock should be considered not only in percentage terms but also in dollar terms.

July 9, 2017

On Friday, the S&P 500 was up 0.6% while Toronto was down 0.3%.

I mentioned in the last post here that I liked Alimentation Couche-Tard under $60 and I added to my position in that on Friday. It’s no screaming bargain but I like the management and suspect it will continue to do well. It reports earnings this week.

Costco was down 1.9% to $154.11. I started a new and small position in Costco. Again, this company never appears to be cheap but it is an excellent business and so I bought a small amount on this pull-back.

Statistics Canada released the June labour force survey results and it was considered to be a strong report and is expected to be the final straw that will insure the Bank of Canada raises interest rates on Wednesday.

July 6, 2017

On Thursday, the S&P 500 fell 0.9% and Toronto was down 0.5%.

Melcor was down 5.9% to $14.40. The Melcor REIT was down 3.2%. I did not see any specific reason for this. It could be related to fears about commercial rental property values in Alberta. However, in other news today, Statistics Canada reported building permits for May. The number of permits for single family homes in Alberta was up a healthy 43% versus 2016. This put the figure back to 17% higher than 2015 but still 16% below the 2014 number. There were similar strong increases in March and April. Some of this increase would be related to rebuilding in Sort McMurray where Melcor does not operate and where the houses are built on existing lots to replace the burned houses. But it still appears that home building in Alberta is fairly strong and this could mean that Melcor had a fairly strong Q2 in terms of building lot sales.

Alimentation Couche-Tard was down 3.6% to $59.43. I believe there is some speculation that its gas station business will ultimately be hurt by electric vehicles. Perhaps that is true but that is some years away. But still it could lower the P/E multiple on the stock. But overall I am inclined to buy at this price and may add to my position.

AutoCanada was down 3.8% perhaps also on fears that electric vehicles will harm the auto service business.

TFI Industries (formerly named TransForce) was down 2.7% to $27.54 and appears to offer good value at this price.

July 5, 2017

On Wednesday, the S&P 500 and Toronto were each up about 0.1%.

Canadian Tire was down 3.0% to $144, possibly due to a negative opinion from some major analyst. I rated it a Weak Buy / Hold in April at $158. With this decline it might be worth nibbling on. It has been a very well managed company.


July 4, 2017

On Tuesday, American markets were closed for their holiday while Toronto was down 0.3%.

Canadian Western Bank was up 1.7%.

Constellation Software was down 2.3%.

Interest rates are on the rise. The yield on the government of Canada five year bond is up to 1.44% which is a nice jump from the 0.93% level of a month ago. This rate was last this high in early 2015 and on sustained basis it was last higher than this in 2011. Rate reset preferred shares should continue to rise as this rate moves higher and I believe tend to lag the government rate sometimes having a delayed reaction.

RioCan REIT provided an interesting update today:

On June 29, 2017, RioCan completed the sale of its Cambie Street property in Vancouver, B.C. for a sale price of $94.2 million, which equates to a capitalization rate of 3.29%. RioCan has also entered into a firm agreement to sell a portfolio of six chartered bank branches located in B.C. at a sale price of $30.3 million, which equates to a capitalization rate of 3.72%. The sale is expected to close in the third quarter of 2017.

Capitalization rate in real estate means net operating income divided by the sale price. And net operating income means income before interest, depreciation and income tax.

LOOK at these cap rates! RioCan is selling property at 30 times EBITDA and 27 times EBITDA.

Assume for the moment that depreciation is zero since it is often offset or more than offset by property appreciation. We still need to pay something for interest and income tax. These buildings would appear to be trading at something like 50 times the net income they bring in!

Possible explanations:

Stupid buyers who say well all the other buyers are paying stupid amounts so we shall too?

Redevelopment opportunities, to increase rent value?

Future rent increases?

I just can’t imagine paying such high amounts to access a stream of rents. I think RioCan is wise to sell. RioCan is a very well run company. They may suffer some from the Sears bankruptcy and and other retail problems. But I suspect they will continue to do well over the years.





July 3, 2017

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

U.S bank stocks rose.

Statistics Canada reported April GDP growth on Friday. It should always be remembered that this is an estimate of GDP growth and is subject to statistical error. Growth was pegged at 0.2% for April. This is not annualized but rather the estimated growth in April alone.

14 of 20 sectors were found to have grown in April versus March. This is also always seasonally adjusted so that, for example, they don’t report an increase every November just due to Christmas. This seasonal adjustment is also an estimate of necessity. I am pretty sure it would not attempt to adjust for any unusual weather in this particular April but rather adjusts for the fact that April in general tends to be a more active month than March in a typical year.

Overall, this GDP report along with recent reports indicates that Canada’s economy continues to grow at a modest rate.

July 1, 2017 Happy Canada Day and 150th birthday

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

No particularly big moves in our stocks. Toll Brothers was up 1.5% to $39.51. Hopefully back over $40 soon. This company had languished around $28 for much of 2016. We had it rated (higher) Buy at $31 at the start of 2017.

The yield on the five year government of Canada bond rose again today to almost 1.40%. This is still low but moving in a direction that will help the rate reset preferred shares.

We have now reached the end of Q2 and a some companies will report Q2 earnings by mid July although most Canadian companies will not report until about mid August.

As of last week our Stock picks were up an average of about 6.4% for the year (not counting dividends). This is much better than the TSX but not as good as the S&P 500.

I will have some more company updates soon.

Not sure anyone will be interested but on this 150th birthday I decided to document my memories from Expo ’67 when I was seven years old. I just wanted to document my memories and figured this web site was a good place to store them.

June 29, 2017

Thursday saw the S&P 500 and Toronto both down 0.9%.

U.S. banks went the other way with Wells Fargo up 2.7% and Bank of America up 1.7%.

Alimentation Couche-Tard was down 2.5% to $62.75. It is a stock that I would be tempted to add to at this price. It will release its Q4 fiscal 2017 results probably around July 11 judging by last year’s release. Most of the time they report earnings gains. But what is important is how the earnings compare to expectations.

Rate reset preferred shares should have been on the rise today with the higher government of Canada five year bond yield. But they were likely held back by the weak day in the markets. The five year yield is up to 1.35%. Paltry but the highest in over two years and up 0.064 percentage points today.

Home Capital got their approval for the Buffett investment today from the TSX and Berkshire now owns 20% of the company. Berkshire spent  CAN $153,225,739 to acquire 16,044,580 common shares. Those seem like odd numbers. But this is classic Buffett. He worked it out (probably personally and possibly in his head) to own an even 20.0% of the shares after his purchase. In many ways I think this whole investment was just a fun little project for Buffett. Normally, $153 million is far too small for him. But he was asked by a friend to get involved and he may have wanted to demonstrate his skills at bargain hunting. Some will complain about his discount deal at $9.55. But he made the deal when the shares were around $11. (Ad they may have been more like $7 when he was first approached)  He likely would have been prepared to close the deal or certainly announce it immediately but Home Capital took a week or more to agree to it and announce it as they had to seek a fairness opinion. Anyone complaining about Buffett buying at $9.55 was free to buy the days the shares were down under $7. The fact is that when Buffett bought for $9.55 the company got a LOT more than just $9.55. They got that cheaper line of credit and more importantly they got a TON of market confidence.

Home Capital also just announced a sale of $252 million of mortgages at 99% of face value. This company is completely out of danger now. It’s GICs are as safe as they ever were and they carry the highest rates around. Anyone wanting GICs and having convenient access to these should grab them. Anything up to the $100k CDIC limit is 100% safe. Going above that also seems quite safe though it might be wise not to put too of a portfolio with one company. I do expect however that they will report a big loss in this Q2 due all the unusual expenses, the biggest of which was a $200 million upfront payment on the $2 billion line of credit that they got from Ontario Hospital Pension plan. That line of credit has now been paid off and the Pension Plan has (I believe) pocketed $200 million. Recall many were aghast at the risk the pension plan took.

In my opinion, the whole episode was completely bungled by the former Board of directors and by the Ontario Securities Commission. The run on the bank should that was precipitated by the OSC was needless damage. They charged in to punish management for some very poor disclosure and their cure was far worse than the initial disease. There should have been a way to announce the punishment (which for the company was mild) much faster or immediately, before the run on the bank.

Meanwhile, Friday’s excitement will include a GDP report before the market opens and then an outlook update from the Bank of Canada. Analysts will be trying to predict if the Bank of Canada will raise interest rates on July 12.


June 28, 2017

On Wednesday the S&P 500 was up 0.9% and Toronto was up 0.5%.

The Canadian dollar was up strongly to 76.8 U.S. cents as currency buyers and sellers reacted to predictions that the Bank of Canada might start to raise interest rates in July. My strategy has not been to predict where the Canadian dollar is headed but rather to react to where it is. When it is higher I try to transfer some money to U.S. cash or investments and do the opposite when it is lower. It’s said what level constitutes “high” or “low”. One strategy would be to consider that when it moves 5 cents or maybe 8 or 10 cents (pick a number) from where it last peaked or bottomed then it might be time to move some cash.

Most stocks were higher today. Canadian Western Bank was up 2.7% but remains under valued.

Some former Penn West financial executives were charged by the U.S. Securities and Exchange Commission today with having with manipulating earnings. I think it is unfortunate that they also charged the company itself. I am in favor of punishing individuals who break laws as opposed to inanimate corporations owned by innocent share holders. I understand that sometimes the company will have to be fined but I would go after the actual law breakers first. A corporation has no mind of its own. The company also just changed its name to Obsidian Energy in what I view as a cowardly attempt to distance itself from, well, itself.

This company also settled an earlier share holder class action law suit. I find those to be bizarre. The company (that is indirectly new and long-time owners) pay cash to some people who bought when the share price was higher due to improper accounting. Some people who sold shares to the new owners unknowingly benefited from the situation. They get to keep that benefit. But continuing share owners of long standing got no benefit yet they have to pay the class action. I judge it to be cowardly for the Board of directors to have agreed to pay share owner money to settle that class action.

The SEC described a very basic form of manipulation. They allegedly  “capitalized” expenses that were not creating assets but were just expenses. In itself that could be just a difference in judgement. But the SEC alleges they did it with nice round figures designed to meet analyst earnings targets. That’s gross manipulation. The Alberta Securities Commission had looked into this and did not bring any charges.

I believe Home Capital is now impatiently awaiting TSX approval of Warren Buffett’s equity investment. I believe that deal is OFF if the approval does not come tomorrow. (Although I suppose Buffett might extend the deadline but he likes things done fast and might just say forget it). The Berkshire $2 billion line of credit is already in place and that will not be canceled even if the equity purcahse is not approved. Home Capital is having its delayed annual meeting tomorrow.

I mentioned a while back that Home Capital’s GICs could be purchased through TD Direct. That was wrong, I was looking at Home Equity which is a different outfit. For whatever reason TDhas not offered Home Capital GICs since 2011. You can however purchase Home Trust (part of Home Capital( GIC’s through RBC Direct and Scotia itrade. I have never been a fan of GICs but the Home Capital rates (2.5% for one year 2.8% 5 year) are higher than competitors (due to their problems) and I think are safe now with Warren Buffett’s rescue. Even if Buffett’s equity purchase is not approved that would basically be the TSX deeming the company safe enough not to need Buffett’s money. In addition if you stay under $100k there is deposit insurance in case Home Capital did go bust.

June 27, 2017

On Tuesday, the S&P 500 fell 0.8% while Toronto was down 0.2%.

Rate reset preferred shares were up as the yield on the government of Canada five year bond rose.

Couche-Tard was up 1.9% and after the close the Canadian competition regulator approved its large pending acquisition of CST brands.

Linamar was down 2.0%.

CRH Medical was down 3.4%. I notice it added $100 million to its approved credit line limit a couple of days ago. It appears that its acquisition strategy remains intact. I may add to my position.

Constellation software was down 2.3% while AutoCanada was up 2.3%.


June 28, 2017

On Monday, the S&P 500 and Toronto were each about unchanged.

Alimentation Couche-Tard was up 3.6% after the Competition regulator in the U.S. cleared it to close its latest huge acquisition. The deal will close on Wednesday.

Andrew Peller was up 1.8%.

Costco was up 1.9%. I did not end up buying any today.

The S&P 500 has not had any significant pull-back since the November election. If one should occur that might offer a better price for Costco and other good companies.

A Personal Advertisement

Every once in a long while I will take the liberty of posting a personal advertisement here. And today’s the day.

I have a son who just graduated in Geology from St. FX University in Nova Scotia. He was a good student and (probably more importantly) does very well in the people skills department.  In April he was awarded the Professor D.J. MacNeil Memorial Award which goes to the graduating student whose overall performance at the university indicates a promising career in the earth sciences. He has a strong resume, well rounded in academics, sports and life skills.

So, if anyone is looking to hire a Geology / earth sciences graduate email me at to obtain his resume.

He is spending the summer as a golf caddy at Cabot Links / Cabot Cliffs in Inverness Cape Breton. If any of you happen to be golfing there over the summer you now know who to ask for as a caddy. Caddies are mandatory at this course.

End of personal advertisement. Now back to regular programming.

June 25, 2017

On Friday, the S&P 500 was up 0.2% and Toronto was up 0.6%.

Stocks on the move included TFI Inc. up 2.0% and AutoCanada up 2.3%.

On Friday, Statistics Canada reported that inflation was running at only 1.3% and this cooled expectations for a Bank of Canada interest rate hike.


Costco is updated June 25, 2017

With Costco down to $157 from its recent peak of  $183 I thought it might be worth looking at. In addition it has reported stellar same-store sales of late. Unfortunately it still certainly does not look cheap and I am rating it a Weak Buy at $157.13. Still, I may grab 50 shares tomorrow especially if it is down again. It has fallen because Amazon will buy Whole Foods and could turn that into a bigger competitor. But I think Costco will continue to do well despite the Amazon deal.

Amazon Updated June 24, 2017

Amazon is updated and rated Sell at $1004. Every time I look at it, it appears to be way over-valued but I have noted in the past that it can still keep going up. Which it has.  I continue to look at it and try to understand why investors are paying 189 times earnings for it. Obviously, they expect earnings to increase a lot. This company is already one of the highest valued in the world at $491 billion. Will it now double to a trillion? It’s just too expensive for my tastes.

June 22, 2017

On Thursday, the S&P 500 was about unchanged while Toronto was up 0.5%

Canadian Western Bank was up 5.9% to $27.00 as all the smaller lenders went up after it was announced that Warren Buffett / Berkshire Hathaway would invest in Home Capital. Berkshire would provide a standby line of credit of $2 billion and would invest $400 million for about 40% of the company pending approvals. The line of credit, if used, would be at 9%. But the intention is that it will not be used but instead Berkshire will collect 1.75% just for promising to have the $2 billion ready to lend (at 9%) should it be needed. It won’t likely be needed since Buffett’s investment will put a golden seal of confidence upon Home Capital and deposits should now flow in.

If I was looking to put money into a higher interest savings account or a GIC I would now have the confidence to put it with Home Capital. Looking on TD Direct I can access some Home Capital GICs but not the ones with the best rates and not the high interest savings accounts. If I wanted to put money with Home Capital in their high interest savings account or in their higher rate GICs through their Oaken Financial division, I would have to do it outside of TD Direct. I have never owned a GIC and am not interested and also I like keeping everything with TD Direct so I can see it all in one place.

Regarding Canadian Western Bank this 5.9% gain to $27.00 is nice but is not that exciting since I certainly thought it was a good investment at $32 and even higher back before oil tanked. I do see it as still under-valued. I rarely have “target prices” in mind but I fully expect Canadian Western to be over $40 within a couple years. This should occur as its book value increases with retained earnings and its trading multiple to book value rises from the current low level.

Stantec was up 1.5%

Costco was down 2.1% to $159.79. Although still not at all cheap, it might be worth nibbling on. It is a fantastic company. One idea would be to out in a limit order for $155 or $150 and see if it happens to go that low. But save some cash in case it happens to go even lower.

June 21, 2017

On Wednesday the S&P 500 was up 0.1% and Toronto was about unchanged.

There was not much movement in the stocks on our list. Bombardier was an exception, down 5.0%.

Statistics Canada reported the investment in new home construction for April. Given my interest in Melcor Developments, I am always interested in the figure for single family homes in Alberta. This was up 9% versus April 2016 but still down 28% versus 2014. The trend has been going in the right direction.

I notice that Home Capital’s deposits were about unchanged yesterday despite news of the sales of mortgages at a pretty good price. I had thought that with this bank now probably out of the woods deposits would flow back due the high yield they offer. But those with cash to deposit are apparently remaining cautious.

Stantec announces new CEO June 21, 2017

Stantec announces that its CEO of the last eight years will retire at the end of this year to be replaced by another long-time Stantec executive.

This looks like business as usual. Stantec has always named its new CEO’s from within. This is a sign of a company that believes in its own people. The exiting CEO will also remain on the company’s Board. That’s another Stantec tradition.

I don’t see anything negative in this development.


June 20, 2017

On Tuesday, the S&P 500 was down 0.7% and Toronto was down 0.8%.

Ceapro, our one penny stock, was down 5.1% to 92 cents. This could easily continue to go down unless there is some positive news on the earnings or future products front. This was always a speculative pick. I am not inclined to make further investments despite the lower price.

CRH Medical was down 3.0% in Toronto and 3.5% in USA trading. I think they have a solid business model and so I would consider adding to this one on this and the recent weakness.

I notice that Home Capital had a nice inflow into its high interest savings account product on Monday. (The first notable inflow since the big outflows started.) They likely did even better on Tuesday. This lender appears to be out of the woods now operationally. It will be interesting though to see what kind of loss it will post for Q2. The share price is likely to continue to be volatile.

Statistics Canada reports that wholesale trade increased in April. Apparently, the economy continues to grow. I note the vehicle sector was down. On June 14 I noted that the retail auto sales in April were up nicely in dollars although down in units. So, conflicting signals here but it might suggest dealers were less confident and brought in fewer new cars.




June 20, 2017 1:00 pm eastern

Regarding TFI Inc. (TransForce) I see that the company bought back almost 900,000 shares in May at prices as high as $29.30 but mostly at closer to $28. This company has been very smart in the past about buying back shares at good prices. This buyback adds to my confidence that the shares are good value at the current 27.25.

Bank of Montreal is out with a rate reset preferred share paying 4.4%. This does NOT feature any minimum on the reset yield as some relatively recent issues did. I am not planning to buy this and I don’t think it is a great investment. What it illustrates is that the market yield on rate reset shares has drifted down. On August 31, 2016, TD had to pay 4.85% to issue similar shares and my comment of February 25, 2016 notes that Royal Bank did an issue at 5.5% at that time. As the market yield on rate reset preferred shares has drifted down (despite forecasts of Bank of Canada interest rate hikes) this has pushed up the price of the many existing rate reset shares on the market. With the market yield down and the potential reset yield rising if the 5 year Canada bond yield rises, this provides two reasons for the existing rate reset preferred shares that are trading under $25 to rise.

Home Capital has announced it will sell $1.2 billion of commercial mortgages at 99.61% of face value. But this could drop to as low as 97% if credit losses are higher than expected. Ordinarily this would not be a great price at all. In an originate-to-sell model Home Capital needs to get about 101% of face value. But this is a pretty good price in this case given all of Home Capital’s troubles. This would appear to indicate that Home Capital is worth at least something relatively close to book value which could mean the shares will continue to rise. Meanwhile, as of Friday Home was still seeing deposits declining although slowly. If this move restores confidence then perhaps the deposits will now being to increase.

This development for Home Capital is also a positive for Canadian Western Bank which shares had fallen out of fears about its alternative mortgage business. However CWB is down 1.8% this morning likely due to the lower oil price.

June 19, 2017

On Monday, the S&P 500 was up 0.8% while Toronto was up 0.5%.

Most stocks on our list were up today including TFI International (TransForce) up 3.0% and Stantec up 3.4%.

I notice Tim Hortons faces several lawsuits by franchisees. I followed Tim Hortons closely when it was a separate publicly traded company. (And even before that Wendy’s used to be on our list here back when it owned Tim Hortons.) Maybe I am just sort of jealous since I never looked into owning shares of Restaurant Brands International but these RBI people so not strike me as nice people at all. I always thought it would be great to own a Tim Hortons location but with recent developments I am not so sure. But they do seem to stay amazingly busy.


June 16, 2017

On Friday, the S&P 500 was about unchanged while Toronto was up 0.2%.

Amazon was up 2.4% on the announcement that it would acquire Whole Foods.

Whole Foods increased 29% on the news to $42.68. But it remains below its peak of about $54 reached in early 2015 and about $60 reached in late 2013.

It was interesting to hear that the purchase will be financed by debt. Amazon has not issued many shares in recent years. It’s share count is up only 12% in the last ten years and that probably is the result of executive and employee stock options being exercised. Amazon has also not issued all that much debt. Debt was not large compared to its assets or equity. It had the capacity to issue significantly more debt if it wished to.

Costco was down 7.25% on the news and at one point on Friday morning was down to $165. I was tempted to buy some Costco on the dip but decided not too since Costco is still expensive in relations to earnings. But Costco is a powerful company and it may continue to have a very high P/E ratio. I have difficulty picturing how it would be cost effective for people to have their Costco-type purchases shipped to their house. costco seems to do what they do in an extremely efficient manner.  The danger with Amazon is that it might be willing to make only a tiny profit on groceries and so could put some price pressure on all grocery sellers. Walmart was down 4.7% to $75.24 on the news and it does seem more likely to be potentially hurt if Whole Foods adopts a lower price strategy. Walmart is also very efficient but it operates at a higher mark-up than does Costco. Based on my most recent updates, I would not be a buyer of Walmart or Costco but of the two I would pick Costco.

Regarding Alberta, part of its recovery from the recent oil-related recession will depend on population growth. Recent data indicates that Alberta lost a net 2400 people to other provinces in Q1. That might sound a bit ominous. However, Alberta actually gained a net 4700 people when immigration from outside Canada is considered. That’s down from recent net migration as high as 28,500 in a single quarter and around 80,000 per year. But significant growth still comes from “organic” growth. Last year there were 55,000 babies born in Alberta. That’s a 1.3% increase in the population. This would seem to be good news for the likes of Melcor and AutoCanada since more people and especially more young families means more homes and more vehicles, all else equal. Alberta’s population growth has indeed slowed significantly in the past couple of years. But there is still significant positive growth.

Once of the realities of recessions is that they surely don’t hit people equally. A jump in the unemployment rate from say 5% to 8% is somewhere between very painful and absolutely devastating for the 3% of the labour force that is now unemployed. But some 97% of the workforce is largely unaffected. And all of the retired people are basically unaffected. I don’t mean to trivialize the recession but its impacts on the economy should also not be exaggerated.

Some businesses such as grocery stores are probably very little affected by higher unemployment since the people did not leave and still have to eat. The home building industry was hard hit due to lower in-migration and a general decline in confidence about the future.

And there are other impacts on the economy such as a sharp decline in capital spending in the oil patch.

I have said before that it is corporate profits and government revenues that were the hardest hit by the oil recession in Alberta. Eventually that could lead to significant tax increases on individuals, but that has not happened to date.



Fortis Inc. added to list June 16, 2017

Fortis Inc. is added to our list and rated Buy at Canadian $45.56 or U.S. $34.32. Headquartered in Newfoundland, Fortis has grown by acquisition into a huge North American utility company. It sticks almost 100% to regulated assets. It has basically benefited from the fact that utility regulators have, in my opinion, been overly generous in maintaining regulated returns close to 10% in most jurisdictions for years mostly ignoring the massive decline in interest rates. (Basically, the regulators were bamboozled by the utilities arguing for high returns.) Fortis pays large premiums to acquire regulated assets because they know that the regulated returns are generous. Investors cannot immediately benefit from the high regulated returns because we too must pay big premiums to the regulated value upon which the return is paid. (See comments on book value and goodwill within the report) But over the years as the company grows investors benefit as the company invests in growth of its utilites and does so without paying a premium. Fortis is another example of a growth-by-acquisition strategy that has worked out very well.

June 15, 2017

On Thursday, the S&P 500 was down 0.2% while Toronto was down 0.1%.

TFI International (TransForce) was down 2.6% and I added to my position in this company today.

In the next day or so I will add Fortis Inc. to the list and it will likely be rated “Buy” or possibly (lower) Buy.

Home Capital (not on our list but much in the news) was up 12.7% to $13.67 after it announced a settlement with the regulator. A settlement that included relatively minor punishment for three executives and fines/payments for the company itself

An ironic thing in the Home Trust situation is that the company and the executives were not pursued by the Ontario Securities Commission because the company discovered that certain of its brokers were falsifying mortgage applications. The crime the company and the executives was charged with was failing to DISCLOSE this in a timely manner. By failing to disclose this Home’s share price was artificially higher than it should have been for a some months. When the news was disclosed Home’s shares fell about 35% shortly after the problem was disclosed. Had they disclosed it earlier the share price presumably would have declined earlier. And there seems to be no doubt that it should have been disclosed earlier and that the lack of disclosure caused some people to pay too much for the shares (while others benefited by selling at an artificially high price). Clearly the executives deserved to be sanctioned/fined for this. (I am not so sure the company itself  should be fined since that just punishes innocent shareholders).

What I find ironic is that when the regulator came after the executives and the company it caused a situation whereby investors had no idea how to value the company. Since then the shares have traded as low as $5.06 and as high as $14.47. The regulator apparently caused a run on the bank that threatened its existence. The turmoil and confusion and the extreme difficulty of figuring out a fair price for the shares caused by the regulator’s actions seems to have FAR exceeded the damage the original crime caused. Home many share owners have now been harmed by selling out in a panic at the low prices? Should the regulator’s actions also be considered a case of poor disclosure? The market was left with no idea how seriously the company would be hurt by the charges.

Perhaps if the regulator had demanded the executives be removed from the company and gone after only the executives and not the company, the run on the bank could have been avoided. The company itself bungled the situation by trying to fight the regulator instead of tossing the guilty executives overboard. (But it would be difficult for a Board of directors to toss out some of its own members) The notion that corporations are “persons” is a legal fiction. In reality a corporation is an inanimate construct that does not itself commit crimes. It is the management of corporations that commit crimes not the company (in my opinion) and surely not the external share owners. Yet the shareholders often bear the biggest costs of any crimes by far. Executives usually get away very lightly.

June 14, 2017

On Wednesday the S&P 500 closed down 0.1% while Toronto was down a hefty 1.4%.

Oil is down to $44.69 which pushed Toronto lower.

Toll Brothers was up 1.4% to $39.12.

AutoCanada was down 2.3%. Statistics Canada today reported the April new vehicle sales. For Canada as a whole the number of vehicles sold was down 1.6% versus 2016 but in dollars the sales were up 4.7%. In Alberta there was a strong recovery with unit sales up a hefty 15% and sales in dollars up 18%. This actually look like a very positive result for AutoCanada. However it is also the case that AutoCanada’s sales in Alberta have lagged the average as some of its dealers are in harder hit areas.  AutoCanada has not yet reported buying back ANY shares under its recently announced buy back approval.

TFI International (TransForce) was down 2.5% and is certainly worth considering.

CRH Medical was down 4.6% in Toronto. I would be tempted to continue to add to my position here but I probably have enough of it.

Home Capital has announced a settlement with regulators. Its former long-time CEO will pay a fine of one million dollars and be barred from being a director of a public company for four years. Two others will pay $500,00 each and be barred for two years. This is a very light penalty in comparison to the enormous grief and damage caused by the announcement of the regulator’s investigation. I believe both the regulator and Home Capital really bungled this whole matter.

In addition some $39.5 million will be paid by the company for a class action lawsuit settlement. In my view this is totally inappropriate as it amounts to today’s innocent Home Capital share owners (indirectly) paying money to a sub-group of owners or former owners. Typically most class action settlement money goes to lawyers which is ridiculous.

There is speculation that Home Capital’s share price will recover strongly on this news and rumors that it is getting a $2 billion loan at a more reasonable interest rate. Perhaps so, but then again an awful lot of damage has been done to Home Capital’s business model.

The FED did raise interest rates today. The FED rate is still only in a target range of 1.0% to 1.25%. But this is the fourth increase in 19 months and the third in 7 months. And four more increases are expected in the next 18 months. Slowly but surely it seems that we have finally entered a period of rising interest rates. Bond yields actually declined somewhat today but overall the trend may now be up.

Meanwhile we have indications that Trump is now being officially investigated by the special prosecutor for obstruction of justice. I don’t think he will end up being charged but it might be something for the market to worry about.

With the targeted attack on Republican law makers today I would think that the terrorism threat has just become a LOT more real in their minds. Possibly this could lead to increased security. That won’t be good for trade and tourism and should be something else for the market to worry about.

Trump and the Republicans have a lot of things to worry about. Providing corporate income tax rate relief may not be so high on the agenda.

Thougths on Aimia / Aeroplan June 14, 2017

With the collapse in the share price of Aimia (owner of Aeroplan) which came after Air Canada announced it will cease its partnership with Aeroplan in 2020, it is worth taking a look at the value of the shares. (Particularly since it was on our list here from 2005 to 2010 and so I have some familiarity with it.)

Aimia announced today it was suspending the dividend. The press release was titled “Aimia Provides Update on Dividends”. Update? Now I would ask what kind of self-respecting person would put that title on the press release? This kind of nonsense is common at many companies and to me indicates a lack of honesty.

The reason the dividend needed to be suspended is interesting. It’s because under the Canadian Business Corporation Act:

A corporation shall not declare or pay a dividend if there are reasonable grounds for believing that… (b) the realizable value of the corporation’s assets would thereby be less than the aggregate of its liabilities and stated capital of all classes.

Okay, so what is the stated capital per share of Aimia? As calculated below its book value is 61 cents per share. That consists of $10.93 per share in share capital and $7.58 in contributed surplus (so a total of $18.51 per share of money raised directly from shareholders, I believe that is the stated capital) plus $0.27 in other comprehensive income and (hilariously) accumulated retained LOSSES of $18.17 per share. $18.51 plus $0.27 minus $18.17 = the 61 cents of book value.

So the dividend had to be suspended if the market value of the assets less liabilities was less than about $18.51 per share. It is a wonder the dividend was not suspended a long time ago. These financial statements clearly indicate a company with a history of destroying shareholder capital.

The share price right now is $1.55 down 18% today on news it has suspended its dividend. And down from about $8.25 in April and down from highs of over $14 in 2013 and 2014.

In a case like this, it is worth looking at the balance sheet to see if it is possibly worth more than this $1.55 even on a liquidation basis.

It’s latest financial statements reveal a book value of just 61 cents per share ($92.7 million divided by 152.3 million shares). So that indicates it is NOT likely worth $1.55 in liquidation.

The balance sheet shows that a HUGE 70% of the assets consist of goodwill and intangibles. Basically this is the value that Aeroplan paid in acquisitions over and above the value of any hard assets it was acquiring. Aeroplan’s tangible book value per share is far below zero.

You might think Aeroplan would hold a pile of cash or investments from selling points to TD bank and AirCanda and all the other places that give out Aeroplan points and other points programs that they own. In fact, yes, they do have what amounts to $4.42 per share in cash and investments. But Whoops, they indicate that the liability to those holding points amounts to $21.29 per share. And then there is debt and other payables.

It is possible that Aimia’s non aeroplan business has value and that the company is in fact worth more than $1.55 per share. But this balance sheet analysis suggests that not only might the shares be worthless but those holding points would also face a large loss of value in the event of liquidation.  Just paying the debt would use up most of the cash and investments in the event of liquidation. But liquidation is not necessarily what will happen.

So, looking at the balance sheet, I see ABSOLUTELY no reason to buy these shares.

My last look at the company on December 30, 2010 stated:

Groupe Aeroplan is updated and
rated Speculative Weak Buy at $13.76. This company has achieved huge growth in
revenue on a per share basis. That alone, indicates it may have potential to
grow earnings per share at a high rate. But a right now the earnings are not
high, even on an adjusted basis. Various accounting issues make it almost
impossible to analyse. Therefore we would not buy it. Perhaps the implementation
of International Financial Accounting when it reports Q1 will clarify matters.

That report also indicated:

We don’t like management’s attitude that it’s okay expire customer’s points. We have concerns about accounting disclosure.

On February 22, 2012 I indicated that I did not trust the ethics at Aimia.

I would have thought that the Aeroplan points holders did not have much to worry about. But looking at the financial statements they do have something to worry about.








June 13, 2017

On Tuesday, the S&P 500 was up 0.4% to another record high while Toronto was about unchanged.

(Apologies as yesterday’s post here did not get uploaded.)

Toll Brothers was up 1.5% to $38.57 and is up 24% this year.

Rate reset preferred shares have done well in the past two days as the yield on the 5 year Canada bond has jumped from about 0.96% to 1.15% in just two days. That is still an incredibly low interest rate but it is a big move in two days. When it comes to the long-predicted rise in interest rates there have been many false starts. But now the FED has increased rates 3 times in 18 months and Wednesday is expected to be the fourth time.

The FED’s interest rate announcement and and any comments if makes are likely to be the big focus for markets on Wednesday.

Home Capital is not on our list but is of interest partly because troubles at Home Capital caused Canadian Western Bank’s shares to fall due to (probably over blown) fears that some of the same issues would surface in a small segment of CWB’s business.

Home Capital’s shares have been rising on rumors that it will attract a large new investor to add to equity and will get new management. Today Home Capital’s shares fell 7%. The difficulty is that Home Capital’s brand name may be virtually beyond repair. It’s quite possible that Home Capital is worth at least its share price even if it simply winds down operations, collecting the existing mortgages as they come due. But as a going concern or brand name any added value beyond the liquidation value seems questionable.

GIC investors and mortgage applicants have basically no loyalty. Tonight Home Capital provided its latest daily summary of deposits and liquidity. Total deposits were down about $42 million. Yet the company indicates that its liquidity was UP $60 million. No explanation is provided in these daily updates. Presumably the increase in liquidity (despite lower deposits) means that mortgages are getting paid off or paid down and so the company is basically in wind down mode on its mortgages. It appears that few new mortgages are being funded or at least that repayments far exceed new mortgages. If Home Capital cannot attract deposits or mortgage customers, what is the value of the brand?

Possibly an announcement of a major equity injection at Home Capital would restore trust and customers. But at what price would a large investor be willing to buy shares? That price might be below the current share price.



June 11, 2017

On Friday, the S&P 500 was down 0.1% while Toronto was up 0.3%.

U.S. financial stocks were strong while the big “tech” stocks were weak.

Bombardier was down 7.1% as Boeing’s complaint against it passed a first hurdle. A U.S. trade body ruled in favor of allowing Boeing’s complaint to proceed.




June 9, 2017 11 am eastern

North America stock markets are up about 0.4% this morning.

The U.S. banks are particularly strong.

The latest employment figures are out from Statistics Canada this morning and are very strong.

The unemployment rate in Quebec was down 0.6% to 6.0%, the lowest since these statistics started in 1976. This is remarkable. I have been following these figures to a greater or lesser extent since about 1980. To my recollection Quebec was always a have-not province with noticeably higher unemployment than Ontario. Something different and remarkable appears to be happening in Quebec.

I was not able to open the Statistics Canada web site for more details. I also did not receive the usual daily email from them. They had major problems with their site a month or two ago. I suspect it is not fully fixed. Every large organization now faces big risks from software as we are all so dependent on computer systems.

I noticed the comments about this positive jobs report on Yahoo Finance. Most people were ranting that the gains were only temporary. They are completely oblivious to the fact that the numbers are already seasonally adjusted.




June 7, 2017

Wednesday’s action saw the S&P 500 up 0.2% but Toronto down 0.6%.

Our one penny stock, Ceapro was down 5.6%. Unless earnings turn higher in Q2 this stock could certainly go down a lot more unless earnings from existing products recover or there are positive developments from its research efforts. It’s more suitable for a bit of “mad money” than for any kind of serious investment.

CRH Medical was down 2.5%. It got some negative attention from certain analysts but I don’t think it is a particularly risky investment. I added to my position today. But I would not be prepared to make this one of my larger investments at all.

The madness that surrounds the presidency of Donald Trump continues. It’s not clear when or if the market is going to get spooked by any of it.


June 6, 2017

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

AutoCanada was up 4.2% after announcing it might buy back some shares. Buy backs are generally positive for share prices but the real driver has to be earnings. If the company has the cash available and is convinced that the stock is under valued then some buybacks will be a good thing. Be aware that companies do not always follow through on actually buying back any shares after they get permission to do so.

CRH medical was down 4.0% to $7.73 Canadian. Note that the report is in U.S dollars and it trades at $5.75 U.S.  This looks like a good speculative pick and I may add to my position in this one.

June 5, 2017

Monday was a mildly negative day with the S&P 500 down 0.1% and Toronto down 0.2%.

Toll Brothers gave back 2.0%. Ceapro which is a speculative penny stock was down 6%.

Canadian Western Bank ended about unchanged today. I see some articles talking about its risks. I don’t know if these people were arguing to sell the stock when it was $40 or $30 or did they wait until it was down to $25 on fears to suggest selling / not buying? Maybe the naysayers are right but I don’t think so.

In the update for CN Rail I give figures on the increase in carloadings versus 2016. The growth in 2017 is very strong. It bodes well for the economy. It also ties into the fact that Canada’s GDP growth in Q1 was strong.

Canadian National Railway Company updated June 5, 2017

CN Rail is updated and rated Weak Sell / Hold. It’s a great company but seems expensive at this time (as it usually does). It had some weakness in carloadings in 2016 but carloadings have rebounded very strongly in Q1 and now Q2 as well. I expect it to report a good increase in earnings in Q2 and possibly through 2017. Still, with a P/E of 22 and a dividend yield of only 1.6% it seems expensive. I am not inclined to buy at this time. I was too pessimistic on the company at the last update (see December 29, 2016) in good part because I understood from the company’s 2016 earnings forecast as of Q3 that they were expecting an 8% decline in Q4. Perhaps I misunderstood and/or the year ended off much more strongly than the company expected. It seems clear that the carloadings in Q1 and now Q2 were unexpectedly strong. Carloadings are up double digits from 2016 although not that much higher than 2015.

The strong carload figures at CN bodes well for the performance of the Canadian economy in general. Things are increasingly on the move, it seems.


June 4, 2017

On Friday, the S&P 500 was up 0.4% while Toronto was down 0.2%.

Bombardier has a strong day, up 3.6% $2.56.

Alimentation Couche Tard was up 2.0%. Toll Brothers was up another 1.4%. FedEx was up 2.4%. In general investors are optimistic and are bidding up share prices.



Canadian Western Bank preferred share update June 4, 2017

The Canadian Western Bank rate reset preferred share on our list is updated and rated (lower) Buy at $21.16.

Similar to many other rate reset preferred shares that are trading well below their $25 issue price, the hope here has been that the yield on the 5 year government of Canada bond would rise which would push up the projected yield on these shares at the time of their rate reset.

In late 2016 that 5 year Canada yield did rise and these rate reset shares did well. But then that rate peaked in mid March at about 1.32% and has since fallen to about 0.92%.

It seems inexplicable that there is large amounts of money that institutions are willing to lock up at the low return of 0.92% for five years. And this despite the fact that the U.S. FED has raised interest rates three times in the past 18 months and appears set to continue to increase.

If the five year government rate does not rise by the CWB reset date in April 2019 then then this is not going to be a very good investment. (but not a terrible investment either). I would consider putting a small portion of my funds into these shares in lieu of holding cash in the hopes of getting a dollar or two of capital gain if the five year Canada bond does finally rise. If I held these I would likely continue to hold.

In taxable accounts these shares get the dividend tax credit. Many advisors might suggest NOT holding these in a non-taxable account. But I would prefer to hold in non-taxable accounts where I don’t have to worry about taxes and the extra reporting required if the shares are sold. If a person has ONLY non-taxable accounts then I would definitely disagree with any advice to not hold preferred shares in a non-taxable accounts.


Canadian Western Bank updated June 3, 2017

Canadian Western Bank is updated and rated Strong Buy at $25.37. In the December and March updates I was fairly lukewarm on it due to risks of loan losses. But now the stock has fallen down to only 105% of book value. The decline seems to be related to troubles at Home Capital and speculation that CWB will suffer mortgage loan losses or unacceptably high deposit costs.  But, it has now reported another quarter with no serious loan losses and is projecting growth and seems to refute that the it faces any serious problems on the small part of its business that is similar to that of Home Capital. Loan losses will remain somewhat higher than recent years and could spike unexpectedly. But the bank indicates that even under serious stress conditions it expects to still report profits. All in all, I believe this stock is now priced to provide quite strong returns in the next one to three years. Book value is likely to continue to increase with retained earnings. And the multiple to book value is likely to increase as current temporary concerns abate. I had earlier reduced my position at prices around $30 to $32. I have now added to my position on the way down at about $28, $26, $25 and $24. There are no guarantees but I feel good about holding 11% of my portfolio in CWB shares.

June 1, 2017

Thursday was a strong day in the markets with the S&P 500 and Toronto each up 0.8%.

FedEx was up 2.3%.  Toll Brothers was up 2.3%. Dollarama which we consider to be a great but expensive company was up another 2.5%. Similarly CN was up another  1.4%.

In general the market has continued to push higher many companies that are perceived as as high quality and or high growth. There may be some danger that if market sentiment turns negative then those companies could fall due to “multiple compression” even if their earnings continue to grow. The best approach may be to have a mix of the higher quality but expensive names as well as the names that appear to be bargain priced. My own approach has been more weighted to the value side.

Canadian Western Bank recovered 3.7% after releasing earnings before the market opened. I looked at the earnings release and listened to the conference call. It appeared to me that the earnings report was strong with no sign of any big increase in loan losses on the horizon. Also the analysts on the call did not sound concerned about the bank. Overall, I CWB continues to look like very good value. Banks are highly leveraged which does add to their risks. There can be no guarantees but I do think CWB will provide strong returns over the next several years.

There are always risks. And on the internet you will have no problem finding predictions of doom. But meanwhile the companies on the stock market in aggregate tend to increase their earnings over time. Those who own shares tend to benefit from this in a bumpy and irregular fashion but where the benefits tend to be quite worthwhile over the decades.

Canadian Western Bank comment June 1, 2017 10 am eastern

Canadian Western Bank’s earnings report is out and is quite positive. There are never any guarantees but it seems silly that this bank’s shares have been pushed down quite close to book value. I grabbed a few more shares this morning at 3.5% higher than I paid yesterday. The positive earnings report reduces risk in my mind and the shares seem quite attractive.

May 31, 2017

On Wednesday, the S&P 500 was down 0.1% and Toronto was down 0.2%.

Alimentation Couche-Tard was a bright spot rising 2.3% to $63.58. This is an exceptionally well managed company and is likely to continue to do well over the years.

Costco reported stellar same store sales growth for May. At 31 times trailing earnings it seems quite expensive but has continued to power ahead.

Wells Fargo was down 2.0% and Bank of America down 1.9%.

Canadian Western Bank was about unchanged at $24.27 but had been down 2% at times today. I added to my position. This bank is now trading at about its book value. It does not feel great to hold this and see it sink like it has. It was about $31 three months ago and looked like god value at that time. In some cases, book value is meaningless as a value indicator. However, book value and especially tangible book value is a very relevant measure for banks. CWB is trading at about 112% of book value. I have its most recent ROE at 9.7%. If it continues to make that level of ROE then buying it around book value is going to work out well.

CWB reports Q2 earnings on Thursday morning and unless the results have leaked it seems logical that the stock price will move on the news. I understand it has not reported a loss in any quarter in over 25 years. Such a record will likely come to an end at some point. It’s always possible that it will report large loan losses tomorrow but I don’t think it is likely to report a loss. The Bank has been cautious in trying to build up and not deplete its equity level and so it may not buy back any shares despite the low price and it may hesitate to increase the dividend. The current yield is 3.8%. CWB’s Q2 last year was quite weak and so perhaps the bank will be able to report an increase in earnings. That will depend on what it reports for loan losses.



Toll Brothers updated May 31, 2017

Toll Brothers is updated and rated (higher) Buy at $36.91. Earnings have been increasing relatively rapidly based expected based on home sale contracts signed last year. This should continue based on the higher pace of home sales in the past year which will show up as revenue and earnings in the next year.

The stock price has been more volatile than earnings and has provided opportunities to buy at very good prices in 2016. The price now remains reasonably attractive based on current and projected earnings. This the second largest position in my own portfolio.

May 30, 2017

Tuesday’s action saw the S&P 500 down 0.1% and Toronto down 0.3%.

Bombardier was up 4.7% to $2.44 as it delivered the first CS 300 jet. This is good but the problem is that all of the early production run has apparently been priced below cost. It will be even tougher now to sell at profitable prices when airlines know that planes to date were sold at huge discounts below the cash cost pf production.

I was made aware today of some office buildings in Edmonton that have recently been sold at huge (staggering) discounts to the price paid for the buildings several years ago. In part this was due to dumb purchase prices of a few years ago. It was not clear what the vacancy levels were.

For many years it has been the mantra of pension funds and other institutional investors to buy “infrastructure” assets. It seemed that no price was too high. And it seems to have been accepted by REIT investors that buildings no longer depreciate but instead always appreciate in value even as they get older. Well, not always it seems.

These value declines are scary and could have implications for other REITs and for lenders as well.

May 29, 2017

On Monday, with the U. S. markets closed, Toronto was about unchanged.

Ceapro recovered 4.6% while CRH Medical was down 3.7%.

AutoCanada recovered 4.6%.

The decision of the Green Party in B.C. to support the NDP and attempt to topple the Liberals seems like bad news for Alberta’s hopes of getting the new Pipeline built. In theory, the province has no jurisdiction but it seems to wield considerable influence in practice. I suppose it is fair that the NDP be given a chance to form government, since the rules allow for it.

A Globe and Mail article today points out that Canadian Western Bank has had to raise its deposit rates on GICs in the wake of the Home Capital situation. This lowers the profitability of CWB. However, the impact should be only very minor initially since it would only apply to very recent GICs and not to existing GICs deposited at lower rates. There was likely no impact in the quarter it will report this week. And, this whole Home Capital impact is likely to be temporary. CWB also faces higher loan losses and recently apparently pushed a land developer (Walton) into receivership. I don’t know how large a borrower Walton was but I do think that any impacts from loan losses will also be temporary. CWB has a profitable operation that makes money every day. Unusual loan losses could push it into losses (though I don’t expect that) but the underlying business would almost certainly remain profitable. Over many decades Canadian banks have been able to recover from occasional temporary issues because their businesses are basically profit engines such that they are able to recover from the occasional stumble. CWB reports earnings on Thursday.



May 28, 2017

On Friday, the S&P 500 and the Toronto index were both relatively unchanged.

The stocks on our list were also relatively unchanged with no particularly noteworthy moves.

Monday is a holiday for the U.S. stock exchanges.

The Kinder Morgan IPO that I mentioned on Wednesday has been completed. I was allocated all the shares I requested which suggests the IPO was not over-subscribed. This apparently starts trading on Tuesday. It’s an odd one since much of the value is for a pipeline that still faces hurdles to getting built.

I have updated the composition of my own portfolio.

May 25, 2017

On Thursday, the S&P 500 was up 0.4% to a new record high, closing at 2415. Meanwhile Toronto was down 0.1% as oil declined to $49.50 after OPEC’s agreed output limits were apparently not as low as hoped by the oil industry. (Oil consumers would presumably feel differently.)

AutoCanada was down 3.0% to $18.50 and I added to my position at that price. I spoke to their investor relations person today and did not discover any news to explain the decrease in price. He thought perhaps it is the lack of new dealer acquisitions.

CN Rail was up 1.9%.



May 24, 2017

On Wednesday, the S&P 500 rose 0.2% while Toronto fell 0.4%.

Canadian Bank stocks were lower which included Canadian Western Bank down 1.8%. AutoCanada was down 2.8%. With Oil at $51.77 I suspect the Alberta economy will continue to improve and I would be (and have been) a buyer of these two stocks.

In regards to the IPO of the Kinder Morgan Canada (TransMountain) pipeline, I have not analysed this but I placed a modest order for shares in the IPO.

Another recent IPO that I mentioned was BrookField Office Properties rate reset preferred shares paying 4.85% on $25 and (importantly) with a minimum reset of 4.85%. With continued low interest rates this seems reasonably attractive for fixed income. It closed to today at $24.97. BPO.PR.G  I was allocated only half the shares I requested in this IPO (which indicates strong interest in these shares).

May 23, 2017

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

U.S. markets have apparently become complacent about Terrorist attacks in other parts of the world.

AutoCanada was down 2.0% and appears to offer good value.

I bought some TFI International (formerly Transforce) shares today.

I have updated the analysis of the small biotech company Ceapro and will post the report in the morning. I consider it to be a Speculative Buy. I would not take a large position in such a small and speculative company. Its products under development may never pan out and its costs have recently increased.

Statistics Canada reported that wholesale trade increased in March which is an indication that the Canadian economy continues to grow.

TFI International (TransForce) update May 21, 2017

TFI International is updated and rated (higher) Buy at $27.50. Since our last rating (which was weak buy/ hold) at $33.15 the stock has declined and the earnings and revenue have increased.

This is a very well managed growth-by-acquisition company. While some people frown on growth by acquisition, my experience is that the very best long-term investments that I have tracked over the years have all been in that category (Stantec and Alimentation Couche-Tard, Constellation Software and Canadian Tire).

I will likely purchase some TFI shares on Tuesday.

May 21, 2017

On Friday, the S&P 500 rose 0.7% and Toronto was up 1.2%.

Most of the stocks on our list rose with the market. Ceapro bounced up 9.5%.

Canadian stock markets are closed on Monday but the U.S. markets are open.

May 18, 2017

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

AutoCanada was up 4.1%, and Constellation Software was up 3.5%.

It’s hard to say if the issues Trump is facing will have much impact on stocks. There always seems to be some threat to the markets but most of the threats fizzle out. My approach would be to try to have some allocation to cash or short-term investments that can be used if markets do happen to decline.


May 17, 2017

On Wednesday, the S&P 500 was down 1.8% and Toronto was down 1.7%

Apparently, a (rather belated) realization that Trump is not going to be able to deliver on corporate income tax cuts anytime soon was the reason. Or maybe it was the fact that his Presidency seems in turmoil.

Almost all the stocks on our list were down. Bank of America was down 5.9%. TransForce was down 3.8%. Canadian Western Bank was down 3.5%. Constellation Software was down 4.4%.

At the moment, futures are calling for stock markets to rise tomorrow.

Ceapro, one of our more Speculative picks, released poor results for Q1 and was down 17% to $1.00.

In the $10,000 TFSA account that I mentioned yesterday I bought about $2000 worth of each of Stantec, Canadian Western Bank, AutoCanada and TFI International (TransForce). I did not catch the lows of the day but I am down only $40 in total on the $8000 purchased (plus another $40 for the trading commissions).

Statistics Canada reported that Manufacturing sales rose 1% in March to $53.9 billion. It would probably shock a lot of people to hear that manufacturing sales in Canada are at a record high. The number of manufacturing jobs as a percentage of total jobs is almost certainly not at a record. But it may be that owners of manufacturers are still doing well in many cases.

Interest rates stubbornly took a dive today. The yield on the 5 year Canada bond was down almost 10% to 0.914%. This is quite negative for the prospect to rate rest preferred shares, particularly those facing a reset in the next 12 months or so. U.S interest rates also dipped noticeable today.

May 16, 2017

On Tuesday, the S&P 500 was down 0.1% and Toronto was down 0.6%.

AutoCanada was down 2.3% and I grabbed a few more shares today. I always like to show the courage of my convictions when Buy-rated stocks decline. And, just as importantly, I like buying shares at lower prices.

Canadian Tire was down 2.2% to about $155. It’s been a great company. But based on my last update it seems a bit expensive.

The next update will be for TFI International (Transforce) and I expect it will be somewhere in the buy range as the price has come down since my last update.

Tomorrow I will deploy $10,000 in a new TFSA for a young relative. This will be a long term investment and is not money that in any way is intended to be used for spending within the next five years. Ideally, this could be the start of a very long term investment portfolio.

I am thinking of $2000 into each of five securities. On the one hand I like the idea of including something like Boston Pizza to yield about 6%. On the other hand making $120 in a year or $10 per month on $2,000 (assuming the unit price is unchanged) does not seem too exciting. I do like the idea of including some dividend stocks. But I definitely want to have growth potential.

Possible investments include AutoCanada, Melcor, Canadian Western Bank, Stantec, Couche-Tard, Boston Pizza, TransForce and CRH Medical.

In this situation of a young and new investor I see no need to get into American stocks. I could use market ETFs. But I think using actual companies will be more educational. I also don’t want to get too speculative since losing money early in an investment lifetime could turn a person off of investing.

May 15, 2017

On Monday, the S&P 500 was up 0.5% and Toronto was up 0.6%.

Canadian Western Bank was up 2.1%.

All in all, it was another day to be glad to be an owner of companies.

Oil was up 2% to about $49 U.S. dollars. While lower than peak prices, $49 is not a low price for oil. Oil at this level is probably high enough to keep Alberta growing.

May 15, 2017 Melcor update

Melcor Developments is updated and rated (higher) Buy at $16.50. (last trade as I post this was $16.25. As detailed in the report (see Recent Developments) the company had a surprisingly large increase in residential building lot sales in Q1. And they continue to add to land holdings which indicates confidence in the future. I am attracted to the opportunity to buy shares at 56% of book value. The P/E ratio is also not too high at 15 and the dividend yield is reasonable at 3.2%. However, the return on equity is relatively poor at 3.8% (albeit partly due writing up the value of buildings which has increased the equity). If lot sales continue to be higher than the depressed levels of the past two years then the stock price should respond. This company has required a lot of patience in the past and that may continue to be the case.

May 13, 2017

On Friday, the S&P 500 and Toronto were each down about 0.1%.

AutoCanada was down 3.5% to $20.06 I last rated the company a Buy at $21.80. It exhibits some volatility. As long as it is destined to grow in value eventually (and I believe it is) then dips cannot help to be beneficial to committed long-term holders. There are never any guarantees but I like my chances owning this one.

Melcor released Q1 earnings this past week. The headline GAAP earnings were negative and also more negative than the prior year. But funds from operations were positive and substantially higher. One has to be careful in ignoring GAAP results but this is a case where GAAP results have mark-to-market items that truly distort the earnings trend. I had said in previous reports that GAAP market value losses on investment property valuations were likely and this did occur in Q1. But meanwhile revenues were up 26%. Revenues from sales of home building lots were up a very surprising 86%. The company is continuing to invest in raw land. Overall the company seems quite confident in the future and the Q1 report was positive despite the GAAP loss. This is my largest position by far. That is partly due to my history with the company. I would not likely make it my largest position if I started a new portfolio today. But I am comfortable with my large position and have not given thought to reducing it. At $16.50, this stock trades well below its book value of $29.41. Given the nature of the assets I believe this provides an excellent margin of safety protecting the downside for long-term holders and providing ample room for upside.

May 11, 2017

On Thursday, the S&P 500 was down 0.2% and Toronto was down 0.5%.

Linamar was up 8.0% to $63.83 after releasing earnings.

Stantec was down 5.0% after releasing earnings.

AutoCanada was down 2.9%.

With stocks apparently sliding my strategy is to add to positions. But I may already have been too hasty. I think patience is a good idea and not rushing to deploy cash.

Home Capital released earnings. As expected Q1 had reasonably good earnings. But Q1 is basically TOTALLY irrelevant to the circumstances that the company faces going forward. Looking at the press release I did not see anything about the losses or special costs it will incurr in Q2. I don’t know,  I see the disclosure as poor. Those who bought at prices under $7 may have made a great investment. Time will tell. They have a conference call tomorrow.



May 11, 2017 2:45 eastern

With Stantec down 4.9% due to below expectation earnings, I added to my Stantec position just now. I believe its growth model is fully intact. Earnings are impacted in the short term by acquisition-related costs.

May 10, 2017

Wednesday’s market saw the S&P 500 up 0.1% and Toronto up 0.4%.

I added to my position in Canadian Western Bank taking advantage of the recent slide. I have done quite well over the years by adding to positions in companies that I had confidence in as they fell. Sometimes my buying on the way down has been done out of stubbornness but it has worked out (but it has been stressfull at times)


The Bombardier preferred shares (these are perpetuals) on our list were down 1.3% to $17.61 to yield around 9%. Despite the woes of the company I like these shares for a portion of my portfolio. I have owned these for quite a few years, some bought too high but some bought at lower prices. The volatility has been scary at times but the dividend has flowed in on schedule. It is possible, but it does not seem like Bombardier will be “allowed” to go bust. We have already seen the recent government support. The C Series project was crippling and would likely have bankrupted them without support. But by all accounts it is a great plane and presumably they can soon (well it may be another two years or so) start selling these for at least a cash profit and longer term the operating profit on that plane should rise.

There were no large moves in the stocks on our list. AutoCanada was down 1.4% to $21.40. I continue to think that owning auto dealers will be rewarding over the years as it has been for about the last century. Buying AutoCanada at the current price means that we get to buy in at about a 35% premium to what the company itself has invested in the dealers. And it has owned these dealers for a number of years. Buying AutoCanada at $21.40 is far different than buying at over $80 (where it once was) would have been. The stock may or may not rise anytime soon, but I do think it will rise over the years.


May 10, 2017 6:20 am eastern

On Tuesday the S&P 500 was down 0.1% while Toronto was down 0.5%.

About the only notable move in the stocks on our list was Toll Brothers up 2.0% to $37.36.

Home Capital (which is not on our list) bounced up 30% on news of selling some assets. As I mentioned yesterday, this begs the questions as to whether these mortgage assets were sold at a loss or gain or what guarantees Home Capital is providing. The Globe and Mail asked the same question. The Globe indicates a book value of $25 for the shares versus the market value of  $8.86.

Home Capital will release earnings tomorrow (Thursday). They could actually report a good profit in Q1 ended March 31. But in April there were transactions such as the emergency loan that will generate losses. I don’t know if the accounting rules will require or permit the loss to be booked in Q1. Presumably there will be some estimate of Q2 profits and I would expect that to be a negative number. But the issue is not really the profit or loss at the moment. The issue is whether the company can stay in business. The new strategy will be to originate mortgages to sell which is an admission that they are no longer able to attract deposits to fund mortgages. Can they attract borrowers? That may depend on what alternatives borrowers have. Home Capital shares will likely be volatile in the hours after this earnings release and conference call as analysts attempt to understand the state of the company.

This whole mess with Home Capital could turn into an advantage for Canadian Western Bank’s alternative lender division called “Optimum Mortgage”. Optimum may also be involved in buying mortgages for Home Capital possibly at fire sale prices at the moment.

Statistics Canada reported building permits were down 5.7% in March. This was due to the volatile multi-family sector as well as lower commercial building intentions. Single family permits were up 3% and were up about 20% (from a quite weak 2016) in Alberta. Alberta single family building permits remain about 45% below the March 2014 level.

May 9, 2017, noon eastern

Possibly out of bordom, I just added about half to my small Ceapro position at $1.22. I mentioned some concerns about their reporting and I am afraid they might be too promotional with their stock price and there is a risk that their products especially on the nascent pharmaceuticals side (under development) may never pan out. Their current products are sold in the cosmetics market as in wrinkle cream ingredients. So I think this one will take a lot of patience and is speculative so I am keeping my position (bet?) quite small. But of course things could work out well which is why I am holding some. I will not likely consider buying more unless there is positive news or it slips under a dollar which is quite possible.


Speaking of speculative bets: Home Capital is selling off a billion to $1.5 billion in mortgages and is up 23% at the moment. But I see this sale as more a sign of desperation than anything. The buyer is no doubt getting the mortgages well under book value and/or Home is throwing in extra guarantees. It may be a sign that the company hopes to weather this storm. But with all the publicity and the total evaporation of confidence that may be questionable. This asset sale says to me that they have no found a buyer for the whole company or are unwilling to sell. Home Capital is HIGHLY speculative. All lenders are highly leveraged and it means that book equity can be eaten up very quickly when times get really bad (which is very rare for lenders but when it happens is devastating). A company with no debt can weather bad times for years. But a lender has massive debt (deposits) by definition and so a really bad year as in large loan losses (or selling off loans at big discounts which does trigger an accounting loss) can be quite devastating. Here Home is likely selling existing assets at a loss… I may be over-stating it but this is a bit like burning the furniture to stay  alive. And perhaps the deal is not as bad as I think or else they should have disclosed the purchase price. And why is the purchase price apparently not disclosed? It was lack of disclosure that led to the securities commission charges last month.

P.S. I just read the full press releases of the last couple days. Some new Board members and a new chair so that os positive as the existing Board might have trouble seeing things impartially since for example selling the company would be an admission that the old Board members sailed the ship onto the rocks.

I see they will redeem $325 million in low interest debt next week. I was wondering why, but it is because they have to redeem as the notes come due or file for insolvency. That scheduled redemption is part of the reason they were so desperate for cash.


May 9, 2017 5:30 am eastern

Monday saw the S&P about unchanged and Toronto up 0.4%.

CRH Medical was down 4.9% on Toronto.

Warren Buffett held Berkshire’s annual meeting on Saturday. There is a livestream archive of the meeting available and it is well worth listening to.

Home Capital was up 17% yesterday after suspending its dividend. It has lost now 90% of its “high” interest savings account deposits in the past couple of weeks. Presumably virtually no one is now placing GIC money with them and those deposits (which are the great majority of its deposit base) will be pulled out as they mature. It will be interesting if any of those GICs are on automatic rollover since people would not likely want it rolled over and would be angry is they miss their chance to pull the GIC money out for that reason).

With the depositors having abandoned Home Capital it seems very likely the company will be sold. In theory they could simply continue to operate and just pay of the maturing GICs as mortgages mature and get paid back (transferred to other institutions on renewal). But I think a sale is more likely. Memories are often short but I think the Home capital brand has been poisoned in the minds of too many people and so a name change is needed. Again, hard to know what price might be given for the shares in a takeover. Most likely the buyer will get a very good bargain. With a strong buyer and a name change the borrowers and deposits would quickly return.


May 8, 2017 11:0 am eastern

I am traveling this week and was unable to post for a couple of days. Apologies. I am also behind on updates and plan to be active with updates soon. Meanwhile I am looking to slowly add to some positions such as Stantec and Canadian Western Bank and AutoCanada.

With the Canadian dollar down to about a one year low I am transferring some cash back from U.S. dollars to Canadian using the Norbert gambit and the DLR units as described previously. Search DLR and DLR.un and on this site and the previous comments can be found.

Home Capital has suspended its dividend. It remains a risky bet. I would not risk serious amounts on it but there is nothing wrong with placing a small (and small depends on your individual circumstances) bet here. The regulators will make sure depositors always get their money back (although possibly with a delay) but I don’t think regulators have any responsibility tp protect share owners or debt investors. Still, they would certainly rather not see losses to debt holders or a wipe out of equity since that would impair confidence in other companies. Most likely Home Capital will be bought out but it’s hard to say at what price. Depends how many buyers are interested.

May 3, 2017

On Wednesday, the S&P 500 was down O.1% and Toronto was down 0.5%.

AutoCanada was down 3.5%.

As stocks decline I will look to add to positions. But I don’t want to get in a hurry doing that.

Regarding mortgage arrears the latest figures are for February and show no sign of deterioration. Somehow, some way mortgages get paid. In an environment of robust house prices few people default. They are better off selling and paying the loan. This is one of the dad parts of the Home Capital situation. Some of their mortgages were shaky. But in almost all cases even the shaky people are paying the monthly mortgages on time. \But what happens if home prices fall? Hard to say since we have not experienced that in Canada to any material extent in a couple decades. And we have never experienced in in an environment where mortgages were were obtained so easily and of such gargantuan size.

May 2, 2017

On Tuesday, the S&P 500 rose 0.1% and Toronto rose 0.3%.

TransForce was down 2.3% to $28.70 and is worth considering at that price.

Constellation Software was up 2.5% to about $666. It’s a wonderful company. It always seems expensive however. I have only a small position and have not intention to sell.

Home Capital is delaying releasing Q1 earnings. This is understandable since they will be under fire if everything is not disclosed up to the minute. A tough task. They are in a hard position. If they sound too pessimistic it will be a self-fulfilling prophesy. It they paint too rosy a picture they could be in trouble for that. Given the loss of confidence by depositors and potential GIC buyers, they may be forced to sell the company at what would likely be a fire sale price.

With Canadian Western Bank down to $26.50 I grabbed more shares today.

In Alberta last week a large land / house development company is seeking creditor protection. This is a private company (does not trade on the exchange). But it appears it does raise money from investors in other ways.

With hundreds of subsidies and partnerships they sound a bit untrustworthy to me. Blame is being placed on the Alberta economy. Maybe, but I suspect over-leverage and mismanagement played some role here. I am not sure if this has any real implications for the likes of Melcor but obviously it is a sign that things are tough in the land development business. Melcor has always been conservatively financed in order to weather the bad times. And it has substantial rental income revenues so that it can hold onto land in bad times without difficulty.

May 1, 2017

On Monday the S&P 500 was up 0.2% while Toronto was down 0.1%.

Constellation Software was up 4.0%. The CEO of Constellation writes a fairly lengthy annual letter. He is, by far, the most candid CEO I have ever come across. He is also one of the most able and honest CEOs I have come across.

Statistics Canada released GDP figures for 2016 by province and Industry. In particular it shows the declines in Alberta the past two years. Nevertheless the Alberta economy has not been totally decimated or anything close to that.

Regarding Home Capital: It seems tempting to throw a few dollars at it especially this morning when it again got to about $6.00. But my thinking is that I would not risk much on such a speculative stock. In order to (potentially) make a really worthwhile gain I would probably have to invest more than |I would want to.

So this got me thinking about risk. If someone with $100,000 was willing to put $5k into Home Capital, should someone with $1,000,000 and a similar risk tolerance be willing to put $50k into Home Capital? The mind may say yes, but emotions say no. And the reason for me is that the person with $1 million is not also likely making or spending per year 10 times what the person with $100k is. So your risk has to be related both to your total portfolio and to your annual spending or earnings. If someone with $1 million portfolio is earning or spending $100k per year then there is probably no way they would risk $50k on a very speculative stock. Our risk tolerance rightly considers both the percent of our portfolio at risk and the percent of of our annual earnings  or spending.

So Home Capital might be a worthwhile speculation. But I would tend to keep the amount quite small in relation both to my portfolio and of more relevant to my annual spending. $10k might not be much as a percentage of my portfolio but it is still a sizable chunk of money and is probably more than I would consider putting into Home Capital. I could throw $2000 or $5000 at it for the excitement factor, but I am not sure it is worth the stress.

I certainly would not be surprised if the company was bought out at something like $10 per share in the next few days. The buying company will want to get a very good deal because even if it is a good deal they will be criticized for taking the risk.

Big U.S. bank stocks apparently wobbled today after Trump hinted he might consider breaking up the big banks. So far Wall Street seems to think Trump is business friendly. Maybe so, but he is first and foremost Trump friendly. He may say America first but it’s really all about Trump first. Markets can wobble at any time on his latest tweet or whatever.

April 30, 2017

Regarding CRH Medical. I have now taken a close look at the earnings release from last week and listened to most of the conference call. The stock, after rising rapidly to about $11 in Toronto (our analysis is based on the U.S. price since it reports in U.S dollars), has dipped rather sharply to about $8.00. It is quite possible that the run-up to $11 was too much and too fast. Now some analysts questions whether there are certain threats to its revenues and to expenses. (It is possible their use of RN’s could be stopped and they would have to use Doctors). The company does not think this is likely.

Overall, its growth-by-acquisition model seems intact. I intend to add to my small position on  Monday.

On Friday, the S&P 500 was down 0.2% and Toronto was up 0.5%.

As of 7:30 pm eastern time Sunday, futures markets suggest no big change in stock prices tomorrow.

April 27, 2017

On Thursday the S&P 500 rose 0.1% while Toronto fell 0.9%.

CRH Medical was down 6.9% in Toronto to $8.37. I’m tempted to add to my small position as I think the company has a good business including growth by acquisition.

Bombardier was down 2.7% to $2.20. Boeing is launching a complaint that Bombardier is “dumping” planes into the U.S. market by selling below cost. My understanding is that Boeing is quite correct. It boggles the mind that Bombardier took a large write-off due to its “onerous contract” when it signed a deal to sell planes to a U.S. airline, Delta Airlines. We frequently hear that the U.S. government subsidizes Boeing. Other than through the U.S. government including the military simply being a customer of Boeing I have not heard of any evidence of such subsidies. I don’t see how Canada benefits by helping Bombardier sell planes to a U.S. airline at a substantial cash loss and at a fraction of fully allocated costs.


April 26, 2017

Lots happening today…

Trump released a tax cut proposal that most say is entirely unaffordable and will add hugely to the deficit. Coincidentally? it included a couple of measures that would benefit Trump and his family hugely: The end of the alternative minimum tax and the end of estate (death) taxes.

Politicians were called to the White House to discuss North Korea.

Former Trump Cabinet member Mike Flynn may have broken the law.

In Canada, Home Capital is the subject of a good old “run on the bank” and may end up worthless as regulators go after it in regards to a late disclosure of some bad news at the company from 2015. Whatever damage was done by the late disclosure would appear to be entirely dwarfed by the damage that the OSC investigation and the company’s completely bungled reaction to same is doing. Why do share holders always seem to pay the price for management misbehavior? I don’t believe in the concept of corporations breaking laws, people break laws not inanimate entities.

I had Home Capital on the list here from 2002 to 2009 and did well with it. I was generally impressed with the company but I did document some concerns with disclosure way back then. I thought they did a poor job of describing exactly how they raised deposits and how they marketed mortgages. I always thought the main risk was loan losses. Loan losses have not in fact been a problem despite the fact that some people lied about their income on mortgage applications. In the mortgage business a rising tide of home prices can cover up up any number of sins. (People don’t default on a home loan when their house is soaring in value).

On this news with Canadian Western Bank down under $28 I decided to add to my CWB position. I had reduced my CWB position a few months ago at prices around $30 to $32. I don’t want to be too hasty buying CWB or other lenders as this whole Home Capital mess could lead to further pressure on other lenders. CWB does have a division that provides mortgages to less than Prime customers.

A couple of rate reset shares came on the market today. I placed an order for some 4.85% minimum rate reset preferred shares issued by Brookfield Office Properties. The other offering was Element Fleet Management rate reset shares at 5.75%. I don’t like Element in part because last year when I tried very hard to understand Element Financial’s very complicated Income Tax situation I could not understand it at all. I was looking today and the the same thing applies in the 2016 annual report. I don’t know much about Brookfield but I do know that the entire Brookfield group of companies has had a very strong history.

At the end of Wednesday, the S&P 500 was down 0.1% and Toronto was down 0.6%.

Costco was up 2.4% after announcing a special dividend of $7.00 per share. This is at least the third special dividend in the past few years. Costco had room to increase its debt leverage and pay out cash. Sending out this cash actually reduces the book value of the company. But the market takes this as a sign of confidence in future growth.

Canadian Western Bank was down 5.2%, dragged down by the situation at Home Capital.

CRH Medical issued Q1 results that were strong in terms of EBITDA per share but with lower actual earnings per share at 2 cents versus 4 cents the prior year. It is annoying and depressing that the press release did not even mention actual earnings (Why is that even legal?). It also seems that they chose not to mention that results were down from Q4 although that was shown in a table in the press release. There were positive and negatives in the results and we shall see how the market reacts.

Toll Brothers was up 2.0%

Trump and many others want U.S. companies to ship home the trillions in cash that U.S. based but global companies apparently keep outside of the U.S.. It seems that people think of this as idle cash. But where is this cash? Presumably its in banks or maybe even invested in U.S. treasury bills held in foreign countries. Who will be hurt if U.S. companies pull deposits out of international banks? Who will benefit if a U.S. company simply transfers ownership of a U.S. treasury from its foreign subsidiary to head office in the U.S.?

Trump and others believe that corporate investments are needed in order to grow the U.S economy? What needed and profitable corporate investments in the U.S. have been deferred for lack of cash to invest? Warren Buffett said he knows of none.







A comment on Home Capital Group April 26, 2017 11 am eastern

I don’t know if Home Capital is going to survive its current problems or if its shares are worth more than the $6.95 that they are trading at this minute. In theory I would think the shares should be worth more than that even is a distressed sale to another financial institution.

What seems to have happened this morning is that Home Capital has basically revealed tht it is facing a “run on the bank” situation. It’s high interest rate savings accounts deposiuts plunged by $591 million to $1400 million in the past month. It’s far larger GIC deposits are apparently about unchanged at $13.01 billion down only very slightly from $13.06 billion. I suspect that most GICs are locked in and it is simply much harder or impossible for investors to withdraw those funds. Still a certain number mature each month and it is perhaps surprising that the drop in GICs has not been larger.

In response to this “run” on its high interest deposit accounts, Home Capital has had to obtain an emergency $ billion dollar line of credit with an interest rate of (yes) 10%.

It is hard to say what will happen next but it appears that Home Capital can’t operate unless it can restore confidence such that depositors will return. Or perhaps it can borrow money on less onerous terms to replace the deposits. At this point it may be most likely that some big financial institution will scoop up Home Capital at a bargain price.

Home Capital has a market value at the minute of under $500 million. This is bite sized for the biggest banks and even the likes of Canadian Western Bank would be in a position to grab this if they decide they want it and can act fast enough. Possibly there are private pools of money that can act fast and swoop in.

I have ALWAYS said since the start of this web site that lenders can be inherently risky due to their very high leverage.

If anyone wants to grab shares in Home Capital, be aware that the shares could go to zero. It may not be likely but it is possible due to the high leverage.




April 25, 2017

Tuesday… Another day and another 200 points plus up for the DOW…

S&P 500 up 0.6% Toronto up 0.2%.

At this rate, it starts to feel like investing is easy.

CN Rail was down 3.0% after releasing earnings. But that comes after big increases in this stock in the past 9 months or so.

Toll Brothers managed to decline 0.8% today despite reports of a surge in new home sales int eh U.S. Apparently the market fears tat higher lumber prices due to the Canadian import duties will raise home prices and hurt profits.  With U.S. home prices still very affordable I suspect that an increase in lumber prices will not dampen demand much.

Markets are apparently salivating now over Trump’s possible corporate income tax cuts. I have yet to see a single article suggesting that in a competitive market much of the tax cuts could get passed along to customers. Have we, even in the free enterprise regions of the world totally given up on the idea that competitive forces are at work? Do we think price competition is totally absent?

April 24, 2017

On Monday the S&P 500 rose 1.1% and Toronto rose 0.6%.

Bank of America rose 4.0%.

Reports tonight say that the U.S. will impose a 20% tariff on Canadian softwood imports. As on result, the Canadian dollar fell to 73.8 U.S. cents.

In terms of the dollar I had already been thinking of moving some U.S. funds back to Canadian dollars and I am now a bit more inclined to do so. But I will move slowly as I certainly can’t be sure that the Canadian dollar will not move lower.

This trade tariff does not bode well for anyone exporting Canadian goods to the U.S.

The tariff could push lumber prices down in Canada and definitely pushes lumber prices up in the U.S.

Statistics Canada reports that on a purchasing power parity basis the Canadian dollar buys in Canada what 84 U.S. cents buys in the U.S. This, in isolation would suggest that the Canadian dollar is too low. It also suggests that Americans, on average, should shop in Canada and that Canadians should, on average, not shop in the U.S.  Stay home this summer. Get a free National Park pass.

Statistics Canada also reported that wholesale sales in February were down slightly.

Bank of Montreal is offering Mortgage backed securities involving mortgages not covered by CMHC insurance. I am not interested in investing in this. But it is an interesting development in the mortgage market. I would like to see Canadian banks offer 25 year fixed interest rate mortgages at reasonable rates. They could only do so if a mortgage-backed security market is established. This would involve insured mortgages. Currently there are barriers that prevent banks from offering 25 year fixed rate mortgage backed securities to investors and therefore they can’t offer reasonable rates to borrowers. There is nothing inherently wrong with mortgage-backed securities. The U.S. mortgage crisis was caused by lending to people with insufficient income. This was facilitated by mortgage backed securities but not caused by those securities.

CRH Medical “attacked?” by short seller April 24, 2017

BNN reports that the reason CRH medical has dropped on Friday and again today is due to a short-seller issuing a negative report.

I hold a very small position in the company. While it would be more prudent to wait for the earnings report on Wednesday, I have added to my position this morning on hearing the reason for the drop. It is still a very small part of my portfolio (roughly 0.6%). But is still meaningful to me in terms of absolute dollars.

My own report indicated that the value ratios were inconclusive with a high P/E then at 30 but that was offset by high growth and a high ROE.

I have not seen the short-seller report and don’t know if their views have validity.

I have no issue with someone issuing a very negative report. The very purpose of the stock market is to “discover” true value. It would be hypocritical to be “okay” with reports that are designed to push stock prices up and then cry “foul” about short sellers. If the short-sellers are correct that the stock is over-valued or worse that the company has been inflating its earnings or has an unsustainable business model then the sooner the stock can be pushed to its true value, the better.

If you or I hold over-valued stocks, we do not deserve to be somehow protected from news that would drive the stock price down. If bad news is withheld then we could in the meanwhile sell our shares to others. That would not be fair.

BNN hosts spent a lot of time in the fall of 2015 beating up the Valiant short-seller Andrew Left. He was later proved to be 100% correct. I never heard BNN apologise for that. Short-sellers did not bring down Valiant. It was over-priced and ran by unsrupulous people and deserved to come down hard. (As I partially recognized in my own Sell report on Valeant before it peaked).

Now, it is unfortunate that short-sellers can target a company with no good reason and make money and then move on. But so can bullish “shills” especially for smaller companies.

If there is nothing to the short sellers case then CRH should be unaffected in the medium term and this will be nothing but a buying opportunity.

If the short-sellers are correct then so be it. I do not view validly held negative opinions as an “attack”.

April 23, 2017

On Friday, the S&P 500 was down 0.3% and Toronto was down 0.1%.

CRH Medical was down almost 19%. I am not aware of any reason for it. It could be some bad news has leaked. Or perhaps some analyst report has come out suggesting that the stock has gotten ahead of itself after recent increases. The company releases earnings on Wednesday. It would likely be prudent to wait until the earnings are released before deciding to buy or sell this name.

This Sunday evening the futures markets were up 150 points for the DOW apparently due to the French elections results. North Korea has apparently made threats to attack a U.S. aircraft carrier. The market presumably perceives that threat as too preposterous to be believed. In general, the stock market does not seem to be perceiving much risk of any kind as it continues to trade at relatively high multiples.


April 20, 2017

On Thursday, the S&P 500 was up 0.8% and Toronto was up 0.5%.

American Express was up 5.9% after reporting Q1 earnings.

Stantec was down 2.4% and remains a company that I would Buy at this price. After the close SNC Lavelin announced a huge acquisition of  U.K. company. This would seem to indicate that engineering services companies like Stantec are attractive to institutional investors.

Linamar was up 2.5%.

Trump increased his rhetoric against Canada today. Trump is likely aware that academics and economists believe that trade results in win/win situations where the populations of two trading partners can BOTH be better off (although not all citizens benefit and some are harmed greatly). But Trump is even more aware that his view of trade as a win/lose game get votes. He knows that protectionism gets votes. I would be very worried if I were a company that produced a product in Canada for sale mostly to the U.S.

The fact is that trade has never been as important to the U.S. as it is to Canada. It is important to the U.S. but I believe trade accounts for something like 12% or so of U.S. GDP while the figure is over 30% for Canada.

WestJet announced today plans to start a new ultra-low cost division. It seems to me that passengers are getting exactly the airlines that they vote for with their wallets. A lot of passengers will put up with very cramped planes with zero service as long as it is cheaper. The Airline business is an exceedingly tough business because most customers have no loyalty and simply choose the cheapest possible seat on every flight they book. And the various carriers have a history of competing viciously on price. Even when there are just two competitors on a route they have constant seat sales and such. A lot of new airlines have attempted to start in Canada only to be driven out by price competition in the industry. As one of the latest examples, I don’t particularly expect NewLeaf to last. How these low-cost carries expect to survive while often charging fares that are less than a cost of a taxi from downtown to the airport is beyond me. I understand it has worked in Europe. I don’t know how and I would not be eager to fly on an airline that charges under $100 for a flight. Do we really want pilots paid minimum wage or bare minimal wages or something like that?

Coincidentally, Statistics Canada reported today that the average base domestic fare in Canada is $174. That’s the average including first class and business class. Coach airfare in this country is actually pretty cheap.

April 19, 2017

Wednesday was an uneventful day for the stocks on our list. The S&P 500 was down 0.2% and Toronto was down 0.5%.

Oil is back down to $50.77.

Statistics Canada reported on sales of new motor vehicles for February. Sales across Canada were up 3% in units and 6% in dollars. Sales in Alberta were up about 5% in units and close to 10% in dollars over February of 2016. That should mean that AutoCanada’s sales improved in February however they have indicated that their dealerships were concentrated in some of the harder hit areas of Alberta. Also their Q1 report did not seem to reveal any excitement about sales early this year. Still, the overall rise in sales across Canada and in Alberta suggest that owning auto dealers remains a good business.


Canadian Economy snapshot article updated April 18, 2017

My reference article that details the percentage contribution of each industry to the GDP of Canada has been updated for the latest data. This article also shows the percentage of Canadian exports going to each major country. It shows graphically that Canada is HUGELY dependent on the U.S. as a trading partner. It is only a sight exaggeration to say that Canada is almost entirely dependent on the U.S. for trade.

And meanwhile just today Trump criticized the Canadian dairy cartel system as unfair to the U.S.A. This from a President who ran on a populist platform of being anti-trade. He does not like Canada’s dairy cartel / quota system from the point of view of the U.S.A. But he would probably copy it for the U.S. if he could. I think the notion that Trump was ever going to exempt Canada from his anti-trade protectionist measures is just wishful thinking. He would gladly “beggar” Canada for a few votes.  Canada’s best hope may lie in praying that his measures never make it through congress. It may not be possible to negotiate intelligently with Trump since he will want to do what gets votes as opposed to what makes sense. (The two are not always the same).

Any company in Canada that sends most of its output (made in Canada) to the U.S. and is currently competitive in large measure due to the low Canadian dollar may be in for serious trouble if Trump gets his way. I don’t think any of the recommended companies on our list are very much at risk (Linamar may be partially). The ever unfortunate Bombardier may be a case in point.



April 18, 2017

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

Toll Brothers crept up another 0.7% and is now up almost 20% year to date. This company has  required patience since it was first added to the site on June 5, 2011 at $21.03 as a way to benefit from recovering prices. The stock has bounced around and has given us several opportunities to add to positions on material pull-backs.

Similarly, Boston Pizza edged up 0.4% today to $23.26. In addition to paying a high yield this entity has given several opportunities for acquisition at bargain prices over the years. And no matter when it was acquired it has given at least an acceptable return if it was simply bought and held.

Rate reset preferred shares were generally down today as interest rates declined.

The 5 year Canada bond yield slipped under 1% for the first time since late November. It got as high as 1.32% in March. The 10 year Canada bond yield is at about 1.5%.

Many observers are critical of the Bank of Canada for not raising rates. Many of these same critics have thought that it won’t matter because “the bond market” will push up rates on bonds. Well, so far, not so much. Inexplicably there must still be many institutional invests willing to accept extraordinarily low rates. It’s mind boggling. Consider comparing a 5 year Canada to Boston Pizza. The 5 year Canada bought today and held to maturity will give you a TOTAL of about 5% on your money for your trouble of giving up your money for five years and will then give you back your initial investment. This is known with certainty. There is NO chance it will be any higher. One thin nickle for every $1.00 invested for five full years. Compare that to Boston Pizza yielding 5.9%. In five years you would collect  29.5 cents per $1.00 invested (assuming the distribution is unchanged and not bothering to count reinvested dividends). Now you don’t know what the units will trade at in five years. But they would have to be down about 25% to do as badly as the five year bond. Unless interest rates are quite a bit higher in five years, I suspect the BP units will be higher. They will most likely easily beat the return on the five year bond.

Now the BP units could in theory be far lower in five years. But it seems very unlikely.

The point is that the BP units and well as many many other yield investments appear to be FAR superior to locking in money at 1% for five years. And yet, institutions are clearly pouring many millions into 1% and 1.5% (ten year government) investments. It’s truly mind boggling. In many cases they do this to reduce risk. They GUARANTEE themselves inadequate returns rather than take the risk of trying for more attractive returns.  They are not doing it in the hope of making a capital gain on the bonds. Most institutional investors hold until maturity. Furthermore, the potential capital gain is very tiny on a 1% bond. At the end of the day, they are probably doing it partly because they will never get fired for making a poor but ultra safe investment. Or they are blindly following asset allocation policies.

It is interesting to note that an institution with $100 million to invest in an ultra safe fashion cannot get a rate as high as an ordinary investor putting $100,000 into a GIC. Up to $100,000 in a personal GIC is 100% guaranteed by the government of Canada and rates of up to about 2.0% are available. (The guarantee may not apply if you have other deposit accounts at the same bank, check with your bank).

April 17, 2017

On Monday, the S&P 500 shook off fears of world tensions and rose 0.9% while Toronto rose 1.0%.

My recent approach of holding about 30% cash has cost me gains. However, I feel that it’s a good compromise. I benefit from a 70% exposure to equities if markets rise and I have the 30% cash to  pick up bargains if markets happen to decline. On top of that, if I am successful at stock picking I may be able to beat the equity index in spite of the cash position. This approach suits my particular risk tolerance at the moment.

Dow Jones Industrial Average Valuation Analysis April 16, 2017

My detailed analysis on the valuation of the Dow Jones Industrial Average is updated. On a point estimate basis it appears to me that it is about 6% overvalued or not far from fair value. But the article shows that it can be considered 14% under-valued if we assume that investors only require an expected return  6% in this low interest rate environment and we assume 5% annual earnings growth a P/E of 19 after a ten year holding period. So, while I provide a point estimate of 6% over-valued there is uncertainty around that.

My 6% over-valued point estimate for the DOW is in sharp contract to the 41% over-valued point estimate that I arrived at for the S&P 500 just a few weeks ago. And I used the same assumptions around growth, required return and terminal P/E ratio. I did however adjust up the earnings on the DJIA toward the forecast earnings level because the GAAP earnings appeared to be below trend line. But that would not explain a large proportion of the huge valuation difference between the two indexes.

Both of these are large cap indexes and so one might think the valuations should be similar.

Since the DOW only has 30 companies it is possible that these 30 are simply trading at more reasonable values compared to the S&P 500.

Also the S&P 500 is a market value weighted index and may be more susceptible to being distorted by its largest holdings.

It is also possible that the earnings on the S&P 500 are about to soar in relation to the earnings on the Dow Jones Industrial Average.

Based on my analysis, if I wanted exposure to the largest companies in the U.S A. I would strongly favor a Dow Jones Industrial Average Index E.T.F. rather than an S&P 500 index ETF at this time.




April 14, 2017

(Apologies as this post was meant to be published Thursday evening and I seem to have run into a technical issue)

On Wednesday, the S&P 500 was down 0.4% and on Thursday it declined 0.7%.

Toronto was down 0.5% on Wednesday and a further 0.7% on Thursday.

(I believe I wrote a comment here on Wednesday including mentioning the 7% or so gain in AutoCanada as it purcahsed a dealership in Montreal but I must have failed to upload the comment).

The wonder is that the declines were not steeper given what seems like escalating tension in the world and also continued  developments the inquiries into the Trump campaign / Russia ties. I feel good having about a 30% allocation to cash which I can deploy if bargains arise.

Oil at $52.91 remains a positive factor for Alberta.

Canadian Western Bank is down to $28.33 and I am tempted to add to my already large position at this price. Linamar and Stantec are also names that I would be tempted to add to. But I am also inclined to just maintain my cash position.

In terms of interest rates, the Bank of Canada is not signalling any near-term rise. But it is often said that the bond markets can move rates higher independently of central banks. So far, this is not happening in 2017. The yield on the government of Canada five year bond is 1.04%. That is higher than the levels around 0.75% and sometimes as low as 0.50% that prevailed in 2015 and through October 2016. But spikes up as high as (a still low) 1.31% have failed to hold and the bond market does not appear to be signalling increased interest rates. I suspect interest rates will be somewhat higher a year from now but the market does not appear to be pricing in much of a rise. The rate reset shares seem to react somewhat slowly to the changes in the 5 year Canada yield. At the moment the rate reset preferred shares seem likely to fall if the five year Canada stays at 1.04%.

Statistics Canada reports that oil production in Canada is at record highs. With record production, the economy in Alberta is stronger than might be expected with oil prices down so much since 2014. When oil prices decline provincial royalties and income taxes are almost immediately very hard hit. And corporate profits are hard hit. But wages and employment are not as hard hit if production continues to be strong.

April 11, 2017

On Tuesday, the S&P ended the day down 0.1% after recovering from somewhat deeper losses earlier in the day. Toronto was about unchanged.

Toll Brothers was up 3.5% to $36.58 after RBC Capital markets raised its outlook for the share price. Toll Brother’s stock price has had a very long and volatile recovery after the housing price crash in the U.S. that occurred about ten years ago. The stocks has generally looked under-valued to us. The volatility has provided additional opportunities to pick up the stock at bargain prices.

Bombardier was up 6.8% after reports that it was talking to Siemens about merging the two companies train-related operations. I would take that to mean Bombardier would sell its rail operations. The stock could rise further on this news. I would take this to be a very positive development since it would take the train operations out of the hands of a very poorly managed company and put the assets into the hands of better managers. This could also be very good news for the Bombardier preferred shares on our list. However, any such deal faces significant regulatory hurdles.

The report for Alimentation Couche-Tard is updated and it remains rated Buy now at $60.83. Acquisitions that it has made and that it will soon close on will likely lead to a strong increase in earnings per share over the next year or two.

Canadian Western Bank announced a partnership with a payments technology company. I continue to like CWB as an investment.

April 10, 2017

On Monday, the S&P gave back back earlier higher gains and ended the day up 0.1% while Toronto was up 0.4%.

CRH Medical was up 5.0% on Toronto. AutoCanada was up 2.7%.

Boston Pizza Royalties was up 0.9% to $23.04 and yields 6.0%. Despite some dips in price from time to time this entity has provided an attracted yield while also providing capital gains when purchased on dips. I don’t particularly expect much in the way of further capital gains and it could fall with higher interest rates or is sales slow at BP. But I also fully expect the distribution to be maintained. And so does it really matter if the price drops if is bought for yield with an intention to hold for a long time? Of course, it is easy to say no it does not matter but it would still hurt if it dropped back to $18 or whatever. I think it has a place in a portfolio.

CMHC reports that housing starts remain at high levels in march. Alberta single family starts in 2017 are higher than 2016 which is positive for Melcor although they are likely still considerable below 2014 levels.

The next update will be for Alimention Couche-Tard.


Ceapro updated as Speculative Buy April 10, 2017

Ceapro is updated and rated Speculative Buy. As an early stage bio tech company, it is not very well suited to analysis by means of looking at earnings and the balance sheet. A good portion of its value lies in products that it has in development and which may or may not prove to be commercial. This is not a stock that I would take a large position in but rather is more suitable for a quite small speculative position. I have concerns about what I view as relatively poor disclosure and discussion of a decline in revenue in the latest quarter. Starting probably with its Q1 earnings report it will begin amortising a recent large investment in expanded facilities. It was not clear that revenues would immediately increase as a result of the expansion and therefore I am concerned that profits may decline in 2017. However this could still be a good investment if its products under development pan out. And a possible decline in earnings this year could lead to a good buying opportunity.

April 9, 2017

I am currently working on an update for Ceapro which is a small company that I introduced as a speculative pick on February 17. I am quite bothered by what I view as weak disclosure of a 29% revenue decrease in Q4. In addition I now realize that the company seems to spend a relatively significant amount on Investor Relations. I prefer situations in which earnings drive up share prices as opposed to any kind of promotion of the stock. In the initial report I indicated that profit might be weaker in Q4 and 2017 due to its greatly expanded facilities which would soon be hitting the books as expenses. But I had not expected the revenue decrease. I am now starting to view this company as even more speculative than I initially thought. I hold a very small position in this company. I had been thinking of adding to that on a price dip but now I am not sure I want to.

On Friday, the S&P 500 was down 0.1% and Toronto was down 0.2%.

Oil is back over $52 probably on fears of what is happening in Syria and related matters. This is positive for Alberta companies but also is indicative of higher risks to the markets if various world tensions continue to escalate.

CRH Medical updated April 8, 2017

CRH Medical is updated and remains rated Speculative Buy at U.S. 8.55 and Canadian $11.49. This small medical services company was added to the site on October 9, 2016. Since then it’s price is up 98%. Its earnings are still rising sharply and it still appears to represent good value but is a more speculative pick and is not as attractive as it was in October.

April 6, 2017

On Thursday, the S&P 500 rose 0.2% and Toronto was up 0.3%.

Costco was up 1.8% after reporting relatively strong same-store sales growth in March.

Futures markets for the S&P 500 and DOW are down only modestly on the news of the U.S. attack on the Syrian air base. Oil is up.

Ceapro released earnings today. At first the stock rose as the press release only talked about the full year numbers which were positive and failed to mention that Q4 was a negative quarter in many ways. I fail to understand how any company can, in good conscience, put out a press release like that touting the positive full year numbers while failing to even mention the weak Q4 numbers. The stock ended the day down 7.6% which may have been caused when investors had a chance to see in the full report that Q4 was quite weak. I plan to update the reports for CRH Medial and for Ceapro in the next few days.

April 5, 2017

On Wednesday, the S&P 500 ended the day down 0.3% and Toronto was down 0.2%. Earlier in the day the Dow had been up 200 points.

As of this evening futures are indicating a moderately negative start to trading on Thursday.

I am maintaining a somewhat cautious stance with about a 70% allocation to equities and 30% to cash. This is not really all that cautious but it positions me to take advantage if better bargains emerge.




April 4, 2017

Tuesday’s markets saw the S&P 500 gain 0.1% and Toronto gain 0.5% as oil was higher.

One of the smaller companies on our list, Ceapro, was up 6.4%. There was no news from the company. At this point I would wait for the 2016 earnings report before adding to this one.

Linamar was down 3.7%. I’m tempted to add to my position.

AutoCanada was down 1.4% and seems attractive. The Globe and Mail reported today that March auto sales in Canada were quite strong. This bodes well for AutoCanada. However, when AutoCanada reported 2016 earnings on March 16, they did not seem to me to be upbeat about Q1 to date so I am not particularly expecting a strong Q1 when they report next month. But hopefully they will report that sales are improving.

I updated today a large article that looks at whether stocks are actually riskier than bonds. I think it depends on your definition of risk and your time frame. The article is updated with the 2016 inflation-adjusted results for the major U.S. asset classes of large stocks. long government bonds and Treasury bills. Every year or two I purchase the data to update a related series of articles. The data I use is an “index” of investment results starting with $1.00 invested in stocks or bonds or treasury bills back in 1926 and then for each year since.

April 3, 2017

On Monday, the S&P 500 was down 0.2% while Toronto was up 0.2%. This evening, futures are suggesting that market will open slightly to the downside on Tuesday.

Linamar was down 2.1% This may have been due to weaker auto sales in the U.S. where reports indicate that sales “plummeted” 1.6% in March.

I have just updated my article and graphs that show the long-term performance of stocks versus bonds, treasury bills and also Gold. The article also shows how the purchasing  power of a dollar has declined with inflation. The update to include data for 2016 shows how stocks have now dramatically surpassed the old highs from the turn of this century. Based on year-end inflation-adjusted data, it took until 2013 for the S&P 500 to surpass the end of 1999 high. Since then the old high has been left well in the dust. Looking at the graph now, the fact that markets would surpass the old high looks almost inevitable. But in 2008 it did not feel like the old high would be surpassed anytime soon at all. Those of us who kept the faith at that time have been nicely rewarded. Looking at the graph now, one might also wonder if the S&P 500 has gone too far too fast at this point.


April 2, 2017

On Friday the S&P 500 and Toronto were each down 0.2%.

On Friday, Statistics Canada released positive news on the growth of the economy.

I think Bombardier executive chairman and (not coincidentally) controlling family member Pierre Beaudoin did the right thing by renouncing his latest pay increase after the public outcry. There may be some argument that the relatively new CEO and other relatively new executives need to be compensated liberally and certainly in accordance with any compensation agreements. But there is no valid argument for paying Pierre Beaudoin anything close to the $5.2 million that the terrible Board at Bombardier awarded him for 2016 or even the $3.8 million of the prior year. He has presided over massive losses at the company for a number of years. Any talk of needing to “retain” his sort of “talent” is patently ridiculous. He is no longer CEO but the Board seems to think he should be compensated as if he still was. The fact that he is executive chairman illustrates that the Board has failed to turn over full executive power to the management. The CEO is hobbled by this.

However, it seems that at least Pierre Beaudoin is now displaying at least a modicum of shame for the dire position he has put the company in.


Canadian Tire update April 2, 2017

Canadian Tire is update and rated Weak Buy / Hold at $157.98. Keep in mind that the ratings are always based on judgement after looking at the various financial and non-financial items in our report. A simple rating cannot convey all of the material in our report.

This stock is up over 15% since it was rated Buy at $136.72 last September 5th. And the stock has tripled since it was rated a Strong Buy on August 28, 2011 at $52.40.

I had built quite a large position in Canadian Tire back in 2011 and I made very strong gains on it but ultimately sold out too early as I feared the lower Canadian dollar was going to hurt it. Somehow, almost inexplicably, they managed to avoid any material increase in their costs of goods sold even though much of their inventory is purchased in U.S. dollars. They have substantial buying power and negotiated with suppliers very well and also switched suppliers in some cases. The company has been extremely well managed.

At a current P/E of 17.5 I could likely have rated it a (lower) Buy or possibly even Buy. But clearly it is not the compelling buy that it was back in 2011. It’s been firing on all cylinders. I would consider buying if there was some temporary mis-fire that pushed the price down. At the same time there be may be no reason to sell it unless it has become too large a portion of a portfolio in which case it would be prudent to trim it.

March 30, 2017

On Thursday the S&P 500 was up 0.3% while Toronto was down 0.5%

Dollarama was up 11.2% as this impressive company continues to do well.

AutoCanada was up 2.7%

Bombardier was criticized after raising executive pay by some 50%. It’s a shame that this company has such an obviously terrible Board of directors. You might think that some of its long-time directors would resign out of embarrassment. But people have a remarkable inability to never admit fault in themselves. I suppose it is a deep-rooted survival instinct.

0il is above $50 which is good news for the Alberta economy.

March 29, 2017

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

Melcor has once again renewed its share buyback plan. If the past two years are any indication, virtually no shares will actually be repurchased.

Rail car loadings in Canada are running significantly above last year’s numbers. This is a good indicator of stronger economic activity. U.S. figures are also relatively strong.

I hope to be more active with updates for some of the companies on our list soon.

March 28, 2017

On Tuesday, the S&P 500 was up 0.7% and Toronto was up 0.6%. Most of the stocks on our list rose today.

Home Capital was the big topic of conversations in business news for Canada today. The stock fell 9.6%. If I owned it, I know it would be difficult to pull the trigger and sell. But it is probably the prudent course of action in this case.  Due to their highly leveraged nature, lenders always have some chance of getting into really serious trouble. If home prices remain high and if the regulators are not too harsh then Home Capital will likely recover at some point. But if regulators are too harsh OR we see a very significant house price decline then the company could be in really serious trouble. If I were selling (I don’t own it) I would not be selling because the price might go down temporarily. I would be selling because the price might go down relatively permanently.

March 27, 2017

On Monday the S&P 500 was down 0.1% after recovering from deeper losses earlier in the day. Toronto was up 0.4%.

The U.S. markets continue to largely shrug off concerns about investigations into the Trump campaign and concerns that he will not be able to pass his market-friendly policies which include reductions to taxes and regulations.

Lender Home Capital Group announced after the close that it had fired its CEO. I have not looked at the company for years. For many years it was a market darling and had achieved a very high ROE and growth. The stock peaked at over $50 in 2014. Lending is a GREAT business – as long as bad loans are kept at a low level. This sudden firing of the CEO could signal that bad news is coming in regards to loan losses. It also surely signals dissent in the executive ranks. In a sign of poor succession planning, on the part of the Board, they have not named a new permanent CEO but instead will mount a search. The message that senior V.P.s should take from this is: the Board is not impressed with any of you either. Home Capital was already facing problems due to some loans being issued in 2014 and 2015 through certain external brokers that could be described as “liar loans” (falsely stated incomes and such). That happened before this fired individual was made CEO but he would have been a senior executive at that time. This firing is clearly very bad news.

The yield on the five year government of Canada bond is back down to 1.09% after having hit 1.32% earlier this month. Once again, the long awaited rise in interest rates may fissle out. This is bad news for the rate reset preferred shares, particularly those that face a reset in the next 18 months or so. On the other hand an entity like Boston Pizza looks more attractive if rates are not about to rise.

March 26, 2017

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

About the only large mover on our list was Ceapro up 6.4% But this is a penny stock and so big moves are to be expected. Small companies are allowed more time to release earnings and Ceapro has not yet released its Q4 numbers. I am waiting for the Q4 numbers in order to better understand the impact on costs of their recent large expansion in terms of their facility space and equipment. Unless there is a big increase in sales this expansion seems likely to be quite a drag on earnings in 2017.If that is the case AND if the company still looks good for the long term then we may get a good buying opportunity.

Futures markets, at the moment,  are suggesting that the DOW could open down 100 points. This would likely be a reaction to Trump’s failure to get a healthcare bill passed and what that says about his ability to get other (stock-market-friendly) bills passed. I do think that is a legitimate concern. However, from past experience the futures market is not always a good predictor of how the markets will actually open. The futures market is supposed to be the smart money. In reality it is more so the hot money that trades without taking time to think. In any case if the markets are to open lower there is nothing to be done but to react to that. (Such as by picking up stocks at lower prices) Some subscribers here may have the ability to buy or sell futures or at least to trade in the (oxymoronically-named)  pre-open market in the U.S. I am not set up with the ability to do either. Nor would I want to be.

March 23, 2017

Thursday’s markets saw the S&P 500 down 0.1% while Toronto rose 0.5%.

Fedex was down 3.4% after releasing earnings.

It seems to be becoming more clear that Trump will not have an easy time getting legislation passed. Also, the investigations into his campaigns ties to Russians are not going away. These seem like negative factors for the market.

The market did shrug off the terrorist attack in London. Sadly these events are no longer all that shocking.

March 22, 2017

On Wednesday, the S&P 500 and Toronto each rose 0.2%.

AutoCanada was down 2.4%. I find it interesting to see how negatively the market has reacted to the declines in its revenues in 2016. The company reports that the prices being asked when if offers to buy new additional auto dealers have not changed very much in the past few years. The share price of AutoCanada has been far more volatile on both the upside (the period before mid 2014) and on the downside (the period after mid 2014) than is the case for the value of the underlying dealerships. In theory, this kind of share price volatility can be highly beneficial to investors who can buy dealerships via AutoCanada when the price is low versus the value of dealerships in direct purchase transactions and Sell if the AutoiCanada price is too high relative to the market value of the underlying dealerships. There is reason to pay some premium for AutoCanada for its ability to grow through acquisitions and the synergies it creates that way.The difficulty is in recognizing how the AutoCanada share price compares to the value of the underlying dealerships. The best (although imperfect) estimate we have of that is likely the book value. Currently AutoCanada is trading at a 33% premium to book value. That does not seem excessive and is certainly far more attractive than was the case when it traded at 3 times book value or more as it did in 2014.

March 21, 2017

On Tuesday, the S&P 500 was down 1.2% and Toronto was down 0.8%.

While I don’t ever claim any ability to predict short-term moves, this was not a surprise given that the S&P 500 seems over-valued and given the fact that the Trump Campaign is under investigation.

Bank of America was down 5.8%.

Stantec managed a 0.2% gain on this negative day after announcing the sale of a small subsidiary that it had acquired as part of a much larger acquisition earlier this year.  As of now there are not many stocks that I am keen to Buy. Stantec is one that come to mind for me. Also Canadian Western bank as it drifts lower.

Melcor has been holding up well even as oil prices drop. Statistics Canada reported investments in new home construction for January. For Alberta, the figure for single family homes was down a modest 6% from January 2016 which in turn had been down 32% from 2015. The good news is that there is at least still some single home building going on. Home building (and therefore the sale of building lots) is clearly a very cyclic industry. Melcor is well positioned to weather the storm but its share price could certainly fall again before it rises. I don’t have any plans to reduce my position.

Wednesday’s excitement will be the Canadian Federal Budget.

March 20, 2017

On Monday, the S&P 500 was down 0.2% and Toronto was down 0.3%

AutoCanada was down a further 2.0%.

Statistics Canada reported a strong increase in wholesale trade driven mostly by the motor vehicle category.

In another positive sign for the economy, rail car loadings are running noticeably higher compared to the past three years.

Remarkably, futures at this time suggest the DOW could rise 54 points tomorrow. The market seems to have no concern about “minor” things like an FBI investigation into possible links between the Trump campaign and Russia. I don’t claim any ability to predict short term market moves. Nevertheless I have raised cash given the high P/E levels of the market and possible political risks. But I remain about 70% exposed to equities. This is towards the lower end of my equity percentage over many years.

March 19, 2017

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

AutoCanada was down 9.7% after reporting earnings and an executive departure.

Our report on AutoCanada is updated and remains rated Buy now at $21.80. I am a bit concerned about what is happening to management cohesiveness given this departure. But the underlying business model remains intact. The strategy of acquiring additional auto dealers and consolidating them into this larger company will likely continue to work over the years.

AutoCanada shares down today March 17, 2017

AutoCanada is down 7.4% to $22 after announcing weak earnings and an executive departure.

(In trying to react to this news I had to change this post a few minutes after first publishing it as I had at first not seen the earnings release.)

Yesterday on Yahoo Finance I had only seen the press releases about the credit limit extension and the executive departure. The earnings press release is stamped 3 hours later on Yahoo.

Despite current weak earnings and the write off and the executive departure, I think the underlying business model probably remains strong. I will know more after I fully review the earnings release.

I have had an order in for some 10 weeks to buy if it dipped to $21.90. It has been trading mostly above $24 and it did not look like I would be able to buy at $21.90. It opened today at $21.06 so my order went through at $21.06. This is the nature of a below market order. It could be filled because a stock simply sort of drifted lower. Or, as in this case, because of bad news.

Some people would really hate to buy on bad news in case it gets worse. By placing a 90 day order below market I took the risk of buying on bad news. Time will tell if this turns out to be a buying opportunity.

Speaking of car dealerships, I had written on this site in the past that if you look around any community the car dealers usually seem to some of the larger and more prosperous businesses. I am happy to own a piece of that. I wrote briefly about car dealerships here and here and probably a few other times in the newsletters over the years.


March 16, 2017

On Thursday, the S&P 500 was down 0.2% and Toronto was up 0.3%.

AutoCanada was up 4.6%. But then after the close it announced two things. One was a two year extension to its big line of credit. The second was the immediate resignation of its President. This was not the CEO. The history here is that the President was a very long-time employee and the new CEO had come in from the outside. I suspect the resigning executive was not happy to have been passed over for the CEO job and anyhow the company did not need both a President and a separate CEO. Unless there is more dissent in the ranks this resignation does not seem likely to affect the company much. The press release thanked the departing executive but it looked totally insincere to me. (Though it claimed to be a sincere thank you. You be the judge.

Toll Brothers was up 2.6% to $37.08. This stock was at $27 (and clearly under-valued) just prior to the U.S. election.

March 15, 2017

So, on rate-hike Wednesday, the FED did raise as expected. But apparently it spoke of two more increases this year rather than the feared three. Interest rate increases are like gravity to stock prices but the market viewed today’s announcement as a forecast of less of an increase in gravity than feared over 2017, so they rose.

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

CRH Medical was up another 5.4% to $11.33 in Toronto and $8.55 in the U.S. This increase came after it announced another acquisition today.  Until I update the report for this one I have no opinion on whether it is still good value. This company was added here on October 9 at $5.72 Canadian or $4.32 U.S. In this case I would consider our report to be well out of date because of the huge price movement. I would not mind if similar “problems” occurred more frequently to make our reports go out of date. I bought only a small position and have not considered selling.

Couche-Tard got as low as $57.36 today and so my order from 10 weeks ago at $58.10 finally got filled. The stock closed at $59.07.

The Canadian dollar rose almost one cent U.S. today. This was unexpected and goes to show that markets can always do the unexpected.

The five year Canada bond yield fell noticeably today and the U.S. five and ten year bond yields also fell. Presumably this was due to the FED signalling probably two more hikes this year rather than the feared three. Again, this illustrates how markets can often do unpredictable and even sometimes counter-intuitive things.

On the subject of predictions: For the most part the stock ratings on this site have very little to do with predicting short term market movements but rather simply try to identify stocks that seem undervalued. I keep score by looking at price movements on the stock ratings each calendar year. If a stock truly is undervalued then barring a change in circumstances it should be a good investment. It may take longer than a year but measuring performance over a calendar year seems reasonable. Markets are ultimately unpredictable but if you buy more when it seems to be offering up bargains and reduce when it seems overpriced (applies to individual stocks and the overall market) then things will likely work out well.

Melcor’s 2016 earnings came out. The press release does not discuss Q4 separately but it appears that Q4 was surprisingly strong in term of building lot sales. There were no asset writedowns of any significance. The book value at close to $30 remains almost double the share price. We will see how the market reacts but I was quite pleasantly surprised by the Q4 results. This stock is so very thinly traded that it may take time for the share price to fully react to the earnings release. They also announced that their CEO is leaving. This is apparently on good terms as he is staying on for another month and then another two as an adviser. One of the V.P.s is the new CEO. It also appears that the executive chairman and the executive co-chair will no longer be executives. In most companies the Board chair and certainly the vice-chair are not executives unless the Chairman is also CEO. I view this change positively as I had been a bit bothered by the fact of paying executive salaries to Board members which seems to duplicate the role of the CEO. This is a surprising move though and I don’t know if anything can be read into it.

March 14, 2017

On Tuesday, the S&P 500 was down 0.3% and Toronto was down 1.1%.

Oil is down to $48.51.

Couche-Tard was down 4.8% to $58.85 after reporting weaker-than-expected earnings.  I have only a small position in this company. For about the past 10 weeks, I have had a below-market order in to add to my position if it should dip to $58.10. It got down into the $58’s several times but bounced up. Today it got as low as $58.17 and I am disappointed that my order was not hit. But since I am wanting to maintain a fairly large cash position at this time I am going to leave the order at $58.10 and see if it hits that based on either a relative dip specifically in Couche-Tard or a dip inn the TSX that ncarreies Couche-Tard down.

A number of other stocks on our list were down in the range of 1.5% to 2% today. I am not particularly itching to add to most of my positions unless there are bigger drops.

Statistics Canada released the latest figures on new car sales but actual figures were not available as their web site was down or partially down as has been in the news.

Melcor has held up well in the face of lower oil prices. I believe it issues earnings after the close tomorrow.

Stantec Updated March 14, 2017

Stantec is updated and rated Buy at $34.25 or U.S. $26.45. The company does not appear to be undervalued based on trailing earnings. However, it appears that earnings per share are set to increase sharply in the range of 25% in 2017 as the economic recovery continues and more particularly as the earnings from a very large acquisition that it closed in May of 2016 will be present for a full year and also acquisition-related expenses should decline. This has been an exceptionally well managed Canadian company. This company represents about 3% of my portfolio and I would like to increase that.

March 13, 2017

On Monday, the S&P 500 was about unchanged and Toronto was up 0.2%. CRH Medical was up 3.3% and Linamar was up 2.1%.

The next update will be for Stantec. It looks expensive on a trailing earnings basis. But it appears to be forecasting earnings growth for 2017 in the range of 25% or more. It’s been a fantastic investment for years and the update rates it Buy at $35.

TD Bank responded to the CBC story. I would say their response could be classified as mostly a denial that anything is wrong other than a very few isolated incidences. We shall see.

The big excitement this week will be the FED rate announcement. Even though it is said to be a virtually certain that the FED will raise on Wednesday there will still likely be some market reaction. Higher interest rates are like stronger gravity to stock prices and all else equal it should be negative for stock prices. However, earnings growth is a buoyancy force for stock prices and so we shall see which force is stronger.

Meanwhile it is starting to become apparent, I think, that Trump will not have an easy time getting full support even from Republicans for everything he wants to do. With that and with the investigations going on there is always a chance that markets will stop viewing his Presidency quite so kindly

Canadian Western Bank Preferred Share CWB.PR.B report updated March 11, 2017

Our report on the Canadian western Bank rate reset preferred shares CB.PR.B is updated with a rating of (lower) Buy at $22.95. These shares have done quite a bit better than I had expected when rating them a Buy on December 7 at $19.00. They rose partly because the Bank of Canada 5 year bond yield rose from % to 1.27%. But in addition to that the market required yield on these type of shares has declined. I am not too excited by these shares at this point (my opinion may be biased because I had already sold out for gains at lower prices) but they could keep rising towards $25. Those who grabbed these at prices under $20 and even lower may want to consider reducing their holdings at this point.

There is also a newer issue of Canadian Western Bank rate reset shares that is trading at $27.45 and yielding 5.7%. I would expect these to be redeemed at $25 on the reset date which is about 4.3 years from now. I don’t like the idea of owning these due to the very high probability of a capital loss between now and the reset date. It seems likely that some of the buyers see the attractive 5.7% yield but fail to understand the right of the Bank to redeem these for $25 on July 31, 2021. I would not have guessed that they would ever trade this high and at this point I see these as having very little room to increase in price but room to fall. It is true that the potential reset yield on these would be very attractive as the Bank of Canada 5 year yield rises. But if the yield is very attractive to investors it will unattractive to the Bank and they will redeem them. These shares can also automatically convert into common stock if the bank gets into a serious lack of equity capital. I don’t see much chance of that happening but it is another slight negative factor.

Canadian Western Bank updated March 10, 2017

Our report on Canadian Western Bank is updated with a rating of (lower) Buy at $30.58. On its face, the chance to buy a well managed bank for only a 30% premium to book value is attractive. This bank is extremely simple compared to the large Canadian banks. Despite the recession in Alberta, their loan losses have not been that bad. I was tempted to rate it higher and I do think it will likely turn out to be a good investment at this price. But it still experiencing weakness and is not expecting much growth this year. So overall, a rating of (lower) Buy seems correct. I personally have a large weighting in it at 9% of my portfolio – and that was after selling some of the shares that I bought at significantly lower prices in 2016. I feel comfortable continuing to hold this company. I also bought shares at higher prices after it started to decline.

March 11, 2017

On Friday, the S&P 500 was up 0.3% and Toronto was up 0.1%.

Most of the stocks on our list were up modestly.

I notice a couple stocks that we no longer follow have declined. Liquor Stores N.A. which I turned quite negative on some time ago was down 3.2% to $9.18. I took a quick look at their Q4 2016 results and they continue to have very poor earnings.

Element Fleet Financial was down 7.6%. I don’t know why that is and the headlines indicate it tripled its dividend. I stopped following Element when it split into two companies and also I had been disturbed by the way it was reporting income taxes.

Bombardier is facing charges in Sweden of bribery. It seems clear that there was some wrong doing by some employees. And there are indications that that some people in corporate head office had suspicions and failed to stop it. Bombardier would be well advised to cooperate fully and to fire everyone involved and probably everyone who knew about it or who ignored suspicions. Buffett has said that when you have tens of thousands of employees there is sure to be someone out there doing something an ethical leader would not approve of. Bombardier needs to take that attitude and cannot show any support or sympathy for those involved. Unfortunately there are some indications that head office was not projecting the proper culture that would have rejected the idea of bribery to win contracts. Top Bombardier officials apparently lobbied the Canadian government to keep a certain Russian off of a sanctions list because it would have harmed their business. To me, this is one more reason why a wholesale change of Board members is needed at Bombardier.

Thoughts on TD Bank’s Aggressive Sales practices – March 10, 2017

I was not happy to hear earlier this week about accusations that TD Bank has been overly aggressive regarding selling goals for tellers. I was also surprised.

I have been a TD customer for almost 30 years and I have not experienced Tellers or other bank staff trying to sell me anything. Then again, I rarely have to visit the branch. The only sales pitches I got were by mail for credit cards and for the occasional lower interest deal on a loan. Actually, I have been amazed over the years that the full service brokerage side has never once approached me, a discount broker customer with a larger balance, and tried to get me to move to the full service or private banker or what have you side. Possibly they are prevented from doing that by regulations.

Despite my own good experience, I think it is a BIG DEAL when CBC indicates that several tellers initially contacted them to “go public” about high-pressure sales goals and when CBC today indicates that hundreds of TD employees have now emailed in and indicated that they too were subject to high pressure sales goals — with some even indicating they broke laws to meet sales goals.

TD’s reaction today appears to be one of complete denial. They point to a code of ethics that all employees must follow. Well, having a code of ethics is just “talking the talk”. Actually having a culture that truly follows that code is “walking the talk”. This kind of denial reaction on TD’s part is the sort of response that cost the Wells Fargo CEO his job last year.

I suspect that this story is far from over.

Canadian ETF list and report updated March 9, 2017

Our Canadian Exchange Traded Funds list is updated to show the latest P/E ratios, yield and P/B ratios.

ETFs can be a quick way to get into or out of the market or a particular segment of the market. And many people use them as permanent parts of their portfolios as well.

I have not tried to cover all the ETFs in Canada by any means but there is a good selection here covering the various equity segments (including higher yield equities) as well as the bond segments, and also Gold, Silver , Oil and Natural Gas as commodities.

In my completely biased opinion this is by far the best Canadian ETF list around. The Globe and Mail publishes ETF lists several times a year. But for the equity ETFs they never include the P/E ratios. So basically they have nothing on the valuation of the equity ETFs. Instead they show you the past PRICE performance. I certainly view past EARNINGS performance as relevant. But, as Buffett has said, buying an investment simply because its PRICE has gone UP is about the silliest reason ever. So the point is, my article focuses heavily on the valuation of the ETFs and not the past price behavior (though I do give links where you can see that as well).

My list is chock full of links so that you can explore the ETFs in more detail if you wish and so that you can get updated valuation ratios at any time in the future.

This ETF reference article is not restricted to paid subscribers. However, I don’t make it that obvious how those on the free list can find it. I was thinking of sending it out to the free list but I am not sure I will.

At this time the financial segment ETF appears to be reasonably attractive but for the most part the equity ETFs do not seem very attractive in terms of their value ratios and the bond ETFs certainly do not seem attractive. (I won’t venture an opinion on whether Gold, Silver, Oil or Natural Gas are likely to head up or down. I basically have nothing to go on regarding that.)


March 9, 2017

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

Linamar was down 3.8% despite posting good earnings and raising its dividend. The stock certainly looks cheap on a trailing earnings basis but the market seems to fear that its earnings are at a cyclic peak and about to decline.

CRH Medical was up 2.9% on Toronto.

The Canadian Western Bank rate reset preferred share CWB.PR.B that is on our list was up another 2.25% to $22.77 as the five year bank of Canada yield rose to 1.26% today. This preferred will not reset for another 25 months when hopefully the five year bank of Canada yield will be higher still. At the current Bank of Canada rate it would reset to 4.0% on $25 which is not overly attractive. I would not likely be a buyer of these shares at this price. But if you wish to bet that the five year Canada is going to keep rising then this may be a reasonable investment.

Boston Pizza Royalties fell 2.6% to $22.40. This was likely due to higher interest rates. These units are somewhat like perpetual preferred shares and logically drop in price with lower interest rates. However I still like these units because the yield is 6.2% and I believe the yield will likely continue to rise slowly over the years and this could offset the affect of higher rates. I materially reduced my exposure here earlier and am now inclined to hold onto the remainder. It still represents 8% of my portfolio.

Ceapro was down 8%. I had indicated that this was a speculative pick and that I would not be surprised by a price decline. Its new expanded facilities have added a lot to its costs and so its Q4 earnings could very well be disappointing. And unless it forecasts a large increase in sales for 2017, the forecast earnings may also disappoint. It does have a lot of cash on hand and so should not be any danger financially. I am not going to make a big bet on this company but I may add to my tiny position.

Melcor reports next week. But its REIT reported today. Q4 showed a 5% drop in rental revenue which is negative but not any kind of disaster. They had a small writedown in the value of some buildings in Q4 and this will be reflected in the Melcor Developments numbers as well. Overall the quarter was weak but this should have been expected. The headline earnings number on the REIT was negative but this was driven by what is basically some strange non-cash accounting items that I have mentioned in the report. Occupancy was down but only very slightly. We shall see how the market reacts to this in the trading of the REIT units and Melcor itself.

March 8, 2017

On Wednesday, the S&P 500 was down 0.2% and Toronto was down 0.7%.

Oil declined about 5% and was down to $50.28.

Bombardier was down 5.8% to $2.10 Canadian (our report is in U.S. dollars because it reports in U.S. dollars) even though it announced delivering another C Series plane to Swiss Air and touted the above expectations performance of the plane. Lower oil prices tends to be negative as it reduces the incentive for airlines to buy new more fuel efficient aircraft.

Linamar was up 1.3% and then posted good earnings after the close and announced a 20% increase to the dividend. The stock will almost certainly open higher on Thursday morning.

Melcor was down 2.4% on thin volume. Lower oil prices are a negative here also. Statistics Canada and CMHC were both out with reports on housing starts /permits that were positive. However any growth in Alberta is likely due to replacement houses in Fort McMurray which will not benefit Melcor.

Interest rates are rising as the market expects the FED to raise rates next week. This has pushed the Canadian dollar lower. Lower oil prices also tends to push the Canadian dollar down.

I have some cash in U.S. dollars (it’s in a U.S. money market account) that needs to come into Canadian dollars. This is in a RESP account which is strictly a Canadian dollar account. In this case I don’t think the Norbert Gambit is possible. I have started to transfer it over but will to do so in several chunks in case the Canadian dollar keeps going down. I then have additional U.S. dollars that I may transfer using the Norbert Gambit with DLR and DLR.un. I first need to decide how much cash I should just leave on the U.S. side relatively permanently. But if the Canadian dollar keeps going down I will likely transfer some of this money. I will not get cute and try to wait for and catch the bottom but rather will just transfer portions of cash as and if the Canadian dollar declines.

Also with higher interest rates most of the rate reset preferred shares continue to recover towards $25. The Canadian Western Bank preferred B shares were up 2.6% today to $22.27. These were $19 at our last update on December 7. Our update of  March 13 last year rated these (higher) Buy at $16.61.

Earning Interest on Cash within the Investment Accounts

For a long time I have not bothered much about putting my cash into the likes of TDB 8150 (See the bottom row of the investments table on the Subscriber Home Page.) There is also TDB 166 for U.S. cash or TDB 169 for U.S. cash over $100k) I probably should have been using these money market accounts since there is a bit of interest and yet the cash remains immediately available for trading. But with the low rates, a bit of inconvenience to get at the cash when needed, my former lowish cash balances and with the money spread around in quite a few accounts, I simply had not bothered. Today, given my cash position is now larger, I corrected that and moved all my cash into these accounts.

March 7, 2017

On Tuesday, the S&P 500 was down 0.3% and Toronto was down 0.1%

Melcor has been strong lately and is now at $15.99, which is significantly higher than its 2016 lows of under $12.50. Melcor will report next week. It is likely to report quite weak sales of home building lots in Q4. And the outlook for lot sales 2017 could be very weak. (Or maybe they will express great confidence in the longer term future given the somewhat recovered oil prices) There could even be asset write-downs on its land inventory. The income from its commercial rental properties will likely not have declined much or may be up with more square footage. It may also report profits on developing new rental buildings. Possibly there will be market value losses on its commercial rental buildings if the market “cap rates” have declined. Overall, I still think that the assets and the company are worth quite  a bit more than the share price. Nevertheless there has been a very strong recent rebound and certainly the price could fall on the Q4 earnings release. This has always been a stock that has required patience. Those who would be very troubled by a price decline could consider selling or reducing their positions now. The difficulty however is that it is thinly traded. I added shares at  low prices and logically should probably reduce now. But I am going to refrain from doing so in part because it is so thinly traded. In the case of these very thinly traded shares it would not be fair for me to sell ahead of any subscribers who wish to sell.

I am now working on an update of the Canadian ETF reference article. So far the higher dividend ETFs are the ones that are updated and they still generally look at least reasonably attractive.

I was over due for an update of this ETF article. Last year I became concerned about trusting the P/E ratios show in ishares because they are not simple weighted average GAAP earnings P/E ratios. I was concerned that they were ignoring any companies with negative earnings. In fact they are using “weighted harmonic means of the P/Es of the constituent companies”. I understand that there is some mathematical theory behind this and that it puts some weight on negative P/Es but not a full weight and that there is some logic behind it. Years ago the TSX used to freely provide the P/Es for the different segments but they no longer do so. Overall, I suspect the P/E ratios of ishares are a bit lower than straight weighted average GAAP P/Es of the index but perhaps they are right that this is a better view of the P/E.s. In any case these are the only  P/E ratios available to me and so I am using these. At least they do not appear to be adjusting the earnings and using operating earnings rather than GAAP earnings. I prefer adjusted earnings for individual companies to eliminate unusual and large one-time expenses (as long as I agree with the adjustments). For indexes I tend to not like adjusted earnings since it seems logical that in a group of companies there will be some “unusual” losses or expenses every year.

March 6, 2017

On Monday, the S&P 500 was down 0.3% while Toronto was up 0.1%.

It was in the news tonight that an Alberta man had taken his own life after losing money in a “binary options trading scam”. Most subscribers here are not likely to fall for that kind of garbage. I would stay well away from any sites seeking to train you to do foreign exchange trading or to make money in options. There may be some safe ways to trade some options. Selling covered Calls may be okay. Buying options on a stock might be okay in rare cases. But unless you are very mathematically inclined and feel you have some expertise in options I think you should steer clear. Investing in stocks and bonds is a positive sum game as money flows from customers of businesses to owners. Here the average investor will make money over the years. Option and foreign exchange trading are zero sum games where the average investor is going to lose money. If you are going to play a game where most players will lose money you had better have some kind of edge.

I notice that most rate reset preferred shares have been rising. This despite the fact that the the five year Bank of Canada yield had not been rising. Basically, the market required return on rate reset preferred shares has declined. Whether or not a particular issue can ever come back to $25 depends partly on how many months are left until the reset date. The longer the time the more chance there is that the five year Canada rate will rise triggering a bigger yield at the reset date than would be the case at current interest rates. Most rate rest preferred are going to face dividend decreases if interest rates stay where they are. That is most of the reason why they declined well below $25 in many cases. The price drop was driven even lower than really justified because most investors more or less got a “hate on” for these things after they dropped. Some of the hate seems to have worn off lately.

I saw a report today that the International Energy Agency is sort of warning that new investments are needed in oil production if we are not to run short in a few years. I thought that was an interesting view given that it seems clear that at least in the Alberta oil sands the industry has massively over-invested. It also smacks of central planning. It seems this International Energy Agency was set up in 1974 to make sure that oil CONSUMING nations would be prepared for any future oils shortages. There were oil shortages in the 1970’s due to wars in the Middle East and probably due to OPEC production curtailments. The organization still exists even though the threat of oil shortages may no longer be present. I don’t know why Canada is a member when the organization is (it appears) mostly dedicated to oil security for oil consuming nations. Ontario likely has a big interest in lower oil prices while Alberta prefers higher prices so I am not sure how Canada votes at their meetings.  If they can convince oil companies to invest more then it will probably be good for the economy. I am not sure it would be good for the oil industry or the Alberta deficits.

March 3, 2017

On Friday, the S&P 500 was about unchanged while Toronto rose 0.5%.

Costco fell 4.3% to $170.26 after announcing it would increase its annual membership fees. Costco is a wonderful comp[any but the stock has seemed too expensive. I don’t think this fee increase is ANY reason for the stock to drop. But I think it probably deserved to drop just because it was too high.

I trimmed my very large position in Toll Brothers today selling what amounted to 29% of my shares. But I still have a very large exposure to this company. I also sold one third of My American Express shares and about 35% of my Bank of America shares. This was to raise my cash position from 20% to something closer to 30% given the high valuation of, in particular, the S&P 500. In all these cases I had profits on these shares and I was selling in registered accounts where I would generate no income tax. I have no actual fixed income and so my target 30% cash still leaves me with a 70% exposure to equities.

In my updated analysis posted yesterday I documented that the S&P 500 has a trailing P/E ratio of 25.

I checked ishares today and they see the P/E ratio as a bit over 21 by simply ignoring all negative earnings.A case can be made that if you had, for example 9 companies earning a dollar and one losing a dollar, for a net of $8 you could close the loser and still be making $9 and so in that view it is proper to ignore the negative one. But the reality of the S&P 500 is, I think, more like owning ten companies where every year one will lose money but you don’t know which one, it will be a different one every year. On that basis I just can’t see ignoring negative earnings. In any case a P/E of 21 is also getting expensive.

I saw an analyst on CNBC say repeatedly today that the P/E on the S&P 500 is 17. Well, that is based on the summation of the forward earnings forecasts of all the individual companies. (And even on that basis the correct figure is 18.2.) These forecasts are notoriously biased high. Every year some of the S&P 500 companies will have losses that come as a surprise to the market. These forward earnings forecasts simply will never pick that up in the forecast. Each analyst covering each company will tend to forecast that his or her particular company will grow earnings. Rarely will any analyst forecast a decline. Yet in reality a good chunk of the S&P 500 companies will fail to grow earnings in any given year. We don’t know in advance which will be the laggards. But I can’t see using an earnings forecast that ignores the reality that there will be laggards and surprises losses. I think anyone saying that the S&P 500 P/E ratio is 17 should be obligated to explain that is on a forecast basis. S&P used to provide a lower earnings  forecast (higher P/E) by asking analysts to give a forecast for the overall S&P 500 earnings. They discontinued giving that less optimistic number saying that not enough analysts were willing to forecast it.

I am not forecasting that the S&P 500 will drop. It might, it might not. But as it rises the whole investment community is basically inclined to find a way to explain how it is not over-valued. By using very optimistic earnings projections, voila, the index is not overvalued and the party can continue.

So far the market has continued to shrug off the fact that the FED is likely to raise interest rates this month and to shrug off any potential bad news that might come out of the White House investigation into Russian contacts during the election. Perhaps both are nothing to worry about. We shall see.



March 2, 2017

On Thursday, the S&P 500 fell 0.6% and Toronto fell 0.4%.

I have just updated my comprehensive analysis of the valuation of the S&P 500 index. I may be in danger of being labeled some kind of doomer since my point estimate for what I believe to be a a conservatively calculated fair value for the S&P 500 shows it to be about 41% over-valued.

Really, the over-valuation is very simple. The actual trailing P/E ratio on the S&P 500 is 25 and that’s 47% higher than the historic average of 17. Now, there are two reasons why it might be quite okay for the P/E to be significantly higher than the historic average. First, interest rates are extremely low. If they stay that way or rise only modestly then a fair P/E ratio is probably quite a bit higher than 17. Second, it could be that the trailing actual GAAP earnings are abnormally low and/or that for other reasons earnings are about to surge. But, a look at the past earnings trend does not support the view that the actual 2016 earnings were much if any below trend. Perhaps earnings will surge with lower taxes and such. Maybe, but historically earnings have not grown faster than nominal GDP over longer periods of time and so I am not about to count on such an earnings surge.

Of course, I like to think that the particular stocks that I own and that are the higher rated stocks on this site will do better than the S&P 500 and are not over-valued. Also, the Canadian stock market is not the U.S. stock market. Nevertheless, if the S&P 500 declines significantly it will pull down most everything with it to some degree. Now, I don’t know if it will decline, at least anytime soon. But it seems prudent to be somewhat cautious and to be in a position to pick up bargains if stock prices do fall.

I am in no way planning to “get out of the market”. But I am now thinking that I would like to be more aggressive in taking profits and raising my cash position.

Those just starting out investing have NOTHING to worry about. In that case a sharp market decline is a good thing. But those near or past retirement age may wish to be somewhat cautious.

It seems to me that much or all of the hoped for benefits of Trump’s plans have already been “priced-in” to the U.S. market. If that is the case then the implementation of the plans would not push stock valuations higher (because they have already been pushed up) while failure to implement the plans would cause stocks to fall.

On top of this we have a higher likelihood of an interest rate increase by the FED. The market may now turn its attention to that.

In terms of the White House, I will admit I am not a Trump fan. Yes, I think some of his policies could be beneficial. I also think he is very intelligent and has accomplished a very great deal in his life. But I also think he is dangerously narcissistic and a pathological liar. A man who seems capable of lieing even to himself, seems dangerous to me. It will be difficult for his advisers to criticize anything he wants to do. And the investigation of ties to Russia during the campaign is not going away and got a lot worse today as the new Attorney General admitted that he cannot investigate it since he himself will be investigated.

It’s actually hard to believe that the S&P 500 has surged in the face of the accusations against the White House.

March 1, 2017

On Wednesday, the S&P 500 rose 1.4% and Toronto was up 1.3%.

Apparently, the market quite liked Mr. Trump’s speech.

Some of the more notable gains on our list included:

CRH Medical up 8.3% on Toronto.

Linamar up 3.1%

Canadian Western Bank up 4.9% (they report earnings tomorrow, Thursday)

Couche-Tard up 4.1%

Berkshire up 3.4%

Wells Fargo up 3.2%

Bank of America up 3.6%.

With all the gains in the past few months it starts to feel like making money in stocks is very easy. But we should not get over-confident. I am inclined to trim some positions as prices rise. My order to trim some Toll Brothers at $35 was filled today. However, my order was only to sell a very small portion of my Toll Brothers. With these latest gains I plan to consider what else I am willing to part with. I am still at only about 20% cash so I am not suggesting here that I am getting out of the market by any means.

February 28, 2017

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

Tomorrow we will see how markets react to Trump’s speech.

There were certainly some positives for the market to consider (subject to getting them passed in the house and Senate):

A proposal to sped a trillion dollars on infrastructure.
Plans to cut regulations
Plans to lower corporate taxes
Tariffs on imports

There were also positives for workers and citizens:

Job creation from the above measures
Plans for lower drug and health insurance prices
A promise to lower crime
A middle class tax cut

But also some negatives:

All of the above would likely add massively to deficits and debts at least temporarily. And that in turn could lead to higher interest rates.

The protectionist trade moves could lead to retaliatory moves and lower trade and hurt the America economy.

The whole America first agenda could breed resentment in other countries.

A special office for victims of crimes by immigrants (albeit presumably only the illegal immigrants) could breed a lot of resentment in the U.S.

So, overall, definitely some positives but also some negatives. It will be interesting to see how markets react.

I also look forward to seeing the earnings from Canadian Western Bank tomorrow.




February 27, 2017 Warren Buffett on Squawk Box

For the tenth year in a row, following the release of his annual letter, Warren Buffett appeared for three hours on CNBC’s Squawk Box:

Here are my few comments about his latest investments that he discussed this morning.

He has invested about $18 billion in Apple. He explained that Apple is mostly a consumer products company with extremely sticky customers. It was also well know that it has had a relatively low P/E multiple.

The other thing about the investment in Apple and in the airlines to keep in mind is that Buffett has a very limited universe of companies to choose from compared to you and I. He noted that when buying shares in publicly traded companies he does not want to go over 10% ownership or even very close to that because going over 10% triggers more reporting requirements and other rules. Based on recent behavior, Buffett is not going to bother investing less than about a billion in a company and is probably not very interested unless he can invest $5 billion or even $10 billion or more. If you want to invest $10 billion in a company and not own more than 10% then the company has to have a market cap of over $100 billion. Currently number 50 on the list of the top S&P 500 companies is worth $111 billion. So that means there is not that many to choose from. And he already owns quite a few of them.

I think Buffett would be the first one to tell you that if you are investing small amounts of money there may be far better choices than Apple among the thousands of publicly traded companies. So, I would say that his endorsement of Apple means it is a good company and a good investment. But it does not necessarily mean it is the best deal to be had for small investors.

I will say though that I have often thought of taking a look at Apple and never did. Buffett found the time to do so while I did not. That’s the way he operates. He makes time to do the really important tasks.

Regarding the airlines, he bought three (his associate bought a fourth) and it may have been because no one airline was large enough to absorb the kind of money he wants to invest without going over 10%. He said that Airlines these days are operating at higher load factors (fewer empty seats) and have been more disciplined about not getting into discounting excessively. However, he did not go so far as to say that this was a good industry. In fact he said it remains a tough industry. I’d be less eager to follow him on this as opposed to Apple.





February 27, 2017

On Monday, the S&P 500 was up 0.1% while Toronto was down 0.5%.  And the DOW set its 12th straight record close as it rose 0.1%.

Stocks of note included Andrew Peller down 1.9% to $10.64.

Toll Brothers was up 2.0% to $34.40. I think this company will continue to do well. Still, I have had an order in for some time to modestly trim my large position in this stock if it hits $35. The stock was probably around $31 when put that order in.

Canadian Western Bank was down 1.4% to $29.68. My last update for CWB was to rate it only a Weak Buy / Hold at $29.51 on December 4th. In the almost three months since then, oil prices had remained fairly firm above $50 and some other banks have now reported that losses in the energy patch are more modest. CWB reports earnings on Wednesday. I am now a bit more hopeful that earnings will be okay. It’s probably not a bad long term investment at this price.


February 26, 2016 Warren Buffett’s 2016 annual letter

Warren Buffett released his 2016 letter on Saturday morning. He will also appear on CNBC’s Squawkbox for 3 hours from 6 am to 9 am eastern on Monday morning.

I have followed Buffett very closely for quite some years and so there was nothing really new or startling in his comments this year. There were many great pearls of wisdom but nothing particularly new to me:

Some of the highlights were:

An explanation of why he does not like to issue Berkshire shares in buying other companies.  (I think there was an implicit suggestion here that Berkshire’s shares are not over-valued since if they were it might be a good idea to pay for an acquisition with over-valued shares.)

A comment that America’s success has stemmed from its human ingenuity, its market system, its tide of talented and ambitious immigrants, and the rule of low. This will continue in the future and the babies born in America today are the luckiest crop in history.

He made the point that even when some borrowers default on a home loan, the house still exists and the nations’s overall real wealth remains intact.

Corporations will continue to grow their profits and this will benefit anyone holding a basket of stocks of large conservatively-financed American businesses. The doomers are simply wrong.

Share repurchases by companies can be good or bad for continuing shareholders, it all depends on the price paid to acquire shares. Such repurchases have not prevented needed capital investments by American businesses which are awash in funds and he knew of no enticing project that has died in recent years for lack of capital.

He noted that Berkshire’s Iowa electricity utility has rates that are 31% lower than the national average and 25% lower than the average of in adjacent states. On top of that Berkshire has promised that it will not increase its rates in Iowa until 2029 at the earliest. I spent a career of 26 years deeply involved with electricity rates in Alberta and I find these low rates in Iowa and particular the promise of no rate increase for another 12 years to be almost beyond belief. You might think that Canadian electricity utilities and regulators would be rushing to figure out how this was achieved in Iowa. Not so much, the Iowa situation has been known about for years but to my knowledge has received ZERO attention in Canada.

He again made the interesting comment that railroad earnings are artificially inflated and that their true economic earnings are lower than reported earnings because the GAAP depreciation charges are lower than the sustaining capital investments that are needed just to maintain the existing traffic level.

Buffett repeated earlier arguments that most investors will be far better off to own index funds rather than pay high fees to money managers to pick stocks and attempt to beat the market. There are a few (very few) managers who could be identified in advance as being likely to beat the market. Most investors would never be able to identify such a manager.

This last comment is relevant to my efforts to pick winning stocks. I have said before that stock pickers as a population will always trail a properly defined index after fees and costs. I also happen to think (but will never guarantee) that my particular methods, which are based in part on what I have learned from Buffett, will in fact continue to beat the market over the long term. I would also say that the cost of a subscription to InvestorsFriend is very minor compared to the fees that a portfolio manager charges. If however, InvestorsFriend fails to beat the market over the long term, the real cost to subscribers would be in the substandard return, not the subscription fee. So far, with 17 years of history, our track record has been very good. I certainly see nothing wrong with investing strictly in index funds. The InvestorsFriend paid service though caters to self-directed investors who wish to own individual stocks and who value some assistance in choosing stocks to buy. InvestorsFriend also provides plenty of free articles.



February 26, 2017

On Friday, the S&P 500 was up 0.1% but Toronto fell a hefty 1.6%.

Reports were that Toronto fell because, with the closing Monday of its acquisition of Spectra Energy, Enbridge was becoming a much larger percentage of the Toronto indexes (the largest 60 and the largest 300 or so Toronto stocks by market value). The reports indicated that index funds had to sell shares in every stock in the index other than Enbridge in order to free up funds to buy Enbridge. I am not sure that is true given that Enbridge was itself down 1.0%. But if it is true, it is bad news for market efficiency. Ideally, the existence of an index fund should just  provide a way to track the weighted average performance of the stocks in the index. The fact that a stock is in the index should not drive the price of the stock. However, as index funds become larger and larger they can impact the price of the stocks in the index and that introduces an inefficiency and distortion into stock prices.

Speaking of this Enbridge transaction. It was an all stock purchase and will increase Enbridge’s share count by 43%. Spectra is coming fully under the management of Enbridge. But the existing Enbridge share owners are not effectively purchasing Spectra. Rather they are trading 43% of the existing Enbridge to obtain 57% of Spectra. The former Spectra share owners will end up owing 43% of the combined company. This is quite different than would be the case if Enbridge were purchasing Spectra for cash. At the time the acquisition was announced there were reports indicating that Enbridge was putting billions into the purchase of Spectra, an American company, rather than investing the money in Canada. In fact, Enbrige is not spending any cash to acquire Spectra.

Regarding stock movements on Friday, Linamar was down 3.9% as Magna warned about the possible negative impact of the expected protectionist policies in the United States. AutoCanada was down 2.3%. Couche-Tard was down 2.0% and Royal Bank was down 1.7%. However, Boston Pizza was up 1.4% to $23.32.

Statistics Canada reported January inflation on Friday. The headline number of 2.1% generated some excitement. But measures of core inflation remain closer to 1.6%. There are many people who dispute these numbers and believe inflation is higher or even believe that the numbers is manipulated. My view is that number is calculated in a consistent fashion and is the best available measure off overall inflation.

February 22, 2017

On Wednesday the S&P 500 was down 0.1% and Toronto was down 0.6%.

The Dow Jones Industrial Average however was up 0.2% marking the ninth day of increases in a row the longest stretch in 30 years!

Toll Brothers was up 6.1% to $33.93 after releasing earnings this morning. The market has been cautions on home building stocks and so we shall see if price continues to rise tomorrow. It depends if the analysts decide top focus on the positive aspects of the earnings report or the negative aspects. The negative was that margins were down. But that was due to a change in the sales mix. Toll Brothers is my second largest position and I feel good about holding it. I have had an order in for some time to trim a bit if it hits $35 just because I own so much of it and since I buy on dips it makes some sense to sell some of that as it rises. This stock was as low as $27 just before the U.S. election. The company itself bought back shares just at the low point, which was impressive timing.

Statistics Canada reported spending on new home construction for December. Of most interest to me, Alberta single family home spending was down 9%. It seems clear that Melcor will report weak lot sales for Q4. My contention is that the low share price already more than fully reflects that.

Statistics Canada also reported that retail sales were weak in December.

A story today indicated that Exxon / Imperial Oil has had to declare its entire Kearl oil sands reserves as “uneconomic”. This was based on 2016 oil prices and things have since improved. The story also said that the investment in the project was $22 billion. If that is correct it would seem to confirm that there has been massive over-spending in the oil sands. I have said this before. The level of capital investment that was happening was beyond unsustainable. I think I documented previously that the oil and gas industry capital expenditures in 2014 were close to $80 billion and to put that in context the Alberta government revenues at the time were around $40 billion. These capital expenditures amounted to some 4% of Canada’s entire GDP. The sustainable level  I would guess to be maybe half of that $80 billion level. If so, that is 2% lopped off of Canada’s GDP. (Basically it takes a year of growth from all other areas of the economy to make up for the decline in the energy capital spending.)

The thing is Canada’s oil industry complains and complained about OPEC over-production while massively over investing in this country. It is typical of commodity producers, they all want someone else to curtail production.

Luckily for Alberta much of this investment is sunk now and so at least the operating jobs will mostly continue. I doubt that there be any new oil sand mines started anytime soon though.

They say that the best cure for high commodity prices is high commodity prices. That is, high prices begat over production leading to lower prices. That is what happened with oil prices. Also the prices never would have been so high without the collusion of OPEC for many years.


February 21, 2017

On Tuesday the S&P 500 rose another 0.6%, for a total gain of 5.6% this new year, and Toronto rose 0.5% for a total gain of 4.1% this year.

Melcor was down 3.5% today $15.11. But it is so thinly traded that one or two trades can push its price up or down several percentage points. When Melcor reports Q4 results they will likely be weak in terms of sales of home building lots. Its commercial income property revenue will likely show an increase. And I believe its commercial property development activities will likely have generated a profit. However, it is quite possible that it will book mark-market losses on the value of its commercial properties. It is also possible that it could book a loss in value on other development lands. However, in any case it seems certain that the book value per share (last reported at $29 per share) will remain far above the recent share price. The share price may react more to the company’s outlook for 2017 than its Q4 2016 results.

Toll Brothers will report its Q1 earnings before the opening of trading tomorrow (Wednesday). I am hopeful for continued sales and earnings growth. It just announced tonight that it will institute a small dividend. A dividend is neither a required nor a sufficient condition for a good investment. It is earnings that will ultimately drive shareholder returns. Still, the dividend will likely be good for the stock price in the short term. Toll Brothers announced yesterday that it was once again named the world’s most admired home building company in Fortune Magazine’s annual survey. The stock has not been a favorite of the investment community but will rise if it keeps growing its earnings.

February 19, 2017

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

The Canadian Western Bank preferred share (CWB.PR.B) was up a surprising 3.0% to $21.22. However, this appears to have been due to one tiny trade near the end of the day. It is basically a meaningless increase. This little spike demonstrates that you have to be careful when buying or selling thinly traded stocks. On these stocks use a limit order to prevent getting an unfavorable fill. It also demonstrates though that sometimes putting in an order to sell that is above the market will get filled just because someone carelessly puts on a buy order at market as this likely was. I could not find the volume traded at $21.22 but I suspect it was only 100 shares or perhaps less.

Meanwhile, Canadian Tire was up another 1.9% to $157.49. It’s up 13.1% this year. In 2016 it was up 18%, In 2015 it was down 4%, in 2014 up 23%.  Canadian Tire was one of the first companies to appear on this Web Site debuting as a Strong Buy at $22.90 on February 4, 2000. It’s up 588% since then. And that gain excludes dividends. At a time when many long-standing retailers have struggled, Canadian Tire has gone from strength to strength. It’s clearly been a very well managed company. Still, if I owned it I would consider selling or reducing the position. However, it is clear that simply buying and holding this name has worked out well despite some large dips along the way. Buying on the major dips would have worked out very well indeed. Selling on “rallies” and then buying back on dips would have been difficult and more often then not probably resulted in getting left behind and not owning it. (I speak from personal experience on this. I made some very good gains on this stock but ultimately sold out too early.)

The Toronto Stock Exchange will be closed on Monday for Family Day but U.S. markets will be open. (Correction, U.S. markets are closed for President’s Day.)


Editor’s portfolio breakdown updated February 18, 2017

The table showing the breakdown of my own portfolio has been updated. My cash position is at 22%. Given, that overall stock market indexes seem expensive I think having a substantial allocation to cash is appropriate. I may try to raise it. Note that I have no pure fixed income but I do have preferred shares and the Boston Pizza Royalty income fund units that provide dividend income. In today’s ulta low interest rate environment, I view cash as a sort of substitute for fixed income. Many people hold fixed income for stability. Cash offers the ultimate in stability but provides little to no return. (But these days short-term fixed income also provides almost no return and longer-term fixed income will not necessarily provide stability).

In looking at my own portfolio, I certainly have a very large allocation to Melcor. I don’t really want to sell any Melcor. But since I did add to my Melcor at prices around $13 it is probably logical that I should sell some of those shares. If the Q4 numbers come in weak or if they give a poor outlook for 2017 then I may regret not lightening up a little. So, I may sell a small portion of Melcor shares. But, I will definitely be retaining a large exposure to Melcor. I am just not a fan of selling shares at what could be half of their intrinsic value. I also have a large allocation to Toll Brothers. But with the continuing recovery in U.S. home prices, I am hopeful of a short-term gain in that stock.

February 16, 2017

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

Canadian Tire surged 6.9% to $154.51  after posting a blow-out Q4 with same-store sales increases of 8.1% in the Canadian Tire branded stores (recall they also own Mark’s and various sport-store brands (Sport-Chek and others). This stock was briefly under $105 just 13 months ago. And, it was briefly under $55 in July of 2011 when (laugh out loud) Target was supposed to be a big threat to it. I am not buyer right now but this company has done a fabulous job.

Constellation Software was up 3.1%.

Boston Pizza was down 2.3% to $22.85 after reporting a weak quarter. Its same store sales were down 3.1% in Q4. That was a bad quarter but I don’t think it is any huge reason for concern. Restaurant profits were likely down a lot more than 3.1% but that is irrelevant. This is a top-line entity where unit holders basically receive a percentage of food sales and don’t have to worry about the profits of the restaurants (unless things get so bad that they have more than a few closures).

I was very lucky to get $23.50 for the approximately 14% of my BP units that I sold yesterday. That was the day as well as the 52 week high and I am not sure if anyone else got a fill at that price. I did not sell because I anticipated the bad quarter. I had simply entered an above-market order to sell some time ago to take at least some advantage if the price went higher. I have no plans to sell any more units, particularly at prices under at least $23.

My trade got perhaps the only fill at that price because I had placed that order perhaps six weeks ago. For any given price, the oldest orders get filled first. Meanwhile, today, some traders sold for as little as $21.80 and there was apparently a spike in volume at $22.20. There are always some people who decide to get out NOW on any kind of bad news. And there were other people who had hopeful below market orders sitting there that got filled when those rushing for the exit hit the sell button.

I also sold half of my remaining Bank of America shares. In that account I was up 124% on those shares and given my thoughts that the U.S. market seems over-valued (Though Bank of America itself may not be) I decided to take some more off the table.



February 15, 2017

Another day, another record high for North American stocks…

On Wednesday the S&P 500 climbed another 0.5% and Toronto was up 0.4%.

Heineken was up 3.7% in Euros. Melcor was up 4.0% albeit on its usual tiny volume. Bank of America was up another 2.2%.

The continued rapid gains seem somewhat surreal. Markets are rising on hopes of the things Trump will do. But apparently today one of his Cabinet nominees withdrew his name because not enough republicans would have supported him. That being the case, it may be that Trump will not get the republican support that he will need to pass all of his ideas through the legislature. On top of that he was apparently criticizing the U.S. intelligence agencies who are looking into his campaign’s frequent discussions with Russian intelligence – you know the same Russian intelligence that is accused of interfering in the election. I am not sure why the market would not start to get concerned about some of this and the possible instabilities it could cause.

To me, it seems logical to lean toward holding more cash the higher markets go. That way we can benefit from the rise but also build cash for the almost inevitable dips. My order to lighten up on Boston Pizza finally went through at $23.50. I sold what amounted to 14% of my holdings which added a chunk to my cash while retaining a large investment in this entity.

I also have an order in the reduce my Toll Brothers if it hits $35. They announced today some sales incentive on their New York luxury apartments. Possibly, the market will react negatively to that but I don’t think it is a big deal.

Constellation Software released earnings after the close.

Statistics Canada announced a 2.3% rise in Manufacturing output in December.

Retail sales for December were reported and appear to show a sharp 4.7% rise over the prior year.

InvestorsFriend is on Twitter as of February 15, 2017

I just set up a twitter account as @InvestorsFriend   I probably won’t use it that much but it may be useful for things like pointing out any posts I make on during the day (but I usually post only in the evenings and weekends). I have really never been a twitter user but perhaps it is time. Those interested can go into their twitter accounts and follow at @InvestorsFriend.

February 14, 2017

As of Valentine’s day, the markets were still showing us the love.

The S&P 500 was up 0.4% and Toronto was up 0.2%.

Linamar was up 2.5% to $60.43.

Wells Fargo was up 1.6% to $57.98. That is impressive considering it still has the “unauthorized account opening scandal” hanging over it and considering it got as low as $43.55 last Fall. Bank of America was up 2.8%.

Statistics Canad releases figures for new auto sales in December. Alberta sales were up versus the prior year for the second month in a row. But overall, Q4 in Alberta was still lower than Q4 2015. Ontario saw a decline in sales in December. All in all this looks like a fairly good report for AutoCanada with its heavy concentration in Alberta.

February 13, 2017

North American markets on Monday added to the record highs of Friday.

The S&P 500 was up 0.5% for a total gain of 3.9% in the first six weeks of this year. Toronto was up 0.2% for a total gain of 3.1% in those same six weeks.

These are enjoyable gains. The fact that I am 20% or so in cash has been a drag on my own gains. But I don’t particularly regret that. It was a prudent approach. Markets can’t continue to rise at these rates and at some point this year having a reasonable cash position is likely to lead to opportunities.

Melcor was up 2.5% to $15.28. Those few people who bought under $12.50 in November have had a good gain. But we still have a LONG way to go before this stock rises to a reasonable level. Its main business of selling home building lots is hugely cyclical and it seems that “the market” tends to under-value it in the down years. The market overvalued it back in 2007.

I did, as planned, grab a small position in Ceapro today. I may add to that after the Q4 results come out. I would not be surprised at all if the earnings per share are down in Q4 due to a higher share count and the costs of its new building (the building is leased but there was very substantial spending on equipment and leasehold improvements). These costs will be hitting the income statement starting only in Q4. This building will also be a drag on earnings in 2017 but possibly the revenues from added production will more than offset that by the end of 2017. The stock could also jump around depending on news about the success or failure of their anticipated newer products in the pipeline.

I have a very large exposure to Boston Pizza and have had an order in for quite some time to reduce the position moderately if it hits $23.50. We got to $23.48 today.

I have my cash mostly just in cash in my TD Direct accounts. This provides maximum flexibility to redeploy and also avoids any risk of loss. I probably should put much of that into TDB8150 which pays 0.75% and can be accessed at any time. (See the subscriber home page for a list of similar accounts at other discount brokers.) Another option is some kind of fixed income investment but most of those subject me to some risk of loss if I need the cash quickly and I would also need to wait three business days to get the cash to buy stocks with. Taking a quick look at what is on offer under Fixed Income at TD Direct and focusing on a 1 year period, I don’t see anything remotely interesting. Most of the 1 year corporate bonds have an “ask yield” that is lower than 1%, and it seems you have to go out more than two years AND accept a riskier company to get close to 2%. I’d far rather take the 0.75% and maintain the flexibility to access the funds at any time. There are some online bank accounts that pay more like 1.5% but that is usually a temporary rate. And they can’t be accessed from registered accounts at TD and, for any non-registered accounts, I am not interested in the hassle of opening another account. I like having everything in one place at TD.

A few years ago I tried using rate reset preferred shares paying (then) about 4% to get a higher yield. For the first year of so doing that it worked out nicely and in some cases shares bought at $25 could be sold at $26. But when interest rates in Canada declined further in early 2015 the rate reset preferred shares fell in many cases at least 20% and in some cases 30% or more below their $25 issue prices. So that did not work out very well and the lesson was learned that ONLY cash and bank accounts and (maybe) certain other high quality investments with less than a year to maturity should be considered to be cash equivalents. A saving grace was the opportunity to grab some more rate reset preferred shares at 30 to 40% discounts as those have since given good gains. (The Canadian Western Bank preferred B shares were available at around $16 this time last year and have recovered above $20).



February 12, 2017

Ceapro Inc. a small biotechnology company that trades on the Venture exchange is added to the list as a Speculative Buy. It’s not easy to get a good understanding of a company like Ceapro given that it is very research and science based. I have tried to gain a reasonable understanding of it and to convey that in my report. I intend to buy some shares. But I consider this to be speculative and will not be investing a large dollar amount. I am going to take an initial small position and I will likely be prepared to double that if the price happens to drop substantially. Subscribers should read the report closely given the more speculative nature of this investment.

Ceapro Inc. to be added to the list

In the next couple of days I will add Ceapro Inc. to the list. It’s a small and profitable biotech company. I consider it to be somewhat speculative due to its small size, its low share price and for various other reasons. But it looks to me like a reasonable speculation with certainly potential upside. I expect to rate it a Speculative Buy and I will likely grab a small position in it.

February 11, 2017

On Friday, the S&P 500 was up 0.4% and Toronto was up 0.7%.

With this latest gain, North America stock market indexes are at record highs. That does not mean that stocks are necessarily over valued, but it should be taken as a sign to be somewhat cautious. Stock investors should always be prepared to weather (and hopefully take advantage of) market declines. In my view, the S&P 500 does look to be overvalued given that it is trading at about 23 times trailing earnings. Even with today’s very low interest rates that is expensive unless it is viewed that interest rates will not rise.

I certainly invest much more on a stock-by-stock basis than based on overall market values. Still, I feel inclined to have some cash available and to not be fully invested at this time. At last check, my cash position was about 20% and I am inclined to try to maintain or increase that percentage. However, it is difficult to identify anything in my accounts that I would like to sell or reduce. I do have an order in the sell a small portion of my Boston Pizza if it hits $23.50 and a small portion of my Toll Brothers if that hits $35.

Stocks that rose on Friday include CRH Medical up 3.9% in U.S. trading and up 26% this year to date (highest on our list). Couche-Tard up 2.7%. I had hoped this would dip to $58 as I had an order in to add at that level.

All in all, the markets have generally been kind to people in the first 6 weeks of 2017. But we should always be prepared for the opposite, at least temporarily. The difficulty, of course, is that the periods of decline are unpredictable and living through them tends to be the price we pay for enjoying the rising trend in the long term.

February 8, 2017

Markets rose to new highs on Thursday after reports that Donald Trump had indicated that his plans to lower taxes on U.S. businesses was progressing well.

The S&P 500 was up 0.6% and Toronto was up 0.4%.

Andrew Peller was up 4.4% to $10.84.

U.S. Financials rose with Bank of America and Wells Fargo each up 2.0%.

Canadian Western Bank was up 1.9%.

Walmart was up 1.9% and Costco was up 1.5%.


February 8, 2017

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

Melcor was up 2.9% but this was on a tiny volume.

Linamar was down 2.1%.

Bombardier was up 2.0%.Details emerged today that the new government loan is interest free and repayable over 40 years. Perhaps that’s why the CEO was so giddy about it. It’s clearly a subsidy.

Andrew Peller released a strong earnings report after the close and increased its dividend by 9%. This should send the stock price up on Thursday unless such earnings were already fully anticipated by the market.

The yield on the five year government of Canada bond fell to 1.02% today. This is down from 1.22% in December (it had jumped after the U.S. interest rate hike). This is negative for all those existing rate reset preferred shares, many of which have risen in price since early December. We should now see some of those price increases reversed. For example the Canadian Western Bank Preferred share on our list is at $20.61 and was at $19.00 in early December when the five year Canada was at about this same 1.0% level. Therefore it is quite possible that these shares will slip back to the $19 level.

I sold all of the CWB pref shares that I held at a gain. I’d like to get rid of some other rate reset pref shares that I hold but am reluctant to sell those that I paid $25 for and that are now at $20.25 (Enbridge) and $22.50 (Brookfield Office Properties). I set an order to sell half the Brookfield it if moves up to $24.00 (though I have no reason to think it will move up to that level).

I am inclined to increase my cash position in case there is a market “correction”.

CMHC released a report that indicates that housing starts remained strong in January. In Edmonton and Calgary it even appeared that single family home starts had declined only by 7% and 2% which seems  modest but may be affected by volatility as these numbers are just for one month.

February 7, 2017

On Tuesday, the S&P 500 was about unchanged while Toronto was up 0.3%.

Heineken was up 2.1% (this is the Euro price as we analyze this stock in Euros)

Bombardier’s CEO seemed almost giddy about the Canadian government lending it some $372.5 million. Normally borrowing money should not make one giddy. The exception might be where you are such bad financial shape that you can’t believe anyone would lend you money. In this case the giddyness may have to do with the fact that this loan arguably sends a message that Bombardier has the support of government. Potential buyers of planes may be more confident that Bombardier will be around to deliver the planes.  Some will call this a bail out. But this is a repayable loan.

So far, the record has been that those who have loaned money to Bombardier have made good returns. (Which is certainly not the case for longer term equity investors) This development could increase confidence in Bombardier’s ability to make good on its loan and preferred share obligations. This move adds to my confidence in holding the Bombardier preferred share that is on our list. In retrospect I should have added to my position at the really low prices of about 12 to 18 months ago. However, given I already had substantial dollars invested in it and given the precarious state of the company at that time, it did not seem prudent to do so. Also, at that time (as I explained on November 10, 2015)  with the Bombardier common B shares trading under $2.00, the company had the right to convert the pref shares to common shares and that was a negative feature. Having not added to my pref share position at the very low prices, it is psychologically harder to think about doing so now at higher prices, but with the lower risks today, the pref shares may not be a bad bet at all.

February 6, 2017

On Monday, the S&P 500 was down 0.2% and Toronto was down 0.1%.

Melcor was up 6.0% on volume that was higher than normal but still small. Nice, but not likely the start of any kind of trend. We will see how their Q4 earnings come in and especially their outlook for lot sales for 2017.

AutoCanada was down 2.9% but this comes after the recent gains in this stock and it remains well above the lows of November and December.

February 5, 2017

On Friday, the S&P 500 was up 0.7% and Toronto was up 0.5%.

Wells Fargo was up 2.7% on indications that Trump would attempt to move forward with  reducing certain regulations applicable to large financial companies. For the same reason, Bank of America was up 2.5%.

Visa was up 4.6% after posting a strong Q4 earnings report.

Amazon was down 3.5% after posting weak results.

I would think that the latest debates in U.S. politics over the weekend would be somewhat negative for stocks.


February 2, 2016

Thursday saw the S&P 500 up 0.1% and Toronto about unchanged.

Costco jumped 3.9% due to its strong same-store sales results in January.

CRH Medical was up 3.7% on Toronto as the stock continued to react to an acquisition it  announced two days ago.

Visa reported strong results after the close.

On Friday, the jobs report could set the stage for the direction of the market.



February 1, 2017

On Wednesday, the S&P 500 was about unchanged while Toronto was up 0.1%.

Constellation Software was down 1.8% to $577.28. I had placed an order about a month ago to add a few shares to my (sadly) small position if it gets down to $570.

Costco reported excellent same-store sales growth for January. Despite the stock looking expensive it could certainly rise on this news.

A report indicates that January auto sales were up 2% in January versus the prior year for a new record.

Warren Buffett January 31, 2017

I am just watching Warren Buffett and Bill Gates who were on Charlie Rose a few days ago.

I wanted to capture a few thoughts.

First in terms of Warren’s annual letter I mentioned a few days ago some possible topics.

Two more are why he bought airline stocks and why immigration is good.

Warren and Bill explained how immigrants have been perhaps the best import ever for America. One of the really outstanding examples was when Albert Einstein immigrated to the U.S. and helped insure that the U.S. developed the atom bomb before Germany.

Warren explained that free trade is hugely beneficial but the benefits are spread to all consumers while a relatively small percentage of people lose their jobs and it absolutely ruins their lives and we need to look after those people. And sometimes the people are too old to retrain and we need to give them an income.

Warren is sure that we are better off in aggregate and will continue to be but our economy leaves some people behind. We have to look after the people left behind as the economy becomes more specialized. Not everyone has the skills that are valued. Our economy keeps rewarding the few at the top and that is okay this will continue BUT we need to look after those left behind. Only government can do this.

Bill Gates feels that Health care is one area that America does particularly poorly compared to other countries, spending twice the GDP percentage as the U.K. for example.


January 30, 2017

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

The rate reset preferred shares have continued to recover.

I sold my small remaining position in the Canadian Western Bank preferred share today at $20.61. I had bought this in an RRSP account at a discount and was up over 20% in addition to having received dividends. In theory, the price I paid is not relevant to the decision to sell but in practice we can’t help considering the price paid. The five year government of Canada bond has been bouncing around and the rate reset preferred in recent weeks were up even as the five year Canada yield was down somewhat. I decided to cash out this small position.  It helps to build my cash position in case there are bargains ahead.

As of Monday night futures are forecasting another modest decline in U.S. markets on Tuesday.

January 29, 2017

On Friday, the S&P 500 was down 0.1% and Toronto was down 0.3%.

Transforce was up 2.8%. Toll Brothers was down 2.5% and I believe offers good value.

My sense is that the market is going to decide that it does not like Trump quite so much after all.

Andrew Peller added to list Jan 29, 2017

Andrew Peller Limited, the wine producer and marketer is added to the list. It is rated only a (lower) Buy at $10.79. I may take a small position and then see if a better buying opportunity arises. It’s a well managed company. Those who buy Andrew Peller products might like to own a piece of the action. There is nothing wrong with owning the businesses you buy from if they appear to be reasonable investments.

January 26, 2017

On Thursday, the S&P 500 was down 0.1% and Toronto was down 0.2%.

There were not many notable moves in the stocks on our list but AutoCanada was down 4.4%.

I await with some trepidation the next moves from Trump and the inevitable reaction.

HBO is airing a new one hour story about the life of Warren Buffet. It “airs” (is that still the right word, I suppose not really) the evening of January 30. Set your PVR to record it. This is well worth watching. Try to get any young people in your household to watch it as well. His ideas about investing have the most value to those with many years of investment in front of them.

January 25, 2017

As anyone, not living off the grid is likely aware, Wednesday was a strong day on the markets with the DOW surmounting the 20,000 level for the first time.

The S&P 500 was up 0.8% and the Dow was up 0.2%.

AutoCanada and Stantec were each up 5.5%.

CN rail was down 2.5% after releasing earnings.

Wells Fargo was up 3.5%.

AltaGas, a once small Alberta utility is buying a utility centered in Washington D.C. for $6.4 billion cash. It’s $8.4 billion Canadian and I believe they are assuming debt on top of that. This is impressive and shows that corporations are not being overly cautious. Altagas is issuing shares and will also issue preferred shares and debt.

January 24, 2017

I am in Hawaii, arrived today for a week (Maui, Kihei)

Business wise one observation was Costco very busy mid afternoon Tuesday.

S&P 500 was up 0.7% and Toronto was up 0.8%.

Toll Brothers was up 4.6% and FedEx was up 3.3%.

Very few stocks on our list were down.

So, for the moment at least, the market seems happy with Trump.


January 23, 2017

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

Linamar was up 1.8% recovering some of the ground lost recently.

Wholesale trade for November was reported and was up marginally.

What will Buffett say?

In about five weeks, Warren Buffett will release his annual letter to Berkshire shareholders. The letter always starts out by reporting the increase in book value per share. This will likely be low double digits and may possibly edge out the gain in the S&P 500 which was about 11.5% including dividends. Book value likely surged in Q4 but I am not sure it will beat the S&P 500 or even get over 10%.

The next part of the letter usually talks about recent acquisitions, and this year Precision Castparts was the largest by far.

Buffett’s letter always reviews the four major areas of operations which are Insurance, Utilities & Railroad, Investments and everything else (manufacturing, retailing and service).

Finally, and often of most general interest, Buffett includes some sort of editorial about investing, accounting or the economy.

Last year he wrote about how America is in fact already great and the productivity gains that have greatly benefited most (but not all) people notwithstanding the associated job losses. I don’t think he will repeat this but possibly he will include soothing words about how America will (at least ultimately) do just fine with Trump as President.

He could address his thoughts on a fair trade system. But he laid out those thoughts some years ago with a detailed plan that would have eliminated trade deficits if implemented.

He could address income inequality and how to solve it.

Topics that he will not likely address in any detail include:

His successor as CEO. He has been saying for decades that his Board knows who the successor would be if he died or otherwise left this year but that the name changes over the years and even the successor does not know who it is. It appears that he intends to remain as CEO and chief investment officer until he dies or is mentally incapacitated.

Company Behavior Under Trump

Most companies that plan major capital projects and job additions may decide to try and give as much credit to Trump as possible. Companies that were already planning to do things will likely be glad to let Trump share the credit. Buffett is unlikely to play that game as the vast majority of Berkshire’s capital spending and jobs  have always been in America.

Andrew Peller will be the next company added to our list. It’s a good company and well managed. But it will likely only rate as (lower) Buy. I’d be comfortable taking a small position in it.

January 22, 2017

On Friday, the S&P 500 was up 0.3% and Toronto was up 0.9%.

Canadian National Railway, which looks expensive to me, was up 2.0%.

The December inflation numbers were reported and inflation remains tame.

The investment in new home construction for November was reported. Alberta single family home spending was down 16% from the prior year but was not much changed versus the past few months. For Canada for all types of homes spending was up 4.1% from the prior year.

Retail Trade for November was reported and was moderately positive.

Futures on Sunday evening suggest a slightly negative opening for stocks on Monday morning.

I am surprised that the stock market is not showing more fear of the Trump presidency. The Trump Whitehouse  has reportedly attacked the media for accurately reporting the crowd size.

January 19, 2017

On Thursday, the S&P 500 was down 0.4% while Toronto was up 0.1%

American Express released earnings that were lower than expected. But that was due to a 35% increase in marketing spending which could benefit future earnings. And the company revised its 2017 earnings guidance higher. The stock was down 1.6% in so called “after hours” trading. But that trading does not have the benefit of a full reading of the earnings release and certainly does not always foretell how the stock will react in regular trading after analysts have more time to reflect on the earnings release.

Statistics Canada reports that manufacturing did well in November.

TD seems to be sending my quite a few notices about new offerings. Companies are out there raising new money. And various companies are in merger talks. The animal spirits and optimism are running high.

January 18, 2017

On Wednesday, the S&P 500 was up 0.2% while Toronto fell 0.3%.

The stocks on our list were “mixed” with no particularly noteworthy movements.

Statistics Canada reported the change in “Employment Insurance” for November.

Alberta was up 3.4% and in Edmonton and Calgary the increase was about 5%. I believe the recession in Alberta is over in that the economy has already hit bottom and is starting to improve. But the economy is still definitely lower than it was. Government energy royalties and income taxes were hit FAR harder than employment levels and remain FAR below the peak levels. The higher employment insurance numbers in November could be the result of expired severance packages. The increase year over year is actually 57.4% but it is the monthly change that shows what is happening more recently.

There was news that Hunter Harrison has left CP rail effective immediately. My first thought was that it for medical reasons. But no, at 72 he is said to taking on some role with a US. railroad. A role that is valuable enough to cause him to forfeit some $118 million of compensation/retirement benefits at CP. I am impressed that he had the drive and energy to take on a big role at another rail road at this point. He must be addicted to the adrenalin that comes from the power of such a role. And if he is to be paid something more than the $118 million he is giving up, that goes to show the impact that a CEO at a large company can have.

It would also suspect that Hunter Harrison will never spend most of the wealth he has amassed. If he wanted to focus on spending he would not be taking on a new job.

Clearly Hunter Harrison was able to whack out huge swaths of costs at CP. He created HUGE value for share owners but no doubt caused a lot of grief for employees. He did a lot at CN also although I always thought that it was Paul Tellier who put CN on the right track and that Harrison continued with Tellier’s approach. It may be though that Harrison accelerated the cost cutting moves at CN.

And, oh yes, the Canadian dollar fell over one U.S. cent today after the Canadian Central Bank said an interest rate CUT was still a possibility. Currency moves are notoriously unpredictable. This latest drop may have been a bit of an over reaction.

TD Bank is offering Timbercreek Financial Corp 5.45% convertible debentures. I know nothing about this company but took a quick look at their financial statements and they have what appears to be a strong balance sheet and good earnings. These debentures seem worth considering. The offering is still open at the moment. I am not going to buy any due to lack of knowledge about the company and since I am more interested in preserving than spending cash at the moment.

January 17, 2017

On Tuesday, the S&P 500 and Toronto were each down 0.3%.

The Canadian dollar rose to 76.5 cents on Trumps remarks that the U.S. dollar is too high.

The Canadian Western Bank Preferred shares Series 5 have risen to $20.24. In the past week or two the Bank of Canada five year yield has fallen from a peak over 1.20% to now 1.09%. These shares should generally move in the same direction as the bank of Canada five year yield. If I held a lot of these bought at lower prices, I would now be tempted to lighten up.

Some of the U.S. bank shares had a negative day with Bank of America down 4.2% and Wells Fargo down 2.8%.

Melcor was down 3.1% but the volume was very low which makes the price change less reliable as any kind of indicator.

Bombardier has a strong day, up 5.0%. If investors are getting more comfortable about the outlook for Bombardier then I would think that the Bombardier pref shares should also be rising but they have not been rising with the common shares this month.

Statistics Canada reported crude production for October. Canadian production was up 7.5%. I just think it is interesting to note this increase while the industry obsesses about OPEC and the United States producers producing “too much”.

Statistics Canada also reported new motor vehicle sales for November. Sales were strong. There was even an 8% increase in Alberta. This is the first year over year increase in Alberta in probably a couple of years. Results were likely boosted by unusually mild weather in Alberta in November but in any case this is certainly positive news for AutoCanada investors.

January 16, 2017

On Monday the U.S. markets were closed while Toronto was down 0.1%.

Linamar was down 3.5% to $55.65 on concerns that Trump’s protectionist policies will be harmful to non-U.S. based auto parts companies. That is a risk. However, I am not changing my thinking on Linamar on that basis. It looks like good value to me.

Wealth Disparity

There was much news today about the concentration of wealth at the top. Apparently the richest 8 people have wealth equal to the bottom half of the world’s population. And apparently David Thomson and Galen Weston have as much wealth as the entire bottom third of the population of Canada.

That is concerning. Governments are not in any way “required” to to maintain a system that flows too much wealth to too few people. It’s more the case that western governments tolerate this extreme wealth disparity because it is believed that the incentives that it creates has produced the best overall benefits to all citizens. A purely equal distribution of wealth would provide insufficient incentive to work harder and to save and invest and so the total economy and GDP per capita would be far smaller. The existing system has generated a large GDP per capita but if it is judged that the distribution of wealth is just too extreme, then changes should be expected.

Investors should be concerned about wealth disparities that are too great. Most of the richest people in the world derive their wealth from owning profitable corporations. Their wealth derives from “the wages of capital”. Investors are able to participate somewhat in getting a share of the wages of capital as well. But if too much of the output of the economy is seen as flowing to the owners of companies and too little to labour then we should expect governments to make changes.

The good thing is that the top rich people are in no way consuming half of what the world produces. Warren Buffett, as an extreme case, has always consumed a very tiny fraction of his typical annual increase in wealth. But this too is part of the problem in that as the very wealthy consume far less than they could, they are in effect saving and lending the ability to consume to others who then owe future consumption to the rich. Once a person is wealthy enough that they need consume only a tiny portion of their increase in wealth each year, then their wealth compounds upward at a high rate. Warren Buffett’s entire Berkshire fortune will be donated. (He lives on a vastly smaller but still large amount of wealth that he has outside of Berkshire). But some vastly wealthy people intend to pass on their wealth to their heirs. Society will need to consider if more of that wealth needs to be taxed away upon death. Or if taxes on income and wealth from capital need to be increased.



January 15, 2017

On Friday, the S&P 500 was up 0.2% and Toronto was up 0.5%.

AutoCanada was up 4.1% to $26.62. I am not aware of any particular “reason” for this (which is not unusual as stocks move every day for reasons that may sometimes be known only to the buyers and sellers). This stock is at a 52 week high after having bottomed out about a year ago at $16.06. The low came after a vicious decline from highs around $90 in the Spring of 2014. The peak in 2014 came after a tremendous surge from the $17 level in late winter of 2013. These type of price movements can certainly be in turn exhilarating and then devastating for owners. I started buying this stock “too early” on the way down. But I did buy some at prices below the current price and overall I believe I am nearing about a break even position on this stock. (That’s not something that I actually track in aggregate, but looking at the gain and loss in the four accounts where I hold it, I estimate I am near break even.)

It’s interesting to think about how the owner of an individual car dealership in Alberta (where AutoCanada has most of its dealerships) would have fared since early 2013. Someone who owned a dealership for many years and had no intention of selling would have faced probably significantly lower profits in starting in late 2014. They would have been aware that the value of their dealership if they wanted to sell was lower. But that might not have been very much of a concern if no sale was planned. Warren Buffett advises share owners (and I prefer the more permanent sounding  term “share owners” rather than share holders) to think more like the owner of a business and less like the temporary owner of blips on a screen.

Couche-Tard was up 3.1% to $61.25, causing me to wonder if I should not have added to my position as it dipped under $60 last week. But then again, I don’t want to get in a big hurry and it is quite possible indeed (as it always is) that the market will offer up some better bargains before too long.

U.S. financials were mostly positive on Friday as several large banks reported earnings that were apparently reasonably pleasing to analysts.

January 12, 2017

On Thursday, the S&P 500 was down 0.2% and Toronto was down 0.5%.

Most of our stocks were down today although none by a particularly notable amount.

I am pretty much biding my time and waiting to see if any of the below market bids I had placed to add to several of my holdings get hit. On TD Direct I can now put in an order that is good for 90 days (used to be a maximum of 30 days until a year or so ago). A below market limit order that is good for 90 days could facilitate buying on a sudden dip. If instead you wait for a dip and then buy you might miss the chance or you might be too fearful to buy on the dip. The pre-set limit order takes emotion out of the picture. Of course, it can also result in buying a stock on the way down that is headed down quite a bit more. That is the chance we take with limit orders.

I am looking at adding Andrew Peller to the list. It will be educational to learn how the Canadian winery and wine selling industry works. The good thing in that industry is that there is brand value. Consumers do not consider that all wines are created equal.

Statistics Canada reported the new house price index for November. There was not much change in the month. Alberta new home prices have declined only about 1% in the past year.

January 11, 2017

Wednesday’s markets saw the S&P 500 up 0.3% and Toronto up 0.4%.

Bombardier had another strong day, up 4.9% to $2.59. Welcome news for long-suffering share owners.

And AutoCanada was up another 2.5%.

The market reaction to Trump’s news conference was at first negative (the day’s early gains were erased) but by the end of the day was moderately positive.

At the risk of offending Trump supporters I thought he displayed today how much of a thin-skinned bully he is in attacking CNN for what he deems “fake-news”. He did score points on his economic plans however. I am not sure that the market fully appreciates that he is prepared to go ahead with his plans like building that Wall and reducing free trade. If he can get the approvals he needs, he will move ahead with these things.

In a different context, not involving Trump, Warren Buffett warned “never underestimate the man who overestimates himself”.  It seems pretty clear that Trump vastly overestimates himself and what he can accomplish as President. This could be dangerous.

Statistics Canada released a report about government finances showing revenue and expense items and more. By using the “add/remove data” function, I was able to see the revenue sources. I was shocked to see that taxes on goods and services are fully half as large as the total of all taxes on income, profits and capital gains.  But that was for all governments. I am not sure what all those taxes on goods and services are but it would include GST, provincial sales taxes and gasoline taxes and probably more. (Possibly it includes royalties on oil and gas production as I don’t see a line item for that). At the federal level the taxes on goods and services are only a bit over 25% of the total taxes on income, profits and taxable gains.

January 10, 2017

Tuesday’s session had the S&P unchanged and Toronto up 0.2%.

CRH Medical was up 6.2% in Toronto.

Bombardier had another positive day, up 4.2%. I own a preferred share which has also been rising though not as much as the common.

Statistics Canada reported on building permits in November. Single family starts were down (again) in Alberta.

In regards to the oil and natural gas industry it is activity that matters most to the economy. As prices fell one of the first areas hit was the provincial revenues and company profits were also hard hit. Employment levels took a bit longer to be hit and also recover earlier. My point is that employment might do okay at $55 oil even if provincial royalty revenues remain low and profits remain relatively low. It is activity in the energy patch that drives a lot of other sectors such as hotels and service companies and housing. At last check Alberta’s population was still increasing which should mean that housing activity while lower is not likely going to be in a depression.

January 9, 2017

On Monday, the S&P 500 was down 0.4% and Toronto was down 0.7%.

Linamar was down 4.9% (probably based on some analyst downgrade given that the company did not release any news).

Melcor was up 2.5% but that was on its typically very thin volume.

Statistics Canada reported on changes in farm product prices. Anyone interested in farm product prices can use the add/remove data features and can look at changes in various products over various time periods. Some are up some are down. You can find the price history for dry peas, milk, slaughter cattle and many more items.

As we all know, the markets have had a big rally since Trump’s election. Today Trump was responding in a petty and juvenile fashion to Meryl Streep’s comments that she was stunned that Trump had imitated a disabled reporter. Trump denies that he did that. The video shows that he did. I don’t know if Trump is going to be good for the economy or not. But I am pretty sure he is an incredibly thin-skinned and incredibly egotistical man with a vicious temper who is also a pathological liar. The man has fantastic skills as a showman and must be skilled to have amassed his fortune. I do think he is very intelligent. Maybe Trump will do great things for the economy and the world. But there is also some danger that he will cause serious international diplomatic incidents. There is a danger that he will cause serious disruption to and reduction of international trade. I suspect there will be periods when the market decides that Trump may not be so great for the markets. The election of Trump may bring rewards, but it is not without risk.

Having said that I am not changing my investment approach because of it. The world is always uncertain. A few people emailed me before the election wondering if they should get out of the markets due a possible Trump victory. That certainly would not have worked out well.

January 8, 2017

On Friday, the S&P 500 was up 0.3% while Toronto was down 0.6%.

Toll Brothers was down 2.0% to $31.24. It seems that home builder stocks are out of favor at this time. But I expect Toll Brothers to continue to grow its earnings this year and to buy back stock at opportune prices.

Statistics Canada released a positive report on the labour market on Friday. These reports seem to be increasingly volatile and subject to swings month to month. Therefore we should not get too excited about this one good report for December.

Statistics Canada also reported That Canada had a trade surplus in November, the first in a bit over two years. Perhaps the lower Canadian dollar if finally having a beneficial impact.




January 5, 2017

Thursday’s action saw the S&P 500 decline 0.1% while Toronto was up 0.4%.

Amazon was up 3.1%. Costco was up 2.0% after reporting strong December same-store sales growth.

Bombardier was down 2.9%. There was a story today about one of its component suppliers for its Global 7000 jet suing Bombardier. But Bombardier responded saying it was preparing an even larger counter suit. It does not seem to be unusual for Bombardier’s customers to sue it.

The market yield (interest rate) on the Bank of Canada 5 year bond has fallen to 1.07% from December highs of 1.20%. This could certainly curtail or partially reverse recent gains in rate reset preferred shares. It could also possibly lead to some reversal of recent mortgage rate increases or at least stave off further increases. I sold the small amount of a Fairfax Financial rate reset preferred share that I held. I sold for $23.33 and had paid $25 almost two years ago. With the dividend (4.75% or $1.19 per year) I about broke even on this. But it was a poor investment. I would have liked to hold out for $25 but that may never have happened. These shares got as low as about $19 last year and in comparison to that the $23.33 is not bad. These shares were never rated on the site but I mentioned on February 22, 2015 that I was grabbing them at the IPO a that time.

January 4, 2017

On Wednesday the good times in the stock market continued. The S&P 500 rose 0.6% and Toronto rose 0.7%.

Markets do not rise in straight lines and we should always be prepared for “corrections” at any time. Trimming any stocks that seem over-valued and having cash available for bargains are possible strategies. Of course it is always hard to pull the trigger and trim stocks that have treated us well.

Notable gainers today included:

CRH Medical up 7.2% on Toronto. (But note that our report uses the U.S. dollar price since it reports in U.S. dollars)

Linamar, up 2.4%, Bombardier up 5.7%, Toll Brothers up 2.2%

AutoCanada up 4.4%.

Most of the rate reset preferred shares also rose.

Boston Pizza reported yesterday that it was adding the 13 restaurants opened in 2016 to the royalty pool but that two restaurants had permanently closed. While this is nice in that indicates the popularity of the restaurants it has basically no impact on the distributable cash per unit because the founders of Boston Pizza receive new units representing 92.5% of the added cash flow. The Boston Pizza Royalty Income Trust is a financially engineered construct. One of the results is that their financial reports are difficult to understand. I think they could do a much better job of explaining things in simple language. But in the end all that matter is distributable cash flow per unit and this is driven by same-restaurant food sales. While GAAP earnings for this entity bounce around the distributable cash flow grows slowly most quarters though it has decreased a bit in some quarters as well. This is a very predicatble entity because all we have to do is predict same-store food sales. We don’t have to woryy about predicting the profit margins of the restaurants.

Normally I would NOT consider the reported distributable cash flow of a company to be a substitute for net income. But in the case of Boston Pizza Royalty Income Fund it is. I ignore the GAAP earnings of this entity as I have found them to not be relevant in this case for a variety of reasons.


January 3, 2017

On the first trading day of 2017, the S&P 500 rose 0.8% and Toronto was also up 0.8%.

Bombardier had a strong day, up 5.6%. I left it rated Sell for the start of this year. It is so far down that it does have potential but it remains a very poorly managed company in an industry that is extremely tough to make money it. I’ll take another look at it after its annual results for 2016 are released.

AutoCanada also had a strong day, up 3.2%.

I established a small position in Visa today and added to my Heineken and Berkshire positions. I also have bids in to add very modestly to most of my positions on drops of around 5%. Possibly I should have set the price at more like a 10% drop but I will go with these and see what happens.

Enbridge rate reset pref shares updated January 2, 2017

Our report on the Enbridge Series 9 preferred shares is updated with a rating of Buy at $18.80 to yield 5.85%.

Last year at this time they were also rated Buy at approximately the same price ($18.67). At that time I did not think there much chance that the Bank of Canada 5 year yield would decline pushing these shares down. It turned out the Bank of Canada yield did fall temporarily and that combined with a generally negative stock market saw these shares dip briefly under $15 with the low trade at $14.28. That was certainly an opportunity to add to positions.

Over the full year, these shares did their job as they yielded 5.9% and ended the year at the about the same price they started at.

Currently they are priced to yield 5.85% and while they could dip in price, they could also increase if Canadian interest rates rise.



Heineken N.V. update January 2, 2017

Heineken is updated and rated (lower) Buy at 71.26 euros on the Amsterdam exchange. It can be bought more conveniently as two shares of the America Depository Receipt HEINY at U.S. $37.41 per share. I had added Heineken to our list last July 28. The original report noted that it was probably at least fully valued but I rated it (lower) Buy due to its strength as a major world brand. I indicated that a reasonable approach might be to take a small position and then add to it on dips. I took a very small position it it myself. Since then it has declined 15% in Euros and 20% in U.S. dollars. The company continues to do well and I view the decline as a modest buying opportunity. While it is not a compelling buy it offers diversification. I intend to add to my current small position and probably to place an order to add further shares on a dip.

January 1, 2017

On the final trading day of 2016, the S&P 500 was down 0.5% and Toronto was down 0.9%.

Amazon was down 2.0%.

For 2016, the S&P 500 was up 9.5%, and Toronto was up 17.5%.

Our four strong Buys were up an average of 26.1% and the 24 stocks that had been rated (lower) Buy or higher at the start of the year were up an average of 17.0%. None of these figures include dividends.

You can see the gain or loss for each stock that was rated at the start of 2016 on our 2016 performance page.

My own portfolio was up 15.5% including dividends.

2016 was a strong year for the markets and for our Stock Picks.



Visa report updated January 1, 2017

Visa Inc. is updated and rated Buy at $78.02. It looks to be poised for strong growth in the next year. I intend to buy a small position and then enter a bid to perhaps double the position if the shares decline. I may set the buy for that around $67. The really big gains on VISA have been made but it could still provide worthwhile gains going forward.