Cineplex Disappoints

This article was initially written on August 2, 2017 before joining InvestorsFriend.

Update: You may have noticed Cineplex stock has performed quite miserably since this post.  This is a great example of someone (me) presenting lots of facts yet getting it entirely wrong.  I describe my mistakes and lessons in my 2017 Annual Review, which I highly recommend reading after this.


Good Morning Everyone,

Woke up to some great news this morning! Investors aren’t impressed with Cineplex’s most recent earnings report which opened up a fantastic buying opportunity.  So why weren’t investors impressed?  Well check out the report here:

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July 17, 2018

Tuesday saw the S&P 500 rise 0.4% and Toronto 0.15%.

Linamar was up 3.0% to $59.38 modestly rewarding those who were brave enough to buy near its recent low of under $55.

Toll Brothers was up 2.8%. My betting is that this stock will rise as the U.S. economy continues to be strong.

AutoCanada recovered 1.85% but will likely continue to be volatile.

Berkshire Hathaway announced that it has authorized Buffett and Munger to buy back shares if they BOTH think the shares are trading below a conservative calculation of intrinsic value. Previously they were  allowed to buy back only up to a maximum of 120% of book value – and it almost never trades that low. Berkshire has piles of cash. Also book value is not as useful a gunge of its intrinsic value as it once was when marketable securities formed a larger percentage of its assets. If they do buy back any stock we won’t likely know about it until a large amount has been purchased. Buffett can certainly keep a secret. And you don’t get to be a broker for Buffett unless you can keep a secret. They can probably buy a substantial amount over a period of at least weeks before they will be required to disclose the purchases.

Anyone holding Berkshire shares and thinking of selling has now “been warned” that Berkshire might be the buyer – which should give pause to anyone thinking about the wisdom of selling.

But knowing Buffett, this is no guarantee of immediate action. He could very well be waiting for a lower price. But my suspicion is they will do some buying very soon.

Statistics Canada reported on manufacturing activity for May which did show reasonably strong growth versus April.

The survey of large retailers for May was also released. Sales appear to be up quite strongly from the prior year. But Statistics Canada did not include a discussion of the results and it’s a bit clunky on their system to get into the tables. Usually this sort of data is seasonally adjusted but this did not seem to be which means you have to compare it the same month last year as opposed to April this year.




This article was initially written on March 19, 2017 before joining InvestorsFriend.

Hey everyone,

I have yet again discovered a fairly high risk/reward company, and yet again it was because of (but way after) The Motley Fool (I may eventually get a subscription tbh).

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The Future of Energy

This article was initially written on February 25, 2017 before joining InvestorsFriend.

Hello All,

Yesterday I had the pleasure of attending Alberta Ecotrust’s 2017 Environmental Gathering on behalf of my employer, Capital Power, and earlier this week our CEO also made a site visit in which he discussed the outlook for energy.

According to our CEO, Canada has put together a variety of “plans” to achieve our GHG goals by 2050, and I was surprised by their conclusions:

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July 16, 2018

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

Linamar recovered 2.75%. There was not much movement of particular note in most of the stocks on our list.

A headline this morning on BNN television said that U.S. consumer spending increased 6% in June. That is a huge increase. However with inflation running around 3% it is more like 3% in volume terms plus 3% for price increases. I was skeptical that it could really have grown that fast.

Looking into the details I found that U.S. retail trade increased by 0.5% in June versus May. So, then I thought maybe the 6% came from annualizing the one month’s gain, which would be basically bogus. But the details claim that year on year the increase was 6.6% in June. And May growth was  5.9% year on year. Unless that is some sort of statistical anomaly, it is truly an impressive rate of growth.

Statistics Canada reported new motor vehicle sales numbers for May. For each od Canada, Ontario and Alberta, the number of new vehicles sold in May 2018 was relatively similar to 2017 (Ontario was down about 1% and Alberta up about 1%). This was not at all a bad result given that 2017 had been significantly stronger than 2016 (11% Canada , 11% Ontario and 17% Alberta). So May 2018 faced a “tough comparable” versus 2017.


This article was initially written on November 26, 2016 before joining InvestorsFriend.

Hey All,

Shopify is a company I recently discovered that goes against nearly every investment tenet I have ever stood for, including:

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July 15, 2018

On Friday, the S&P 500 was up 0.1% while Toronto was about flat (it was down marginally).

AutoCanada was down another 0.1% to $15.32. Earlier in the day it was as low as $14.74.

Reviewing its press releases I took notice that in addition to Arlene Dickenson’s resignation, which I had mentioned, it had also announced two other director resignations on June 20. Overall, combined with the replacement of a key operating executive that it announced on July 3, it certainly appears that there had been considerable dissension at the Board and perhaps management level. My suspicion is that those directors who may not have fully supported the current strategy are gone and that the CEO likely has the full support of the remaining Board. However, I could be wrong given that they went ahead with the Special Committee to look at strategic alternatives. The CEO has only been with the company for two years. It is possible that he would not be against selling the company if a buyer could be found at a reasonable price that gives the CEO an ample payout. But that is all speculation.

One of their largest and longest held dealers is in Edmonton – Crosstown Motors is a huge Chrysler, Dodge, Jeep dealer which also sells Fiats as well. I went to visit the dealership on Friday. Everything seemed good and prosperous looking there. They admitted that they are not as busy as they were a few years ago. But they seemed relatively busy and the staff I talked to certainly seemed upbeat.

They will report Q2 earnings on August 9. My suspicion is that the numbers won’t be great. But the market will also focus on their future outlook. With the new executive in charge of operations and with the Board member resignations plus the Special Committee it would certainly seem that management will be very focused at this time in improving profitability. Q2 will also include the new Chicago dealerships for most of the quarter. Hopefully there will not have been any unforeseen additional expenses in regards to that acquisition.

With the stock price falling, it is hard not to be worried about what is happening. But fundamentally, this should still be a profitable business and their growth by acquisition strategy does have merit. The banks have shown confidence by financing that recent large Chicago acquisition. Possibly the share price has over-reacted to the down side based on uncertainty.



July 12, 2018

On Thursday, the S&P 500 and Toronto were each up 0.9% which made for a strong day in the markets.

Constellation Software was up a hefty 4.6% and has continued to be a real winner even when it seems expensive. Similarly, Amazon was up another 2.4%.

Couche-Tard was up 3.15% as analysts further digested its earnings and apparently found them appetizing.

On the other hand, AutoCanada fell 5.1%. There was no news to account for this. Many investors including perhaps institutional holders may be throwing in the towel. In retrospect, of course it would have been wise to sell these shares at higher prices. Investing is almost always a waiting game. I am waiting now to see their Q2 results, their outlook, and any results from the Strategic review. I did pick up a very few more shares today but I don’t want to get carried away buying too many. With the recovery in the Alberta economy they should be selling more vehicles. However, some 46% of their sales in Q1 were from Chrysler dealerships and that company reported a 17% drop in sales nationally in June and 11% year to date. The reasons for the big under performance at Chrysler were not revealed. I believe AutoCanada is still generating ample cash flow and is in no danger financially.


Alimentation Couche-Tard updated July 12, 2018

The report for Alimentation Couche-Tard is updated and rated (higher) Buy at $62.20.

The fact that this is (inexplicably) now Canada’s largest company by revenue does not seem to have gotten much attention.

It now only derives about 13% of its revenue from Canada.

The shares only officially trade in Toronto and it is therefore probably almost entirely owned by Canadians. The great majority of its assets are outside of Canada. This company represents a large (over $1.5 billion per year now) flow of profits from outside of Canada (about two thirds of profits are from the U.S.) flowing into Canadian hands. I wonder what Trump would think of this.

July 11, 2018

On Wednesday, the S&P 500 was down 0.7% and Toronto was down 0.8%. Today, the market took notice of Trump’s trade was threats and his insults to NATO and Germany.  It’s hard to argue with his economic success so far. Time will tell if that continues. But if there was ever a man who seems drunk on power it has to be Trump.

BHP Billiton was down 5.0% in New York. The prices of the commodities it sells including iron ore and copper have fallen.

Linamar was down 2.6%, presumably on trade war concerns.

AutoCanada was down 2.0% presumably for the same reason.

The next update will be for Couche-Tard and it will likely be rated (higher) Buy at $60.30.

The Bank of Canada increased its benchmark interest rate by 0.25% to 1.5%. With the ten year government of Canada bond yield at 2.16%, higher interest rates are not yet at a level where they pose any real threat to equity valuations.

July 10, 2018

On Tuesday, the S&P 500 was up 0.35% and Toronto was up 0.6% to a record high.

The record high on Toronto is welcome, but it is not necessarily cause for any great celebration, and the achievement of a record high certainly is not a recent to conclude that the market is over-valued. The Toronto stock index is made up of a weighted average of 249 companies.  In most years the great majority of these companies make positive earnings. And they retain some (I believe roughly half on average) of those earnings rather than paying all of the earnings out as dividends. This causes the aggregate book value of the index to rise steadily. With more and more assets and equity invested in the 249 companies each year, the aggregate earnings of the index tends to grow most years. If the P/E ratio remains constant then the price of the index rises. In reality the P/E ratio is constantly changing with interest rates and investor confidence. However, over time the rising earnings does push the index to a new record high repeatedly over the years. In some cases a record high could be set daily. In other cases such as a market crash that follows a market peak it could take many years to reach a new high. But the point is there is nothing special about a record high to suggest that the market is over-valued or to necessarily get very excited about. But, yes, it is a welcome development.

Alimentation Couche-Tard was up 6.7% today to $60.80 based on its strong Q4 earnings report. I have partially completed an update for this company but still need to read the annual MD&A. At $60.80, I believe it remains an attractive investment. Its trailing adjusted P/E ratio is 17.7. It’s probably set to grow adjusted earnings per share by at least 10% in the next year and possibly more like 15 to 20%. Its current quarter (Q1 fiscal 2019) which ends at the end of July will show a sharp increase in revenue and probably earnings based on a very large acquisition it made at the end of June last year. The following two quarters after that will also benefit from smaller acquisitions that will affect those quarters but which were not yet made in Q2 and Q3 of fiscal 2018. However, offsetting that the fuel margin in Q2 2018 was unusually high and should be expected to be lower in Q2 2019. By Q4 of fiscal 2019 growth may be slower relying on same-store sales growth and continued added synergies from relatively recent acquisitions. But the company may make further acquisitions by then. Overall, I am tempted to add to my position at this price. It would have been better to have bravely added even more at the recent lower prices but now there is added confidence of earnings growth given the strong Q4 report.

Constellation Software was up 2.1%.

Housing Starts:

BNN television was reporting today that Canadian housing starts had surged to an an annualized level of 248,000. That sounded extremely high to me. Checking CMHC, they report the headline figure as 222,000 based on a six month moving average but they also indicated that the annualized June figure was indeed 248,000.  When you consider that U.S. housing starts are running at 1,350,000 (and this after years of trending up from the financial crisis lows of I believe under 500,000 around 2008) and considering that the U.S. population is roughly ten times larger, it is evident that Canada is (and has been for years) building houses at a rate that is proportionally far higher than in the U.S. Yet, I heard Phil Soper of Royal Lepage say today that there is a shortage of new housing units in Canada!.

The 222,000 and the 248,000 figure were both pushed up by unusually high multi-family starts including notably in Toronto.

These housing starts figures certainly present a mixed picture. Single family starts were actually down 16% in Canada (down 19% in Alberta and down 24% in Ontario) while multi family starts surged 35% (including up 65%! in Ontario but down 12% in Alberta). These figures are probably too volatile to conclude much from one month.

Year to date, single family starts are down 10% in Canada (down 6% in Alberta and down 16% in Ontario) Multi-family starts are up 11% for Canada (down 5% in Alberta and up 19% in Ontario).

July 9, 2018

On Monday, the S&P 500 was up 0.9% and Toronto was up 0.5%.

FedEx was up 2.9% recovering some of its recent decline.

C.N. rail was up 2.7% to a record high.

Linamar bounced up 2.7%,

Toll Brothers was up 2.2%.

Couche-Tard was up 1.75% before reporting Q4 results after the close. The earnings report was very strong on a GAAP basis and also quite strong on an adjusted basis with adjusted earnings per share up 23% when adjusted for all factors including one less week in Q4 versus the prior year. Gasoline margins were up versus Q3 and versus Q4 of 2017 but were down from the unusually high levels of Q1 and particularly Q2. Same-store merchandise sales were up modestly. The dividend was increased by 11% but it remains a a low dividend at just 10 cents per quarter. Overall, I would think that stock should respond positively to this earnings report.





July 8, 2018

Friday was a positive day in the North America stock markets as the S&P 500 rose 0.85% and Toronto rose 0.65%.

Statistics Canada reported the labour Force survey results for June. The report was positive with 32,000 jobs added. More people returned to the labour force (and not that this is ALWAYS seasonally adjusted, so it is not about students available for work in the summer) and so the unemployment rate increased to 6.0% nationally. By historical averages that is a low unemployment rate. Of course the many naysayers will always find negative things int eh jobs reports (too many part time, too many government…).

There seldom seems to be too many dull weeks in the markets. This week we expect a rate increase by the bank of Canada and we will start to get Q2 earnings reports from America companies. The U.S. companies tend to report faster but the downside is they mostly give only partial details with full details to follow a few weeks later. In Canada we get the full earnings release with press release, financial statements and management discussion and analysis all at once. I prefer the Canadian system.

July 5, 2018

On Thursday, the U.S. markets were quite strong with the S&P 500 rising 0.9%. Toronto, however was down 0.2%.

Q2 earnings reports from U.S. companies will start to be released next week.

Also Alimentation Couche-Tard will release on Monday its Q4 earnings (for the fiscal year ended back on April 30). While their earnings are occasionally hampered by lower gasoline margins, I expect that between the Q4 report and their comments on their outlook and growth plans that the news will positive.


AutoCanada’s Strategic Review and Growth Strategy July 5, 2018


With AutoCanda currently undergoing a ‘Strategic Review”, I wanted to put down some thoughts about the company’s strategy and its competitive advantages. I will also send these to the Special Committee of the Board that is currently looking at Strategic Alternatives

Description: AutoCanada owns 54 automobile dealerships in Canada and has a total of 4,200 employees. Brands include the various Chrysler Brands (Chrysler, Dodge, Jeep, Ram), FIAT, the various General Motors brands (GMC, Chevrolet, Cadillac , Buick), Infinity, Nissan, Hyundai, Subaru, Mitsubishi, Audi, Volkswagen, KIA, BMW and MINI, Toyota and Lincoln. Revenue categories include new car sales, used car sales, finance and insurance and parts/service. Almost half of its revenues are from Fiat Chrysler (46%) 11% from Nissan/Infiniti, 10% from Volkswagen/Audi, 10% from BMW/MINI, 9% from General Motors, 7% Hyundai and 7% others. 45% of revenue is from dealerships in Alberta with a further 20% in B.C. They lease about half of their locations and own the others. These figures exclude the Q2 2018 acquisition of 8 dealerships in the Chicago metro area plus a large autoplex also in Illinois.

Growth Strategy: AutoCanada’s strategy has been growth-by-acquisition of additional dealerships.

Profitability of the Industry: Auto dealerships certainly appear to be profitable and prosperous businesses. In large cities there are always many auto dealerships and they almost always have bright updated looking buildings. In small towns, auto dealerships are often (or always) among the most prosperous looking businesses. It seems to me that if auto dealerships were not profitable businesses it would not have been possible to get the dealers to spend money on what appears to be relatively frequent and costly upgrades to their buildings and lots. However, the need to make these investments to keep the dealerships looking modern and fresh is a negative aspect of the business.

Competitive Environment: Here, there are pluses and minuses.

On the minus side, auto dealers sell identical products as other dealers selling the same brand. To a certain degree this fosters an environment of competing largely on price, and that’s not a recipe for high profits in any business. Dealers battle this tendency to some degree by making their prices somewhat opaque. The price that any individual customer pays is usually negotiated. This makes it somewhat harder to comparison shop for the lowest price.

On the plus side, auto dealers are somewhat protected from very local competition since the manufactures will not locate a competing dealer with the same brands unreasonably close to an existing dealer. Therefore some level of exclusive territory is provided although certainly the exclusive territory would not tend to be as large as an existing dealer would prefer. Most customers would prefer to purchase from a dealer located most conveniently to their home or work location.

Overall, I believe that the profitability of the auto dealer business is good and that AutoCanada’s strategy of growth by acquisition in this industry has merit provided that it does not over-pay to acquire dealerships.


AutoCanada’s business model depends on its ability to add profits to acquired dealers through some sort of synergies and economies of scale.

One possible economy of scale would be volume-discounts from the manufacturers. However, I understood from reading Berkshire Hathaway’s annual report that its group of auto dealerships does not enjoy such discounts. My understanding is that there are volume discounts / incentives at the individual dealership level but that these do not apply across multiple dealerships.

There would be some synergies related to financing multiple dealerships. However, this benefit is muted because the manufacturers apparently require minimum working capital levels be kept at each dealership rather than on a consolidated basis.

There would also be synergies in negotiating the highest commissions on selling financing adn warranty products.

Regarding marketing, there may be little in the way of synergies. National brand advertising is done by the manufacturing. Auto dealer advertising tends very much to be specific to individual dealerships. This advertising usually involves local newspapers and local radio stations. There may be some ability get volume discounts from national newspaper and radio chains but overall the opportunity for savings may be modest due to the local and dealer-specific nature of the advertising.

Regarding administration and management there may be some synergies involving computer systems and the sharing of best practices. On the other hand competing dealers often have an entrepreneurial owner minding the shop which can lead to a sharper focus on cost management for those competitors.

Repeat Business: All else equal, a business with frequent repeat business from the same customers tends to be more profitable. Unfortunately, while some customers may purchase or lease a new car from the same dealer every few years, that is probably much more the exception than the norm. In my own case between my wife and I, we have purchased just four new vehicles and two used vehicles going back 30 years three of which we still own. These six purchases were made at five different dealerships plus one used-car lot. Given that many people keep a new vehicle for approximately a decade, and given changes in tastes and needs, and given the tendency to relocate, and given the tendency to shop based on price, there is often little likelihood of purchasing a new car from the same dealer multiple times or even more than once.

On the plus side, once a new car is sold, there is often repoeat business in terms of servicing including warranty and recall work (both of which are paid for by the manufactures albeit at a lower than normal hourly labour rate).

Return on Equity: On an adjusted earnings basis, AutoCanada’s return on equity in the four years from 2011 through 2014 was very attractive as it averaged over 19%. And this was achieved despite the large goodwill premiums that AutoCanada had paid in acquiring dealerships. However, mainly due to the energy-related recession in western Canada the ROE was barely adequate at about 9% each year  in 2015 through 2017. And Q1 2018 saw adjusted profits per share (after deducting a gain on an asset sale) decline by 86% by my calculations. It remains to be seen if AutoCanada can return to an attractive ROE level.

Strategic Alternatives: This could involve selling the entire company. Given recent weaker results it seems unlikely that this could be done at much or any gain in the share price. Some individual dealerships could likely be sold for gains to other groups that already own multiple dealerships. These groups are privately owned as opposed to being publicly traded. But such sales would lead to revenue and profit per share declines in subsequent years.

Conclusion: Management and particularly the Board are in the best position to judge whether selling some dealerships or even the entire company would benefit share holders.



July 4, 2018

On Wednesday, U.S. markets were closed for the holiday while Toronto was up 0.3%.

Canadian Western Bank rose 1.9%.

The Enbridge rate reset preferred share that is on our list rose 0.6% to $20.60. These shares will reset to the yield on the government of Canada five year bond plus 2.66% in December of 2019. My understanding is that part of the reason that these units are trading well below $25 has to do with Enbridge’s debt levels (weaker balance sheet). Given Enbridge’s moves to reduce debt and given expectations of higher interest rates, I believe it is reasonable to expect some increase in the price of these shares prior to the reset date.

Linamar was down another 2.5% to $54.75. I expect that they will report good results for Q2 but the market is very much focused on the risks to its profitability if Trump imposes tariffs on autos and parts coming into the U.S. I bought another 100 shares…

Canadian auto sales for June were down slightly from the record level of 2017. General Motors several of the other brands that AutoCanada sells, including Nissan and Volkswagen had increased sales. But Chrysler sales were down and Chrysler is AutoCanada’s biggest brand by far and represented 46% of revenue in Q1. Chrysler was apparently down 17% year-over-year in June which is an ugly drop. Presumably their line-up of cars is not aligned with what customers are looking for. On a positive note, Alberta auto sales are likely still benefiting from its continuing recovery. Also on a positive note, U.S. sales were strong and so perhaps AutoCanada will report good results from its new Chicago area dealerships.



July 3, 2018

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

Canadian Western Bank was up 1.9%.

Couche-Tard was down 2.9%, giving back a portion of its recent partial recovery. There was news today that Irving Oil will acquire 13 and brand 23 sites currently operated as Ultramar gas stations. The news was a bit sketchy but likely involves the convenience stores remaining under the Circle K brand. In any case this is a minor transaction.

AutoCanada was down 1.7% after announcing that its V.P. of operations has “resigned” and been replaced by a new hire as “President” who was in charge of operations for a Winnipeg group of 22 dealerships. This is not good news since it likely suggests that operations in Q2 were weak in some way. Coming on the heels of a recent director resignation I think it also suggests that dissension among managers and probable finger pointing is occurring. The new President (but not CEO) will assume full responsibility over dealership operations, as well as associated functions including business intelligence, marketing and human resources. I rather wonder what the the Board and the CEO see as the role of the CEO if it is not to be personally in charge of operations and marketing.

Linamar was down 2.9% as fears of auto tariffs escalate.

July 2, 2018

On Monday, the Toronto Stock market was closed for the holiday and the S&P 500 ended the day up 0.3%.

Oil remains strong at U.S. $74.50 for West Texas Intermediate.

Trump is complaining that OPEC has manipulated oil prices higher than they should be. He is right on that. OPEC exists to collude and push oil prices higher than they would be if the OPEC countries actually competed aggressively for oil volume rather than agreeing to oil production quotas for each member countries. They do tend to cheat on the quotas but the overall impact is certainly to push oil prices higher.

Canadians, these days seem to view higher oil prices as a good thing. And higher oil prices are certainly good for oil companies and for the governments of Alberta and other oil producing provinces that collect higher royalties and at higher oil prices. But I would think higher oil prices are generally quite negative for Ontario, Quebec and the Maritime provinces. Trump knows that high oil prices benefit some Americans. But he seems to believe that, overall, higher oil prices are a negative for the U.S. He is probably right. Perhaps it is about time that the U.S. or some other international body put major pressure on OPEC to cease colluding and pushing up the price of oil. But OPEC is not the only international body that exists to collude and push up the price of some commodity or other, For Canada, CANPOTEX (for Potash) comes to mind. There are probably other examples as well.

Futures on Monday evening suggest a mildly negative opening for stock trading on Tuesday.


July 1, 2018

On Friday, the S&P 500 was up 0.2% while Toronto was up 0.6%.

Linamar recovered 3.2% to $58.91. Perhaps Thursday was the day to buy.

The first half of 2018 has not yielded much return for most investors. The Toronto stock index is up 0.5% in these  six months while the DOW was down 1.8% and the S&P 500 was up 1.8%. Dividends would have added something less than 1.5% to those figures. Our Stock picks have not beaten the market in the first half of this year and are down an average of 2.6%.

Soon we will start to get results for Q2. Earnings are generally expected to be strong. But trade wars and other risks can always send stocks lower.


June 28, 2018

On Thursday, the S&P 500 was up 0.6% while Toronto was down 0.3%.

Linamar was down 4.5%. This came after CEO and founding family member Linda Hasenfratz painted a very grim picture of what would happen to the entire North America economy if heavy tariffs were introduced on vehicles and parts to the U.S. Auto prices in the U.S. would rise sharply and auto sales would plummet and cause a deep recession she warned.

While there are risks and no guarantees, my approach is to add a bit to my position here. Given the risks I would not be brave enough to invest a large amount of new dollars at this time but I am willing to nibble at the lower price. If I did not own it already, I would then be willing to buy a reasonable amount at this lower price.

June 27, 2018

On Wednesday, the S&P 500 was down 0.9%. And Toronto was down 0.3%. Earlier in the day both markets had been up.

CRH Medical was down 3.9% and has generally given back some of its recent gains.

Toll Brothers was down 2.3%. Yet when I check for news of Toll Brothers the top headline was “New home sales still well below historic norms of demand” (despite increased sales in May)”. However there was also a story indicating that housing affordability has suffered with higher prices and higher interest rates amid tight inventory. So, there seems to be a number of positive and negative factors and at the moment the market has little enthusiasm for home builder stocks.

WSP Global gave back 3.0%. And Canadian Western Bank was down a further 1.5%.

West Texas Oil has suddenly rebounded from its recent dip that saw it down to about U.S. $64. Now it is about $73 which is the highest since late 2014.

Despite the higher oil price the Canadian dollar slipped under the 76 U.S. cent mark as the Bank of Canada Governor made a speech that was taken to hint that Canadian interest rates might not be hiked on July 11 after all.

Trump’s trade wars are clearly a threat to stock market index valuations.

I tend to think that the world will (over time) continue on a long march towards ever more global trade and global cooperation and inclusiveness. However, the U.S. at present appears set to possibly turn back the clock something like a 100 years. It’s often popular to be nostalgic for the good old days – especially among people with no memory of just what the good old days were really like.


June 26, 2018

On Tuesday, markets rebounded somewhat and the S&P 500 was up 0.2% and Toronto was up 0.6%.

West Texas oil was up about 2.5% and sits at U.S. $70.63 which is close to $94 Canadian which is actually not at all a low price for oil if you look at say the average of the past 15 years. The higher oil price is likely why BHP Billiton was up 3.2% in New York.

After the close, AutoCanada announced that Arlene Dickenson who became a director only in 29017 is resigning from their Board “to devote her time towards other significant opportunities.”

While the press release suggests a friendly departure, it’s a bit difficult to believe the reason stated. Perhaps she was not in alignment with the thinking of other Board members especially regarding the new special committee (to address strategic alternatives) and or the recent large U.S. acquisition.

In the absence of further information I would view this departure as a red flag. I don’t intend to sell any shares on this news but it strikes me as possibly a negative development.


June 25, 2018

Monday was a down day in the markets with the S&P 500 falling 1.4% and Toronto down 1.6%.

Most stocks were down on the day. This was blamed on Trump’s escalating trade wars.

Walmart was an exception and rose 1.9%. I suppose higher prices for Chinese and other imports that Walmart sells could actually raise its same-store sales. It would still be the low-cost retailer in many cases. I have never quite agreed with too much emphasis on same-store sales increases. Surely a sales increase driven by price increases is not as strong of a sign (or even a good thing) compares to a sales increase driven by volume of goods sold.

U.S. treasury bond yields are down a little from recent highs. But not that much. It’s a bit distressing to think that Trump’s trade wars will lead to lower interest rates in a flight to quality.

What Trump may find is a lot of unintended consequences. Like Harley Davidson moving production to Europe to avoid retaliatory European tariffs.

Vanguard Canada has introduced four new ultra-low fee mutual funds for Canadians. Two of these are global, one is a U.S. dividend fund. One covers growth stocks outside of Canada and the U.S.  Mutual funds have taken a lot of abuse over the years in regard to high management and high trailer fees and related issues. I have never been one to “bash” the whole category of mutual funds. They (including their trailer fees) have their place especially for investors just getting started. These new funds are nicely suited to do-it-yourself investors.

However, according to the Globe and Mail: “Currently, self-directed investors can purchase the funds on two discount brokeragers: Questrade and Qtrade Investor.” I would hope that the likes of TD Direct and RBC Direct will soon offer these. Of course, do it yourself investors already have access to numerous low-fee ETFs. These low-fee funds are not available to most mutual fund investors. That’s because they don’t pay any trailer fee and after-all the business model of most mutual fund sales offices relies totally on trailer fees.

A low fee balanced ETF or balanced mutual fund could offer a formidable competitor to fee-based advisers who tend to basically build balanced portfolios from ETFs but charge around 1% plus the underlying ETF fees to do so. (In fairness they usually provide other services and advice.) I mentioned the idea of investing in just one balanced / global low-fee ETF in a recent article. Now we have something similar in a mutual fund.

American Express was up 1.35% after the U.S. supreme court ruled in a very close 5-4 decision that AMEX could continue to impose rules that prevent merchants from suggesting that customer use a card with a lower cost to the merchant. I think American Express gets a bit of sympathy for at least offering some competition to the two giants (Visa and MasterCard). But there is always a risk that laws and regulations will change to allow merchants to steer customers to cheaper cards.

June 24, 2018

On Friday, the S&P 500 was up 0.2%.

Toronto was up 0.7% as the price of oil climbed because OPEC agreed to production increases that were smaller than expected/feared (feared by those who want higher oil prices, which is certainly not everyone).

Yahoo Finance at the moment (about 9:10 pm eastern time Sunday) is showing West Texas oil at $68.21 up 4.1%. Yahoo is hard to understand. On their graph it looks like the price increase took place on Friday not over the weekend and in fact the price is down very slightly in Sunday trading. CNBC seems to show it correctly, down 0.4% on Sunday to $68.33. In any case, oil is up several dollars in the past trading day or two.

Stocks that rose on Friday included BHP Billiton, up 2.4%.

Couche-Tard was up 1.9%. Speaking of Couche-Tard I notice that their competitor 7-11 has put in several brand new stores in Edmonton. Most of the new ones that I saw do not have gasoline sales. 7-11 had put in a store on Jasper avenue probably six or seven years ago. It surprised me to see it go in since previous to that there were just a few grubby convenience stores in that area and probably some smoke shops hidden in the office buildings. Well, that store was immediately very busy and stayed that way. The point is that these convenience stores seem to be remarkably busy in a lot of cases and that’s why Couche-Tard and 7-11 and probably others invest a lot of money in them. A bright clean 7-11 or Circle-K can draw a lot of traffic that was not about to enter a smelly grubby store with bars on the windows. A nice modern store seems like a welcome addition to various city neighborhoods.

Penny stock, Ceapro was up three cents or 5.8% but I would not read anything into that. (When three cents makes six percent, that is a far different story than when it takes six dollars to make 6%)

Statistics Canada reported retail trade figures on Friday. 

Following three consecutive monthly increases, retail sales in April declined 1.2% to $49.5 billion. The decrease was primarily due to lower sales at motor vehicle and parts dealers. Inclement weather in many parts of Canada may have contributed to the overall decline in April. Excluding sales at motor vehicle and parts dealers, retail sales were down 0.1% in April.

So, a weak report but given it came after three moths of increases it’s too early to tell if it is a trend. And I note that sales were still up year over year including 2.2% in Alberta. Usually, these reports can be interpreted as positive or negative and it often depends on the agenda of who is looking at the report as to how they want to interpret it.

Statistics Canada also reported inflation numbers.

Again there were pluses and minuses. In general the report was viewed as showing that core inflation is tame and this has somewhat reduced the betting on a Bank of Canada interest rate hike in July.



June 21, 2018

On Thursday, the S&P 500 was down 0.6% and Toronto was down 0.5%.

AutoCanada was down 3.8% losing some of the little bounce it had had on news that it will look at strategic alternatives.

Linamar was down another 2.9% on trade war worries.

I was surprised by the news today that Employment Insurance recipients have fallen to a record low based on data going back to 1997. For some people, the reason is that the benefits have run out. But overall it is because unemployment has been falling.

The economy has been doing well. In my experience, many or most people almost always view the economy as bad, the times as tough. I suppose life is never all that easy but it appears that today’s economy is actually better than the historical average in someways.

Statistics Canada also reported that Following a strong March, sales in the food services and drinking places subsector were down 1.8% in April to $5.8 billion…Colder than normal spring temperatures and an ice storm affecting Central and Eastern Canada may have contributed to decreased sales”

This sounds bad for the likes of Boston Pizza, but note that this was a decline versus the prior month. The report goes on to note that sales were actually up fairly strongly versus April of 2017 – so that’s good news for the likes of BP for which year over year same store sales increases is very much THE key factor.

The report states:

The figures in this section are based on unadjusted (that is, not seasonally adjusted) estimates.

Unadjusted year-over-year sales in the food services and drinking places subsector rose 3.1% in April compared with April 2017. Sales were up in each of the following industry groups: full-service restaurants (+2.8%), limited-service restaurants (+2.7%), special food services (+8.1%) and drinking places (+1.1%). Sales increased in seven provinces, with Ontario (+4.9%), British Columbia (+4.2%) and Quebec (+1.9%) posting the largest gains in dollar terms. Newfoundland and Labrador (-3.2%) reported the largest decline.

Prices for food purchased from restaurants were up 4.5% in April compared with April 2017, while prices for alcoholic beverages served in licensed establishments were up 2.2%.

The increase in sales appears to be essentially due to price increases as opposed to volume.

I find it strange that they talk about the comparison to the same month the prior year not being seasonally adjusted. Since it is the same month I would think there would be no seasonal adjustment to make. Unless they were thinking of the timing of Easter or the number of Saturdays in the month.


June 20, 2018

On Wednesday, the S&P 500 was up 0.2%.

Toronto was up 0.6% and has crept up to a new record closing high. That’s a good thing but not exactly earth-shattering. Stock markets should be expected to trend up over time and therefore must at least occasionally reach new all-time highs.

FedEx was down 2.6% after releasing its latest earnings report.

Dollarama was up 3.3%.

Constellation Sofware was up 2.3%.

Toll Brothers slipped another 0.45%.

A report in the Financial Post today provided some interesting figures about the U.S. housing industry/market. New housing starts were up 5.0% in May to near an 11-year high in terms of the seasonally adjusted annualized rate of 1.35 million. Estimates are that the U.S. needs 1.5 to 1.6 million housing starts to bring supply and demand into a better balance.

The bad news is that permits for single family houses (these will turn into starts down the road) were down 2.2%. But that is apparently because builders are running out of serviced lots and also experiencing labour shortages. So, apparently builders are having trouble keeping up with demand.

I would think that a shortage of serviced building lots will benefit Toll Brothers because they own thousands of lots and may be in a better position than some or most builders.

Higher lumber prices have also been a  concern. Higher lumber prices could certainly lower Toll Brothers profits in the short term. But in a market where building lots and labour are scarce, I would suspect that Toll Brothers can raise prices to reflect the higher lumber costs.

My expectation is that Toll Brothers will probably report an earnings increase of at last 10% in the current quarter. It would be closer to 25% I believe based on an increase in signed contracts from about 9 months to a year ago. However, the higher lumber prices could push the growth down somewhat. I also expect that Toll Brothers will report that it has been buying back shares on the recent dip. They have tended to be very astute in buy-backs over the past few years.

I thought about grabbing a few more shares today but I don’t have the U.S. dollars in my accounts to do so. Plus I have enough Toll already.


June 19, 2018 comment and an update for TFI International

On Tuesday, the S&P 500 was down 0.4% (modest compared to the decline of 1.1% in the DOW). Toronto was also down 0.4%.

BHP Billiton was down 2.9% in New York. This was due to lower commodity prices. Volatility is par for the course with commodity-linked stocks.

FedEx was down 2.0% but then after the close it reported an earnings gain and revealed a massive order for new planes.

Constellation Software gave back 2.5%.

Linamar was down 0.3% today to $62.62. Earlier in the day, I added modestly to my position at $62.10. It’s hard to say how the evolving trade situation is going to affect Linamar but the stock appears to be cheap and I am putting faith in the founding family which still runs this business to continue to succeed.

Toll Brothers was down 0.6%. And that was in spite of a report that showed that May housing starts rose 5.0% which was far higher than expectations of under 2%. And starts were up 20% from May of 2017!. Despite this growth, Toll Brothers and probably the other home builder stocks have been unpopular and investors have bid down the price they are willing to pay for the shares. Investors are presumably worried that higher lumber costs and higher interest rates will lead to a slowdown in housing starts.

The Canadian dollar is down to 75.3 U.S. cents. This has just made all Canadian imports cheaper for Americans and visiting Canada has become cheaper for Americans. Meanwhile Canadians buying goods in U,S dollars pay about $1.33 plus an exchange fee. I know if you use a TD debit card in the States, TD will tack on an unconscionable 3.5% extra for a total of close to $1.38. (I was going to say $1.365 but they tack on 3.5% not 3.5 cents)

The report for TFI International is updated and rated (lower) Buy at $41.30 (It actually closed today a bit higher than my analysis price at $41.60.)

On December 31 the stock was at $32.86 and I rated it a (lower) Buy. In February it slipped under $30. It’s Q4 report showed only a 4$ earnings per share growth. But then it reported Q1 results near the end of April and the stock has surged upwards.

The Q1 results were impressive in part because they demonstrated management’s strong abilities to cut costs in the face of revenue declines excluding recent acquisitions. The 56% surge in adjusted earnings per share in Q1 was also driven by a “weak comparable” in Q1 2017.

At its current price TFI may be fairly valued. Still, I am inclined to take some profits here and reduce my position. This will also give me cash which may be a good thing if trade wars continue to weigh on the markets.


June 18, 2018

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

AutoCanada recovered 2.8% after it announced that it has, at the request of an activist shareholder, formed a Special Committee of the board to look into strategic alternatives and also possible changes to the Board composition. I have trouble imagining what other company would be a potential buyer given that there are no other publicly traded groups of dealers. Current management has been on the job only about two years. I think the Board will want to continue to let current management continue their work. Having made the argument that the company was adding value by consolidating dealerships under common ownership, will they now conclude they can add value by selling off dealers perhaps one at a time? Well, two firms have been hired as advisers (an investment bank and a law firm) and they will be paid probably in the millions of dollars each no matter what happens.

Toll Brothers was down 2.4%.

Statistics Canada released figure for sales of large retailers in April. It appears to be a weak report with a decline of 1.1% year over year. Some categories including footwear and a grouping of jewelry, watches, luggage & briefcases and also sporting & leisure products were down sharply (so much so that I have trouble believing this data). Fuel sales were up 13.6% presumably mostly due to price increases.

Trump’s trade war has probably shaved at least a full cent off of the Canadian dollar – thereby ironically making Canadian imports more competitive in the U.S. market place.

June 17, 2018

On Friday, the S&P 500 ended the day down just 0.1% although it been down considerably more earlier in the day on trade war worries. Toronto was also down 0.1%.

BHP Billiton was down 3.7% which I believe was due to commodity price declines.

WSP Global was up another 2.1%.

AutoCanada recovered 2.8%.

Fortis Inc. was up 2.2%.

Statistics Canada reported that manufacturing sales in Canada were down 1.3% in April. But his could just be statistical noise. It came after two months of increases. And, a big part of the reason was a 20% drop in (manufactured, i.e. refined) petroleum and coal products linked to shutdowns. So, overall, I don’t think much can be concluded from this report.

West Texas Oil prices declined 3.75% in weekend trading due to forecasts of a production increase by OPEC. That is a negative for Alberta certainly.

By-the-way, the Canadian oil industry would likely be much smaller and less profitable if not for the efforts of the OPEC price-fixing cartel which, despite occasions when it adds production lowering oil prices, has an overall history and raison dete of pushing oil prices higher which it has mostly succeeded in doing for most of the last 50 years. The uncomfortable fact that the Canadian oil industry (including governments and the economy in general) has benefited hugely from OPEC is seldom if ever acknowledged. I don’t say this as a criticism of the Canadian oil industry. I just think it is a fact that ought be acknowledged once in a while. If not for OPEC, the world would likely have been flooded with cheap oil from competing Arab countries for the last five decades and much of the higher cost Canadian and American oil would have remained in the ground. Oil sands operations in particular and probably off-shore Atlantic oil would never have been produced.

Regarding trade wars. It was interesting to hear Raplh Goodale state that when a country imposes imports tariffs, it is the citizens and businesses of that country that pay the tariff. He went on to say that Canada imposed $50 billion in tariffs in retaliation to America tariffs on steel and aluminum. There is an irony here as he says Canadians will pay that tariff which is designed to hurt Americans.

Goodale also mentioned that the USA has a trade surplus with Canada in dairy and steel and so why are they imposing tariffs? Well, that could be because it is not “the USA” that exports things to Canada. It is thousands of individual American companies that do that. Because some of those companies benefit from exports does not mean that the many other American companies that find themselves harmed by Canadian imports (or are unable to export to Canada due to our dairy tariffs) are not going to complain. Also, in Trump’s world it is not enough that American companies and consumers, on average, benefit from trade. He would not be satisfied until every American benefited from trade in a one-sided way – which is unrealistic and is not going to happen. I think the trade war matters are serious. Wars of any kind tend to make Presidents more popular at least initially. Trump cares about nothing more than his own popularity.

P.S (9:30 pm June 17)

On Friday with the Canadian dollar down a half cent or so I took the opportunity to sell my remaing DLR units (a fund of U.S. dollars). Perhaps I should have waited or sold only half. Over the weekend the Canadian dollar fell some more with the lower oil prices and as of Sunday evening is trading at 75.7 U.S. cents.

For tourists, that’s $1.32 Canadian to buy a U.S. dollar or closer to $1.335 once you add in the usual fee for changing currencies. Almost all Canadian credit cards tack on 2.5 cents so you are looking at at least $1.345 Canadian for each U.S. dollar charged. (And I think it might be higher than that because the 2.5 cents for the credit card fee is I believe over and above the bank’s standard exchange rate which is likely higher than the wholesale exchange). This is another reason for Canadians to avoid the U.S. It might be a good thing if a lot of Canadians started avoiding going to the U.S. or buying U.S. products. But that is not easy to do.

With a lower Canadian dollar it is useful to give thought to which Canadian companies will benefit (both exporters and those and with significant U.S. operations) and which will be harmed (importers).

Couche-Tard is an interesting one since a lower Canadian dollar (all else equal) lowers its reported earnings in U.S. dollars slightly but increases it when converted to Canadian dollars.

Stantec and WSP Global should be among the beneficiaries of a lower Canadian dollar. Also CN Rail and Fortis and others with significant U.S. operations.

In theory auto dealers like AutoCanada should be harmed but in practice the price they pay from the manufactures is set at the start of the year in Canadian dollars at least for most of the brands.






June 14, 2018

On Thursday, the S&P 500 was up 0.25% and Toronto was up 0.4%.

Linamar recovered 2.0%.

CN Rail was up 1.0% to an-time high. That should be no surprise. CN has marched high fairly steadily ever since its Initial Public Offering in November 1995 at (as hard as it may be to believe) a split-adjusted $2.25 per share. Another reason it should not be a surprise is that a certain Warren Buffett told the world over ten years ago that North American railways were an attractive investment. And his best friend Bill Gates happens to be, by far, the largest individual owner of CN. Any notion that any company should automatically be considered over-valued because it is at an all-time high is false. Good companies are constantly retaining a portion of their earnings and growing in value over the long term. A stock being at an all-time high is neither a necessary nor a sufficient condition to suggest it is over-valued. When it comes to CN’s value, I don’t see it as any kind of compelling buy. But selling has usually been a mistake although that depends what the proceeds were invested in.

I have some DLR (which is simply a fund of American dollars that trades in Toronto in both U.S. and Canadian dollars) in both  in one of my accounts. I had sold some earlier and was holding onto to some in case the Canadian dollar dropped. As the Canadian dollar dropped today the value of my DLR increased ans a portion of my holdings got sold under an order I had placed probably a couple weeks ago or less. In my view the value of the Canadian dollar is unpredictable. But as it declines I like to move some U.S. dollars back to Canadian. There are people who would claim it was inevitable that the dollar declined and that it will decline more. If they are very sure of that, they should perhaps find a way to bet on it in the futures market. (That’s not a game I am interested in.).

Statistics Canada reported that the price for new homes was about stable in April.

Yesterday, the Teranet index of the selling price of existing homes indicated that the average in Canada was up about 1% in May. As always, there are those who would criticize the data but I have no reason to think that the data is not valid or representative. Of course, this data does not predict future home prices. It simply tries to compile an index of past home price changes – no easy task since houses are all different and all in different locations and so an index of home prices if far harder to compile than is an index of the price of commodities and stocks ans such.



June 13, 2018

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

The Federal Reserve Bank in the U.S. increased interest rates by the expected 0.25% and also apparently signaled that there will be two more rate increases by the end of 2018 and I understand three in 2019.

Toll Brothers was down 4.3% to $38.96. Reports indicate that Toll and other home builder companies declined after a report by a housing analyst company was released that suggests that orders for new homes are slower than normal this Spring. If new home orders do decline then I would still expect Toll Brothers to report good earnings for the next several quarters based on orders already on the books. But if orders start to decline year-over-year then forecast earnings will decline. At the moment the forward P/E on this stock of just 8.0 while the trailing P/E is 10.8. This mathematically suggests that analysts expect earnings per share to grow 35% in the forward period (2019) compared to the trailing period. Such a low forward multiple would appear to be based on an expectation of declining earnings after 2019.

To my understanding, houses remain quite affordable in the U.S. and housing starts are still well below the historic peak or trend levels. With jobs and incomes strong in the U.S., I thought that Toll Brothers would continue to grow earnings. Higher interest rates are a negative for that scenario but even at higher rates houses remain affordable in the U.S. to my understanding. Hopefully, the next data point will be more positive. Meanwhile, I suspect Toll Brothers is actively buying back shares.

Linamar was down 1.8% to $62.47. This is no-doubt due to trade war fears. According to Yahoo Finance the trailing P/E is 7.4 and the forward P/E is 5.9. On that basis the analysts are predicting a 25% earnings increase for the forward number (2019?) but perhaps the market then expects earnings to decline after that.

Granted analysts earnings tend to be biased high in the forward period (generating low P/E ratios) and granted that both Toll and Linamar are cyclical companies but it seems somewhat hard to believe there is an expectation of robust earnings growth for a year followed by declines big enough to explain the low forward P/E ratios.

June 12, 2018

On Tuesday, the S&P 500 and Toronto were each up 0.2%.

AutoCanada was down 4.4% and so it seems the market is not convinced much will come of the activist investor’s request to put the company up for sale even though the company did not reject the idea out of hand.

TFI Industries was up 1.6% and has done very well since it released a very strong earnings report on April 25. I will update this report very soon.

Canadian Tire was up 1.7%.

CRH Medical was up 3.1%.

Toll Brothers was up 1.5%.


June 11, 2018 AutoCanada

AutoCanada has responded to the activist shareholder as follows:

“AutoCanada Inc. (“AutoCanada” or the “Company”) (ACQ.TO) today acknowledged receipt of a letter from Clearwater Capital Management. The Company’s Board of Directors welcomes constructive dialogue with its shareholders. AutoCanada continues to execute a strategic plan that was reset following the first fiscal quarter of 2018. The focus of the plan is to strengthen the Company and enhance long-term shareholder value. The AutoCanada Board of Directors along with its advisors will consider the position of Clearwater and respond in due course.”

This seems like a friendly response. It seems to imply that AutoCanada is thinking of making some changes and it will probably allow the market to continue to be optimistic that something positive might happen. I would think the shares will rise a bit more on this response.


June 11, 2018

On Monday, the S&P 500 was up 0.1% while Toronto rose 0.4%.

AutoCanada was up 5.8% after “activist investor” Clearwater Capital Management released a copy of a letter that it sent to the AutoCanada Board basically requesting the company to put itself up for sale. Clearwater said it and other large investors were concerned about the poor margins in Q1 and said that U.S. auto dealer groups operate with higher margins. Clearwater reminded AutoCanada that it had provided suggestions in the past that put AutoCanada on the road to the high share prices of 2013 / 2014.

I am skeptical that this will go anywhere for several reasons. AutoCanada has a different Board chair than it had when Clearwater  was previously involved. It is basically under new management who will want more time to work their strategy. I expect AutoCanada to reject out of hand the idea of putting the company up for sale. Furthermore, I wonder how beneficial was the big run-up in the share price that peaked at, I believe, over $90 in 2014. That became a needle peak in the share price and the shares were probably considerably over-valued. So I would ask: Did Clearwater basically engage in some kind of “pump-and-dump” action at that time? I don’t know since few details were provided.

I think AutoCanada probably is undervalued at today’s close of $17.53. But since I had just last week added to my position only because it dipped to $15.50 I decided to sell today most of the shares that I picked up at $15.50. I sold at $17.49.

Last week I heard an analyst on BNN say that AutoCanada would have trouble making acquisitions because dealers were valued so highly. Since AutoCanada owns 54 dealerships, I would think that such high valuations would not be a bad thing.

I plan to maintain most or all of my remaining AutoCanada shares and see how they do int he next few quarters.

The report for the Canadian Western Bank preferred share on our list is updated and rated Buy at $24.33. It’s not a compelling buy but is a reasonable choice for safer dividend income I believe. But do not expect capital gains (other than very minor at best).



June 10, 2018

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

AutoCanada recovered 3.2%.

Dollarama recovered 3.5%

Toll Brothers was up 3.0%

The trade spat between Canada and the U.S. appears to be at risk of developing into a significant trade war as well as a diplomatic spat (to say the least). It’s hard to know what the implications are but they are not good. For now, markets may not react much but they likely will if further tariffs are imposed.

In other news, CMHC reported housing starts for May. These are of interest regarding Melcor. Single family starts in Alberta were down 4% which is obviously somewhat negative. But single family starts were up 5% in the Edmonton area which is where Melcor has been more active. It’s hard to say how these figures relate to Melcor’s lot sales in Q2. I don’t know how far in advance of a housing start that lot sales to developers typically occur. The actual starts may be linked more closely to the time that Melcor gets paid for the lot sale as opposed to when it makes the sale.


Canadian Western Bank updated June 10, 2018

The report for Canadian Western Bank is updated and the stock is rated (higher) Buy at $37.05.

On Thursday, CWB reported strong growth in its Q2. In its 2017 annual report, the company very much emphasized that it intends to focus even more heavily on serving businesses and their owners. This could lead to some interesting developments as it may decide to shed its retail consumer divisions including its Alternative mortgage provider operation and its online savings operation. It still wants to also meet the personal banking needs of the owners of its business customers but I speculate that it could begin to do so more through partnerships with bigger banks which is how it deals with offering credit cards. CWB has pushed its lending operations very much towards Ontario which now accounts for 21% of its loans which are mostly lease financing and franchise loans. It has no branches in Ontario. With a current ROE of 11.5% that appears set to rise and price to book ratio of 1.46, CWB appears to be an attractive investment.

CWB’s shares had declined 15% in 2014 and a further 29% in 2015 with the recession in Alberta. The shares then rose 30% in 2016 and 29% in 2017. It had been down as much as about 20% in 2018 before partially recovering and is now down 6% in 2018 to date.

June 7, 2018

Thursday’s action saw the SP&P 500 finish down 0.1% and Toronto was about unchanged with a 0.05% gain.

As expected, Canadian Western Bank released a strong earnings report for its Q2. Adjusted earnings were up about 19% year over year. Basically all of the numbers were improved year over year. Compared to Q1 earnings were down slightly but that was due to an usual gain last quarter.

The stock was initially up about 6% then settled back a bit before climbing through the whole afternoon to close up 8.5%. This steady gain in the afternoon hopefully bodes well for a bit more tomorrow.

The fact that the results were good should have been no surprise (although it was never guaranteed since CWB could have had some company-specific issues) as the Western economy has continued to improve after the recession bottomed around October 2016 and CWB had also acquired additional loan business in Ontario. Presumably the results were even better than analysts expected. (Which they universally, and bizarrely and illogically, refer to as the company beating expectations rather than their own forecasts trailing reality.)

Costco was up 2.5% after reporting strong same-store sales figures for May.

Dollarama was down 6.7% after its growth in the latest quarter was less than analysts expected.

Couche-Tard was down 3.6%. I am looking forward to seeing its results for the quarter and year ended April 30 but those results will not be released until around July 12.


June 6, 2018

Wednesday was mostly a positive day on the markets.

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

A report this morning indicated that U.S. exports reached a record high in April and the U.S. trade surplus fell modestly but remained at $46 billion. This trade news may have been responsible for some of the rise in today’s markets.

U.S. financial were strong with Bank of America up 3.2%, Visa up 2.0%, Wells Fargo up 2.5%, and American Express and Berkshire each up 1.7%.

WSP Global was up 4.3%.

However, AutoCanada got pounded down another 6.5% to $15.86. The company did not release any news. Possibly there was some new negative news about auto sales in Canada. I thought perhaps more likely there was a negative analyst report. Checking RBC, they are quite positive on this stock. And TD is showing no new analyst views on this stock. Possibly a large institutional holder decided to unload their position. The founder and former long-time CEO had (rather strangely) left the Board and ceased to be an insider in the Spring of 2017. It seems that he left because he was running a separate group of privately owned dealerships which may have caused a conflict of interest and it was reported that he did not like some aspects of running a publicly traded company. It seem quite possible that he was unloading shares.

In the absence of seeing any news, my analysis of the company has not changed and so I added to my position today.

In other developments, the Canadian dollar has been quite volatile. Yesterday it was briefly under 76.8 U.S. cents. Today it got as high as 77.7 cents but closed at 77.2 cents.


June 5, 2018 comment and an update for American Express

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

The seemingly unstoppable Amazon was up another 1.9%.

CRH Medical was down 2.2% but this gives back only a small amount of the recent gains.

Yesterday I doubled my small remaining position in Berkshire based on my recent update for that stock and given its recent pullback.

Canadian Western Bank will report earnings on Thursday. It’s always possible it will have a poor result due to loan losses. But that is not my expectation. As largely a pure lending operation, CWB tends to report steady gains quarter after quarter. Loan losses however can be volatile.  Given the steady improvements in the Alberta economy (though it is not fully recovered), I would think that loan losses would not be unusually large.

In any case even if CWB reports quite good results and a positive outlook, the market may not respond. The market has been concerned about Canadian Banks in general, mostly on the consumer lending side. CWB is mostly a commercial lender. Still, the negative sentiment affects it.

Despite the uncertainty, I added to my CWB position today.

Speaking of banks and loan losses, the Canadian Bankers Association posted the latest figure for mortgage delinquencies a few days ago. Their latest update is somewhat out of date as it is for the month of February. Ontario continues to have record low 90-day delinquencies at just 0.10% or 1 mortgage in a thousand. Similarly the d90-day delinquency rate in British Columbia is at near record lows of 0.15%. Houses in Vancouver are often said to be affordable. But somehow, virtually everyone with a mortgage is managing to keep their payments relatively current and very few are more than three months behind. These delinquencies could rise if one or more of the following three things occur: 1. A recession with job losses 2: A significant rise in interest rates as people renew, or 3: A significant drop in home prices that might cause some people to give up trying to pay. Another possibility might be if people have trouble renewing due to mortgage stress tests. But my understanding is that anyone stating with the same lender will not be subject to a stress test.

The report for American Express is updated and rated (higher) Buy at $99.34.

After several weak years, American Express has seen earnings rise rapidly in the past three quarters. And it is expecting about a 20% in 2018 boosted by the lower income tax rate. While VISA is the clear leader, American Express appears more attractive at this time.

June 4, 2018 comment and an update for VISA Inc.

Monday was a strong day in the markets as the S&P 500 rose 0.45% although Toronto was up only 0.5%.

Couche-Tard was up 2.3% but remains down about 15% this year. Based on past years, it will not report its results for the fiscal year ended April 30 until about July 12. Its revenues in that year will likely make it Canada’s largest company by Revenue. In last year’s rankings, George Weston was number one at $48 billion based on its December 2016 results. couche-Tard was number For December 2017 it remained at $48 billion. Meanwhile, Couche-Tard’s 2017 fiscal revenues were $U.S. $38 billion or about $49 billion Canadian depending on the exchange rate used.  So Couche-Tard will be close to number one in the rankings based on 2017 results. And due to additional acquisitions I believe it is now easily Canada’s largest company by revenue on a run-rate basis. Possibly news of this development could spark added interest in the company. In addition if its Q4 fiscal 2018 results are good (especially if margins on gasoline in the U.S. have improved) that could spark an increase in the share price. There is also always the possibility that they will report another large acquisition.

P.S. I now see that the Globe and Mail ran a story about Couche-Tard being Canada’s largest company by revenue. They did the story on May 2. I guess it did not generate much interest. To me, it is an enormous and staggering achievement. It deserves more recognition and it will likely get some when the rankings are updated. I believe the Financial Post as well as Canadian Business will be out with profit and revenue rankings later this month.

The report for VISA inc. is updated. Due to a high P/E ratio it is rated only Weak Buy Hold. Even taking into account an expected 28% increase in profits in 2018 (which includes a 10% boost due to the lower income tax rates) the stock is not cheap. However, not that based on its history, there has essentially never been a good time to sell this stock. Pull backs have tended to be modest and temporary.

So far, it appears that VISA is able to have virtually all of the benefits of the lower taxes flow to its bottom line. In competitive industries some of those benefits should be competed away in the form of lower prices. But I have always said that VISA is a duopoly as far as consumers are concerned but a virtual monopoly as far as most businesses are concerned. (Most businesses have no real choice but to accept VISA cards). I would have thought though that industry groups would point to the lower taxes and press for lower interchange fees. Regulators may also be eyeing this. If all of the benefits of lower taxes flow to the bottom line then that would seem to be proof of monopoly power and lack of competition. Regulators would be right to consider if fee caps are required in such a case.



June 3, 2018 comment and Berkshire Update

On Friday, the S&P 500 was up a hefty 1.1% while Toronto was down 0.1%.

There were no particularly noteworthy moves in the stocks on out list.

The report for Berkshire Hathaway is updated and rated (lower) Buy at $192.23

Due to its insurance operations and due to market value changes in the value of its huge stock investments, Berkshires’ GAAP earnings are inherently volatile. This has become much more the case in 2018 because unrealized changes in market value of its investment securities are now reflected in earnings rather than only in comprehensive earnings as was previously the case.

Berkshire also reports operating earnings which are more stable but which are still affected by sometimes volatile results from catastrophe insurance operations. And, operating earnings over time understate “true” earnings because they ignore all gains on securities and those have been reliably positive (although volatile) over longer periods of time.

Many of Berkshire’s business are growing earnings at a good rate at this time. In part, this is due to lower income tax rates.

Perhaps the best value indicator is the price to book value. At 1.37 it is currently moderately attractive.

The B shares had briefly hit a high of over $215 in January. The current price of $192 may not be a screaming bargain but it seems reasonable attractive. Depending on availability of funds I will likely add to my small position in Berkshire.

May 31, 2018

Thursday was mostly a negative day on the markets.

The S&P 500 was down 0.7%. Toronto managed a 0.1% gain.

Most of the stocks on our list were down. I started a small position in Canadian Tire today.

The trade war between Canada and the U.S. is bad news and I think will harden attitudes in Canada toward the U.S.

I would not want to be a Canadian company that relies largely on exports (of anything) to the U.S. Many companies on our list have U.S. operations but none are primarily in the business of manufacturing things in Canada for export to the U.S. Still, this whole mess could slow the economy and also instills fear in investors which tends to push stock prices down.

In more positive news, Petronas of Malaysian is going to take a 25% stake in Canada LNG. I have been skeptical that any LNG plant with a cost in the range of $40 billion will be built. But perhaps the economics are there. It would certainly be a positive development if one or more large LNG plants actually go ahead.

Statistics Canada reported on Q1 GDP growth which was weak.

They report by production of GDP category:

and by consumption of GDP category:

May 30, 2018

Markets bounced back on Wednesday with a 1.3% gain for the S&P 500 and 0.8% for Toronto.

With Kinder Morgan Canada down about 2% earlier today (finished down 0.9% at $15.95) I decided to double my small position. That is not based on my own analysis but rather on news that the purchase price amounts to about $12 per share after capital gains tax.

Toll Brothers was down 2.5%. While the stocks seems under-priced, there may be little reason for it to increase until it reports (as I expect it will) strong earnings growth in the next few quarters.

The Canadian dollar jumped about 0.8 cents today to 77.6 cents after the Bank of Canada’s latest report caused the market to perceive a higher likelihood of an interest rate hike in July. I had mentioned on Sunday that with the dollar around 77 cents it might be opportune for those looking to repatriate American currency to Canadian. I took my own advice on that and transferred a small amount of cash yesterday at about 76.8 cents. Mores specifically I was holding sa U.S. money market fund TDB166 in my TD Dierect RESP account. I placed a sell order on that yesterday before 3 pm eastern. Money market orders placed before 3 pm are sold using the exchange rate (plus the bank’s inevitable adder) at the end of that day. The trade showed up in my account only today and dated today. But it appears that, and TD tells me, I did get yesterday’s more favorable exchange rate.

The report for Canadian Tire is updated and rated (higher) Buy at $164.78. This company has been extremely well managed. The recent dip in the share price may prove to be a buying opportunity. I plan to buy a modest amount.

May 29, 2018

Tuesday was a negative day on the markets as the S&P 500 declined 1.2% (and the DOW was down 1.6%) and Toronto was down 0.6%. Apparently the U.S. decline was linked to fears about the implications of yet another election in Italy.

U.S. financial stocks were down. For example, Wells Fargo down 3.6% and Bank of America down 4.0%.

It was disappointing to see Canadian Western Bank down 2.15% despite the news about the Trans-mountain Pipeline. Similarly, Melcor was down 2.5% despite what certainly appears to be a good news day for Alberta.

Kinder Morgan Canada was down 3.0% which may indicate that Canada did not over-pay for the assets. If I had to bet, I would bet that Kinder Morgan Canada will increase somewhat as the market digests the news and as it becomes clear what Kinder Morgan Canada will do with the money.

I found it disappointing today to hear reaction at the federal level fall entirely along political lines.


Transmountain Kinder Morgan pipeline May 29 10:20 am eastern

This morning’s news about the pipeline nationalization was to me a pleasant surprise. Not a shock since the idea had been floated but a surprise. I think the alternative would have been that Kinder Morgan Canada would have announced it could not proceed.

The implications of the deal should become more clear as investors and analysts digest the news today and going forward.

It seems obvious that this is positive for Canadian oil producers and for the Alberta economy in general.

I see CN Rail’s price is down a little on the news (or possibly related to other factors) and that makes sense. But it’s only down a little as there is likely still lots of bitumen to be transported by rail.

I thought the Canadian dollar might have risen on the news but it is down marginally.

Regarding Bill Morneau: This should have been a moment to shine. Instead I thought he completely embarrassed himself by refusing to answer the simple question about how much it will cost to complete the pipeline. I agree with him that the investment should pay off for Canada. But it is still a fair question to ask the total size of the investment and get an answer. I’d be inclined to support Morneau on this. But I can’t trust anyone who who side-steps a simple question. At the least he should have said something like “We are not prepared to release that figure”.

But I certainly view this nationalization as a positive move. It’s unfortunate, but it had to be done.

I own a few Kinder Morgan Canada Limited shares. These are up 2.6% at the moment. At a quick look, I have not seen the price at which these are to bought out. So I will hang tight on these for the moment. The small gain perhaps indicates that Canada has not over-paid for the assets. UPDATE: I saw a few minutes after I posted this that Kinder Morgan Canada has other assets and will continue in operations. So it is simply unclear what the value of the KMI shares is. They are receiving cash for a large part of their assets but they give up the expected future profits on those assets. We may or may not see a large special dividends followed by a much lower share price. Kinder Morgan Canada has a U.S. parent that may prefer the cash be paid out rather than reinvested in more Canadian assets.






May 28, 2018

On Monday, the U.S. markets were closed for the Memorial Day holiday. Toronto was down 0.4%.

Our one and only penny stock, Ceapro bounced up 10%. They have their annual meeting tomorrow. This stock is highly speculative by nature. The company is currently adopting new strategies and developing new end-use products. It’s always a bit questionable to believe that a management that has not gotten too far with one strategy will do well with a new one. Sales under its old strategy (which mostly involved producing certain ingredients but not end products) were down about 29% in Q1 which the company blamed mostly (and unconvincingly) on the timing of customer orders. About 18 months ago, the company completed a large expansion of the plant for producing its ingredient products. The plant is not yet being booked into expenses as it has not been fully commissioned. That is a danger sign. I am hanging onto this stock to see where it goes but I have only a small exposure to it.

West Texas oil is down to $67.09 and the Canadian dollar is at 77.0 U.S. cents.

May 27, 2018

On Friday, the S&P 500 and Toronto were each down 0.2%.

Oil (West Texas) has declined about 5% to $67.14. Apparently this was due to rumors of OPEC volume increases.

Those holding various stocks are always waiting for positive news. Mostly we wait for quarterly earnings releases. But there are sometimes other announcements such as major contracts or even a corporate take-over announcement. Given my particular portfolio, the next news I am looking forward to is the earnings report for Canadian Western Bank which should be out on June 7th. I believe it should have good results based on its focus on commercial lending and the improved activity in Alberta. What really matters to the stock price is whether it beats expectations (more correctly whether expectations prove to have been too low) and what it has to say about the outlook.

The Canadian dollar is trading right around 77 U.S. cents even. It had gotten to about 76 cents for a about a week in March. But other than that one week this 77 cents is the lowest in almost one year. Over that year it has averaged somewhere around 79.5 cents and did briefly hit 83 cents last September and 82 cents in February. Based on this range and knowing that the future direction is always uncertain, it might be a good time to repatriate some America cash. In particular, if someone has U.S. cash and was waiting for a good price to convert, 77 cents (about $1.30 Canadian per U.S. dollar) might be reasonably attractive to convert at least some around 77 cents.


May 24, 2018

On Thursday, the S&P 500 was down 0.2% and Toronto was down 0.1% as Trump rattled markets by canceling the meeting with the North Korean leader and by looking into excuses for imposing duties on vehicle imports.

Linamar was down 1.8% to $67.24. I added to my Linamar position today. The market is worried about the outcome of NAFTA. But Linamar is a well run growth company and I am happy go along for the ride since I think Linamar’s management will continue to increase the value of the company over time.

Buying good companies at lower prices will likely work out over time. I’d also like to have the opportunity to do some selling if some shares I own looked over valued. For the moment that opportunity is not present. At last check the P/E ratios on my portfolio amount to a weighted average of 12.5. Lately it seems to be the higher P/E stocks (often called growth stocks) that continue to rise while value stocks with lower P/Es have lanquished. That will not always be the case.

Constellation Software , which by my calculation has an adjusted  P/E around 35 (and Yahoo Finance shows a GAAP P/E of 81 and a forward P/E of 32) rose 2.6% today and is one of those high P/E stocks that has continued to rise.



May 23, 2018

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

Couche-Tard was up 3.5%.

Linamar was down 1.9%.

AutoCanada was down 2.4%.

Markets are set to open moderately down on Thursday and Trump targets auto and truck imports.

Toll Brothers updated May 23

Toll Brothers is updated and now rated (lower) Strong Buy at $39.58 (that was a price from earlier today, it closed at $39.91.

For those holding it, the recent price decline is certainly disappointing.

It’s a cyclical industry and so projecting future earnings is always difficult. Having listened to the conference call and gone through the earnings release and crunched the numbers, the stock looks like good value to me. After a number of strong quarters of revenue and earnings growth this latest quarter had strong sales growth but earnings per share growth was more modest or was down slightly depending what adjustments are made to earnings.

My understanding is that revenues should increase substantially in the order of 27% in the next year based on the existing backlog. Earnings growth could be similar but may lag is expenses rise faster than revenue. The company is currently selling homes in about 283 different selling communities. This is down from 316 one year ago presumably because some communities have now been sold out of inventory. The lower community count lower earnings and new sales in Q2. In the last half of 2018 the company intends to open 75 communities for sale and the net community count at the end of 2018 is expected to be about 315.

My sense from management was definitely  that they expect growth to continue.

Yahoo Finance calculates that the shares are trading at just 8.1 times the earnings per share expected in 2019. Perhaps those expectations are exaggerated but certainly 8.1 times forward earnings would seem attractive. I like to focus more on achieved railing earnings and in that basis the stock is trading at about 12 times earnings. This is attractive if those earnings can be expected to grow over the years.

May 22. 2018

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

Canadian Western Bank was up 1.6%. Perhaps the market is starting to give some credit for the higher oil prices.

Toll Brothers was down 9.6% after reporting earnings. Despite many positives in the earnings report, the Analysts were concerned about the lower gross margin. Revenues were up 17%. However, cost of sales were up 20.5%. The company indicated that this was due to three factors:

Labour and particular lumber costs have increased

Some “inventory” (condos) in New York were sold at discounted prices in order to obtain the cash and put it to better use.

About 15 higher margin and very expensive home sales in California were delayed into Q3.

Even though costs increased faster than revenue, gross margin was up 5%.

But selling, general and admin expenses were up 13.6%.

Income from operations was down 3.5%. Meanwhile though, the share count was down 9%.

Income from unconsolidated entities was down very sharply as it had been usually high the prior year and this tends to be a lumpy line item.

Toll Brothers forecasts that margins will improve noticeably in the next two quarters, It may be that analysts do not believe this.

I listened to the full conference call. I may be biased but I heard a lot of positive things about growth. Overall I don’t see why the earnings report justified a near 10% drop in the share price.

Recent quarters have exhibited very strong earnings growth. This quarter had reasonably strong revenue growth but the adjusted earnings per share was about flat. It appears that earnings per share growth should be strong in the next two quarters.

This stock has been volatile at times. I remain confident that this stock offers good value, although of course there are never any guarantees.



May 22, 2018 10:00 am eastern

Toll Brothers has fallen about 8% this morning after releasing earnings.

I though the earnings release had good points (revenues up 17%, home deliveries up 15% in dollars) but the bottom line earnings were down slightly (probably partly due to higher lumber costs) and pre-tax income was down 30% (mainly due to higher income from joint ventures in the prior year).

Activity is very strong with net signed contracts for new houses up 18% in dollars and 6% in units. They are selling homes in 290 communities and plan to open 75 new ones in the next six months. They will complete selling in many communities and the net community count in six months will be about 315. The company expects 2019 to be another year of growth.

It appears that the market is focusing more on the current level of profit and gross margin and less on the projected growth.

I did what I normally do in these situations and added to my position this morning. Unfortunately, it appears that more patience will be needed for this stock. The stock has done quite well in 2017, rising 55%. But the result in 2018 has been disappointing with the stock down 16%.

For reasons that I am not clear on, the income tax rate remains high at 27% in Q2 rather than the 21% or so that is the typical GAAP rate under the Trump tax custs.

May 21, 2018

On Monday, the S&P 500 was up 0.7% while Toronto was closed.

FedEx was up 2.1%.

Toll Brothers was up 1.1% and will report earnings before the open tomorrow (Tuesday).

CRH Medical was up 2.9%.

May 20, 2018

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

Toll Brothers was up 1.8% to $43.18 which came after it had slipped under $41 earlier in the week.

Constellation Software was up 1.5% to $997.68. The stock seems expensive in relation to earnings but has continued to increase.

AutoCanada a rose 4.2% which is a welcome move but that comes after recent steep decreases. This is a company that now must convince the market that it can return to better profitability in Canada and that it can profitably run the recently acquired U.S. dealerships.

Couche-Tard was down 1.9%. It’s fiscal year ended on April 30 and I believe it will be July before it reports earnings. I would think it will report double digit earnings per share growth based on acquisitions. However volatile fuel margins can lower earnings growth in any given quarter. They are also spending to convert stores to the Circle-K brand.

On Friday, Statistics Canada reported the April consumer price index with a 2.2% year-over-year increase. If gasoline were excluded the average was up only 1.7%. This somewhat tame level of inflation caused market participants to lower their expectations for an increase in interest rates by the Bank of Canada.

Statistics Canada also reported retail sales for the month of March and new-car sales were strong that month. Possibly that bodes well for AutoCanada (which may be why that stock was up on Friday) although I don’t recall AutoCanada mentioning that its March sales were strong. Hopefully the strong new car sales have continued.

The Canadian stock markets will be closed on Monday but the U.S. is open and as of late Sunday evening it appears that the Dow is set to open higher by 223 points.

May 17, 2019

Thursday’s markets saw the S&P 500 down 0.1% while Toronto was up 0.2%.

I did end up buying back half of the portion of my Linamar shares that had sold on May 10 at $74.90. I paid $70.32. I was tempted to wait ans see if Linamar drops again which could happen if there is an announcement that the NAFTA negotiations are put on hold or any negative development on NAFTA. But looked at my strong buy rating and decided to buy back half of what had sold.

Toll Brothers rose 1.7% to $42.40. My last rating was (higher) Buy at $43.91.

Toll Brothers will report fiscal Q2 earnings on May 25. My expectation is that profits will have risen something in the order of 25% (barring unusual items) based on delivering homes contracted about a year earlier. There should also be a boost from lower income taxes. The recently higher U.S. lumber prices could mean that profits don’t rise as much as expected. That is a negative. But the higher lumber prices are caused by not only higher Trump import tariffs but also by high demand. A high demand for houses is clearly positive for Toll Brothers. I suspect they will report a good increase in homes contracted for this quarter. We shall see on the 25th. The company itself had bought back shares aggressively in Q1 at an average of $47.40. That’s a positive indicator because this company has been very astute in the past regarding buy backs. They have some history of doing so at good prices.



May 16, 2018

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

Notable gainers include:

BHP Billiton (The BBL shares) up 1.7% to $47.05. These shares had trended down from $45 in February and bottomed at under $39 on April 9th. This is a case where volatility could have been used to advantage although buying on dips does not always work out well. This was a company that I added to the list for diversification.

CN Rail was up 2.4% to $106.35. At he last update it was not a compelling buy but it is a strong company and has been a great stock to buy and hold.

Meanwhile, Linamar was down 5.9% to $70.63 after reporting Q1 earnings. This has been a volatile stock as worried about NAFTA ebb and flow. On April 12 I had mentioned I put in an order to sell some of my Linamar that I had bought at a lower price on a dip if the price should rise about 10% from where I had bought on a dip. As a result I had 300 shares of Linamar sell from my account on May 10 at $74.90. I am now tempted to buy those back and likely will do so especially if Linamar falls to $68 or so. This sort of thing is just to try to take advantage of volatility but really amounts to “tinkering” with my portfolio. Some of my recent “volatility trades” have worked out well while others have not. I don’t think it is necessary to be doing buys and sell like this. It might make more sense to enter such orders for larger moves like 15% to make it more worthwhile. It depends on the stock. For some stocks a 10% move is a normal day, for others it would be a big move in a month or three.

Statistics Canada reports that manufacturing sales in Canada grew 1.4% in March. That is in one month, not year over year and is a positive report. Volume was up 0.6% and prices were up 0.8%. That is an important break-out since it is volume that adds more to the economy (jobs and spin-off) than does a price increase (good for profits but not necessarily for jobs at least immediately).




May 15, 2018

Tuesday’s action in the markets saw the S&P 500 down 0.7% while Toronto was up 0.1%.

The U.S. 10 year government bond yield rose 8 basis points to 3.08% from 3.00%.

The 10-year Canadian government bond yield is at 2.42% as of yesterday. That raises the question as to why investors would accept 2.42% on the Canadian bond versus 3.00% on the U.S. (both as of yesterday). Historically Canadian government bond rates have usually been higher than the U.S. but the Canadian has been lower for I believe a few years now. I am not overly knowledgeable on why the Canadian is lower but here are some thoughts:

An individual investor in Canada or the U.S. has a choice between the two countries but faces inflation and exchange rate risks. To certainly some extent, investors tend to stay in their own currency to avoid the added risk. The lower rate in Canada could possibly suggest that investors expect the Canadian dollar to rise in value against the U.S. and make up the difference. There is something called interest rate parity. 

My recall of the math of interest rate parity is quite rusty and in any case as I recall it is another one of those things that works in theory but perhaps not in practice. As has been cleverly pointed out: In theory, practice and theory are the same, in practice they differ.

Another theory of interest rates is that the rate is caused by the supply of lenders versus the demand of borrowers. It could be that with the stronger U.S. economy there is more demand to borrow and invest or spend (including government demand) versus Canada where the demand by corporations to borrow to invest may be weaker.

I think what us clear is that interest rates have already crept higher off their historic lows and there is an expectation for this to continue. Few expect interest rates to increaase dramatically but there is an expectation of increases. At some point that is definitely negative for stock valuations. Possibly there is a sort of dead area where the increaases so far have not had an impact on stock P/E ratios since government bond yields remain faint competition to expected stock returns.


Boston Pizza was down 1.1%. In the morning there was no reaction to the earnings report. But during and after the conference call there was some reaction it seems. As noted in my last post the results were weak. On the conference call, I learned that they expect to raise menu prices another 1 to 3% in June. That may help. The 0.8% decline in same-store franchise (royalty-eligible) sales was disappointing. This is the biggest driver of distributable cash per unit by far over time. A further 1.4% or so decline came from a higher income tax rate, but that should be a one-time event as far as growth in distributable cash goes. On the other hand, this is entity that can really only be expected to grow distributions per unit at about the rate of menu inflation. It’s all about same-store growth. The restaurants are mature and in general it is not realistic to expect heavier volumes of customers. If these units can deliver 1 or 2% growth in distributable cash per unit over the long term then I think despite somewhat higher interest rates it continues to look like a pretty good investment given the 6.9% current yield.

Toll Brothers was down 4.4%. This prompted me to add some to my position although I did not get the lowest price of the day. Interest rate fears weigh on home builders. But it seems to me that home prices remain very affordable in the U.S. (certainly compared to Canada) and their economy is strong. We shall see how Toll is doing when they report one week from today.

Boston Pizza Royalty results disappointing May 15 2018

The Boston Pizza Royalty units results for Q1 are out this morning and are weak and disappointing although not devastatingly so.

In this particular case GAAP net income means little and the value of the units is driven by growth (or decline) in same-store franchise (royalty-eligible) sales per store which is BY FAR the main driver of growth (or decline) in the all-important distributable cash per unit.

“On a Franchise Sales basis, SSSG was negative 0.8% for the Period compared with negative 0.3% for the first quarter of 2017. The SSSG for the Period was attributable to menu re‑pricing, offset by weak general economic conditions in regions directly connected to the Canadian oil and gas industry and the adverse impact of the Saskatchewan 6% provincial sales tax on restaurant purchased food. ”

“The decrease in Distributable Cash per Unit of $0.007 or 2.2% was primarily attributable to the British Columbia provincial government increasing the general corporate income tax rate by 1% effective January 1, 2018, which increased the Fund’s SIFT tax rate by 1% to 27% for the Period. ”

“The Fund’s Payout Ratio for the Period was 113.1% compared to 110.6% in the same period in 2017.  … The Fund’s Payout Ratio is likely to be higher in the first and fourth quarters each year compared to the second and third quarters each year since Boston Pizza restaurants generally experience higher Franchise Sales during the summer months when restaurants open their patios and benefit from increased tourist traffic.  Higher Franchise Sales generally result in increases in Distributable Cash. On a trailing 12-month basis, the Fund’s Payout Ratio was 100.7% as at March 31, 2018. “


Overall, this is certainly weak and disappointing as same-store royalty eligible sales were down 0.8% and then distributable cash per unit was down even more at 2.2% due to the income tax increase.

The weaker sales per store come despite menu price increases (the percent annoyngly undisclosed).

The result is blamed on the weaker energy-recession affected areas and there was no sign of immediate improvement.

Perhaps that will improve this summer as oil prices have improved…

But at some point the fear is that Boston Pizza has become a bit less popular as a brand and /or has reached saturation whereby new restaurants cannabalise existing ones and cause lower same store sales. New units (shares) are issued for new restaurants and basically do not increase distributable cash per unit (other than by a very very tiny amount and then only if there is no cannablization).

Nevertheless the units pay an attractive 6.9% and they will likely do their best to maintain the distribution and if there is a cut it should be relatively minor since same-strore royalty elegible sales and distributable cash flow is only down quite modestly.

The market reaction will depend to what extent the analysts anticipated the weak result and to what extent they believe things can improve going forward.









May 14, 2018

On Monday, the S&P 500 was up 0.1% while Toronto was up 0.6%.

TFI International was up 2.2% to $37.81 and has risen nicely since it reported excellent Q1 results on April 25. It’s been a growth-by-acquisition story that has worked very well.

I am hoping for good results from Boston Pizza tomorrow morning. On the one hand they may have benefited from menu price increases in Ontario in response to the minimum wage increase. On the other hand that may have driven some traffic away. Also economic and weather conditions may not have been that strong.


Melcor Developments updated May 14, 2018

Melcor Developments is updated and remains rated Strong Buy at $15.40 (That was the price earlier today although it closed at $15.70). Earnings are volatile so perhaps the attractive P/E of 8.6 is not all that relevant. But the fact that the shares trade at 50% of book value seems relevant. That discount provides a good margin of safety. It is always possible that land values are about to plummet in Alberta but so far it appears that land values have held up well.

The shares are very thinly traded and the company receives little to no attention from analysts or the financial press. These shares should rise in value over time as the book value rises. At some point if the company gets some positive news coverage then the multiple to book value should increase. The company believes that investors are under valuing the sharers because of a lack of confidence about the Alberta economy.


May 13, 2018

On Friday, the S&P 500 was up 0.2% and Toronto was up 0.15%.

Canadian Tore was down 2.0% as investors worry about its announced acquisition of Helly Hanson.

CRH Medical was up 6.6% to $4.49 in Toronto and 9.2% to $3.55 in U.S. trading. It has made a strong recovery, more than doubling, since the lows of last Fall but remains well below its previous highs. This seems likely to remain a volatile stock. In the longer term it could be a good growth-by-acquisition company. But given the history of the past year, I would not want to have too large an exposure to this company. Exposures should be judged in both dollar and percentage terms.

I have updated the percentage allocations in my own portfolio. I have a very concentrated portfolio. In particular I have a very large exposure to Melcor Developments. My weighting in Melcor developed over a long period of years as I added to the position largely based on the low price to book ratio. But the price to book ratio has remained low. I certainly think the stock is under-valued in relation to its assets. But it is a cyclic company by nature and it is possible that it will stay quite cheap if the market for new homes in Alberta weakens or if the market fears it will weaken.

I attended their annual meeting on Thursday and asked some questions. I believe that management is quite competent. They are cautious and they are very much in it for the long-term.  In the past they have received almost no questions at the annual meeting. I hope that my questions about the dividend and stock buy backs and about the stock price will help to keep those matters closer to the top of their minds.


May 10, 2018

Thursday was a generally positive day in the markets.

The S&P 500 was up 0.9% and Toronto was up 0.3%.

BHP Billiton (BBL) was up 1.9%.

Stantec was up 1.9% after reporting earnings that were I guess reasonably good. They do still have some lingering problems related to their construction services division that they acquired about two years ago. They are now looking at options to possibly sell that business.

Linamar was up 2.2%.

Canadian Tire was down 5.4% after announcing earnings and announcing it will acquire Helly Hansen. I have not yet looked into the details. I would say though that Canadian Tire has proven itself to be extremely well managed and has been firing on all cylinders for years. I would tend to give management the benefit of the doubt here.

May 9, 2018

On Wednesday, the S&P 500 was up 1.0% while Toronto was up 0.4%.

BHP Billiton was up 3.1% (the BBL American Depository Receipts in New York).

The Enbridge pref share ENB.PF.A on our list was up 3.2% on news that Enbridge is selling some assets. It may not be clear if the asset sale will be good for common share owners but is should definitely be good for the debt holders and preferred share holders as it strengthens the balance sheet.

Toll Brothers was down 3.2%. They will report earnings on May 22. I very much expect that report to include a strong earnings increase versus the prior year. I believe that is basically baked into the numbers since most of their earnings in any quarter relate to home sale contracts signed an average 9 to 12 months earlier. However, what the market will pay more attention to is the outlook and the contracts signed in this quarter. I expect those numbers to be strong.

Melcor was up 1.3% as a thin 4,100 shares traded hands or only about $62,000 worth. Basically it appears that very few investors know about or care about this company. The Q1 numbers were relatively good. Perhaps there will be a bit more interest after the annual meeting tomorrow.

Costco just reported April sales figures and same-store sales were up 7.3% after adjusting downwards to reflect higher gasoline prices and adjusting for foreign exchange. Costco shares will likely rise on this news .

Liquor Stores N.A. is changing its name to Alcanna Inc. Valeant is changing its name to Bausch Health Companies Inc. I consider such corporate name changes to be cowardly and a bad sign. In both cases they are probably changing more to distance themselves from their own past records than anything.

Yesterday I converted my DLR units and some American cash to Canadian dollars. I did that because the Canadian dollar was then down. That may have been good timing as the Canadian dollar has since risen.


May 8, 2018

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

AutoCanada was down another 3.2%. (See update in the post before this one).

Melcor Developments released Q1 earnings after the close. I will be looking at this very closely and also will attend their annual meeting on Thursday.

Donald Trump announced that he will pull the U.S.A. out of the “Iran deal”.  It’s too early to tell if this will be positive or negative for world peace. But it will likely be bad for economic trade unless most of the rest of the western world continues to trade with Iran.

FedEx is transferring $6 billion of its pension obligations to an insurance company. FedEx will take a “non-cash” charge for this of an undisclosed amount.

Liquor Stores N.A. (no longer on our list) announced its Q1 earnings (well, Q1 losses). The company is now pinning its hopes on a future in Cannabis retailing.

Rail roads report traffic weekly. This past week CN Rail had the strongest growth of the North American Railroads.

AutoCanada updated May 8, 2018

AutoCanada is updated and rated Buy at $17.34. Based on trailing year earning it could easily be rated (higher) Buy. But Q1 2018 was quite weak and there is some danger that the weakness will continue. On the hand its recent  acquisition of 8 dealerships in the Chicago area which also came with another large dealership in Illinois could begin to boost earnings immediately.

This stock had climbed back over $25 last Fall and it looked like the worst was behind it. But then Q4 did not show the big growth that Q3 had and Q1 2018 was quite weak. The stock had slipped under $18 in early 2016 (when almost all stocks dipped) and was down under $19 in mid 2017 before recovering and briefly touching $26. It could certainly recover to $26 and well beyond that. But this is likely to take time and of course is never guaranteed.

I added to my position today.

May 7, 2018

On Monday, the S&P 500 was up 0.35% and Toronto was up 0.5%.

Constellation Software was up 2.1%.

AutoCanada was down another 4.0%. I plan to post an update tomorrow. Q1 adjusted earnings were quite weak. In part this was due to the net impact of of its transaction with its founder whereby it bought the minority 20% interest in five dealerships but sold its majority 80% in four others for a net loss of the equivalent of about two dealerships. But there were other reasons for the poor earnings and it is not clear if those reasons were mostly temporary such as due to poor weather in Q1. Q2 should show a notable increase in sales and gross profit due to the acquisition of eight dealerships in the Chicago area plus a large multi-brand “autoplex” also in Illinois. Presumably this would also add to net profits in starting Q2. Overall, I believe AutoCanada merits a rating of Buy.

Boston Pizza Royalties Income Fund will report earnings probably this week or next. I am cautiously optimistic that they will show same-store sales growth due to menu price increases associated with the Ontario minimum wage increase.

May 6, 2018

Friday was a strong day in the markets although AutoCanada was a notable exception.

The S&P 500 was up 1.3% and Toronto was up 0.7%.

CN Rail was up 2.2%, Linamar was up 2.1%.

AutoCanada was down 10.4% after releasing earnings. The quarter was definitely weak. But there are a lot of moving parts to try to understand. On a same store basis the results were up slightly versus last year.  But overall the gross profit was down about 7% and adjusted earnings (depending on the adjustments made) were way down.

Part of the weaker numbers, at least on the top line as in total revenue, was because of a complicated transaction with its founder and former CEO that resulted in AutoCanda effectively selling a few dealerships. But it was not clear why the overall result was weak when the same-store results (which account for 49 out of 54 dealerships) were slightly positive.

It may also be that a couple of its newest dealerships either recently acquired or especially newly opened were a drag on earnings which is normal for new dealerships in the first couple of years.

Overall I think AutoCanada failed to explain very well at all the reasons for the poor results in Q1.

Weather did play a part. I know that March in Alberta was FAR colder than normal. Spring was very late in arriving.

I am working on an update for this company. I added to my position on Friday. Q2 will show an increase in sales due to its latest acquisitions. But that could also come with unusual expenses in Q2 and I believe the weather in April in most of Canada was worst than normal.

Meanwhile oil prices are up on Sunday evening to $70.20 for West Texas Intermediate. Hopefully breaching the $70 mark will generate some confidence in Alberta.



May 3, 2018

On Thursday, the S&P 500 was down 0.2% (but had been down more like 1.2% earlier in the day). Toronto ended the day about unchanged.

CRH Medical was up 3.0% to $4.08  in Toronto and 4.9% to U.S. $3.20 in the U.S. It has held onto the gains it achieved after releasing earnings on Tuesday. RBC Capital markets indicates that the Q1 results were better than expected and they  raised their target although only to Canadian $4.75. There could certainly be some selling pressure as some investors will take advantage of the increase to move out of what has been a volatile stock and a company that is down substantially from its former highs. On the last rally a few months ago I had sold some of the shares I bought near the bottom. At this time I am inclined to hang onto my position which represents 1.8% of my equity portfolio.

Linamar was down 2.9% to $70.90.

AutoCanada was down 2.6% to $20.63.

After the close,  the Melcor REIT released Q1 earnings. It’s a somewhat mixed picture. “Rental revenue grew 6% over the prior year as a result of portfolio growth over the same period. Net operating income also grew by 3% to $11.08 million. AFFO was down 7% due to the timing and non-cash costs related to the Melcor Acquisition.” But this AFFO was about unchanged versus Q4. I plan to dig through the results in detail in the next few days.

Also after the close, AutoCanada released Q1 results. At a quick look, the Q1 results were okay with some improvement versus the prior year but not spectacular by any means. We shall see how the market reacts to the news tomorrow. If the shares decline I will likely add modestly to my position. (I do tend to be stubborn that way).

Berkshire Hathaway reports earnings tomorrow and has its famous annual meeting on Saturday. I just saw news that Berkshire bought a stunning 75 million Apple shares in Q1.

May 2, 2018

On Wednesday, the S&P 500 was down 0.7% while Toronto was up 0.1%.

Melcor was up 3.45% but it is very thinly traded and can be volatile for that reason.

Alimentation Couche-Tard was down 2.2%.

In the FedEx update this week I noted that the income tax rate for its recent Q3 ended February 28 appeared to be around zero. I now realized tha the reason for this is that is that the company recognized that the tax rate it used in Q1 and Q2 will be reduced by te Trump tax cuts and it basically credited all of the lower taxes to Q3. That is what it had to do under GAAP rules. But it could have reported this more accurately in adjusted earnings by restating the adjusted earnings for Q1 and Q2.

Statistics Canada reported GDP figures for 2017 by province. “Real gross domestic product (GDP) by industry increased in every province in 2017 for the first time since 2011.” The growth in Alberta was very strong at 4.9%. If strong growth in Alberta continues, the Alberta stocks on our list will respond at some point.

May 1, 2018

On Tuesday, the S&P 500 rose 0.25% while Toronto was up 0.1%.

CRH Medical rose 13.5% in Toronto to $4.04 and 10.7% to $3.10 in U.S. trading. This was because it released Q1 earnings. It also announced another modest acquisition, acquiring 51% if a small anesthesia practice in Ohio. The earnings report appears to be positive. The company does not focus on or even disclose bottom line earnings to the common shareholders in its press release and so it is possible that investors will further react after analysts digest the full earnings report. The good news is that the detailed report indicates that earnings per share were down only very slightly year over year despite the government-mandated fee decreases that torpedoed this stock last year. Volume growth both organic and by acquisition has almost entirely offset the fee reduction. My initial reaction is to continue to hold these shares.

Toll Brothers rose 1.8% and Constellation Software was up 2.8%.

I did buy a few shares in FedEx to today and placed an order double that if it happens to fall by 10%. TD Direct allows an order to stay in place for up to 90 days. That can be very useful as it can put a buy or sell order on autopilot for three full months. RBC Direct allows only 30 days. Those are the only two brokers that I use.

Statistics Canada reported GDP figures for February and the growth was reasonably good for the month. I don’t think however that one month of data means very much. Still, this is definitely a positive report.


April 30, 2018

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

Berkshire Hathaway was down 1.8% to $193.73 and might be worth nibbling on in advance of its Q1 earnings to be released on Friday which will be followed by its famous annual meeting on Saturday.

Toll Brothers was down 3.1%. Presumably investors are worried about the impact of higher interest rates. But to my understanding, houses remain very affordable in most of the U.S. and I think Toll Brothers will continue to grow its earnings.

Couche-Tard was down 2.1%. This company completed its 2018 fiscal year today and so we won’t see any earnings report until around July 12 (based on last year’s schedule). So, there may be little reason for the stock to do much until then unless it announces a major acquisition – which is always possible. I continue to think the stock offers good value.

I did buy a few CN shares today as I mentioned I would in yesterday’s post. ANd I placed an order to add to that if it happens to drop to $95.

West Texas oil at $68.55 continues to be a LOT higher than last year. But it seems to have little impact in supporting the Alberta based stocks on our list. Of course, most Alberta oil is sold at discounted price due to transport costs and lack of transport capacity. Still, the pessimism about the Alberta stocks seems overdone.

Regarding Trans Mountain, it seems clear that Kinder Morgan Canada is not going to proceed if it faces a risky outcome of the new BC court challenge which will take many months or a couple years to resolve. I think the Federal government needs to declare the project in the national interest and to basically indemnify the company against the financial impact of any further actions by B.C. Otherwise, Kinder Morgan seems likely to halt the project indefinitely, if not abandon it. Meanwhile, news of $1.60 gasoline prices in B.C. plays well in Alberta, (and $2.00 would be absolutely cheered) and that is a sad state of affairs.



FedEx Update April 30, 2018

FedEx is updated ad rated Buy at $247. This stock is down 1% this year to date but that was after rising 34% in 2017. Given that large rise in 2017 I was predisposed to thinking this stock would rate no more than a Hold rating. But its earnings have increased strongly lately with an additional large boost from the lower income tax rate.

All else equal, we can expect earnings to increase fairly sharply, on a year over year basis, in each of the next three quarters. And analysts do expect that as they appear to forecast earnings growth sufficient to move the P/E from the current 17.0 to 14.2. But if investors were convinced this is true then the stock price and P/E would likely be somewhat higher.

Those owning this stock should probably continue to hold. I don’t own it but I now plan to open a small position and I would add to that on dips (or just be satisfied with the small position if the stock rises).

I added a new row near the top of this report that looks at FedEx as a long-term creator of value. The record on that score is extremely good.

As Buffett might put it, if you had entrusted founder (and still CEO) Fred Smith with $750 (the IPO price adjusted for splits was 75 cents) at the IPO in 1978, and held, he would have turned that into $247,000 as of today. And, your current dividends on those 1000 shares would be $2000 per year! (Now, all we need is a time machine.)


April 29, 2018

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

Alimentation Couche-Tard was up 3.6% to $56.91. This is a welcome increase but I am hopeful of a better recovery in this stock. It reached a a high of close to $68 early this year and its all-time high was also around $68 almost two years ago in the Summer of 2016. I suspect we will surpass those highs in the next year or so but certainly volatility is always to be expected.

Constellation Software was up 2.4% to $919. I sold about half of my remaining small position at $925 based on an order I had placed on April 2 after I had updated the stock on March 31 and found it to look expensive.

Amazon was up another 3.6%.

Canadian National Railway April 29, 2018

Further to yesterday’s update of CN Rail, I have made a few minor edits to the report emphasize that a new risk in 2018 is the state of NAFTA negotiations given that one third of its traffic crosses the border. I also added a few details about which freight categories are growing and which are not as of Q1 2018.

Given my overall rating of (lower) Buy and given the NAFTA risk a logical strategy might be to buy a small position and look to add to it on dips. Any bad news related to NAFTA is likely to prove temporary in the long term.

I have mentioned before that CN has been a prodigious creator of wealth for investors over the years. It was first added to this site at $8.08 (adjusted for stock splits) back in August 1999. It initially rated only a Speculative Weak Buy. Now the stock is over $100. Over the years since then it has sometimes been rated only a Weak Buy but more often was rated a Buy and occasionally a Strong Buy and was rarely rated in the Sell category.

CN’s IPO price in late 1995 was $2.25. Today its annual earnings per share are more than twice that amount and its annual dividend at $1.82 is getting close to its original share issue price. Those who bought relatively early (and/or steadily over the years) and held on have done very well indeed. That includes its largest share holder one Bill Gates who has made billions. Several long-term Board members have made in excess of $10 million. These returns are in the past but it illustrates what can happen simply by owning and hanging onto highly profitable companies.

Canadian National Railway Company updated April 28, 2018

CN rail, Canadian National Railway Company is updated and rated (lower) Buy at $100.65. The As detailed int he report, CN stumbled through this past winter and encountered operational problems when traffic was higher than expected and the weather was worst than expected and they had cut back too much on staff. They had selected a new CEO last year and at that time inexplicably chose an internal candidate with strong financial experience and no operational experience. They terminated that CEO in early March (see my March 5 comment).

After reporting a 13% drop in earnings per share in Q1, the company appears to be forecasting growth of about 9% on average in each of the next three quarters. While the stock is not priced as a compelling buy I think it is worth a look. I plan to buy a few shares and would add to that on dips.

In looking at CN’s financial notes I happened to notice a couple of unusual debt securities that it has outstanding.

CN’s Illinois Central  issued U.S. $125 million of 7.70% debentures in 1996 that do not mature until 100 years passed which will be the year 2096. This debt is likely held by institutional investors such as pension funds. In retrospect a 7.70% yield locked in for 100 years was a very astute investment. 100 years is about as close as we normally see to a perpetual debt issue. Perpetual or even 100 year bonds can provide for some eye-popping results when interest rates fall towards zero as they unexpectedly did after these 100 year bonds were issued. I covered some of the math in an article a few years ago.

CN’s BC Rail division issued in 2004 a 90-year non-interest bearing subordinated note. This note is set to pay out at $842 million in 2094. Yet, CN books this as a liability of only $11 million. The liability will slowly grow towards $842 million over the 76 years that remain until maturity.  The interest rate on this “zero-coupon” bond is 5.75%. The surprising math is that the investor owning this bond may have paid only $5.5 million. It does seem an odd thing to accept $5.5 million now in exchange for paying out $842 million in 100 years. This shows the staggering impact of something like a seemingly modest 5.75% return when it is compounded over 90 years. CN acquired BC Rail in 2003. It may be that the BC government is the owner of this bond as it was issued close to the time of the acquisition of BC rail from the BC government.

While receiving $5.5 million in return for paying out $842 million in 90 years may not sound like a good deal for CN it may not be that bad. CN effectively starts our borrowing $5.5 million but then since it pays no interest, it effectively borrows the interest each year and in effect at some point this is equivalent to having borrowed a lot of money ($842 million in the end). Currently CN has effectively borrowed 11 million from the investor consisting of the original $5.5 million and now 14 years of accrued unpaid interest.


April 27, 2018

Thursday was a strong day for the markets with the S&P 500 up 1.0% and Toronto up 0.8%.

Most stocks on our list were up.

Stantec rose 3.9% (see previous post)

Amazon rose 3.9% and is set to rise noticeably on Friday after it released Q1 results that included soaring revenues and higher profits. It always seems to be over-priced in terms of something like 200 times earnings but it just keeps growing at an enormous rate.

Visa was up 4.8%, TFI International was up 2.9%. Ceapro was up 5.6%.

In an interesting development, TD Bank has raised its posted 5 year mortgage rate by 0.45% to 5.59%. In the past this posted rate was somewhat irrelevant given that the actual rates offered to most customers are far lower and apparently the best customers are paying more like 3.39%. It is not clear if TD intends to raise its actual mortgage rates by this 0.45%. In any case the posted rate is much more relevant now that it is used by banks to stress-test mortgage applications. Borrowers that will pay an actual rate of say 3.39% have to prove that they could afford to pay at a rate based on the average posted rates of the big banks. It appears that the rate that people have to qualify at has just risen. If the other follow TD then the amount that people can qualify to borrow on a mortgage has just decreased.


April 26, 2018 11:00 am eastern

Stantec is up 4.6% this morning to $33.20 on news that it has put the construction company portion of its relatively recently acquired MWH division under strategic review (it wants to sell the division). This would be good in that it would get Stantec out of the construction business and back to being basically a 100% fee for services business. However, this decision may also be a hint that problems with the division that impacted earnings in Q4 have continued into Q1. Also we don’t know if Stantec will take a loss on the potential sale of the division.

I will likely maintain my position but this news could indicate continued volatility in Stantec’s share price. Hopefully strength in the rest of its business in Q1 will offset any problems in the construction division.



April 25, 2018

On Wednesday, the S&P 500 and Toronto were each up 0.2%.

CN Rail was up 2.4%. I am in the process of updating the report for CN.

Toll Brothers was up 2.5%.

AutoCanada rebounded 7.8%.

Ceapro bounced up 9.1%.

My small position in VISA got sold on Monday at it bounced up to my sell order price at $124.90. That looked like a good trade as the stock closed at $121.21 today. But then it bounded up after hours to $124.75 after hours based on a strong earnings report. So, it may not have been wise to sell such a strong company. But I had put in a few orders to take advantage of volatility and also in the case of Visa to clear out what was a small position.

I was sitting on some DLR (see earlier discussions) and planning to sell if and as the Canadian dollar weakened. So I sold some of that today as the Canadian dollar has weakened.

If you have cash in your brokerage account note that you can earn about 1.1% by putting it into a money market fund or 1.57% for U.S. cash (based on TD Direct’s rate). This is worth doing especially for larger dollar amounts since you can still access the money instantly to buy stocks if you wish.  The increases in interest rates are starting to add up.





April 24, 2018

On Tuesday, the S&P 500 fell 1.3% while Toronto was down 0.5%.

AutoCanada was down 4.6%. It looks like good value but the market is not yet convinced of that. We will know more when it releases earnings on May 3, after the close.

Amazon was down 3.8%

Canadian Western Bank was up 1.8%.

In the U.S. the ten year  treasury bond yield cracked over 3.0% for the first time since 2014 and closed at 3.00%. In the early stages higher interest rates might be viewed as a positive since this reflects growth in the economy. But ultimately higher interest rates, all else equal, are downward force on stock prices.



April 24, 2018

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

Couche-Tard was up 2.4%.

TFI Industries was up an additional 1.65%.

Penny Stock Ceapro bounced up 8.7% mostly recovering Friday’s decline.

Statistics Canada reported a decline in wholesale trade of 0.8% for February versus January. This would be seasonally adjusted and account for the fewer days in February. That is, the decline was not caused by seasonality or the fewer days, those items are already adjusted for. However there was growth of 5.0% year over year and 6.3% in Alberta. I am not sure that we should read much into this. The process of reporting these numbers and certainly the seasonal adjustment is subject to error. I would wait for next month’s figures before concluding that the growth trend has really changed. Still, it seems like there has been a few soft reports related to February.



April 23, 2018 11:45 pm eastern time, 5:45 pm in Amsterdam

Statistics Canada released figures for February sales at food service and drinking places. This is relevant to the prospects for Boston Pizza units and other restaurant stocks.

February sales in Canada were up 4.4% in February versus one year ago. Ontario was a key driver as it was up 4.9%, Alberta was weaker with only a 1.2% gain. B.C. clocked in at a hard-to-believe 9.8% gain.

Of the 4.4% increase in Canada 4.0% was due to price inflation meaning that volume was up only 0.4%. This is consistent with my expectations as stated earlier. It seemed likely that higher minimum wages especially in Ontario would push up prices in restaurants.

This should benefit Boston Pizza (and similar entities) where the distributions to unit holders are driven almost entirely by same-store sales growth and it does not really matter if the growth is due to prices or volume. Ultimately it is better if volume goes up indicating popularity. But mathematically distributable cash goes up with price increases. Ultimately also the franchisees need to do well and it will be an encouraging sign if the BP restaurants have been able to pass on wage increases in the form of higher prices.

I am hopeful that BP will report gains in distributable cash flow per unit in Q1. There are always risks in terms of a weaker economy and stretched household budgets but so far it appears that people are still spending apace (i.e. 4.4% higher than a year ago February).


April 23, 2018 3:30 am

On Friday, Statistics Canada released retail sales figures for February which were up a strong 3.5% for Canada (year over year) driven by a 4.2% increase in Ontario which is likely related more to price increases related to the higher minimum wage as opposed to volume of sales increases. Alberta’s growth was somewhat weak at 0.7%.

New car dealers were strong in February. I had mentioned on April 16 that new vehicle sales were down 8% in February in Alberta but this may have been a bit of a statistical anomaly that has pushed down overall retail sales in Alberta as well. I would expect a rebound when the March figures come out.

Statistics Canad a also released inflation figures for March. Inflation was running at 2.3% year over year or 1.8% excluding gasoline. This is approaching levels that would support an interest rate increase.



April 21, 2018 Amsterdam

On Friday, I had a private tour of Amsterdam Stock Exchange for just myself (and three somewhat reluctant others traveling with me). They include a brief history lesson and a little trading simulation game and it was actually fun for everyone. Also the exchange building built in 1913 is architecturally interesting. Looking into the history of how equity shares first started trading in the 1600’s may seem irrelevant to today. But some of the very same mistakes and excess leverage and insider trading and naked short selling developed quite early on. Human nature and a tendency to gamble has not changed at all. I respect the history. And looking at trading in a simpler time can even help to illustrate the key essentials of how profitable investing should work.

The Dutch East Indian company was the first and for a long time just about the only company with shares that traded. The company was profitable and provided benefits to its suppliers (a market for the excess spices of the far away islands) and benefits to its customers (spice prices in Europe soon fell as availability increased) and benefits to its owners paying dividends that were eventually very large compared to the capital it raised. The Dutch East India company also engaged in many acts that we would consider despicable today, but as a business it made sense and worked well for close to 200 years.

Then, as now, the best companies succeed by deserving to succeed by benefiting customers, suppliers and owners. For example companies that figure out how to materially lower costs in any industry can benefit all three groups as well as their employees and governments. (Their competitors and their employees can often be casualties but the overall impact on society is beneficial).

The Dutch government granted the company a monopoly which was great. On the other hand, other sea-trading nations including notably Spain and England certainly did not recognize that monopoly and competition at that time often consisted of seizing your competitor’s ships!

As for Amsterdam and the Netherlands today, wow is the tourist trade ever booming. Amsterdam is jam packed this weekend and I am told that even when the weather is far less cooperative, the place is packed especially on weekends. It’s amazing how a relatively few key but excellent tourist draws (the canals, the historic buildings, the Red Light District, the legal Cannabis smoking, windmills and flowers to name perhaps the key ones) seems to have created a critical mass of tourism. People end up spending a good amount of time strolling along (and visiting) countless little shops and bars/ restaurants. The more that open it seems the more people come. Shops and restaurants exist almost everywhere but in most places it does not draw tourists anything close to what is seen in Amsterdam. There must be lessons for other tourist operators including government tourism boosters in other parts of the world. I would say, cheap prices are not part of the equation – quite the opposite.

April 21, 2018

On Friday, the S&P 500 was down 0.85% while Toronto was up 0.2%.

WSP Global was up another 2.0%.

Penny stock Ceapro was down 6.1% after releasing earnings. Earnings for 2017 were weak but that situation had developed for at least a year and is not a surprise. This company is something of a lottery ticket as its future depends on the outcome of its research efforts. Hopefully it can sort of tread water and at least make enough money to keep going fr several years since it will likely take a few years before anything much comes out of its research efforts. The profit on its existing products was higher when I first added it to the the site and this company has been a disappointment so far.

Trump has come out and accused OPEC of artificially inflating oil prices. In fact he is 100% correct on that. The North American financial press seems to have forgotten a long time ago that OPEC exists to collude and push up oil prices. Back in the 1970’s most Canadians, as I recall, shook our fists at the evil OPEC as it caused oil and therefore gasoline and home heating fuel to soar. Perhaps Albertans cheered from the outset (Until Pierre Trudeau canceled the party with the National Energy Program). I realize that many or most Albertans and investors (I am now both) benefit nicely from high oil prices. But I am also honest enough to see that the benefit comes partly or perhaps greatly from OPEC which is engaging in collusion that in North America would be illegal. Alberta would never admit it, but OPEC has been the greatest of friends to Alberta.

April 20, 2018 7:00 am Amsterdam time, 1:00 am eastern time

Thursday’s session saw the S&P 500 down 0.6% and Toronto down 0.5%.

Most of our stock picks were down including Toll Brothers down 3.7%, AutoCanada down 2.7% and Alimentation Couche-Tard down 1.6%.

Meanwhile American Express was up 7.6% after releasing earnings.

My strategy continues to be to add to some positions on dips and trim a little on gains. Yesterday I got notice that I had trimmed a bit of my TFI International at $34.50 based on an order I had placed some time earlier. In this way I sell at least some shares on rallies and buy others on dips. I don’t have any buy orders in at the moment but may place some especially if some others sell.

Statistics Canada reported investment in new housing for February. Given recent cooling in the home sale market and tightening in mortgage rates and rules it is a bit remarkable to read:

“Investment in new housing construction increased 9.5% from February 2017 to $4.5 billion in February.” However, this was driven entirely by multi-family investment as single family was down.

April 18, 2018

On Wednesday, the S&P 500 rose 0.1% while Toronto climbed 1.1%.

West Texas oil is at U.S. $68.75 which is a three year high.

The Bank of Canada left interest rates unchanged today.

BHP Billiton was up 3.5% to $43.00 for the BBL shares in New York.

AutoCanada was down 2.05% perhaps related to the weak auto industry sales for February that I mentioned yesterday.

TFI Industries as up another 1.9%.

The main threat to markets seems to be the same thing that caused U.S. markets to rise so much in the past 18 months – Donald Trump.

April 18, 2018 4:40 am eastern time (9:40 am in Ireland)

On Tuesday, markets managed to rise for two days in a row which seems rare lately.

The S&P 500 was up 1.1% and Toronto was up 0.35%.

Seemingly unstoppable Amazon was up 4.3%.

Boston Pizza Royalties was up 2.9%.

Alimentation Couche-Tard continued to be weak and was down 0.6%.

Couche-Tard has hundreds of locations in Ireland under the Topaz brand. I visited one in Waterford yesterday. It was a bit of a dreary place. The store was clean but was just not one of the freshest and newest looking examples at all. It did not seem well stocked at all either especially for the hot food offering. I stopped at a gas station of a competitor near Cork and it was also not up to the standards we usually see in Canada. I understand that Couche-Tard will rebrand all its stores outside of Quebect as Circle-K and I suspect they will be sprucing up these Ireland locations. I also also suspect that some of their locations in Ireland are already larger and brighter and newer than the one I visited. I passed by several locations on a road trip from Cork to Waterford but the Topax locations did not seem to be the dominant brand. Rather there seemed to be several competing brands.

April 16, 2018

On Monday, the S&P 500 shrugged off the firing of missiles into Syria that occurred Friday evening and rose 0.8% while Toronto was up 0.1%.

Costco rose another 3.0% to $194.58. It had dipped to as low as $179 earlier this year and still looked expensive at that price. However, that may have been a good buying opportunity.

Bank of America’s earnings rose either 30% or 51%, depending on which headline I look at but the stock rose only 0.5% on that news.

Constellation Software was up 2.4%.

Melcor Developments as well as the Melcor REIT will hold their annual meetings on May 10 at the Weston Hotel downtown Edmonton. The REIT at 10:00 am and Melcor Developments at 11:00 am. I will be attending and will have questions. I have not previously attended. Last year I listened to the recorded meeting afterwards and there were no questions. So, he said he assumed everyone was happy or had no concerns  something like that. Perhaps a few subscribers can join me at the meeting and we can meet for lunch after the meetings.

Statistics Canada reported new vehicle sales for February. The figures show a big drop of about 8% for Alberta. This comes after January rose almost 8%. It’s possible that this is just a random fluctuation after quite a few months of increases but it is nevertheless a concern. AutoCanada was down 0.8% today and this report may be the reason.

President Trump tweeted that it was not acceptable for the U.S. to keep raising interest rates while Russia and China were “playing the currency devaluation game”. This could certainly lower expectations for the pace of U.S. interest rate increases and all else equal could mean that the Canadian dollar will not fall as many expect.

April 14, 2018

Friday was a less volatile day in the markets as the S&P 500 fell 0.5% and Toronto was about unchanged.

Most stocks were relatively stable.

WSP Global was up another 2.2%.

Some smaller companies were more volatile including CRH Medical up 3.7%. And penny stock Ceapro bounced up 6%. A tiny company like Ceapro on the Venture exchange is allowed 120 days or around the end of April to file year-end financials. Last year Ceapro filed on April 15 so I expect they will file soon. I don’t really expect any great news. This is a research company and positive results tend to come slowly (if at all).

Wells Fargo and several other large banks released Q1 earnings on Friday. Earnings growth was strong but Wells Fargo fell 3.4%. This apparently was because core banking growth was very weak even though profit were up due to lower taxes and investment banking.

If core banking growth is weak then we may see more competition among American banks for business which should lead to some of the income tax savings being passed onto customers. Many aspects of banking are not the subject of much competition. But things like mortgage lending rates are usually subject to still competition, I believe.

I doubt that the market will fall much if at all in reaction to the Syrian air strikes. In the end it is always difficult to predict market reactions but it is possible to react to whatever the market does.

90-day mortgage default figures for Canada were released on April 10. These figures are released on a delayed basis and we got December and January figure. The official 90-day defaults remain very low especially in Ontario at 0.10% or just one mortgage in one thousand being 90 days late. But this is up slightly from the probably all-time low of 0.09% in November. These figures tend to be apparently very much a lagging indicator rather than leading. At present most people can still borrow new money to help make payments on older debt. This may continue to be the case unless something happens to throw fear into the lenders. And they have to be careful. Slowing down the flow of new lending could reveal more people dependent on new debt to make old payments and could easily spiral into a sharp credit contraction. So far there is absolutely no sign of that.

Comment on Bus Safety April 12, 2018

The horrible tragedy in Humboldt Saskatchewan took the lives of at least two kids from St. Albert, a suburb of Edmonton that has been my home for 23 years and where my kids were raised. I don’t know the families but I suspect they were not too many degrees of separation from my family. The loss here is unimaginable.

I saw an article today where the Canadian Safety Council is calling for seatbelts on all coach-style buses. They were not yet aware of whether this bus had seatbelts.

We can never eliminate all risks but I think bus safety should be reviewed as a result of this tragedy.

I have the following thoughts/suggestions and I have sent these thoughts along to the Canada Safety Council.

All buses should have seat belts. Maybe school buses don’t really need them due to their high and close-packed seats and usual slower speedsbut what would it cost to just install lap belts like on airplanes? What kind of message is it to kids when there are no seat belts on school buses?

All coach buses should have seat belts.

Obviously, when there are seat belts they should be used. About seven years ago, I was on a bus with a team of around 15 year old hockey players and we encountered very severe winds going from Lethbridge toward Calgary. We passed an overturned transport truck at one point. I had my belt on and it was at my suggestion that the coaches got everyone to buckle up. As coaches and parents and bus drivers, we adults should have required that in the first place. How many people, when they get in a taxi for some reason don’t buckle up? Seat belts are there to be used.

Coach buses may need better structural integrity and strength. The sides seem to be almost all windows. Is that part of the problem? It appears the whole top of this bus sheared off.

What about the roads? Surely rural intersections should have rumble strips. And should speed limits be reduced in both directions when approaching intersections?

And what about truck diver regulations? In this case it looks like an inexperienced new driver was driving a tandem style truck (towing two trailers). There is probably room for better regulation there.

I am not suggesting seat belt or bus structural integrity were the cause here. But it makes sense to review bus safety at this time. We can’t change the past. But we most certainly can change the future.







April 12, 2018

In what seems to be a bit of an alternating daily pattern, markets were up on Thursday as Trump clarified that when he told Russian to get ready for missiles “because they will be coming” he did not say when.

The S&P 500 was up 0.8% on Thursday and Toronto was up 0.1%.

WSP Global was up 3.5%

Costco was up 2.3% after reporting another month of very strong same-store sales. Adjusted for foreign exchange and volatile gasoline prices, same store sales in March were up 5.8% year over year and 6.5% in the first 31 weeks of this fiscal year. That is excellent growth.

It’s not clear how much of that is higher store traffic and how much is higher prices. While Costco boosted membership fees last June, I don’t think same-store sales includes membership fees. I had thought that with lower income taxes there might be competitive pressures to lower prices but there is apparently no sign of that so far.

Costco is a fantastic business that always looks expensive in relation to earnings. But if this level of growth keeps up then perhaps the shares are worth the price.

Taking Advantage of Volatility

Over the past few months I added to a number of stocks that I like when the price fell.

Logically, I could sell those latest buys even on a 10% or so rise. That would give me cash in case more and bigger dips occur.

However, when it comes to the stocks I have rated Buy and certainly (higher) Buy or int eh Strong Buy range, I find it difficult to sell any. The reason to sell in this case would have little to do with valuation but would be more for portfolio management. Still, I feel like a traitor or something to sell any of those higher-rated stocks. However, today I entered a few orders to sell just some shares that I bought on dips should their prices rise about 10% from where I recently bought. These orders were for Linamar, Toll Brothers and AutoCanada and I had an existing order in for TFI Industries. Again, this is just to sell some shares recently bought on dips while retaining mot of the position. This seems to me to be a logical approach to take advantage of volatility.

April 11, 2018

Sometimes it feels like the U.S. market is taking turns, one day up and one day down. Yesterday was up, today was down somewhat.

On Wednesday, the S&P 500 was down 0.55% while Toronto was about unchanged.

There were no particularly notable moves in the stocks on our list.

Oil (West Texas) is up to $66.75 on concerns about Middle East instability. This may be temporary but still is a positive for the western Canadian economy.

It is remarkable that the market reacted quite calmly to President’s Trump’s promise to fire missiles at Syria in defiance of Russian warnings about that. The market generally seems to hope that some of Trump’s scariest pronouncements are more bluster than substance.

As disclosed, I have added to a number of positions as prices fell in the past few months. Today I entered a few orders to pare back some U.S. stocks if their prices rise about 5 to 10%. This for Toll Brothers, Visa and Bank of America.


April 11, 2018 6:10 am eastern

On Tuesday, the volatility continues with the S&P 500 up 1.7% and Toronto up 0.2%.

Oil (West Texas Intermediate) is at U.S. $65.68.

Most stocks on our list were up. BHP Billiton was particularly strong rising 4.85% for BBL American Depository Receipt on New York.

Alimentation Couche-Tard was down 2.1%. Someone asked me about that and I decided to add a little to my position. I think it is a high quality company for the long term. Some might argue that its big growth days are over. But so far, I have seen no indication that its growth ambitions have abated.

Regarding the Trans Mountain Pipeline:

The following is a link to a site dedicated to showing support for the project. There is a link at the top right that sends a message to politicians. Sometimes (almost always?) petitions are over the top but the message they are sending here looks reasonable to me – that is, please enforce the law and allow this already-approved pipeline to proceed.

Statistics Canada has released building permit data for February.

Single family permits fell 7% versus January (presumably, that is seasonally adjusted).

Alberta had a 47% surge in multi-family permits. That tends to be a volatile number. Still…

“Alberta reported an increase in every building component in February except for commercial and industrial structures. The residential sector rose by 20.5% to $838.9 million in February, primarily a result of higher construction intentions for multi-family dwellings.”

Amazingly, we will start to get Q1 reports in the next few days. The big U.S. banks seem to get their earnings reports out rapidly. That always impresses me because there has to be a massive amount of work to get the numbers together and the written materials and to check all those words and tables for mistakes. There are also loan loss estimates that must be very carefully considered.

I saw a bit of Mark Zuckerberg’s testimony yesterday. I thought he did well. In the few questions I heard he was usually interrupted in his response though as the Senators really want to make a speech as opposed to ask a question.



April 9, 2018

On Monday, markets continued to be volatile. The DOW closed up 46 points but had been up over 400 points at the high point today. The S&P 500 ended the day up 0.3% while Toronto was up 0.1%.

Most stocks were up modestly on the day.

Kinder Morgan Canada, the builder of the Trans Mountain pipeline, is not on our list but I have mentioned it a few times and I own a small position in it. It was down 12.6% today as it announced that it will not move forward unless the opposition to the line by the B.C. government is resolved and its gets assurance that it will be allowed to build this approved pipeline.

The approval for this line may be a big disappointment to those opposed. But the fact is that it has been approved by the Federal government. It now behooves governments and law abiding citizens to cease any illegal attempts to block this line.

It is sad to see Albertans pitted against residents of B.C. People by nature like to form into “us” versus “them” or even versus “the enemy” groups. If Alberta does take strong (and probably illegal) actions against B.C. such as cutting off oil flows, this will get a LOT of support in Alberta.

Trump has demonstrated that it is easy to cater to people’s meaner instincts and get people riled up against enemies, perceived or real.

As far as Kinder Morgan Canada goes, I am not particularly tempted to add to my position. It remains possible that the Trans Mountain pipeline will indeed not get built.

I sold my Heineken shares today as planned…


Heineken N.V. updated April 8, 2018

Heineken is updated and rated (lower) Sell at 90.20 euros on the Amsterdam stock exchange or $55.20 on New York for the American Depository Receipt HEINY which equates to one half of a Heineken share.

Heineken is best known for its namesake beer brand and is a huge global brewer with many brand names.

Heineken was first added to the site on July 28, 2016 with a lukewarm rating of (lower) Buy. Since then it is up 7% in Amsterdam but 19% for the ADR on New York which shows the benefits of currency diversification at times. Not long after it was added to the site the price had declined almost 20% and I reported taking a small position on October 8, 2016 and January 3, 2017 at prices near the lows. Buying on the dip has resulted in a gain of 41%. Given the updated rating I will likely sell these shares. It’s a strong company and I would consider buying back in on a substantial dip.

(I had removed Heineken from the list for the start of 2018 since the report was well out of date.)


April 8, 2018

Today, I am posting from the Atlantic Ocean aboard the Brilliance of the Seas on the fourth day of a cruise from Tampa. The first stop is in the Azores. Then three stops in Ireland (Cork, Waterford and Dublin).

We finish in Amsterdam where I will tour the world’s oldest stock exchange. The Dutch East Indian Company better known back then as the VOS which is  short for its name in dutch (the Vereenigde Oosst-Indische Compagnie) is generally considered to be the first joint stock company in the world. The VOS had its Initial (and I believe only) Public Offering (IPO) in 1602. Initially, the shares traded infrequently. But over the years trading became more frequent and many investors used extreme leverage to attempt to get rich quickly. It was not long before there were complaints of stock price manipulation and before problems with naked short selling arose. When it comes to speculation and gambling, people have apparently not changed much in the last 416 years.

The internet connection on this ship is very good and so far I have  not had any problems.

On Friday, the market was once again concerned about the implications of Trump’s threats regarding trade. The S&P 500 was down 2.2% and Toronto was down 1.0%. AutoCanada was down 5.0% and Toll Brothers was down 3.2%. TFI International managed a 1.4% gain. Declines certainly should never be considered to be unexpected when holding stocks. Companies that rose more on expectations and speculation tend to fall the hardest. Solid profitable companies tend not to fall as much and can usually be expected to recover. Market dips always loom large when they occur but usually tend to look relatively minor in hind sight after a few years. And, lower prices offer opportunities to invest.



April 5, 2018

On Thursday, the S&P 500 was up 0.7% and Toronto was up 1.3%.

CRH Medical was up 9.5% in a partial recovery of recent losses.

AutoCanada was up 4.9%.

Toll Brothers was up 1.8% to $44.62. A few days ago it had been down very close to $41.

Couche-Tard was down 1.3% to $56.16. Earlier in the day it was as low as $55.06 which was surprising for this strong company on a day when most stocks were rising. I took the opportunity to add to my position, Quite possibly, I should go a little slower in buying on dips but I think Couche-Tard will continue to have a bright future.

Meanwhile, as of this evening futures markets suggest the DOW may open 400 points lower on Friday morning. This is a result of Trump calling for even more duties against China.

April 5, 2018

Markets on Wednesday recovered from initial big losses related to trade worries and the S&P 500 ended the day up 1.2% while Toronto was down 0.1%.

Toll Brothers had a strong day rising 4.1%.

CRH Medical continues to slip back and was down 4.3% in Toronto.

Boston Pizza was down 0.6% to $19.61 and pays monthly distributions that total $1.38 per year. I am hopeful that it will report same-stores sales growth for Q1 based on menu price increases. In any case the yield is attractive for those not too concerned about the price as opposed to the distributions. I bought units today in an account that is not mine but that I control.

April 4, 2018 10:20 am eastern

The S&P 500 and Toronto are each down about 1% as the market continues to be concerned about escalating trade tensions and actions.

Obviously, with the U.S. market still trading at a high P/E markets could certainly continue to go down. I have never been able to predict such things. Instead, my strategy has been to react to lower prices by adding to positions. At the same time, I try not to be in a hurry in doing that.

Soon, U.S. companies will begin reporting Q1 results. Expectations are that earnings will be up considerably versus last year in many cases due to the lower income taxes. This should already largely be reflected in stock prices. But the actual results if they are very positive could give a boost to markets.

April 4, 2018 8:30 am eastern time

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

TFI International (formerly TransForce) was up 1.3% after announcing an acquisition of a Quebec trucking company with 300 tractors and 1000 trailers. This would seem to be a relatively modest acquisition for TFI and continues its long-time growth-by-acquisition strategy which has been a successful strategy over the years.

Linamar was up 1.5%.

Penny stock Ceapro was up 7% and will release Q4 earnings very soon I believe.

Boston Pizza was down 1.3% to $19.73 which results in an attractive yield.

April 2, 2018

On Monday, the S&P 500 was down 2.2% while Toronto was down 1.0%.

Most stocks were down including:

WSP Global down 2.9%, Canadian Western Bank down 2.6%. Walmart down 3.8%, Costco down 3.0%, and Toll Brothers down 3.0%.

U.S. government treasury bond yields were down. The 10 year is at 2.73%. Earlier this year it appeared set to exceed 3.0%.

Canadian government bond yields also declined with the 5 year bond yield now trading under 2.0% versus highs of 2.14% earlier this year.

Dividend stocks fared better today, for example Fortis up 0.3%, RioCan up 0.5%.

If interest rates don’t rise much, which seems possible with the weaker growth in the Canadian economy then the yield stocks may turn out to be good investments.

April 2, 2018 noon eastern time

The second quarter of 2018 has started off on a negative tone with the DOW currently down 492 points or 2.0%.

This appears to be due (at least partly) to escalating trade tensions between the U.S. and China.

Toll Brothers is down 4.7% at the moment to $41.22 which is significantly more than the market and may be due to an analyst downgrade and/or concerns about higher interest rates and the impact on the housing market. Given my recent rating of (higher) Buy at $43.91 I decided to add what amounted to 5% to my already heavy allocation to this company. I have had good success over the years on buying stocks on dips including Toll Brothers. It has solid assets and a record of growth over the long term. The company itself also has a recent history of buying back shares quite aggressively on dips.

This morning I also sold the portion of my Constellation Software shares that were in an RRSP (therefore no income tax implications) and I placed an order to sell a portion of the shares I hold in a taxable account if the price happened to rise to $925.

April 1, 2018

On Thursday, the S&P 500 was up 1.4% and Toronto was up 1.3%.

WSP Global; was up 2.8%and BHP Billiton was up 2.2%.

Linamar was up 3.5%.

Thursday marked the end of the first quarter. The S&P 500 was down 1.2% in the quarter while Toronto was down 5.2%.

The index of the largest 60 stocks in Toronto now appears to be attractively priced with, I believe, a lower P/E than we have seen in some years.

The ishares ETF  XIC  shows the trailing P/E at 14.6 and the price to book ratio at 1.8 and the yield at 2.8%. This all seems quite attractive. If I had a large cash position or was looking for added exposure to Canadian stocks I would likely buy this ETF at this time. This index is heavily weighted to the large Canadian banks and also with a large weighting in energy.

Our Canadian ETF article lists a good selection of sector ETFs as well. Click the links there to get an updated P/E ratio.


Constellation Software Report updated March 31, 2018

Constellation Software is updated and rated (lower) Sell at Canadian $874. (The report has the price in U.S. dollars because it reports in U.S. dollars). Constellation is a great company and exceptionally well managed. Historically, selling this company has been a mistake. Perhaps it would be a mistake to sell now. But it is trading very high on a P/E basis using adjusted earnings. And growth appears to have slowed somewhat although it is still strong. I’m becoming a bit concerned that they seem to be somewhat aggressive in some of their adjustments to earnings. They have been adjusting the same way for many years and it has not been a problem. Still, any hint at being aggressive in that way always bothers me. I have about 2% of my portfolio in this stock. I intend to sell the portion that is in an RRSP. I am not sure if I will sell the portion that is in a corporate taxable account.

March 28, 2018

On Wednesday, the S&P 500 and Toronto were each down 0.30%.

But many stocks were up. Boston Pizza recovered some ground rising 3.3%. Couche-Tard was up 2.9% and Stantec was up 1.4%. Despite a poor start to 2018 I think these investments will do well over time.




March 27, 2018

On Tuesday, the S&P 500 was down 1.7% giving back a good portion of Monday’s gain of 2.8%. Toronto was down 0.5%.

Most of the U.S. stocks on our list that rose yesterday gave back a good portion of those gains today.

Boston Pizza Royalty Income Fund units slipped under $20 and are yielding 7.0%. I grabbed 300 additional units today.

My expectation is that distributable cash per unit will have risen when Q1 is released in about six weeks. This will be driven in part by menu price increases in Ontario in response to the minimum wage increases. In January, sales at food services and drinking places in Ontario were up 5.3%.

If BP can maintain and slowly increase its distribution then I believe these units should rise in price unless interest rates increase quite markedly.


March 26, 2018

On Monday, the S&P soared 2.8% as fears of a Trump trade war with China were reduced. Toronto was up 0.5%.

U.S. stocks that surged with the rally included FedEx up 4.5%, Berkshire up 3.6%, Costco up 3.5% and Amazon up 4.0%.

The Canadian stocks on our list mostly did not do nearly so well although Constellation Software was up 3.8%.

Stantec was down 1.3% and Alimentation Couche-Tard was down 1.2%. I believe both of these should see strong earnings growth in 2016 due to their recent large acquisitions. I added to my Stantec position today.

I also added to my very modest Home Capital position (not on our list). I am buying Home Capital due to Warren Buffett’s investment. Following Warren can occasionally turn out badly – but not usually.

S&P 500 Valuation article updated March 25

My article on the valuation of the S&P 500 is updated. Based on actual trailing GAAP earnings the index looks over valued with a P/E of 23.6. But projections are that earnings will surge in 2018 due to the Trump income tax cuts. The article shows in the first table the GAAP and operating earnings projections for 2018. If the projections prove correct then perhaps the S&P 500 is not over-valued. I would not count on those ambitious 2018 earnings projections being achieved.

March 25, 2018

On Friday, the S&P 500 was down a hefty 2.1% and Toronto was down 1.1%.

Most stocks were down…

Canadian Western Bank was down 2.8% to $33.22. I grabbed a few more shares on Friday.

Couche-Tard was down another 1.7% and I added modestly to my position in this company.

Stantec was down 2.3% to $31.72

AutoCanada however was up 4.0% as the market digested news of the acquisition of eight dealers around Chicago which it announced on Thursday morning.

Futures markets on Sunday evening are suggesting stocks will open modestly higher on Monday morning.

Statistics Canada reported on Friday that the consumer price index in February was 2.2% above that of February 2017. This apparently increases the betting that the Bank of Canada will raise interest rates at its next meeting in may. The lower Canadian dollar should contribute something to inflation in Canada.

In the U.S. I wonder if the lower corporate taxes will lead to price decreases in some highly competitive sectors such as groceries.

March 22, 2018

On Thursday, the S&P 500 fell a hefty 2.5% while Toronto was down 1.8%.

The spark was Trump’s moves to impose new tariffs on Chinese imports. I don’t think investors can claim to be shocked by this. Certainly Trump’s anti-trade views have been a risk to the market. And the fact that the U.S. market has risen so much since Trump’s election meant that it certainly had room to fall.

Some of the bigger decliners were companies heavily involved in trade. This included Fed Ex – down 5.1%. BHP Billiton down 4.0% and Linamar down 4.4%.  I’ve been trying to hold onto some cash in order to take advantage of lower prices if and when they occur. Today, I added modestly to my Linamar position. My approach in deploying available cash would be to go slow.

AutoCanada was up modestly for most of the day on news of a major acquisition. But it ultimately was swept into  the downdraft and closed down 0.7%.

AutoCanada is buying a group of eight dealers in a d around Chicago. This transaction is another indication that AutoCanada intends to continue with its growth by acquisition plans. At some point this could lead to more interest in the stock but given a current lack of enthusiasm for the auto industry, I don’t think we will see AutoCanda’s really stock take off. I had last rated the company a Buy in January. Since then it came in with strong Q4 earnings and now this announcement. I continue to hold AutoCanada and may add to my position.


March 21, 2018

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

Linamar was up 2.5% to $73.52 after some positive news on the NAFTA front that the U.S.A was dropping its proposal that all cars coming into the USA under free trade arrangement would need 50% American content to qualify for free trade status.

BHP Billiton was up 3.6% (the BBL version) and 2.6% (the BHP version).

Couche-Tard slipped another 2.1%

Toll Brothers was up 2.1%.

West Texas Oil futures are trading at just over $65. That is positive for Alberta… if it lasts.

The U.S. FED raised overnight lending rates by 0.25% to a target range of 1.5 to 1.75%. Many (uninformed) people had said that the FED could not raise rates due to the damage it would cost – especially to U.S. government interest charges. Yet rates have gone up six times since late 2015 when the target range was 0 to 0.25%. The markets were apparently a bit relieved that the FED signaled it will raise only twice more this year. But they apparently signaled another three hikes in 2019 and some in 2020 as well.

The Canadian dollar was up approximate a full U.S. cent today or 1.3%. This was apparently related to positive news on the NAFTA front. This goes to show how very difficult it is to predict the exchange rate. I recently converted some U.S. dollars to Canadian at rates better than had existed in some months. I had been patiently waiting and the patience paid off in that case. But I also sat on some more waiting to see if the Canadian dollar would drop even more. That was perhaps a mistake. If you have currency you want and especially if you NEED to convert, it is probably best to just to just do it rather than get cute hoping the rate will improve. Unlike the case for most stocks there is no particular valid expectation that currency will move in a given direction over time. (Non-valid expectations are another matter.)

March 20, 2018

On Tuesday, the S&P 500 was up 0.15% and Toronto was up 0.2%.

Couche-Tard was down 6.5% (see the post just below this one for details).

AutoCanada was down 2.0%.

Oil (at least the West Texas variety) was up 2.2% to U.S. $63.42. That’s about $83 Canadian dollars which is not a low price. Of course the price for Canadian heavy oil is far lower due to lack of pipelines, transport costs and also the heavier nature of the oil.

In any case, today’s oil prices have not been enough to ignite much enthusiasm for stocks associated with Alberta. Canadian Western Bank had been doing well but is down about 13% from its recent highs. Melcor remains moribund despite a strong Q4. Ditto for AutoCanada. Stantec is headquartered in Edmonton and still gets an important chunk of revenue from Alberta but it’s far less dependent on Alberta or even Canada than it used to be. Yet it also seems to be affected by this pox on Alberta stocks. In addition there is a certain amount of gloom over most Canadian stocks due to concerns about NAFTA. Some of these stocks certainly seem under-valued and some may achieve very strong earnings growth in 2018. I think patience will be rewarded in such cases.

Alimentation Couche-Tard updated March 20, 2018

Alimentation Couche-Tard is updated and rated Buy at $59.60.

The stock dropped 6.5% today after it released earnings that “missed analyst expectations”. I would say it is more accurate to say that its earnings came in lower than analysts incorrect forecast. Lower gasoline margins (they tend to be volatile) and some higher expenses associated with acquisitions led to the lower adjusted earnings. I don’t think anything in its growth story has changed. Adjusted earnings per share were up only 1% this quarter but had risen 38% in the prior quarter.

Due to acquisitions, revenues are through the roof. I believe that on a run-rate basis this is now easily the largest company by revenue in Canada. That won’t show up in the rankings this Spring which will use Couche-Tard’s figures from its fiscal year ended April 2017 (old news). But revenue is way up since then.

The stock is reasonably priced but is not a screaming buy. I would add to positions on dips and I did so today. Earnings per share could rise substantially in the next year as it digests its latest acquisitions.


March 19, 2018 and a comment on Melcor

Markets were down on Monday with the S&P 500 falling 1.4% and Toronto down 0.8%.

BHP Billiton was down 2.6% in New York. This and the recent declines partly due to currency fluctuations as the stock has not fallen much in Australia. But it is fair to measure it in U.S. dollars which is what it mostly operates in and reports in. For Canadians the declining Canadian dollar offsets some of the decline in the stock.

CRH Medical continues to slide back from the gains it had recently made. It was down 5.6% today in New York.

AutoCanada bucked the trend and was up 4.6% which was well deserved given its earnings release last week.

I continue to think about the reasons why Melcor Developments is trading at less than half of book value despite the “hard” nature of its assets. Part of the reason is probably that it mixes a REIT in with a property developer. For whatever reasons, investors seem to have very little interest in developers of raw land. There may be other publicly traded companies in Canada that are primarily in the business of developing raw land into residential building lots and serviced commercial land – but I don’t know of any.

Property development is a business that can, by nature, produce VERY “lumpy” results. Imagine if you bought one parcel of land on the edge of a City and sold it 15 years later for a huge gain. You might have 14 years of losses due to interest payments (even if the market value of the land was soaring) and no revenue and then one year of huge profits. In this scenario the annual accounting earnings would bear no relation to the actual annual changes in the value of the land. In Melcor’s case it has a big portfolio of land and it develops the land and so there is certainly some profit from its development operations virtually every year. Nevertheless, its accounting earnings may often bear little resemblance to the true change in its intrinsic value per share each year.

I have been following Melcor closely since the end of 2002. At the  end of 2002 the stock was trading at 96% of book value. At the end of 2000 it had traded at only 62% of book value. In the years since 2002 it briefly traded at over 300% of book value in 2007 when oil prices and optimism were high. As oil prices fell in 2008, the stock fell under 100% of book value. IFRS accounting starting in 2010 inflated book value (which soared 63% that year mostly due to the accounting change). by marking up its rental buildings to market value and the price to book fell (partly for that reason) to an average of 67% in 2012. It briefly recovered past 100% in 2014 but averaged 88% that year. With lower oil prices Melcor’s average price to book ratio fell to 47% in 2016 and averaged relatively similar in 2017. Today the price remains mired at about 47% of book value despite quite a substantial recovery in oil and in the Alberta economy. There was also a noticeable recovery in Melcor’s profits in 2017.

Melcor’s land (other than under its rental buildings) is not marked to market. I would like to think that some of its land is worth more than book value. But some may be worth less than book value if the land was purchased in the more buoyant economy around 2014. Overall, there is no reason to think that Melcor’s assets are worth less than book value.

I think Melcor’s share price will increase in 2018 if its earnings rise substantially or at least noticeably. Melcor has indicated that 2018 is starting off strongly with lot sales having returned to normalized levels. There are still risks given that lot sales could certainly slow and that rental property values would have to be written down if interest rates rise pushing down the market value of commercial rental property.

Overall with a share price of 47% of book value, I think Melcor is at the low end of that range. A rise in profit would push up the book value as well as the trading multiple to book value. Given the higher book value due to IFRS accounting we will almost certainly never see the stock price at anything close to 300% of book again. But something a bit over 100% is certainly not too much to ask for. Melcor’s book value per share has increased almost every year. There can be no guarantee, but I expect that trend to continue.


Linamar updated March 19, 2018

Linamar is updated and rated Strong Buy at $71.73.

There are always risks and Linamar’s price reflects a certain amount of NAFTA fear and reflects the fact that auto production in North America slowed in the last half of 2018.

But looking at the valuation and at the track record of this family-founded and ran company, I am optimistic. I think hitching a little wagon load of my money to what seems to be the Linamar locomotive will work out well over the years.

March 18, 2018

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

Toll Brothers was up 2.1%.

The Canadian dollar was down and is currently at 76.3 cents. I had been wanting to move some U.S. dollars back into Canadian dollars and have used this latest drop to move some dollars. I can’t predict the direction of the dollar. Instead, I am reacting to the lower dollar. I am getting a better price (in Canadian dollars ) for my U.S. dollars than I would have last week or last month. In order to convert the currency I bought DLR.u (this is in U.S. dollars) on Toronto on the U.S. side of my account and had that “journaled” to the Canadian side of the account and sold it as DLR in Canadian dollars. For more information enter DLR in the search box on this page.

Futures markets are down very slightly as of Sunday evening. A headline indicates that the market does not care about Trump’s twitter meltdown. Trump’s policies may or may not be good for the U.S. but it is hard to imagine how his attacks on various institutions of government is anything good. At some point the market may decide to be scared of what is going on at the Whitehouse.

March 15, 2018

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

TFI International (TransForce) was down 2.9%. Our last rating was only (lower) Buy.

After the close, AutoCanada released Q4 results that were very strong. I don’t know what the expectations were but I would expect the stock to rise on this news. I was recently in the market for a new vehicle and was in a half dozen dealerships around Edmonton in the last five months. In my experience most of the dealerships were quite busy. I expect AutoCanada to continue to do well.





March 14, 2018

On Wednesday, the S&P 500 was down 0.6% while Toronto was about unchanged.

Toll Brothers was down 1.6% and is worth considering as a U.S. investment.

See the post just below this for an update and comments on Melcor.

I no longer have Liquor Stores N.A. on the list but I am keeping an eye on it to a certain extent. They just released Q4 earnings which included quite a large loss (73 cents per share). But you would have to look VERY hard to find mention of the loss in the press release. It took me a while to find it in the MD&A. They focus on adjusted results and on the future where they claim they will be strong in both liquor and Cannabis. Maybe so… They are under new management. Previous management that had taken over from the founders was terrible. Perhaps the latest new management will do much better.

Melcor Developments updated March 14, 2018

Melcor Developments is updated and remains rated Strong Buy, now at $14.00.

Certainly, Melcor’s stock price has been disappointing since 2014. Some of the decline was warranted due to the lower oil prices and the weak Alberta economy. But when oil prices recovered somewhat and the Alberta economy recovered and despite Melcor’s earnings rising, the stock price remains similar to levels it traded at in 2015. I have looked closely at the numbers and other factors and I believe the stock is substantially under-valued.

It’s trading at only 47% of book value. And while some of its assets have been “written up” to market value (and are at risk of a write-down as interest rates rise) indications are that the true value of its assets is equal to or greater than book value. For example in 2017 it sold a parking lot and an industrial building for proceeds that exceeded the book value of those assets even those both of those were already carried at estimated market value.

On an earnings basis it trades at 9.0 times my calculation of adjusted  earnings. For adjusted earnings I eliminate any gains or losses on fair market value of properties and I eliminate gains or losses caused by changes in the trading value of the Melcor REIT units which due to accounting rules are a liability on Melcor Development’s balance sheet. Overall I believe my view of adjusted earnings is somewhat conservative at this time because it gives no credit for the gains in property values that come from the development process.

So why does the market value these shares at only 47% of book value?

Part of the reason is that it has such low trading liquidity that many market analysts may be reluctant to mention it. For whatever reason it basically gets zero press and attention in the financial news.

Part of the reason may also be the complexity of its accounting. It owns 53% of the Melcor REIT and consolidates 100% of the REITs results and then shows a liability for the 43% minority interest. This creates complexity.

As a property developer, Melcor’s financial statements and results call for a a different interpretation than most companies. All of its undeveloped and partially developed land is better thought of as “inventory” rather than as fixed assets. For most businesses, fixed assets are used to produce products or services. In Melcor’s case these fixed assets get modified and improved and become the product. So we can think of Melcor as having a huge amount of inventory. And that inventory must be carried for quite a few years and its resale value is subject to decline at times (and increases at other times).

Part of the reason for Melcor’s low share price may be fear that its “inventory” will end up being sold at prices that fail to generate reasonable profits. To date, profits on lot sales have fallen somewhat but remain, I believe, reasonably attractive.

What has to happen for Melcor’s share price to rise appreciably?

A higher share price is probably going to require some higher level of investor interest. Possibly a sharp rise in earnings over the next few quarters could be a catalyst. That could happen since the first three quarters of 2017 were relatively low in profit.

Share buy backs are a possible driver of higher share prices but to date the company has been unwilling to buy back shares.

It’s possible that the company will increase the dividend if they continue to feel confident about the outlook for 2018 and beyond.

What could go wrong?

Melcor’s earnings could decline if home building declines substantially in Alberta. There is also the risk of vacancies and of mark-to-market losses on its investment properties due to vacancies and/or higher interest rates.

In the Meantime?

I am going to continue to hold Melcor on the basis that the shares are under-valued and that they are likely to rise over time due to growth and due to investors eventually recognizing the growth. Meanwhile there is also a 3.7% cash dividend yield. I am not holding this for the yield but the yield is helpful. Melcor has very solid assets and it simply seems likely that buying or owning these at 47% of book value of equity is going to work out well eventually.




March 13, 2018

On Tuesday, the S&P 500 was down 0.6% while Toronto was up 0.3%.

Alimentation Couche-Tard was down 2.8%. I would be tempted to add to this stock on dips.

CRH Medical continued to slip back from its recent gains and was down 4.9%.

Linamar was down 2.0% probably due to continued trade war rumors.

U.S. inflation came in about as expected at 1.9%.

I am currently working on an update for Melcor Developments. It really finished the year strong and yet the stock price is stuck remains down near the 52 week low.

March 12, 2018

On Monday, the S&P 500 was down 0.1% whole Toronto was up 0.2%.

Melcor Developments was up 3.6% but that is not very meaningful on this thinly traded stock.

Note the previous post to this which updates the Melcor REIT.

Many Alberta-based stocks are still suffering from investor pessimism. But take a look at the Alberta Economic Dashboard and it indicates the economy in Alberta has been recovering quite strongly (which is not to say that it is back to where it was, it’s not).




Melcor REIT updated March 12, 2018

The Melcor REIT is updated and rated Buy at $8.07 to yield 8.4%.

This REIT is trading at a 30% discount to the book value of the equity or a 14% discount to the total value of debt plus equity. Presumably there is investor fear about vacancies and rental rates in Alberta. And those fears may be valid. But I like the discounted price which provides some margin of safety.

Some of the REIT’s properties are relatively new buildings that have long-term attractive tenants such as Shoppers Drug Mart, various bank branches, Tim Hortons, Star Bucks and other name-brand retail tenants. About half of the income comes from office properties and some or most of those buildings are older.

Since these units are not eligible for the dividend tax credit they are perhaps best suited for registered accounts.

March 11, 2018

Friday was a strong day for the U.S. markets with the S&P 500 up a hefty 1.7%.

Toronto was up 0.25%

Gainers included Visa up 1.9%, American Express up 2.6%, Berkshire up 3.7%, and FedEx up 3.0%.

CRH Medical retreated 4.7%.

My next update will be for the Melcor REIT.

An interesting thing about REITs that lease space to business tenants is that almost all the expenses tend to flow through to the tenants albeit some over a period of years. Most of us might be more familiar with residential rent leases where the landlord is responsible for property taxes and maintenance. With the long-term nature of business/ commercial leases and the flow through nature of almost all of the costs (not financing costs), the risk for commercial landlords including REITs is much reduced. They still do have risks in terms of vacancies and the market rent levels when leases expire but the risks would seem to be FAR lower than in the case of short-term residential leases where costs do not automatically flow through. There is also the risk of changes in interest rates and changes in market value of properties which affect commercial landlords and also residential landlords.

March 8, 2018

On Thursday, the S&P 500 and Toronto were each up 0.4%.

Linamar was up 8.4% to $73.75 after releasing a strong Q4 report.

Melcor Developments failed to react to its strong Q4 / 2017 earnings report and closed up 0.5% at $13.97. This for a company that has a book value per share of $30.21 per share and where the assets are solid consisting mostly of land and buildings. Granted, the book value has been boosted by IFRS accounting which marks its rental building up to market value. This is also a company that earned $1.15 per share in 2017 and $1.05 in 2016 (with Alberta in or recovering from a recession).

There is a great deal of commercial building going on near Edmonton. Despite oil prices being lower than 2014 these developers apparently still think that land and buildings in Alberta are a good investment. Those investors are effectively paying 100 cents on the dollar to construct new buildings. Meanwhile the equity of Melcor trades at less than 50 cents on the dollar. It seems to me that buying Melcor at around half of book value is ultimately going to offer a better return than would investing directly in similar land and buildings at market value. But it appears that continued patience will be required. Meanwhile the 3.7% dividend yield is not too bad.

CMHC reported that Canadian housing starts were running at an annual rate of of 230,000 as of February. This is at or about a record pace. Canada has been running at 200,000 or more for years while the U.S. has ten times the population is still building houses are far lower than record levels and is around 1.3 million houses per year. Certainly the pace of new home construction in Canada could slow with higher interest rates and a cooling home resale market. But so far there has been no decline.

Canadian Western Bank was down 0.2% despite posting better-than-expected results this morning. The bank also raised its dividend 4% which is a total increase of 9% in the past year. A CIBC analyst apparently “downgraded” the stock on concerns about the future growth rate albeit with a price target of $40. At one point today the shares were down to about $35 and I added modestly to my fairly large position in this stock, buying at $35.21. I had last rated it Buy at $40.55 and I do like to demonstrate the courage of my convictions.

CRH Medical updated March 8, 2018

CRH Medical is updated and rated Speculative Weak Buy / Hold at U.S. $3.15 or Canadian $4.07. Basically I would not buy at this price. This has been a disappointing investment over the past 17 months since it was first added to the site. After an initial sharp increase in price it plummeted over a period of months due to changes in the amounts it could bill for its services. It became a good buying opportunity this past Fall and we rated it Speculative (lower) Strong Buy at U.S. $1.85 or CAN $2.37. It certainly looked cheap then but it took a certain amount of bravery to buy it after its big decline in price. I had bought additional shares at low prices but the fact that I already had a lot of shares at higher prices meant that I was not prepared to add too many more dollars. I have now sold what amounted to 44% of my shares and I think that was prudent. Those with larger positions might want to lighten up. It may still have  a good future but its profitability in 2018 remains to be seen.

March 7, 2018

On Wednesday, the S&P 500 was close to unchanged (down 0.05%) while Toronto was down 0.5%.

CRH Medical was down 4.3%.

BHP (BBL on New York) was down 1.9% an the company has spoken out against Tump’s tariff plans for steel and aluminum. BHP’s main product is iron ore sold mostly in China and other Nisan locations and the tariff is likely somewhat harmful to BHP.

Costco was down 2.1% but then released results after the close that apparently beat expectations.

Linamar was down 0.6% but then released a strong earnings report after the close.

Canadian Western Bank was down 1.5% but will release earnings before the opening.

Melcor was down 0.9% and then released earnings after the close. It appears to me that the fourth quarter was fairly strong. Lot sales were strong but it was most mostly lower priced lots that they sold. They had been offering incentives to help sales throughout 2017 but they indicate that this is no longer the case as sales have returned to normal levels (which I would take to be higher than 2016 but lower than the peak years) in 2018. All in all, I see no reason for this stock to be trading at slightly under half of book value. Hopefully this report will push the price up somewhat. However, real estate is an unpopular sector at this time and so those holding this stock are likely to continue to have to be patient.

March 6, 2018

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

CRH Medical was up 12.8% in Toronto and a similar amount in New York. Apparently the market and or analysts were pleased with its Q4 report and the analyst conference call this morning. I may have been hasty in selling 44% of my shares today but we shall see. On an adjusted basis the profit level definitely supports the current share price. But I am not clear what the profit is going to be in 2018 with the government-mandated lower prices for its services. I will update the report for CRH in the next few days.

Meanwhile… stock futures are down about 1% on news that White House Economic adviser Gary Cohn has resigned. Trump’s views that all trade deficits are bad is certainly popular. I don’t think it is correct and it probably represents a very uneducated view. But voters are not typically educated in economics and so it plays well. Trump continues to claim that the U.S. runs a trade deficit with Canada when in fact it is a surplus once services are included as well as goods. Increasingly these days people seem shameless about using “alternative facts”. We shall see how things unfold.

Melcor Developments reports after the close tomorrow and Canadian Western Bank before the open on Thursday. Hopefully these stocks will respond positively on Thursday.

March 6, 2018 1:10 pm eastern

With CRH up a little this morning, I took the opportunity to reduce my position by what amounted to 44%. I had added to my position at prices as low as U.S. $1.75 and some at about U.S. $2.35. So these shares were sold at a profit (based on a last in, first out accounting). My position in CRH was larger than I was comfortable with and this was an opportunity to reduce that as well as raise cash. These were sold in RRSP accounts where triggering a gain was not an issue. I will update the report on CRH before long. We won’t likely know its profitability under the new pricing rules until it releases Q1 results. Generally, the business model still looks good to me but I am bothered by the financial press release not even mentioning net earnings to shareholders.

With Melcor dipping down to $13.95 today I could not resist grabbing a few more shares.


March 5, 2018

Monday’s markets improved through the day and the S&P 500 closed up 1.1% and Toronto rose 1.0%.

CRH Medical released Q4 results after the close. The revenue gains seemed quite positive and the outlook for revenue for 2018 seemed somewhat optimistic despite the government-mandated price reductions that they face in 2018. The entire focus of the press release was on EBITDA which I find disturbing. Possible, the reason for this is the analysts who follow the company are most interested in EBITDA. We will see how the market reacts. Any material increase in the stock price might be limited because a lot of people have been burned by this stock and might be eager to sell.

The CEO at CN Rail has been ousted in what was clearly an unfriendly parting. It is impressive to see a Board act so independently and decisively. But I think it was quite unnecessary (and a low class move) to basically insult the outgoing CEO by stating ““The Board believes the company needs a leader who will energize the team, realize CN’s corporate vision and take the company forward with the speed and determination CN is known for,” said Board Chairman Robert Pace.”  Warren Buffett has said that the main job of a Board of directors by far is to select the proper CEO. In this case the Board, in 2016, selected their relatively long-serving CFO (who had no operating experience) for the CEO role. Naturally, the press release did not allude to the Board having made a mistake in that selection. I would not be a buyer of CN Rail stock on this news.

Bombardier is issuing $500 million U.S. in shares. I applaud the move. Their balance sheet is extraordinarily weak and it behooves them to raise equity. This should be good for the bond credit rating and the preferred shares although the credit rating would remain very weak.

Stantec updated March 5, 2018

Stantec is updated and rated Buy at CAN $32.22 or U.S. $25.05 (It was analysed at the previous closing price, it closed today at $32.42 and U.S. $25.05). Stantec has been a prodigious creator of wealth over the years but the stock has been relatively flat in recent years. It made a very large acquisition in 2016 that turned it into a global company. That large acquisition has not yet led to the expected increase in earnings per share. In Q4 in particular there were cost overruns on some projects in the acquired business. If, as expected, Stantec has now overcome these issues in 2018 then the earnings and share price could rise noticeably. I continue to have faith that the stock will resume its historic upward trend. However any unexpected continuation of material project difficulties into 2018 would likely send the stock lower.

March 4, 2018

On Friday, the S&P 500 was up 0.5% (although the DOW was down 0.3%) and Toronto as down 0.1%.

AutoCanada was down 2.0%. They will not release Q4 results until March 15. I am expecting improved results in Q4 and and an improved outlook for 2018.

Canadian Tire was down 1.8%.

The Melcor REIT rose 2.1% after releasing earnings. They noted continued pressure to lower rents upon renewal of office leases in Edmonton. And there is some risk of increased vacancies. Overall they saw signs of improvement in the market but their cash flows from operations per unit do not seem likely to grow in 2018 even with the addition of new properties acquired from Melcor in January. Still, with a cash yield of 8.3%  these units seem attractive. They booked a modest fair value gain of $3.8 million on investment properties in the fourth quarter versus losses of $16.6 million in the first nine months of 2017. Fair value losses are to be expected as interest rates rise.

When Melcor Developments reports on Wednesday, I expect their lot sale numbers to be good. However lot sales from their busy new Jensen Lakes subdivision could be at lower gross profits since that land may have been purchased at time of peak land values. Melcor will presumably not report any fair value losses on properties in Q4 but rather would report gains due to progress in developing new buildings. I am under the impression that Melcor may book a small loss on properties transferred to the REIT in January 2018. The reason for that would be that such properties were earlier marked up to market value and the transfer may have been at a price slightly lower than the Q3 estimate of market value. Melcor Development shares are trading at half of book value. That would seem to provide a substantial margin of safety. It’s hard to imagine that there shares are not under-valued.

I am currently working on an update for Stantec Inc. Stantec stumbled somewhat in Q4 with some cost-overruns and there were also some unusual income tax expenses. I remain positive on Stantec. I notice that the company resumed buying back shares on February 27 and 28 as the price declined with the earnings release. Stantec also happened to mention its work on housing developments in southern Alberta had increased in Q4.


Toll Brothers updated March 2, 2018

Toll Brothers is updated and rated (higher) Buy at $43.91. The last update was on October 9, 2017 at $42.81. After that it went as high as about $52 before sliding back after the middle of January. I had reported trimming my position somewhat but I still thought it represented reasonable value at $52.

The earnings on this company have marched rather steadily higher since 2011. But the stock price has been somewhat volatile. The dips can be hard to take but they do provide buying opportunities. I would describe the Q1 earnings report released February 27th as very strong indeed. Yet the market found reasons to push the stock down. This should be a good investment at the current price.

March 1, 2018

Markets fell on Thursday and Trump indicated he will impose tariffs on steel and aluminum imports to the U.S. I am not very familiar with the rules but for things subject to NAFTA the partners are allowed to impose anti-dumping or countervailing tariffs in situations where goods are being sold abroad at lower prices than domestic (so-called dumping) or when goods are subsidized by government (countervailing tariff allowed). I would think that if the new tariffs apply to Canada then there will an opportunity to challenge it under NAFTA and the associated dispute rules.

The U.S. markets fell on this news because it is more evidence that Trump is anti trade in general. For at least several hundred years most of the world has generally been increasingly pro-trade. The U.S. is less dependent on trade than most nations (and far less than Canada) and is in a position to try a more protectionist approach if it wishes.

The S&P 500 was down 1.3%, the DOW was down 1.7% and Toronto was down 0.3%.

It’s interesting that U.S. markets fell so much on this news about tariffs. Tariffs that Trump believes will be good for the U.S. or at least good for some of his voters.

Linamar was down 2.75%.

Canadian Western Bank fell 3.0%. I thought that they were reporting earnings today but in fact they report a week from today.

Toll Brothers will be my next update. I added a small amount to my Toll Brothers position today.

After the close, the Melcor REIT reported Q4 and 2017 results. For the year, the results were about flat. In Q4, Adjusted Funds from Operations were down 3% but in general results were fairly stable and occupancy remained at about 92%. While there was some loss in fair value of the buildings during the year there was actually a small increase in Q4. I don’t see why the markets would react negatively to the report but we shall see. The REIT hosts a conference call tomorrow morning.


February 28, 2018

On Wednesday, the S&P 500 was down 1.1% and Toronto was down 1.5%. I don’t know if there was any special reason. U.S. markets remain relatively close to record highs and seem somewhat jittery regarding higher interest rates. Lately a 1.1% move in the S&P 500 is simply nothing unusual.

Melcor closed down 4.7% at $14.90. The volume was 24,000 shares which for most companies is tiny but Melcor is very thinly traded and the average volume in the last three months is apparently only 5,000 shares per day. Today, most of the trading was near the end of the day and the price drop may reflect what happens when someone tries to sell 20,000 shares in a market that averages 5,000 shares. Had I noticed it going under $14 I likely would have picked up a few more shares. Melcor reports Q4 earnings on March 7

Meanwhile the Melcor REIT closed down 2.5% at $7.88 and my order for 1000 shares at $8.00 got filled. It will report earnings tomorrow, probably after the close.

Toll Brothers was down another 2.8% at $43.83.

Canadian Western Bank was down 2.0% to $37.93 and will report earnings tomorrow. I believe that will be before the open. I expect continued good results.

BHP Billiton plc (The American Depository Receipt BBL)  was down 3.6% to $40.82. The supposedly economically equivalent American Depository Receipt for BHP Billiton Limited trading as BHP in New York was down 2.7% to $46.50. The discount for BBL versus BHP is 12.2%. The reasons for the discount are not clear. I hold the discounted BBL shares. This is a more speculative investment since it is so dependent on commodity prices.

It’s always more enjoyable to see the prices of stocks that we own rise rather than fall. But these dips can provide buying opportunities.

Today I sold 300 shares of TFI International at $33.01. I had bought these 300 shares at $29.12 on a very recent dip and only bought because of the dip. Therefore I decided to sell given the shares had rebounded. I only have TFI rated (lower) Buy at $32.86.  Given that I am looking to raise some cash I placed an order to sell more shares if it hits $34.50.

The Canadian dollar has been dropping and is at 77.8 U.S. cents. I have been waiting for a drop to about this range or a bit below in order to transfer some U.S. cash to Canadian dollars using DLR and the Norbert Gambit which I described in detail on December 9th and 10th. Around December 10 the dollar was also at 77.8 cents and there seemed to be a lot of predictions it would decline. Instead, it promptly rose.

Transferring Funds to Australia

Speaking of transferring currency. This week, I was dealing with the issue of how a Canadian student living in Australia can transfer money from a Canadian bank account to a local Australian bank account.

Consideration was given to using HSBC which has branches both in Canada and in Australia. It was found that the HSBC in Australia was apparently not interested in students and in any case the Canadian HSBC is quite separate from the Australian operation. HSBC advertises itself as an international bank. I am not convinced.

Apparently, writing a cheque on a Canadian account and depositing into an Australian account could take weeks or a month to clear. We will test that.

A wire transfer did not seem feasible since a student in Australia can’t go into a the branch in Canada to sign for such a thing as required.

TD offers a service called Visa Direct. The Australian account came with a debit card that had the VISA symbol on it. Using that Australia Visa number it was possible to transfer money from a Canadian TD account directly to an Australian account. This turned out to be very easy to do online. TD charges a fee of $12.95 to transfer up to $2500 and then scoops an additional 2.5% or so exchange fee (over and above the wholesale rate) which presumably gets shared between TD and VISA and perhaps the receiving bank. It’s annoying to be charged 2.5% over and above the wholesale exchange rate but this was the most convenient method. I have, in the past, used the wire transfer and gone through a Foreign Exchange firm to get a better rate for larger amounts.

It seems to me that a number of banking procedures are relics of the past including wire transfers that require a branch visit. Hopefully some of the FinTech products will disrupt some of this including the fees.





February 27, 2018

On Tuesday, the S&P 500 was down 1.3% and Toronto was down 0.3%.

Toll Brothers was down 5.1% to $45.10 even though it reported strong Q1 fiscal 2018 earnings. Apparently the market was disappointed with the full year outlook. I believe it is a good investment at this price.

The Federal budget came out today. I don’t think there was anything in it that would affect stock market returns.

In my own trading, I am somewhat inclined to do some selling to raise cash. However, none of my bigger holdings look over-priced to me and so it is difficult to pull the trigger on any sales. Meanwhile, with the Melcor REIT trading as lkow as $8.00 today I decided to place an order for a small amount. The order did not get filled.

On the one hand I like the idea of owning a part of the various buildings that the REIT owns. On the other hand the units could decline with vacancies and higher interest rates. But I think the risk I am taking, with a small position in the Melcor REIT, is TINY compared to all those younger people who buy houses at today’s prices using 90% (or more) borrowed money and where the value of the house is multiples of their net worth. Stocks are generally perceived as risky and leveraged investments in houses as safe. Reality and perception are not necessarily aligned in this case.

February 26, 2018

Monday was another strong day in the markets with the S&P 500 up 1.2% and Toronto up 0.5%.

Canadian Western Bank was up 2.5%.

CN rail was up 2.2%.

Berkshire Hathaway was up 3.9% after releasing Q4 earnings and the annual letter and after Buffett appeared for three hours on CNBC’s Squak Box. He has made that very early morning appearance every year for about nine years on the Monday after the letter comes comes out. It is impressive that he has the energy to do that at 87. As always his memory was incredibly sharp and his knowledge encyclopedic.

The government of Alberta has announced that it will invest $1 billion in loans and grants to encourage the construction of bitumen upgrading refineries. It’s a bit ironic that it is an NDP government that is helping out private businesses this way. It is not quite as impressive as it first sounds since the money will be deployed over some eight years and won’t start for another year or so. Still, it should be positive for Alberta’s economy.

I am in the process of updating the breakdown of my personal portfolio. My cash position is down to 14%. As markets are rising I am tempted to see what positions I might want to trim to raise a bit more cash.

February 25, 2018

Friday was another strong day in the markets. The S&P 500 was up a hefty 1.6% and Toronto was up 0.8%.

Stantec was down 1.8% and I added modestly to my position in that company.

Warren Buffett’s annual letter came out on Saturday. I will comment further regarding the letter in the next few days.

On Friday, Statistics Canada released inflation figures for January.

One item of note is that Restaurant prices were up 3.9% year over year for Canada and 4.9% in Ontario. This could be linked to the higher minimum wages. All else equal, this should lead to higher revenues for the Boston Pizza Royalties Income Fund. Even if traffic goes down a bit I would think that revenues would be higher. That was not yet evident as of Q4 however and so we won’t know until Q1 is reported whether or not the higher prices are benefiting Boston Pizza. It could be a situation where the franchisees are somewhat harmed by the higher wages (given that prices may not rise enough to fully offset the higher wages especially net of any decline in customer traffic) while owners of the Royalty income Fund units benefit. Or, maybe the Fund unit holders will be harmed as well if customers respond negatively to higher prices.

When it comes to same-store-sales increases (for any “retail” business), an increase due to volume and traffic is preferred. But an increase due to higher prices is also usually beneficial.

The “Russian etc.” probes are catching fish very close to Trump. So far, the stock market totally shrugs that off. Maybe now that the Trump tax cuss are in place the market does not care if he gets charged at some point.



Canadian Tire Updated February 25, 2018

Canadian Tire is updated and rated Buy at $176.15.

This company has been extremely well managed and has set ambitious goals to keep improving and growing and has met those goals.

In the very long term it has created billion in value for shareholders.  $619 million of invested equity has a book value of $4750 million through the retention of earnings and this is net of substantial dividends paid out. The market values the equity at $11,835 million. The ROE at 11 to 13% in recent years and 15% in 2017 drove the value creation from a book value perspective and also drives the substantial market premium to book value.

The stock has risen very substantially in recent years due to earnings growth. It is rated Buy at this time and perhaps could still even be considered a (higher) Buy. I sold my own shares too early on the way up. I am interested in buying back in but will wait and see if there is a better opportunity.

February 22, 2018

Thursday’s markets were surprisingly strong or at least the DOW was, especially earlier in the day. The S&P 500 ended higher by just 0.1% and Toronto was down 0.1%.

It was disappointing to see Stantec down 11.0% after it released earnings.  GAAP earnings per share were down by about 60% but that was mostly due to unusual one-time income taxes related to the tax changes in the U.S. Earnings were down in Q4 but this was mostly due to (hopefully) one-time cost over-runs. Adjusted earnings per share were down by 9% but this was mostly due to (hopefully) one-time cost over-runs. But I notice in the presentation the company shows normalized earnings per share (after adding back the project over runs) were UP 49%. Clearly the market was not buying that normalized story.

I believe Stantec will continue to do well over the years and that this dip is likely a buying opportunity. However, I would be cautious and not rush in. I may add modestly to my position tomorrow.

In better news, CRH Medical was up about 11%.

February 21, 2018

On Wednesday, the S&P 500 was down 0.55% as FED meeting minutes apparently caused the market to be more concerned about rising interest rates. Toronto was up 0.55%.

TFI International was up 10.5% after releasing Q4 earnings.

CN rail was up 2.8%.

Royal bank was up 2.0%.

February 20, 2018

On Tuesday, the S&P 500 was down 0.6% while Toronto was down 0.1%.

Most of the names on our list were down.

Walmart was down 10.2% to $94.11 after reporting earnings. Our last rating was (lower) Sell in October at $86.22. It had then promptly soared reaching $110 at the end of January.

BHP Billiton fell 4.4% in New York (and 5.2% on the BBL shares) and fell 4.5% in Australia. This was after announcing first half of fiscal 2018 earnings that were improved on an underlying adjusted basis but apparently lower than expected. I added to my small position. I consider this to be a speculative investment by nature and I hold it for a bit of diversification and for a bit of a change of pace from my usual diet.

RioCan was down 1.8% to $23.84. It could certainly continue to fall as interest rates rise and the market value of its properties comes under pressure for that reason. On top of that, vacancies are always a possibility. Nevertheless it is very well run and I am comfortable holding some of these units and will consider buying more on dips but I perhaps have had my fill for now.

Canadian Tire was up 2.0%.

After the close, TFI International reported revenues up 2% and adjusted earnings per share  up 8%. It’s hard to say how the market will react. There are probably positive as well as negative aspects of the report and it depends what the market “decides” to focus on.




February 20, 2018 11:20 am eastern

BHP Billinton came out with earnings which were strong but were lower than analysts expected. It also raised the dividend but my understanding is that they essentially have a policy of having a dividend that floats up as well as down with adjusted earnings and so the dividend increase may not be very relevant. My report notes the strange share structure whereby it has two classes of shares which are apparently economically equivalent but where one class trades at a discount. An activist investor is pressing for action to unify the two classes but the company has no plans to do so. Still, I would buy the lower-priced class and hope for unification at some point. With the shares down 3.9% in New York I plan to add a modest amount to my position.

My next update will be for Canadian Tire. I have ran the numbers on the latest results and the stock appears to continue to be a Buy at around $175. This company has really been firing on all cylinders at least since the financial crisis ended and has somehow escaped the damage that Amazon has inflicted on so many retailers.

In the U.S., I think there is a risk that the markets will start to get concerned at how close the legal probes are getting to the President.

February 18, 2018

Friday’s markets saw the S&P 500 about unchanged and Toronto up 0.3%.

Fortis Inc. jumped 3.75% to $42.08 as the market perhaps decided that its recent slide was over done.

Kinder Morgan Canada Ltd was up 4.45% to $19.97 after it got some positive news about the ability to start a small part of its Trans Mountain pipeline construction efforts. This one is not on our list but I mentioned last May 28 and 24 that I grabbed some shares at the IPO. It has also been included in my own portfolio which I update occasionally. I am a bit surprised to see that I am now up 17% on Kinder Morgan plus a bit more for the two little dividends received. It is not a stock that lends itself to value analysis since so much depends on political approvals. I am not sure if I will continue to hold or maybe take my gain and possibly buy back on dips. I think the pipeline has to go through but certainly much opposition remains which will likely cause the stock to be volatile.

Yesterday, I sent out the latest edition of our free newsletter. The email list for that is separate. If you did not receive the email you can add your email to that list at the following link. The newsletter featured a description of the new Vanguard Canadian ETFs that allow a balanced globally diversified portfolio to be bought with just one security. It’s similar to certain diversified balanced mutual funds except with far lower fees. It may not be of as much interest to our paid subscribers who are presumably comfortable picking individual stocks and ETFs. This newsletter also discussed my view that businesses and investors do get some very good tax breaks. That view may not be popular with very many business owners or investors but its a timely topic. In any case, while some people may view tax breaks as loopholes to be closed others may be more interested in how to take advantage of such legally available tax breaks.

I mentioned perhaps a couple of months ago that I wanted to get some international exposure and would probably buy some international ETFs. On Friday I looked at buying the rest of developed world ETF under symbol VIU on Toronto. This one is included in my recent article about setting up a global ETF portfolio. But since I wanted to reduce my U.S. cash rather than Canadian, I instead decided to buy the country-specific ETF for Austrailia that trades as EWA in New York and which is included in my Global ETF list and which happens to have a reasonable P/E ratio as well as a high yield. The distribution is paid only twice yearly and was high in 2017 but I don’t know if it will remain that high. The distributions on ETFs can be somewhat erratic. Also I am not sure if this distribution will be subject to the 15% U.S. withholding tax even when held in an RRSP. I was looking for some international exposure and whether or not there is a withholding tax on the distribution was not something that would effect my decision on this one. For reasons that I will not get into at this time, I have a particular interest in Australia at this time.

February 15, 2018

Stocks were mostly higher on Thursday as the S&P 500 rose 1.2% and Toronto was up 0.5%.

Canadian Tire surged 6.5% after reporting Q4 earnings. Costco was up 2.5%.

Constellation Software was up 3.1% after reporting Q4 earnings.

Dollarama was up 2.3%.

I added modestly to my positions in Fortis (which was up 2.2%) and TFI International (which was up 0.5%).


February 14, 2018

On Wednesday, the S&P 500 was up 1.3% and Toronto was up 0.7%.

Notable gainers included BHP Billinton, up 3.2% in New York. Costco up 1.7% and Visa up 2.0%. Amazon up 2.6% (And they said trees don’t grow to the sky).

Fortis was down 1.7% to $39.69. The recent decline in this stock is likely due to dividend stocks becoming less popular in the face of recent and anticipated interest rate increases. Given that I recently thought it looked good at $46 I will likely add to my position in this stock.

February 13, 2018

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

TFI International was down 3.1% to $29.75. This company has a strong history of growth by acquisition and is very well managed. But it is in a tough industry. The price decline may be related to news that Amazon will apparently enter the package delivery business. I am tempted to add somewhat to my position on this dip. TFI will report Q4 earnings next Tuesday, after the close of trading.

A comment on a share repurchase announcement:

Phillips 66 (PSX) announces it has agreed to repurchase 35 million shares of Phillips 66 common stock from a wholly-owned subsidiary of Berkshire Hathaway Inc. (NYSE: BRK.A; BRK.B) for $93.725 per share. This $3.3 billion repurchase is expected to close on Feb. 14, 2018.

“We are excited to have this opportunity to return capital to our shareholders in such a meaningful way,”

I probably get hung up on wording at times. Here we have a company buying back shares from exactly one share holder and yet making the technically false statement that this is a return of capital to shareholders (plural). Buffett himself has written about repurchases and points out that the money goes to departing share owners not continuing owners. In this case Berkshire is the only departing share owner but is also a very large continuing share owner.

Berkshire is selling these shares only because they own over 10% of the company and pushing ownership back below 10% lowers certain regulatory burdens.

I am quite willing to accept that this purchase is good for both parties. I just choke on the implication that this is somehow a return of capital to shareholders in general.

To the extent that this is an “opportunity” for Phillips 66, it should be because it is an opportunity to buy back shares at less than their estimated intrinsic value. It is nonsense to imply that returning capital to (departing) share owners is always a good thing for the remaining continuing owners.

What Will Buffett Say at Month End? February 13, 2018

Sometime around the end of this month, Warren Buffett will release his annual letter.

It’s hard to predict what Buffett will write about, but here are my guesses in that regard.

The letter always starts by noting the percentage change in Berkshire’s book value per share as well as the compounded rate of growth since Buffett took control of the company in 1965. Berkshire is likely to post an unusually large percentage increase in book value per share due to the reduction in income taxes which will lower the liability for deferred income taxes by roughly $35 billion. Buffett will be clear that the bigger gain in book value is an abnormal result. He will also likely note that it has NOT added anything close to $35 billion to intrinsic value since these defferred income taxes in effect were never really going to be paid since each dollar paid was usually offset by more than a dollar of new deferrals. However, intrinsic value will have increased to the extent that future profits will be increased by the lower tax rate.

This year the overall gain in book value per share since 1964 is likely to have surpassed one million percent. That gain turns a single dollar into ten thousand dollars. That seem to me like a huge milestone and I know from a non-public source fact that Buffett has had his eye on reaching that number. But it may be a bit anticlimactic given that a few years ago he started revealing the total gain in market value per share and that gain has already been well over one million percent.

Buffett may then discuss the income tax reduction. He has said in the past that it was basically unnecessary but that it has increased the value of corporations. (I was surprised that he has apparently not stated that some of the lower taxes will be competed away in the form of lower prices or higher wages.) Buffett may also discuss the lower rate of tax applicable to repatriated cash from foreign profits. He has noted previously that this will not much affect Berkshire since Berkshire already pays income taxes on foreign profits and those already partly offset the tax due on repatriation. The real winners on repatriation are companies that earned (often with dubious artificial accounting maneuvers) big profits in foreign tax havens. And the new repatriation rules actually encourage that sad behavior. Most or many large insurance companies use “captive” reinsurance subsidiaries to artificially transfer substantial profits to foreign tax havens. I have never seen Berkshire get any credit for not doing that.

Buffett is likely to discuss Berkshire’s massive cash position and it’s even possible that he will announce the start of a regular dividend or a special dividend. He could announce a plan to buy back shares but that is more difficult since the share price might go up in response.

He will discuss that his insurance operations made an underwriting loss due to the 2017 hurricanes. This came after 14 consecutive years of profit and he will likely predict most future years will feature underwriting profits. In any case his insurance operations likely were profitable in 2017 after including investment income.

Buffett is no fan of Trump. But he he does not believe in engaging in unprovoked criticism and so I think any comments about Trump will be quite restrained or indirect. Buffett usually includes some soothing words about his optimism for the future of America and its corporations and people. He may discuss trade issues and what might be done to make trade more fair while retaining a mostly free trade regime.

He may discuss higher  interest rates and their impact on stock valuations and possibly on the U.S. debt and the value of the U.S. dollar.

He will discuss the recent appointment of two new vice-chairs and any resulting contraction of his own role. Executive compensation may now have to include these two highly paid executives. Their pay was not previously disclosed in the Berkshire reports though in at least one case it was available in separate reports issued by subsidiary companies.

Whatever Buffett decides to discuss, it will be educational and inspirational and a good read as always.



February 12, 2018

On Monday, the S&P 500 was up 1.4% and Toronto was up the same amount.

In part this was due to Trump releasing details of an infrastructure subsidy plan.

The plan seemed to get mixed reviews with some pointing out that the $200 billion is over ten years and that the spending will be funded with yet more debt. Of course EVERYTHING Trumps does or says gets mixed reviews these days in a world where the various media outlets appear to be taking sides.

In other news Trump says he will soon announce new duties on countries that he feels are not practicing fair trade. A trade war is not exactly good news for the markets.

Most of the stocks on our list were up today. Perhaps that indicates that buying near the lows last week will turn out to have been a good move for those who did so.

Looking for Yield

I notice TD Direct is out with an issue of 6.75% convertible debentures from Just Energy. I know a little bit about the company but I don’t know how safe these debentures are. The conversion price is $8.90 while the shares closed today up 8.5% at $6.15.

Investors who are more confident that the shares will rise past $8.90 would be better off to simply invest in the common shares rather than the convertible. The commons shares have a dividend yield of 9.9%.

I was about to say that the 6.75% yield seemed attractive but now that I am reminded of the high dividend on the stock I would choose the stock instead. I am not putting a rating on this but I would say that given the high yield the view of the market is that the Just Energy shares (and the convertibles to a lesser extent) are a speculative investment.

On my Links page I had a link to the Financial Post Market data which used to include a list of convertible dentures. That link no longer works.

As far as high yield debt, TD Direct has nothing that looks particularly appealing to me. They have some Sherrit International  issues yielding over 10% for maturities around 3.5 to 7 years. But Sherrit has been a very weak company for many years and I am not sure it is worth the risk. There are also a couple of energy companies yielding over 7% to maturity. There is also a Bombardier issue yielding over 7%. Given the difficulty of assessing the credit worthiness of what are by definition weak companies (hence high yield), I would look instead to a high yield ETF to gain diversity.

However, I have not found anything overly attractive in that area either. ishares offers two that invest mostly in the U.S. but are hedged to Canadian dollars. XYH has a yield of 5.6%. CHB yield 5.8%. Looking at Vanguard, they do not appear to offer a Canadian high yield ETF.

ishares also offers XHB which is Canadian bonds with somewhat lower credit but it yields only a little over 4% which does not seem attractive.

A knock against bond ETFs is that they never mature. But I believe the cash flows (after the fees) are the same as a laddered portfolio of individual bonds which in effect never really matures either. Basically I think this “never matures” criticism of bonds ETFs is not a valid criticism. It has some truth to it but does not seem to be a valid reason to avoid bond ETF. I avoid investing in bond ETFs because of the low yields not because they never mature.


February 10, 2018

On Friday, the U.S. markets once again were highly volatile and the DOW, at it low, was down 500 points before finishing the day up 330 points or 1.4%. The S&P 500 finished the day up 0.5% and Toronto finished down 0.2%.

A number of U.S. stocks rebounded somewhat including: American Express up 3.8%, Visa up 2.4%, Berkshire up 2.2%

Dollarama was down 3.2%. CRH Medical was down 4.6%.

In my own trading, I added to my AutoCanda position on Friday.

The near-term direction of the U.S. market depends on how many investors become fearful of further declines and and how many are ready and willing to buy.

There is still plenty of things that could “spook” the market including, among other things, the Russian investigation and political tensions related to Trump not releasing the Democratic version of “the memo”.

RBC Direct System Outage

RBC has indicated that they had a major problem in their discount trading platform on Thursday and trades were not going through and it was due to a problem with a fibre optic cable.

I trade through TD Direct. But I occasionally do trades in RBC Direct for a relative.

I tried to sell two stocks on Thursday and not only did the trades not go through, but it was not really clear to me if they did or not. This is a big failure. I doubt that RBC has any legal obligation to make traders whole but their still could be a class-action law suit or some kind of regulatory penalty to RBC due to this. I understand their call center has been over-whelmed also.

The January Jobs Report

Statistics Canada released a poor jobs report for January. The headline indicated 88,000 jobs lost and an unemployment rate of 5.9%.

I have noted before that the jobs / unemployment rate data is from a survey of households and is subject to significant errors. As I recall, Statistics Canada indicates someplace that the statistical error (and this assumes that they have a good random sample) is about 30,000.

I am never one to say that statistical data like the unemployment rate or inflation is manipulated. I believe Statistics Canada presents the data honestly.

However, there have been some wild swings in the data that call the accuracy into question. I think it is somewhat irresponsible to release this data and state “employment fell by 88,000 in January” without being a lot more clear that this is only an estimate and is subject to error / uncertainty.

It is frustrating to watch guests on Business News Network opine that the loss may have been due to the normal loss of Christmas seasonal workers. In fact, the data is already seasonally adjusted although again that is a process subject to uncertainty and error.

Basically, people love to see confirmation of their position in the data. Those against the minimum wage increase immediately saw evidence of that causing job losses.

I would read very little into this January report. It largely offset an usually strong report in December.

Before jumping to conclusions of doom, consider that the Statistics Canada press release also states:

“Adjusted to US concepts, the unemployment rate in Canada was 4.9% in January, compared with 4.1% in the United States. The unemployment rate for both countries trended downward in the 12 months to January.”

“The labour force participation rate in Canada (adjusted to US concepts) was 65.5% in January, compared with 62.7% in the United States. On a year-over-year basis, the participation rate declined by 0.3 percentage points in Canada, while it was down 0.2 percentage points in the United States.”



February 8, 2018

On Thursday, the DOW ended the day down 1033 points or 4.15%. The S&P 500 was down 3.75% and Toronto was down 1.7%.

The biggest decliners on our list included Toll Brothers down 5.0%, American Express down 5.6%, Visa down 4.8%, FedEx down 4.7%, and the Boston Pizza units down 4.1%.

Some of the rate reset preferred shares were among the few winners.

As of 10:15 pm eastern time, the futures market shows the DOW up 20 points.

Meanwhile another “government shutdown” looms in the U.S.

The DOW today is only down to levels of very late November. I believe I mentioned in November and December that the market seemed to keep rising over and over again on the SAME news, the news of the income tax cuts. The market rose very sharply until it peaked at the end of January. For months the market seemed oblivious to lots of risks including government shut downs, trade wars, and even potential serious problems with North Korea.

For those with equity investments, it is never fun to see the markets go down. But really, it’s hard to see the U.S. market declines in February as being much more than a dose of rational thinking. The markets had begun to price in perfection or something close to it.

It has been in the news that people betting that the volatility index called the VIX would stay low have lost money. Searching this site it appears I have never ever mentioned the VIX. And why would I? It was certainly nothing that I would ever advise investors to bet on one way or the other. I don’t even bother with options and part of the reason for that is that they tend to speculative and they are also not easy to understand. I have a lot of financial education but I know that there is a ton of math around options that I simply don’t understand. Meanwhile though it seems like a lot of people out there with probably not that much math and finance education think they understand options and the VIX and options on the VIX very well. I am happy to let these people make their bets against each other. I prefer investments where money flows mainly or at least partly from customers of businesses to owners as opposed to merely between owners/investors.

I note the news today that the National Energy Board will be replaced with something new. I mentioned on October 5 that the NEB process was becoming increasingly complex and suffocating. I worked for a utility regulator for 13 years and I believe I mentioned somewhere along the lines that I thought that the regulatory process was basically collapsing under its own weight. I’m not hopeful that the new process will be much better. Various groups say they want to heard and listened to. What they really mean is that they want the decision to go in their favor. And they are not willing to accept decisions that go against them. How does one fix that? Perhaps by enforcing the law?


February 8, 2018 1:20 eastern

The Dow was down 680 at one point and 518 as I write this.

So, it seems that the days of wild swings and possible big down moves are continuing.

I never know where the market is headed short term. I imagine another day of headlines of losses could turn sentiment more negative and cause more people to sell.

My S&P valuation article has been suggesting for a long time that the market seems over-valued. That article may be too conservative by not taking account of the sudden big rise in earnings expected for 2018 but in any case the P/E on the S&P 500 has definitely been quite a bit higher than historical averages. Still P/Es could stay high if the interest rate increases are modest.

My approach continues to be to add to my higher rates stocks on dips unless I feel already too much exposure. Accordingly I added to Toll Brothers just now at $44.58 and I grabbed a bit more Linamar at $68.50. I also reduced my Boston pizza position somewhat at $20.52. I sold what I bought a few days ago at $19.60 plus an equal amount.

My approach is not to get into a panic or hurry either buying or selling.

For trading it would probably be better if I entered some orders at attractive prices to buy or sell to put some things more on auto pilot.

February 8, 2018 10:00 am eastern

The results for Boston Pizza this morning were fairly weak. Not terrible, but weak. Distributable cash per unit declined 2.9% in Q4 and 0.6% for the year. Royalty-;igible same store sales which is the key performance number was negative 0.2% in Q4.

The units are currently down 1.3% to $20.93.

Despite a pay-out ratio of 100%, I don’t think the distribution will be cut. But it also can’t grow until and unless they get growth in royalty-eligible same store sales leading to growth in distributable cash per unit.

Given higher interest rates these units could fall in price. And of course if market sentiment is generally negative then that can lead to at least temporary declines.

The distribution remains good here and history suggests it will rise over the years.

I have quite a large exposure to this name and I may consider trimming it a little.

The previous rating was Buy at $21.12. I was thinking Q4 would show some growth given the partial economic recovery in Alberta.


February 7, 2018

On Wednesday, U.S. markets were mostly higher but ended the day down slightly.

The S&P 500 was down 0.5% while Toronto was down 0.2%.

Canadian Western Bank was up 2/0%.

Canadian Tire was up 2.6%.

Statistics Canada released data for building permits in December. I am always like to check data regarding single family home starts in Alberta given my investment in Melcor Developments. The December data shows that the number of single family dwelling permits issued was 1079 units. This is seasonally adjusted. This level has been fairly constant all year except it was higher back in April and May. I suspect the seasonal adjustment here is far from perfect. In any case these numbers confirm that the number of single family housing permits has recovered somewhat from the recession lows but is noticeably below the peak levels. In 2014 this number was about 1500 permits most months. Overall the 1079 single family home permits for December 2017 is neither a particular good number nor is it a bad number. I don’t know if Melcor would typically book a lot sale before a home permit was taken out or after. It may be right around the same time in many cases.

Boston Pizza Royalties Income Fund is scheduled to release earnings before the open tomorrow (Thursday morning, that is). I am hopeful that their same store sales will be up (and that’s really the only number that matters in this case) due to to menu price increases even if the number of customers may not have risen. I know that casual type restaurants in my area are busy but there does seem to be more competition.

February 6, 2018 RRSP Tax and Math

There is widespread confusion about how RRSPs really work and whether they are a tax-avoidance mechanism or a mere tax deferral mechanism, or worse a “tax trap”.

The following illustrates divergent views on the matter:

A tale of Two Attitudes Towards Tax on RRSP Withdrawals

Imagine Frank and Joe have identical and relatively modest RRSPs and are both 65 and about to retire and start living, in part, on their RRSP savings.

Both contributed $50,000 over a period of years starting at age 30 (So from say 1983 to 2017). Their marginal tax rates averaged 30%. Now, in 2018 the two RRSPs have grown to $200,000.

They are both told that on withdrawals they will face a 33% marginal tax rate, a bit higher than when they contributed because both have modest defined benefit pension plans or other incomes such that the marginal tax rate went up.

Frank calculates that on his original $50,000 contribution he got back a 30% refund so $15,000. And he now realizes that he will have to pay 33% tax on $200,000 for a total tax of $66,000. He will net $134,000 over a period of years as he withdraws. (We will ignore further growth in the RRSP).

Frank is wild: “This tax is outrageous! I never should have invested in an RRSP! I saved $15,000 in tax and now will have to pay back taxes of $66,000! Not only that but much of my gains were capital gains and dividends. I could have invested in a taxable account and paid WAY lower tax, like maybe 15 to 20%, not 33%! This RRSP has been nothing but a tax trap.”

Joe looks at it differently. He calculates that after the refund he only ever invested $35,000 net of his own after-tax money. He looks at “his” RRSP as being $35,000 funded by him and $15,000 funded by the tax refunds. Or 70% funded by him, 30% by the refund. He notes that the RRSP quadrupled to $200,000. He calculates that had his net $35,000 quadrupled with zero tax it would net $140,000. He notes that in the RRSP calculation he will net $134,000 after the $66,000 tax. He feels that the refund had funded 30% of the now $200,000 RRSP. Ans so he figures the first $60,000 of income tax is fully funded by the refund. He calculates that his net share of the tax will therefore be $6000. He is paying $6000 tax on his gains of $105,000 ($140,000 minus $35,000) for a tax rate of 5.7% on the net growth in his net investment in the RRSP.

Joe is very happy with the situation. “I am SO glad I struggled and put that $50,000 in the RRSP over the years he says. Not only was it savings that I otherwise would have spent, but the tax on the growth of my net $35,000 cost of those contributions was only about 6% which beats anything I could have done in a taxable account all to heck. Even though my marginal tax rate went up, I came out way ahead. And just think if I could manage to get this money out at say a 25% marginal tax rate. That would mean the refund MORE than covered the tax on withdrawals, with money left over!”

So, two identical RRSPs both with 33% taxes on withdrawals, one taxpayer is screaming and regretful, the other smiling.

Who is correct? Click here to leave a comment or see any comments.


February 6, 2018

U.S markets were once again not boring today, opening down then bouncing around considerably and then closely strongly higher.

The S&P 500 finished up 1.7%, the DOW was up 2.3% and Toronto was up 0.2%.

Boston Pizza was a notable winner today, up 5.3%.

Fortis Inc. was down 2.2% and despite the fact that high yield stocks could certainly decline with higher rates, it seems attractive for the dividend and may be worth accumulating. Simply be prepared to hold for a very long time and/or to accumulate more on further declines.

I bought back, at $46.08, some of the Toll Brothers shares that I had sold in the past few months at $50 and $51.50. It closed at $46.75 so that trade looks okay so far. But I should have employed a strategy I talked about before. Toll Closed on Monday at $44.82. It opened this morning at $43.70. But I was not watching the market at the open. If I had placed an order last evening at any price higher than $43.70 (say I placed it at $45) I would have got it at the opening price of $43.70. I have used the strategy before of a limit order placed after the close. If you place a limit order just under the market during the trading day you are not going to get a fill much if any below your order price. But a limit order placed before the opening could be filled far lower if the market happens to open low. Now, you do take the risk that while you buy somewhat low, the market then heads even lower. Overall the strategy of entering an order around or not much lower than close in highly volatile times could result in a low fill at the opening. Of course you could also simply place an order during the trading day well below the market. The method I describe is applicable to be used when a stock has already closed at what you consider an attractive price so you place your order there but all the better if it opens lower.

It’s sad to see the escalating trade war between Alberta and B.C. I have always thought that the B.C. government has no jurisdiction over the federally-approved TransMountain pipeline. The B.C. government gave its input in the federal proceedings but then the federal government made its decision. I would like to see Trudeau swiftly assert federal powers and do so just as forcefully as necessary. (How far should he go? Well hopefully, just watch him!) I am a long-time resident of Alberta and was born and raised in Nova Scotia. But I have never considered myself a citizen of anything other than Canada. Inter-provincial trade barriers are an outrage.


February 5, 2018 Easy Come, Easy Go

So, after falling 666 points on Friday, the DOW fell another 1175 today.

The S&P 500 was down 4.1%, the DOW was down 4.6% and Toronto was down 1.7%.

Many commentators are aghast. But they should really get a grip. The U.S. markets were roaring higher for months. Markets had risen almost uninterrupted for 15 months with a particular surge in the last couple of months. This only wipes out a about 5 weeks of gains.

It was interesting to see that Boston Pizza managed a gain of 1.3% today although it is still down about 10% from recent highs. TFI International, up 0.2% and CRH Medical, up 0.3% were the only other two stocks on our list that managed a gain.

Liquor Stores N.A. is no longer on our list but was up 2.1% after raising over $100 million by issuing an additional 25% of its shares to make Aurora Cannabis its 20% owner and with plans to open some pot stores. I must admit to being consistently wrong on this company. It has been losing money and paying a dividend quite a bit bigger than earnings and I figured it had no money to get into the pot store business. (And its abilities also did not seem impressive) Most of the gain in this stock already came in the past several months as news had leaked out about this deal. If not for visions of pot profits this stock should have been lower.

Most of the Canadian stocks were down more modestly compared to U.S. stocks.

Tomorrow I will consider doing some bargain shopping. Possibly Toll Brothers and the Melcor REIT. But I see no need to rush.

February 5, 2018 WSP Global Inc. is added to our list

WSP Global is added to the list rated Buy at $58.75. Many Canadians may not be familiar with this company. I hope the “Description” cell of the report does a reasonable job of giving an overview of the company.

It’s a growth-by-acquisition company. I have always been agnostic between earnings per share growth from acquisitions versus organic growth. As long as a company is growing earnings per share its intrinsic value should rise. Cash flow or earnings formulas do not ask the source of the earnings, although analysts seem most interested. I am interested in the source to the extent it provides clues as to whether the same pattern can continue in the future. Most of the strongest growing companies that I have analysed over the years have been growth-by-acquisition companies. These include notably Constellation Software, Stantec and Alimentation Couche-Tard.

Of course growing by acquisition is neither a necessary nor a sufficient strategy to insure success.

February 4, 2018

As of about 6:45 eastern the futures markets have the DOW down about 200 points. This often changes vastly over night so we will see where it opens.

In the last half of 2017 I had increased my cash position. As the U.S. market continued to soar that cost me money. But I think it was absolutely prudent given my own stage of life – which might be called semi-retired. If markets now happen to decline in a material way, I will be in a position to buy. Or if I identify other companies that I consider to merit a Strong Buy rating or at least a fairly high rating, I will be in a position to buy a meaningful amount.

My own strategy has never been predict the market direction based on market sentiment. Rather it has been to try to buy stocks of quality companies at attractive prices and to generally trim or sell positions that appeared to be over-valued. I try to react to stock prices versus my estimate of value as opposed to predict prices. I do try to predict earnings growth to some degree.

I am currently working on WSP Global and will add it to the site in the next day or so. I suspect the rating will be Buy. It’s got a great track record in its strategy of growth-by-acquisition. It is similar to Stantec in many ways. However, it has been far more aggressive in making acquisitions, especially global acquisitions in the past ten years compared to Stantec. It’s now larger than Stantec. WSP has however funded its growth by issuing shares at a very high rate. Management has been extraordinary ambitious regarding growth and so far they have managed to fulfill those ambitions.


February 2, 2018

There was nothing boring about Friday’s markets.

The S&P 500 tumbled 2.1% and Toronto was down 1.6%.

Despite the scary headlines of the DOW being down 666 points or 2.5%, this drop is not large in the context of the way the U.S. market roared ahead in recent weeks.

Almost all the stocks on our list were down. Some of the more notable declines included:

Canadian Western Bank, down 3.0%

Boston Pizza Royalties Income Fund, down 4.0%.

AutoCanada down 5.0%.

Experiencing declines is inevitable when invested in equities. I did not find today’s declines to be bothersome. Rather, they could represent buying opportunities. But I would not be in a rush to redeploy cash. My strategy has been to lean against the market on the way up by building cash and then slowly redeploying cash if and when the market or particular stocks that I like decline.

Meanwhile the seemingly unstoppable Amazon rose 2.9% after reporting strong gains in Q4. Amazon always looks way over-valued to me but then continues to rise. I will puzzle over its numbers again soon. It does not bother me that I “missed out” on Amazon since it simply does not pass the criteria that I use and which has been quite successful for me. I am more regretful about Apple because it would have passed my criterion if I had gone through its numbers but I never did so. Partly (or largely) that was likely because of an unconscious mental block against it since looking at the numbers might have reinforced regret at not buying it many years ago. I have never claimed to be immune to such illogical biases. Actually running the numbers tends to overcome the bias in a lot of cases.

Wells Fargo got slapped hard after the close by the FED and was down 6.2% in after-hours trading. I sold it too early back in late 2016 because of uncertainty over regulatory penalties and no longer follow it closely. The FED has ordered four people off the Board and indicating it will not allow Wells Fargo to increase its assets. The bank could reduce its assets by not issuing new loans as fast.

I rather suspect Warren Buffett might have liked to sell some Wells Fargo. The problem is when you are Berkshire and you own 10% of something, any indication you would sell would tank the price.

I certainly would not be surprised to see Wells Fargo tumble quite a bit more on this news.



February 2, 2018 (Groundhog Day) noon eastern

At minus 20 or so here in the Edmonton area any talk of an early end to winter is certainly premature.

Stocks are down today. In the case of U.S. markets that seems like a bit of overdue sanity.

Boston Pizza Royalty is down 4.7% to $19.55. That may be due to predictions that they had a poor Q4 and are facing more competition. Or it may be due to higher interest rates. I grabbed some at $19.60 this morning. I figure a 7.0% yield where I believe the distribution will rise (albeit very slowly) over time and where I believe it would at worst decline slightly is going to be a pretty good yield in any likely future interest rate environment. Of course, if rates really soar, these units will fall. And they may fall due to deteriorating business at BP if that occurs. Or they can fall simply due to fears and unpopularity of yield investments. Those are always risks. In any case I was attracted to the lower price today and added to my position. BP reports earnings, I believe next Thursday.

Declining markets always have their silver lining. It’s clearly better to buy at a  lower price today than applied yesterday. As for whether tomorrow will be lower yet, time will tell.

Getting back to the minus 20 degree temperature in Edmonton: Luckily the cost of home heating in Alberta is almost minor compared to some areas of the county. Natural gas is particularly cheap at the moment $2.13 per Gj on my latest bill. And I used all of 19 GJ despite cold weather and running a furnace and running a fireplace in a Sunroom. Natural Gas is so cheap that the delivery charges are quite a bit more than the gas commodity charges. All told for the gas plus delivery plus administrative charges and even the carbon tax and GST my heating bill for a month in the coldest part of winter was $166.11

I am pretty sure the heating costs in Ontario are quite a bit higher. And I KNOW that the costs in the Atlantic provinces where fuel oil or electricity is widely used for heat are FAR higher. I don’t think $500 to heat for a month would be particularly unusual in the coldest months.


February 1, 2018

On Thursday, the S&P 500 was down 0.1%. The Dow was up 0.1% but had been down earlier in the  day. U.S. markets have been gyrating a little. Tomorrow we will see how the market has reacted to several big earnings reports after the close today.

Toronto was down 0.6%.

Melcor was down 3.6% to $14.75. This is a very thinly traded stock and so it is susceptible to big drops if someone needs to sell more than a few thousand shares in a hurry. I had an order in and so I picked up some additional shares at $14.80. As a company in a boring industry in a province that is still recovering from recession, it is unlikely that there will be any sort of spontaneous enthusiasm for this stock. Rather, it is going to have to show good earnings numbers before it comes back to life. I am hopeful that it had a good Q4 and that management is feeling more confident about 2018 but that remains to be seen.

AutoCanada was up 2.8%.

Boston Pizza was down 2.0% to $20.52.

Higher yield investments are under pressure as interest rates rise.

The five year Government of Canada bond yield rose to 2.14% today. That is the highest in over seven years. This rate had bottomed out at about 0.60% two years ago.


January 31, 2018

On Wednesday, the U.S. markets initially rebounded from Tuesday’s losses but were volatile. The indexes were negative in the afternoon before closing at a modest gain with the S&P 500 up 0.05%. Toronto was about unchanged.

CN rail was up 1.2%. Boston Pizza Royalties rebounded 2.0%. TFI Industries was up 1.4%. Fortis Inc. was up 1.8%. Linamar was up 2.5%.

Our penny stock, Ceapro, was up 6.6%.

Toll Brothers was down 0.9% to $46.58. This is now down from its recent high of $52.73. I had trimmed my large position selling some at around $45 in November and then more at $49.94 in December and $51.47 in January. With this decline, I am somewhat tempted to buy back some of what I sold.

Statistics Canada released data on Gross Domestic Product by industry for November and almost all sectors were showing good growth.

The Canadian Bankers Association today posted figures for 90 day delinquencies updated through November. Their figures are basically fore the larges six banks in Canada plus a couple of smaller banks (CWB, Laurentian Bank and Manulife Bank) . They do not include second tier lenders like Home Capital nor the credit unions. I find the delinquency figures, especially for Ontario to be literally unbelievably good. In Ontario the 90 day delinquency rate on mortgages is 0.09%. That is  a record low in figures going back to 1990 (although 1990 also started out at just 0.11% in January of that year before rising rapidly to 0.70% by early 1992). A 0.09% delinquency rate means less than one in one thousand mortgages are more than 90 days past due. For a long time, I have been suspicious that banks legally “hide” delinquencies by making various arrangements to officially allow customers to change the terms of their mortgage. That might be quite appropriate but it could distort the delinquency figure. I also suspect that many home owners that would otherwise be delinquent simply borrow additional money from various sources to keep their mortgage current. If we get either a recession or a noticeable decline in home prices then I suspect these delinquency figures will rise. However, there is no indication that Canada will see anything close to the massive delinquencies that occurred in the U.S. around 2007.


January 30, 2018

On Tuesday, the S&P 500 fell 1.1%. Despite the headlines, this is minor decline in the context of recent gains.

Toronto was down 0.9%.

Canadian Western Bank was down 2.7%.

Stantec was up 1.3% which was a nice gain on this negative day.

Boston Pizza Royalties Income Fund was down 2.0% to $21.52 and seems tempting for its 6.4% yield.

Linamar was down 2.7% to $70.84. It appears to offer good value but could certainly fall on concerns about NAFTA.

Shaw Communications is offering buyouts to some 6500 employees and apparently expects some 650 to accept the offer. This is bad news for the company and for the economy. I understand the severance offered is 6 months plus one month per year employed to a maximum of 30 months severance. It would be unfortunate to be offered say 18 months pay to leave and not be in a position to take the offer for fear of not getting another job or not being in a position to retire early.

It appears that British Columbia is refusing to accept the jurisdiction of the federal government when it comes to oil pipelines and oil exports. In my view, the Federal government should exert its authority forcefully.

Meanwhile, the oils sands industry in Alberta appears to have recklessly over-invested in advance of securing pipeline capacity and the result is the low Canadian heavy oil price resulting in low profits and therefore low income taxes and and also resulting in low royalties collected.

January 29, 2018

Well, the U.S. market decided not to rise on Monday. Well, markets don’t rise everyday. (And normally they don’t rise 9 out of 10 days either, but that seems to be about the recent situation).

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

Toll Brothers was down 3.7% to $47.49. I last rated it (higher) Buy at $42.81. I don’t think the recent drop is necessarily anything other than normal fluctuations. It has tended to be a somewhat volatile stock. The market may fear some slow-down in U.S. home building with higher interest rates. Home building in the U.S. remains proportionately far lower than in Canada and I believe remains far lower than its historic pace.

CRH Medical was down 5.9%.

I note Fortis was down 1.4% to $42.97. With higher interest rates, utilities lose favor. Fortis has done well over the years and is probably worth accumulating for those seeking dividends. Just be prepared to add if it keeps falling.

I am working on WSP Global now to add to the site. It’s fairly similar to Stantec. It seems to fly under the radar somewhat or at least I have managed to ignore it for years. I am surprised to see how large it is. Ultimately I will do some comparisons to Stantec. So far I have only read the Q3 report and was struck by how straight forward that was. Most quarterly reports seem to have more “boiler plate” than useful facts. WSP seemed to focus on the numbers and to present the numbers in a concise manner. It would have some similarities to SNC Lavelin as well. But SNC got into other businesses as well as ethical trouble and I don’t think I will be looking at that one.




January 29, 2018 10:30 am eastern time

Ceapro which is the only true penny stock on our list and which we have considered speculative for that and many other reasons announced this morning that it has lost a court judgement which appears to total $724,000 plus interest. (There a was another $1.215 million against a Ceapro subsidiary but the press release appears to indicate that is not a concern presumably because the subsidiary has no assets and Ceapro will not have to pay.)

Ceapro at Q3 had cash of $7.4 million and book equity of $24 million and trades with a market value of $48 million. I believe they spent some of the cash in an acquisition in Q4. A judgment that will result in payment of under $1 million is perhaps not that serious.

Still, it is a black mark against the company. I found the timing of the press release to be poor (could have released on the weekend for more time to digest the news before trading started). And I found the wording of the press release to be poor with few details and no discussion of financial impact.

I am surprised to see the stock down only 3% to 5% at the moment.

I have hung onto my losing position in this stock. But it is a speculative company and I have had a number of concerns about poor disclosure.

It might be wise to Sell and move on. I am not changing the rating (Speculative Weak Buy/ Hold at 64 cents) but I definitely think of this as a very speculative company. I have not decided to sell any shares at the moment.



January 26, 2018


On Friday, the S&P 500 surged another 1.2% while Toronto was up 0.2%.

Most stocks rose including Walmart, up 1.6%, Berkshire up 1.0%, Dollarama up 2.0%, Amazon up 1.75%.

Bombardier (no longer on our list)  had a great day, up 15.3% after a U.S. agency unexpectedly reversed course and ruled that countervailing or anti-dumping duties of close to 300% would not be applied after all. I wonder now though if Bombardier will regret having given away half of the C-Series program to AirBus for nothing. If it does regret that move, perhaps it can get out of the deal. One approach might be for Bombardier to issue a large amount of shares to try and get its book value UP closer to zero or maybe even above. If it could raise enough money, maybe it could afford to pay some kind of break-fee to AirBus and cancel that deal.

In my own trading, I bought some BHP Billiton today and added significantly also to my Stantec position. I bought Stantec in New York to use up some U.S. cash as I felt my U.S. cash position was too high and I missed my chance to transfer it to the Canadian side at 78 or 79 cents and now refuse to do so.

S&P 500 level and earnings:

The S&P 500 is now up 7.4% in this new year to date. That would be a decent gain for a year.

While the latest surge in the S&P 500 was happening, there were some changes in earnings estimates on the S&P 500.

The forecast for 2017 GAAP earnings on the S&P 500 fell from $114 about ten days ago to $108.47 as of today. 32% of the S&P 500 companies have now reported earnings. The estimate for the final Q4 earnings number came down as some companies reported (or are expected to report) unusual losses related to the income tax reduction because they had loss carry-forwards which are not as valuable in a lower tax environment. Some companies also reported extra taxes on repatriating foreign cash. This would be offset somewhat by some companies like Berkshire Hathaway and most industrial style companies that will report large unusual gains in relation to deferred tax liabilities. In any case, if the $108.47 2017 GAAP earnings estimate is correct then the S&P 500 is trading at a hefty 26.5 times trailing GAAP earnings. That P/E is higher than historical but it might be reasonable or even low if long-term interest rates are going to stay extremely low or even go lower as some people still think could happen. And the forecast for 2017 operating earnings is $124.22 for a P/E of 23.1 on that basis.

But stocks tend to trade more on forward earnings. The estimate for 2018 GAAP earnings is $141.35. On that basis the S&P 500 is trading at a far more reasonable 20.3 times 2018 estimated GAAP earnings. And the estimate for 2018 operating earnings is $152.11. On that basis the S&P 500 is trading at 18.9 times 2018 estimated operating earnings.

Analysts tend to focus on operating earnings not only for individual companies but for the index as well. I agree with excluding unusual gains and losses for individual companies to arrive at sort of normalized earnings. For indexes I have thought that practice wrong, since on an index of 500 companies there is nothing unusual about some amount of unusual losses each year. There are gains too, but it ALWAYS nets to unusual losses to be added back. There are 20 years of quarterly data for operating and GAAP earnings on the S&P 500 database that I am looking at. There is not a single quarter where the unusual gains and losses netted to even a tiny gain. It’s ALWAYS a loss to be added back. How then are such losses on the index unusual?

The S&P 500 may very well continue to surge. But I will put on the record right now that I believe the estimates for both the S&P 500 GAAP and operating earnings for 2018 are absurdly high. Despite a strong economy and the tax cuts I am extremely doubtful that the final 2018 numbers will come in that high. The forecast calls for a 22% increase in operating earnings. And, it calls for a 30% increase in the GAAP earnings.

Well, it will be interesting first of all to see if those 2017 estimates continue to get trimmed as the remaining 68% of the S&P 500 Q4 earnings roll in. If the operating forecast of $124.22 gets trimmed that could possibly finally take the wind out of the sails of this big S&P 500 surge.




January 26, 2018 12:50 pm eastern

I am going to add BHP Billiton to the site probably rated Speculative Buy with an emphasis on Speculative. I usually don’t look at commodity stocks but I am making an exception here. This is a huge and complex company and its value depends very heavily on commodity prices and it is inherently unpredictable. Nevertheless, I am going to take a modest position at not much over 1% of my portfolio. It trades as both BHP and BBL in New York. The company claims the two shares are economically equivalent and yet BBL trades at a discount to BHP. I am going to buy the cheaper BBL shares.

January 25, 2018

On Thursday, the DOW surged ahead another 0.5% but the S&P 500 was only up 0.1%. Toronto was down 0.5%.

Canadian Tire was up 1.5%. Costco was up 1.9%. Dollarama was up 1.6%. Amazon was up 1.5%.

Toll Brothers was down 3.3%. It’s always been somewhat volatile and I see no reason for concern.

The gains in the U.S. market have certainly been stunning over the past 15 months. The S&P 500 has not had a noticeable pull-back since very early 2016.

Toronto has a much larger decline that bottomed in early 2016 and has not had much of a pull-back since then. It’s easy to forget it now, but Toronto did out-perform the U.S. market in 2016.



January 24, 2018

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

CN rail was down 2.1%. Stantec was down 1.5%, Toll Brothers was down 1.5%.

CRH Medical has continued to recover and was up 3.0%.

U.S. stocks have kept going up despite P/E ratios that are quite a bit higher than historical averages. But of course low interest rates support high P/E ratios.

Consider that “the competition” is a 10 year Treasury that currently yields 2.65%. A 2.65% yield is a P/E of 37.7 AND the E or distribution is never going to rise over the ten year holding period. From that point of view it could be argued that the S&P 500 at some 24 times trailing GAAP earnings is still by far the better bet especially considering that the E on stocks does tend to grow. Treasuries are considered risk free and WILL mature at par value.

Interest rates are rising. But it’s very hard to say how high they will go.

I’ve generally been unwilling to assume that stock P/Es will stay above 20 or even 18 in the long run but it is always possible that they could. In order to push P/Es below 20 it may take ten year yields rising closer to 5% or some big global shock. The other threat to stocks would be a lower E due to recession. In the U.S., there appears to be no sign of recession.




January 23, 2018

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

AutoCanada was up 3.0% and Amazon was up another 2.6%.

Boston Pizza Royalties was down 1.5% to $21.18 and yields 6.5%. Despite somewhat higher interest rates this is an attractive yield if the distribution can be expected to grow even slowly over the years. I am somewhat tempted to add to my position. But I will likely wait and see the Q4 results. It may be facing more competition in some markets.

In a related matter, it was interesting to see today that the KEG franchise company will be sold to CARA for $200 million. The franchise company is the operating company that selects franchisees and owns the concept and sets all the rules and does the advertising.

The Keg Royalties Income Fund is a non-operating entity that (I understand) collects and distributes a 4% top-line royalty or franchise fee. It is interesting to note that the Keg Income Fund has a market cap of $216 million dollars and is therefore worth more than the actual operating company.

It’s also perhaps interesting to think about the fact while the Keg Income Fund collects 4% off the top, Servers probably average at least 16% or four times that. Collectively, then Servers are collecting four times what the Fund gets and that is in addition to their wages. The amounts the servers will collectively get in tips over the future years would also appear to worth more than four times what the operating company is worth. That may or may not be “fair” but I find it interesting.

The keg Royalties Income Fund was down 3.8% to $19.00 to yield 6.0%. Just looking at the yield and considering that the units may have declined today based on uncertainty, I would suggest that the Keg Royalty Units are worth considering.

CN Rail reported earnings after the close that were apparently a bit disappointing to the market. Actually the earnings were not that bad with a decline of 2% year over year. It’s unrealistic to think that earnings can rise every quarter. CN also raised its dividend by 10%. It also forecast 2018 earnings per share growth of around 7%. In my experience CN tends to forecast low and usually beats its forecast. In any case, CN has looked expensive to me and I will not be looking to buy unless it falls at least 10 or 15%. CN is considered to be somewhat vulnerable if NAFTA were to be scrapped. Despite having considerable operatins int eh U.S., C.N.’s press release did not make any mention of the impact of the lower income taxes in the U.S. But it’s presentation did indicate there was a gain due to a lower value of U.S. deferred income taxes. The full Management Discussion and Analysis as well as the financial statements will be released on January 31. (I believe this little delay is unusual, in Canada the practice is to not release any results until the full results are available.)


January 22, 2018

On Monday, as the partial government shut-down looked to be a short-lived situation the S&P 500 rose 0.8%while Toronto was about unchanged.

Berkshire was up 1.3%, Costco up 1.1%, Toll Brothers 1.3%, Visa 1.3%, Amazon 2.5%… The good times roll on it seems.

TFI International was down 3.2%. CN rail was down 1.6%.

Statistics Canada reported on the investment in new home construction in November and indicated:

“Alberta stood out with a $77.0 million increase in single-family house construction, accounting for nearly three-quarters (73.1%) of the total increase in spending on new house construction in the province. Spending on new housing construction in Alberta increased year over year for all components for the first time since April 2015.”

This supports my view that the Alberta economy continues to recover and that 2018 may be a good year for Alberta-based companies.

However, Statistics Canada also reported that sales at food service and drinking places were down 1.3% in Alberta in November.

The highly respected Billionaire Octogenarian investment manager Stephen Jarislowsky was on BNN today. Among other things he mentioned that with the lower income taxes, U.S. companies would be more competitive versus Canadian companies trying to sell into the U.S. No doubt he is right. But it seems to me that the way that would happen is that the U.S. companies would be able to lower their prices to compete more aggressively against Canadian imports while still making higher profits than before due to the lower income taxes. If so, that supports my point that some of those income tax reductions are going to flow to customers in the form of lower prices and not all of it to higher profits. After all if the U.S. companies maintained prices  in spite of lower income taxes that, in isolation, would leave them unchanged in regard to competitiveness with Canadian imports.

Of course there are other changes planned and maybe the U.S. companies will not have to worry about Canadian imports as Trump will impose higher import duties.

Jarislowsky also indicated that the Canadian dollar might rise making Canadian exporters less competitive.


January 21, 2018 9:40 pm eastern

The U.S. Senate has adjourned until tomorrow and so the U.S. government partial shutdown will last at least part of Monday. But it did appear that a vote on Monday morning might resolve matters for a few weeks.

Futures markets had been down only marginally and with the latest hopes for a resolution, markets may not suffer on Monday.

January 21, 2018

Canadian Western Bank is updated and rated Buy at $40.55. It has already made a strong recovery from the lows it experienced in 2016 due to (apparently unfounded) fears that it might experience problems with sub-prime mortgages similar to the Home Capital situation. It has also made a strong recovery from the lows of 2015 and 2016 that were related to fears about loan losses due to the low oil prices and recession in Alberta. I believe that CWB’s results in 2018 are likely to support further gains in the price.

AutoCanada is updated and rated (higher) Buy at $22.86. It exhibited a strong recovery in earnings and sales in Q3 but the stock price has not made much of a recovery. I expect earnings to grow strongly in the next three quarters as it faces weak comparable quarters in the prior year and as the Alberta economy has improved.

I am also expecting Melcor to do quite well in 2018 although that could be derailed if the new mortgage stress tests have a big impact on new home construction. Also Melcor’s rental buildings which are marked to estimated market value quarterly could see some reduction in value due to higher interest rates and possibly due to vacancies. However, I believe the fact the shares trade at only about 53% of book value provides a large cushion or margin of safety.


January 20, 2018

On Friday, the U.S. markets were unfazed by the impending (partial) U.S. government shutdown.

The S&P 500 was up 0.4%. Toronto was also up 0.4%.

CRH Medical was a notable gainer, up 6.7% in Toronto to $3.85. It’s still down 32% from the price at which it was introduced on this site and is down some 69% from its subsequent highs. Still, it has doubled since hitting a low of $1.86 in Toronto a few months ago.

I would expect the U.S. market on Monday to react at least somewhat negatively to the reality of the U.S. government partial shutdown.


January 18, 2018

On Thursday, the markets had what seems to be a rare down day.

The S&P 500 index was down 0.2% and Toronto was down 0.3%.

Our biggest gainer was Constellation Software, up another 1.6%.

A number of large U.S. financial companies have reported big write-offs due to Trump’s income tax reductions. That’s rather counter intuitive but it happens for two reasons:

  1. When a corporation has past losses, that have not yet ever been claimed on its tax returns and that it expects to carry forward to reduce future cash income taxes, it must book this as a deferred tax asset. When income tax rates drop, the value ability to carry forward past losses declines. In this case each $1.00 of unclaimed past losses could formerly be used to reduce future taxes by 35 cents at some point. But now, it will be just 21 cents.
  2. Some corporations have earned money in other countries at low tax rates. The former rules were that if the cash was repatriated to the U.S. income tax was payable representing the difference between the foreign tax rate and 35%. Trump’s changes included capping the repatriation tax rate at 15.5%. to the extent that this encourages companies to repatriate cash that they formerly had no intention of repatriating, this causes a one-time income tax hit. In many cases large corporations were using accounting maneuvers to basically legally pretend that profits were earned largely in tax havens. If the foreign tax was zero then upon repatriation they will now pay 15.5% whereas previously they were refusing to repatriate the cash due to a 35% tax. Paradoxically, the new rules could encourage corporations to book even more of their profits in offshore tax havens and then repatriate it. Why pay 21% in the U.S. when you can transfer the profit to a tax haven through “transfer charges” and then bring the money back at a 15.5% tax rate?

January 17, 2018

U.S. markets continue to be on fire. At the moment, this is a market that knows no fear.

The S&P 500 was up 0.9% on Wednesday and the DOW was up a scorching 1.25%. Meanwhile, Toronto was up 0.2%.

CRH Medical was up 6.5% to $3.44. The company continued to buy back shares at a good pace through to the end of December. (Apparently these trades are only reported on a monthly basis). On a negative note, a director sold 16,000 shares in December at U.S. 2.50.

I added to my position in AutoCanada.

The Bank of Canada increased interest rates by 0.25% today. The 5 year Government of Canada bond yield rose to 2.015% which is the highest since 2011. This bodes well for rate reset preferred shares, particularly those that will reset relatively soon. Keep in mind however that rate reset shares should not be expected to go much above $25 because typically the issuer can redeem them for $25 on the reset date.

West Texas Oil remains relatively strong at $64.22.

The Canadian dollar is at 80.3 cents and seems to have defied a lot of predictions that it would fall.

I have been saying that I expect at least some of the income tax cuts in the U.S. to be competed away in price declines. I finally saw one analyst on BNN today who mentioned that should happen in more competitive sectors.



January 16, 2018

I didn’t intend to take yesterday off from posting (It was Martin Luther King Day and U.S. markets were closed) but due to some other distractions that is how it turned out.

On Tuesday, U.S. markets first posted new within-day highs as the DOW burst through the 26,000 level. But U.S. markets then reversed with the S&P 500 down 0.35% at the close. Toronto was down 0.45%.

Most stocks were down but Canadian Western Bank, Stantec and Couche-Tard were each up 1.0%.

Constellation Software was up an impressive 6.9% to $787.87 after it announced its latest acquisition.  I have sung the praises of the management of this company ever since it was added to this site on February 5, 2011 rated (lower) Strong Buy at $40.87. Subsequently, the stock has often looked expensive and on two occasions I sold my own shares to raise cash. I did buy back in but sadly, only a small amount. I don’t think I ever rated it a Sell. Warren Buffett has always advised against selling the strongest companies even when their shares look somewhat over-valued. When we find a company that not only has great economics but has great management we should probably grab onto the coattails of such management and simply hang on for the ride.

I am currently working on updates for three Alberta-based companies: Canadian Western Bank, Melcor and AutoCanada. The Alberta economy has made a significant but not a full recovery from its recession that bottomed around October of 2016. CWB’s share price has responded and rebounded significantly from its lows. But AutoCanada and Melcor remain low for various reasons. As long as Alberta continues to recover, which I expect it will, I think these last two could and should rebound nicely in 2018.


January 12, 2018

U.S. markets soared again on Friday.

The S&P 500 rose 0.7% and the DOW was up 0.9% to 25,803. Toronto was up just 0.1%.

There appears to be a great deal of optimism that the Trump corporate income tax reductions will fall straight to the bottom line. In reality not all of it will. We have already seen several announcements about some of the money going to higher wages at some large companies. And I finally saw today a discussion that in some cases companies are going to use the lower tax cost to lower prices in an attempt to gain market share. (Oh, so there is still a thing called competition out there, at least in some industries? I was beginning to wonder)

In any event:

Berkshire Hathaway was up 1.7%, Costco was up 1.3%, and Amazon 2.2%.

For the Canadian stocks on our list there were no particularly noteworthy moves.

The U,S, markets could continue to go higher given higher earnings and the income tax cuts and given the strong economy. But these stocks have also likely been going higher because investor sentiment is strong due to the strong gains in the past 15 months and really in the past nine years.

U.S. markets have been rising steadily all the way since the bottom way back in March of 2009. There were modest pullbacks along the way which were quite scary at the time. But looking back now, those pullbacks look very minor. Investing is perhaps the one one area where people tend to get excited about buying at higher prices.

At some point something will happen to put some fear back into the sentiment of U.S. investors.

A reasonable strategy at this time, for those Canadians with high allocations to the U.S. markets, would be to reduce some of their U.S. positions and rebalance some of that back to the Canadian side.

It’s hard to say where the Canadian dollar will go. My own approach has been to reduce my U.S. equities but I mostly held the proceeds in U.S. dollars as I thought that the Canadian dollar might fall giving me a better opportunity to transfer dollars back to the Canadian side at a better exchange rate.


January 10, 2018

Wednesday was a rare negative day in the markets.

The S&P 500 was down 0.1% and Toronto was down 0.4%.

Canadian stocks were likely negatively affected by the announcement that the U.S. is imposing countervailing duties on newsprint imports from Canada. This and other reports has heightened the concern that Trump will attempt to scrap NAFTA.

As far as the countervailing duties go, if Canadians looking at this are being honest, I think they have to admit that this and other Canadian industries have in fact been subsidized. And the fact that the U.S. also subsidizes some industries is really not much of a defense. A useful argument can be made that the duty will harm U.S. customers. But I doubt that a useful argument can be made that the subsidies do not in fact exist.

Probably related to NAFTA fears, CN rail was down 2.7%, TFI International was down 1.3% and Linamar was down 1.9% and the Canadian dollar was down as well. These and other stocks that would be hurt by a loss of NAFTA may very well continue to slide if and as it becomes apparent that Trump will attempt to scrap NAFTA.

Meanwhile Toll Brothers was down 2.9%.

Berkshire was up 1.3% after Buffett announced that two key executives would join the Board of directors as vice Chairs. Edmonton native Greg Abel is vice-chair non-insurance operations and Ajit Jain is vice-chair insurance operations. These two have long been the main heir-apparents for the CEO role. It was not entirely clear but it appears that these two will effectively be in charge of their two areas such that Buffett’s direct reports will presumably decline from over 60 to probably just these two plus a few head-office staff including the CFO. Buffett retains primary responsibility for investing although he has two proteges in the wings in that role who have been for about five years independently investing a large but still modest portion of the investment funds. Although Buffett is definitely not retiring, this does seem to be a partial step back which I did not predict but guessed just might happen in my January 1, 2018 comment.



January 9, 2018

Another day and another set of records in the U.S. markets.

S&P 500 up 0.1% while Toronto was about unchanged.

With the recent strength in markets, especially the U.S. markets, reasonably diversified equity portfolios and balanced portfolios have been gaining ground at a rate that is more than acceptable.

Stantec was up 1.7% to $35.60. I expect this company to continue to do well given its recent acquisitions and given growth in the economy. The lower U.S. tax rates should be a benefit (assuming the lower rate is not offset by price reductions due to competition). Stantec has both deferred tax assets (any U.S. portion of which will decrease in value) and deferred tax liabilities (which liability will be reduced to the extent it represents U.S deferred taxes). The deferred tax liabilities are about twice as high as the deferred tax assets so I would expect some non-cash gain in Q4 to reflect the lower tax rate.

Boston Pizza Royalty Units were down 2.1% to $21.50. It makes sense that these units would fall in price with higher long term interest rates – all else equal. But I expect distribution increases over the years to offset that such that these units could rise in addition to paying their attractive distribution.

Liquor Stores N.A, which has not been on our list for quite some time but which I occasionally mention has defied my expectation and rose 4.6% today to $11.68. I believe there was some speculation earlier about it getting into  the retail Cannabis business. I did not think that likely since Alberta has said Cannabis will not be sold in liquor stores. And it did not seem to have the cash to get into a new business. But I suppose it could take the opportunity to sublet some of its spaces (which it leases and does not own) to Cannabis retailers as it appears to have too many stores. I have trouble seeing that as a big opportunity. But I suppose any speculation of any involvement with Cannabis is enough to push the stock up. Meanwhile I understood from their recent press release that they apparently took a loss on selling a couple of U.S. stores and, if so, that will be reported in the Q4 results.

Speaking of recreational Cannabis retailers, I wonder how profitable that will be. Private retail Cannabis stores will be allowed in, I believe, Alberta and Saskatchewan but not Ontario or Quebec or most other provinces. If it is like the Alberta liquor stores where everyone is buying at the same price from the government supplier (as will be the case in Alberta) it may be difficult to generate particularly high profits. It may be lucrative initially if there are few stores compared to demand.



January 9, 2018 9:35 am eastern

I notice Brookfield Renewable Partners L.P. has an offering this morning (still open at TD Direct as I write this) that pays a minimum 5.0% on a rate reset preferred share. This seems tempting. Even with interest rates rising, 5% does not seem like a bad return on what I certainly suspect is a safe security. And if rates do rise a lot, at least it resets in five years. And if interest rates happen to fall, the 5.0% minimum would apply at the reset date.

MedReleaf LEAF.TO is out with an offering of $100 million is shares at $26.50 and this includes a half warrant exercisable for two years at $34.50. The stock closed yesterday at $29.20 with a market cap of $2,763 million. I think it is extremely wise for the company to bring in cash while its shares are hot. It will be interesting to see if the issue at a bit of a discounted price causes the market price to cool. I note that TD Direct does not list this new issue. I don’t know if they have been involved in other share sales by the Cannabis companies.

Rob Carrick in the Globe and Mail this morning reports that Fear of Missing Out is gripping the market pushing stocks higher. That seems accurate.



January 8, 2018

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

Toll Brothers was up another 1.3%. Walmart, which we last rated (lower) Sell, was up 1.5%.

The rate reset preferred shares are generally still edging up and that’s because the five year government of Canada bond yield is now very close to 2%. Six months ago it was just under 1%. That adds 25 cents to the projected reset yield on these type of shares compared to the projection six months ago. Since most of these shares only yield roughly $1.00 to $1.25 , a 25 cent increase in the projected reset yield is significant.

After the close, Laurentian Bank announced it would issue $125 million worth of common shares at $54.80. That’s a bit disappointing to those holding the shares which closed today at $56.83. This is relatively small issuance compared to the Bank’s market cap of $2,214 billion. Laurentian Bank’s equity ratio was low at 7.9% after it recently redeemed some preferred shares. Laurentian also faces some potential costs due to some mortgages that were sold to a third party and for which the proper income verification or related checks were not properly done in all cases. This share issue has already closed out on TD Direct. I have not in any way analysed this bank. But I suspect that buying some shares during this time of what appears to be modest distress will work out well.

Cannabis stocks jumped again today. Canopy Growth (WEED) was the biggest gainer, up 17.2%. Its market cap is now $7,608 million which I notice is more than triple that of Laurentian Bank. I normally would be paying absolutely no attention to these early stage companies but it just so happens I am keeping an eye on four of these. I don’t think the market has much to go on in valuing these stocks. The market caps look very high to me and my suspicion is that these stocks will eventually decline quite a bit. But so far anyone investing int hem has done very well. The Globe and Mail suggested that these stocks could be vulnerable to a “short attack”. However anyone wanting to mount such an “attack” might have to go after the whole sector. And with so much unknown about the future of the industry it might be hard to mount such an attack. I say attack, but if the stocks truly are over-valued I see it as completely legitimate for some analyst to come out and say that even if she could profit as a result. Not much different than promoting that a stock she owns will go up. As long as it is an honest opinion, that seems like fair game to me.

The earnings and revenues of these stocks will also not be impressive when they report Q4 results. But that may not matter at all since the market is looking to sales and profits AFTER legalization.



January 5, 2018

Friday’s action had the S&P 500 up another 0.7% and the Dow up 0.9%. The gains have continued to come fast and easy on Wall Street. Toronto, however, was down 0.4%.

Toll Brothers was up another 2.2% to $51.21. This company has worked out as a decent way to benefit from the recovery in the U.S. housing market.

TFI International was down 2.2% giving back some of the recent gains.

Yesterday I mentioned my new calculation that breaks out the contributors to the total equity value of a company. Most of the companies that we have on the list here have a history of making profits. Most of them have positive retained earnings even even after paying dividends and any stock buy backs. In addition because most of them earn double digit ROEs, in a world where a 10 year government bond yields just 2.1%, the market values them at some premium to book value. Many of the companies on our list have been prodigious creators of value over the years.

As an example, the equity market cap value Linamar Inc. can be broken out as 3% (remaining after any stock buy backs) original share owner investment, 58% retained earnings and the remaining 38% of the market cap represents the premium the market has found to be appropriate over and above the book value. Linamar is therefore valued at $100 for every $3 of original owner money that it took in and most of that value was generated by making and retaining profits.

Linamar pays only a modest dividend (recently only 6% of its trailing earnings). And I suspect it has bought back few if any of its own shares. The fact that its original share owner invested money is so much smaller than retained earnings reflects many years of retained earnings and also is due to the fact that Linamar seldom or never issues shares in acquisitions. It also apparently has not issued huge amounts of stock options. Only 38% of Linamar’s value represents a premium over and above book value which is relatively modest. If the market believed that Linamar could continue to earn its five year average ROE of 20% then the premium would logically be far higher. Basically, these figures indicate that Linamar has done what we would want any company to do: It took in investor money, and made profits and reinvested and compounded those profits at a high rate of return and has earned a market value that is at a premium to the invested/retained capital. Not every company can make either of those two claims. Usually, if past profits have represented an attractive ROE the market will award a premium to book value. Exceptions could occur when the future is seen to be bleak for some reason.


January 4, 2018

Thursday was yet another wonderful day for stock investors. Especially U.S. stock investors.

The S&P 500 was up another 0.4%. The Dow was up 152 points or 0.6% as it cruised through the 25,000 point milestone without even slowing down to acknowledge that feat and closed at 25,075. Toronto was up 0.25%.

A notable gainer was TFI International up 2.4%.

Most investors in stocks have been enjoying excellent gains of late. Their only complaint might be that those with exposures to Cannabis or certain crpyto currencies have done even better.

I feel like the gains are coming rather too easily and quickly and we should not expect the party to continue without end.

The four Cannabis stocks that I am keeping an eye on were down roughly 10% on average today after the white house announced that federal agents could still prosecute cannabis users in States where it is “legal” because it remains illegal under federal law. That basically put a damper on expectations for the Canadian companies selling into U.S. markets. It seems to me too, that the TSX was recently concerned about listing any Cannabis company that was doing business in the U.S. due to legal issues. This news could heighten the concern of the TSX. Overall, the fact that these stocks fell only about 10%, which only gave back approximately the gains of the previous day, perhaps reflects the strength of the appetite for these stocks.

Costco was down 0.8% today even though it reported absolutely stellar December same-store sales growth. I have Costco rated as a (lower) Sell which seems sort of harsh for such a powerful company. But perhaps the market action today reflects that even great companies can get over-valued at times. Still, I was surprised to see a drop after those great December figures came out.

A New Corporate Performance Indicator

When I look at the book equity of a company, I always take some note of the proportion of the book value that represents original shareholder money and the proportion represented by retained earnings. If a large portion is retained earnings then that is proof of profitable operations in the past.

Usually, but not always, a negative retained earnings figure indicates a history of losses. An exception to that rule can occur when a profitable company has paid out all of its past earnings as dividends or for share buy-backs (which reduces both retained earnings and original invested shareholder money). Dollarama is such a case.

I have calculated a new performance indicator (that I have not seen elsewhere) by breaking out the equity market cap value of companies into three components:

1. Original shareholder invested money – raised by seed financing, public offerings of shares, money received on the exercise of stock options and also the value received when shares are issued in corporate takeovers. This amount has often been reduced when a portion of share buybacks (or in some cases dividends) is considered to be a return of original shareholder invested money.

2. Retained earnings including accumulated comprehensive earnings which has often been reduced by dividends and share buybacks.

3. The residual which is the amount by which the market value exceeds (or in some cases trails) book value which is the sum of components 1 and 2. The market should logically value a company at a higher level than book value when that company is expected to generate returns higher than those “required” by investors. (Just as a bond paying an above market yield will trade above par value.)

As an example, the equity market cap of TFI International can be broken out as 24% (remaining) original share owner investment, 20% retained earnings and the remaining 56% of the market cap represents the premium the market has found to be appropriate over and above the book value.

This is not a perfect indicator but it does illustrate that TFI has a history of profitability and that some of the profits have been retained. It also illustrates that the market believes that TFI can continue to achieve book value ROEs that are higher than investor required returns and that therefore a premium value over and above book value is appropriate. Basically, these figures indicate that TFI International has done what we would want any company to do: It took in investor money, and made profits that are high enough to deserve its shares to trade at a premium to the invested/retained capital. Not every company can make that claim.

I will provide more details of the results of this analysis in a forthcoming article.


January 3, 2018

Markets were up fairly strongly again today. The S&P 500 was up % and Toronto was up 0.4%.

Toll Brothers was up 4.3% to $50.42.

TFI Industries was up 3.2%.

I don’t know any specific reason for these two rising today. But I do know that, like virtually all of the companies on our list they are profitable companies that rise in value over time based on profitable sales to their customers.

Meanwhile four Cannabis stocks that I am keeping an eye on (but have absolutely no plans to invest in) were up an average of another 12.1% each today. Wonderful for those holding or who sold today.

The valuation of these four companies is as follows:

Aurora $6.5 billion

Medreleaf $2.8 billion

Aphria $3.3 billion

Canopy Growth $6.9 billion

Total $19.9 billion.

I have no idea at all what the profits and sales of these companies will be. Do the buyers of these stocks?

I do know that $6.5 billion is a LOT of money. By comparison some companies that I follow have market caps as follows:

Canadian Western Bank $3.5 billion.

Stantec $4.0 billion

Toll Brothers $8.2 billion U.S. ($10.3 Canadian)

Dollarama $18.0 billion

Linamar $4.8 billion

TFI International $3.0 billion.

To me, it seems a bit much that, for example, Canopy Growth and Aurora Cannabis are each worth far more than the likes of Stantec, TFI, Linamar and Canadian Western Bank.

Again, I have absolutely no idea of the profits that these companies stand to make. Predictions are that some of these Canadian companies will become world leaders in this new business. Maybe so, but if I held these I would be worried that the valuation is not anchored to much of anything concrete. The very lack of anchoring has allowed the valuation to sail ever higher. But on what basis?

Should those who hold these stocks consider locking in at least some of their gains? Should they ponder the old advice to be cautious when others are greedy?

Or are these shares destined to climb higher as various mutual funds may now be buying so as not to be left out of this exciting investment?

In any case it seems that markets continue to be anything but boring.

Meanwhile, oil (West Texas) is at $61.78. Perhaps Melcor and some other Alberta-based stocks will benefit from that.






January 2, 2018 and January 1, 2018

The market is off and running for 2018 with the S&P 500 rising 0.8% and Toronto rising 0.6% on this first trading day of the new year.

FedEx was up 3.2%.

CRH Medical was up 4.8% on Toronto to Canadian $3.47. This has been quite a volatile stock with a 52 week range of $1.82 to $12.35.

Penny stock Ceapro was up 10% to 55 cents and after the close announced the grant of 210,000 options (which vest over three years) at 50  cents. Also 210,000 Restricted Share Units. This quantity of options does not strike me as overly large. It gives management an incentive to do things that push the stock price up (like hopefully make money).

Cannabis / Marijuana stocks surged again today. This feels a bit like money for nothing. None of these stocks would look attractive based on earnings to date or their book value. Maybe the stock prices are justified based on earnings projections. But it appears that people keep pushing the price up based on momentum but also based on various announcements that indicate that there will indeed be sales.

It may be sour grapes on my part but I would offer the following thoughts:

A large market for any product is no guarantee of large profits for anyone let alone every company in the industry. Airlines always have many billions in revenue and yet often the industry is not very profitable and bankruptcies have been frequent in the past.

Will Cannabis be a commodity product? In that case expect only the lowest cost producers to make large profits.

Will Cannabis be a branded product where people pay more for their favorite brand? In that case, which brands will be the favorites?

What are the barriers to entry in the Cannabis business?

In the tobacco business, did the farmers make huge gains or was it companies higher up the food and brand chain that made the big money?

My guess, and it is only a guess, is that that these stocks could certainly go higher, perhaps far higher, but many of them may well finish the year lower than they are starting the year.

Aurora Cannabis has a market cap value of $5.4 billion and a price to book value ratio of 18 times. By way of comparison, Canadian Western Bank has a market cap value of $3.5 billion (which it slowly built up over about 30 years) and a price to book value ratio of 1.6. Maybe that is sensible. Maybe not.

Some of these companies have recently raised money but issuing shares. I think that is extremely wise and could guarantee the survival of the company. If any of these companies have any debt they should now issue shares to pay that off and to build a war chest while they can.

Many investors must be sitting on tens of thousands of dollars in gains on these shares. While they could go higher, it would seem to be prudent to lock in some of those gains.

Despite the large gains so far, I think it has to be admitted that investing in or holding these stocks is an exercise in gambling as opposed to investing. But again, this may all be sour grapes on my part.

January 1, 2018:

Here are a few predictions and thoughts about 2018:

It appears that barring geo-political risks, the U.S. economy will do well and Canada should do well also although NAFTA issues are a concern.

Stock markets may not do as well as the economy since a good deal of optimism about 2018 is already reflected in stock prices.

Interest rates will likely continue to increase (and all else equally, that is a negative for stocks).

Many stocks and a number of sectors or even possibly the market overall will have one or more periods where fear pushes their prices down materially. Those are the periods where having cash to invest at lower prices can be very advantageous.

Berkshire Hathaway’s book value per share growth will likely surpass the one million percent figure when the 2017 number is released (boosted by a huge gain on its deferred income tax liability). I don’t think Warren Buffett will view that incredible milestone as an appropriate time to cut back his duties or retire as CEO, but at 87 years old he just might. However, he really does not appear to have lost anything in terms of his abilities or energy and so he might be motivated to just keep on going unless a health issue emerges. If Berkshire does not announce a major acquisition of at least $25 billion, this should be the year that it finally introduces a dividend and/or buys back shares.

I have updated the composition of my own portfolio. I have a large 25% allocation to cash and a very concentrated equity portfolio. The P/E ratio of my equity portfolio is relatively low at 14.4 which, in theory, reduces my risk. I like the safety aspect of the 25% cash but at the same time this could reduce my return. I may redeploy some of my U.S. cash into global ETFs.

The performance of our stock picks in 2017 was good with the three stocks that were rated in the Strong Buy range as of the start of 2017 rising an average of 18%. The 22 stocks that were rated (lower) Buy or higher rose an average of 15.6%.

My own overall portfolio was up 15.2%.

Meanwhile, the Toronto Stock Exchange index was up just 6.0% but the S&P 500 was up 19.4% and the Dow Jones Industrial Average was up 25.1%.

Most analysts seem to be predicting another strong year for stocks in 2018. That remains to be seen. Stock indexes are unpredictable in the short-term.

For the start of the new year, I have removed several stocks where the report was well out of date.

Note see the menu to the right to click to see 2017 and earlier comments