Daily Updates 2001 – 2005

December 31, 2005


Kingsway Financial is updated to
start the new year due to its price appreciation and is rated Strong Buy at
$23.50. I expect it to report strong earnings for Q4 given that it reportedly
had only small losses due to the hurricanes (though it is a bit hard to
understand why its hurricane losses would be so small). It should report good
investment gains in Q4. I expect the property insurance market to report record
profits for 2004 and this may generate some added interest in this segment of
the market. Overall I see moderate to little long-term risk in this stock
although in the short term it could surprise with higher hurricane related


Final Performance figures for 2005 have been
updated. As we closed out the year the performance figures increased notably in
December. The progress since the beginning of 2005 was remarkably steady with
essentially no notable declines in the performance throughout the year. 2005
turned out to be a remarkably good year for our stock picks. There can be
absolutely no guarantees regarding the performance in future years, but we will
be applying the same methods and diligence that have worked out very well for
the past six straight years since the inception of this Site.


December 29, 2005


The TSX Group is updated and
downgraded to Weak Sell / Hold at $47. Key facts about this stock are that the
company operates as virtually an unregulated monopoly and is extremely
profitable. However, the stock has risen 75% in 2005 and its value ratios were
beginning to look quite high. On top of that a recent accounting change that may
not yet be fully reflected in the market has substantially lowered the equity
and profit and revenues. While I view the accounting change as being highly
inappropriate and while analysts may attempt to use cash flow to rate the stock,
the resulting very high P/E on GAAP earnings is likely to drag the stock down.
Based on the numbers I should perhaps rate it an outright sell. However, this is
a very strong company and does have pricing power (the ability to raise prices
almost at will, and it ahs announced a 7% price increase for 2006. I would be
quite interested in the stock if it falls back under about $35. However at the
$47 price, I sold my small position.


Meanwhile shares of Archipelago (AX) which is buying the New York Stock
Exchange (NYSE) moved lower today to $49.60. Seats on the NYSE traded hands
today at around $3.6 million, down from a recent price of $4 million. However,
tomorrow is the last day for these seats to trade before the AX (reverse)
take-over. Seat holders will receive the equivalent of $4.4 million (about $4.1
in AX shares and  0.3 in cash). Existing seat holders will not be able to
sell the AX shares for some three years. Therefore I believe that the recent
seat sales are likely from disgruntled seat holders who voted against the AX
deal and want no part of it. AX shares at $49.60 value the seats at $4.4 million
and I don’t believe that the $3.55 million seat sale of today is necessarily
very representative of what the seats should trade at.


Based on $4.4 million per seat the total value of the NYSE plus Archipelago
is about 8.5 billion. That does not strike me as at all excessive given that the
TSX is trading at a value of $3.2 billion. The NYSE and Archipelago do face
competition. However, I suspect that the NYSE has considerable pricing power.


I am holding AX shares as a speculative position and would consider buying
more at the $49.60 price. In the long term I would be surprised if this were a
bad investment and it could turn out to be quite a good investment even in the
short term. (Of course the AX shares could fall in the short-term… markets are
always risky). I have not analyzed the AX shares because with the reverse
takeover of NYSE it is essentially a new company and I don’t believe that the
historic earnings are necessarily at all representative.


I note that Western Financial Group
seems to be holding above $2.50 and had had trades at $2.65 before
retreating. I like this stock and if I held none I would buy but would probably
use a LIMIT order to avoid buying at a “mini-peak” such as buying at $2.65 only
to see it jump back to $2.55.


December 28, 2005


I sold my cognos shares today. If I had a lot I would have only reduced the
position but since I had a relatively small amount, I sold it all rather than
keeping some.


December 27, 2005


ING Canada is updated and
rated (higher) Buy at $51.10. This stock was updated because the price had
jumped a significant amount since our last update.


Cognos is updated and rated Weak
Sell / Hold at $40.78. It’s near-term earnings outlook weakened considerably
since my last review of it. Still a great long-term company. Maybe I am being
too harsh as it appears insiders are not selling, but I fear a fall in the
near-term but probably a recovery by year-end 2006. If its new product release
goes well it could do quite well in 2006 but they have already projected the
current quarter to be quite bad so I am taking a wait and see approach right
now. It is annoying that the company pays no dividend. In my view the lack of a
dividend is a sign of immaturity. (The company has however, been buying back
shares which is a positive signal).


December 26, 2005


IGM Financial is updated
and remains rated Buy at $45.65. This company has an exceptional record of
steady growth. It’s Q4 report should be good given the strong markets. This
should be a good long term investment.


Manulife Financial is updated and
now rated Speculative Buy at $68.11. This has continued to be a truly world
class Canadian company with growth that is tremendous, given its size. It should
be a good investment even at a more moderate growth level of 9 to 12%, leaving
up-side potential if it continues to achieve exceptional growth in Asia and
Strong growth in North America. Q4 should prove to se strong, given the strong
equity markets. I call it speculative due to the “black box” nature of its
accounting. Most analysts would likely consider it to be extremely safe. I would
not hesitate to Buy at this price and would consider it a longer term
investment. Possibly some risk of changes in accounting estimates that could
cause a short-term hit, but there has been no indication that this will happen.


December 21, 2005


Another good day for ING… I will have a number up updates by year-end but
nothing planned for the next few days.


December 20, 2005 (this comment failed to upload on Dec 20 and was
uploaded Dec 21)


I note the insurance stocks continuing to do well. I am enjoying the gains
and have no intention to sell any of these at this time. That’s my strategy. But
always remember there are never any guarantees in the market.


The one stock I have an order in for is Western Financial Group. Some people
got it today in the 2.40’s and it closed at $2.68. Already holding a fair amount
I tried for $2.41 but did not get it. With their announcement yesterday about
buying more insurance agencies, there is the possibility of a share issue which
tends to depress the price. But if so, it  won’t  bother me much I
would look at it as a buying opportunity. Any maybe they won’t need to issue


December 18, 2005


E-L Financial is updated as
Speculative (higher) Buy at $535. Las time I rated it was with that same rating
back on Aug 26 at $392. I hope some subscribers bought it. My rating at that
time was probably too conservative. I should have paid even more attention the
the price to book value ratio being below 1.0 at that time. I missed buying it
myself because the price did jump quickly above $400 and I cheaped out hoping it
would pull-back. One negative I would note is the thin trading. But with a $2
billion market cap, I am less concerned about trading liquidity than I would be
on a micro cap. On these property insurance companies I like to hold several to
spread the risk around.


December 17, 2005


Performance figures are updated and are at a
record for the year.


Telus has come out with its earnings estimates for 2006. The company expects
earnings per share growth of 23 to 33% . Since 2005 was depressed by the strike,
Telus indicates this is equivalent to 17 to 27% on a normalized basis. Using
2006 projected earnings of $2.50, Telus is trading at a forward P/E of about 18.
This is moderately attractive given the growth outlook. Telus has really
impressed me in the past few years. Unless severe price competition sets in,
Telus should continue to do well.


I am almost tempted to sell some Wendy’s shares and hope to buy back on a
pull-back below $50. But the last time I tried a similar trick Wendy’s fell a
bit and then rose and I never bought back what I sold. So, given that I expect
the stock to rise after it does the IPO on Tim Horton’s I will continue to hold.
Wendy’s is “a special situation” in that its earnings do not justify the stock
price but the market is expecting value to be realized through the IPO of Tim
Horton’s and other restructuring initiatives.


Several of the Strong Buy picks here continue to be in the property and
casualty sector. I continue to think that the outlook for the sector is very
good. I’m almost certain that 2005 will be another record profit year for the
industry and 2006 looks good as well. The way that short term interest rates
have risen while longer term rates have fallen for most of 2005 is very good for
insurance company investment returns. They will get higher yields on their short
term money and another year (in 2005) of capital gains on their long-term bonds.
They should also have done well on realized stock gains in Q4 2005. Meanwhile in
the auto insurance segments, claims remain low and the industry has benefited
from government actions to reduce certain pain and suffering type claims in some
provinces. Despite some price reductions, the industry appears to be highly
profitable at this time. Perhaps profits will decline in 2006. But the share
prices appear to be reflecting that expectation given P/E ratios well under 10
in most cases. While it never seems to be a popular sector in the market, I
continue to like the sector.


A new edition of the free newsletter is
available. It has not been emailed out yet due to a technical problem.


December 15, 2005


A good day for Kingsway and the other insurance picks… As noted in the
past, I hold some shares of Archipelago (AX) a company that will essentially
merge with the New York Stock Exchange, with Archipelago shareholders ending up
with 30% of the the company that will be renamed with the NYSE brand. I called
this a special situation in that I am not able to calculate the value of AX on a
P/E type basis. I calculated that at $52.30, AX shares are equivalent to paying
$4.3 million for a NYSE seat. That’s somewhat high because seats were recently
trading just under $4 million. But the market for seats is apparently extremely
illiquid. In any event I do hold AX shares as a speculative bet and I added to
my position in those shares today.


December 14, 2005


As of yesterday, I was at a definite new peak return for the year.  Gave
some back today… Today I sold the last of my Sino-Forest. See my previous
comments on the company. The numbers still look good on the stock. But I was just
no longer comfortable with the company  in terms of really understanding
what they and what the risks are. I placed an order to buy more Western
Financial if I can get it at $2.41.


December 13, 2005


A nice 7% move up for Wendy’s today  after a relatively large activist
investor pressured the company to sell all of Tim Horton’s (rather than the
planned 15 to 18% and to sell other non-performing or non-core assets.
Apparently this investor believes that if properly restructured Wendy’s could be
worth $90 per share. I agree it has potential upside. When it sells off 15% of
Tim Hortons and if those shares then rise rapidly, this would push Wendy’s up.
On the other hand this rise today could be short lived since Wendy’s is not
agreeing to do what the activist investor wants. I Hold Wendy’s and wish I held
more, but I am not that keen to buy at $55. Maybe if it falls to $50 or below.
(But in my last post about this stock I was waiting for it to fall to $44 before
buying more, but that did not happen). In any event all of this certainly
vindicates my keen interest in this stock back when it was in the 30’s not so
long ago.


I continue to comfortable with my heavy position in property and casualty
stocks. I am considering adding to my position in the insurance broker, Western
Financial Group, particularly if I can grab some at $2.35 or maybe $2.40.


December 11, 2005


My personal portfolio breakdown is updated. Most
analysts would consider my portfolio to be extremely overweighed in property and
casualty insurance stocks. I am comfortable with the high weight because I view
the sector as under-valued. However, I do recognize that I am taking a risk. In
particular I am at a high risk of short term negative volatility. (Possibly also
a longer term risk).


December 7, 2005


Reitman’s (women’s clothing store
chain) is updated and remains rated  Speculative (higher) Buy at $16.82.
The number look quite good. Possible negatives are the recent sale of shares by
family members and the inherent cyclical nature of retail. Overall it seems like
a good pick and the stock should do well early next year if its Christmas sales
are strong. I may buy some.


No big surprise that ING Canada gave back some money today…


December 6, 2005


Wow, another great day for ING up $1.99. Market sentiment seems strong. It is
looking like the year is set to finish strongly. Regarding ING, I definitely
still like it for the long term. Sure, it could give back some of this quick
gain, but I am not inclined to trim my position at this point.


December 5, 2005


A very nice day for ING Canada – up $1.37, Kingsway also up a bit but
Northbridge slipped a bit.


I note Loblaw down another 3% today. Since the downtrend could continue, that
is why it would be a good idea to average into this stock rather than take a
large position all at once. It’s hard to say where this stock will bottom out at
but I think ultimately when it does then a year or so after that it will be
clear that the bottom was a major buying opportunity. While the stock could fall
significantly from here, I believe that there is little chance that it will just
keep on dropping for a very long time. This is not some risky tech stock.


December 4, 2005


HUB International, which is an
international  insurance brokerage company is updated and rate Speculative
Buy at $U.S. $24.22. The analysis makes a very large adjustment to add back
certain stock based compensation that appears to be essentially like a deferred
addition to the purchase price for an acquisition. My own approach will be to
monitor this company further before possibly buying.


Loblaw is updated and rated Buy at $59.80. Loblaw is having a poor year
mostly due to supply chain disruptions caused by a major restructuring (includes
consolidating warehouses and moving 2000 head office staff to a new central
location). Q4 will also probably suffer the same problem and I understood from
listening to a web presentation that problems could continue for most of 2006.
Nevertheless it’s not clear if the share price will fall further. Given the
strong growth history of this company it seems likely that the stock will
ultimately recover strongly. My own strategy would be to average into this
stock. Although the stock could certainly fall further in the short term I
believe that this could be a great opportunity to get into this company at a
price that turn out to be quite attractive if earnings turn around. I also note
though that the company has stated that too much supermarket capacity is being
built. In that case we could see grocery prices becoming overly competitive
which would hurt Loblaw.


It’s interesting to note that the stock price is back to where it was in
early 2002. (and down considerably from a high of $76.50). But the company has a
lot more earnings and equity and assets than it had in 2002. This stock provides
a perfect illustration of why it is dangerous to pay a very high P/E for a stock
(and to therefore pay in advance for robust growth that may or may not occur).
Here is what I said about Loblaw in January 2001



From January 2001: At a share price of $50.50, the price to
book value ratio seems high at 4.7. The dividend yield is low at 0.5%. The
Interim price earnings ratio is high at 32.3 and 29.5 before amortization of
goodwill. The interim adjusted return on ending equity is quite good at 15.9%. I
calculate an intrinsic value per share of between $18.14 and $36.62. These
ratios indicate that the shares are somewhat over-valued at this time.



Back in early 2001, I valued the stock at $18.14  if it would only grow
at 7% and if the P/E would regress to 15 in five years. That was quite
conservative. I valued it at $36.62 if the earnings would grow at 12% and
assuming the P/E would regress to 20. In actual fact the earnings growth was
higher than 12% but nevertheless the P/E ratio did regress to about 17. It is
reasonable to assume that stocks with very high P/E ratios will suffer some
regression in the P/E over say a five year period.


It’s interesting to note too, that many analysts were recommending Loblaw
continuously over the past five years. Now that the stock has fallen
considerably I would expect that many analysts are no longer recommending it.


December  3, 2005


Alimentation Couch-Tard is
updated and remains a Speculative (lower) Buy at $22.41. The company does not
seem like a compelling Buy. However, if it continues to grow at anything near
its historic pace (on a per share basis), it would be a good investment.


Performance figures are updated for yet
another winning week.


December 1, 2005


I mentioned yesterday that the market sentiment seemed negative… and the
market promptly rose 175 points… Hopefully a sign of a strong December.


Cognos warned of a weak results today. I don’t have a large position and I
still like it for the long term so I am not sure if I will reduce my position. I
would definitely be interested if it falls toward the $35 range. My last report
basically indicated it has high multiples but that this seemed to be justified
by the growth. Certainly it seems more speculative at the moment.


Wendy’s filed material for its prospectus today. So far they have not filed
in Canada and it is not clear if they will be offering the shares in Canada. If
not we will have to wait and buy them on the market. I think they would be
making a big mistake not to offer it in Canada at the IPO. But maybe this is a
good thing. If they only offer in the U.S., the IPO price is likely to be lower
and then we can buy in the market.


November 30, 2005


A lot of stocks were down today. The market seems weak is spite of strong
earnings from the Banks and other strong earnings releases. Unless something
changes we seem to be in a bit of a down-turn. If the general market does
decline somewhat then I feel good being in stocks with lower P/E ratios like
most of the picks on this Site.


Northbridge has declined the past few days. Last week in announced a $15
million pre-tax loss due to Hurricane Wilma. It is unfortunate that it has this
U.S exposure. Only 16% of the revenues are from the U.S. but that is where the
trouble has been this year. With annual earnings that were recently over $200
million, a $15 million pre-tax loss is not that serious. I am very comfortable
in continuing to own Northbridge.


November 29, 2005


I was hoping to have an update for Boston Pizza completed today. However,
they have been forced to make some major accounting changes. (Nothing serious
just new accounting rules) The income stays the same. But the revenue and the
balance sheet change. I am no longer sure if the 2004 earnings per share are
reported in the same way as the Q3 2005 figures.  I will likely have to
wait for the 2005 annual report to get a better view of the impact of the new
accounting rules.


In any event Boston Pizza yields 7.7%, not that high for a Trust. But
is has been increasing the distribution slowly and same store sales are very
strong. New restaurants are opening but the Fund actually has to purchase the
expected revenue stream of the new restaurants which adds to the unit count and
adds very little if any  to earnings per unit. My sense is that Boston
Pizza remains a (lower) Buy at $15.84. I hold some and will probably hang on
although I would not mind selling it it rises above my very recent purchase


In other news the 10 year Canada Bond interest rate is once again down to
just under 4.0%. This generally bodes well for the market except that it could
be foretelling a recession ahead. It may be a good time to be in defensive
stocks that are somewhat recession proof. I think the property insurance stocks
are somewhat recession proof. Some strong Bank results out today which also
bodes well for the market to do well in the final month of this year.


I’m overdue to mention that credit should be given to ACE Aviation for some
good results lately. I have been no fan of this company. I still see some
dangers ahead in terms of seeing some very low priced seat sales (good for
customers but generally bad for airlines) But apparently some reports indicate
that overall their fares are remaining higher right now and they are perhaps
less aggressive in mounting sales wars against West Jet. Certainly the announced
spin-off of Jazz appears to be a good thing. I am still not at all interested in
this stock but given I have criticized it in the past it is fair that I
acknowledge better performance lately.


November 27, 2005


Canadian Tire is updated and now
rated Weak Buy / Hold at $67.43. In the past few years this company and stock
has tended to surprise on the upside. Certainly the graph of the earnings per
share and the sales per share growth looks very good. Still, it is not cheap at
this price…


Performance figures and my own portfolio are updated. Regarding the Income
Trusts that I bought as mentioned under November 24: The hoped for increase in
price after the open did not occur (the price increase occurred at the open also
on the Wednesday before the announcement of the tax ruling). Given that this
position which was meant as a short term trade did not work out, I sold half the
BAI.un (I attempted to sell the other half but priced it too high.) I really
should have sold the Boston Pizza as well but it would have been at a small loss
and I was unable to convince myself to accept that loss and move on. I still
hope these will rise tomorrow.


I notice that Canadian 10 year interest rates have declined again to close to
4%. This is a positive factor for the Trusts and for the market in general. News
that interest rates have risen refers mostly to very short-term rates. The
10-year rate has declined most of this year, ticked up from 3.8 to about 4.2
this Fall and now is back close to 4%.


November 26, 2005


Telus is updated and rated Moderately
Speculative (higher) Buy at $46.43. Earnings momentum is strong. Free cash flow
materially exceeds net income. Continues to sign up surprisingly large numbers
of new cell phone customers. While there is always the risk of competition,
right now the outlook and trend seems positive.


November 24, 2005


Well a strong day today with the Income Trust news. The Trusts mostly opened
very strong (up 5 to 10% or more) so it was really almost too late to take
advantage of the news because the price jumped at the open. Many of the Trusts
then came down a bit during the day. Hopefully tomorrow and Monday there will be
an increase as more people react to the positive tax news. Possibly when the
American traders are all back from their holiday on Monday there will be more
interest in the Trusts. I ended up taking about 10% of my portfolio that was in
cash and putting it into BAI.un which is a diversified closed end group of
Trusts and some into Boston Pizza. Normally I like to take my time and do more
analysis before investing but at this time I thought there might be an
opportunity for a quick gain.


I will have some company updates over this coming weekend.


November 20, 2005


An addition of the free newsletter has just been sent. If you did not receive
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November 18, 2005


Performance and the model portfolio is updated.


November 17, 2005


I notice CN is up to $91.39, a surprising 10.6% jump since I called it a Buy
on October 19. I am not inclined to Buy a this price but I definitely would not
sell it if I held it. It’s really been a great performing company since its IPO
10 years ago. The shares are up 900% in 10 years. (Update it is the share market
cap that is up 900%, the share price is up more like 400%). And yet as I have mentioned
before the “hot money” and the stock bullboards pretty much ignore it.


The market has certainly been good lately for the stocks that I hold. In some
ways that should make me cautious, but human nature being what it is, I am
feeling pretty good about how the market will do in the next 6 weeks. Given
lower oil prices, a lot of non-energy stocks should do well. And I think we may
be seeing dividend stocks increase as people move out of Income Trusts. That may
be creating a great opportunity in income Trusts and so I hope to analyze an
Income trust or two soon.


I noticed that TD Waterhouse has a new IPO for EGI Financial Holdings. This
is a rather small property insurance company that specializes in high risk
drivers. I have only skimmed parts of the prospectus but it looks like it has
been quite profitable and it looks like the price to book ratio will be around
1.5 to 1.8. Although I certainly have not done any close to a full analysis I
decided to take a chance and buy some shares at the IPO.


November 16, 2005


Wendy’s is updated for its Q3 earnings
report and remains rated Weak Buy / Hold at $48.36. Although it is a great
company with good profitability, the valuation appears rich. However, I am
holding it based on a potential price increase when it sells off 15% of Tim
Horton’s in Q1 2006. I believe that there will be a great demand for Tim Hortons
shares and it will get a strong valuation. Tim Hortons now represents almost 60%
of Wendy’s International’s total operating income despite having fewer than half
as many locations. The U>S. market may be unaware of the growth potential for
Tim Hortons. I hold shares. If the price happens to dip back to the $44 range
(which is quite possible) I will likely add to my position.


November 14, 2005


I sold 4/5ths of my Sino- Forest today. Again, the numbers would say buy
more, but there is something about the long-time lack of clear disclosure and
the changes in business plans that makes me uncomfortable. I also just made a
note on the model portfolio page that I will notionally sell half the position
at tomorrow’s opening price. I have sent an email to them and they have
responded partially and another person from Sino invited me to call to talk
further, so maybe I will change my mind but for now I am comfortable with a
smaller position in Sino-Forest.


Update – I have now spoken with the company by phone, perhaps I am needlessly
nervous. If everything is as they say it is these shares are a definite Buy.
But the company was unable to explain to my satisfaction why we do not see much
higher revenues from their own planted lands. I remain skeptical at this time.


Today, the property insurance stocks were up moderately, which is comforting.


November 13, 2005


Performance figures are updated. The picks
have now regained the moderate losses suffered in this Fall and are at the
highest levels of the year.


Home Capital is updated and remains
rated Weak Buy at $36.25. Earnings and ROE performance have been fantastic but
the stock still seems a bit expensive.


Sino-Forest is updated and rated
(highly) Speculative Buy at $3.45. Based on the value ratios this would seem to
be a very good buy that could easily soon double. However, I have some nagging
concerns. The company that has all its assets in China and it must be difficult
for auditors to confirm the existence of the stated amount of trees. Recently
the earnings have been driven by the purchase and re-sale of standing trees.
It’s hard to understand why that would be a high margin business. For quite a
few years now I have expected to see the company start to sell from its own
planted tree plantations. In Q3 only a tiny 391 hectares were sold from
plantations and these were at the low price of $1,217 per hectare. Several years
ago the company built a number of mills to process wood, there were were
start-up delays and then ultimately little seems to be said about those mills.
It seems like management has changed the business plan a few times. Overall,
this may be a wonderful investment but I am concerned about the risks and I plan
to reduce my holdings from 4.2% of my portfolio down to probably less than 1%.


November 11, 2005


Western Financial Group is updated and rated Speculative (lower) Strong Buy
at $2.45. Here we have a profitable company selling at about 17 to 20% over
diluted book value. There is a considerable amount of goodwill on the books, but
I think the goodwill has real value given the earnings and given that when small
insurance brokerages were purchased it is natural that much of the value would
be in goodwill- as the value of the established customer base is not on the
books. Book value may be understated given that the company has invested in the
start-up of a banking operation. Given the historic growth the P/E seems
reasonable at 15. I also like the fact that the highly regarded Jim Dinning is
chairman. On the one hand I don’t necessarily expect the stock to do much in the
next year. On the other hand it is cheap and growing and I don’t see much risk
that the stock would decline and not recover and so the term “no brainer” starts
to come to mind. As always there are risks though.


Convertible debentures (convertible at $2.50) maturing in February 2007 also
trade under symbol  WES.DB.A on Toronto. Buying the convertibles may be a
good investment. They recently traded at a premium of 10 to 15%. I understand
the book yield is 9% but my source did not indicate the market yield when bought
at 110 to 115. I may add to my position in the stock or I may take a position in
the debentures.


I am surprised to see Cognos drop under $40.
It ‘s always hard to buy on such dips due to the fear of a further drop but I
would think a strategy of averaging in by buying some at this price might work
out well. It is never clear in these cases if the market knows something or if
the price is dropping for no good reason…


ING Canada is updated and rated (lower)
Strong Buy at $45. ING Canada released a Strong Q3 earnings report. Earnings
were extremely high with an annualized ROE of 31%. However, this was driven in
good part by retroactive recognition of higher earnings from past years and by
strong realized capital gains. Sustainable earnings are lower but it is not
clear how much lower. Entering 2005, I had predicted very high earnings for
automobile insurers due to low claims rates and retroactive recognition that
rates were too high in 2003 and 2004.  This has definitely proven true so
far in 2005. Despite lower rates in 2005 and more competition, it still seems
likely that profits will remain quite attractive for the next year. ING Canada
has a high exposure to auto insurance and does not target the high-risk segment
and has no U.S. exposure. Its price to book multiple is higher than Kingsway and
Northbbridge and EL-Financial but it has the highest ROE and perhaps the best
potential for growth. This is a difficult segment to predict and can be somewhat
risky but overall, I like the risk reward trade-off and have added to my
position in ING.


November 9, 2005


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garbled and I was wondering how wide-spread the problem is). Link the the
free newsletters here.


A nice jump for Northbridge today and Kingsway up a bit as well… Tomorrow
ING Canda and Western Financial report earnings. I will update both of these
over the weekend. I bought more ING today, just to replace what I got stopped
out on. I guess stops are not for me… I also had a stop on Northbridge which I


November 7, 2005


A good day for most of the stock picks here… At least for the short term
the market sentiment appears strong…


November 6, 2005


Cryptologic is updated and remains at
Speculative (higher) Buy rated at U.S. $ 20.29, $CAN 24.20. I may add to my


November 5, 2005


The performance figures as well as the model portfolio and my own portfolio
composition are updated (see links) below stock table above. The Model Portfolio
and my own portfolio have returned to about their peak levels for the year and I
think this is impressive given the overall market decline in many sectors since
early September.


Generally, I have been cautious about the outlook for the past few months and
took defensive moves by selling some positions to raise cash. This led to a fair
amount of trading and in the end most of what was sold has not declined, but
still I think being a bit defensive was prudent. Last week the mood in the
market seemed more buoyant. Q3 earnings have generally been good. Still I think
a certain amount of caution is warranted at this time.


Clearly the market once again did not share my enthusiasm for Kingsway. TD
calls it only a hold. I am still committed to it as a Strong Buy but will remove
the (higher) qualifier in front of the rating. I bought more Kingsway on Friday.
As well I bought back some ING that had sold on a stop loss but still have a bit
more of that to try to buy back. I’m cheaping out trying to buy it a bit below
where it sold when really I should probably just use a market order…


November 3, 2005


I will notionally buy Kingsway in the model portfolio at tomorrow’s opening
price. However since I don’t want to write a blank cheque I will use a limit
order at $21.75 to do this.


A good day in the markets, for our picks, with Cryptologic in particular up
nicely on strong earnings. I have not yet updated my report on cryptologic.


Kingsway Financial is rated (higher)
Strong Buy after updating for Q3 results released after close of market today.
Kingsway had a strong earnings report. With a P/E ratio of just 7.4, the market
appears to believe that earnings will decline. Certainly the recent realized
gains on investments may not be repeated in 2006. But the company gives no
indication that profitability on the insurance itself will decline. And I expect
a release of reserves from 2004 that will further increase the insurance profits
in 2006. In addition the stock is trading at only 1.3 times book value. Although
there are always risks and although insurance companies are inherently
unpredictable, I have no hesitation calling this a Strong Buy. The market has
tended to ignore the earnings here but given this latest strong quarter I am
quite optimistic that the stock should rise to $25 in the short term (but there
are no guarantees of course). It is one of my larger holdings but I intend to
buy more shares tomorrow unless the price jumps too much at the open.


Sico Inc. is updated and rated Buy at $14.40.
This rating is lower than previous due to slightly lower earnings in Q3. SICO is
being hurt by higher prices for raw materials and higher trucking delivery costs
due to higher fuel costs. It looks like these challenges will continue for at
least the next six months which is a reason to downgrade the rating. At the same
time it trades at a relatively low multiple to book value and to earnings and
has a good history. Buying stocks like that usually works out in the long run.
Therefore I am not inclined to over-react to the recent stall in earnings. I
hold shares and intend to continue to hold but will not likely add to my


Canada Bread is updated and remains Buy
rated at $50.76.


November 2, 2005


A good day in the markets. I remain cautious on the market in general as
interest rates rise and because consumer spending is likely to be hit by the
high home heating costs this winter.


Aeroplan Income Fund is added as a new
entry to the stock table above and is rated Speculative Buy at $11.94. I
consider it speculative because it has a negative book equity. However it is
generating attractive cash flows. The accounting is conservative in that when
points are sold Aeroplan collects the cash but cannot book the earnings until
the points are redeemed. Given its growth and the economics of its business I
like it as a speculative pick. I own a few shares but have no plans to add to my
position at this time. Like all Income Trusts there is some uncertainty now
regarding income taxes.


November 1, 2005


Dalsa Corporation is updated for Q3 earnings
and is downgraded to Weak Sell at $12.26. I like the company long term due to
its extremely highly educated team. Also it has little debt and is cash flow
positive so should be able to ride out any dip in earnings. And the
insider buying signal is positive. But sales and have stalled in 2005 and
earnings have declined. And Q4 is expected to show another significant drop in
earnings (before accounting for a small restructuring charge). So, while it will
likely rebound in the long term, the near term does not look very good. I’ll
probably hold on to my shares and hope for things to turn around by the time it
reports Q1 2006.


In better news, all of the property insurance stocks that I rate were up
today. I have a big exposure in this area. About half of my ING Cnada stock got
sold when a stop loss order was hit at $44.50. It now appears I may regret that.
In general I don’t really like stop loss orders but with such a large exposure
to the sector I felt that the stop-loss was needed in order to protect me from a
large loss.


I’m looking forward to seeing the results from Kingsway and ING Canada.


I saw a TD Waterhouse report on Northbridge and as expected they essentially
ignore the earnings due to realized capital gains and they did not comment on
the fact that absent the hurricanes, Northbridge’s earnings would have been
truly exceptional. They also focus on comparisons to U.S. stocks. My philosophy
has always been that I will buy cheap stocks it does not matter much to me if
even cheaper ones are available in the U.S. since that introduces currency risk.
Most analysts would recommend buying the cheapest stock in a sector even if all
the stocks in that sector were very expensive. That is, they may focus on
relative bargains (compared to other stocks in the sector) whereas I try to
focus on a stock just being a bargain on its own.


October 29, 2005


The market reacted unenthusiastically to Northbridge’s earnings. It seems
that the property insurance companies, although seemingly quite cheap are going
to require some patience.


Shaw Communications is updated and rated
Speculative Buy at $23.83.  Based on accounting earnings it is
unattractive. My normal approach is to use accounting earnings and to look for
“bargains hiding in plain view”. In this case Shaw may be a bargain but it is
hidden by the accounting.


I view it as being similar to where Telus was a few years ago when Telus had
very low earnings and the potential of the huge cash flows from its cell
customers was not yet apparent.  Shaw is still growing its internet
customers rapidly and the advertising to do that is depressing earnings. Once
the high speed internet penetration reaches full potential in Canada that
advertising can probably be scaled well back. Also they are spending on
advertising and capital investments for digital phone and that can tend to depress
earnings and cash flows temporarily. On a free cash flow basis I calculate that
Shaw is trading at about 17 times free cash flow which I view as reasonably
attractive given that I expect strong growth in free cash flow after the heavy
spending on digital phone ends.


I also very much like the fact that insiders are buying heavily. Overall I am
willing to tag along with the insiders. I believe the stock has good potential
but it may not move much in the next 12 months as the spending on the digital
phone initiative temporarily lowers free cash flows.


The biggest danger I see is if it gets into a price war with Telus. Absent
that it should be a good long term investment (possibly very good).


October 27, 2005


Northbridge Financial is updated for
its Q3 earnings and remains a Strong Buy at $31.85. Earnings were strong
at $43.3 million and would have been spectacular at abut double that amount if
not for losses related to Hurricanes Katrina and Rita and an unusually intense
thunder  storm that hit Ontario in August. While insurance company earnings
are inherently unpredictable, all the indications seem very positive. Some
analysts will do no doubt point out that a good portion of the earnings came
from gains on investments which may be considered unusual. However, I would
counter that hurricane losses could also be considered unusual. Overall the
stock is cheap. The profitability of this company appears to be unfolding much
as I thought it would (absent the hurricane). The company indicated it had
positive development (retroactive profits) related to prior years. They did not
indicate the amount  but this positive development is what I had predicted
given that insurance rates in 2003 and 2004 were probably higher than they
needed to be and even with some rate cuts the industry appears to be highly
profitable in 2005.


Nevertheless the market may continue to place a low price earnings multiple
on Northbridge. I note also that its parent Fairfax had a bad quarter and I
don’t know if that might hurt Northbridge by association.


In other developments Home Capital came out with yet another great quarter. I
bought some shares on the news although I have not yet updated my analysis. The
stock dropped a bit today. I last called it a Weak Buy and I may have been
pre-mature in buying today but it has been a great performer and the recent
price drop makes it at least moderately attractive (but note I have not updated
my detailed) analysis)


I am not sure why Kingsway Financial continues to drop – perhaps the market
knows something. I am certainly hoping for a good (or great) earnings report
given that they indicated very little exposure to the hurricane losses.


October 26, 2005


Further to the results for the TSX Group. The company had an outstanding Q3
due to higher trading volumes, price increases and somewhat lower expenses.
Unfortunately they have been forced to make an accounting change. Listing fees
are now to be deferred and amortized into income over 10 years even though these
are non-refundable and received in cash. I do not agree that this is better
accounting, but they are forced to do it. Unfortunately it wipes out a big chunk
of their book equity value and it lowers earnings in the prior periods even
though it has no impact on cash or cash flows.


The TSX Group has not yet released all the restated financial numbers and so
I am unable to update my report. My sense is that I would likely rate the
company a Buy or (lower) Buy. My concern would be that they may have a period of
lower earnings if we enter a period of low trading activity. Still, in the
longer run they remain a well run and unregulated virtual monopoly so I think
they will do well.


If I did not already hold some I would consider buying a few shares now but
then waiting to see if it drops further due to the accounting change situation.
If it does drop substantially it would be a definite buy. Due to the accounting
change it is likely to have a P/E that looks quite high. This could cause the
price to fall. I do own a few shares and I will now wait and see the price
reaction as analysts grapple with the accounting change.


I saw a report yesterday about a “surprising” drop in consumer confidence. I
can’t see how anyone could be surprised. I think a lot of consumers were almost
shell-shocked at the big jump we saw in gasoline and the impacts of the
hurricane. I see a continued drop in confidence as a big risk to markets right
now. However I think in the last week or so confidence has probably come back
somewhat as gasoline and oil prices fell and as the shock of the earlier
hurricanes fades a bit.


October 25, 2005


TSX Group released (as expected) a strong Q3 earnings report. They also
announced that they will restate past revenues and profits downward due to an
accounting change. There past accounting was correct but the accounting rules
have changed. If by chance TSX Group falls tomorrow, I believe that would be a
buying opportunity. I think it is more likely to rise on this earnings report.
TSX may be hard to predict now because there is a lot of concern that new
listings will fall off due to the Income Trust uncertainty with Ottawa. I will
update my report in a day or so after seeing where the stock settles on this


I am surprised at how low Shaw Communications has fallen. I suspect it would
be a good investment at this price but we don’t know what its Q4 earnings (year
ended Aug 31) were like as those are, I believe, due out shortly.


October 24, 2005


Reitmans (Canada) Ltd. is added to the
stock table above as Speculative (higher) Buy at $16.06. Based on its last 12 months
earnings, it looks to be under-valued. I call it Speculative because retail
companies can face volatile sales and so profits may not be very predictable and
also the fact that the Reitmans had sold a large block of shares recently causes
me to think there could be some uncertainty ahead.


Another interesting day in the markets today. Just when it seemed like the
market sentiment was quite negative we were delivered of quite a positive day.


October 23, 2005


Last night an edition of the free newsletter was sent out. If you did not
receive a email regarding this, then it may be that your email address is not on
the list for the free newsletter. In that case go to the home page of this site
and sign up for the free newsletter. The system will let you know if your email
address is already on the list and it will take you to the free newsletter page.


Regarding my comment on the trading price for Sportscene from Friday as shown
on YAHOO, the YAHOO graph shows everything at $10.50, but the day’s range does
show $10 to $10.50.


October 22


With the current market decline I am keeping a close eye on performance. So
far the stock picks on average are holding up very well in this market decline.
Performance figures are updated, see links just below the stock table above.


As announced in advance, I sold half my Sportscene stocks yesterday just to
raise cash. The price I got was $10.00 One fact of interest is that YAHOO shows
that all trades yesterday were at $10.50. I may look into this, possibly a
“market maker” got the other 50 cents. I have no complaint since my sell order
was at $10.00 but I am curios what happened. This stock is thinly traded and
therefore the price tends to jump around and while I still like it, it does
subject a portfolio to bigger swings in value at times.



October 21


Regarding Sportscene Restaurants in the model portfolio, none traded yet and
I am changing my order to a notional sell at $10 for half the position. I did
the same in my actual portfolio. Maybe a mistake as they should do well with the
end of the NHL strike but they also lose some “Income Trust” premium they may
have had… I sold the IGM in one of my accounts this morning but kept it in
another account. Where my account goes in the next few weeks is heavily
dependent on the property insurance stocks to which I have a very large
percentage exposure. I may or or may not lighten up on this just because of the
heavy weighting I have. Northbridge in particular could well fall on Q3 earnings
since it has already announced some hurricane and other losses that totaled I
believe 90 million pre-tax (in theory the stock already has adjusted for that).
We also don’t know which insurance company is bearing the loss for the CN oil
spill at lake Wabemun in Alberta. Again, I still think Canadian insurance stocks
seem cheap and are making record profits on auto insurance. But the market
always treats them as risky and may focus on the fact that rates are getting
more competitive and earnings will likely fall in 2006 from the record levels.


Update – I have now placed a stop loss on half my ING Canada at 44.50 and
about half my Northbridge at 30.50, just to protect from downside risk. Will
note similar in Model portfolio.


October 20, 2005


The property insurance stocks generally did well today, particularly ING
Canada and this saved my portfolio today…


In an effort to raise cash I sold my Couche-Tard today. I like the company
but it was not one of my higher rated stocks… I also put in an order to sell
my IMG Financial but the order was not filled as I tried to get a bit higher
than the bid price. IMG is a great company but I figure its assets under
management have to fall with this market correction and that will hurt earnings
temporarily. Also this funds management industry will eventually face lower
management fees.


I am notionally selling some stocks in the

model portfolio as well.


Obviously I am cautious on the market right now, but I am not about to panic
and sell too much. In the past I have done well by riding out dips in the type
of stocks that I own.


In that regard, so far I am not bothered by the drop in the price of Western
Financial. This stock now trades only 10% over book value (at $2.25 today) and I believe
ultimately will be quite a good investment. But certainly there is a lack of
buying interest and it could certainly go lower. (I put a small order below
market and it filled at $2.26 today and then the stock closed at $2.35.)


If the market keeps dropping there will obviously be some good bargains. The
trick will be to have some cash available and to step in and buy at the right


One of the reasons for caution is that the 10-year Canada bond yield is
finally starting to go up a bit as the market begins to take inflation threats
more seriously.


As a point of interest I note that Clearwater Income fund plunged after
suspending its cash distribution. This was not exactly a surprise to me. I
looked at in March 2003 and was not impressed with its cash flow generation.
Here is what I said about Clearwater at that time:



RATING: Clearly the yield is attractive. Appears to be an attractive industry
structure due to the barriers to entry. But does quite poorly on Buffett’s
tenets in my opinion (see below). This is a cyclic business that has significant
debt and that is attempting to distribute a fairly large proportion of its
distributable earnings. The unit values are heavily dependent on the ability to
continue to meet large cash flow needs. It’s hard for me to understand how a
company that historically consumed huge capital spending will now be capable of
throwing off steady cash flows of the required magnitude. For tax purposes the
distributions for 2003 are expected to be 57% return of capital, 8% dividend and
35% other income, so this is a relatively tax efficient investment. However, my
overall rating is Weak Sell / Hold at this point.




October 19, 2005


CNR is updated and rated Buy at $82.85 after
another great earnings report. CN is generally acknowledged as the best run
Railroad in North America (despite some recent high profile accidents).  I
have long commented on how individual investors tend to ignore large cap stocks
like this ($23 billion). It is sure not the “loud and hot” money that has been
invested here, instead I believe it has been the quiet rich smart money. Based
on exceptional past performance and the P/E I should rate it a higher buy but
there are some risks ahead including unhedged fuel prices in 2006, higher
pension costs and a general slowdown in the economy.  I would like to Buy
but at the moment I am more inclined to raise my cash position rather than buy
more equities. I definitely like it as a long term pick.


Apparently analysts were surprised that GM lost $1.5 billion or so last
quarter. I wonder how they could be surprised when it was well known that they
were offering huge employee pricing incentives and that they were losing money
even before those incentives. I suspect GM will not make money until it
eventually shifts its production to China. Sorry if that would be bad for the
economy and their workers but that is what it will likely take to see profits on
GM. (Short term they may make a big profit by selling off their profitable
finance arm but selling off limbs is not exactly a sustainable move).


October 18, 2005


Ouch a big hit for oil stocks today. I don’t cover oil stocks at all but I
notice that the XEG Index Traded Fund has been coming down in price, in the last
several weeks it has bounced up several times but each bounce weaker than the
last and the downward bounces going lower. But I can’t say if that means it will
now trend down…


Meanwhile my picks did well today on insurance stocks.


I notice a West Jet founding vice president left the company today “for
personal reasons”. That was announced after close of market. I no longer rate
Westjet but I rated it a Sell at the start of this year. I don’t think this
latest news can be good.


CNR came out with very strong earnings with per share earnings up 24%. For
whatever reason the market knocked it down 2.3% on this news. I will update my
report very soon. This strong earnings report came in spite of the huge Wabamun
lake diesel spill (loss of $28 million) and in spite of high fuel costs.
Apparently they were helped by some one-time tax savings. The phrase that always
comes to my mind every time this company reports yet another strong quarter is
“Winners Win” These people really do know how to run a railroad.


October 17, 2005


Certainly some mixed signals, Northbridge and ING Canada doing well while
Kingsway fell to low it has not seen in some months. I am hoping that the Q3
earnings for these insurance stocks will be quite good (except we know
Northbridge had a material hurricane hit) however, these insurance stocks are
subject to actuarial assumptions and losses and gains on investments that make
the earnings quite unpredictable (not to mention unpredictable insurance
claims). Western Financial fell to $2.40 which I consider a buying opportunity.
However note it opened at only $2.32 on 2000 shares traded at the open which
illustrates probably a smart buyer and not-so-smart seller. But I think the low
open also indicates the lack of ready buyers for the stock which is a danger in
a relatively thinly traded small cap like this. For the market in general, my
sentiment right now is more cautious and not particularly optimistic for the
short-term. (But given the difficulty of market timing I will largely be staying
in the market although I will look for opportunities to sell some holdings to
raise some cash)


October 16, 2005


Sleeman Breweries is updated and rated
Sell at $13.75. The first two quarters of 2005 were weak. They announced a
cost-cutting effort which may be good long-term but which will cause a $2.1
million charge in Q3. Any Income Trust premium in the stock has recently been
reduced and I am not certain that they have the cashflow to go that route. Some
insiders were selling. My strategy would be to sell at this time if I owned it
in a tax sheltered account. I probably could have rated this a hold but given
its situation and a market that seems to be going down in general, I believe a
sell rating is warranted.


October 15, 2005


Performance figures were updated as of Wednesday’s trading figures. The
market was down on Thursday. As an update, as of today,  the market
portfolio is still up 22.8% and my own portfolio is up 21.3%. There has only
been a moderate hit due to the recent market correction.


With continued interest rate hikes, and the much higher gasoline and heating
costs I am very cautious on the overall market direction. I would certainly not
be surprised if the overall market falls materially in the weeks ahead. I would
prefer to move somewhat more into cash. However it is always difficult to know
what to sell. I will be looking to sell some of my holdings but probably only a
small portion. In most cases I would rather wait and seethe Q3 earnings reports
before taking any action. I continue to have faith in the Strong Buys and Buys
on this Site. But I recognize that even stocks that will do well long-term can
certainly suffer setbacks. It is up to each investor to decide whether they are
willing to ride things out or would prefer to sell some holdings now.


I am giving mixed signals here but that is because stocks are inherently hard
to predict and because even good stocks are usually pulled down by overall
market declines. But the danger of selling on short-term nervousness is that we
then miss out if these stronger stocks do not in fact fall.


In regards to oil stocks, I always consider these to be very hard to predict.
There are mixed signals. Certainly the argument that demand is exceeding
dwindling supply seems logical. hen again that argument has been around since
early 70’s and still oil has mostly been a lot cheaper. Yesterday I heard that
oil storage facilities were “full” suggesting there is no immediate shortage. So
I am really unsure if the recent pull-back is a buying opportunity in the oil
area.. or the beginning of a further correction. (I have a small amount of the
Energy Exchange Traded Fund XEG in the model portfolio but I will not be
covering any individual energy stocks)


October 14, 2005


While the recent decline in the market is painful, I don’t think we can claim
to be surprised. I had mentioned my worries about the consumer being hit by high
energy costs and higher interest rates. I had increased my cash position as
well. But it’s never clear if market declines will continue and that as well as
trading costs and tax considerations make it somewhat impossible to escape these
type of declines.


As of Wednesday’s figures I had not been hit too hard and I believe a strategy
of holding lower P/E stocks will turn out well in a market decline situation.


I am hopeful that the Q3 earnings reports will turn out pretty well. However,
it does appear that the earnings outlook for Q4 and beyond will be weak at best.
The insurance stocks continue to suffer from the fallout of the hurricanes.
Northbridge had announced a material hit there. ING Canada as well as
EL-Financial should be unaffected and Kingsway indicated a very minor hit.
Therefore I am hopeful of very strong earnings reports in Q3 from these last
three. Wendy’s is expected to have a poor Q3 so could fall more before they get
back on track…


Q3 earnings reports should begin arriving in the next week…



October 12, 2005


Performance figures as well as the model portfolio and my own portfolio
breakout have been updated, see links just below the stock table above.


I ended up buying a small amount of Aeropan Income Fund units at $12.50
today.  Also today a buy order that had been below the market triggered and
I therefore bought more Northbridge shares.


October 11, 2005


I am working on a report for Aeroplan Income Fund as a new investment on this
Site. The information is incomplete since the Fund only came into being on June
30 and certain prior period financial information was not released and in any
event is not comparable. The yield is low at 5.4% However, I believe that the
yield should grow. There are a lot of things I like about the business. It sells
points for cash now and only has to pay for a reward when the reward is claimed
an average of 30 months later. And they estimate 17% of points will never be
redeemed. They have a very strong market position in Canada and I think they can
grow. The current uncertainty over the Federal Government’s position on income
taxes is a risk. My current indication is that the value ratios will not look
compelling but nevertheless I think the long term characteristics of the
business may make this a reasonably good bet. I may buy some units but my rating
is not yet complete. I would definitely be interested if it fell back to the $11


In the past I doubted the worth of Aeroplan since I knew that most of the
money it made selling points over the years would not have been set aside and
instead would have been sucked up by Air Canada. That is true however, it turns
out Air Canada and not Aeroplan will pay for seats purchased with points
accumulated in 2001 and prior.  Aeroplan still has a big negative net worth
on its books but at least the $551 million owed in rewards earned in 2001 and
prior is not the responsibility of Aeroplan (although it will be if Air Canada
fails to cove these).



October 10, 2005


FirstService Corporation is updated
to (lower) Buy at U.S. $22.34.  I have always liked the business model of
the company since I first looked at it in 2002. Investors were burned when the
share price fell over 50% in 2003 but in reality the  company never
faltered, it only grew less fast… Very rapid growth has now resumed and the
share price has recovered to new highs before a recent small decline. Note that
Canadian investors face currency risk if our dollar continues to rise. Although
the value does not seem compelling, this is a very well managed company and is
probably a good long term pick.


October 6, 2005


The impact of the hurricanes on insurance stocks is far from over.
Northbridge estimates it will pay out $40 million , therefore an after-tax
impact of roughly $30 million which I expect they would show in Q3. Since
Northbridge earned $39 million in Q3 2004, this will be a big hit to Q3
earnings. But it is arguably a one-time impact and is not a very big hit to the
book value equity which is $800 million. So I see no need for the stock price to
drop on this news but it may do temporarily. Recall Kingsway had indicated most
of its exposure was reinsured and so it was expecting only a $2 million hit on
Katrina. ING Canada would presumably have no hurricane costs. Also EL-Financial
would have no impact.


Energy stocks have never been an area I know much about… However, I see
little reason to expect oil to continue to drop much more (then again
commodities are notoriously hard to predict)  I expect the pull-back in oil
at some point represents a buying opportunity but I am not sure if the decline
is over yet…


My own portfolio took a hit today but not a very big hit compared to the
market decline…


Currently I am looking at the financials of Aeroplan Income Fund and intend
to add it to the Site soon. I am not sure yet if it will be a buy rated stock
although I like the business model.


October 5, 2005


A bit of a pull-back in the markets and I suspect that this could continue
tomorrow… I note Kingsway is down but ING and Northbridge have been doing
well. Insurance losses from Katrina are starting to be announced and hurting
some U.S. insurers. Kingsway is perhaps being affected by this.


Today I saw that Wendy’s released poor same-store sales for Q3 but its price
after initially dropping rose, then settled back… I had recently bought a few
additional shares at $43.90, adding 20% to my position


While I like the stock long term I decided to take some profit at $47.79 In
order to avoid excessive trading costs I sold  about 40% of what I held. I hope
to be able to buy it back cheaper after the Q3 earnings are announced…. I
hedged my bets and did not sell all of it because I do like it long term and
maybe there will be no price dip…


October 3, 2005


I am tempted to buy more Western
Financial on its recent minor pull-back to and below $2.50.


Wendy’s has rebounded well from it recent dip below $44. The recent pattern
has been that around $44 is a good opportunity. But I worry about how bad Q3
was for Wendy’s (Tim Hortons I don’t worry about). Also our ever rising dollar
hurts us on U.S. stocks (although that should be partially hedged by the
earnings from Canada). It seem this stock may continue to be “volatile”.


October 2, 2005


September is over which means that the third quarter is over and companies
will be busy preparing their next earnings reports. Most of the earnings reports
will be issued in the next three to five weeks. I am generally expecting strong
earnings reports. Exceptions would be companies that face costs in Canada but
get most of their revenue in the U.S. since our dollar’s rise would hurt these
companies. (Oil and gas companies are an “exception-to-the-exception” since it
does not matter much if the dollar hurts you by 10% when your product’s price
rises close to 100%! Possibly we will see some earnings warnings in the next
week or two by companies that not making their expected numbers.


Sept 29, 2005


An edition of the free newsletter was just sent. If you did not receive this
let me know. In any event it can be accessed at the link just below the stock
table above.


Yesterday I bought back the remainder of the ING Canada shares that I had
sold on fears these insurance stocks would drop due to the Hurricane.


Today I added to my position in Wendy’s at $43.90. Our higher dollar means
that I have suffered a currency lost on what I held but at least new purchasers
are less expensive in Canadian dollars. This stock could drop more before
probably rebounding nicely when it finally sells off a portion of Tim Hortons.
However recently it seems to have “support” at $44.


Sept 27, 2005


I bought back most of the insurance stocks I had sold due to concern about
the hurricane impacts. Today I bought back the Northbridge, the Kingsway and a
portion of the ING Canada. Therefore my trades are now aligned with the Strong
Buy ratings on these stocks. I had sold a portion of my holdings out of fear of
a price drop due to the hurricanes. The price drop was moderate and now seems to
have stabilized and so it made sense for me to buy these back. ING Canada seems
to be the most stable of the three and although more expensive on a Price to
book basis I may buy more of it even though it would over weight me in that


Western Financial dipped in the
past few days to about $2.52 which I suspect would be a buying opportunity.
However this is a volatile stock and at any time it might decide to issue shares
at a somewhat lower price and that would drag it down – probably temporarily.


Alarmforce is updated to Speculative
Weak Buy at $3.86. I like the cash generation features of this company. Until
recently it seemed too pricy. It recently released Q3 earnings which were up
16%. However, at the same time it announced a retroactive accounting change that
will cut earnings in half retroactively (ugh!). This was not a total shock to me
since I had discussed the fact that it was deferring marketing expenses rather
than expensing them. I think the strong cash flows and lack of debt are
indicative of the fact that deferring those expenses did match economic reality.
however GAAP accounting is becoming more conservative…  On a very tiny
scale this company reminds me of Telus. Recall that a few years ago Telus’
earnings were very low due to expensed marketing costs to acquire cell phone
customers. But the operating cash flows were strong. I believe a similar thing
could happen with Alarmforce where the earnings eventually catch up to the
operating cash flows to a degree. However, given the low GAAP earnings I am
hesitant to rush in. I rate it speculative Weak Buy at $3.86 but consider it a a
speculative Buy if it should fall to $3.60 or lower. Maybe it will fall when the
Q4 earnings are released because the new accounting will be in place at that
time. Or maybe the recovery in price that it started to make today will continue
if investors focus on the operating cash flow.


In terms of Trading I did pretty well on this since I sold 2/3rds of the
Alarmforce in the Model portfolio at $5.50 (for a 55% profit) and therefore
missed most of the ride back down to about $3.50 that happened in the last few


Sept 23, 2005


I notice the big increase in Telus ( to
$49.87) when much of the rest of the market is not doing well. I last rated
Telus a speculative Buy at $45.65 . Back in December I was rating it higher Buy
at about $29. Recently it was revealed that CEO Darren Entwistle owns 323,000
shares. He has been buying shares with options and then selling only enough to
cover the taxes and has kept the rest. He has also invested in Telus shares from
his savings and through a bi-weekly share purchase program. In my view this is
unusual and is a huge vote of confidence. While I have not updated my analysis,
my sense is that Telus and its shares will continue to do well. One caveat would
be that we don’t know what earnings hit if any Telus might have due to the
ongoing strike. Also we may find that its new customer sign-ups have faltered
due to the strike – but maybe not. It might be safer to wait for the Q3 report
before buying at this point. Or a person could buy some now but be prepared for
a possible price drop if the Q3 report is not good.


Cognos is updated for its Q2 earnings released
this week and remains Buy rated now at $44.07. My sense is that this company is
better than its earnings suggest because of the fact that it expenses so much
research and development.  I am adding to my small position in this stock.
I would note that the stock has fallen a bit on the earnings release. I also
note that the stock price has had strong support at about $40, so hopefully that
is the most likely downside risk (although lower is always possible of course)
although I have no reason to think it would fall and my analysis indicates it
should rise.


As hurricane Rita looms, and as I think about the pressure on consumers due
to higher energy prices I am surprised that markets are holding up as well as
they have been. I continue to review my portfolio for stocks to sell.
Fortunately most of my stocks have lower P/E ratios and do not seem to be the
type of stocks that will be hard hit in a consumer spending recession. I sold
100 of the 300 shares in archipelago that I owned to lock in a small gain there.
(I do not rate Archipelago but have mentioned it as a special situation since it
is to take over the New York stock exchange – although the New York seat holders
will end up owning most of Archipelago. But that deal is by no means certain to


Sept 21, 2005


Thomson corporation  is updated and remains
rated Speculative (lower) Buy at U.S. $38.08 or $CAN $44.50. This company does
not look cheap. On the other hand I believe it is in a good business area and it
appears that earnings are under-stated.


Some reports have indicated that at least some planed Trust conversions will
not be affected by the governments announcement that it will no longer provide
advance tax rulings.



Sept 20, 2005


I was surprised by the $5.00 drop in TSX due to the government announcement
of no more advance tax rulings for potential income Trusts. As I mentioned under
Sept 6, TSX group is probably having an excellent Q3. But it looks like the
stock had a “potential Trust” premium built into it. Another reason for the drop
is that there will be fewer Trust IPOs coming onto to the TSX.


It looks like any company that was trading higher on speculation it would
become a Trust took a hit today. I think these particular companies could easily
slide further as it looks like Trust conversions may be on hold for a while.


Wendy’s took another hit and it looks like it could get worse before it gets


My insurance stocks were down today. AIG and Berkshire announced loss
estimates after market close today. While they were large I don’t think they
were larger than one might have expected. I still think the Canadian insurance
stocks could fall a bit yet in sympathy to the situation in the U.S. However, I
also think these are definitely bargain priced and will do well in the next 6
months. I will be looking for an opportune time to buy back some of what I sold
in this sector. And I continue to hold a big exposure to these stocks.


Sept 19, 2005


Wendy’s chief operating officer “resigned” today. This may be good long term
as the CEO takes over more direct control and tries to get back to basics. But
short term I would think it signals a poor Q3. The question is whether the stock
will respond more to the poor Q3 or continue to be driven by the hoped for
spin-off of Tim Hortons. I am committed to my position in Wendy’s and would look
to add to it on significant further weakness.


Insurable losses from Katrina are now estimated at up to $60 billion. It’s
reassuring that Canadian property and casualty stocks have not slipped any
further on that news. Even Allstate in the U.S. has really not dropped much. I
expect U.S. insurance companies to drop when the results by company are released
and I expect the $60 billion loss figure to rise. But I am not sure that this
will have any effect on the Canadian insurance companies that I rate (though
Northbridge had some direct exposure and Kingsway had possible exposure if
reinsurance companies fail). I still have a good exposure to the sector and I
may buy back some of what I sold but perhaps I will wait until more Katrina
figures are released.


Sept 17, 2005


Canadian Western Bank is
updated and down-rated to Weak Buy / Hold at $39.55. I had started 2005 calling
this a weak buy at $26.58 (see Dec 31, below). I then raised it to Buy on Mar 9
at $27.30 and to (higher) Buy on June 3 at $27.50 (in response to a strong Q2
report). It has now shot up 44% since I rated it (higher) Buy on June 3. I
believe I have consistently said it was a good long-term pick. Right now though,
if I held it, I would certainly take some profit. It’s a great company and I
would not want to bet against it. But it could certainly suffer a pullback to
the mid 30’s quite easily and I would be interested in buying at the mid 30’s or


I have updated my personal portfolio to reflect the increase in cash as I
took profit on certain stocks as discussed below. Very recently I have taken
profits on Melcor Developments and on some insurance stock holdings. My cash
position at 23.4% is the highest cash position ever for me. I  wanted to
get my cash position up partly because of uncertainty about the market direction
and to hedge my bets.


Sept 15, 2005


See my earlier note on Melcor in the model portfolio page (see link above
these dated comments) dated Aug 23 and Sept 10. I let most of my Melcor
Development shares get sold on a stop loss today They sold at $90 as the price
dipped to $89 before recovering to $92.75… Not sure this was a wise move but I
wanted to protect the downside… While I may have left money on the table, I
was up about 130% on my Melcor stocks.


I hope to update several stocks over the coming weekend.


Sept 14, 2005


Hub International is added as a new company
but is only rated Weak Buy at $22.76. It may seem like a waste of time to add a
new company that is only a weak buy. However, if I decided to only add companies
that were Buys and Strong Buys then I might be tempted to over-rate new
additions. Some subscribers had expressed an interest in this company. Also I
believe it does have potential and is worth watching. Hub is an insurance broker
business. This is a completely different (although related) business compared to
actual insurance companies that take the insurance risk. Hub is essentially a
sales and service company. I like this type of business because customers tend
to be “sticky”. It seems to be the type of business that can be slow to build up
but which eventually becomes a strong cash generation machine with little
capital investment required.


As far as the property and casualty insurance stocks go, I am still uncertain
if we are going to see any further down-side from Katrina. The Canadian market
has certainly shown good strength and not just in energy stocks…


Sept 9, 2005


Forzani Group is updated and remains a Sell
at $12.08.


Performance figures are updated. I note that
the model portfolio as well as my own portfolio and the average Buy moved ahead
this past week. The Strong Buys fell back a bit mostly due to hits on the
insurance stocks from Katrina.


My personal portfolio is updated for my trades last week. My exposure to
property insurance stocks was very high and so I used stop losses and a sell
order to reduce my position.  I also sold a portion of my Melcor
development shares to take profit on the huge run-up there. I am glad to have
the cash but I certainly have mixed feelings about letting go of these shares
(insurance and Melcor).


I was surprised that Kingsway Financial (which operates mostly in the U.S.)
announced that due to catastrophe reinsurance its hurricane Katrina losses would
be limited to $2 million. That is very good news and I now wonder if I did the
right thing to reduce my Kingsway holdings. I am almost tempted to buy it back
but will probably resist any temptation to see if its price drops as other
insurance companies get hit. I still have a stop loss that would sell more of my
Kingsway and I may take that out. There is also some danger that reinsurance
companies would fail (and losses would flow back to Kingsway) but I have no way
of knowing how realistic that danger is.


I’ll continue to watch the insurance stocks closely. Again they are very
cheap on trailing earnings and these Canadian insurers are still on track for
record (arguably obscene) earnings this year… But this is tempered by negative
influences on share prices if American property insurance companies get hit


I notice EL-Financial has risen
since my recent rating. I am tempted to buy some of it particularly if I can get
it at $400 or lower. If there is a flight to lower risk insurance companies in
Canada, I would think EL-Financial is perhaps the most conservative and lowest


Sept 8, 2005


Somewhat to my surprise, given the recent uncertainty, my portfolio has
continued to gain in the last few days…


My Northbridge stop loss was triggered today at $31 to sell 36% of my
holding. I’m not sure if I will sell anymore of this since I definitely like it
and suspect any swoon would be short-lived. But I reserve the right to change my
mind and sell a bit more…  Subscribers should consider the insurance
picks to all be speculative as far as movements in the next few weeks… Even
ING Canada with no exposure to the U.S. could be pulled down. At the same time,
these stocks are all very cheap on a trailing earnings basis and so I am
comfortable with an exposure to them. In my own case I had a very heavy exposure
to the sector and that is why I was more concerned to move some money out of the
sector as I await the the katrina impact on these stocks.


Northbridge has announced estimated Hurricane Katrina costs of $20 to $30
million pre-tax. I did not think they were exposed, although my report does
indicate 16% of revenues from the U.S.


Northbridge fell a $1.00 on the estimate ( update, by end of day it was down
$1.75). This makes me more worried about Kingsway which has 71% operations in
the U.S. However, they have only 12% from property coverage, but still they may
have substantial vehicle claims. I still tend to think all insurance companies
will fall temporarily when the estimates of losses by individual companies come
out. I decided to sell some Kingsway (about 32% of holding) rather  than wait
for the stop to possibly activate. Also I placed a stop on an additional
approximate 30% of my recent kingsway holding. (update, I believe Kingsway could
offset much or all katrina losses by releasing “reserves” but they might be
reluctant to do that as they would be accused of massaging earnings)


Melcor a thinly traded company that I no longer cover but was a pick at $51
at the start of this year, jumped to a new high of $98.50 today on thin volume.
I raised my stop loss price to $92 on a portion of this holding. Also placed an
order to sell some at $99.50. I’m up about 150% and thought I should look for
partial profit especially as I no longer rate it.



September 7, 2005


I was pleasantly surprised at the gains today. ING Canada still jumping up.
I’m not sure why it should go up so much now, the last earnings report was great
but why the sudden move up now? It hit another new record high at $45.89, closed
at $45.26 I had a stop on 30% of my position here and now moved the stop up to
$44 from $41.50.   Given I recently rated it a Strong Buy, I expected
ING to go up, but given the hurricane and given a report today that insurance
losses in Ontario due to an August 19 storm will be $400 million it seems odd
for ING to go up this particular week. Wendy’s up nicely today, I had been afraid the slow drift down
would continue. Western Financial up as well.


On Aug 30, I noticed Cognos had declined to
$41.29 and indicated I thought it was a good entry point. Today it closed at
$48.80. It the past year or dips toward $40 occurred about 3 times and were good
entry points. It’s a great company and I am not sure it dip again to the $42
range but if so that tends to be a good price. Normally I don’t bother much with
trying to play dips, I just buy what seems a bargain at a given point in time…
In the case of Cognos I had last rated it Buy at $43.50 so both the fundamental
signal and the price fluctuation history both suggested that the dip under $42
was a good entry point. I would still consider it at $49 but maybe on an
averaging in basis hoping for a dip. Cognos will release earnings on Sept 21.


September 6, 2005


So far the market is certainly not suffering due to any worries about the
hurricane’s effect on the economy. I even checked AllState, an American insurance
company and it had fallen only a small amount last week.


I notice the TSX Group released market trading statistics for August and it
looks they had a very big month. Value traded was an astounding 88% higher than
August 2004, volume was up 38% year on year. August was also much stronger than
July. Although the stock is not cheap it is probably still a reasonable
long-term investment. I had sold half my position at $38.50 and it subsequently
dipped to $36, but based on these statistics it should rise as it it must be
having an excellent Q3.


September 5, 2005


Late yesterday, September 4, I sent out an edition of the free newsletter. If
you did not receive the email then you can check if your email address is on
that list by attempting to add it again in the sign-up area for the free
newsletter on the home page of this Site. If your email
is already in the list it will tell you that and take you to the free
newsletter. If your email address is not on the list, it will be added and you
will be taken to the free newsletter page.


Please let me know if you did not receive the email about the free newsletter
despite your email address being on the list for it. The free newsletter goes
out “from” shawn@investorsfriend.com but with the “To:” address not visible. For
that reason some systems might block it as bulk email. If that is happening I
may need to address that. Thanks for your help with this.


September 3, 2005


In the aftermath of the hurricane and after such a strong run in the markets,
I am feeling nervous about where the market is headed. I’m taking some time this
morning to think about my own portfolio. I’ve updated my personal portfolio


Obviously the insurance pay-outs on the Gulf coast will be huge (although
much of the flood damage many not have been insurable). This should not directly
affect Northbridge, ING Canada or EL-Financial. But Kingsway may have some
exposure. I used to cover Fairfax Financial and I saw an estimate of a bit over
$100 million for them. I also saw a comment that Manulife has some property damage
exposure and this would be in addition to any life insurance pay-outs. The first
estimate I heard of total Gulf coast insurable losses (across all insurance
companies) was $15 to $25 billion. That figure was maintained even when the City
flooded. It’s hard to have a feel for such large numbers but I said, once I saw
the City flooded, my guess would be more like $100 billion. Now given the slow
response and the looting (although I think riots are usually not covered) and
the fires, I would guess it will be well over $100 billion. As far as the total
economic loss, that will probably be impossible to estimate and impossible to
measure. Perversely, there will be some economic benefits in the rebuilding. I
think the response has been shamefully inadequate.


If U.S. property insurance stocks start to fall due these costs I think the
Canadian companies might fall in sympathy. Any fall in Canada might be
short-lived as I still think these companies are well on track for an absolute
record profit year in 2005.


I rarely use stop-losses but I am going to be disciplined here and place some
stop losses under these Canadian insurance stocks to try and protect my gains
and my capital and move my cash allocation up beyond my current 5% cash level.
The danger is that these stocks will dip down, I will be sold, and then the
stocks will rise. Therefore I am only going to stop-loss 30% to at most 50% of
my holdings in each stock. And not that I have a very large percentage exposure
to these stocks, I might not be thinking about stop losses if I had only say 10%
of my capital in this sector.


I have now placed these stop loss orders


Northbridge to sell 36% of my stock if the price drops to $31 but sell no
lower than $29


ING to sell 30% of my stock if the price drops to $41.50 but sell no lower
than $40


Kingsway to sell 32% of my stock if the price drops to $20.50 but sell no
lower than $19.00


It’s hard to make these decisions, what percentage to sell?, what price to
set the stop at – how far below the last trade price?, what to set the lower
limit of the sale price at? Lots of opportunities to set it wrong.
Psychologically it might be easier to do nothing and just hold the stocks for
the long run and ride it out and blame any dip on unforeseeable events. But in
this case I wanted to be proactive and move to protect part of what I have
against losses. Hopefully the stocks will stay up and these stop loss orders
will expire in about 30 days unfilled.


Also as I think about selling a portion of these stocks, I don’t have to
worry about tax consequences since I hold these almost entirely in RRSP
accounts. In a taxable account I would be more inclined to ride out an expected
short-term dip in these stocks.


And of course maybe there will be no dip. Maybe one of the effects of the
hurricane will be that people all over North America decide to make sure that
their insurance is topped up to match the real estate gains, that would
obviously increase revenues for the industry.


September 2, 2005


Performance figures are updated. I am
pleasantly surprised to see that the performance has improved since last week.
Given the events of this week, and with no exposure to energy in the Buy  /
Strong Buy picks, it is quite gratifying to see the performance continue to be
so strong. The consistency of the picks is evident in the 2005 chart on the
performance page, where you see that fully 16 out of 21 stocks moved in the
predicted direction – and of the 5 that moved the wrong way, only 3 did so by
noticeable amounts.


September 1, 2005


I have to think that the impact of the Hurricane combined with high gasoline
prices and high oil and natural gas prices will have a negative impact on many
stocks. Gasoline prices in Alberta jumped about 15 cents per liter today. Given
the jump in gasoline and the chaos in the New Orleans’ area, I was expecting the
market to fall today. However things held up well with the DOW down a little and
the TSX up due, I understand, to oil stocks. If this were to spill over and be a
catalyst to stop the rise in real estate prices then clearly things could get a
bit ugly.


It’s always very difficult to judge the direction of the overall market and
certainly surprise events can happen. My goal on this Site is to rate individual
stocks. I don’t think I can give much guidance about trying to time the market
since it depends so much on individual circumstances.


I find myself wishing I could have a larger cash component to take advantage
of buying opportunities . But at the same time as I analyze stocks I see stocks
I like, so it’s hard to be in cash.


If the market does turn down due to higher gasoline prices and a loss of
consumer confidence, then logically consumer discretionary stocks would be among
the hardest hit. Almost all stocks would feel a negative affect. But it seems to
me that the property insurance stocks would likely hold up well since this is
not a discretionary purchase.


I sold my Manulife shares this morning. It’s not that I don’t like the stock
but it’s more that psychologically it was one I was willing to let go of to
raise some cash. So I sold this not to take profits but just to get some cash in
the portfolio.


In terms of taking profit, my usual approach is to not take profit if I still
think the stock is a Strong Buy or (higher) Buy. If it’s a Buy but I have a
large position, I might trim it. For Weak Buy / Holds, I consider selling if
there is somewhere else I want to put the money. Obviously I tend not to hold a
stock I rate as Sell. Unfortunately taking profits is an exercise in psychology
as well as analysis. When thinking about selling a stock I have to consider how
it will feel if I sell and the stock keeps going up. I also have to consider how
I will feel if I fail to sell and then the stock drops materially. The fact is
that the psychological factors do come into play whether I like or not. I think
that these psychological factors are different for each investor. Tax impacts
also have to be considered.


Overall, while a certain stock might be rated Buy each investor has to also
consider a host of individual factors to determine if he or she should be a
Buyer or a seller. That is one of the reasons that I describe my ratings as


If the above seems a bit confusing, that’s because the decision to sell or
take profits is a very difficult one, often more difficult than the decision to
Buy. Some subscribers asked me to address the topic and so I have attempted to
do that here.


August 31, 2005


Loblaw Companies Ltd. is updated and upgraded to Buy at $69.38. I had not
looked at it since Q3 2004. Since then it reported a very strong Q4. But in Q1 2005
had a fairly large restructuring charge which disappointed the market. This
has done extremely well over the past number of years., The stock
meanwhile has only done moderately well. This was because the P/E had gotten up
towards 30 and has now regressed to a more sustainable level of about 19.3. The
result is that the stock is now reasonably valued. Management has a great track
record and seem to be focused on earnings per share growth. While the price was
recently still slipping, I believe the current price represents a good entry
point to Buy. This is not a stock that I would expect a huge gain on but I would
not expect a large loss. It should add stability to a portfolio.


I find it interesting that with a market cap of $19 billion, it must surely
have a number of wealthy share owners in addition to the wealthy controlling
Weston family. However, this is the type of stock that active traders (such as
many on Stockhouse.ca) tend to ignore. I tend to think that the wealthy people
who own this might be a better group to emulate than your average day trader.


August 30, 2005


I notice Cognos down  $2.06 today to
$41.79. I believe that would likely be a good entry point to Buy the stock.
Wendy’s continues to sag after the big
run-up. I thought it might sag because the wait for the spin-off of a part of
Tim Hortons is long. The Hurricane in the U.S. will also hurt August sales,
although I believe last August also suffered so maybe it will be okay by
comparison. I am tempted to add to my Wendy’s especially if it drops another $2
to the $45 range, but  in any event this stock is likely to require
patience in the next six months.


August 29, 2005


Well it seems my decision to sell half the energy index in the model
portfolio was not such a wise a move. I think if I had had a 30% weighting in
energy it might have been a good idea, but I only had about 12% in XEG so
probably I should have hung on.


Possibly my property insurance picks will come under some pressure due to the
Hurricane. But the only one with any possible exposure is Kingsway and even
there I think it would be a very small exposure.


August 26, 2005


E-L Financial is updated and upgraded to Speculative (higher) Buy at $392.
This stock is a bit thinly traded at an average of 275 shares per day, that does
represent about $11,000 per day. Also given a market cap of $1.6 billion, thin
trading may not be as much of a concern as with tiny companies. I would expect
institutional players to step in if they saw the stock move too far simply due
to thin trading.


I had considered removing this stock from list due to thin trading and
relatively poor disclosure. But disclosure seems to be improving. The bottom
line for me is that this is a profitable company with a strong history and is
trading at 83% of book value (after adding back a deferred realized gain). At
some point maybe the family will decide to sell off some or all of the company
to others and that would likely be at a good gain. It might be a good stock to
hold if the market turns down because it will tend to move with insurance
profits and not with the general market. I would be comfortable holding this
stock. It does have a volatile history, but probably a good bet for the


An annoying problem that was causing subscribers to receive duplicate emails
from me when a payment was made through PayPal, has now been resolved.


I noticed yesterday an announcement that the Shaw family had purchased an
additional 1 million shares of Shaw
Communications and intend to continue such purchases. That is roughly $25
million injected by the family and or entities they control. That adds about
4.5% to their holdings. The family controls the company through multiple voting
shares.  This seems like a very positive signal. The family seems to think
the shares are a good investment. The usual pattern would be for the family of a
company like this to be selling some shares (for diversification, estate
planning) and not buying. Possibly they want to get their ownership higher in
case they eventually are pressured to get rid of the multiple voting shares.
While my report notes some concerns about the company, the insider buying is
certainly very impressive and I take it as a very positive signal.


August 24, 2005


Couche-Tard is updated and remains a
Speculative (lower) Buy at $21.58. It has a very strong history. Right now it
does not seem cheap. Gasoline margins may become more competitive with the
recent focus on higher gasoline prices. Nevertheless it is a strong company and
I would not bet against it.


I added to my position in Cryptologic today.


August 23, 2005


Performance figures are updated.


My property and casualty insurance stocks certainly did well today. This was
nice to see particularly on a day when the markets were down.


I took some profit on IGM today mostly to raise cash to possibly move into
stronger picks. I still like IGM but just wanted to raise some cash.


Cryptologic is updated and upgraded to
Speculative (higher) Buy at $U.S. $18.01 or $ CAN $21.65. The stock has fallen
45% since I last rated it which was (highly) speculative Buy at $32.76 (use
Control-F to search for previous comments  on Cryptologic below). Some would
ask, why upgrade a stock that has fallen so much. I would counter that the fall
in price is the reason that drives the upgrade because the bad news that caused
the price drop seems to have caused an over-reaction. One of it customers (and it
only has about a dozen customers) is planning to stop using Cryptologic software
and develop its own as early as early 2006. This would be a concern but not a
huge concern unless other customers did the same. Meanwhile we still apparently
have a highly profitable company with fairly fast growth and now available at a
P/E of 16. Further it has no debt so there appears to be no danger of a
near-term collapse.


To me it looks like a good bet at  this price. I had indicated earlier
that this was a speculative stock and that I would not be comfortable with a
large position. I think that was a good strategy as I can now add more at this
price and still not be overly exposed to it. I call it speculative and given the
price trend I guess that is appropriate. But really at this price it does not
seem overly speculative to me. One strategy might be to wait for the price to
stabilize or jump 10% before buying. I usually ignore price trends in favor of
fundamental analysis but nevertheless buying into a downtrend is usually
considered dangerous.


I note Melcor (which I no longer cover) has continued its big run-up.
Long-term I have little concern about holding it but psychologically it would be
a real downer to see the price drop and to have failed to take more profit at
this price. Today as of 2 pm Eastern, it had been down $1.24 on 75,000 shares. I
find it encouraging that 75,000 shares could be sold on this thin-trader without
much of a price drop, and Now I notice the price is actually back up. I decided
to enter a stop-loss order on my account with a price of $86. I also put a stop
limit price of $85, which means if the the price declines to $86 my order
becomes a sell but if the price goes below $85 I will not sell. Perhaps I should
use a wider spread on the two numbers but this is what I did for now. I will treat the
model portfolio the same. That way I can continue to hold this but be protected
on the downside. I set the stop a reasonable distance below the current price to
protect from getting stopped out on minor volatility.


August 21, 2005


The Model portfolio (see link just above) has been updated with a number of
changes to better align it with the current stock ratings.


August 18, 2005


Home Capital is updated and upgraded
to Weak Buy at $38.08. This is a company that I first covered as a Buy at $7.43
in April, 2002. I may good money on it buying on the way up but eventually
taking profits and finally selling all the shares I had. I was concerned the
valuation was too high. But given the continued strong performance and a recent
minor pull-back in price I now rate it Weak Buy. It’s a great company and
although it is not cheap I would be comfortable holding some at this price.
However, given a lack of cash position in my portfolio, I have no immediate
plans to Buy.


An interesting news item today was that Google will raise about $4 billion by
selling additional shares. In my view this is a very smart move. Given it’s
profitability and growth, Google may or may not be over-valued. But it’s share
price has clearly gone up a lot. By selling the shares, Google raises a large
amount of cash and further insures it’s future will be long, no matter what its
stock price ever does. The move could dampen the share price but that is small
price to pay to get their hands on $4 billion. Contrast this with Nortel which
did not sell many shares when it’s share price was flying high. Had Nortel done
so, it would have easily emerged from the tech wreck with no debt and lots of
cash in the bank. Instead it ended up having to cut it’s dividend. What Nortel
did in those high-flying years was trade it’s stock for ownership in other
companies at inflated prices. It mostly wanted the intellectual Knowledge of
those companies, but ultimately fired a lot of those staff (who presumably had
much of the knowledge in their heads)  when money ran short.
In summary Google makes another smart move and reminds me of how incompetent
some other company managers are in comparison.


Another interesting move in the market today was long-term interest rates
heading down again. It’s hard to believe they can stay down with short-term
interest rates being raised so much… but it is good for stocks.


August 17, 2005


Sino-Forest is updated and remains a
(highly) Speculative Strong Buy at $2.56. It has fallen since I rated it the
same at $3.03 in May but if the market was always correct then we could all
stick to index funds and exchanged traded funds…


Given the strong run-up in the price of oil and now seeing a pull-back, I
will notionally sell half of the “XEG” (energy index) in the model portfolio at
tomorrow’s opening price. This will lock in a gain there. I don’t have any
rating on oil or the XEG index, but I just feel more comfortable locking in part
of the gain at this point.  I am also making a number of other notional
trades in the Model portfolio to reflect recent ratings changes and insure I am
holding all the strong Buys in there (as well as some Buys). I will update the
model portfolio for these trades in a few days.


August 16, 2005


Canada Bread is added as a new
listing rated Buy at $50.10. I have not been able to add very many new listing
lately and although performance has not suffered for it, I have taken steps to
address this. I now have another CFA charter holder who will work on reports
using my templates and methods. I will review and finalize each report he works
on. Canada Bread is the first of these new reports. MapleLeaf Foods owns 90% of
Canada Bread. Some years ago I covered MapleLeaf Foods and was looking forward
to a turn-around.  I got tired of waiting although subsequently Mapleleaf
also started to finally perform.


Western Financial Group is
updated and remains a Speculative Strong Buy at $2.47. While the stock has
proven volatile, the company itself has been progressing steadily. Over a the
next few years I believe that there s a substantial up-side potential here and
relatively little down-side risk (although there are never any guarantees that
any  particular company will survive if something very unexpected happens).


I have been asking myself if this is “a no-brainer”.  A “no-brainer”
stock usually occurs when a profitable growing company is available at or near
book value and with a low P/E. This stock is just a bit above book value and the
P/E is not that low. It still has to prove its potential, and it has some risk
so I would say it is NOT a clear no-brainer but it does seem like a good value
oriented pick to me.


Another way to play this stock is to buy its convertible debentures that
trade on Toronto as WES.DB.A. These pay a 9% coupon and, I understand, are
convertible at $2.50 They are due to pay out at par in about 18 months. The last
trade was at 105 which means you would effectively have paid $2.625 plus the
impact of commissions for the shares if you buy and convert. A reasonable
strategy might be to buy the debentures 105 and then convert in about 18 months.
Hopefully the shares are then higher than the conversion price. You get a yield
while you hold the bond and you are protected against a drop in the share price
although you do take the risk of not getting your money back if the company for
some reason collapses. (At maturity they are allowed to pay you out in stock
based on a 5% discount in your favor rather than cash but you should be able to
sell the stock to get the principal back). Overall, compared to the stock I
think the convertible is a good strategy at maybe 105 to 110. I don’t think I
would want to pay more than about a 10% premium (110) for the convertible.
(Although even 10% may be low for what is effectively an 18 month option) The
105 price may have occurred when the stock was lower in price. The debentures
appear to be exceedingly thinly traded so that may be a problem. Check the facts
(especially the conversion price) on the debentures independently or with your
broker, since convertibles tend to be complex. I understand the company cannot
force conversion on these until the maturity in Feb 2007 or unless the stock
price exceeds a $3.10 average for 20 days. I got a bit gun shy about convertible
debentures since the TELUS convertibles I bought ended up being converted much
earlier than I though was allowed due to what I think was incomplete information
in the TELUS annual report – so be careful with these.


August 15, 2005


Western Financial Group announced strong growth today although on a per share
basis the growth was modest. The market did not show any reaction to the news. I
think the report bodes well for the stock. The company is trying to grow very
fast and unfortunately has had to issue shares to do so. I believe that the
earnings are probably a bit under-stated by the expenses of being in start-up
mode. I like the stock and will be looking to buy more. Still, it is speculative
due the small size and aggressive growth. I will update my report in the next
day or so.


IGM Financial is updated and Rated
Buy at $41.30. IGM Financial was formerly know as Investors Group before it
acquired McKenzie Financial. It is a large mutual fund manger and sales
organization. The earnings per share graph is a thing of beauty. It is
surprising how steadily the earnings have grown since in theory it should have
been badly hurt as assets under management fell with the stock crash of the
early 2000s. But they manage through it using a combination of sales and cost
management. This company is controlled by the Desmarais family who also control
Great West life. They also control Power Financial and Power Corporation which
are largely holding companies. These companies all have a strong history on
steadily increasing earnings and dividends. IGM is not a screaming buy and faces
some risks as noted in the report. Still, it is reasonably priced and hitching
on to the Desmarais family’s  coat tails has a history of working out well.


August 13, 2005


Long-time subscribers may recall that I removed Melcor Developments from the
companies covered here because it seems to be too thinly traded.  Early
this year I had it rated (higher) Buy. I am very leery to rate highly a thinly
traded stock and put it on this Site. The reason is with thinly traded stocks
just a few investors could drive the price up. I am trying to predict which
stocks should go up, I am not at all in the business of trying to drive stocks
up. The stock has continued to rise very strongly after I removed it from my
list, but on mostly very thin volume and with just 2 days of significant volume
(Over 20,000 shares just twice in the last 3 months, usually well under 1000
shares per day).


However, I thought I should provide some kind of update for those subscribers
who may hold it. Basically what has happened is a valuation “multiple
expansion”. It used to trade at almost ridiculously low multiples to book values
and to earnings. Now it trades at 1.7 times book and 12.5 times earnings. Those
are still not expensive multiples. The bottom line for me is that I am going to
continue to hold this stock and not take any more profits (I did unfortunately
take some profits a while back as I would have noted on this Site. And perhaps
if I had not taken some profits earlier I would now). Still, given the price
increase on low volume there is some danger it could easily slip back to say
$70. But there is also a good chance the price will be keep moving higher. So I
am going to sit tight. There is always a chance they will do something like
split the stock, or turn into an income Trust. Also with a market cap of $266
million, Melcor may be benefiting from the fact that it is now large enough to
attract some institutional buyers like small mutual funds.


Performance figures are updated.
2005 detailed performance figures are
available only to subscribers.


August 12, 2005


ING Canada is updated and rated Strong
Buy at $40. I sold some Kingsway and bough more ING this morning at $39.34. I
had much more Kingsway than I did ING and I simply wanted to get that into
better balance. ING looks like a bargain to me. However, the difficulty is in
predicting how fast auto insurance rates will drop and when drivers will resume
a normal level of claims. Most Canadians were a little shell-shocked at the high
premiums and various horror stories and most are very reluctant to make a claim.


Comparing ING to Kingsway, ING is less risky since it insures standard auto
and commercial. Kingsway is into higher risk drivers and commercial trucks. ING
is also operating only in Canada. ING has the best exposure to the auto market.
On a risk scale I would place Northbridge between the two. ING appears to be the
cream of the crop, perhaps the best managed. It shows the highest profitability
but also trades at a higher multiple to book value. I like holding all three.


ING only came available to trade last December 2004, I did not immediately
place it on my Site, although I announced I was buying at the IPO. I hesitated
to add it to the Site because I already had so many insurance companies. But I
am glad I did add it in June.


So far, ING is the property insurance company that is best doing what I had
predicted for this year, (reaping large profits due to what are frankly still
excessive insurance rates as the market over shot the mark with all its
increases and due to low claims for accidents and some restrictions on pain and
suffering type awards and due to booking gains from 2004 and 2003 as they now
realize the rates were too high then.) Most of the reason that ING is best doing
what I expected is that it has the biggest percentage exposure to Canadian auto
insurance. Also I believe that Kingsway is simply trying to delay recognizing
some of its profits by keepings its future claims estimates higher than they
need to be. So going forward it may be Kingsway that will do best. As I say, I
like to hold all three. (Kingsway, Northbridge and ING). Given the higher risk
of Kingsway, if I had to pick only two, I think I would drop the Kingsway first,
but it would be a tough decision.


August 11, 2005


ING Financial came out with stellar results
today. Obscene profits really, although they say it won’t last but they seem to
indicate the next 12 months should still be good. I have not yet updated my
report but I am confident the rating will remain a Strong Buy or (higher )
Strong Buy. This was my highest rated stock of late. I am considering possibly
shifting some of my Kingsway or Northbridge into this stock. This company is
fairly new as a traded stock. But it is the largest property and casualty
insurance company in Canada. It really appears to be the best one. For example,
not as risky as Kingsway. If I had not already owned so much Kingsway and
Northbridge I would have had more in this stock. I had already shifted some of
the Kingsway into this one some months ago. Even though it seemed to be the best
of the insurance companies I still was a bit reluctant to sell my Northbridge or
Kingsway to move into this one since I like those two a lot as well.


Having expressed caution yesterday about the impact of energy prices, today I
had a good gain on my portfolio even as oil rose again. I’ll just keep updating
my reports and trying to make sure I am not in things that seem over-valued.


I no longer rate Melcor although it is in the model portfolio and I still own
some. It has really jumped. I have not updated my analysis even for my own use
but I may sell some of what I have. So far, I had already taken profit many
months ago and I was just letting the rest ride. But I think it might be prudent
to trim some. But also I am wondering if the market is signaling some kind of
announcement so again I have just let it ride. I just wanted to let any
subscribers who hold it know what my thoughts are. I worry that with it being
thinly traded it could also drop quickly…


August 10, 2005


Telus is updated and rated Moderately
Speculative Buy at $45.65. I was certainly on the right track when I
re-introduced Telus to the Site as a Speculative Buy last October 6 at $28. Now
the price is well up but so are the earnings. I still expect earnings to grow
fairly quickly as the cash from the cell-phones rolls in. As indicated in the
report Telus is still signing up pretty staggeringly large numbers of cell
customers. Once the advertising costs and commissions of sign up are paid for
those are definitely high profit customers. I hold some of the non-voting. I
don’t think I will buy more right now but I regret now that I sold some earlier
when the strike spooked me a few months back. The market certainly seemed to be
shrugging off the strike for now. I had to call about my internet line on
Monday night and the I got through easily.. so maybe the strike is not impacting
it that much although managers cannot work the long hours forever…


Looking at the overall market, I am seeing some contradictory things. The
U.S. Fed funds over-night interest rate was raised again to 3.25%. Yet the 10
year Canadian bond is barely off its recent 40-year lows and is around 4.05%.
Oil is around $65 per barrel and yet the economy shows no signs of slowing. I
just wonder when a combination of moderately higher long-term interest rates and
the high energy prices are finally going to start to slow the economy. In
anticipation of that I would consider selling some stocks. In particular the
stocks that are trading on yield such as perhaps utility stocks and some banks
and slower growth Income Trusts could get hurt first. When I look at my
stock list though I don’t think the Strong Buys and Buys there would be among
the first hurt. So I am just saying I am getting more cautious but I have not
yet decided which stocks if any to sell or take partial profits on.


August 9, 2005


Regarding Kingsway Financial, clearly the
market does not share my enthusiasm. But sometimes one has to be patient. While
losing some ground on Kingsway I have recently been making huge ground on Melcor
Developments. This was in the model portfolio and rated (higher) Buy at the
start of this year. Unfortunately is is very thinly traded and when it was
jumping a lot earlier this year I no longer felt comfortable rating it as I felt
my rating and my subscribers might be driving the price up. Perhaps I was
over-cautious as it has certainly continued its ascent, after I stopped rating
it, and is  now up over 60% this year. However when I first covered it as a
Strong Buy in late 2002, it did not really do too much for two years and had
some dips before finally starting to rocket up in 2005. The point is that with
value -priced stocks patience is usually required and sometimes (but not always)
well rewarded.


Regarding Wendy’s it seems to be grinding
down now as we settle into a long wait for it sell off a portion of Tim Hortons
in an IPO early in 2006. Hard to say where the stock will go in the meantime. It
will depend on their same-store sales each month and earnings reports. I don’t
have any plans to take profit but I would not argue against a strategy of taking
some profit. If I owned none, I would consider nibbling at this price
recognizing that it could fall and provide a better buying opportunity ahead.
Clearly patience is required to hold here.


I notice DALSA had an announcement after
market close today of a partnership with Xerox on some work. I would definitely
consider buying or adding to this stock.


Comment on Air Canada... As someone who has been no fan of either the
old Air Canada or the new Ace Aviation, it is only fair that I give them some
credit for the earnings posted in Q2. I mentioned under July 8, I was expecting
a profit from them largely because of a one-time gain in selling off a
portion of AeroPlan. Sure enough they had a net income of $168 million. More
impressively even after deduction $190 million gain on AeroPlan and deducting
the tax on that and adding back a large foreign exchange item it indicated and
adjusted net earnings of $116 million or about $1.00 per diluted share. So
that’s maybe not too bad for Q2. Q3 is peak season and should be better. It
appears too that Air Canada has some good financial advisors and they are
figuring out ways to make money by selling off certain parts of the company.


Still.. I saw on Saturday a big advertisement for a Seat Sale for flights all
the way to December and with prices as low as $209 plus taxes and fees one-way
from, for example Edmonton to Orlando. With a stop in Toronto that’s just $105
per “stage length” and I’m almost certain that would be below the average seat
cost. Now maybe there won’t be that many of the cheap seats. But I really wonder
why they found it necessary to offer a seat sale. Seat sales are what bankrupted
Air Canada so recently. In my opinion seat sales like that cheapen the product
and setup unrealistic expectations and result in over-crowded planes. They might
be better off to leave those seats empty rather than sell them at low prices and
annoy the people who paid a more normal price.


Overall I have to admit that ACE Aviation will probably do okay for the next
while, but I still worry about irrational pricing tendencies in this industry. I
have no rating on ACE shares and no plans to analyze it at least not until its
gets a few more profitable quarters under its wings.


Comment on CN – I live not too far from a huge recreational lake in
Alberta where CN dumped some 750,00 liters of oil into the water. This is
looking very bad for CN, they are coming across as quite slow and unprepared for
the clean up. Things were already bad enough when after 5 days CN announced that
one of the cars may have carried a far more toxic and water soluble substance
and the Health Authority ordered people not to even water their grass with this
water pending investigation. CN came off as not knowing what is on its train.
The cottage owners affected include many rich and powerful people. This is going
to cost CN (and /or its insurance companies) plenty. I could imagine the figure
exceeding $100 million. But that may not be a huge big deal to CN which made $1
billion in 2004. I imagine too that CN may be forced to adopt better controls
over what it is carrying and this could add to expenses and even slow their
operation. I generally like CN but I am a little cautious on it right now. (Also
making matters worse was a second spill into a river in B.C. two days after the
lake incident.)



August 7, 2005


I felt a bit a of a chill in the market on Friday, lot’s of red figures.
Possibly the strong run we had based on the Q2 earnings is now about to end /
reverse. Certainly I don’t think we are in for a big drop in the market but
still I will be looking for opportunities to take some money off the table.
Possibly I would even trim holdings in some stocks that I like just to get some
cash position.


Manulife is updated and upgraded to
Speculative (lower) Strong Buy at $62.62. This means I think it is a Strong Buy,
but just barely a strong buy, I could have called it a (higher) Buy. There a re
always lots of a factors to consider in pinning down a rating for a company.
That is why it is wise for subscribers to look at the value ratios I give and
look at my rationalization for the rating to see if you agree. Also investors
have to consider how each stock fits into their existing portfolio. For example
an investor with a lot of other life insurance stocks might not want to add
Manulife, but someone with nothing in that sector might want to add it.


In the past I have pointed out that Manulife is Canada’s most valuable
company by stock market value. In fact I said it is a World Class Company and
maybe just about the only example of a World Class (and world size) company that
we have. Despite its size it has managed to grow rapidly. WE may see periods
where its price fall back but over time it will probably continue to be a good


Last quarter I expressed a lot of concern about the actuarial estimates of
the company. Strangely enough this came up for a lot of discussion in th=is
quarters conference call. And I was reasonably satisfied with Management’s
answers. They seemed more sure of themselves and they seemed confident. On that
basis I feeling better about their accounting. But the company remains
essentially a black box and therefore I few it as speculative since a change in
actuarial assumptions could cause a big hit to earnings at any time.


Sico is updated and continued as (lower)
Strong Buy at $15.00.


I also updated two cells of the Kingsway report to update its geographic and
end-user market segmentation. Also under  quality of assets I noted that
the company does not “discount” its liabilities although it is entitled to do
so. I estimate roughly that this understates book value by perhaps 5%.


August 6, 2005


Stantec is updated and remains rated (lower) Buy at $36.78. This stock has
really jumped lately based on a pending large acquisition, the fact that it just
got listed on the New York Stock Exchange on Friday and the based on an
extremely good Q2 earnings report. One concern is that the Q2 net revenues were
only up 7.5% while earnings jumped 60% (in fact 103% before adjusting for a
one-time gain on bad debt). The gross revenues were up and administrative
expenses as a ratio were down. There did not seem to be a good explanation and
so to some degree the earnings in Q2 may not be entirely sustainable. Still, the
quarter was undeniably great and hopefully they can keep the margins up towards
this level. And, this is a great company with a great track record. Probably a
good long-term investment although it is getting more expensive on a price
earnings basis.


I first rated Stantec a Strong Buy at $5.00 in
late 1999 ($10.00 prior to the stock split, $5.00 adjusted for the split). Sadly
I sold in the low $20s but I tell myself I put the money in a good place. I’m
trying not to let the fact that I sold it early influence my thinking now,
however, I seem to have been underestimating the company in the past few years.
Due to possible volatility, I would average in and hope to take advantage of any
dips. I don’t have plans to buy it personally.


Kingsway Financial is updated and
continues to be rated Strong Buy now at $21.39. The stock fell yesterday despite
a pretty good earnings release.  On the surface this certainly looks like a
bargain with a P/E of 8.1 and a Price to book of 1.36 combined with a 12 month
ROE of 16.8% and ROE in 2005 of close to 20%. Naysayers would point to risk and
point out that earnings are cyclical and subject to estimates. But as I study
the report and listen to the conference call, I have every indication that
earnings are conservatively stated at this time. 2005 is expected to be a record
earnings year. Yes, earnings could decline in 2006 with lower insurance prices
but they may be able to offset that with positive reserve releases from 2004.
Also investment yields on their short term bonds may be higher with higher
interest rates. Most of the time large established businesses with apparent
strong profits are not available at such a small premium to book value. And if
you look at the earnings per share graph it is very strong. It does seem that
patience will be required as the market seems skeptical. However, I believe that
patience will be rewarded. There are never any guarantees but it seems to me
that this stock has a reasonable chance to double kin a three year period, and I
don’t see much reason to think it will decline significantly. I have large
exposure to it and continue to hold that. Given my total exposure to the
insurance segment I probably will not add to my position.


August 4, 2005


A good earnings report from Kingsway, after the market close today. I
understand it beat expectations but I was hoping it would be better. It should
go up maybe a little tomorrow but I don’t expect a big jump. I continue to
suspect that they are using their discretionary judgment to keep their
“reserves” higher (they have pretty much said this) which essentially hides
earnings for release on a rainy day.


Manulife and Cryptologic released earnings during the trading day.


I will review the earnings releases and update my reports on these three in
the next few days.


August 3, 2005


Tomorrow, Kingsway will report earnings as will Cryptologic. Hopefully these
will continue the trend to good earnings reports that most companies have had
with the Q2 reports.


As subscribers know, I don’t cover any oil and gas stocks and seldom comment
on that sector, although I did include an exposure to it in the model portfolio.
Lots of commentators are suggesting the sector will stay red hot. On the other
hand some analysts are pointing out that oil has had a huge price run and that
this in spite of the fact that new supply is coming on and there appears to be
no real shortage of oil. Under this view it would be wise to take profits in the
sector. I am toying with the idea of notionally taking profits in the energy
component of the model portfolio by selling 50% of the XEG holding in the model.
I think that would be prudent. Even if it turns out to be a bad moves that does
not change the fact that is probably best not to get over-exposed to energy
unless one has good reasons to be very confident that the sector will keep



July 31, 2005


Wendy’s is updated and is rated Weak Buy /
Hold at $51.70. Wendy’s is now being valued as a “special situation” since it
plans to sell off 15 to 18% of Tim Horton’s as a separate stock. The market now
appears to realize that Tim Horton’s is worth a lot more on its own than hidden
inside of Wendy’s. It might still be reasonable to Buy Wendy’s at $52 and hope
for a run to $60 by the time of the IPO. The other reason to buy the Wendy’s is
that you would likely with a few years receive some Tim Horton shares when
Wendy’s spins out the remainder. I’m not sure I will want to buy the Tim Hortons
at the IPO because it may be pretty highly priced.


Some of the American analysts clearly still don’t “get it”. One of them
questioned whether there would be enough appetite in Canada for the Tim Horton
shares given that institutions here already own a lot of Wendy’s. This is
absurd, there will be a huge demand for the Tim Horton shares and I think pretty
much every Canadian would agree with that.


The one down-side is we have up to a 9 month wait for the IPO of Tim Hortons
and during that time the Wendy’s shares could drop back. But I am certainly
willing to ride that out. If anything I would use a price drop, if it occurs, to
buy more Wendy’s. Remember too, that as Canadians we face currency risk on this
stock should our dollar keep rising.


Forzani Group is updated and rated Sell
at $12.77 (I would Sell if I owned it but I am not indicating that I would Short
Sell it, a short sell is very different than a Sell). The Forzani group is
Canada’s largest retailer of sporting goods, operating stores from coast to
coast including Sport Chek, Coast Mountain Sports, Sport Mart, National sports,
and Nevada Bob’s . Also a franchiser under the banners Sports Experts,
Intersport, RnR, Atmosphere and Econosports. The numbers indicate the stock is
over-valued. There is always the chance that they will turn it around and the
earnings will grow rapidly, but as of now that does not appear to be happening.
If I owned it I would sell and move on. (In fact I did own it and sold my shares
a few years ago at $16.95 as indicated on this Site at that time).


July 30, 2005


Dalsa is updated and remains rated
Speculative (higher) Buy at its new price of $12.50. It was definitely
disappointing to see this fall about 25% on Friday. This stock has a lot of
analyst coverage and my sense is that the analysts were caught off guard by the
the fact that the sales outlook is lower and the profit outlook is quite a bit
lower. I have to wonder if this drop is not an over reaction, but in any event
this is the new price.


I continue to think that this is a great little company. But it seems it will
be volatile and it seems it may take some patience. Overall, although I am
disappointed with the lower sales and lower profits and particularly the sharp
price drop, I still think the outlook is good. I’m comfortable holding a small
position in it. I may add to my position or I may wait for another quarter or
two to see if things start to turn around.


Performance is updated for an excellent week.


July 29, 2005


I was expecting to have a good day in the markets today. And I did, but for
unexpected reasons. The market once again yawned at Northbridge Financial’s
great results. But Wendy’s had an announcement that sent it up 14%. Melcor which
I hold but no longer cover due to thin trading liquidity also had a great day.
Despite a big fall in Dalsa, I still had a really good day to cap off an
excellent week. Performance figures will be updated tomorrow.



July 28, 2005


Northbridge is updated and continues
at a Strong Buy now at $31.00 Earnings were released after the close of market
and were, once again, very good. The price should jump a few dollars tomorrow
although in the past the market has refused to move much, despite the strong


Here we have a company trading at a trailing price earnings ratio of 7.5 ,
earning 24% ROE and selling at 1.62 times book value (or 1.38 time book value
adjusted for unrealized investment gains). On the face of it this is incredibly
cheap, a real “no brainer”. I am then forced to think of why it can’t be as good
as it looks and yes there are some reasons that it is not as good as it
looks. Insurance prices are declining. Some of the profits are from realized
gains on investments and these are volatile and generally not considered
repeatable (even though they had positive gains in 7 of the last 8 quarters).
Insurance stock analysts tend to focus on these provisos and so are conservative
in the outlook for this stock. My view is that it is a great investment. I don’t
think there is much chance it would triple in the next four years, but I think a
double is possible. And given the book value ratio  I very much doubt it
would be a loser if held for at least four years. And I expect it to do well in
the next two quarters and therefore a quick 30% gain here, is very possible. As
always there are no guarantees, but this is my largest holding and I am tempted
to add a bit more at or near this $31 price.


Dalsa also reported earnings after the market close. Earnings are down
although sales are up. I will update the report after I see where the price goes
tomorrow. Overall I still think this a great investment in the medium to longer
term but it does not look too likely to go up much in the next six months due to
lower earnings. Hopefully this result is already reflected in the stock price
which has fallen lately…


July 27, 2005


Almost everything was up today it seems… The market cannot stay this strong
long term but hopefully at lest the next few weeks are strong as the market
adjusts to the strong Q2 earnings reports.


TSX Group is updated to Weak Buy / Hold at
$38.39. It’s Q2 earnings were fantastic and so far Q3 must be running strong as
well. My only concern is the stock price has gone up so much and eventually this
should be a cyclic stock when we get into a quieter time in the market. However,
right now the profitability is fantastic with a 40% ROE. I sold half my small
holding but will hang onto the rest for now. The company has given guidance for
10 to 12% long-term earnings growth. This is less tha useful considering they
have grown at more like 35% but in a slow market would likely see earnings
shrink. The stock seems to be pricing in at least 10% growth going forward and
that may be ambitious if we are at a cyclic peak of stock market activity right


Wendy’s seems more likely to continue to fall somewhat short-term than rise.
It will report earnings soon but had preannounced that they would be lower than
originally expected. The catalyst for the run up to $48 had been rumors of a Tim
Horton spin off. I am holding the stock for the potential in Tim Hortons (spin
off or expand in U.S.)  and  think this will be good long term


July 26, 2005


The TSX Group released very strong earnings results and an increased
dividend. This release was after the close of trading and so the price impact
will be seen tomorrow. At a price of $37.90, the TSX has a P/E ratio of 23. This
is not a bargain but may be reasonable given the virtual unregulated monopoly
nature of the business. Offsetting that is the fact that earnings may be a a
cyclic peak as the Stock market is currently booming but will eventually
encounter slower periods. The TSX also mentioned that some prices will be cut by
a small amount. I would think the stock price would rise moderately tomorrow
unless the market focuses on the minor price cuts. I’ll update my report in the
next day or so to reflect where the price moves in response to these earnings.
At the current price of $37.90, I would rate this a Weak Buy / Hold to possibly
a (lower) Buy.


July 24, 2005


Alarmforce is updated and downgraded
to Weak Sell/ Hold at $5.37. This is a strong little company that will likely do
well, but the share price seems to have risen too rapidly. Based on the numbers
I could call it a Sell. But I am reluctant to come out too strongly against this
proven performer.  For purposes of the Model Portfolio I am notionally
sellling two-thirds of the Alarmforce position at the opening price tomorrow.


Performance is updated. My own portfolio as
well as the Model Portfolio registered further gains this week, while the Strong
Buys (from January 1) slipped just a bit.


I’m looking forward to the earnings reports on the insurance stocks due out
in the next week or so.


The overall market seems positive to me. Perhaps the biggest concern is that
as gasoline goes over a $1.00 per liter the consumer will be hit. For that
reason and given strong gains this year I continue to look for opportunities to
move some funds into cash.


July 22, 2005


Several subscribers have expressed concern about the fall in the price of
DALSA. Firstly we have to be aware that small
companies do tend to fluctuate in price. I have just now reviewed the annual
report and the Q1 report. I remain convinced that this is a great little company
with a bright future. Possibly a real gem of an investment. Earnings fell in Q1
as it began expensing start-up costs for a new digital camera rental operation
in Hollywood. Also the semi conductor fabrication operation suffered from some
over capacity and/or excess inventory in the industry. I like the company and
think it will do well long term. At Q1 it had no debt but has taken on moderate
debt for an acquisition in Q2. The low debt level and positive cash flow should
mean that there is no danger that the company will run into financial
difficulties. Quite possibly Q2 will be affected by similar issues and this may
be why the stock is falling. But I think this is more of an opportunity than
anything. I would be tempted to buy a few shares ahead of the earnings, however,
given that the earnings will probably not look that good in Q2, I don’t expect
the share price to really jump much (in either direction) on the earnings
release. Q2 earnings will be released on July 28 and I plan to update my
analysis and rating by July 31.


July 20, 2005


CNR is updated and rated Buy at $78.50. I have
said in the past I liked it. Once again it’s earnings (released today) showed
that it is an example of the fact that “Winners Win and Losers Lose”. This
company just keeps on winning. It’s not a screaming Buy but then again
considering its size and stability and its record it is very much worth
considering. I don’t have funds available to buy at this time but would be
interested in averaging in. I would definitely consider it on a pull back of any


Apparently the market was surprised by a big loss at General Motors announced
today. Why would anyone be surprised when an uncompetitive North American
company saddled with huge “legacy” costs for pensions and healthcare and starts
offering huge family discounts? it seems likely to lead to losses…


Most of the Q2 earnings reports so far seem good and so hopefully the next
few weeks should be positive in the market.


I did end up selling half my TSX shares today…


July 19, 2005


The TSX Group is updated and rated Weak Sell / Hold at $39.50. I had first
covered this stock as a Buy at a price of $14.43 (adjusted for a special
dividend and stock split) less than two years ago. I made a good profit on but
did sell some of my stock much too early. Given the almost “unregulated monopoly”
status of the company I hesitate to again make the mistake of selling too early.
But I find the recent share price run-up a bit much. They will release earnings
on July 26. Based on trading statistics on the TSX the earnings will be good.
Still, the market must be expecting a very strong earnings report and so is
subject to disappointment. I may hedge my bets and sell half my position.


With strong performance from quite a number of stocks this year, it is hard
to decide where to take profits. I hate to sell winners unless they are clearly
getting too high. Overall the outlook for stocks still seems good. With the Q2
earnings reports it may become more clear where to take profits.


July 18, 2005


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July 17, 2005


Performance is updated and continues to be
very strong.


July 14, 2005


Alimentation Couche-Tard is updated and downgraded to Speculative (lower)
Buy at $20.25. I had only added this company in March when the shares were at
$17.40. I now realize that I was mis-led in March regarding how many shares
there were. The company did a share split in March and did indicate this clearly
in its Q3 report, but they reported earnings and shares on a pre-split basis
(and I assumed that they were post-split). I had actually noted my surprise at
the low P/E in March but I noted that YAHOO was also showing a low P/E although
a bit higher than I had, I suspect they suffered from the same problem I did in
not interpreting the number of shares properly. The bottom line is that this is
not the bargain stock I thought it was. But is is still a very good growth
story. It’s just a lot more speculative than I thought because it is pricing in
fairly robust growth. I may reduce or sell my position and take my profit  since
although it will likely do well if the growth continues, it is just not the
bargain I thought it was when I bought.


While I took a hit today on Wendy’s the overall market aside from energy was
very positive. Continued strong consumer spending in the U.S. combined with a
low inflation report would seem to bode well for the markets.


I have been rather surprised at the strength in the $Canadian dollar, it
seems it is focusing on probable Canadian interest rate hikes this Fall but I
would have thought it now has more chance to fall than rise in the next few
months. But I am not brave enough to place a bet either way.


July 12, 2005


I note cryptologic down sharply the last few days. When I look at my report I
had certainly called it speculative and not that compelling. At this point I am
not interested in adding to my position and will re-evaluate after the next
earnings release. Wendy’s is gyrating… market trying to figure out if the
company will agree to spin off Tim Hortons. Indications are it will not so stock
could easily fall. Also the strong Canadian dollar is hurting our U.S.
investments. As noted before I like it long term and am reluctant to sell out to
avoid a possible short term loss, given the long term is positive.


For a speculative pick I think Western Financial Group is a good pick even
though it is off its lows. If this company does half what it hopes to in the
next five years it will probably still be a pretty good investment. Given
volatility perhaps averaging in is best.



Alberta today announced some changes that could open up health care to more
for-profit opportunities. The howls of protests of “two-tired health care are
predictable. I can see why those who live pay-check to pay-check (with no
savings) would object to any loss of so called free healthcare (meaning someone
else pays). But I can’t understand why almost all Canadians seem to protest
letting the market have a place in health care. People who support free trade
and free enterprise and self reliance suddenly turn into committed socialists
when it comes to health care. I advocate keeping the public system. But i sure
protest a law that says it is illegal to sell insurance for access to speedier
health care and basically illegal to set up private hospitals etc.  Strangely we
have no qualms about letting the for-profit system take care of such
“non-necessities?” as food, clothing and shelter.


On a related note a huge swath of subdivisions near me full of $200,000 plus
homes is left begging to get an elementary school. And very well-paid Fort
MacMurray workers are begging for an improved highway. When these same people
want a car, a house, food etc. they don’t beg, they go buy it! If we introduced
toll roads and appropriate gas taxes used for roads, the improved highway would
soon appear. I’m not sure the answer on the school, but maybe if people (who
could afford it) were paying a realistic portion of school costs and if schools
operated on some kind of profit incentive, the school would come too. I simply
observe (and it is, I think, absolutely indisputable) that the for-profit system
is what has brought us the wonderful abundance and comfort we live in today and
for-profit probably has a place in setting up competitors to the public health
care and schools and highways.


When I was a kid I happily relied on my Mom dole out food and all things in a
fair manner among the six kids. Then I grew up – and became able to earn my own
living and decide myself what I can have, and I don’t need some government nanny
to decide if I need a certain heath care item or not. And I would rather pay for
roads in a higher gas tax than have the government nanny decide what is needed
with no user-pay signal…


Hope no one finds my views offensive, and hope if nothing else it gets you
thinking… I’ll be watching for opportunities to invest in for-profit


July 9, 2005


Communications is updated and rated Speculative Buy at $24.70. There are
definitely some things I don’t like here such as huge past losses and mistakes
on acquisitions. And there are some accounting complexities. When I read my own
comments under “management quality” it seems like I should avoid this stock. But
then again there are some real positives. Earnings are ramping up very sharply
(albeit from an unacceptably low level). Free cash flow is more than double net
income indicating net income may be very significantly understated.  The
situation reminds me a lot of
TELUS which a few
years back was reporting quite low net income but high free cash flow and in the
case of TELUS, net income began to quickly catch up and its share price rose
rapidly. (Both companies are in the business of attracting customers to
subscription services – high customer acquisition costs can depress reported net
income but eventually the cash from subscriptions does come in). Finally, there
is a very significant amount of insider buying at Shaw. The company is also
buying back its own shares. Overall, I think this will be a good investment.
With a recent pull-back in the price, I think the timing for buying is good now.
The stock fell moderately on Friday after the release of Q3 earnings after the
market close on Thursday.


July 8, 2005


Another good week in the markets…


Regarding property insurance stocks I not that
ING Canada
reports it will take a hit of $40 to $50 million pre-tax for the recent floods
and hail in Alberta. Although this does not include other Western provinces, I
continue to think that this is not a major big deal to these insurance
companies. Profits will take a hit in Q2 but I still expect 2005 to be another
record profit year particularly for automobile insurance.


Further to my comment on ACE Aviation, (Air Canada) and Aeroplan Income Fund
under June 6 below…


ACE Aviation will likely report a large net income for Q2. ACE Aviation sold
$270 million worth of Aeroplan. The value of those units on ACE’s books was
negative so this will result in a one-time “dilution gain”. ACE may also report
a positive net income before this gain but I am much less sure of that.
Certainly ACE should have a net profit in Q3… Still I will not invest in ACE
given its history (bankruptcy!).


ACE typically focuses on operating earnings before taxes and interest. It
will be interesting to see if they now trumpet the expected one-time net profit
figure in Q2, rather than continuing to focus on operating earnings.


July 7, 2005


It is certainly encouraging to see how the market shrugged off today’s
terrorist attacks.


Wendy’s reported declining same store sales for the Wendy’s – down about 4.3%
but (as usual) strong gains for Tim Hortons. (up 5.6% Canada and up 9.1% at the
(few) U.S. locations). Still the stock rose today. I note (from the comments I
saw) that the U.S. analysts just don’t seem to get it that Tim’s is half the
profit and therefore on profit a weighted basis same store sales were up. The
stock price is higher than it would be in the absence of speculation that
investors may force Wendy’s to spin off Tim Hortons. Therefore there is some
short term risk here. But long term I really like the idea of owning a piece of
Tim Hortons and I feel confident that this will be a good long term investment.


I have updated the report for
Boston Pizza
Royalties Income Fund which I continue to rate a (lower ) Buy at now $16.19.
It’s too bad that the Fund does not own the franchising company but instead just
owns a 4% royalty stream on the non-alcohol sales of the restaurants. I
basically luke-warm on it but I do like the restaurants and it is relatively
easy to understand so it might be “fun” to own just so that you can eat at your
own restaurant… (Maybe not that logical a reason to invest but then again
Warren Buffett drinks lots of Coke and he bought its shares…)


July 5, 2005


By today’s actions, the market seems to be shrugging off both higher interest
rates (short term U.S. rates) and higher oil prices. Therefore I feel
comfortable staying the course and hoping for more gains as the Q2 earnings
reports come in. A nice bump of $1.00 to day in Northbridge…..


July 1, 2005


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Summer is here, is it time to drink beer and buy a beer stock?


Breweries is updated. I now rate it a Buy at $12.25. I has last called it a
Weak Buy on Dec 17 at $14.15 and I indicated early winter was probably not the
best time to buy it. Now the price is down somewhat and we are into peak season
for beer sales. I would feel pretty confident buying Sleeman at under $12.75.
(Although there is the risk of lower profits due to competition). There is also
the chance for a quick gain if they decide to go the Income Trust route
(although they don’t appear to be planning that)..


I note the U.S. market was up today so hopefully the fact that the “Fed” did
not signal an end to interest rate hikes is not going to impact the market


June 29, 2005


I have added a new article that looks at the P/E ratios and dividend yields
of all the
TSX sector indexes. Some interesting results.


June 27, 2005


The market is now awaiting Alan Greenspan’s next move and comments on
interest rates. Hopefully he will either not raise the short-term interest rate
or he will raise it but will signal this is the last increase for the
foreseeable future.  The ten year Bond yield in Canada has fallen again, now to
3.73%. Certainly that would seem to suggest no fear of inflation and yet
Greenspan seems to still fear inflation.


It seems that the oil price is now worrying the market. Hopefully the Q2
earnings reports will allay that fear. However the market will focus on what the
high oil price will do to profits in the future. Certainly in the 70’s high oil
prices really tanked corporate profits. But the economy today is far different
and les dependent on energy. So far the higher energy prices have not seemed to
change consumer behavior but eventually it could…


I would not expect a high oil prices to have much impact on the stocks that I
have rated as Strong Buy.


In other developments I suppose the mad cow scare could harm Wendy’s,
although so far there was not much impact. If it did take a big hit, I would
take the opportunity to add to my position.


June 25, 2005


figures are updated. It turns out this was another positive week for the stock
picks, although my own portfolio declined marginally.


Cognos is
updated and upgraded to Buy at $43.50. I have always considered this to be a
great company but most of the time it has been quite expensive. I believe a
recent pull-back should represent a good opportunity to Buy. Profits do tend to
flatten out when the economy turns down and that may be a risk in the months
ahead, but overall I think the price has come down to a reasonably attractive



June 23, 2005


This is shaping up as a negative week for my stock picks. However, I believe
this is the first negative week in about 10 weeks, which was a pretty good run.
I don’t  see any reason to think that the general markets are going to turn
down. They could of course, but I am hopeful that Q2 earnings will soon give the
general market another lift.


June 22, 2005


Wendy’s was downgraded by a credit rating agency today after close of
markets. This could cause it to fall tomorrow. This stock has been bid up in
anticipation that it might sell off the Tim Hortons division. Absent that
speculation it would fall. It’s actual earnings have not been great. But I
expect things to improve. I like it long term but I am prepared for the reality
that it could easily fall back…


I updated two important articles that look at the overall valuation of the
U.S. stock market. While the stock market has risen the past few years, earnings
and dividends have risen even faster and the P/E on the overall market is lower
than it has been in some years. The average market P/E is not at bargain levels
but it also certainly is well down from any kind of bubble level. Click to see
these articles.


I had earlier mentioned my disappointment with the disclosure by Manulife
Financial, which made me a bit nervous. After doing some investigating including
speaking to a Standards and Poors analyst I learned that they have no concerns.
I continue to think of Manulife as a black box with earnings that I don’t
understand (partly due to limited disclosure of actuarial estimates) . However,
I have no reason to suspect that their earnings are not being conservatively
calculated. I will hold onto my investment.


June 21, 2005


I don’t think the flooding in Alberta will be much of a big deal to my
insurance stocks. Certainly Kingsway should not be affected. Northridge might
have some small impact and ING Canada might be impacted.


The ironic thing is most of the damage will not be covered by insurance (as
an investor, ya gotta love this business!). There will be some claims and I
heard of figure of $60 million for the industry and that could easily rise to
$100. But I don’t think that is a lot for the industry to deal with…


June 20, 2005


In my last update of
Thomson, I
indicated that the earnings are probably understated due to the amortization
expense. I believe that much of the amount that is being amortized is similar to
goodwill which is not amortized. If I add back 50% of amortization the the
earnings would increase by about 18% and Thomson could definitely be considered
a Buy. It also offers diversification into an area that is rather unique in the
Canadian market. I am considering adding to my position in this stock.


Today was another strong day for many of my picks including most notably
Kingsway Financial. The outlook appears to be good for most stocks although
transportation companies and others that use a lot of oil and gas might suffer
due to the high energy prices.



June 17, 2005


It is pretty much accepted theory that all investors should hold a mixture of
stocks, bonds and cash. Several years ago I set out to examine the actual
historical data
of holding various percentages of stocks, bonds and cash
over 10, 15, 20 and 30 year periods. For long-term investors the actual data did
not seem to support the theory. In fact, the actual data gave me a great deal of
comfort that my own 100% stocks strategy was not at all unreasonable (That is
given my particular circumstances of being a long-term investor who also has
secure employment and a good pension and benefits plan). I have now updated the
two important articles that examined the historical data. The results continued
to favor a 100% allocation to stocks but only for a long-term investor who is
also tolerant to annual volatility (including losses).


Asset Class
Performance 1925 to 2004


Are Stocks
Really Riskier than Bonds?



June 15, 2005


Another good day in the markets as Northbridge and Sino-Forest had strong
gains. I had a bid in to buy a bit more Western Financial Group at $2.25. Today
it dropped and my order was filled and then the stock jumped to 2.50 before
finishing at $2.28. Looking at the chart on YAHOO this is probably just normal
volatility but does illustrate that it can pay to be patient in bidding


I am working now on an update to some very informative asset allocation
articles and graphs. This will be posted in the next day or so.


June 14, 2005


I bought some ING Canada. I could now definitely be considered over-exposed
to the property insurance sector and therefore may take some profits on
Northbridge and Kingsway. But I’m not in a big hurry to do so.


I hopeful that stocks will continue to rise based on higher earnings and
lower interest rates. I have never in my life seen a better environment for
business in Canada. The great majority of businesses seem to be doing well,
especially consumer oriented businesses. Perhaps this will soon come to an end
but so far there are few signs of any slowdown.


June 11, 2005


ING Canada is
added as a new company above as a (higher) Strong Buy at $34.15


I did not add this company in earlier, despite the fact that I bought it at
the IPO in December as indicated under November 2 below. I already had coverage
of four property and casualty insurance companies (Northbridge, Kingsway, E-L
Financial and Fairfax). However the reason I began looking at property insurance
companies in the first place was in an attempt to cash in on the extremely high
automobile insurance rates. ING Canada is the best company for that purpose. ING
revenues are about 56% from automobile insurance, Northbridge is 38% auto (much
of that commercial). Kingsway derives most of its revenues from the U.S. and its
auto business is concentrated in high risk drivers. Fairfax also derives most
revenues from the U.S. E-L financial operates only in Canada however, I have
other concerns about its lack of trading liquidity and lack of disclosure.


Therefore, to take advantage of current huge profits on auto insurance, I
believe ING Canada is the best bet. Also it seems a well managed company with a
great long term future even when auto profits return to normal levels.


While I still definitely like Northbridge and Kingsway, I will be moving to
increase my exposure to ING Canada and this may necessitate selling some of my
Northbridge and or Kingsway.


I am not much interested in Fairfax Financial and have removed it from the
list above. I may also remove E-L Financial.


June 10, 2005


What a week!
Performance is updated.


June 8, 2005


Western Financial Group was up again the past two days. I think it is still
good value at today’s high of $2.55. However, it could certainly fall back and
so, given I already own it, I would prefer to wait for a possible pull-back
before adding to my position.


I note that this company was featured Saturday on “Money Talks” a very
popular radio investment show. I also note that the buying this week was in
relatively small orders (indicating small retail investors) and the volume was
up. Therefore, this recent price jump may not be all that sustainable. I would
prefer to see a price spike caused by an earnings report rather than simply by
an analyst recommendation. My strategy will be to hold unless the stock price
goes over about $3.00 (at which time I would possibly reduce my position) or if
the price falls back under $2.25 and certainly $2.10, I will add to my position.


With strong gains in the past number of weeks and seemingly accelerating
gains this week (so far) I am feeling good about the potential for continued
gains in the short term (but of course there are never any guarantees).


June 6, 2005


Western Financial Group rose 5.6% today. While it will likely be volatile I
believe it has much more room to rise.


Archipelago which I mentioned under April 21 and April 25 and indicated I was
buying but was unable to analyze due to its particular situation, was up 8.5%
today and is up about 37% since I first mentioned it. This was definitely a
speculative pick. It probably still has a lot of potential upside.


Comment on Air Canada (ACE Aviation) and Aeroplan Income Fund


I have been quite negative on ACE Aviation / Air Canada to date. With the
demise of JetsGo things have improved.


Prior to the JetsGo failure, it was clear to me that Air Canada was pricing
flights below its cost. However as soon as JetGo went, Air Canada (in a rare
sane move) increased its prices. I recently had to pay $1200 to go from Edmonton
to Moncton return. That was on short notice but a few months ago would have been
half that. Also the Air Canada plans are very full with recent 80% load factors.


It’s almost enough to make me think that Air Canada will start to make money.
But then again given the same loser management I am not interested to invest in
ACE Aviation.


I did more recently warm up to the idea of Aeroplan Income Trust. I long
questioned it because I knew that the money it should have to cover all the
flights it owes to point holders would not be there. But then again is has an
excellent business model going and is now generating significant cash. So
despite having a negative book value, the Aeroplan business may be very good. In
fact I really like the business model as it sells points for cash and then
inherits an obligation to buy seats on planes, but many of those points will not
be cashed in for years, if ever. It is a “virtual” business and I like that.


I finally saw the AeroPlan financials today they were posted May 20 to






I have not gone through the prospectus. I understand they are raising $250
million and it may be hard to get any. Not having looked at the numbers I would
be going on faith in the investment bankers and it is speculative, but I would
be willing to risk a moderate investment in AeroPlan. But I understand it will
be difficult to get (oversubscribed). Call your broker ASAP if you want to try
to get any. Again though it is speculative. I did look at the financials in the
prospectus and it shows a large negative book value but shows profits in each of
the past three years. I was unable to get a sense of the projected price
earnings ratio etc. I do understand that the units are being priced at a lowish
yield of 6.5% to 7.5%. That would indicate that the business is expected to be
perceived as low risk.  I don’t think it is known yet, how many units will be
issued therefore, it is probably not possible to calculate any P/E ratio etc
yet. Unfortunately this thing probably has to be bought on faith or you have to
wait for the units to start trading. Again overall I don’t have enough info to
judge it but would be willing to risk a moderate investment given the business


On the other hand it might be best to wait and see how the units trade and to
wait for financials that present earnings per unit etc.


June 5, 2005


I have posted a short article that discusses the fact that

long-term interest rates are still declining precipitously and looking at
the implications of this.


Tire is updated and upgraded to Buy at $59.38. The company is not bargain
priced but it has really been doing well for several years and if recent trends
continue, it will be a good investment. I am tempted to buy shares but have not
yet decided if I will do so. This is a stock that would be hurt in any kind of
consumer recession, but so far I am not seeing any signs of recession.


June 3, 2005


Canadian Western Bank is updated and upgraded to (higher) Buy at $27.50. On
Thursday it released a good report for Q2, but the stock price then declined
moderately. This is a conservative stock which I think has a good risk / reward
outlook. I do not currently own it but will consider buying it.


June 1, 2005


caught my eye this morning when it was down to $44.55, it recovered to close at
$45.94, down $1.21. I would definitely consider averaging in a these prices.
However, with not too much cash on hand, I did not buy today.


Regarding Manulife, I have not sold my shares. I listened to the Question and
Answer portion of its recent conference call. I was struck by the fact that
management was a little rusty on many of the questions, which is indicative of
the size and complexity of the company. I found many of the questions to be
superficial and about sales and seemed to indicate that the analysts did not
have a deep grasp of the profit drivers. Management prepared a “source of
earnings” summary at year end that is helpful, but they essentially said they
were too busy to do this quarterly. So I did not get a very positive feel from
the call. On the other hand I note that TD Securities is quite bullish on the
company with a 12 month target of $66. I’ll probably hold for now… (or I may
sell half and hedge my bet that way)


May 31, 2005


This week is shaping up well so far… I continue to feel good about the
prospects for the higher rated sticks on this Site.


May 28, 2005


Financial is updated and rated Speculative (lower) Buy at $57.45. I recently
spent about 5 hours looking closely at its 2004 annual report. While the
disclosure was voluminous, I was struck by how useless and non-user-friendly
much of the material was. We are treated to section after section that indicates
how revenue and earnings and various components thereof were way up. But these
had to go way up given the huge acquisition of the John Hancock company in April
2004. Most of these figures were not normalized to a per share basis and so the
actual trend of improvement was hard to see. Also it appears that the earnings
in 2004 and 2003 were boosted by (non-recurring) “experience gains”. But I saw
little discussion of this and no useful discussion of an adjusted earnings


I also noticed that the liability side benefited from an incredibly huge $12
billion benefit from the higher Canadian dollar. Presumably most of this was
offset by a similar loss on the asset side. But I did not see a discussion of
this.  This company earns the majority of its money outside of Canada and
despite any hedging I am surprised that the huge movement in the Canadian dollar
did not have a bigger net impact and did not seem to merit much discussion.


On the one hand I have considered Manulife, which is Canada’s most valuable
company to be perhaps our only truly World Class corporation. And it appears to
be doing very well and has rewarded shareholders greatly. Nevertheless this
annual report scares me. I realize in reading it that the company is hugely
complex and with what I consider to be poor disclosure I have very little
understanding of the company.


It seems to me that the earnings of this company would be very open to
inappropriate smoothing. And I observe how smooth the earnings growth is despite
the massive move in our dollar and the massive acquisition of last year, also a
massive downward movement in interest rates. This smoothness, in the face of
such change, makes me worry.


Overall this may be a great company with a continued great future but I find
myself feeling nervous about it. I have made a good profit in it and will
consider at least reducing my position if not selling it all to sit in cash or
move to simpler companies.


I have no yet decided if I should sell it (notionally) from the model
portfolio, but if I sell my own shares then I think I will sell it from the
model as well. I am not advocating panic here as I still rate it a Speculative
(lower) Buy, but I am just saying I ma not felling as comfortable holding it.


I may remove this company from my coverage list simply because of what I feel
is the complexity of its financials combined with less than user-friendly
reports from management.



May 27, 2005


A strong week – year to date returns for my own portfolio and the model
portfolio are over 10%. The Strong Buys (as selected at January 1) are lagging
at 5.1% but have started to come to life.
Performance figures
and the Model Portfolio are updated.


May 26, 2005


As of today, this week is shaping up quite good with gains in Northbridge,
Couche-Tard, Sico, Wendy’s and arcapelago (I don’t have a report on arcapelago
but if you do a “Control-F” you can see that I recently spoke highly of it and
bought some). Hopefully tomorrow will round out a good week in a positive
way…although apparently Friday’s of a holiday Weekend in the U.S. are usually
down days… I really should pay less attention to daily and weekly moves, since
I invest for the long term, but it’s human nature to focus on the short-term
results as well.



May 24, 2005


Sino Forest fell about 9% today, which illustrates the risk of this company.
Still, that certainly does not mean it will be a bad investment. This is the
nature of buying stocks that are less popular. Maybe it will go nowhere but down
for a while, but the numbers suggest to me that it will be a good investment.
Time will tell. It does illustrate too why a person does not want to get
over-exposed. Several years ago I had a fair amount of Sino-Forest and made good
money. But I took profits along the way since I did not want to end up with more
than 10% of my money invested in a Chinese Forest company (even if it  looks
good). I don’t know how long the current down-leg in its price will last but if
keeps on performing I don’t see why it would not get back to the $6 or $7 level.
Basically it will take some good earnings reports and some interest by mutual
funds. Right now it could be that some funds are sour on it and are dumping
shares. (Or maybe the market knows some bad thing… but I can only go by the
numbers which look good).


Meanwhile… on a more positive note a nice 2.5% increase in Northbridge
today, and 3% up on Couche-Tard. I continue to feel pretty good about the
market, though the thought of a summer slump is also on my mind. I would like to
accumulate cash but I tend to see too many stocks (good businesses at good
prices) I want…


May 23, 2005


Stantec is
updated and rated (lower) Buy at $30.00. This is a great company and has risen
exactly 500% since I first rated it as a Strong Buy at $5.00 on September 3,
1999. But now the stock is pretty much fully pricing in a substantial growth
rate. The large acquisition of the Keith company recently announced should be
accretive to earnings but there is a danger of one-time charges in Q4 when the
transaction closes. I would not want to bet against the winning track record of
this company but unfortunately, the current stock price does not seem like a
compelling bargain. I will not be a buyer at this time.


is updated and rated (highly) Speculative Strong Buy at $3.03. (This same rating
would apply until a price of at least $3.75). The value seems compelling with a
P/E of 5.6 and with strong growth and selling below book value. However, the
location in China and the complexities involved as well as the commodity nature
of the products make this higher risk. I would not want to get over-exposed to
it but it seems like it has a very reasonable chance of doubling in the next
year if past earnings trends continue. Therefore it may be reasonable as a
speculative pick.


I am going to add to my position in Sino-forest, also I will add to it in the
model portfolio.


May 21, 2005


figures are updated.



May 18, 2005


Capital is updated for another great quarter. But I continue to rate it a
Weak Sell/ Hold at $35.00 since it seems to be pricing in so much growth. It has
really done well in the market but I suspect by the end of 2005 its growth will
be slowing due to competition. And when an eventual down cycle comes in housing
prices it will surely see higher bad debt. I certainly would not short the
stock, but I just think it seems a bit too rich to buy. If I held it I might
hold or might sell.


Well most stocks other than energy are certainly up this week.


I am feeling reasonably confident that the market will continue to do well.
The reason is that earnings are strong and long-term interest rates far from
rising (as was expected) are actually at record lows. With the ten-year Canada
bond yield at just over 4%, that makes the stock market look great by
comparison. Even at a P/E of 20 in stocks, the stock market earnings yield is 5%
and then there is usually growth. Historically the market does poorly in the
Summer but right now with inflation under control and long-term interest rates
very low, I don’t see much reason for stocks to fall.


May 15, 2005


Sico Inc. is
updated for Q1 earnings and rated (lower) Strong Buy at $30.55. This is one of
Canada’s largest paint manufactures. The company has a good history of
profitability and growth and is available at a reasonable price.



May 13, 2005


Western Financial Group is updated and rated Speculative Strong Buy at $2.10
(I would rate it the same at prices up to at least $2.30). Note also the
comments under May 8. The Q1 report came out and was excellent. Profits are
strong and should continue to grow rapidly as the company achieves more
economies of scale. The stock price did not react to the strong earnings. This
may be partly due to the fact that this company is too small to be of interest
to most large stock brokerages. While the stock is, I believe,  liquid enough
for me to rate it in this newsletter, it is not liquid enough to be mentioned
by, for example, a big bank brokerage. While there are always risks, I see a lot
of upside here and I am glad to be able to buy in at around book value. I will
likely add to my position.



May 12, 2005


is updated and remains rated (highly) Speculative Buy at U.S. $32.76 (also
trades on TSX where it closed today at $41.10). This stock offers exposure to a
very fast growing and profitable industry. However, the stock price reflects a
high growth expectation and therefore is somewhat expensive. I like it a s a
speculative pick but would not want to get overly exposed to it.


I sold my shares of
E-L Financial
today at $397.25, mostly to raise cash. I will also consider these to be
sold in the model portfolio at the same price. This company is very thinly
traded and I was planning to remove from my coverage on this Site for that
reason. Also while I respect the owners they don’t seem to respect retail
shareholders very much. They released a very brief earnings report on April 28
with no balance sheet and not much detail. Their earnings report with balance
sheet still has not been posted to SEDAR. They don’t appear to be as profitable
as the other property and casualty insurance companies  I cover but it’s hard to
tell given their lack of disclosure. On a positive note it trades at close to
book value.


On a related note ING Canada which I own but don’t cover (but did indicate I
was buying at the IPO) just posted absolutely stellar results. However the stock
declined a bit on the news. They refer to lower prices, but lower claims and
much higher profits which is exactly the pattern that I have been predicting for
the industry in 2005. They appear to be down playing the results and mentioning
that growth will be slow in the next two years, prices will drop etc. But they
don’t mention profit, which I think will continue to be strong. I have to wonder
if they are down-playing the results to try to avoid criticism by the public
over such high profits.


I note some weakness in the markets the last few days and this seems to be in
spite of good earnings reports. While I am not one to attempt to time the
markets I am fearful of at least a moderate decline over the summer. I would not
mind being in cash to the extent of about 15 to 20%. On the other hand since I
will be largely in the market rather than cash I feel comforted that I hold
mostly stocks, with strong earnings and strong balance sheets and relatively
moderate price to earnings ratios, that will tend to hold up reasonably well
even if the general markets decline.


Financial is updated for Q1 and downgraded slighted to (higher) Strong Buy
at $36.90. This Canada’s largest mutual fund manager. The company has a suberb
history of steady earnings increases and even grew quite well through the whole
market down-turn. If you believe in betting on winners this hast certainly been
one. I lowered it from Strong Buy on a concern that future growth will slow and
that the general market may decline over the Summer. But for the long term this
certainly looks like a good bet.


May 8, 2005


Note I will notionally add to the Western Financial Group position in the
model portfolio at tomorrow’s opening price. In reality for my own account I
would not likely use a market order on this stock but rather a limit price
order, but for the purposes of the Model I will use the opening price.


Note that I sent out an issue of the free newsletter late on Saturday. If you
did not get that, you can add your email to the list by going to the home page
of this Site.


Financial Group is updated and rated Speculative Strong Buy at $1.96 (I
would probably give it the same rating at anything under $2.20). This is a small
financial company with big ambitions. Since about 1996 it has gown by acquiring
insurance brokers in small western towns and now has 54 such agency offices.
Somewhat amazingly it also formed its own Bank. It also has an investment in a
stock brokerage (Jennings Capital) More recently it acquired a life insurance
company. Recently the stock has declined about 20% on heavier than normal
volume. Maybe the market knows something is up. But maybe it just means some
investors wanted to sell. The financial numbers appear good to me. While the
stock price has been volatile over the years, sales and earnings and earnings
per share have increased quite steadily. I really like the idea that the former
Treasurer of Alberta, Jim Dinning is the chairman. If this company can continue
to execute on its growth plan then this will probably turn out to be an
excellent investor. I own some shares purchased at about $2.70. I plan to take
the opportunity to double my position at this lower price. Clearly a small
financial company like this has to be considered risky, but overall they really
appear to know what they are doing and I am going to tag along and see what
happens. UPDATE: I may not double
my position since I realized that would probably over-expose me to this. I will
add 40% to my position and then wait for the Q1 report. Also due to the
commission structure on $2.00 shares there is not that much point to buying a
lot of shares at once since the commission at the banks is $29 per 1000 shares,
there is no commission saving by going to more shares. It’s ridiculous the same
commissions is charged on 1000 shares at $2.00 as would be on 1000 shares at


The Q1 report should be released soon and one strategy would certainly be to
wait for that report. This will be the first report since they acquired the life
insurance company and so might be quite illuminative of the new balance sheet


May 7, 2005


Telus is
updated and remains rated Speculative (higher) Buy at $40.90. The interesting
thing about Telus, from my perspective is that the story is playing out much as
I indicated I though it would in a post on October 6, 2004 and thereafter (do
control-F and search below for Telus to see these older comments). In fact I had
suspected for several years that the earnings were understated and that the
cashflows from all those cellphones would soon turn into better reported
earnings. In fairness I guess management was more or less saying that as well
although they did it by talking about EBITDA. This story of growing cashflow can
probably continue to bring the share price up for at least the next 2 reporting
periods (6 months). One risk is a temporary pull-back if a strike or lock-out
emerges as the union recently predicted.



May 5, 2005


And it seems that some things are not so predictable…


Kingsway opened up 70 cents higher but managed to close 35 cents lower. This
is surprising given their strong earnings release. While there are always risks,
I am beginning to think of this as a no-brainer investment. But it seems like it
will take time before the apparent value is reflected in the share price.


May 4, 2005


It seems that some things at least are predictable…


Kingsway Financial reported a record quarter. Also there was no retroactive
charge to increase reserves for claims pay-outs of prior years. In fact there
was a small release of such claims from prior years. Things appear to be
unfolding as per my comment on the Insurance industry outlook under April 30
below. While there are no guarantees I strongly expect a record year for
Kingsway in 2005. I would also expect its debt rating to be upgraded due to
better cash flows and profits.


Kingsway is
updated and continues to be rated a Strong Buy at $20.20. If there is any sanity
I expect the stock to rise tomorrow. However, I have learned that the market
really does not like the unpredictable earnings of insurance companies and
therefore the reaction may be subdued. Analysts will no doubt focus on the fact
that part of the earnings came from realized gains on the stock portfolio. But
that was not a very huge part of the earnings… I just can’t see too many other
investments available at not much over book value and earning high ROEs. (albeit
a volatile ROE).


Also, predictably,
TELUS had a great quarter. I have not read their earnings report yet and
will update my report in a day or so. As disclosed earlier,  I did recently sell
my TELUS shares (at a decent profit) but that was because the talk of a strike
spooked me (although the TELUS offer to the union seems generous to me so
hopefully no strike). I also sold simple to raise cash for other picks.


May 3, 2005


Finally some better action on the insurance stocks today. Wendy’s doing well
but I expect volatility in both directions in the short term. It’s a good long
term investment and so I feel very comfortable holding it and would buy more if
it dipped. I note
Cogos is down about $5.00 since my report on it. I think this would be a
good entry point to start averaging in but keep in mind it has been falling.


May 2, 2005


Well… Northbridge did not rise today, but instead fell slightly. I think
the bottom line here, is that the value is unlikely to jump soon, instead the
value will be realized over a period of time if, as I expect, the next few
quarters continue to show strong earnings. It appears that analysts are being
cautious with Northbridge. They tend to ignore realized capital gains
altogether, even though it is logical to expect some level of capital gains on
an equity portfolio over a period of time. My analysis indicates that it will
very likely be a good investment in the long term. However, the market is
telling me to expect volatility in the short term.


For those interested I have updated the composition of my own
portfolio.  I have
been wanting to move into a higher cash position. Therefore I reduced my
position in IGM and Telus. In the case of Telus, the talk of a strike/ lockout
scares me. I recall when Air Canada was completely decimated by a pilots strike
a few years ago. However, in the case of Telus I understand that service will
continue to be provided and therefore, maybe it will not hurt them. The Union is
talking about a 6 to 9 month strike which strikes me as insane on their part…
hopefully just a threat… I still have exposure to Telus through a convertible
debenture. Telus will release earnings this week and I will update my report
soon after that.


April 30, 2005


International (or should I call it Wendy’s / Tim Hortons?) is updated and
rated speculative Buy at $42.93. The stock has risen a lot and based solely on
the numbers I might be tempted to take some profit. But the reason it rose is
that two very large investors have acquired about 17% of the company and will
apparently push for Tim Hortons to be spun off as an Income Trust. I would love
that as I would get units in Tim Hortons and I’m sure the share price here would
run up past $50 (hopefully well past) if this plan were implemented. But the
stock is now speculative in the short term since this plan would take a long
time and since management may resist it vigorously. They are aware that Tim
Hortons is their growth future and they would no doubt rather keep it. Canadians
have had an advantage here because we are familiar with Tim Hortons and
Americans are not, but apparently some of them are catching on.


Performance is
updated and is quite good, compared to the market overall.


There were two stories in the Financial Post today speculating that Wendy’s
would be pressured to spin off Tim Horton’s as an Income Trust. This talk could
easily drive Wendy’s stock higher. It is one of my larger holdings but I may
consider buying more.


is updated and rated Strong Buy at $28.75


Northbridge came out with very strong earnings after the market closed on
Thursday. I was disappointed that the market did not react on Friday, in fact it
went up about 50 cents and then closed flat. It boggles the mind to think that
there was not enough new information in that earnings release to move the stock
even 10 cents! It may move a bit Monday after analysts get a better chance to
digest the numbers.


Here are some quick facts.


last 12 month earnings = $3.67


However, it is very difficult to figure out the sustainable going forward


Current earnings were boosted by strong realized gains on investment, about
51 cents per share


Current profit on insurance is very high but competition has heated up and
rates are declining. It’s extremely difficult to say how many cents the
unusually high rates added to the earnings.


Current earnings were lowered by about 19 cents per share for costs related
to prior years.


Based on the Northbridge numbers and the comment below, I am very confident
holding and buying Northbridge at this price. There are never any guarantees but
it looks like a good bet that this stock should move up materially by the end of
2005 and I see little probability of a material decline. For long-term investors
I think this should work out well.


Insurance Industry Outlook – This is very hard to predict but here is
my take. Property and liability insurance rates turned out to be too low for
much of the last decade as payouts and claims were much higher than forecast.
Insurers put through very sharp increases since 2001. By 2003 the rates may have
been higher than needed but this was masked because the companies had to book
expenses related to prior years due to past rates being too low. By 2004
customers were becoming afraid to make a claim having heard horror stories about
exorbitant insurance rate increases following any claim. By 2004 the rates were
probably significantly higher than necessary. Industry profits hit a record and
that was despite still having expenses related to prior years. So… by 2005 the
need to book expenses related to prior years is hopefully behind us. In fact in
2004 both Northbridge and Kingsway lowered their estimates of claims for 2003,
but this was obscured by the fact they had even bigger increases in claims for
years prior to 2003. But the reduction for 2003 indicates those 2003 rates were
higher than needed. The same should apply to 2004, they should be booking
reductions to claims estimates for 2004 which will boost 2005 earnings.
Offsetting this will be the reduction in rates that is happening in 2005.
Despite the rate decreases, I would think that 2005 will prove to be a record
year for profits on the insurance. Profits on investments are less predictable
and could be good or could be negative. On the balance of probabilities I
predict a record profit year in 2005 for the industry.


The market is reluctant to pay a high earnings multiple for insurance stocks,
but as they book earnings the book values rise and this tends to eventually
drive the stock price up.


The property and liability insurance industry in Canada has not been well
known to investors. There are very few publicly traded companies and they get
little attention. ING Canada was created as a new publicly traded insurance
company in 2004. My hope is that this new player will focus more attention on
the industry and more investors will become interested.


April 29, 2005


TSX Group is
updated and upgraded to Buy at $62.00. This stock has more than doubled since I
first called it a Buy at $34.00 ($29.00 adjusting for a $5.00 special dividend)
in October 2003. Subsequently at higher prices I have tended to be a bit too
cautious. This company is effectively an unregulated monopoly  and is extremely
profitable. By all accounts it is also very well managed. It can be considered a
Buy if it will achieve managements projected groth of 10 to 12% and if the P/E
ratio stays around 20. Normally I would project the P/E to regress back to about
15 over a 5 year holding period. But the near-monoploy characteristics of this
stock should keep the P/E reasonably high. It should be noted though that
earnings and the stock price would likely fall if we enter a bear market for
stocks in general. This stock can be volatile and so it might be wise to take an
initial position and with a view to add to the position if it should dip down
several dollars or more.



April 28, 2005


As I had expected,
has reported a great quarter. Total earnings were exceptional. However, a good
portion of the earnings came from realized gains on investments. The market will
tend to discount that as non-recurring. But even so the underwriting profit on
the insurance itself was exceptional at 8.6% of net insurance premiums.
Historically, insurance companies have been quite happy to merely break even on
the insurance since they can make adequate profits by simply investing the
insurance premiums that they hold. The company noted that competition is more
intense than it was in 2004 but indicated that prices were still adequate and
the competition was rational.


The bottom line is that I expect Northbridge should rise in price several
dollars tomorrow. However, it has also been my experience that “the market”
tends to be cautious about insurance company stocks and so the market may not be
as strong as I would hope. I’ll update my report by Sunday based on the new
price that results from this earnings release.



April 26, 2005


Wendy’s fell 3.8% today after first being up to a new high, earlier in the
day. It has been announced that a large investment group has acquired 10% of
Wendy’s with the intention of pressuring Wendy’s to do something that would
release share value, such as possibly spinning off Tim Hortons into an Income
Trust. That was music to my ears. I suspect that would easily add a big boost to
the Wendy’s price if it were announced. (Of course if they spun off Tim Horton’s
to us shareholders I would keep the Tim Hortons and at that point would sell the
Wendy’s to buy more Tim Hortons). However management indicates no plans to do
that. So the bad news is that the reason Wendy’s has done so well lately was
probably due to this big investor buying all those shares. So… we could easily
see the share price slide back. But given that I think the long term for Wendy’s
is very positive, I am not going to sell any. Instead I hope to buy more if it
falls. And it may not fall. The market certainly has been looking much stronger
this week…


I find myself almost 100% invested at the moment and I would like to be more
like 10% in cash so that I have funds to buy opportunities that I see. Therefore
I may trim some positions even though I still rate them a Buy. I would do this
is spite of still liking those stocks. What I may do is wait until more of the
Q3 earnings come in and then look for something to sell.


Thompson and the TSX Group both had good earnings reports before the market
closed today but the stocks did not do much. I hope to update both of those
companies in next 5 days.


April 25, 2005


As an update to the New York Stock Exchange reverse takeover of archipelago
story, I did buy a small amount of Archipelago. I’m not in a position to
analyse it since I don’t know what the numbers will look like after the NYSE
exchange is combined in with Archipelago. But I have been following the
story of the seats on NYSE trading at recently under $2 million, compared to
some $20 million on the TSX. There are 1366 NYSE seats and so that is valuing
the NYSE at under $3 billion. That sounds low for the premier stock exchange in
the world (by brand name). Buying Archipelago may be a way to get a piece
of the NYSE, if the deal goes through. This is a very speculative thought since
I don’t have the numbers to analyze. But given the success of the TSX
privatization, I am willing to grab a piece of this.


A surprising 4.4% jump in Wendy’s shares today. I really like this company
long-term for solid gains over time but it does seem to show short term
volatility. I have about 7.5% of my portfolio in this stock. I’ll probably hold
what I have and look to add to my position if it should fall. Right now, I would
wait for the earnings release at noon on Thursday before buying since it could
fall if Q1 is not as good as expected. If I was more of a short term trader, I
might be tempted to take partial profits at this price and re-evaluate after the
earnings release.


FirstService Corporation is added as a new company above and rated Hold at
U.S. $19.12.


This is a Canadian Company but has most of its operations in the U.S. I
really like the company and the business model, but unfortunately it seems
expensive at this time. Hopefully, there will be a better buying opportunity
ahead. While the stock price has been quite volatile, the company itself has
grown steadily except that profits flat-lined for a period in 2002 and 2003
which sent the stock price diving.


April 22, 2005


Canadian National
Railway is updated and rated (lower) Buy at $72.55. This is one of a handful
of world class Canadian companies in that it is perhaps the best managed
railroad in the world. It has a very strong history of earnings growth mostly
through efficiency gains and through good acquisitions. My strategy would be to
average in taking a small position and buying more particularly if the price


April 21, 2005


As of today, it looks like the hoped for rally in the market based on Strong
Earnings may be on again…


CN reported very good earnings this week. With a P/E of about 16, CN is well
worth considering. The earnings are high quality in that it deferrs most of its
income tax and so free cash flow is larger than net income. It has been a
consistent winner and is very well managed. I have not quite completed my
analysis but my indications so far are that I would rate this Buy or (higher)
Buy (which means a Buy but leaning towards a strong Buy.)


In big news today, the New York Stock Exchange bought an electronic stock
exchange called archipelago. This was a reverse takeover, whereby archipelago
technically bought the NYSE but the members of the NYSE will end up owing most
of archipelago. The existing archipelago shares will be the trading shares but
will likely be re-named. This will likely be a very good investment to buy the
archipelago shares even though they rose 61% today. Even at the new price, Yahoo
is showing a P/E of 22 for archipelago, which does not seem unreasonable given
this development.


archipelago trades as AX on the Pacific Stock Exchange.  I don’t have hard
numbers here but I have a very strong feeling that this will be a winner. The
New York Stock Exchange “seats” have been way under-valued to what they should
be and this should release value. Definitely a speculative pick because the deal
could even fall apart.



April 19, 2005


Wow, a surprising 4.5% jump in
Wendy’s today. I was not expecting that given the recent “finger food”
incident. It now looks like that was a sick attempt to sue Wendy’s – the woman
may have brought a finger in with her and claimed she found it in her Chili.
Anyhow, that was affecting sales particularly in Los Angeles. So despite really
liking the company, I thought it might drop short term. I think it goes to show
with some of these strong companies that are available at a good price, it’s not
a bad thing to buy at a reasonable price rather than hoping for a real bargain.
Who knows maybe it will drop tomorrow but long term this is a definite keeper
for me.


I note some weakness lately in my favorite insurance stocks. I’m not aware of
any specific news that was causing that.


Alberta today announced mandatory 6% minimum cuts to the liability portion of
insurance. I am not aware of all details . I don’t think it’s such a big deal. I
think rates were coming down anyhow, as profits really were getting too high.
I’m still confident that these are good investments particularly for the long
term (of course I can’t guarantee that). I’m eager to see their earnings
releases around the end of this month.



April 18, 2005


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The Thomson
corporation is updated and upgraded to Speculative (lower) Buy $CAN 39.39 or
U.S. $31.61. This is one of Canada’s very few “world class” companies. I am
attracted by the fact that the while earnings and free cash flow are up sharply
in the past few years, the stock price is down. I also like the information
based business model. It is the type of business model where free cash flow can
be higher than earnings and where a higher earnings multiple might be justified.
However, despite a decline in the P/E ratio, the stock still seems expensive.
Still, this may be a good entry point to start accumulating a position. I would
definitely be interested if the price continues to fall. Earnings will be
announced on April 26.


April 16, 2005


figures have been updated. Despite the recent market declines, the 2005
performance is good and is ahead of the general market.


I had mentioned on March 9, 16 and 21 that I was adopting a defensive view of
the market. On April 7 I said I was hopeful for a rise from strong Q 1 earnings.
It certainly does not look like the Q1 earnings are going to be strong enough to
overcome the current negative sentiment and so I would wish to take some
opportunities to move some money to cash. I’m still hoping that the Canadian
earnings reports will be strong, particularly in the insurance sector.


Although I am thinking defensively, I am not in a rush to sell good stocks. I
am not a market timer and I realise that in holding stocks there will be times
when most stocks will decline with a broad market retreat. I have tended for the
most part to ride these things out… It’s always very difficult to predict
where the braod market is going and it can turn around quickly…


Update on two companies removed from coverage:


I recently removed from coverage Sportscene Restaurants and Melcor
Developments. (It became apparent that they are too thinly traded to be
included). For the benefit of those that hold them I will provide a few
thoughts. I hold them and have no intentions to sell. Sportscene just released
earnings that were just slightly better than last year. However, given the
hockey strike they expect the current quarter to come in below last year and the
fiscal year ending in August to be about flat with 2004.  That’s really not bad
given the strike and hockey seems likely to be back next year. The share price
increase in Melcor has been stronger than I would have expected. I had earlier
sold some to lock in profits but plan to now hold what I have.


Communications is updated and rated Speculative Buy at $24.30. At first
glance this stock looks very expensive. But the accounting earnings may be doing
a poor job of reflecting the “true” earnings. It should really be capable of
generating attractive free cash flows. Recently the earnings and free csh flow
have been increasing strongly. I take the strong insider buying to be a very
positive indicator. The company may be considering going private or doing
something that would increase the share price. It has to be considered
speculative due to the very high price / earnings ratio and due to the potential
for increased price competition in the industry. Overall, I am comfortable
holding a moderate amount.



April 14, 2005


Shaw Communications posted improved Q1 earnings today. Insiders have been
buying shares. The market may be a little disappointed that free cash flow is
not higher, but things have really improved in the last 18 months. The stock
does not appear to be that cheap but earnings are ramping up. I think they are
poised to cash in on all the past investments, but the danger is that
competition will heat up. Overall it is speculative but I think it is an
intelligent speculation. The dividend is still quite small but was just raised
40% today. I’ll update my report by Sunday based on the market reaction price to
the earnings release. I think it is a speculative Buy at this price.


April 13, 2005


With the market weakness, I think it is important to have a good portion of
my investments in solid companies that pay dividends, earn good profits and that
will not be overly impacted by any mild slow-down in the economy. For example,
Also Northbridge
and Kingsway
seem like good bets.


All stocks tend to be dragged down or due less well when the market is
falling, but when I look at the Strong Buys above and the Buys, I think most of
them would hold up well or do better than the market average, if the market
should fall. The weakness in the U.S. market could easily be short-lived as they
tend to focus on the “news-of-the-day”. Today’s news was weaker retail sales.
But we also have lower long-term interest rates this week and lower oil prices,
which helps most stocks.


Sino-Forest last rated Speculative Strong Buy at $3.50 has seen weakness and
traded down to $3.14 today. I note no insider selling or trading in 2005 (which
I am glad to see). They recently announced a transaction to invest in another
Chinese forestry company. See press release





This may have been viewed as overly complex. Also they recently changed
auditors also they indicate this was not about arguments over the accounting.
See pres release.
http://ca.us.biz.yahoo.com/bw/050407/75352.html?.v=1 Overall these factors
increase the risk, but certainly the value looks quite attractive.


I own a small amount and am tempted to add a bit more although I don’t want
to get over-exposed to a Chinese Forestry company.


April 12, 2005


Note that the new login Site is

http://inwebbdesign.com/investorsFriend/  (Update, April 13, this is on
hold, you can ignoire this new Site for until further notice).


Your user name is your email address.


Most of you have already received your username (your email) and Password in
an automated email from myself or from


Once you log in at the link above, you can change your password.


April 7, 2005


I note Sino-forest has changed auditors. The market reacted a bit negatively
but the company indicates there were no accounting arguments that led to the
change, they just wanted a different auditor with different international
experience. Just tonight Sino then released details of a new partnership. I’m
not really sure how the market will react. To me it looks positive. Generally, I
find it is not feasible to try to react to every press release. If its bad or
good the market usually moves too fast for retail investors to react anyhow.
Sino has a good record and trades at a low P/E. On average that type of
investment will work out well…


I’m feeling a bit more optimistic about the overall market after a few good
days. In general I think the market has held up very well in the face of higher
oil prices and some movement upwards in U.S. interest rates. Hopefully, the
earnings releases for Q1 will generally be positive and send the market higher
this month. Still, I would not mind being a bit higher in cash heading into
Summer and so I will look for opportunities to take some profits.



April 6, 2005


I am pasting in here, the comments that were posted to the new subscriber


site over the past two weeks.


April 3, 2005


I have bought a few shares of Mount Real (MRF Toronto). It has a very low P/E
around 4 but has been very low like that for years. In the past I thought it was
too good to be true. Recently it has moved up in price partly due to discussions
involving a shareholder proposal to convert partly into an Income Trust. It
trades around 60% of book value. I view it as somewhat risky but a reasonable
speculative pick. In the past I found the annual report rather cryptic on what
the company really does. This year the report seems better. I understand that
the company is largely involved in helping companies do telemarketing to get
magazine subscriptions and then the company buys the receivables. Possibly there
is a risk that bad debts will be higher than expected but I am trusting the
accounting here.


Regarding the Model Portfolio


I will notionally sell the E-L Financial at $390 and half the Melcor at
$64.50 (I will consider these sold if there is sufficient actual sales at these
prices, on these these thinly traded stocks). These are sold to take profits and
move toward higher rated stocks and into some cash.


I will also notionally sell the Ainsworth lumber at the opening market price
on Monday April 4.


With the proceeds I will Buy $5000 worth of
at Tuesday’s opening price and leave the remainder in cash for now.


March 31, 2005


Note: most of the research is still on the other site at



Cognos is
updated and rated (lower) Buy at $50.91. This stock never seems to look cheap
but the business is very strong. With the latest strong earnings combined with
the recent price pullback, this is probably a good entry point to Buy, although
again it is not a screaming buy. The accounting is conservative which is
probably creating hidden value.


is added as a new listing here rated at (lower) Strong Buy at $17.40. I intend
to Buy some. I was surprised to find that it seems to be a pretty good bargain,
given that it has been well-recomended by analysts over the past few years. But
the earnings have risen quite sharply so that it still looks very good despite a
strong rise in price over the past five years or more. This company fits in with
my idea to bet that winners (in terms of earnings growth as opposed to stock
price growth) will tend to keep on winning. Also this company fits in with the
Warren Buffett advice to buy simple low-tech cash generating companies.
Hopefully it is a case of a “bargain hiding in plain site”


March 30, 2005


Update –
Sino-Forest report is updated. (unfortunately certain characters in the
report are garbled, but it is still generally quite read-able). I understand
Jennings capital recently rated it a sell, so be aware that it isrisky. Based on
2004 earnings it certainly looks attractive. Still the future is uncertain and
management seems secretive. I am willing tospeculate on a small amount.


I added a small amount to my small
holdings based on recent positive news.



March 21, 2005


Note that there will likely be few updates to this page for the next two
weeks as I will be away from home base. I may use email to contact subscribers
for some updates. Also I am in the process of setting up a new Subscriber login
area with password protection. For the next two weeks you can access this on a
temporary basis at




enter username as “subscriber” and password as “subscriber” (please, do not
change this password)


Once logged in look for the line marked “March 21, 2005 CLICK HERE FOR
UPDATES” (date may change)


You will receive individuals usernames and passwords in the next few weeks.


State of the markets


Even though the markets have done well the past two years, stock markets do
not seem to be excessively valued. The P/E ratios seem reasonable given today’s
low interest rates. In the past five years stock markets have fallen but
meanwhile, earnings are up significantly and interest rates are down. Therefore
as stock market indexes start to approach the old highs of 2000, they do so with
much lower P/E ratios. That means that the market should be much safer than it
was in 2000 (but that does not mean markets can not fall, they would likely fall
if interest rates rise).


I have updated my article on the valuation of the
Dow Jones Industrial


As for Toronto, I note that the composite index P/E seems reasonable at 17.9


The Financial index P/E is attractive at 14.4


Other indexes can be viewed here:








Click each index and then see the P/E ratio to the lower right.


I note a number of stocks falling today, including Northbridge and Kingsway.
I am viewing the market defensively right now. However, I continue to believe
that Northbrige and Kingsway will report strong earnings this quarter and
throughout 2005 (although there are never any guarantees). Therefore I don’t
really see any reason for these insurance stocks to fall and I think they
represent good value.


I definitely continue to like Wendy’s. The Tim Hortons division continues to
do extremely well. Most Canadians would get a certain satisfaction out of owning
this stock because the evidence of how well they are doing is so plain to see.


A comment on Airlines


Air Canada sort of made a surprise profit in Q4, except not really. Air
Canada made $15 million net income in Q4, but $98 million was from a gain on the
Canadian dollar exchange rate. This is a totally unsustainable one-time item and
the net loss absent that gain was about an $83 million loss. This was what I
totally expected a loss. Meanwhile the press release from Air Canada focused on
a $3 million “operating loss”.  This is a confusing term, but means a loss
before interest payments are considered. This is typical of Air Canada to focus
on trying to make money before interest expenses rather than to focus on net
earnings, which is what shareholders need to care about.


Meanwhile Westjet was also losing money in Q4.


JetsGo went bankrupt which should have been a surprise to no one.


I was surprised at how much the Westjet shares jumped after the Jetsgo
bankruptcy. I would have expected some jump, but not that much. The theory now
seems to be that Air Canada and Westjet will raise fares and at least Westjet
will make money. I think Westjet would like that, but Air Canada has a long
history of ruinously cutting fares to compete with Westjet. I will believe that
this can be a profitable industry when I see it demonstrated. I find it hard to
get excited about investing in Westjet and on the basis that a major competitor
just went broke. And I certainly would not touch Air Canada.


March 19, 2005


is updated and upgraded to Buy at $28.78. They recently reported a very strong
Q4 which lifted 2004 to a strong growth position. If you believe, as I do that
“winners win” (success breeds success) then it might be reasonable to bet that
Stantec will continue to be a winner. It’s not particularly a bargain but if
past trends continue, it will be a good investment.


Western Financial Group is updated and remains rated Speculative (higher)
Buy at $2.22. This little company has already grown a lot in the past few years
and certainly has plans for lots more growth. If that happens this should be a
very good investment. I recently added to my position at $2.25. Although this is
a small to almost micro cap at $64 million, it does seem to have good and
improving trading liquidity.


P.S. This company has a history of growing but of issuing too many shares and
apparently issuing shares below book value. That is not a good thing. I like to
see a focus on growth in earnings per share and not just absolute growth. But
hopefully the company is now getting to a size where it can start to get more
noticed in the market and hopefully the days of trading below book value will


figures as well as the
model portfolio
and my own portfolio
are updated.


I have removed Melcor Developments and Sportscene Restaurants from the list
above because they are both too thinly traded, given the number of subscribers
to this Site. I continue to hold both but I now view them as too thinly traded
to post on this Site.


March 17, 2005


Transcontinental is updated to Weak Buy / Hold at $25.00. They released
pretty good earnings today and raised the dividend 22%. Therefore I was
expecting to upgrade this stock or at least maintain it at a buy. But management
seems subdued in outlook (although maybe they are just being conservative). But
I look at the impact of our higher dollar and I look at some recent insider
selling even at lower prices and I don’t see much near-term up-side. The
dividend is very small and so while a 22% increase is nice, it really does not
mean that much. On the other hand it is a good cash generator with a good
history and there is always the possibility of a take-over or an Income Trust
Conversion. I could easily have called it a (lower) Buy but I went with Weak Buy
/ Hold. (The ratings are always a judgment call). I only have a small position
and I am inclined to sell and move on. Also I will notionally sell it out of the
model portfolio. Still, it is a solid company and any decline would be
recovered in the long run, I believe.


Note that Melcor is very thinly traded and has risen a lot lately. At about
$65 I would not rate it Strong Buy. Also note it is very illiquid which can mean
that a relatively few buyers could push the price up somewhat artificially.


March 16, 2005


I continue to think somewhat defensively due to high oil prices and higher
long term interest rates particularly U.S. rates. Nevertheless I have not been
selling anything and will indicate if that changes. I continue to think the
insurance stocks in particular are “keepers” and will show strong profits this
quarter. Nevertheless, as always they can be volatile. I will have some updates
by Saturday.


March 12, 2005


Industries is updated to Speculative (lower) Buy at $4.15. This stock is up
25% since I rated it Speculative Buy at $3.33 in October. I have seen similar
subscriber based businesses do very well. I know it is building a lot of brand
awareness through radio advertising. Overall, it is certainly not clearly
bargain priced but I think it will do well. I like it for a small speculative
position, although I have not purchased any yet.


March 9, 2005


Western Bank is updated to Buy at $27.30.


There was general weakness in the market today. My sense is that it would be
a good idea to adopt a defensive mindset. This might include taking partial
profits. It seems likely that interest rates will rise at least moderately.
Perhaps the weakness will quickly pass since it comes on the heels of recent
strong gains. But I am growing more cautious at this time.


March 7, 2005


I am just working on an update for Canadian western Bank, it is not complete,
but they had another good quarter. My sense is that I will upgrade it from weak
buy to (lower) Buy. It always seems a bit expensive but it is doing very well
operationally and seems like a good low risk long term investment.


Similarly TSX group was last rated Weak buy. However the TSX statistics for
February indicate another good quarter is well underway. Also they just
announced some cost cutting measures … a bit strange given the profitability
but this should add to earnings (although we may see a restructuring charge this
quarter). In any event my sense is that if I were to update the report right now
I would increase the rating to perhaps (lower) Buy. Again probably a good low
risk long term investment.


March 6, 2005


SICO Inc. is
updated and upgraded to Strong Buy at $27.35. As anticipated earnings have
improved at a good rate in 2004 as the integration of its last acquisition was
completed.  This appears to be a very well managed company with a strong ROE
around 15% that generates significant free cash flow. The Dividend was just
increased by 16.7%. In the past my valuation has assumed the P/E stays at 11.
But given the strength of the company and given the tendency of the market to
pay up for cash generating businesses, it does not seem aggressive to assume the
P/E will rise slightly to say 13 by the end of a five year holding period. To
assume that the P/E would stay at 11 while assuming a company at 15 stays at 15
is to assume that cheap companies will stay cheap and more expensive companies
will stay that way. Every stock involves risk. But given the very low debt
levels the downside risk of this company is more limited.


Performance is
updated. Last week was an exceptionally strong week in the markets.



March 2, 2005


I’m surprised at the continuing quick gains in
Melcor. Note
that this stock is very thinly traded which can lead to substantial volatility.
With the recent run-up in price not that many shares have actually traded. I
would be patient if trying to buy this, it might make sense to try to buy below
the last traded price. What you don’t want to do is drive the price up with your
bid, only to see it drop. It’s unfortunate that the TSX does not allow us to see
the depth of the market. It may be that if you wanted to sell 100 shares the
price might not drop, but if you wanted to sell 1000 shares the price might
easily drop several dollars. If we could see the depth of the market we could
have more faith that the recent traded price is sustainable.


March 1, 2005


This week has started off very strongly for the Strong Buys… Melcor,
Northbridge, IGM, Kingsway. Also a number of the Buys doing very well. Hopefully
more to come.


Ainsworth lumber released earnings today. Unfortunately there was no balance
sheet provided and the earnings were affected by large one-time items. At a
quick look the company still appears to be a bargain. But then again it is very
difficult to get a sense of its current profit “run rate” at the current
Oriented Strand Board  prices and one never knows where OSB prices will go next.
My source for lumber prices indicates that OSB prices are below last years level
but still high. And prices are higher in Q1 than they were in Q4. Overall
Ainsworth has to be considered to be quite speculative. I don’t own own it. For
purposes of the model portfolio I am not taking any profits yet. I’ll update my
report and rating after the annual report comes out which will have the balance
sheet and better explanations of the various one-time items.


I find it “interesting” that the stock price did not move more than about 10
cents on the earnings release. Perhaps the earnings  figure was well anticipated
by the market but really it is unfathomable that the market would have “guessed”
the earnings so well that the stock would not move on the earnings release.


Alarmforce release earnings after the market close today. Revenue was up
substantially but earnings were down somewhat. I suspect the market will like
the numbers. If the the stock should fall tomorrow on these numbers I would
consider buying. This company also did not release a balance sheet.



February 26, 2005


Developments is updated and upgraded to Strong Buy at $60.00. I had been a
bit cautious on it because as of Q3, earnings were 22% below the prior year and
yet it had jumped from $51 to $60 since since the start of 2005. I had spoken to
the company (something I rarely do as I prefer to let the numbers talk for
themselves) and they indicated no explanation for the price rise which was on
very thin volume. Now the Q4 earnings are out and were very strong up 60% from
Q4, 2004 allowing earnings for the year 2004 to be a bit above 2003. I also note
that my previous valuation may have been overly cautious in assuming the P/E
would still be at 10 in five years. By then this will be a bigger company and
there is no reason not to think the P/E will not rise more towards the market
average. The bottom line is that this is an acceptably profitable and growing
company that sells at not much more than book value. Yet it is probably sitting
on land that is worth much more than book value. If held for 3 to 5 years it is
hard to imagine that this will be a losing investment, but it is not hard to
imagine making a low double digit return. So I think the risk reward tradeoff is
very good. There could be some volatility short term, certainly it is not a
trading stock since the liquidity is very thin. This is not a stock to buy for
investors that are not prepared to hang on for several years. Investors need to
be cautious in placing Buy orders since the bid / ask spread is typically wide.
I would use a fixed price in placing an order to buy this stock.


is updated and rated (highly) Speculative Buy at $U.S. 31.39. The company
supplies software to internet casino sites including on-line poker. Recently
revenue growth is very strong. In the latest quarterly release, the earnings
growth was good but did not seem spectacular. Still, this is a very high margin
business and the company and the industry are exhibiting strong momentum. I like
it as a speculative pick.


February 25, 2005


Financial is updated for the 2004 earnings. It is rated a Speculative Buy at
$365.10. However, no balance sheet was released and so a full update was not
possible. The earnings were great. However, as with most insurance companies it
is really not possible to get a sense of what the sustainable earnings are. It
looks like a bargain given that it is trading below book value. But it has a
habit of doing that. Still, when one buys good solid companies below book value,
one will usually do well. This company certainly has a bit of history. It’s
Subsidiary company, The Dominion of Canada General Insurance Company was founded
in 1887, with John A. MacDonald as President. Unfortunately, the trading
liquidity in this stock is very thin.


Performance is
updated. What started out as a bad week, certainly ended very strongly.


Capital is updated and rated Weak Sell / Hold at $34.58. I had rated this as
Sell at December 31 at $31.20 and was recently asking myself if I was wrong to
do that. The situation was and still is that we have a really great company.
(Witness the Earnings per share graph in my report.) It is growing by leaps and
bounds. It is making profit levels that just are not supposed to happen in the
competitive banking industry. On the one hand it would seem prudent to sell. On
the other hand it will continue to be a good investment if it can continue its
past track record of earnings growth. Management seems to genuinely believe that
they have carved out a unique high-service and low cost operation and that
growth will continue. On that basis it might not be bad to buy on speculation of
continued good times. Maybe I am being overly cautious but based on the numbers
I rate it a Weak Sell / Hold. If I did buy it I would not take a huge position.
I certainly would not short this company. Overall, I would tend to wait for a
substantial share price correction before considering this stock.


IGM financial
is updated and rated Strong Buy at $37.00 This is a giant wealth management
company that owns Investors Group and McKenzie Financial. The earnings per share
graph in my report is also a thing of beauty to behold. On the theory that
success breeds success, this company should continue to win. It appears to be
pricing in relatively moderate growth. Of course, it is always possible growth
will falter. But right now the market is growing which suggests that their
earnings will grow. I will consider adding to my position at this price. In
terms of risks some people believe that margins and management fees will fall in
the industry. That could happen, but I believe the industry is driven by a
segment of the market that is “sold” mutual funds. Its customers are mostly not
capable of buying Exchange Traded Funds on their own. They don’t know how to do
that and don’t have the inclination. I don’t see their management fees falling
soon. As always, there are no guarantees.


Melcor just released earnings of $6.30 per share. Full details of earnings
not yet available, however this probably justifies the recent run-up to $60. I
would not be a seller today at the $60 price.


February 21, 2005


Well that was a chilling wind blowing through the American markets today,
with the DOW down 174 points. Hopefully, it will rebound a bit tomorrow. It is
always possible it is the start of a pullback. Lately investors have started to
forget that markets can go down as well as up. I’m hopeful that strong earnings
and low interest rates will continue to buoy the markets.


February 20, 2005


updated to Speculative (higher) Buy at $38.05. It is up a lot since I called it
a Speculative Buy on Oct 6 at $28. At that time I was betting that the company
was going to start showing a lot more cashflow and earnings. And that has
happened. I believe it probably has a long way to run, the company can still be
considered cheap based on its cash flow. Still there are some risks due to
competition. But I am more than comfortable holding it at this time.


I was surprised the stock did not hold on to any material gain after its
earnings release on Friday. Perhaps the analysts will digest the numbers over
the weekend and it may rise on Monday.


I note that the non-voting shares have the same dividend and are about $2.00
cheaper. I am not aware of the reasons for the price gap, but it appears to have
existed for some time. Long-term investors might want to consider the non-voting
shares. For the shorter term I prefer the voting shares. If considering the
non-voting be sure to investigate further, the reasons for the gap.



February 19, 2005


Tire is updated. I left the rating at (lower) Buy at $57.19.   Generally the
numbers would only support a Weak Buy / hold. But if recent profit trends
continue, the stock should continue to do well. I don’t hold any and do not plan
to Buy. I would be interested on a pull-back. Note that the shares I analyze are
the non-voting shares. The voting shares also still trade although quite thinly.
Traditionally the voting shares did not trade at much of a premium but for
several years have traded at a large premium. Without knowing the reason for
this I would view the voting shares as much riskier. Possibly one of the holders
of the voting shares is trying to increase their stake, but I have not heard
anything like that. It’s always possible that in the future the non-voting
shares would become voting. Therefore, I would not risk paying the large premium
to buy the voting shares.


Regarding the “obscene” insurance company profits that are in the news this
week. Insurance companies have indicated that insurance rates will fall this
year due to competition. But they have generally also said they will not drive
profits too low. I believe there will be a lag effect in the profits whereby
even as rates drop this year, profits will likely continue to be very strong or
even rise. In past years, most insurance companies were constantly playing
catch-up whereby they were recognizing additional expenses related to prior
years. Now they have generally got themselves to a point where they are being
very conservative (high) with their estimates of claims costs and where they are
generally profitable despite some expenses related to prior years. Now the
claims frequencies have declined just when rates are high. So, I expect high
profits even if rates drop because there really should be no added expenses
related to 2003 and 2004 as the rates were high in those years. In fact, we may
even see that they over-estimated claims in those years and they could release
some of their reserves as profits. However, at the end of day, insurance
companies are always uncertain and therefore risky. These stocks could fall due
to the talk about declining rates. But I remain optimistic that the insurance
stocks will continue to rise in response to profits as we move through 2005.
Overall being accused of obscene profits is a nice problem to have.


The February edition of the free newsletter has been distributed. If you did
not receive it, you may not be on the list. I keep a separate free newsletter
list that some paid subscribers may not be on. You can also access the
free newsletters here.


Performance is
updated. The Buys and the
model portfolio
did well this week, but the Strong Buys and my own portfolio were down somewhat
this week.


February 17, 2005


My purchase of TELUS convertible bonds yesterday has quickly turned out bad.
It turns out, the company has the right to redeem these bonds at par after June
15, 2005. In an incredible stroke of bad timing, TELUS announced last night that
they will in fact redeem these bonds at par on June 16, 2005.


This was news to me given that the note in TELUS’s financial statements made
no mention that TELUS could do this. Admittedly this was clearly spelled out in
the prospectus. But I was unable to find the prospectus on SEDAR even when I
looked at the correct date range. (The prospectus is however available on the
TELUS Web Site). This redemption must have been news to others as well. The
price of the bonds dropped from about 108.30 to 101.0 With $150 million
outstanding, this means that investors lost about $12.4 million today or 6.7% of
their investment.


This is actually smart for TELUS as they can refinance these 6.75% bonds, at
today’s lower rates. But I take issue with the lack of disclosure in the note to
the financial statements.


Well, it has been a learning experience regarding convertibles debentures. I
broke my own rules and bought these without fully understanding the situation.
I’ll consider this as tuition paid on my education. Convertible debentures may
still offer some good opportunities elsewhere. I will be more careful to read
the prospectus before buying in future. It is absolutely essential to understand
if the company has the right to redeem and payout the bonds before maturity.


continued to drop. I did buy 100 shares as it appeared to stabilize a bit.
However, this could very well continue to slide a fair amount yet. I am prepared
to average down because of long-term potential here. But I don’t expect the
stock to recover for at least another few quarters unless they were to do
something drastic like spin off Tim Hortons (which would be completely wonderful
if they did). Tim Hortons would be worth a LOT more as a Canadian Income Trust
than it is as a part of Wendy’s.



February 16, 2005


In a completely new twist for me, I bought some Telus convertible debentures
today. This is the first bond I have ever purchased. The bonds mature June 15,
2005 and yield about 4.95%. But they are convertible into Telus non-voting
shares at $39.73. The non-voting shares closed today at $36.70. Because the
bonds traded at 108.50, today, I would in effect be paying $43.11 for the shares
if I converted today. Not such a good deal! But my hope is that the Telus shares
go up by a lot in the next five years and then I will make a good return. In
that case I would have a much higher return by simply buying the shares. But I
figure buying the bonds (rather than the shares) limits my downside risk. I
would warn that these convertible bonds are complex and I don’t fully understand
them myself. Still, I took a chance and bought a small amount today. The
convertible debentures trade somewhat like stocks on the TSX with symbol T.db.


I’ll have more to say about convertible debentures (bonds) in my next


It’s interesting too that the
Telus non-voting share trade at about a 4.5% discount to the voting shares.
I normally don’t like non-voting shares. But it might be worth considering the
non-voting in this case, given the discount. Hopefully something will happen
eventually to make the discount disappear. The non-voting shares pay the same


As per posts from Jan 5 and Feb 8, I was not surprised by the 5% drop in
Wendy’s today. I was almost hoping for a drop in order to add to my
position. I’ll watch it to see if it appears to stabilize and then I will Buy. I
am a big believer in this stock for the long term and I would like the
opportunity to take it from 6% of my portfolio and move it up to around 10%.
Melcor fell to
$57.50 but there were only 200 shares sold at that level. It will be interesting
to see if buyer support brings it back toward $60 again. I like it long term but
remain hesitant short term. I note Clive Beddoe at West Jet talking about
lowering fares to keep the revenue up. This just shows how horrible this
industry is and it appears that West Jet has caught the same sickness. I would
not touch that stock.


February 13, 2005


I have moved the model portfolio to its own page of the Web Site. It is
accessible from the link just above. To date, I have not made any notional
trades in this portfolio. I expect to make some trades over the course of the
year, but generally I had not intended that it require much trading.


Kingsway and Northbride both fell today as well as a number of other picks.
This was a bit of an over-due reminder that stocks do fall as well as rise. I
remain confident in Northbridge and Kingsway – though there are never (ever) any


February 12, 2005


is updated and rated Buy at $58.27. With an equity market value of $48 billion,
this is Canada’s most valuable corporation. It truly seems to be a “world class”
company. It has achieved exceptional growth despite its size. However, I view
the earnings as being extremely complex to understand. I listened to the
conference call and it seemed apparent that the analysts who called in had
little understanding of the results. We are basically left to trust management
that the earnings are real and are not being manipulated. Due to the nature of
life insurance it is necessary for management to make various estimates tat
could be used to smooth or manipulate earnings if it wished to. However, the
earnings do appear to be strong and indications are that they will grow robustly
due to synergies with the integration of the John Hancock purchase. Also based
on the theory that companies that “win” usually continue to “win”, this should
be a good bet.


figures are updated.


As I mentioned earlier that I was considering I did take partial profits in
Melcor selling 38% of my position at $59. This was more of a short term trading
move and was prudent because Melcor was my largest position. I still definitely
like Melcor for the long term. On a similar note, although my favorite industry
right now is property and  casualty insurance, that does not mean that one
should get over exposed to it. There are always risks. I did purchase some
additional Kingsway yesterday and this is aggressive on my part considering my
exposure to this segment. I have updated my
personal portfolio,
for those interested.


February 11, 2005


Financial is updated and rated (higher Strong Buy at $31.31


Financial is updated and rated Strong Buy at $20.31


I continue to really like this property and casualty insurance sector,
despite the fact that these stocks have already risen substantially. Northbridge
is almost strictly Canadian in operation and appears less risky. Northbridge is
achieving extraordinary profit margins on its insurance. Kingsway is riskier
because of currency risks and the fact that it is in riskier markets of
high-risk drivers and trucks. Kingsway appears to be quite a bit less profitable
(but still good). However, it really sounds like Kingsway is deeply massaging
its earnings to keep them lower now which in effect gives it a cookie jar of
(arguably excess) “reserves” which it could release in future. If I had to hold
only one, I would pick Northbridge. But I also like Kingsway and so I hold them
both. It appears that “the market” is still reluctant to pay up for these stocks
and so we may see a gradual rise and not any sudden rise. My current thinking is
that the sector will increase perhaps for the next year (but there are never any


February 10, 2005


We are firing on all cylinders here… Manulife up 3% today. Wendy’s up 1.6%
today. Best of all
Kingsway and
both reported very strong earnings after the close. I would expect these both to
jump tomorrow, if there is any sanity. If they don’t jump at the open, I think
it would be a buying opportunity. Northbridge has its conference call at 9:30 am
so there may be a delay before it moves in the morning. Kingsway also initiated
a dividend. Although the dividend is very small, it is a sign of maturity and
confidence. Kingsway will probably jump more than Northbridge. I’ll update both
companies over the weekend based on the earnings and where the prices move to


February 9, 2005


jumped up to $60 today. I spoke to the company and the CFO indicated that no big
announcement is pending that would explain this. Basically the company is just
chugging along doing quite well but nothing seems to be in the works to explain
the latest jump. I note the trading is quite thin. Therefore while I definitely
like the stock long term, in the short term it would probably be a good thing to
take some profits off the table at $58 or above. I have not decided if I will
sell some of my shares to take profit. I may do so tomorrow. This is my largest
holding. Another reason for me to sell some is to free up cash to buy some other
companies. My suspicion is that we will see $55 or lower again but also that
this is still a good long-term hold.


I note another increase in Northbridge today. Hopefully this bodes well for
the earnings to be released after the close of trading tomorrow, Thursday.


February 8, 2005


I should have a number of updates soon as the earnings reports for Canada
come in. I updated my
personal portfolio percentage breakout, this reflects trades I have
mentioned in the past few weeks. I am hoping for good reports from Kingsway and
Northbridge by week’s end. Anything is possible due to the actuarial nature of
their earnings but I think they should have done well in Q4.
International released good same store sales growth on Monday. The financial
press focuses on the 0.5% at Wendy’s and tends to ignore the strong 7.0%
same-store growth at Tim Hortons even though Tim Hortons represents about half
the earnings. I still think Canadians have an advantage here as Americans have
no way of understanding the profit machine that is Tim Hortons. Wendy’s also
raised the dividend by 12.5%. I would not have been too sad to see a drop in
price so I could buy more. Wendy’s will release earnings on the 18th and if it
drops at that time I will be a buyer.


February 7, 2005


Today was another good day for a number of the picks including Wendy’s and


I note that the TSX came out with market statistics for January. It seems
January was a very quiet month in the market. As the market fell after big gains
in the prior four months, a lot of people lost interest in trading. January
volumes were down 31%  and value of trades down 10% from the prior year. I don’t
know how much this will have hurt the
TSX Group but all
else being equal it is a negative factor for the stock. On the other hand the
market is really pulling ahead this month so it’s hard to say how the quarter
will shape up for them. I would be a buyer on a significant pullback but I am a
little cautious on it at the $60 price.


February 5, 2005


figures are updated. It was a great week in the market and the picks here did
better than the market this week.


is added as a new “listing” rated (highly) Speculative Buy at U.S. $25.82. It
also trades as CRY on Toronto at the Canadian dollar price. I prefer to use the
U.S. dollar stock price since it reports in U.S. dollars. I had bought a few
shares last week after a preliminary analysis. I was attracted to the high
profits and potential of its on-line gaming software product. One of the
benefits of my analysis method is that it forces me to look at a variety of
factors rather than getting wrapped up in one aspect of a company. after this
more detailed look I do view it as certainly speculative. It will release
earnings in two weeks. Normally my inclination is not to buy just before an
earnings release since I have no ability to predict the release. Rather my
normal strategy is to look for companies that appear under-valued after the
earnings are released. In that area I believe my fundamental methods can be
effective. Therefore, I definitely consider it to be more speculative to buy
now, rather than waiting for the earnings release and then seeing how the market
reacts. In any event I would consider this stock only for a small position and
not a major holding.


January 31, 2005


I plan to add Cryptologic to the Site. It provides software for internet
gaming. With a P/E of 26 it is not that cheap, but growth has been very strong
and it has a strong history of profit. I have not yet completed my analysis.
Definitely a speculative pick.


I am surprised that
Melcor Developments
has jumped up to $57.50. I had rated it (higher) Buy in December at $51.
Given the rise and given the volatility caused by thin trading, I would be
cautious about buying it at this price. I like it long term. From a trading
perspective, I am tempted to reduce my position moderately and take some profit
at this price.


January 30, 2005


Performance is
updated. I am happy to be up 1.8% given that the TSX is down 1.1% and the DOW is
down 3.3%.


Dalsa is
updated and upgraded to speculative (higher) Buy at $19.00. The upgrade is due
to both significantly better earnings and a lower price (which is a nice
combination for buyers). This is an established and profitable (17.5% ROE)
high-tech company that trades at a rather ordinary multiple of 16.3 times
earnings. I have to think this is a better than average company, so I’m happy to
buy it an a market average P/E. I believe management are both smart and ethical.
On the negative side, management is projecting earnings growth of only 6% to 14%
for 2005. Hopefully, they will exceed their target as they did in 2004. The
higher Canadian dollar is also a problem, as the vast majority of revenue is
from outside Canada. Still they overcame this in 2004, and they are partly
hedged again for 2005. This seems like a good pick, particularly for those
seeking exposure to high-tech.


As alluded to in my last posting, I did add to my position on Friday. After
now reviewing the numbers more closely I am very comfortable holding this stock
and may add a few more shares this week.


I note that Westjet and Air Canada jumped a bit yesterday on a rumor that
Jetsgo might be running out of money. As long-time subscribers know, the rumor,
if true, would be no surprise to me. This industry seems infested by idiots that
insist on selling air travel below cost. If Jetsgo does go, that would help
Westjet and Air Canada, but it’s hard to get excited about an industry where
participants regularly go bankrupt…


January 27, 2005


released a strong earnings report after the close of trading today. However the
outlook for 2005 was not very strong. Still, this stock should rise, probably a
few dollars on this news. I’m very comfortable holding this and would consider
adding to my position.


January 26, 2005


TSX Group is
updated and rated Weak Buy / Hold at $60.10. A great stock but seems expensive
now. I sold half my position today at $61.25. (I had only bought that portion on
Jan 11 at $51.85). Long term, definitely a great company but I am not confident
that right now is a good time to buy. I suppose a possible up-side is a
conversion to a Trust but that seems remote…


I was clearly pre-mature in buying
Financial Group in December. The price has fallen to $2.15 and a share issue
at $2.15 was announced. I had mentioned under Dec 30, that it might decline on
the share issue, but I had not expected this big a drop. It is unfortunate for
current share holders that the new shares are priced below book value which is
about $3.09. This is probably a great opportunity to buy. It is speculative due
to the small size and the leverage that all financial institutions have. I have
an order in the buy if it falls to $2.10. In retrospect, I should have averaged
in… I note that at TD Waterhouse the trading cost per share is already
minimized at about 1000 shares. So, if buying say 4000 shares it might make
sense to do so over several days or a month since the trading charge will not
change by doing four separate purchases (at least at TD Waterhouse as far as I


I am turning less enthusiastic about

Transcontinental when I read that newsprint use is declining. Newspaper
subscriber numbers are declining. Also Q4 could be hard hit by our higher
dollar. Still, the company is well managed and could always go the Trust route.
And I think its direct marketing materials business will continue to do well –
certainly the number of flyers arriving at my door seems to be increasing.


I think the decline in
to about $28 is a buying opportunity. I would think that Q4 was a good quarter
for them. Also they have no U.S. dollar exposure to worry about. It’s already my
second highest position and yet I am tempted to buy more… I probably shouldn’t
because there is always a chance that they had a bad quarter…


January 25, 2005


Our Earnings season is off to a great start with great results released by
both CNR and TSX, after market close today. The market already moved up on both
today (although in theory the results were unknown until after the close). I’ll
update my reports on these soon. I want to see if they move much tomorrow based
on the earnings released today.  I would expect both to be up tomorrow. Although
they both seemed expensive to me, their performance reminds me of a harsh but
often true phrase that I coined… “Winners Win and Losers Lose”. Here we have
two very strong companies that have continued their winning ways in terms of


I noticed today that the 10-year Canadian government bond yield was down to
4.22% as of Monday. This is almost a record low. It took me a bit by surprise
since in the media it seems accepted that interest rates had bottomed out and
were now on the rise. Canadian rates had risen quite a bit last Spring but have
then declined quite steadily and dramatically in the last 6 months. This may
explain part of the reason the markets were so strong.  If rates stay this low
this certainly is a positive factor for stocks.


I suspect Canadian exporters will continue to be hurt by our higher dollar. I
think there may be a lag effect here whereby for exports priced in constant
Canadian dollars revenues at first held steady as customers may not have had
alternate sources or were locked in by contract. But as customers adjust to our
higher U.S. dollar prices, they may find alternate supplies. Companies that sold
products priced in U.S. dollars would have seen a more immediate impact from the
dollar. I would worry about any company that relies heavily on exports or makes
most of its revenue in U.S. dollars.


The balance of trade figures have remained good through November, possibly
because our high dollar lowers the dollar value of imports. However, companies
may adjust by importing a lot more cheap goods, by outsourcing. Canada’s
customers will adjust by purchasing less from Canada. The result after a lag,
should be a significant drop in our trade surplus figures. In this case the
Canadian government might move to lower interest rates. In that event our dollar
should fall.


In terms of the dollar I see at least as much risk of downward movement as I
do of a continued rise.


January 24, 2005


I may buy some shares in CV Technologies last traded at $3.14. The stock
trades as CVQ on the TSX Venture exchange. This is not the type of company I
usually look at. It is fairly early stage. However it does have a proven product
in COLD-fx. Sales jumped from $2.27 million in the 3 months ended Sept. 30, 2004
to $11.3 million in the quarter ended Dec. 31. The company also has other
products both for sale and in development. This product is touted as possibly
preventing colds and flu and definitely reducing the severity. There are about
100 million shares on a dilutive basis. Therefore the market cap is about $314
million. This can be considered very high in relation to book value of about $5
million as of Sept 30. If sales were to average $11 million per quarter in 2005,
this is a ratio of about 7 times sales which is high but not that outrageous
given the potential here. Sales may tend to be seasonal, so the next two
quarters may see a decline from last quarter. But perhaps that will not be the
case this year.


I normally don’t bother with this type of company. However in this case I may
buy a small position. The stock is very volatile. It recently had a pullback but
has recovered most of that in short order. The company is definitely
speculative. But I think it is on track for a bright future and so it my be
worth a speculative bet. This company does not fit my usual value analysis
template and so I will not do that type of report at this stage.


January 22, 2005


Occasionally, I am asked about my personal portfolio. Of course it largely
reflects the Strong Buys and Buys on this Site. In the interests of
transparency, you can click here to see the percentage breakout of my
personal portfolio.


January 21, 2005


Communications is updated and I now rate it a Speculative Buy at $21.20.
What I really like about the company is that logically it seems like a
straight-forward business that should throw off substantial free cash flow. It
has excellent penetration of cable with 2.14 million customers. An astonishing
50% of these take internet by cable as well and 25% take digital cable. The hope
is that capital spending will decline from prior years and free cash would grow
as more people take digital cable to take advantage of the newer televisions on
the market. I really like that the Shaw family is buying stock. It seems quite
unusual for a controlling family to be buying stock like this. They clearly
think the stock is under-valued. This could mean that they know something that
is not showing up in the accounting, or it could be that they are simply
deluding themselves.  Maybe the Shaws are about to do something that would
release value in some way through financial engineering…


What I don’t like is the huge debt, continued large capital spending, high
executive bonuses, complex accounting, low reported net income, and past
management mistakes in acquisitions. Still, overall I am willing to speculate
that management is correct and that cash flows and earnings will soon
accelerate. This stock reminds me a bit of TELUS where for several years I
suspected that cash flows and income would rise as they eventually cashed in on
all their wireless customers. That did happen for TELUS recently and I am
hopeful of the same for Shaw.


I note that
Financial Group has dropped to $2.20. I had indicated it might drop due to a
share issue that is currently in progress. I would definitely view this price as
an opportunity buy. Of course, there is always a risk that the market is
signaling a bigger problem… but I am inclined to add to my position at this


January 19, 2005


This is a slow period for news as we await the Q4 earnings… My picks were
mostly up nicely yesterday and up  a bit today…


January 15, 2005


restaurants ($7.25, Strong Buy) is updated for Q1, 2005 earnings. In many
ways it seems very cheap. On the other hand, I could point to reasons for
caution such as the poor trading liquidity (very difficult to sell without
knocking the price down considerably, so only suitable for a long-term hold).
Also although the P/E is under 8, it is very tiny and maybe the P/E will stay
that low. Also it is currently being hurt by the NHL strike. But overall, I
think it really is cheap. On average buying this type of stock should be a good
investment. I am comfortable holding it and may add to my position.


January 12, 2004


restaurants released what I think were good earnings for Q1 today. After
adjusting for a one-time gain earnings were down very slightly. But the dividend
is up 20% year-over year. They do warn that the lack of NHL hockey is hurting
sales and will affect Q3 particularly versus last year when Montr顬 was in the
play-offs.  Still, they have good plans to promote the restaurants in other
ways. I would reiterate that it seems a strong Buy at my last rating of $7.35 or
below but it is risky as a small company and will be somewhat volatile. Note
that the flattening shown in the graph is exaggerated well beyond the reality
since the last 4 quarters actually overlaps 2004 by 3/4ths. Ideally the graph
should show the last four quarters as being much closer along the “X” axis to
2004, this would remove the distortion that is causing much of the apparent


January 11, 2004


I have added a link to some of my
recent free newsletters since some subscribers have asked for old issues. I
hope to add more of the older issues to this link soon. I added to my position
in the TSX group recently. I last rated it a (lower) Buy but I had only a small
position and wanted to add to it, whereas I already had bigger positions in the
higher rated picks. Also the TSX Group yesterday released its trading statistics
for December and I thought they looked quite strong in terms of the increase in
activity versus 2003.


January 9, 2005


Boston Pizza
Royalties Income Fund is added as a new listing (and is rated (lower) Buy at
$14.47) This is an interesting structure, where the operating company is not
owned by the Trust. The risk is reduced because the Trust collects royalties
based on revenues, which is less risky and volatile than relying on the bottom
line earnings. I selected it because the restaurants appear to be doing well and
they are building more. Not a screaming Buy but perhaps a good risk/return
tradeoff and also probably a good pick for those needing yield.


Regarding Ace Aviation Holdings which owns Air Canada, I did rate it a Sell
(that was for tracking purposes and without any detailed analysis as stated
below)  The one possible up-side that I see for it is the potential to spin off
Aeroplan at a good profit. I have been skeptical of Aeroplan because it must owe
hundreds of millions in trips and I don’t think the cash is on hand to pay for
that. But the cost of buying those trips may not be so high given all the price
wars. Also Aeroplan as a business   model is very attractive in that it has
great presence in the market place with a ton of Aeroplan cards issued. It is a
virtual business without a  lot of expenses for buildings and the like. I would
be interested in looking at Aeroplan itself as an investment separate from Air
Canada. The separate financials for Aeroplan will apparently be  revealed soon.
So, while I would certainly be nervous holding ACE aviation shares, given its
pathetic past, perhaps there is some hope for it in the spin-off of Aeroplan.
Certainly if that happens I would then expect ACE itself to do poorly but
Aeroplan might do quite well as a separate company.


January 7, 2005


I have removed the
2004 model portfolio since the 2005 model portfolio is now available.


The first week of this year was a moderately negative one for almost all
stocks. The Buys and Strong Buys are down an average of about 2%. I may not
update the detailed performance chart before the end of January in order to give
the stocks a bit of time under these 2005 ratings. But, I will indicate if
things are improving or deteriorating, each week in January.


Sportscene restaurants moved down to $6.15 but this could just be noise due
to its low volume. I certainly like it even more at this lower price of $6.15


January 5, 2005


Looks like we could be in for a reminder that markets go down as well as up.
The last 4 months were terrific in the market so a pull-back is not surprising.


released some figures today, indicating lower same-store sales in Dec. However
same-store sales for the year were up. And apparently the expectation had been
that December would be even lower than it turned out. As usual, the Tim Horton
same-store results were very good. Interestingly this stock has been up sharply
the last two months despite some bad news. I continue to really like this
company for the  long term. But I had “down-graded” it to Buy from Strong Buy
due to the recent price rise. Right now might not be the best time to Buy. If I
had none, I would probably buy some now but hope for a drop in price to Buy
more. I have a reasonable exposure to it now. Still, I would not mind very much
if it happened to fall several dollars or more, as I would then add to my
position. (Short-term pain for long-term gain).


The Wendy’s press release




January 3, 2005


I note that I have just one sell pick. The reason for that is that I tend to
drop companies or not introduce companies that appear to be sells. Just for
tracking purposes I will also consider Air Canada and West Jet to be sells. I do
not have a detailed analysis but I feel strongly that this industry will not do
well in Canada in 2005 due to intense competition. I am not saying that I would
short sell these stocks. If I owned them I would sell. But short selling is a
far different and risky thing. I would not short sell these stocks.


January 1, 2005


The 2005 model portfolio is added above on a preliminary basis.


The stock ratings as they currently stand will be used to track performance
for 2005. I have updated many of the ratings in the past two weeks and I judged
the remainder to not require an update. Performance in 2005 will also be tracked
through a model portfolio and my own personal investment results.


The final
Performance figures for 2004 are in. It was another outstanding year. In
particular the consistency shown in the
2004 graph is
remarkable. I can’t expect to do this well every year but I expect to do
reasonably well by continuing to apply detailed fundamental analysis and common
sense to the process of stock selection.


December 31, 2004


Melcor at
$51.00 is updated due to its price rise and is rated (higher) Buy. I would
consider it a Strong Buy at around $47. Note the the thin trading liquidity. It
can be difficult to buy quickly without raising the price, on the other hand
with patience it may often be possible to buy at a price somewhat lower than the
last trade.


Canadian Western Bank at $26.58 is updated due to its price rise and rated
Weak Buy / Hold


Capital Group at $31.20 is updated due to a substantial price rise and is
now rated Sell. This company has been a great performer and the stock may well
continue to rise if the past growth continues. But it is dangerous to pay up in
advance for too much growth. If I still owned the stock I would sell and take
the profit.


Three property and casualty insurance companies are updated due to price


Financial at 19.00 is rated Strong Buy.


Financial at $29.12 is rated Strong Buy


Financial at $203.63 is rated Weak Sell / Hold


I think this industry is still benefiting from a cycle of rising premiums,
combined with less or no need to increase estimates for pay-outs related to
prior years. In terms of Q4, I expect it will have been a very profitable
quarter and that these companies may take advantage of higher stock markets to
realize capital gains. In terms of the three companies, Northbridge seems to be
the lowest risk with less exposure to automobile insurance and no exposure to
foreign exchange. FairFax seems to be the most risky. I hold both Northbridge
and Kingsway and I recently sold the small amount of Fairfax that I owned.


December 30, 2004


Western Financial Group at $2.59 is updated and rated Speculative (higher)
Buy. This is risky due to the small size and the risks of its new lending
operations. However, it has a strong track record and is executing on a credible
growth plan. I also like that its Chairman in Jim Dinning who is seen as a
credible candidate to replace Ralph Klein as premier of Alberta in a few years.
He has an exceptional track record. I also like the strong shareholdings of
Board members. This is somewhat risky but also has good potential to double or
triple in a few years. If they did run into major difficulty it seems likely
that much of the asset value could be recovered in a sale to other financial
institutions, although some loss would likely occur in that event. They are
preparing to issue more shares very soon, this could lower the price in the
short term depending on the offering price. But it might also generate more
interest in the company.


December 29, 2004


Wendy’s at
$39.42 is updated because of the strong 24% price increase since I called it a
Strong Buy on Oct 21 at $31.80. I now rate it Buy. If the Tim Hortons concept
catches on in the U.S. then this should be a very good long-term investment. I
don’t see much down-side risk here, if held for the long term.


I have removed a few stock reports that were out dated. These are BCE,
Contrans, Liquor Stores and Energy Savings.


December 27, 2004


I updated
Communications at $21.90 but was unable to arrive at a rating. It is about
unchanged since I first added it to the Site in February, calling it a Weak
Speculative Weak Buy at $22.46. Since I was unable to rate it, I could have
removed it but I thought I might as well provide the analysis to those
subscribers that may be interested. Understanding Shaw also helps me to better
understand Telus. I think Shaw has a lot of potential. It’s hard to understand
why its monopoly position in basic cable is not allowing it to report high
profitability. Profits and free cash flow have improved, but do not yet justify
the share price. I find the accounting to be very complex. As an illustration
the book value and the net income under U.S. GAAP are both vastly different.
There is a lot of debt. The company speaks of intense competition. I don’t like
the high executive salaries and the multiple voting shares. For all these
reasons I will avoid the stock but I do think it is worth keeping an eye on.


December 26, 2004


Stantec at
$25.99 is updated and now rated weak buy/ hold. A great company but seems a
little expensive at this point.


The Forzani
Group Ltd. at $11.80 is updated for its recent Q3 report and rated a Weak
Sell / Hold. For at least two years they have been under-delivering.


Cognos at
$52.80 is updated and rated weak sell/ hold. Clearly a great company. The
valuation seems a little rich a this time. It has had a good run and it seems
less likely it would continue to rise from here. I have a very few shares and
may continue to hold. I would be interested in buying if there is a significant
pull-back in the price.


Performance is
updated for another Strong week.


December 20, 2004


$1.54 today to $36.54 is up a very nicely since I indicated I was buying on Dec
1 when it was $29. I would still definitely consider buying at this price.  If
it happens to pull-back, that is all the better since it is a good bet to be up
nicely over the course of 2005. Northbridge slipped $1.11 today, which I view as
an opportunity. It is my largest holding. Regrettably, I ended up selling a
portion at $27.50, on a stop loss, when it had a minor reversal from $29 a few
weeks ago. For new positions I would average in at this price.


December 19, 2004


Breweries is updated. I don’t think the time is right to Buy this or most
other Beer companies. The NHL strike and the smoking bans are making sales
tough. Competition is intense. Also early winter is not a great time to buy a
beer company. Things may look better in the spring.


December 18, 2004


report is updated per the comments made yesterday. Since I am already well
exposed to all my Strong Buys, this is a stock that I am considering adding to.
I rate it (higher) Buy, which means higher than a regular Buy rating but not
quite Strong Buy.


Two important articles were recently updated. One of the possible
over-valuation of
trusts and the other that concludes that the
Dow Jones Industrial
Average is at about a fair level at this time.


Transcontinental is updated for fiscal 2004 earnings released this week. I
had last called this a hold and had sold half the amount in the model portfolio
back in September. Now the price is somewhat lower and the earnings were good in
2004, excluding certain write-downs. Seems to be a boring cash generating
business. They do report strong competition but nevertheless forecast a good
year in 2005. With low debt and strong cash flow, I don’t think there is a big
down-side risk here. And it does have reasonable up-side potential. I rate this
a Buy at this time.


Dec 17, 2004


Performance and
the model portfolio are updated and continue to be exceptionally good.


TELUS has released its 2005 guidance and it is quite positive. The shares are
currently up only 14 cents which indicates, in my opinion, that the guidance was
either well anticipated or leaked in advance to some traders. If it was leaked,
that is annoying but seems to be something that small investors have to live


In any event I would essentially continue my rating as (higher) Buy. I would
remove the label speculative because the company has now started to prove that
its earnings are rising rapidly.  The 2005 guidance included a further increase
to 2004 guidance which had already been increased at least once since the start
of 2004. Therefore the company has now demonstrated a period of beating its
goals. It appears to me that the company is really starting to generate a lot of
free cash flow. Based on the mid-point of 2005 earnings guidance the shares are
trading at a P/E of 20. More impressively the shares are trading at 10 times
free cash flow.



Dec 16, 2004


Wow, great performance from Northbridge, Wendy’s,  IGM Financial and Telus
today and recently. I continue to like these.  Tomorrow I am hoping for even
better from TELUS when they release their 2005 projections.


Dec 15, 2004


Bombardier – and let’s not forget that the two independent directors that
just quit were members of the audit committee. That could mean that these two
wanted Bombardier to do some ugly write-down. Whatever the reason, its hard to
imagine it is something good.


Back to safer bets, Northbridge and Wendy’s were both up nicely today. So far
this week, picks have done quite well and my personal portfolio is at its peak
for the year so far.


Dec 14, 2004


Bombardier – I read in today’s paper that the pension deficit is $2.8
billion, if so, this “pig” could be worthless. Maybe it rebounds today but I
think I will avoid it, at least until the year-end financials arrive.


Also while revenues have been steady maybe we just have not got to the point
yet where they fall due to plant closures and other reasons…


Dec 13, 2004


I have had my best investment success with more stable companies. But I
thought it might be good to take a quick look at Bombardier given its new low
share price with Paul Tellier leaving today.


First and foremost, remember, this is a company on hard times and a “falling
knife”. It is therefore probably very risky.


I’ll use a share price of $2.11, which was the closing price today. I’ll
convert that to about U.S. 1.72, since the company now reports in U.S. dollars.
All subsequent dollar figures are U.S.


There are 1750 million shares


The recent earnings in the last 9 months are negative so I can’t easily use a
P/E analysis


Revenues are about $14.7 billion annually or $8.40 per share. So it trades at
only 1.72/8.40=20% of annual sales, which seems very attractive.


Book value is $1894 million or $1.08 per hare. Therefore the price to book
multiple is 1.6, which seems reasonable, except that we must remember that
further write-offs could substantially lower the equity and increase the price
to book ratio. Tangible book value after deducting goodwill is negative.


I was tempted to suggest that Bombardier Capital might be worthless. But in
fact it actually was able to pay a recent $450 million dividend to the parent.
This sharply increased its leverage, but does seem to suggest that it must be
reasonably strong.


The company reports negative free cash flow of $316 million in the past 9
months. But I note that negative $440 million came from changes in accounts
receivable and the like that tend to be temporary and lumpy. Adding that back
free cash would have been $124 million in 9 months or (annualizing) $165 million
annual. Or 9.4 cents per share. In that case the shares trade at 18 times this
adjusted free cash. Operating cash flow before the changes in non-cash operating
items was $336 million in the last 9 months or (annualizing) $448 million or
25.6 cents per share, so shares trade at 6.7 times operating cash flow, which is
reasonably attractive.


With $6.8 billion in debt , bankruptcy is not completely out of the question
if the situation deteriorates. But right now there seems to be no indication
that it is in that kind of danger.


This is no Nortel. Bombardier makes products we can understand, (trains and
planes) and it has a financing business. Now these sectors may be on hard times
and may be low-margin businesses. But in contrast to the Nortel situation,
Revenues are not down but are up, although about flat after correcting for
currency changes. The Order back-log is shrinking a bit but not very much, so
far at least.


The bond rating is below investment grade but is not horrible.


According to the company lenders are still prepared to lend it several


Possible fixes include selling the Bombardier Capital, hopefully at a large
profit, or why bother. Maybe Warren Buffett will swoop in and pick it up…He
likes family run companies as long as the family is competent to manage it.


So…where does this leave us? Good question, there is no clear answer.


Conservative investors should steer clear. And if it does start to recover,
maybe it is better to jump on Board only after the stock recovers and more
confidence is shown. It might also be best to wait until the year-end financials
come out, around March 1, to see if there are more write-offs.


On the other hand for the brave it might be an idea to gamble a bit of money
on this.


I’m tempted, but I’m not brave enough to put any meaningful amount into it.
I’ll think I’ll probably just stay away for now. Well at least I have taken a


Dec 12, 2004


The Thomson
corporation is updated. In many ways, this should be a great investment. It
is a huge information based company. It increasingly delivers its products
electronically, which should add to profits. Profits will likely rise
substantially in the next 12 months. But it seems over-valued or at least not a
bargain at its current price. In addition Canadian investors face currency risk.
I have lowered my rating from Speculative (lower) Buy to Weak Buy / Hold.


Dec 11, 2004


Performance is
updated and continues to be excellent.


The December free
newsletter was just distributed as an email with link. Some of you may not
be on that list. Let me know if you did not receive it.


I sent an email tonight to all paid subscribers, just reminding you to check
this Site. If you did not get it, let me know (see email link above) and I can
check the reason. (I may have a bad email address or your mailbox could be over


Dec 9, 2004


Loblaw Companies
is updated. This is a boring company that has increased earnings steadily. A
great company. But right now the valuation seems high. I would not be too
uncomfortable holding it it. But for buying I would hope for a price closer to


Impacts of recent economic events on selected individual stocks:


The TSX index has risen considerably in Q3. This will be beneficial to mutual
fund companies because their revenues are generally a percentage of assets held
and so higher stock market indexes raise their earnings. So,
IGM financial
should benefit from that. In addition it reported reasonably good mutual fund
net sales for November. It had also reported positive net sales in October. It
seems fairly predictable that this company will report a good Q4. Therefore I
continue to like this stock at this price. Similarly, the
TSX Group
will automatically benefit from the high stock market and the high amount of new
financings. It just reported November trading figures and they were quite good.
October statistics were not as good, but were still relatively good. I believe
the December trading statistics should be strong given that ING Canada just
completed about a $2 billion IP). The TSX Group also faces a relatively “easy”
comparable in Q4, in that Q4 2003 was about $18.2  million while in 2004,
quarterly earnings have averaged $23.6. Therefore it seems likely that the TSX
Group will report a very good Q4. I last rate it a (lower) Buy but would
probably raise that to at least a Buy if I did a full analysis at this time.


I do rate
Sportscene restaurants a Strong Buy but the Hockey strike could be quite bad
for earnings in this quarter. I am prepared to add to my position if the price
falls. The same applies to the larger brewers since Draught (Draft) sales have
apparently been hit hard.


The Bank of Canada’s decision not to raise interest rates should help the
Bank stocks. Home building and related should also benefit.


Just when the main stream commentators started advising to avoid U.S. stocks
because our dollar was rising (though they urged us to diversify into the U.S
when the dollar was at 63 cents) our dollar has now fallen back a fair bit. I
personally don’t target a big exposure to the U.S. But I was certainly
comfortable holding
Wendy’s and I felt that that there was just as much risk of the dollar
falling back from 85 cents as there was that it would continue to 90 cents.


slipped a bit in the past few days and I view that as a mild buying opportunity.


I would avoid the Canadian airline stocks at this time. I traveled by air
twice in November and I got amazingly low prices even though I only booked two
weeks ahead. These guys are cutting each others throats and I think they will
all lose money in Q4. The new Air Canada just got its bond rating and it was
only a “B” rating which is indicative of high risk. If debt investors have some
risk, equity investors must face higher risks.  Maybe Air Canada will do great
but I doubt it. Air Canada had a great load factor in November which is good but
may not be sufficient to insure profitability because the seat prices may have
been too low. One part of Air Canada that may truly be very valuable is Aeroplan
– even if it does owe hundreds of $millions in free trips. So the talk is that
Air Canada might sell Aeroplan.  I don’t see why it is so smart to sell off the
most profitable part of the company. However, I would not risk shorting the
stock …yet.


Dec 6, 2004


For those who hold it,
Canadian National
Railway is updated. Right now I think it is only a hold or Weak Buy.
However, this has been a great company. It’s up 119% since I first looked at it
back in 1999. It seems like a lot of small retail investors ignore boring
companies like this. I would not buy right now, but this is not a company to
ignore. In fact it is a world class company worth $21 billion and has made a lot
of money for investors. I’ll be watching for an opportunity to Buy if it should
drop sufficiently in price.


In terms of updates, stay tuned since I will be reviewing my ratings on all
the stocks by January 1. I may remove a couple of listings but I may also add a
couple of back that I used to cover. I certainly can’t begin to cover every
stock, my goal is to have enough good picks to have a reasonable chance of
making 20% or so in the next 12 months and also beating the TSX for the 6th
straight year. (No guarantees, but my analytical methods have worked well so


Dec 4, 2004


updated. I believe this could be a very timely Buy although it is risky in that
the earnings have to grow to support the stock price. However earnings and free
cash flow have been growing rapidly as its investments in building a huge
customer base are starting to pay off. The company will release guidance for
2005 on Dec 17. I would consider buying now in anticipation of strong guidance
on Dec 17.


Western Bank is updated. This is a great company but the stock is not
compelling at this time. It may continue to do well, but I would only Buy if the
price falls somewhat to $44 or below.


Dec 3, 2004


Performance is
updated and continues to be very good. I did Buy some more TELUS as indicated
just below and the stock price has already recovered from the drop due to the
Verizon stock sale.


Dec 1, 2004


Wendy’s jumped nicely today on what was ostensibly bad news regarding closing
some of its Baja Fresh restaurants. The analysts viewed this as cleaning up a
problem and the stock jumped. Even at $38 or $39 I think it is a great long-term
choice. But given the big recent run, it’s not as timely now. I have shares and
would have liked to grab more if it fell. I won’t add more at this price since I
have a reasonable position.


TELUS fell because a major shareholder (A U.S. phone company called Verizon)
is selling its stake which is huge and represents about 21% of TELUS’s equity.
This drove the stock down today, but long-term it has no impact on TELUS.  I
view this as an opportunity to Buy. I might grab a few shares tomorrow and then
wait and see if it keeps falling and grab another few.



Nov 28, 2004


is updated. This has been a profitable company and may have good potential.
However management are secretive and its operations are all in China. I was
tempted to remove it from list, after having looked at it for a number of years
now. But I decided to update it for those interested. I hold only a small
position after having sold most of my position at a good profit last year (as I
reported at that time).


Nov 27, 2004


Restaurants is updated for its fiscal 2004 earnings released last week. The
company operates 42 LA CAGE AUX SPORTS restaurants in Quebec. (16 are franchised
out). With a market cap of $30 million the equity is trading at substantially
less than $1 million per restaurant. This seems very cheap for a business that
returned 30% on equity in the latest year. The current year is suffering from
the NHL strike but that is unlikely to be a crippling blow. Note that the
trading liquidly is poor with a wide bid-ask spread. This means that it is
possible to easily pay 5% or 10% too much if you enter a market order rather
than being patient. It also may not be feasible buy a large position without
affecting the price. Overall, this company has a strong history of profit and is
available at a very good price. I view it as probably a “no brainer” for those
willing to hold for several years and who are sure they will not need to sell
urgently at any time. However, be prepared for substantial price volatility.
It’s probably not suitable to be one of the larger holdings in any portfolio due
to the volatility, unless an investor has a particular high tolerance for


Nov 26, 2004


Tire is updated. This company has surprised me by more than facing the
competitive challenge of Wal-Mart over the past few years. They have unique
strategies. Management appears to be very strong. They are “on their game”.
However the stock price has risen sharply and I would not consider it to be a
bargain. Still, Q4 is likely to very good. The recent strong growth is unlikely
to be sustained, but they should get a boost from our lower dollar as imports
cost less. Also there appears to be room to continue improvements in their
Mark’s Work Warehouse. Overall, I am not a buyer at this price, but I do respect
the company. If I held it I would probably continue to hold.


Nov 23, 2004


Dalsa Corporation
is updated. This is a company involved in niche areas in semiconductors.
Probably a good long-term pick. No debt, well managed good recent growth and
priced at a P/E of 20. Management indicates that some areas will be a bit slow
in Q4 and so I am not sure that now is the best time to Buy. I am comfortable
holding a small position and if I were to Buy now I would plan to average in so
that if the price does fall I could take advantage of that.


I note that the insurance company picks have backed off a bit from their very
recent highs. I have no reason to think that these stocks will not continue to
rise in the next few months. (However, there are never any guarantees)


Nov 19, 2004


As of 2 pm eastern time it looks like a bit of a pull-back to end the week.
Still a fantastic week. Note I will have no further updates before at least late
Sunday as I am otherwise engaged this weekend.


Nov 18, 2004


Make that 4 days this week of Strong growth.
Performance is


I noted a rapid rise in Melcor today but this was on just 100 shares traded.
Investors should be cautious on thinly traded stocks like this. I would not
enter an order to buy at he market since there is a wide bid-ask spread and an
offer to buy at the market can drive the stock up $2.00 or more. The stock still
looks good to me but I would be patient and attempt to buy a bit below the
current offer.


I don’t think the Strong Buys are over-valued despite the recent rise,
(though I would put Melcor at a Buy rather than strong Buy above about 52) but
subscribers should use judgment when the price is up significantly from the
price at which I analyzed each stock. For those sitting on large gains on stocks
that I cover, it might be reasonable to enter a stop loss somewhat below today’s
prices, on a portion of the holdings. If I were to go strictly on logic I would
not enter such a stop loss since I like to sell high rather than low. But from
an emotional perspective, I would kick myself if I had a large gain and then the
stock happened to fall. So a compromise is to use a stop loss to protect a
portion of gains on stocks like Northbridge that are up sharply. Please remember
that I do not give individual advice, you should consider your own situation,
and check other sources. I give only “generic” stock ratings. You always invest
at your own risk (I should not have to say this and it is covered in my
disclaimer but there may always be less experienced investors out there who do
not understand this).


The recent strength in the market should be good for all mutual funds
including IGM Financial and also good for the TSX Group.



Nov 17, 2004


The first three days of this week have seen continued steady increases in
most of the Strong Buys and Buys on this Site. I’m hopeful that this will


Turning to a different type of stock,
Ainsworth Lumber
is updated. This is clearly speculative. It has a lot of debt and would be at
risk of a total collapse if Oriented Strand Board prices fell far enough. But it
does appear to be quit cheap. I would consider it as a speculative pick but
would not place a large bet on it. I called it a speculative Buy. Based on
historic earnings it is beyond a Strong Buy. But it is almost a given that
earnings will fall somewhat from recent extraordinary levels, still it should be
a good investment even at significantly lower earnings. However, it will be
volatile and and if OSB prices collapse totally for some reason, there is
essentially no floor under this stock in my opinion. Commodity stocks are not my
specialty due to their inherent unpredictability. Still, this does look cheap. I
don’t own it and I am not sure that I will be a buyer. If I buy, it will be a
small amount.


Nov 15, 2004


Financial a property and casualty insurance company is updated. It’s tough
to say if this is a great investment or not. It is selling below book value and
has a history of steady but unspectacular earnings. Past earnings appear to be
conservatively stated. It’s probably very safe for the long term. I rate it a
speculative Buy. The reason I call it speculative is that insurance company
earnings can be quite volatile. But it seems like a conservative company. (The
main operating company is “the Dominion of Canada General Insurance Company” – a
staid old company if there ever was one. Given the recent strong performance of
the Canadian property and casualty insurance companies and given the IPO of
ING’s Canadian insurance operations it seems likely this this under-followed
segment could be given more attention by investors in the near future, which
would be positive for the share prices. Although I call this only a Speculative
Buy, it is worth considering as it is perhaps the most stable of the 4 property
and casualty companies that are on this Site. I am comfortable owning 2 or 3 of
the 4 (I exclude FairFax at this time) rather than betting on only 1 of these.


Nov 14, 2004


SICO Inc. is
updated for it recent Q3 earnings release, which was very strong. This is a
steady money maker with free cash flow exceeding earnings. Debt is relatively
low. The valuation is low at  around 11 times trailing earnings. These
characteristics make this a relatively low risk investment. Earnings are growing
as the company continues to integrate and rationalise a large acquisition made
about 18 months ago. Buying this stock could be quite timely as the stock price
has not moved up much to reflect recent higher earnings. I think this is well
worth considering. I rate it a (higher) Buy. I may add to my position in this.


Nov 13, 2004


Financial is updated for its recent Q3 earnings report. In Q3 it had a
significant loss due to the Florida hurricanes and another one-time charge. I
had added this Stock to this site in August calling it a highly speculative
strong buy. The reason I thought it would be a good investment was that it was
selling at only 73% of book value. It’s still selling at just 77% of book value
but I have become even more concerned about the complexity of the company. Given
the poor Q3 and the complexity and uncertainty I am now calling it a Weak Sell.
Also the price has risen 10% since I last reviewed it. I believe that
Northbridge, Kingsway and E-L Financial are all better choices for Canadian
investors. I still think that Fairfax could well be a good investment but it
just seems too uncertain at this time. Regarding Q4 I note that the company was
recently shorting the S&P as a hedge and this could cause a loss, also it seems
quite possible that Q4 will indicate more losses from the fourth Florida


Performance is
updated and is excellent, helped by a very strong run in the past two weeks.


Nov 11, 2004


Performance on the stock picks has been very good in the past two weeks
particularly. The property and casualty insurance stocks have done quite well. I
am hopeful that there is a lot more upside to come. It may happen slowly through
this quarter or it might have to wait until the Q4 results. On the other hand if
these stocks do happen to drop then I would see that as a clear buying


Nov 9, 2004


IGM Financial
(formerly Investors Group) is updated. Before updating this, I was getting a bit
worried that earnings would slow due to slow net sales. But the numbers still
look quite good. The stock appears to be pricing in only about 10% growth.
Historic growth has been steady at about 17%. If my adage “Winners Win.. and
Losers Lose” is true then it makes sense to forecast that this company will find
a way to grow at at least 10%. For the long term this seems a safe investment.
However it could be a bit volatile in the short term. If the Canadian market
continues to rise then this stock should do well. Overall I rate it (lower)
Strong Buy.


My stock picks continued to do well today, my own portfolio is now up about
13% this year. The model portfolio is updated above and was up 17.3% as of Nov


Nov 7, 2004


Manulife is
updated. It fell about 4.5% on Friday after announcing earnings that were good
but which were somewhat below analyst expectations. Manulife is the most
valuable corporation trading on the TSX and I consider it to be a world class
Canadian company. However, at the moment I am luke-warm at best on this stock. I
have a substantial exposure to it and am more incline to trim that rather than
add to it. Nevertheless it should be a good long term investment. At this point
I would consider buying below $50 and reducing my exposure above $56. The higher
Canadian dollar reduced earnings by $27 million in Q3, which was moderate given
the $717 million earnings. This impact of the dollar will be at least a moderate
drag on earnings growth in the next few quarters.


Performance of the stock picks this week was very good with good gains on the
property and casualty insurance picks. Also Wendys and IMG Financial did very
well. The TSX Group surprised me with its gains.


Nov 3, 2004


Another strong day for my picks with
Kingsway Financial
up 9% on its strong earnings release. I have updated my report and still
consider it a Strong Buy. The model portfolio is doing very well this week. I am
away the next few days and will have no further updates until late Saturday at


Nov 2, 2004


Another good day for insurance companies, particularly for Manulife.


Financial reported strong earnings growth after the close of the market. The
results look good and I continue to consider it a Strong Buy. The trailing P/E
is very attractive at 7.7. I am hopeful of a strong move upward tomorrow and
will then update my report based on where the price lands in the next few days.
Kingsway operates mostly in the U.S. and therefore is more risky than
Northbridge give the currency risk. It appears that they are now making very
high profits on current business and as the older 2001 and 2002 claims “run off”
the profit could grow sharply.


went to a new high today which is very positive. I definitely like it long term.
However, I am a bit nervous about the Q3 results due to the impact of the higher
Canadian dollar.


ING Canada is about to do an IPO on its property and casualty insurance. I
have not analyzed the prospectus but I would consider buying on the IPO. I was
shocked to learn that ING is now Canada’s largest property and casualty insurer.
This reflects the fact that this industry is not well known in the stock market
in Canada. The new ING IPO will probably benefit all the companies by raising
the profile of this industry.


Nov 1, 2004


A nice move up on Northbridge today, hopefully a sign of things to come. I
called Telus a speculative Buy on Oct 6. The Q3 earnings release was quite good
and I like the stock as the company is now generating good cashflow. I will
update soon.



October 31, 2004


Developments is updated. The Q3 earnings and lot sales were disappointing.
However the company expects a good Q4. Also the comparables in Q1 and Q2, 2005
should be easy to beat since those quarters in 2004 were not very good. I am
surprised that 2004 to date is down 22% from 2003 which in turn was down 22%
from the record 2002. The results are more cyclic than I thought and do not seem
to track the general health of the Alberta economy as well as I would have
thought. The company is expecting a good Q4. The bottom line for me continues to
be that this company has a very long history of profits and it seems to me that
they are sitting on a large inventory of land in an environment where land
prices have increased sharply and seem likely to stay high, and the company
trades at book value and a relatively low P/E. Although patience is required, I
believe this will be a good investment.


TSX Group
is updated. This is a low-risk investment if held for the long term. But short
term it could easily drift lower if the stock market sentiment weakens. Overall
I rate it (lower) Buy. I’m comfortable holding a small position and would add to
that on weakness.


October 29, 2004


Performance is
updated. Market sentiment was strong last week. In terms of my picks and
holding, insurance stocks performed well this week. Many Canadian companies
released Q3 earnings last week but many other large companies have not yet


October 28, 2004


Northbridge is updated for its earnings released after close of market
today. The earnings were very good, up 69% versus the prior year. The
underwriting ratio continued to be exceptional at around 90% or a profit of 10%
on insurance, prior to investment gains. The earnings would have been
substantially higher except for unusual losses associated with the Florida
Hurricanes.  Insurance companies by their nature are risky and unpredictable.
However, this company does seem to be significantly under-valued. I expect the
price to rise at least moderately tomorrow and I hope for a steady rise in the
next 6 to 12 months if the company continues to perform. Hopefully the market
will eventually recognize the performance with a higher multiple to earnings and
book value.


October 27, 2004


TSX Group did not decline today as I thought it would on its
lower-than-expected earnings. I’ll update my report on TSX by Sunday. Short term
I am thinking it would drift a bit lower.


Melcor released earnings after the market close. Quite a bit lower than last
year but they describe it as above their plan for 2004. I still think this is
good value since it trades at book value and I think they must be sitting on
land that is worth far more than book value given the rise in land prices in the
past few years. They did increase the dividend slightly today. (update, actually
the dividend increase was not today but was earlier this year) This is very
thinly traded so the price could jump around. I’ll update my report by Sunday
after seeing where the price moves in response to the earnings.


Northbridge will release earnings after market close tomorrow. I note Q3 2003
for Northbridge and also for Kingsway was weak and so it should have an easy
time of beating those earnings. But insurance earnings are all based on
estimates of futures pay-outs and are therefore very difficult to predict.


October 26, 2004


It was nice to see the DOW up sharply today, hopefully some better sentiment
in the market…


TSX Group released earnings today after close of market that were
disappointing. Profits were up about 4% versus 2003. But they were below
expectations and down substantially from Q1 and Q2. It was expected they would
be down sequentially, but not this much. Still a great company for the long
term, but it seems sure to drop tomorrow. From past data I have seen, I believe
August was very slow while it had a good month in September with increased
market activity.  It generates strong free cash flow somewhat greater than its
net income which is a positive. It remains an unregulated bear monopoly which
is  a definite positive. For Q4 forward, the comparables from last year are
tough and it will take strong markets for it to show much growth in the next few
quarters. Right now I am not sure if Q4 will bring strong markets although the
oil and gas situation is helping. Overall, I am going to to try to reduce my
position by selling a portion.


I have no idea how much it will drop, so I am not willing to risk an order to
sell at the market on opening. So… I am thinking of entering a sell order of
say $48 right now. That way I will sell at the opening price if it is higher
than $48 but I will not sell if the price is below $48. I have to be careful
with this strategy. It works well with high volume stocks where my $48 price on
a few shares would not affect the opening price. But TSX is pretty low volume so
if I go too low I could affect the opening price. I’ll monitor the bid / offer
before the market opens tomorrow.


The difficulty with a negative earnings surprise like this, is that after it
happens it’s usually too late to react. The stock could simply open lower
tomorrow, with no ability to sell at today’s closing price.


I’ll update my rating after I see where the price settles out in the next few


October 24, 2004


Alarmforce is added as a new small cap listing. The company is profitable
and the P/E at 21.5 is reasonable given the growth. Also I believe this type of
subscriber based company often is a strong cash generating model. I like that
the company has essentially no debt. They do a of of advertising and seem to be
growing steadily. I think they have a good product. I find their ads to be


October 23, 2004


I made a few minor changes to the wording of the
report. Basically it has a lot of debt but current profits are very high and the
P/E is very low. Is has to be considered speculative but it does look cheap and
is probably a reasonable stock to speculate on. Its fortunes will be driven by
Oriented Strand Board prices. I was not able to find any convenient free source
of OSB prices.


October 22, 2004


Capital is updated for yet another very strong earnings release. This little
Trust company has achieved massive growth and profitability. Almost seems too
good to be true. Looking at a 5 year holding period I find the stock is pricing
in too much growth and I rate it only a speculative Weak Buy. However in the
short term it might keep growing this fast. Therefore one strategy would be to
buy now but place  stop about $2.00 under. If it ever runs into bad debt
problems or if earnings stop growing, the stock would fall hard. Generally I
think the easy money has been made here (I first rated it a Buy back in 2002 at
$7.43) and I worry about the risk/reward at this point.


figures are updated and still look very good. The last two weeks my picks have
slipped a bit but overall the Strong Buys and the model portfolio are hanging in
quite well. This year the Buy picks have done better than the Strong Buys. This
was due to the remarkable performance of Sleeman’s and also great performance
from Manulife, Canadian Tire and Canadian Western Bank. The link to the specific
details for 2004 performance is available just below the table of stock picks


The week certainly ended on a negative note with stocks mostly declining due
to high oil prices. The DOW is now down 6.7% in 2004. Sentiment seems negative
now but can turn around on a dime. My strategy is usually to ride things out
since the overall market direction is so hard to predict and since my
investments are mostly in relatively lower P/E stocks.


Most Canadian companies have not yet reported Q3 earnings. There will be a
flurry next week. I’m hopeful of strong results from the insurance sector.


October 21, 2004


Wendy’s is
updated for earnings released after close of market today. The stock price is
down because the company had previously indicated lower earnings guidance for Q3
and Q4. The stock moved up a bit in after-hours trading and so I think the
market saw some good in the earnings release although indications are that Q4
will not be a great quarter. I don’t see much down-side risk in this company. It
is a great stock available at a good price. I continue to think the Tim Hortons
operation is something of the crown jewels here. I think the market still
focuses on this as being Wendy’s restaurants even though the much smaller Tim
Hortons represents very close to half the operating earnings.  So… possibly it
would slide a bit more if Q4 shapes up worse than anticipated but overall in the
long run (say 18 months to 3 years) I am very confident of this stock. For my
money, now is a good time to buy the stock.


Home capital;
had yet another wonderful quarter released today. Almost seems too good to be
true. I will update by Sunday.


October 19, 2004


The next stock that I am adding to the site is Alarm Force Industries. I
chose this because I hear there ads every morning and it really does sound like
a good product (wireless direct voice contact alarm system.) I have no interest
in an Alarm System and yet they have almost got me convinced to think about it.
This is the type of company that tends to spend heavily on advertising customers
but which eventually starts to generate good cash flow because subscribers tend
to stick around. (Sell them once, reap the benefits for years). A preliminary
look indicates the company has been profitable for some time although that is
based on capitalizing much of the advertising costs. The P/E is over 20, so it’s
not really cheap. But I think it is worth my taking a detailed look because of
growth. It is the type of company that makes a good Income Trust at some point,
although it may be a little too small at this time. Also they were smart enough
to recently raise equity and therefore have little debt.


I note Wendy’s
has received some negative analyst reports and is down. It’s always hard to get
excited about a stock that seems to be falling, but I am still very confident of
this stock for if held for at least 12 to 18 months. Possible it will fall a bit
more if reports of poor same store sales in October are true. But I wonder how
true that is with only 2 weeks of October to go on. I would like to add some to
my position now and if it falls I would like to add more at that time.


fell a surprising but not huge, $1.45 today to $54.35 after hitting a high of
$56.71. I consider this to be Canada’s best example of a World Class
corporation. Profits have grown relentlessly. I am a bit worried about the
impact of our higher dollar since they sell so much out side of Canada. I’ll
probably hang on and see how the earnings come in. A recent large acquisition is
helping it grow.


October 17, 2004


Note, I just sent an email to subscribers regarding adding Ainsworth to the
Site. If you did not get an email from me dated Oct 17 (or possibly Oct 18
depending on your time zone) then I probably have an incorrect email or your
mail box was full. If you did not receive the email, let me know.


I notice Air Canada and Robert Milton are still up to their old tricks. On
Friday, the company bragged that it made $235 in “operating earnings” in Q3
(ahem, before massive restructuring charges that is). Now this is still the old
Air Canada not the new ACE company that starts out October 1.


I find it repugnant that Air Canada is still talking exclusively about
“operating earnings” a term which means “earnings before interest and taxes”.
Common share holders care about the bottom line net income. The press release
did not say what the actual net loss would be nor what the adjusted net income
(if any) would be before restructuring charges and after normalizing to the new
level of interest payments. I am fairly confident that under Milton’s guidance,
ACE shares are more likely to see $5 than $50. It will be interesting to see if
ACE is still talking operating earnings rather than net earnings when it reports
its first restructured quarter early next year. I expect them to continue to be
long on excuses and short on performance.


Lumber is added as a new stock on my list. I decided to analyze it because
of its very low P/E. It does look cheap. However, due to two recent acquisitions
it has very high debt in relation to its equity. Only 10% of the shares trade,
the other 90% are owned by the Ainsworth Family. I am surprised that the family
members several of whom are of retirement age are making such a big bet by
having the company borrow a huge amount for acquisitions. They have owned the
company for 50 years and so they are survivors, although I believe the company
was in financial danger a few years ago when it was losing money and debt was
high relative to equity. Recent profits have been tremendous and the family
seems to be betting this will continue, in which case this will be a good
investment. But if they are wrong, and Oriented Strand Board (OSB) prices
collapse, then the share price would likely collapse. I have no knowledge of OSB
price patterns and also I was not able to understand how far OSB prices would
have to drop before the company starts to lose money. (I have sent off a few
questions to the CFO)


Overall, this is a speculative pick and not a safe type investment but it
looks like it could do quite well. As investors we don’t need to buy every stock
that we think will rise. It would be perfectly reasonable to avoid this stock on
the basis of its debt and commodity-linked volatility. On the other hand if an
investor wants to take a small position for speculation, this could turn out to
be a good move. I’m sorry I can’t be more clear of my view as to whether to Buy,
but that is the nature of commodity based stocks. That is one of the reasons
that I mostly cover non-commodity type stocks.


October 16, 2004


Right now, I am working on Ainsworth Lumber and may add it it next few days.
I picked it because of its low P/E ratio, and because some subscribers have been
asking about forest product companies.


I note that a high-profile analyst has downgraded his estimate on
Wendy’s. He lowered his target price from $40 to $33. It seems that
MacDonalds has done better lately. But I don’t think the U.S. analysts truly
understand the earnings power of Tim Hortons. I suspect Wendy’s could easily
spin-off Tim Hortons into an Income Trust at a huge gain if it wanted to.
Perhaps Wendy’s will struggle a bit in the next few months but longer term I
think it will do very well. I am very comfortable holding Wendy’s. One downside
is the currency hit because I expect the Canadian dollar to continue to rise.


Performance this week for not great, with a bit of slippage in the Strong
Buys and the model portfolio. But not that much of a slip. I’ll update the
Performance figures at the end of next week.


October 14, 2004


Within about 1 week the Canadian Q3 earnings will start to roll in and I will
have lots of updates. Recently the DOW has been down while the TSX has trended
higher based on oil and commodities. I note that many of my Picks and my own
larger holdings like
Manulife, TSX Group
and most of the other Financials that I cover have done quite well in the past 6


Based on existing analysis I would consider buying more of the property
insurance stocks,
Kingsway Financial,
Financial, Fairfax
Financial and
E-L Financial. I am hopeful that all of these will report very strong Q3
numbers and in any event they seem cheap.  Also, right now would be a good time
to buy other stocks that you suspect might do better than expected. My suspicion
is that Telus may
do better than expected. I think
Melcor should do
well and really seems like excellent value particularly if you can get it at $47
or $48. (It is thinly traded and tends to have a wide bid/ask spread which makes
it moderately volatile and can move $2.00 up and down between trades for no
particular reason).


October 11, 2004


Liquor Stores
Income Fund is added as a new listing. I do like the business model here.
They probably have a strong competitive advantage in acquiring existing liquor
stores since they are the only publicly traded company in this business in
Alberta. However, the units are not cheap so I am not much more than luke-warm
on the Trust units at this time. For Albertan’s it might be a nice stock to own,
as there is a certain pleasure at being able to shop at your own store.


October 9, 2004


I have recently been trying to refine my understanding of precisely how some
companies can be worth more than their net earnings would suggest. I want to
find under-valued companies this way. In addition, I note that Income Trusts are
trading on the assumption that their distributable cash flows are a lot higher
than net income. This assumption makes me nervous. But there are cases when it
can make sense. A new article on
finding value beyond net income addresses this topic. As well an update to
an article regarding
alternative measures of net income has been updated.


Performance is
updated. This was an excellent week for my stock picks.


I note with interest that
which I called a sell Jun 11 at $13.80 is now down to $10.93 after just
reporting poor results. This was a former market darling. But for some time now
it has been unable to make its numbers. As a shopper I note it has some newer
strip mall stores in my area that are not busy enough. I also note that it seems
to charge more for the same equipment that Canadian Tire carries. I turned
negative on this company quite some time ago and reported on this Site that John
Forzani was selling shares in 2003 and that their earnings forecast was not
credible back in the summer of 2003. I sold my shares at $16.95 back in February
2003. I have lost interest in this company  and will delete it from my list
rather than update it.


October 8, 2005


I turned out to be right about TSX Group today, as it shot up 5.25% today.



October 7, 2004


I note that the TSX
Group released market statistics for September. The numbers were very
strong, a good increase year-over year in trading value and a huge increase in
total public offerings and secondary offerings (driven by Petro Canada). The TSC
Group was up today on the news and I think it should do relatively well tomorrow
as this news continues to be digested. I expect a Strong Q3 from the TSX group
which will lower its P/E. I continue to like it.


October 6, 2004


TELUS returns
to the stock list above as a speculative Buy. In some ways this company does not
fit my analysis methods that well because its earnings had been depressed. On a
P/E basis it does not look cheap. However, for the past 2 years I have suspected
that it would eventually look good as it begins to harvest all the cash flow
from its huge cellular customer base. Spending on customer acquisitions has been
obscuring the profits to some degree. But recently the net earnings have been
recovering very strongly. It still has to be considered speculative because the
earnings still need to rise sharply. However, I think it is an intelligent
speculation at this point. Operationally it is doing well with strong customer
growth and a low churn rate in cellular customers. The all-important cost of
acquisition of a cellular customer has come down to $381. At one time this was
over $600. With an average revenue per customer of $60 per month and with I
suspect low incremental costs per customer, this is a rapid pay-back situation.
Based on reasonable valuation and the strong earnings trend my strategy would be
to Buy now. I would hope for a good gain through the fall as the company reports
Q3 and then provides earnings guidance for 2005.


October 4, 2004


The latest free
newsletter dated October 2, was sent out on Saturday. If you did not receive
it, let me know and I will add you to that list. I keep separate lists for the
free newsletter and the paid subscribers.


I have added a new article that suggests that considerable caution should be
exercised when it comes to
investing in
Income trusts. TSX figures indicate that they are distributing twice their
earnings! It amazes me that even the Energy Trusts are not showing very good
profits at all in the past 12 months compared to their distributions. (This may
turn around with the $50 oil but I would not be an investor now) They are
focusing on cash flow to the point of flouting (update Oct 5, actually,
“thumbing their noses at” would be a better description than “flouting” since
they are following GAPP) or being very disrespectful of GAAP earnings. I am
afraid that this is eventually going to end badly. It’s easy to get
over-confident regarding Trusts because they have done so very well in recent
years. But of course when it comes to market corrections, things always look
quite bright until the cold darkness suddenly falls over us.


Stocks got off to a very nice start for the week. Hopefully more good times


October 1, 2004


Performance is
updated. Last week was quite strong. We ended up with the first two weeks of
September being strong, the third week quite weak and the fourth week quite
strong. The TSX is now up a respectable 6.4% on the year mostly due to resource
stocks. I am ahead of the TSX despite not covering resource stocks, so I’m happy
with that. The DOW is down 2.5% on the year. I think things look reasonably good
as we now await the third quarter earnings reports. I am hopeful that the
property and casualty insurance companies in particular will report strong
earnings. Certainly Northbridge was unaffected by the hurricanes…


September 27, 2004


A new article on investing in

Canadian Exchange Traded Funds (“EFTs”) has been added.


September 25, 2004


The Thomson
corporation is updated. It continues to look quite expensive based on
fundamentals but it has a lot of characteristics that make ita  reasonable
long-term pick.


This past week was not a good one for me as earnings warnings weighed on a
number of my picks. However, for 2004, I am still running reasonably well ahead
of the index and ahead of the great majority of Canadian equity funds including
hedge funds.


For a variety of reasons I don’t cover oil and gas stocks. For overall
exposure to the segment I would consider buying the Exchange Traded Fund on
Toronto that trades under the symbol XEG. If you believe that oil and gas prices
will remain reasonably high then you could consider XEG as a quick way to gain
broad exposure to the energy segment. EXG closed on Friday at $46.25 on Toronto.
The largest components of XEG are Encana, 17%, Suncor 11% and Petro-Canada 11%.


September 24. 2004


Cognos is
updated for its strong earnings release. I like the company but it still seems
expensive. I would consider buying below $40, if it should decline again to that


Financial Group is added as a new listing here. This was at the suggestion
of a subscriber. Also I had been seeing this company in the news for the past
few years. CEO, Scott Tannas has been very ambitious in his plans and he appears
to be delivering. Certainly this is speculative but it could do very well as it


September 21, 2004


Wendy’s came
out with a slightly reduced earnings estimate for this year of $2.25 to $2.32
per share down from $2.32 to $2.37. This was caused by poor weather, higher beef
prices including the hurricanes and by some unusual losses for litigation and
for its small Baja fresh  restaurant chain. Of course this is somewhat negative.
But in the big picture this is just a bit of “noise”. Earnings would still be up
10 to 12% versus 2003. In after hours trading the shares fell 3% to $34.50. So
if you own shares there was no opportunity to react to the news. Frankly anyone
who has ever been involved with financial reporting for a business would know
that it is somewhat ridiculous to think that a company can accurately forecast
in advance whether its earnings will be up 12% versus 14%. That level of
accuracy is a farce that can only be achieved if the company massages the
numbers somehow to make the target. Of course we would like to see the company
miss its estimate to the high side rather than the low side, but the point is
that missing the earnings target by 3% is hardly cause for alarm. The reasons
given seem real enough, we all know about the hurricanes.


At $2.25 for 2004 and the after-hours price of $34.50, Wendy’s has a P/E of
15.3. For a company growing at 10% this does not seem too expensive. And I
believe there is potential for accelerated growth in earnings as Tim Hortons
rolls into the U.S. Wendy’s has a good risk reward profile but may require a bit
of patience. Subscribers should review my analysis and draw their own


I contrast this little reduction in earnings to many Canadian company’s like
Hudson’s Bay or Air Canada who have often blamed outright losses on the weather.



September 20, 2004


The market now awaits the Q3 earnings reports to start rolling in starting
the second week of October. Meanwhile we see a few earnings warnings. On
average, U.S. earnings are expected to be up about 17% versus 2003 but this is a
smaller increase than we have seen the last year or so.


In terms of the top picks here some are recently up from my last analysis
date and some are down. Higher rated picks that are up include Manulife,
InvestorsGroup and Kingsway. Higher rated stocks that are down include TSX
Group, Northbridge and Melcor.  I continue to like all of these for the long
term. It’s always hard to buy the ones that are down a bit but I suspect that is
where the better bargains are. Northbridge is down near its 6 month low and
certainly looks increasingly attractive to me. Melcor suffers from a lack of
trading but seems like a no-brainer, for the long term, given the continued
health of the Alberta economy. TSX Group is more dependent on stock market
activity. I expect a reasonably good Q3. After that growth may be slower as it
will be up against stronger comparable earnings in the prior year but it still
should do reasonably well. I continue to definitely like Wendy’s as Tim Hortons
powers on. Other picks would include Sportscene Restaurants particularly at the
$7.50 or $7.00 level of recent trades, but again this is very tiny and very
thinly traded company and so is only suitable for small investors.


I have not added many new picks lately. The main reasons for that are that I
think the current picks are pretty good and I want to be selective about trying
to add better quality stocks. It is easy to get side-tracked on lower quality
companies that seem to be cheap but often end up going no place. I am looking
for some Business Income Trust ideas at this time.


September 17, 2004


Performance is
updated. The remarkable consistency by which the Strong Buys and Buys are up and
the Sells are down can be seen in the
2004 performance
numbers and graph.


This week Manulife really flew. I have not called it a Strong Buy this year
but I have consistently called it a Buy or (higher) Buy and indicated it was
definitely worth considering because it was lower risk. This is truly a World
Class Canadian company (maybe the only one we have now that Bombardier and
Nortel have fallen on such hard times). You can quickly find my prior comments
on this page by hitting “Control F” in your browser and seng for Manulife.
(Comments are under Aug 8, June 29, June 20, April 28, April 27 and Feb 18).
This stock is up 36% this year which is very sweet for a low-risk stock.


Entering September I was quite optimistic and so far my optimism has been
rewarded. I remain optimistic about the Fall because I expect the Q3 earnings
reports to be strong and because it now looks like interest rates will not be
rising (the all-important 10 year rates, that is).


September 15, 2004


Transcontinental is updated. This seems to be a good cash-generating
business. However earnings are quite volatile and it does not seem to be a
compelling bargain at this time. There is a moderate amount of insider selling
and that concerns me because a number of executives do not choose to hold any
shares. I rate it Weak Buy /Hold.


In order to lock in profits and because it is getting more expensive I will
notionally sell half the Sleeman’s at tomorrow’s opening price. Also half the
Transcontinental will be sold at tomorrow’s opening price. The proceeds will be
used to buy Wendy’s at tomorrow’s opening price.



September 12, 2004


Canadian Western Bank is updated. This is a well managed little Bank that is
growing steadily. I upgraded it to (lower) Buy. It is not a compelling Buy, but
then when one considers that it has been a very low risk stock, it is worth
considering. I would consider Buying at the recent price of about $42 and would
probably be a Buyer if it should fall below $40.


I was going to add Laurentian Bank to the Site because it seems to be cheap.
However, it is cheap for reasons that include low profitability some negative
growth features. It does not seem to have been very well managed. It might be a
good investment based on a take-over or turn-around but that is quite
speculative. I decided to ignore it. In any event, I already have a lot of
financials that I am covering.


The September
newsletter was sent out on Saturday (as an email link). If you did not
receive it let me know and I can check the email address I am using to reach


September 10, 2004


Performance is
updated and continues to be exceptional. I recently saw an article that
indicated that Sprott Canadian Equity has been the best performing Canadian
equity fund in 2004, with a return of 6.3%. I compare that to my personal 9.3%,
and my model portfolio and Strong Buys at 15.3%. And I did this by being
virtually 100% in Canadian equities.


A new companion article to my Dow Jones valuation article has been added. The
new article examines

whether or not the S&P 500 index is at a fair value at this time. The S&P
500 index trailing P/E is at about 18.7. That it’s lowest P/E since 1997. But
18.7 is not bargain territory. So… while it appears that the DOW 30 stocks may
be trading at an attractive level, the S&P 500 is less attractive. Overall, the
market is more attractive than it has been in about 7 years but that does not
mean it is set to rise. As a long term investor I would not want the risk of
being out of the market.


In any event I am a stock picker, but it’s good to know that the overall
market is starting to look reasonably priced. That should help prevent any
really big decline in the market in the near-term (barring big interest rate
increases or big terrorist events -there are always risks, but I believe in
investing based on the balance of probabilities).


September 8, 2004


I have updated my article that analyzed
whether or not the
Dow Jones Industrial Average (DOW) is over-valued or not. Essentially this
is driven by current earnings on the DOW, the expected growth and the expected
long-run P/E ratio on the DOW.  I assume that the DOW will grow earnings at
about the same rate as the overall economy grows. Over the past few years this
analysis was showing that the DOW was probably overvalued. This was because it
was trading at too high of a current P/E ratio. It was too high based on the
earnings of the DOW stocks. However, earnings of the DOW stocks have now
recovered well into record territory. The trailing P/E is down to 16.8. Based on
year-end figures it has not been that low since the end of 1995. And earnings
appear to be still be rising.


The bottom line is that the overall DOW is starting to look attractive to a
value investor for the first time since 1996. Given today’s very low interest
rates the DOW can support a somewhat higher than average P/E. If earnings keep
rising and if interest rates don’t rise very much, we could be setting up for a
strong increase in the DOW. Of course the DOW P/E might well continue to decline
in which case a rise in the DOW will be delayed. But the point is that stocks
are at their cheapest average level (compared to earnings) in about 8 years. I
therefore feel pretty comfortable being in the market. The nature of the market
is that people felt more comfortable investing in early 2000 when the DOW P/E
was at 24 and rising, than they do now at 16.8 and falling.


The fall in the DOW P/E was not caused by a drop in the DOW but mostly by a
sharp rise in earnings.



September 4, 2004


I have not updated the Performance figures this week, but the model portfolio
and my own stocks were up slightly. The Strong Buys from the start of the year
were down slightly.


Savings Income Fund is updated. I really respect the company and it probably
has an upside as it adds customers. However it is already pricing in a lot a of
growth and therefore has a down-side on any hiccup. I am not a buyer at this
time but would be interested should it dip below $13.


September 3, 2004


Fairfax has
fallen to about U.S. $130 and also the Fitch credit rating agency put it on
watch. The company responded by asking Fitch to stop rating it since it has four
other credit rating agencies that it has better relationships with. This kind of
reaction from management is a bit troubling. It goes to show that Fairfax is
indeed a speculative pick. Some subscribes have suggested they can’t buy such a
high priced stock because it costs over U.S. $13,000 to buy a board lot of 100
shares. I had no problem buying 20 shares on Toronto. It is true if you enter an
order for less than 100 shares you might find that your offer is not the first
accepted, even if it is the highest. Also be cautious with market orders of
under a Board lot amount, you could be charged a higher price. But you can offer
to buy at whatever price you want as a limit order and my experience is that it
is not at all difficult to buy less than a board lot at the market price. My
usual rule is to invest at very least $2000 so that the round-trip commission is
limited to 3% ($60/$2000) and 1.5% for the buy. My more preferred minimum is
more like $4000 and of course the more the better to limit the commission. On
the other hand this stock is volatile and I prefer to buy in smaller lots to
average in, because the price could easily drop (temporarily I hope). If that
works out to 12 shares for $2000 worth, so be it,  I will place an order for 12


The stock that I am most comfortable buying right now is
Wendy’s. Its fun to own a stock like this because I know it is good value
and every day I see people walking down the Street with Tim Hortons coffees. I
also frequent Wendys because I can get an excellent hamburger there, special
ordered the way I want it, in about two minutes flat. The Wendy’s are busy and
the Tim Hortons are usually very busy. On September 1, the company released
August same store sales (that’s right August same store sales released on
September 1!) and they were strong. The stock is up nicely the last few days. I
would not hesitate to buy at this price. It’s not a stock that will double in a
year but it should do well and I see little potential for much of a move down –
barring some real catastrophe.


August 29, 2004


Financial holdings, a property and casualty insurance conglomerate, is added
as a new listing. This is the parent of
Financial. Fairfax is a Canadian company but most of its operations are in
the U.S. It reports in U.S. dollars and trades in both Toronto and New York. I
am using the U.S. trading price for my analysis. Subscribers should review my
previous comments on insurance companies
(Aug 16 newsletter
in particular). The company has a history of mostly strong but very volatile
earnings and with losses in some years. The company is currently trading at
about 73% of book value.


Now it is certainly NOT the case that the accounting book value of a company
generally represents its true value. In fact most companies are worth more than
book value and some are definitely worth less than book value. However, a
financial company should not generally be worth less than book value. That is
because the assets and liabilities are financial in nature and are generally
more easily sold or converted to cash than is the case for physical assets (such
as specialized buildings and equipment). The auditors are generally required to
insure that financial assets and liabilities are shown at reasonable or
conservative values. However, the net book value of this company is definitely
an estimated and uncertain number. However the estimation of the figures on the
balance sheet are subject to heavy regulation and standard procedures.


When the market prices Fairfax at 73% of book value then the market is
essentially saying it does not believe that the auditors and actuaries got it
right. The market apparently thinks that the risks are higher or that the
balance sheet is not conservative enough, that claims payouts will be higher
than estimated. That could be true. But to my way of thinking, the market is
offering me a 27% head start here. It is always possible that this company could
really crash and burn but I think that is a remote possibility. On average I
believe investors would do very well by investing in big companies like this
that are not under any immediate or known financial threat and that are
nevertheless available at well under book value.


I call this speculative mostly because the stock price has been very
volatile. But I think there is a margin of safety here and to the extent it is
speculative that is probably more so to short term investors.


In early 2003, I missed a golden opportunity when this stock fell to under
$50 U.S. before quickly roaring back above $200. Essentially what had happened
was that some U.S. insurance industry stock analysts had effectively argued that
the accounting book value was inflated because the future claims estimates were
too low. The risk still exists that they were right. But I will trust the
auditors here. I think the 27% head-start that the market is offering me is a
pretty good investment.


But be aware that things could always get worse before they (hopefully) get
better. Q3 could easily be a bad quarter for the company. This should be
considered a long-term investment and one in which a position should probably be
built over time in case the price does drop.


As a general indication of the fact that the market can sometimes definitely
be wrong, consider that at the end of 1998 this company traded at 4.5 times book
value. That was an outrageous multiple for a financial company. The
market was far too optimistic then and in my opinion is probably being too
pessimistic at this time.


August 28, 2004


Performance is
updated. The Strong Buys and the model portfolio as well as my own investments
did quite well this week while the TSX was flat on the week. Right now I am
working on Fairfax Financial. Perhaps I am over-emphasizing property and
casualty insurance but I see some bargains in this sector and Warren Buffett
preaches the importance of trying to develop an expertise in one or a few
segments rather than spreading your investments over all sectors. This industry
is very different than most. I am certain that the vast majority of even the
likes of MBAs and professional accountants have almost no understanding of how
to interpret the earnings and the balance sheets of insurance companies. As for
the average retail investor or even broker, there is no hope that they
understand these companies. So… while there will always be risks with these
companies, and I still have more to learn about the industry, I have to think
that I have a real advantage in looking at these companies versus the average
market participant.


August 24, 2004


DALSA corporation
is updated and upgraded to speculative buy from speculative weak buy. The
upgrade is because the price has fallen sharply from $23 to $17.35. At the same
time earnings were up 76% in the recently released Q2 and guidance for the year
was raised. This is a complex company in that it makes semiconductors and
digital imaging products, hardly household goods and not items that I am
familiar with. However, management appears to excellent and ethical. It is
trading at a reasonable P/E and this is in spite of a large R&D expense that may
be causing earnings to be under-stated. Given the strong earnings growth and
reasonable valuation, this is a good pick to add some speculative “juice” to a
portfolio. I hold a small amount and am very comfortable holding this. There is
essentially no debt which means that we are in no bankruptcy danger if it does
hit a dry spell. The run-up in price past $23 and subsequent decline was on
fairly low volume, it may be the price got ahead of it self and has now simply


Well Robert Milton has done it, finally piloted Air Canada shares down to
close to zero. The strange thing is “everybody knew” the shares were worthless
for at least 9 months now and yet they traded mostly over $1.00 valuing the
company at over $80 million. Even today $70 million shares traded (out of about
80 million total so can assume some shares traded hands at least twice today).
Even if the average price was only 10 cents today that is $7 million thrown down
the drain. Some of that is short sellers buying in, but only a small part since
the short interest was in the 10 million share range.


I don’t buy the story that short sellers were the reason the stock was up at
$1.00. I put the blame on investor stupidity/ignorance and quite possibly
stupid/ignorant or unscrupulous brokers who may have recommended this stock
partly to churn accounts. Clearly the brokers made a ton of money on commissions
as millions of worthless shares traded each day at $1.00 or more for months on


The message I take from this is that the market certainly is not always
efficient at all. The lack of efficiency means there are bargains out there
(hopefully my Strong Buys are examples).


August 22, 2004


Canadian National
Railway (which now likes to be called just CN) is updated. This is a great
company and they have done very well. I called it a (lower) Buy but considering
the low risk for a long-term investor, I could have rated it Buy. Should have a
strong Q3 with grain movements. However, the high Canadian dollar and high fuel
prices may hurt it.


Breweries is updated for an excellent second quarter. This is a great little
company, but the price does not seem compelling at this time. I rated this a
(lower) Buy although I might almost equally have rated it Buy. The stock price
is up significantly this year. Q3 should be their strongest but they may not
exceed last’s year’s level by too much given costs they will face this year to
integrate a new acquisition. Probably a reasonable longer term pick. A bit of
insider selling caused me to be a little cautious at this price.


August 21, 2004


Canadian Tire
is updated. I have under estimated the company in the past. They have really
done well. They seem to have a low-cost way of acquiring credit card customers
with in-store promotions and the credit card business has been lucrative for
them. Still, at the current price, I don’t see them as a compelling buy.


August 20, 2004


Stantec is
updated. I last called this a Weak/Buy hold at $27, and I was right to say I
would not buy at that price. Now we are at about $22. Earnings growth has slowed
but should resume. This may be a good opportunity to get in before a price rise
but I am still a bit cautious until the earnings growth resumes and until a lag
that has developed in invoicing customers is resolved. Absent that I would look
to Buy below $20.


Performance is
updated. If you check the graphs under the Performance tab you can see that the
relative consistency with which Buys have moved up and sells have moved down.
This was a really strong week for my Strong Buys and the model portfolio. Last
Friday, August 13 turned out to be (at least for now) a bottom for many of these
stocks and they were looking quite cheap. But at that time the market had been
declining for some time and it seemed like a major chill was blowing over the
market. Logically we should be buying at that time but psychologically it is
very hard to Buy when the trend is negative. That’s why I generally try to
ignore the  trend. Once in a while I will get burned by ignoring the trend. But
more often such a strategy allows me to buy great companies at good or great


August 17, 2004


EL-Financial is updated. This not-very-well-known company owns Dominion
General Insurance Company as well the Empire Life Insurance company.  It is a
complex company and earnings are hard to predict. But 2004 is shaping up to be a
very profitable year. The stock is trading at book value. Normally buying solid
companies at book value is a good investment. In this sector Northbridge would
be my top pick at this time followed by Kingsway. However, I am probably wise to
hold all three to spread my risk. They all seem cheap.


I was feeling a bit badly that
Wendy’s had
fallen 10% or so to about $32.75 since I recently called it a Strong Buy. But
then today it rose almost $1.00. It is inherent in my methods that sometimes I
go against the trend. I call it a bargain and it may still drop. But ultimately
if I am right about the earnings and fundamentals it tends to go back up. My
record is pretty good. (But there are always risks and exceptions) In this case
the insanity is that on YAHOO the average analyst target price is about $40.00
but the rating is basically hold. That does not make sense. In this market we
probably don’t have to be in a hurry to buy. Rather we can nibble at price
drops. Similarly
Melcor is thinly traded and has dropped lately. I definitely think it will
be a good investment.



August 15, 2004


The latest issue of the free newsletter has been sent. You can access here



If you did not receive it then let me know. I use separate email lists for
the free list and the paid subscriber list.



August 14


Performance is
updated. This week particularly was a bad one for many of my favorite picks.
Still, the model portfolio and the Strong Buys are well ahead of the TSX index
for the year.


August 12


I am not much for trading in and out of the market but it certainly seems
like the market is in a down-draft and I would prefer to be somewhat higher in
cash. However, I still feel comfortable holding and or buying the Strong Buys
the (higher) Buys and the model portfolio. I expect things will get worse before
they get better, but then again the general market can sometimes turn around
very quickly.


Restaurants is updated for its recent very strong fiscal Q3 report. It appears
to be on track to finish out its year end on August 31 with another good
quarter. If so, the stock price would likely rise to at least $10. But those
earnings will not be out until around early November or later.


This stock is extremely thinly traded, as well as being quite tiny, and
therefore not an ideal stock for me to cover. But individual investors who want
to buy and who are patient should be able to get it. I would be cautious though
since one does not necessarily want to pay the asking price on such a thinly
traded stock.


August 9


Regarding the market in general, clearly it has been in a down-trend. I don’t
try to time the market. If the market is going to fall, I feel pretty good with
most of my portfolio invested in companies with reasonable price earnings ratios
and increasing earnings. Recently the Q2 earnings have been very strong and yet
the market has declined due to oil, jobs and interest rate worries. Basically,
the market is fundamentally a better value than it was 3 months ago. If I were
holding a lot of high multiple stocks I would be much more worried. It is always
possible that the market could decline significantly pulling everything down. In
that case serious bargains await us. But I am not going to sell and take that
chance. I feel pretty good buying and/or holding the Strong Buys and higher Buys
on this Site.


A case in point…
IGM Financial
(formerly Investors Group) is updated. Q2 earnings were stellar with a 16%
increase and with a continued 20% ROE. But the stock price has recently fallen a
bit. Clearly the recent fall in the market will hurt this company somewhat in
Q3. But the overall earnings  trend has been very positive. I expect earnings to
be down from Q2 but still up from Q3 last year. Mutual funds for the company
were still in net sales (as opposed to redemptions) as of July. However, August
may be difficult, it depends if retail investors start to flee the market if the
down-trend in the market continues. But overall I still find IGM to be a good
value. My strategy would be to average in.


If I were sitting on a lot of cash I would want to average in slowly to high
quality stocks. Many stocks are a much better value than they have been for some
time as earnings have risen and prices have not done much or have fallen. But
there is always the chance that things will get even cheaper so keeping some
cash is a good idea.



August 8, 2004


Manulife is
updated for its recent strong earnings release. This company is a rare example
of a Canadian company that is a “world class” company. Historic revenue and
earning growth has been very strong. With an equity market cap of $43 billion,
the company indicates that it is now the biggest Canadian company when measured
by stock market value.


August 7, 2004


SICO Inc. a
paint manufacturer and distributor is updated. I rate it a Buy. It could be a
potential candidate for conversion to a business income trust which would give
it additional up-side potential. I own shares but will not buy any more at this


Developments is updated. It is a real pleasure just to look at the balance
sheet of this company. Here is a company that has original invested equity of $8
million (the company started out in the 60s) and has retained earnings of $137
million. In addition to the retained earnings it has paid out quite a few
millions in dividends. This company recently was earning about 13% on equity and
was available at near book value. You can expect to earn about 13% per year if
the company continues to earn 13% ROE and if the P/E and price to book remain at
today’s low levels. Any increase in the market multiples would add to your
return.  I rate the company a (higher) strong buy because I expect it to
continue its winning ways. I don’t expect any drastic decline in building lot
sales or prices in Alberta. If held for at least 3 years, I see little downside
and a definite possibility of a 50% gain in a 1 to three year period. As always
there are no guarantees…


The recent stock price was $49.44, given the low trading liquidity, the
bid/ask spread is high.


August 6, 2004


The markets certainly got hit hard late this week. However the Strong Buys,
the Buys and the model portfolio on this Site were, on average up somewhat for
the week. I will update performance at the end of next week. Above, I updated
some comments about the model portfolio table. Lately I have been very pleased
by both the the earnings performance and (to a lesser extent) the market
performance of the model portfolio stocks. Currently the model portfolio has a
weighted average P/E of 12.5. These stocks are mostly relatively “cheap” on an
earnings multiple basis and on a multiple to book value. This kind of portfolio
tends to outperform the market over the long term and also offer better
stability. When the market declines, value stocks tend to hold up better than
average. When the market rises, these stocks can lag, but if they deliver strong
earnings growth then they rise on that basis. They are less driven by market
sentiment and more driven by earnings performance.


Kingsway Financial rose a little bit today in a declining market, based on
its earnings release. The “market” definitely remains skeptical about this
company. It looks like we are going to have to be patient before we see big
gains from Kingsway. But if earnings continue at the current level or (as I
expect) rise, then this stock will rise. There is not much room for the P/E or
price to book ratio to decline so if earnings rise the stock will rise.


I have discussed previously the unique nature of property and casualty
(liability) insurance companies. They collect insurance premiums. About 25% of
the premiums are typically used to pay expenses including commissions to
brokers. Claims paid out to customers cause total expenses to rise to an average
of roughly 95% to 105% of premium revenue. This causes an average insurance
“underwriting” profit of 5% to a loss of 5%. So far this does not sound so good.
But the reality is that the claims to customers are typically paid out many
months or even years after the premiums are collected. Meanwhile the insurance
company invests the proceeds.


In the case of Kingsway a virtual mountain of invested assets has built up.
Shareholders equity is about $800 million. But the total invested assets are
$3,100 million. As a result if Kingsway earns 4% on investments then this
translates to 4% times 3100/800 = 15.5% on equity and this is on top of any
return on equity earned on the insurance itself. Traditionally, insurance
companies were happy to break-even or even lose a bit on the insurance itself
and made their profits by investing the premiums. In today’s lower interest rate
environment it is more important that they at least break even on the insurance


If all goes well, Kingsway behaves as a cash engine, continually building up
its invested assets.


However another characteristic of this type of company is that the claims
expenses are all based on estimates. It can be very difficult to predict the
claims payouts. Accidents occurring in one year can take years to wind through
the courts and the ultimate court awards are hard to predict.


Unfortunately Kingsway has had a bad habit of under-pricing its insurance and
then having to continually book expenses related to increases in claims from
prior years. In essence the reported profits in the past have often proved to be
in a sense partly fictitious. Despite that Kingsway has managed to grow retained
earnings partly because it has grown rapidly so that its past sins are easier to
make up for on a larger current revenue base.


The result is that reported earnings for any year are not very reliable. They
may turn out to be be understated or overstated when all the claims are finally
settled for that year (which will be some years into the future).


Now… the company says that it has finally become much more conservative in
“reserving” for claims. For example at this time 42% of its reported liabilities
for claims ($821 million) relate to claims “incurred but not reported”. The
company reports that this is much higher than many of its peers. If so, this
could represent a hidden asset. This $821 million is not owed to anyone and
represents claims that have not even been reported. The company clearly thinks
that much of this will ultimately be paid out when claims that have already
happened are actually reported and finally settled.  But listening to the
conference call, I got the distinct sense that management thinks that there is a
cushion here.


It may even be that Kingsway has attempted to report lower earnings by
increasing its estimates for claims in this fashion. We all know about the
controversy over high insurance prices. It seems to me that the company has a
strong incentive to report no more than a reasonable level of profits.
Hypothetically, if they are making excessive profits this can be “hidden” by
being very conservative by increasing reserves for future claims. The profits
could then be recognized in later years by recognizing that the claims estimates
were too high.


This is a long story but the bottom line for me is that Kingsway looks like
an excellent value stock. There are always risks but I feel very good about the
potential of this stock to rise 50 to 100% within 12 months. (But please
remember, you invest at your own risk! and note that I thought the big rise
would have occurred already but it did not).


Northbridge Financial is in the same industry but has been much more
profitable and has not had problems with having to increase reserves for prior
years. Northbridge will likely be a more stable stock but also represents good
value (although a higher price to book value) with an excellent potential to
rise by 50% within 12 months. I am comfortable holding a significant weighting
in both. I have a higher weighting in Northbridge. As final point, not that
Warren Buffett made much of his fortune by investing in insurance companies and
that makes me feel more comfortable about investing in the industry.



August 5, 2004


Financial is updated for earnings released after market close today. The
earnings were quite strong. They would have been even stronger except the
company continues to add to reserves for potential claims. This stock should be
set to rise sharply. However the market has yawned at good earnings lately and
so it may be a slow rise. I rate it (higher) Strong Buy. I am no longer calling
it speculative, all stocks are speculative to some degree but I think the value
here based on the earnings and book value makes it less speculative than it was.
I view
Northbridge as a higher quality company, but Kingsway is lower priced with
respect to book value and its current earnings appear to be understated, due to
reserves for prior years and increases to “losses incurred but not reported”
whereas Northbridge may be at the top of its earnings cycle. I would be
comfortable with equal dollars in the two companies at this time.


August 4, 2004


International reported strong same store sales increases for July. The
company owned Wendy’s were up 3.9% while the franchise Wendy’s were up 2 to 2.3%
(but note most Wendy’s are franchised and so overall is probably closer to 2.5%
growth). The Tim Hortons same store sales growth was a huge 8%. There are now
228 Tim Hortons in the U.S.   I continue to suspect that the U.S. market does
not appreciate the strength of Tim Hortons even though it already accounts for
44% of Wendy’s profits while it is only 28% of the store count and despite the
fact that 23% of Wendy’s are company owned and only 2% of Hortons are company
owned. Company owned locations should be far more profitable than franchise
locations given the higher investment by the company.


Morons at the Gate…


I just sold my WestJet shares. I had only rated it a “(lower) buy” but then
decided to buy on speculation. A number of things cause me to lower my
expectations here. First, I heard advertisements today for Jetsgo offering
ridiculous prices well under $100 for flights in Western Canada and even
something like $89 from Edmonton to Halifax!.


An hour ride in a taxi costs about $70 and and yet these morons are charging
less than that for flights around 1 hour and some fares that work out to $20 or
less per hour in the air. I don’t know that much about Airline costs but I am
pretty certain that these fares are HUGE money losers. As long as WestJet faces
moronic competitors like this it will not make decent profits. I recently flew
out of Toronto and I saw the likes of Jetsgo and Canjet. Actually seeing their
planes helped me realize the problem that WestJet faces.


In addition WestJet just reported a poor quarter and the lawsuit from Air
Canada grew from $5 million to $220 million. Also Westjet had a history of
making profit using exceedingly old airplanes and avoiding Toronto. Now they are
buying new airplanes and flying into (high cost) Toronto, so this is almost a
new business model for them.


I still pick Westjet to be the last man standing but meanwhile all players
are going to lose money or at least have inadequate profits.


So… I sold my shares and will not consider buying again unless the stock
drops to the $9.00 area and/or the profit situation is resolved. I am removing
the report on Westjet because it is now outdated and it is not worth updating at
this point, unless subscribers have a particular interest in it.



August 3, 2004


a very big winner for me in 2003 that has since fallen in price is updated and
upgraded based on a strong Q2.  The numbers indicate Strong Buy but I am also
rating this high speculative. The best value investors in the world suggest
sticking to the highest quality companies that you really trust. Although cheap
this company would not pass that test. Still, it might be a worthy speculative
pick. Overall, I rate this a highly speculative Buy. (Initially I posted as
highly speculative Strong Buy but quickly had second thoughts)


August 2, 2004


Northbridge Financial is updated. I am calling it a Strong Buy rather than a
(higher) Strong Buy as indicated in my recent email to subscribers. The P/E
based on actual earnings is very attractive at 8.4. However the earnings were
achieved based on an underwriting profit ratio that was unusually high and also
based on realized investment gains that are somewhat higher than recent years.
Still, the company seems cheap with a price to book of 1.52 and 1.34 after
including unrealised gains on investments. My expectation is that very good
underwiting profits will continue for the short term and that this will push the
book value and the share price up. However, the market does seem skeptical
(given the low P/E) and therefore this investment may require patience.


The updated reports for
TSX Group,
Home Capital,
Wendy’s International
and Loblaws
are now added to the table above. These reports were distributed to subscribers
by email in July because I was unable to directly update this Site while on


August 2, 2004


I am back from vacation.
Performance is
updated. The Strong Buys and the model portfolio performed very well during
July. The Q2 earnings for most of these companies that have been released have
been strong. While the Canadian market is up slightly on the year and the U.S.
market is down, my own portfolio is up 10.4% this year, the Strong Buys are up
an average 14.4% and as detailed above, the model portfolio is up 14.5%… so I
think the performance of the stock picks here has been quite good this year.
(Some of the richest and most successful investors in the world target 15% per
year as a realistic and very good return if maintained over time.)


During July I was able to communicate with subscribers by email and sent a
number of updates. Most of these were sent from “Lisette Messervey”‘s email and
had “Shawn Allen” as the first part of the subject line so that you would
recognize who it was from. However, the emails for a very few subscribers
bounced back as undelivered. If you did not receive emails in July, particularly
later July dealing with the Q2 earnings reports let me know and I can check my
email address and also let me know if you are requesting a refund for July.


Meanwhile… based on the strong Q2 earnings and a market that is still
cautious there are a couple of companies that I feel very good about including
Northbridge Financial and Melcor Developments in particular. I will upload
reports on these companies later today, the July emails indicated that these two
were quite Strong Buys or “no brainers”. (Remember these are “ratings”, I don’t
give recommendations as such since I am not licensed to do so and since I don’t
know your personal circumstances. This a bit of a legal distinction but
understand that I am holding those shares myself, indicating my confidence in


July 6, 2004


Note that updates may be sporadic at best in July. I will be traveling and
whether or not I can update this page will depend on technology. If it
should turn out that I am unable to do updates then subscribers will be credited
a free month, but my plan is to continue with a reasonable amount of updates,
technology permitting. Also I way be away from email for much of July. I will
try to respond to any emails, but there could be significant delays.


So far, it looks like I was too conservative on West Jet. It is up from
$13.50 to $14.05. I bought a few shares at $13.97, having hesitated at $13.50.
It could move back down if earnings in Q2 are no good, but longer term I think
this is a good company. I would not load up though because it is a risky


The TSX Group has moved up a bit lately and I think it will report a strong
Q2. I am considering adding to my position here.


Regarding Wendy’s
I think we Canadians may have an advantage. Tim Hortons accounted for an
astounding 44% of their world-wide profits in ’03 and most Americans have never
heard of Tim Hortons. I don’t see any reason that Tim Hortons will not do very
well as it is rolled out (or is that rolled up?) across the U.S.


A Motley fool article July 1 indicated Wendy’s sales were not doing so well
and said:


The June backslide led to a mere 2.3% increase in Wendy’s same-store
sales, as compared with May’s whopping 6.7% growth. However, Wendy’s Tim
Horton’s concept eked out a 9.5% same-store sales increase in the U.S.


Wendy’s blamed wet weather on the apparent lack of traffic to its
restaurants; June weather, routinely described as cold and wet for much of the
country, has been blamed for discount retailers Target (NYSE: TGT – News) and
Wal-Mart (NYSE:


I’m not so sure a 2.3% same store increase is that bad, in a wet month, and a
9.5% same-store growth at the U.S. Tim Hortons is a bit better than the term
“eked out” would suggst.


For whatever reason Wendy’s is a bit out of favor in the market lately, I
view this as a definite opportunity. This is a stock that I am considering
buying more of.



July 3, 2004


As promised,
Westjet is added as a new listing. Not incredibly cheap despite the price
decline, but this is a very smart well-run company that has much growth ahead of
it. I fear it may drop a bit more yet as Q2 may not have been very good. Also
June passenger data will be out Monday or Tuesday and will likely move the stock
one way or the other. I am inclined to Buy a small amount and then wait and see
what happens in the next 6 weeks, adding more if the price drops.


June 29, 2004


No new updates but I can make a few comments about some of the picks and
recent prices.


Q2 ends tomorrow but earnings will not be out until starting mid-July


TSX Group has certainly been falling. The P/E is around 19 so not ostensibly
cheap. But when you think of it as an unregulated monopoly, 19 times is not too
bad. See my comments under June 6. I think this is a high quality company, could
always drop short-term but I think it is a good time to buy. If I had none, I
might buy some now but be prepared to buy more if it dropped to lower 40’s. It
has been very breifly at 60 and for a longer period at 55 but the market has
quieted since then…


Someone got 100 shares of Melcor today at $45.75, bouncing $45 to $47 lately,
very thin volume, P/E around 8 to 9, trading at about book value. They own land
around Edmonton and Calgary that they develop for houses. Lots are selling
slower this year than last, but prices still high. I can’t imagine a scenario
where I lose money on this if held for 5 years and yet it is not too hard to
imagine it doing very well like a double in 5 years. If you don’t think that is
very good then you are a gambler not an investor.


I’m certainly hopeful that the earnings on the insurance picks KFS and NB
will be good… Always hard to guess with insurance…Manulife has done well,
always a good pick on pull-backs it seems.


June 27, 2004


The latest edition of the
free newsletter
has been sent last night. If you did not receive then you are probably not on my
email list for the free newsletter. Let me know if you want to be added to that


I hope to add WestJet to the Site very soon (next weekend at latest).


June 20, 2004


In terms of what to Buy right now, as always the reports above are my views
as of the date of each report. I continue to like in particular TSX Group,
Wendy’s International, Melcor, Investors Group and Northbridge. Sportscene
restaurants is very tiny but is probably good if you can get it under $7.25.
Manulife and Loblaw are also good. In my view a portfolio consisting of those
names would be relatively low risk and probably offer above average returns.


Within a week or so I hope to Add West Jet to this page because it might be
attractive after the recent decline in its price.


Atlas Cold Storage


I was interested in Atlas Cold Storage Income Trust because its unit price
has fallen from $13.42 to $4.75 and I thought it might be getting to the point
where the units were trading for less than the asset value and might be a
classic value situation.


However, the Atlas units are still trading at 81% of book value, calculated
as Trust Equity of $363.9 million divided by 61.8 million units outstanding
(basic and diluted).


81% of book value would normally be considered attractive but given all of
the problems that Atlas faces, this is still not a compelling bargain.


Here are Atlas’s major problems as I understand them.


Restatements of financial statements precipitated a total loss in confidence
of the former management that has resulted in a total replacement of top
managers and trustees. The top former executives are now facing quasi-criminal


The company has about $206 million in debt that is due and payable on July 23
and which it does not have the cash to pay and no new borrowing is in place.
This can likely be extended but the lenders are charging high interest rates and
fees on top of the interest.


There is a class action law suit against the company in the amount of $358
million. If successful this would likely put the unit value at about zero.
Meanwhile this action is causing the company to spend on lawyers and


The majority of the assets consist of buildings ($402 million) and equipment
($161 million). On a going concern basis I would normally expect these assets to
be worth significantly more than book value. However, since most of the goodwill
was written off in 2002 and 2003 I have no confidence that these assets are
worth any more than book value. On a distress sale basis they may not even be
worth book value.


It’s hard to tell if Atlas is generating any free cash flow. It generated
just less than zero in Q1. But this was impacted by a cost of about 10 cents per
unit in professional fees. Absent the professional fees it would appear that
Atlas would have generated about 9 cents per unit in Q1.


U.S. revenues in U.S. dollars declined slightly in Q1 versus the year-ago


With all these problems, it may be too difficult for the company to get back
to normal operations and eliminate all the unusual professional fees, any time


Overall, there are just too many problems here for me to consider investing
even at 81% of book value. The lenders will insure that the entity keeps
operating but they may do it in such a way that they end up owning the equity


If the company could convert its debt into at least a five year mortgage loan
then things might turn around quickly for a fast gain here. But it just seems
too risky to me. I’ll try to take another look at this in late July.


As an aside, the former management appear to have been exceedingly
incompetent. I am not aware why the Trust was not capitalized with more equity
and less debt in the first place, or at the time of acquisitions. Also it seems
very curious that there was not long-term mortgage financing in place for the
building and land assets (if not equity).


June 19, 2004


Performance is
updated. Right now I am taking a look at Atlas Cold storage and may add to the
Site as a new pick if it looks good.


June 11, 2004


Regarding Wendy’s
international and its Tim Hortons business I am reminded of what Warren
Buffett said about cigarettes as an investment which was something along the
lines of… make it for a penny, sell it for a dollar and it’s highly
. The implication being that the economics of the cigarette
business were extraordinarily attractive – but that was before all the big law
suits. But I think much the same applies for coffee, the incremental cost of
making a coffee is probably not more than 10 or twenty cents including the cream
and sugar and the selling price is over a dollar and the product is highly
addictive, consumed several times daily and with a huge loyal customer base. I
walked by a Tim Hortons in downtown Calgary yesterday morning and every third
person on the Street was holding a cup of their coffee and inside there was a
crowd. Considering all of that and the fact that Wendy’s is selling for a P/E
around 17 which is not a screaming bargain but also probably not too high, I am
very comfortable owning this stock. And note that Tim Hortons contributed a
surprisingly large 44% of Wendy’s Internationals profits. I like Wendy’s as well
so for me this “combo” is irresistable.


Transcontinental is updated but maintained as a weak buy/hold. It is
possible that its free cash flow is significantly higher than earnings but I am
not yet convinced that this will continue. If it is the case then they ought to
be able to increase the dividend substantially which could lead to a higher
share price.


I intend to analyse West Jet soon. The price has declined but the P/E is
still not very attractive at 26. Still, this is a great company and it may be a
good time to acquire it. Their load factor fell recently, but I think that
simply demonstrates their rationality. They were not willing to lower fares to
match the money-losing fares of Air Canada and a few other brainless companies.
I understand that their costs are about half of Air Canada’s per mile flown and
ultimately the low cost provider in this business will win. Note that I have not
analysed it yet and have no opinion on the stock until I do. (I have a high
opinion of the company but no opinion on the stock price).



figures are updated. This last week was quite positive for my stock picks.


The Forzani
Group is updated. I have further down-graded this from weak sell to an out
right sell. (But I do not recommend short selling it). They continue to see
declines in same store sales and “price deflation”. For reasons indicated in the
report I am not comfortable trusting this management. I continue to cover this
stock because I did previously own it and because I think there will come a
point at which it will turn around. Some of the best gains can be made by
continuing to monitor companies that are experiencing difficulty, because when
they resolve the problems, the price can rise quite quickly.


June 7, 2004


The latest edition of the free newsletter has been sent. If you did not
receive it, you can access at

http://www.investorsfriend.com/June%207%202004.htm. Let me know if you want
to added to the list for this if you are not already getting this. (The free
newsletter in only sent about once per month).


The free newsletter talks about companies that can generate very high profits
on incremental business. I think the TSX Group is an example of that. Their
costs do not change that much when volume increases and therefore they can make
very high profits on their revenue growth.


Banks are another example as they become increasingly electronic. They pick
up revenue from electronic transactions. Their fixed cost for the technology are
high but their incremental cost on volume growth is very low.


I note that TSX Group dropped again today (to $50.80). While one can always
hope for a lower price, I think it is very attractive at this price.


I notice that my insurance companies did very well today, hopefully, the
start of a trend.



June 6, 2004


Canadian Western Bank is updated. I am calling it only a weak Buy at this
time. But it is a lower risk stock. It has doubled in price in the past 5 years.
I would be more interested at a somewhat lower price. It’s worth keeping an eye


Group dropped $1.24 yesterday to $52.25. I last called it a (lower) Strong
Buy at $50.00.


On June 3, the company released its trading statistics for May which
indicated that the trading volume on the TSX was up only 1% while the value of
trades was up 24%. Year to date the volume is up 39%. According to their annual
report, trading revenues rise with both volumes traded and the value of trades.


While the market has slowed somewhat, it still seems highly likely that the
profits of the TSX in Q2 will be up significantly from Q2 2003.


This company is unregulated but has a virtual monopoly. It also conducts
business largely electronically so that incremental business is highly
profitable. I continue to think this company is an excellent investment.


I note that TD Waterhouse analyzed the May trading volume and rates the
company a BUY with a target price of $60.



June 2, 2004


As an investor in several property insurance companies, I was delighted today
to hear that two insurance companies are pulling out of the Newfoundland market
because of government insurance rate roll-backs. One of the companies was a name
I had never heard of, but the other was Dominion General Insurance Company which
is one of the countries largest property insurance companies and is owned by
E-L Financial.


The story said that Dominion General was pulling out and refusing to insure
drivers in Newfoundland. In reality they are only refusing to take new
customers. This will send a small shock wave through the land as governments
make plans to interfere in the free market for insurance and try to cut
premiums. The next step would be for them to refuse to renew existing policies,
that would really be a shock.


Smart insurance companies refuse to take on business that is unprofitable.


Hopefully, this news will make governments think twice about their roll-back


May 31, 2004


Financial has been falling. (as have a lot of stocks) I don’t know any
particular reason. They did just sell off a small life insurance division for
$20 million for the shares. They got a pre-tax gain of $4 million, so a gain of
25% on the $16 million book value.


This was a small non-core area for them.


The market may be thinking that Q2 will not be as good as Q2 last year since
last year they had big realized capital gains on stocks. But even if Q2 this
year is well below Q2 last year, the P/E will still be very low here. And the
operating ratios indicate that this is a very profitable insurance company. Note
from the report that this company is mostly in commercial insurance and property
insurance rather than car insurance which has been more volatile.


It looks cheap to me and I would not revise my rating. However, I already own
a fair amount and I am not going to buy more at this point. It is not wise to
get over-exposed to the company. But I am definitely not selling.


May 29, 2004


International Inc. is added as a new listing.  Wendy’s owns Tim Hortons.
Canadians are well aware of the obviously high profitability of Tim Hortons. It
seems to me that Tim Hortons will continue to do very well against other coffee
shops. In addition, it has added enough other items like soup and sandwiches to
do well in the fast food segment as well. And I think its newer menu items fit
in well with the movement to healthier choices. I definitely see lots more
growth for Tim Hortons and I see no reason why they will not do well in the U.S.
as well. I was pleasantly surprised to learn that Tim Hortons makes up 46% of
Wendy’s profits. Turning to Wendy’s, my personal experience is that they are
leaving McDonald’s and Burger King in the dust with their better quality food
and faster service. The stock is priced at about 18 times trailing 12 months
earnings, which is not a screaming bargain. However when you consider the
quality of the company and the fact that there is probably very little risk that
you would lose money if you held for several years, then I think this stock is
well worth considering.


figures are updated.



May 23, 2004


Lately, it appears that the price of oil is what is driving the market lower.
There was some sign this weekend that OPEC might increase production to drive
the oil price down. After the recent market pull-back I am hopeful that things
will at least stabilize. However, market investors should always be prepared for
the market to sink from time-to-time. I remain confident that I can do well over
the years by selecting better valued stocks usually in high quality companies.
Bad markets will tend to pull almost all stocks down somewhat, but being patient
with high quality companies will usually be rewarded in the next up-cycle.


Breweries is updated. I rate this a Buy and it is definitely worth
considering. It has increased in price 28% this year which could leave it
vulnerable to some pull-back. But it is a solid cash generating company and
profits have grown. Hopefully, it will continue to strengthen as we go through
the summer season.


I note that Fairfax’s earlier announced sale of
shares did take place at $25.60 as planned. I was worried that the issue price
might come in lower but appears that the price must have been locked in.


When strong stocks like Investors Group, (now re-named IGM Financial) decline
it is always tempting to wait and try to catch the bottom. But a better approach
is probably to go ahead and Buy at least some perhaps holding aside some funds
for a further drop.


May 22, 2004


Performance is
updated. Obviously the last number of weeks have been disappointing, but the
overall performance of the stock picks is still very good compared to the TSX


May 16, 2004


The market has been declining on fears on higher interest rates. In fact, the
the higher interest rates are already here. The Federal Reserve Board in the
U.S. controls very short term interest rates. This is the rate that may rise in
June. But long-term rates are set in the market. The U.S. 10 year bond yield has
risen from 3.83% in March to 4.79% on Friday. This is a huge increase. Stock
market values are affected by long-term interest rates. This is why the market
has fallen despite strong earnings growth in Q1.


It is more correct to say that the market is down because of higher market
interest rates and not because of the fear of higher rates.


It seems possible at this time that the markets in general will continue to


Those who think they can time such things might want to take money out of the
market at this time.


However to the extent that you have money in the market, my belief is that
companies with solid earnings and dividends will provide more protection in a
market decline than will more speculative stocks.


At this time the bulk of my own portfolio is in stocks with strong earnings
and with P/E ratios below about 15. And some is in stocks with P/E ratios below
10. I have very little in stocks with P/Es above 20. If the market does fall, I
believe I will well served by these stocks in the long-run. On the other hand, I
am trying to sell some of the positions that I don’t like as well to insure I
have some cash to invest at lower prices if the market does fall.


May 15, 2004


Companies is updated for Q1 earnings. This is considered one of Canada’s highest
quality companies in terms of high profitability and sustained growth. It has
always seemed pricey. But the P/E has fallen from about 28 a few years ago to a
reasonable 19.5 at this time. The price has fallen on price competition in the
grocery business. But the company ,maintained earnings growth in Q1. This may be
an opportunity to add this high quality company to a portfolio at a reasonable
price. I may buy some and if it falls below $60 again, I would likely buy more.


is updated for Q1 earnings and a recent very large share issue. The numbers
indicate that this is excellent value. But the company seems very secretive. It
seems strange indeed that a company that has been growing trees on plantations
and which has been selling standing timber is now saying that it will use the
money just raised to purchase mature pine trees! The shares were issued at $2.65
which was lower than expected and which has hurt the share price. If management
is trustworthy this will likely be a very good investment, but I don’t totally
trust that management is trustworthy and I consider this to be highly
speculative I lowered my rating to Speculative Buy.


Performance is


May 9, 2004


Note that BW Technologies is being taken over at a price of $36. I first
rated this a Buy just over two years ago at $19.54. I last called it a (lower)
Buy at $26.75 on March 19. It always seemed like an excellent company but was
generally not bargain priced. This transaction proves that it is often good to
stick with excellent companies even when they don’t seem too cheap. Excellent
companies usually do not have much down-side risk.


Dalsa Corporation
is updated for Q1 earnings. This is an excellent company with strong technology
in digital imaging. It has appreciated significantly in price recently. It is
not bargain priced but may be a reasonable pick to get some exposure to


Financial is updated for its Q1 earnings. This is not one of my stronger
picks at this time but could be a good long-term investment.


May 8, 2004


Financial is updated for its Q1 earnings. I have lowered my rating on this
from (higher) strong buy to (lower) strong buy. The reason for this is not the
Q1 earnings but rather that I am taking a more conservative view of its 2003
earnings. In 2003, the company earned an unusually high amount from realized
capital gains on its investments and this is not sustainable. It’s very
difficult to know what level of capital gains should be assumed for the future
since there have been some gains every year. After adjusting to remove 60% of
the gain the ratios are not as good. (see report).


However I note that the company has made exceptionally strong profits of
about 7% on its insurance operations before any investment gains. (Insurance
companies are traditionally happy to break-even on insurance and make all the
profit on investment yields and gains). I also note that insurance premiums have
risen and 2004 should be very profitable on insurance operations. Overall I
still think that this is a strong investment. However Q2 earnings will not
likely match the very high Q2 last year which had very large realized capital


Financial is updated for its Q1 earnings. Q1 earnings per share rose by 12%.
However the market reaction to this was muted. Analysts are disturbed that the
company had even a small amount of additional increases to estimated claims
related to 2003 and earlier. I focus on the 17% ROE in Q1 along with the fact
that the shares are trading at only 1.15 times book value. With all the problems
the company had in 2003 with increased expenses for claims related to prior
years it should be easy for the company to increase earning markedly compared to
2003. The now declining Canadian dollar is good for this company. Investment
returns on bonds will be enhanced by higher interest rates. The stock may not do
anything until the Q2 and then Q3 earnings are released later this year
(assuming they are good). Overall I rate this a speculative strong buy. Owning
companies with double digit ROEs that trade near book value tends to be a good


Performance is
updated and is still very good. You can see the
2004 results here
for the stocks picked at the start of 2004. Of course I also change stock
ratings throughout the year continuously. It’s difficult to track the
performance there but the results from my own portfolio and from the model
portfolio are somewhat indicative.


The trend to higher interest rates will have a definite negative affect on
the market. I’m definitely not going to start selling stocks that I think are
still bargains. Buy I might sell some stocks that I rate as weak Buy or lower.
If the market falls it will be nice to have cash to pick up bargains. Selling is
an easier decision for stocks in tax-free plans, it is a tougher decision if the
sale will result in capital gains taxes.


I don’t have any money in bonds or bond funds but if I did I would probably
sell because those will definitely fall as interest rates rise.


The pressure for higher interest rates is the strength in the economy. In
this environment many profitable companies will continue to do well. In cases
where such companies are not trading at a high multiple of book value and are
good value, I don’t see that much risk from interest rates. Basically, it should
be a period where quality stocks will do reasonably well.


May 4, 2004


No trades on Sportscene today or yesterday but the offer was $7.51 so I will
use that price to notionally sell half the Sportscene. This gives up some gain
but locks in a 50% gain. I hold some Sportscene which I am not selling but in
the model portfolio it had grown to too large a percentage of the portfolio.
I’ll notionally put 2/3 of the proceeds into TSX Group and 1/3 into Investors
Group at tomorrow’s opening price.


The mutual fund industry saw net sales in April. Investors Group which
includes MacKenzie Financial had a small net sales result. It is almost a given
that Investors Group will show a large earnings increase in Q2 2004 versus 2003.
However earnings may be down from Q1 2004. I noticed in the mutual fund industry
report that all the Banks had the best net sales while some independent funds
had net redemptions. I have not analyzed any of the big banks in a long time due
to their complexity, but I may do so since I feel that in general the big banks
are probably a good long term investment.


You can see the mutual fund industry report for April at



May 2, 2004


In the model portfolio, Sportscene has become a large part of the weighting
due to its performance. It seems prudent to rebalance by selling half of the
Sportscene at tomorrow’s opening price or the next time it trades but with
minimum sell price of $7.00. It’s unfortunate to set the minimum so low but that
is realistic for such a thinly traded issue.  I still like both of these stocks,
but its not realistic to leave Sportscene at 19% of the portfolio.  After I
confirm the price at which these are notionally sold, the intention is to put
about 2/3 of the proceeds into TSX Group and the remainder into Investors Group.
I would use the opening prices the day after the Sportscene is notionally sold.


Northbridge, I was expecting the full financials on Friday plus a conference
call. I see no sign of that. They released earnings about a week earlier without
full financials. The parent company fairfax Financial released poor earnings on
Thursday. This seems to confirm my earlier conclusion that the sale of
Northbridge shares by Fairfax has nothing to do with any problem at Northbridge
but reflects the parent’s need to shore up its balance sheet.


Investors Group is updated. I rate this company a Strong Buy based on
valuation. Combine the good value with the stability and relative low risk of
this company and for me it is an easy decision to Buy.


paint manufacturer is updated. Q1 earnings were lower than the year ago figures.
I’m down-grading this from “(lower) Strong Buy” to “Buy” due to increased
uncertainty over valuation. But is still a steady profitable company that may be
a good investment. It made a large acquisition in 2003 and the next two quarters
will likely indicate if this is working out. I will hold my position in this
company at this time.


Developments a residential property developer in Edmonton is updated. This
profitable company sells at about book value while most companies trade well
above book value. The company trades at a P/E of 8.5 when the market average is
roughly double that figure. However Q1 earnings were below the year ago figures
due to timing events and the cyclical nature of the business. The company
indicates it is ahead of target for the year. This stock is thinly traded and
could be volatile. However, I believe that the evidence indicates that this will
be a very good investment if held for the long-term.



April 30, 2004


Group is updated for very strong earnings released on Tuesday. Since then
the stock has fallen from $54.60 on Monday to $50.00 today. Given that trend and
the market down-trend it could fall a bit more yet. But I think is is very good
value at this price and is likely to be an excellent long-term investment. I
bought some at $28, more at $45 and I will likely buy more at this price. I’m
kicking myself for not buying more last Fall since (as I said then) it was
totally predictable that it would report very strong earnings due to the rise in
the market. This stock is very worthy of consideration.


Performance is
updated and continues to look very good despite the fact that the TSX fell about
5% this week.


April 28, 2004


Wow, the TSX fell 300 points or 3.5% today. Like I said yesterday it seems
like the market wants to fall. Stocks with great earnings news fall and then
with the Nortel news it and a lot of other stocks fell.


I have a bit of cash from past sales I reported but mostly I am in some
pretty solid stocks like Manulife, Northbridge, InvestorsGroup, Melcor, E-L
Financial, TSX Group, also a fair position in Kingsway and positions in other
buys and strong buys like SICO, Transcontinental, Sportscene restaurants and
Sleemans and others. I have essentially nothing in high-tech. … So, I don’t
think I will sell any of these at this point. If I did it would be to sell part
of the position to get into some cash.


With strong earnings still coming in maybe tomorrow will look better. I’m
confident my picks will fall less than the market.


This Nortel fiasco is not that surprising, the stock had no business going
back to the $8 range. That company made some criminally stupid financial moves
like not issuing stock when the price flew very high and issuing mega millions
of shares to buy worthless companies…so they promoted the then CFO Dunn to
CEO… good riddance.


I have some updates to do for TSX and SIC and Melcor for earnings and hope to
get to in the next few days.


Manulife fell as low as $50.10 today but now shows a closing price of $55.
That fall was a buying opportunity…It may be volatile next few days as the
Hanover acquisition closes.



April 27, 2004


Financial is updated for Q1 earnings. This company is very much worth
considering although I rate it “only” a Buy. This Canadian company is a true
world class company, one of our very few. The usual theory is that a huge
company cannot grow fast. And yet in Q1 premiums and investments on deposit were
up 16% versus Q1 2003 in Canadian dollars and would have been up 27% if the
Canadian dollar did not rise. The company’s purchase of a huge U.S. insurer is
just closing. The company has a big Asian division including being very active
in China. This company knows Asia because it has been operating in Hong Kong for
something like 100 years! The value ratios indicate it is a Buy rather than a
Strong Buy. But it is also low risk. In my opinion the worse likely case
scenario is that for a 5 year holding period you make say 6% on your money
whereas the best case scenario is probably more like you double your investment
in 4 to 5 years. So a good risk/reward trade-off. If I did not already have a
big position I would buy some at this price. If it drops below $50 then I would
definitely be a buyer. The Q1 earnings were very good. The stock initially rose
on the news but then fell back below where it started this week. That is
indicative of the market’s mood at this time. It almost seems like the market
wants to fall due to higher interest rate fears and it is taking a big earnings
increase just to tread water. This particular company should do well even if
rates rise since it can then earn more on its investments.


April 25, 2004


I sent out an issue of the free newsletter yesterday. Most of you would have
received it. But I do keep two separate lists and so some subscribers may not be
on the list for the free newsletter. Here is a link to the newsletter.

http://www.investorsfriend.com/Apr%2024%202004.htm  If you did not get it,
email me and I can add you to the list for the free newsletter. (This has been
sent about once per month but may become less frequent).



April 24, 2004


Capital is updated for its very strong Q1 earnings. As mentioned under March
7 below, I sold all my shares at that time. I bought them back at a lower price
when these strong earnings came out. But after crunching the numbers I’m not
sure how wise that was. The share price went up soon after the earnings news but
then dropped back a bit. It’s been an exceptional company but it certainly is
not cheap. I may sell if rises back to the $28 range in the next two months.
This stock is now up 223% since I first covered it calling it a Buy exactly two
years ago.


April 23, 2004


Performance is
updated and is very good. Also the model Portfolio is updated above.



April 22, 2004


It’s almost mind-boggling that
stock did almost nothing today. It released earnings after the market close
yesterday but then today it trades at about the closing price from yesterday in
a tight range of a few cents. On any average day – with no news – this stock is
up or down 25 cents or more quite often and yet when it releases earnings it
does nothing? I would have thought that the earnings would drive the stock
someplace. I was betting it would go up. But I am very surprised to see it do
nothing at all. It also had lower than average volume today which is again
strange. I would have thought that an earnings release would cause more fence
sitters to buy or sell.


A partial explanation is that they will not release the full financials or do
the conference call until the 30th. So maybe the analysts are holding off on
their opinions until then. In the meantime I bought a few more today. When I
think about this stock, the phrase “back up the truck” comes to mind. Of course
all stocks are risky so I won’t bet the farm but I would personally be quite
comfortable with 15% of my portfolio in this stock. Possibly the pending share
issue at $25.60 will have to priced lower but I suspect that Fairfax will not
want to do that and instead there will be some kind of effort to try get the
price back to at least the $26 mark.



April 21, 2004


Northbridge Financial ended up releasing earnings after the markets closed to
today. This is about 9 days earlier than scheduled. I suspect that management
felt that the earnings would be well received and would push the price back
above $25.60 so that they can do their share issue at that price. The earnings
were 63 cents per share for Q1 versus 60 cents last year. But I think it is more
important to note that that they had insurances expenses of just 92.8 cents per
$1.00 of revenue compared to 95.4 cents in Q1 last year. Most insurance
companies are happy to just break-even on the insurance operation with profit
coming from the investing of premiums. So Northbridge’s results are very good in
my opinion. In Q1 the company made $32.2 million. But it also made an additional
$53.8 million in unrealized capital gains on its investments. I strongly suspect
the stock will rise tomorrow and I continue rate this as one of my top picks.
The prospectus for the share issue also indicates that management is expecting
good results to continue.


Overall the markets seem weak. A very good earnings season does not seem to
be good enough to lift the markets since strong earnings were already generally
priced into the market.


April 20, 2004


Financial fell 3% today to $25.30 on the news that its parent FairFax
Financial will sell 6 million shares at $25.60 to reduce its stake from 71% to
59% ownership.


In this circumstance is is normal for the shares to fall to around the
selling price of the new offer, although in this case it went below.


I’m not sure that this is particularly bad news for Northbridge. It seems to
me that the reason FairFax would sell is to sure up its own balance sheet and
reduce debt. This share sale is announced about 10 days before Northbridge and
FairFax will announce earnings. It seems to me that this probably signals that
Northbridge’s earnings will be in line with expectations. I don’t think FairFax
would announce a $25.60 price if it knew that Northbridge’s earnings next week
were going to be either very bad or extraordinarily good. In addition I would
think that the underwriters of the share sale will try generate buyer interest
and try to keep the price up. I have not seen any analyst comments on this, but
that is my take on it…


restaurants rose to $8.30 today but this stock is very thinly traded. I
maintained my Strong Buy rating at $7.00 but would consider it only a Buy at
$8.00 to $8.30. I suspect it might be possible to get it closer to $7.00 if one
is patient.



April 18, 2004


The Thomson
Corporation is added as a new company above. This is a very large company
that is Canadian owned but which is essentially a U.S. company with some
international revenues as well. It trades in Toronto and New York. I like its
business model of selling information with most of it delivered electronically
on a subscription basis. I think this is the type of company that Warren Buffett
would like to buy although I’m not sure that he would like the price. I think it
is a good long term holding. It will soon announce Q1 earnings which I suspect
will be improved due to the market strength and strong economy in Q1.


April 16, 2004


Restaurants is updated for its Q2 earnings released after the close of
markets today. A very good quarter showing strong growth. I am maintaining the
Strong Buy rating. It is quite attractive as a long term hold at $7.00. The
stock is very thinly traded which causes some price volatility.


April 15, 2004


Regarding the market in general, it is always very difficult to predict the
direction. Higher interest rates are certainly a threat. This week it seemed
like the market wanted to focus on bad news rather than good. It may take a very
strong earnings season to hold the market up. Taking some profits now to
accumulate  cash might be a good idea.


Sino-Forest is
updated for its 2003 earnings release. Earlier I had called it a sell at over
$5.00 but the numbers indicate a Speculative Strong Buy now that it has fallen
to $3.03. However, expect volatility. I consider this quite risky and I would
make only a small investment here. It might be better to wait and see what
happens with the pending share sale. Also I would check insider trading in the
next few weeks. Insiders were not active lately but may have been in a
“black-out” period pending the earnings release. Be cautious with this one.


April 13, 2004


Shaw Communications is updated for its Q2 earnings release. This marks three
quarters of positive earnings after about 12 quarters of losses. Earnings are
still too low. But the companies continues to add customers rapidly in high
speed internet and in satellite service. The company is capable of generating
higher cash flows and therefore has potential. The stock is trading at about 19
times projected free cash flow for 2004. This is not attractive but is not
overly high either. At this time I am not a buyer until earnings improve and I
consider it to be a Speculative Weak Buy.


Insider Trading


I just looked up Insider Trading in 2004 for all of the Strong Buys and most
of the Buys listed on the Site and a few sells I was interested to check. For
most companies I found nothing of note. Of interest I saw moderate Insider
buying for Kingsway Financial and Sportscene Restaurants. I saw significant
insider selling for the TSX Group. Regarding two companies I had sold myself I
saw insider selling at Home Capital and Sino-Forest (none below $5.00 for Sino).
You can check insider selling at

https://www.sedi.ca/NASApp/sedi/SVTItdController?locale=en_CA (This link is
also provided below the list of stocks above).


April 4, 2004


AGF is
updated for its Q1 earnings release. As expected, it did well in Q1. The outlook
for mutual fund companies is good because their assets under management have
recently risen with the markets (which automatically increases their revenues)
and because net sales of mutual funds have returned strongly to positive figures
in the past few months. In this segment I prefer
Group, which has its own retail sales forces, but AGF should also do well.


Savings Income Fund is added as a new company. This company has been an
extremely good performer. However, at this time it seems to be at least fully
valued. It may be worth watching in case a better buying opportunity arises in


Regarding Sino-Forest it was my best performer last year as a Speculative
Strong Buy at $1.17. But starting out this year I called it a Sell at $5.16. It
subsequently got as high as $7.12 but then fell sharply all the way to $2.80. It
has now recovered to $3.34. Part of my reason for considering it a Sell at $5.16
was that insiders had many sold shares in the $3 to $4 range. No insider trading
is reported on SEDI since the share price plummet. The company had hoped to do
an equity issue around $4.00. Possibly there will now be an attempt to get the
share price back to $4.00 before issuing shares. At its current price I would
consider it quite speculative because of recent events which included a
restatement of earnings. At this point I am not a buyer and it might be best to
wait until the share issue is done and see if the price stabilizes.


March 27, 2004


Financial is added as a new company. This company owns Dominion General
Insurance one of Canada’s largest property and casualty companies. The company
was founded in 1968 by the Jackman family which still manages and controls the
company. The total share capital ever raised was only $8 million, while retained
earnings  are now over $1 billion, which is very impressive. I like that the
shares are trading just below book value. However reported earnings have been
quite unimpressive. But  I suspect that earnings will increase very materially
in 2004 due to insurance price increases. The company is conservatively managed.
The stock price has been volatile and is up sharply in the last 9 months. This
would have to be a considered a speculative pick and a longer-term holding.
However, I think the Jackman family has been very astute at building their
wealth through this company and I am willing to tag along with that.


Cognos is
updated. This is a great company but always seems too expensive.


March 26, 2004


The Forzani
Group is updated and rated a weak sell / hold despite its price drop from
$16.51 when last analyzed to $13.43 now. It may become a good bet if it falls
even further and if it shows improved earnings.



March 21, 2004


Developments is updated for its 2003 Q4 and year-end earnings. Noi change in
my view that it is a Strong Buy as a long term hold.


March 20, 2004


I decided to remove Maple Leaf Foods from the list of covered companies. I
called it a sell in December. It has risen since then and its pending
acquisition of competitor Schneiders may be a big help. But it has a very poor
history. In 2003 earnings were only 27 cents per share down from 71 cents in the
prior year. The company indicates that prior to restructuring charges earnings
would have been 36 cents. There continues to be a confusing array of unusual
gains and (mostly) losses year after year. I thought the company was on the
right track with its its investments in research and quality, but this seems to
be a very competitive business and I prefer to move on to more attractive areas.


As an investment theme area, I continue to like the insurance area. Life
insurance companies are more predictable and seem to provide steady gains over
the years. Property and casualty insurance is much more risky but could provide
big gains this year. One of the largest property insurance companies in Canada
is Dominion General Insurance, which is owned by E-L Financial. I have sent for
information and hope to add this company to the Site soon. It has experienced
fairly low returns and trades at book value. However, I suspect it will have a
good year in 2004 due to insurance rate increases. I also have sent for
information on FairFax financial and hope to add it as well.


Meanwhile my two top picks at the moment continue to be Investors Group and
North Bridge Financial. Melcor would be my third choice although it is thinly
traded and therefore not suitable for short-term trading.



Performance is
updated. While the overall stock market has fallen in the past two weeks, these
stock picks have not fallen as much as the overall market and are still well
ahead of the TSX for the year.


March 19, 2004


Technologies is updated. Although the stock is expensive it is a well
managed company with a great track record. It’s still small enough to continue
growing rapidly. I am upgrading it to a Speculative (lower) Buy somewhat on the
theory that winners usually find a way to keep winning.


March 17, 2003


is updated. The company continues to do very well but its P/E has gotten a
little high.


Transcontinental is updated and downgraded to Weak Buy / Hold. The share
price had risen since my last rating but has fallen back somewhat due to a
disappointing earnings release. It’s probably still a good long term hold and is
well managed but there is certainly a risk that the price will drop back a bit
more yet. I am not a buyer at this time and will either hold my position or I
might sell to move into something more attractive.


March 13, 2004


The latest free
newsletter has been emailed as a link to those on the list for the free
newsletter. If you did not get it, you may not be on the free newsletter list or
it could have been blocked by your system for some reason.


March 12, 2004


As you might imagine, the performance took a hit this week. But not as bad of
a hit as the general market. The model portfolio is updated above and is still
up 12.2% this year. The Strong Buys are also up an average of 12.2%. Full
performance figures
are now updated, I generally do that every two weeks.



March 11, 2004


Paint maker SICO
Inc. is updated for its 2003 earnings release. I’m down-grading it slightly
to lower Strong Buy. It made less money in 2003 than in 2002 but that was due to
a restructuring charge associated with an acquisition. This acquisition should
start to show up with a boost to earnings in the next few quarters. There could
be a further upside here if it decided to go the Income Trust route.


It looks like my performance figures will take a hit this week. That’s not
surprising after the way the market was rising the last number of weeks. I can’t
predict how big the market correction will be, but it does seem clear that the
more speculative stocks like Nortel will take the biggest hit.


March 7, 2004


I have decided to sell all of my Home Capital shares because it has run up so
sharply. Also I am less than clear on how it manages to make such high profits
on loans. It relies on mortgage brokers rather than its own sales force and I
don’t understand how they both get so much business and make high profits. I
know they serve somewhat non-standard customers but I’m not sure that is enough
reason for the high profits. Given its performance and momentum it may keep
going but I decided to lock in some gains here. Also I plan to sell most or all
of my Canadian Western Bank tomorrow again to lock in gains.



March 6, 2004


Western Bank is updated for its earnings release on Thursday. The results
were moderately disappointing. They also announced the pending acquisition of
Canadian Direct Insurance from HSBC for $25.4 million. This is a new line of
business that could be lucrative but also has risks of losses in the short term
due to start-up costs. Overall, my sense is that the stock has some risk of a
moderate decline and probably limited upside potential in the short term. I may
sell my position to move into something else.


March 5, 2004


Performance is
updated. This past week saw exceptional gains in many of the Picks. I hope to
update a few companies in the next day or so for earnings releases.


March 2, 2004


Forzani fell 15% today after indicating that its earnings would be 87 cents
rather than $1.01 and this was down from the original estimate of $1.01.
Sometimes these things are a bit predictable. This is pretty much the scenario I
talked about under my Nov 29 comments and in the report under Management Quality
I said:


MANAGEMENT QUALITY: Management has a good
history, I perceive the quality of management to be very high. They have
delivered! I am concerned though that at the end of Q2 fiscal ’04 they stuck to
original guidance of $1.35 per share when it really looked like the year was not
shaping up for that kind of growth at all. In Q3 they reduced guidance to $1.01
but that will require a banner Q4 and I am beginning to doubt their credibility.


Credibility is now a real problem, Q4 earnings were up from the year-earlier,
the problem is they were essentially forecasting a plus 50% earnings growth for
Q4 in their $1.01 guidance. That was pretty optimistic and who is going to
listen next time. Actually, my bet is no more guidance from this company.


I have not updated my report yet and will do so after they release the
financial statements. Clearly it is a lot better buy now at $14.35 than it was
at $16 and $18. I suspect that it may now be near a bottom, but it will take a
quarter of good growth before I would get too interested in buying this one.



February 29, 2004


Communications is added as a new company. I analyzed this partly at the
request of a subscriber. Unfortunately, it is not really a very good candidate
for my method of analysis because it has lost money in each of the last 3 years.
However, it is profitable the last two quarters and will likely continue to be
profitable. In theory it should generate strong free cash flow in excess of its
profit, but that has yet to be proven. Overall, I rate it only a Speculative
Weak Buy. But note that insiders have bought and it may in fact do very well.


February 27, 2004


Performance is
updated and is extremely good. Subscribers can view the results for the
individual strong buy picks for
2004 by clicking


Loblaw is
updated for Q4 and year-end earnings. This is a great company but it always
seems a bit expensive. The stock price implicitly assumes that earnings growth
will continue to be at least 11% annually. Although the earnings have has grown
at well over that in the past, it is difficult to sustain that pace for such a
large company. I am not a buyer at this point but would consider it if it dipped
to $60. Some may want to buy it on the theory that it will continue its winning
ways. The P/E ratio has regressed from about 28 a few years ago to 21.5. In the
long term I never count on a P/E staying above about 18 for any stock. It may
not be a bad investment at this price but I prefer other stocks.



February 25, 2004


Melcor traded mostly at $45.50 today. That is down from recent highs and I
consider it to be an excellent price for the stock. Some investors may be
selling because the earnings in 2003 were lower than 2002. But that was totally
expected and indicated by the company for the last year. And the P/E at $45.50
is 7.6. This is a company with a great history and very tangible assets that is
also selling at book value. I bought a few more shares today.


Sino-Forest announced restated earnings today. It will be interesting to see
if it it drops a lot tomorrow. I had rated it a Sell on December 31 but it has
risen since then…


February 24, 2004


Developments released earnings but not full financial after the close today.
They made $6.00 per share in 2003. I had estimated $5.88 when I last called it a
Strong Buy. This means that at a recent $47, the P/E is just under 8. This stock
looks like a bargain to me. It always has traded at a low multiple to book, but
as it gets larger the multiple is expanding. The risk is that a cyclical
slow-down could appear in the Alberta home building market. I think activity has
slowed a small bit but overall the Alberta economy is still strong. This seems
like a low risk investment. I have some shares and I would definitely like to
add to my position. I will do a full update soon, but I am comfortable with my
rating of Strong Buy. But of course, there are never any guarantees. Note that
the 2003 earnings at $6.00 are down from the $7.58 they earned in 2002, but they
indicated at the end of 2002 that it was an unusually good year and they were
not expecting to match that in 2003. Note the comments in my report about the
thin trading of this stock.



February 22, 2004


The market declined moderately this past week but the model portfolio
(results updated above) and my own portfolio continued to rise moderately.


My two top picks at this time would be Investors Group and Northbridge
Financial. I note that Melcor Developments has traded a bit lower and I believe
it is a good pick, particularly at $47 or below. Note that Melcor is quite
thinly traded which leads to a wide bid-ask spread. It may release earnings this


February 18, 2004


Financial is updated for its Q4 and year-end earnings. This huge company
just keeps rolling along generating profit and growth. I down-graded it from
“(higher) Buy” to “Buy” due to its recent strong rise in price. I believe it to
be reasonably conservative and yet offers good long-term growth.


February 16, 2004


Capital is updated for its excellent Q4 and year-end earnings release. This
has been a great company and investment having risen 203% to $22.50 since I
first rated it as Buy just less than two years ago at $7.43 (adjusted for recent
2:1 split). Despite the very strong earnings growth and partly because of the
huge price increase I rate it a Weak Sell at this time and plan to reduce my
position. I have underestimated it in the past but I now calculate that the
price is assuming that it will grow at about 20% per year for 5 years. That
means it has to grow more than 20% to justify its current share price and
anything less than 20% growth could see the price decline. So that seems rich to
me and despite the history I would rather hold something that is not so
expensive. However, if I was in a taxable account I might continue to hold
rather than pay a capital gains tax.



February 13, 2004


Financial is updated for Q4 and 2003 earnings. The stock fell today because
Q4 earnings were 32 cents per share instead of a hoped for 52 cents and because
the company once again booked increased “reserves” (effectively a retroactive
increase in expenses) for years prior to 2003. However, the stock still looks
cheap and very promising to me. Reported earnings were $1.62 per share for 2003
and would have been $4.10 without the increases to prior year reserves. All of
these reserves could possibly be quite conservative. Insurance companies have
unique accounting. They reserve for future claims but meanwhile they hang onto
the cash until it is ultimately paid out, which can take years. Kingsway’s
investment portfolio grew by $678 million to $2.5 billion. They reported
operating cash flow of $11.00 per share. The accounting indicates that the
company is not hugely profitable. But meanwhile it manages to amass a huge and
rapidly growing pile of cash and investments. It seems to me that getting the
chance to buy into this cash generating machine at 1.1 times book value is going
to turn out to be a very good thing. If the problems with prior year reserves
are now behind it then I would expect 2004 profits to be about $3 to $4 per
share in which case the stock could easily double. Certainly, the stock is still
risky due to the continued adjustments upward to prior year’s reserves. But I
like the risk/reward trade-off here. I also note the fact that Warren Buffett,
the world’s most successful investor by far, made a huge amount of money by
owning insurance companies. I do continue to think that
Financial is a safer insurance company bet, but I am comfortable holding a
position in both.



February 12, 2004


Kingsway Financial released earnings today. The net earnings for Q4 were
relatively poor and below expectations. However, most of the problem with Q4 was
due to yet another reserve increase to prior year results. The Q4 earnings
without that adjustment to prior years was strong. The stock is likely to fall
moderately tomorrow. I would consider any large drop (say $2.00) to be a big
buying opportunity. Insurance companies tend to amass large amounts of cash even
though most of it is ear-marked for future claims. The company is trading at a
only a small multiple of book value. I still believe that it will be a great
investment in the next 12 months. However it is clearly riskier and not as well
managed as Northbridge Financial. I am comfortable holding both but would place
more of the weight on Northbridge. I will do a complete update for the Q4
numbers by Sunday.


I’ll have a number of other updates by Sunday and will update my performance
numbers which are off to a very strong start this year.



February 8, 2004


Financial, which was my highest rated stock heading into 2004 quietly
released earnings after close of markets on Friday (which is the way it should
be done to give everyone  a chance to digest the numbers before trading resumes
on Monday). They had another fantastic quarter with quarterly earnings of 86
cents versus 36 cents in the prior year. 2004 earnings were $3.07 versus $1.06
last year. Now we do have to remember that insurance company earnings are based
on estimates since the accidents and losses claimed in 2003 can take years to
wind through the courts and the pay-outs could be larger than the amount the
company has estimated. But still.. this company has a history of not getting hit
with big retroactive “reserve adjustments” like that. The company is now trading
at a P/E of 7.6 compared to the market average of closer to 15. That means we
have the potential for up to a 100% gain just by the P/E rising to the market
average. That may be unlikely for an insurance company but I think a 50% gain
through a P/E rise is quite likely, over time. I expect the stock to open higher
on Monday and then it may rise through the day on Monday as the market digests
these earnings. But of course I can make no guarantees. There are times when I
am torn between rating a stock a Strong Buy or just a Buy etc. This is not one
of those times. All the numbers tell me this is an unusually Strong Buy. But
again, there are always risks. If you decide to invest based on my (technically
InvestorsFriend Inc.’s) report and on your own reading of the situation and any
other sources you may pursue, that is clearly at your own risk.


February 6, 2004


I have added BCE Inc.
as a new listing. This is a somewhat confusing conglomerate. If you want to buy
common shares in Bell Canada, the country’s largest phone company – you can’t!
It does not trade as a separate company (although its bonds do). Instead you
must buy BCE Inc. also known as Bell Canada Enterprises. Unfortunately, for
those seeking an investment in a telephone company BCE Inc. comes along with a
grab bag of subsidiaries including BCE Emergis, BCE Ventures and Bell Globemedia.
These subsidiaries and others that are now divested have had checkered histories
with both spectacular successes (Nortel for a long time – now divested) and
spectacular failures (Teleglobe – now divested or discontinued). The existence
of the remaining subsidiaries makes BCE Inc. very complex to analyze.
Nevertheless, earnings have stabilized in the past 12 months and the outlook for
2004 is stable. The valuation is reasonable and I believe there is some up-side
potential to release value through further divestitures. It may be worth
considering as a now reasonably stable dividend-paying stock, that also has some
potential up-side.



February 4, 2004


AGF is updated
for its disappointing earnings released today. I don’t mind the adjusted to
deferred income taxes that knocked $40.2 million off the earnings. But even on
an adjusted basis it looks like Q4 earnings were not impressive. Actually, it’s
hard to know what Q4 looks like since the company did not release or discuss any
Q4 numbers in its year-end release. This is unusual, unacceptable and
disrespectful to investors – in my opinion. It may still offer good value as
earnings should recover in 2004 with the higher markets and their net sales
should improve as well. And there is always the potential for a release of value
through an Income Trust Route or sale of the company. Their Q1 2004 has already
ended on January 31, but they have given little or no indication of results.


Given my disappointment here, I am notionally selling this from the model
portfolio and replacing it with Investors Group. I will use tomorrow’s opening



February 1, 2004


Canadian National
Railway Company is updated for its Q4 earnings release. It’s probably a
reasonable  and conservative long-term investment. The P/E is 14.7, but this
fails to recognize that the company is deferring (not required to pay) most of
its income tax. This may be creating a hidden value.



January 31, 2004


Investors Group is updated for its year-end earnings released mid-day on
Friday. I am maintaining the Strong Buy rating. As expected, the Q4 earnings
were strong. And it is fairly predictable that Q1 2004 will be strong since the
markets are already up in 2004 and since this should be a strong RRSP sales
season after several poor years. I bought some shares based on my rating from
January 11 and I intend to buy more. This stock has reasonable upside potential
and barring a major stock market correction has relatively little down-side risk
at this time. (Though there are never any guarantees in the market).


figures have been updated and 2004 is starting off very well for the Strong


Dalsa, a
small “world leader in digital imaging components and specialized semiconductor
manufacturing is updated’. I rate it Speculative Weak Buy since the the P/E is
relatively high. My sense is that it will likely do well since it expenses a
very large amount of R&D which therefore means that its earnings are
conservatively stated. The price jumped on Friday after earnings were released
after trading on Thursday.


January 27, 2004


TSX Group is
updated for its strong earnings released today. I am upgrading the rating to
(higher) Buy. As noted under December 31 comments it was expected that Q4
earnings would be strong. And I think it is nearly a given that Q1 will be
significantly stronger year-over-year simply due to the market recovery in
trading volumes and strong new listing activity.  It appears I underestimated
the value here. It rose so fast since I first started looking at it that it
became difficult for me to continue to rate it a Buy as the price rose. But the
earnings growth is justifying the increase. This company has a lot or all of the
characteristics that Warren Buffett looks for. Although it is not clearly a
bargain priced stock, it will likely be a good investment because of its
continued earnings growth and relative lack of competition in Canada. Depending
on whether the market was anticipating the earnings level and the small
acquisition announced today, the stock may jump at the open tomorrow.


Financial appears to becoming riskier. It does look like a long-term value
stock but I am worried that the stock could fall in the short term. As mentioned
in my Jan 17 comment, they appear to have fired their CEO of the American
operations (the majority of revenues are from U.S.). This leaves us in the dark
as to the reasons. Today the news indicates that they are suing the Alberta
Government for $14 million due to rate freezes. This can hardly be good for
their relationship with the Alberta Government or any other Government which is
not good since they are regulated to various degrees. I have to wonder if they
would sue if they were about to announce stellar earnings as I had hoped. I also
learned today that Kingsway is not part of the main insurance Industry
association group, which leaves them the odd-company-out which seems a
questionable strategy. They recently issued more debt in the U.S. which could be
due to growth but could also be caused by the expectation of a lower earnings
report. They will be hurt by the higher Canadian dollar though I had hoped that
earnings growth due to significant premium hikes would far out-weigh the dollar
impact. So… although I remain hopeful that the stock could eventually rise
quite significantly within 12 months, it does seem quite risky at this time. As
mentioned under January 24, I was personally over-weight Kingsway and have now
been moving some of that out of Kingsway and into stocks like Northbridge (a
safer insurance stock), and potentially
Group and the TSX Group. I don’t have any specific data to update my rating
but would emphasize the word speculative in the Speculative Strong Buy rating.


January 25, 2004


Income Trust is added as a new listing but is rated Sell. Long-time readers
of the free newsletter may recognize Contrans as the trucking company that I
rated a Buy at $13.00 back in October 2001 and which subsequently became an
Income Trust giving 4 units for each share. It recently traded at $11.50 or
equivalent to $46.00 for each of the old $13.00 shares. When it converted to a
Trust I sold most of my shares at the $10 (equivalent to $40.00) initial price
of the Trust units. I did not maintain coverage because the Trust was
essentially a new entity with little comparable history under the new structure.
I noted at that time my worries of how it was going to drastically cut its
capital spending as planned. It has since traded mostly around $9.00 before
suddenly jumping to $11.50 within the last several weeks. I still have the same
concerns that its distribution may not be sustainable because it is larger than
earnings and is driven by low capital spending. I can’t believe that trucks and
rolling stock will not need replacing on an ongoing basis. Overall, I rate it a
Sell at this time.


January 24, 2004


For anyone who did not otherwise receive it, a
Newsletter was just


Regarding Air Canada, the price has continued to stay high. The number of
shares “shorted” has risen sharply to the point where Brokers may be starting to
run short of shares to lend to shorters. This can lead to forced buy-ins. It
also means that it may be difficult to short the stock at this point since
investors face a higher risk of buy-in. Those who shorted some time ago are at
less risk of buy-in, since it is (I understand) a last-in, first-forced-out
system. Some investors are also likely being bought-in because they shorted at
lower prices and are now running out of margin. Buy-ins may be part of the
reason for the stock’s refusal to die. I have also heard one investor in Air
Canada state that he knows the stock is ultimately worthless and is still buying
it in the hopes it will spike higher due to buy-ins. That strikes me as a very
foolish game.


Kingsway, it has rebounded a little bit since it dropped on the recent
“resignation” (firing?) of their chief U.S. executive. Observing that I have
Northbridge as a better and safer insurance company buy than Kingsway, it
would not be a bad idea to switch some funds from Kingsway to Northbridge, if
you have a high exposure to Kingsway, as I do. The model Portfolio suggests
holding more Northbridge than Kingsway.


Regarding, Performance, I have not updated for 2004 figures yet, and I may
wait until the end of this first month of trading to do that. However, the model
portfolio is updated and indicates that the picks here are once again
out-performing the TSX which itself is up a healthy 4.7% year-to-date.


January 19, 2004


Unexpectedly, Air Canada shares rose 10% today to close at $1.52. This is
bizarre given that all professional commentary that I have seen indicates the
shares are worth less than 2 cents. As I was saying, strange things can happen.
But this certainly looks like an excellent short sale opportunity for those who
are willing to take that risk. Please check other sources if you are considering


January 18, 2004


On Friday the bankruptcy of Air Canada took another step forward as the
courts approved the sale to Victor Li. The new Air Canada that emerges from
bankruptcy will be owned by Victor Li who put in approximately $600 million in
new cash and by the former secured creditors who I understand will get roughly
18 cents in new Air Canada stock for every dollar they were owed. Legally
speaking, the old shareholders should get nothing, creditors should get paid
first and shareholders should only get something after the creditors get 100
cents on the dollar. In this case the old (existing) shareholders are (for some
unknown reason) to get 0.1% of the new company which equates to a value of less
than 2 cents per existing share.


So… logically, Air Canada shares should plummet tomorrow. But then again
they should have done so months ago. Experience teaches that there is never a
completely risk free trade in the market. It appears to me that a short sale of
Air Canada on Monday even if it can only be placed at a price as low as say 70
cents (it’s even better if it can be placed close to Friday’s $1.38 closing
price) should have a very high probability of profit.  However, short selling is
risky since if the stock for some reason started to rise you can lose an
amount of money. Your broker can close out your short sale
position at a loss if there is not enough margin in your account or if for some
reason the broker can no longer continue to loan you the shares which you have
sold short. So… there are risks and there are strange things that could
happen. But if you have a tolerance for risk and you have a margin account you
might want to consider placing a short sale. But do not do this if you don’t
understand the short selling process. In any event, as always, any trade you
make based, in any way, on InvestorsFriend Inc. information is completely at
your own risk. In my case I am short 3000 shares at $1.20. I may add to that on
Monday but I am not going to get greedy and “bet the farm”.


I added Air Canada to the list above as a Strong Sell. I did not do my usual
detailed analysis on it because that is completely unnecessary. My clear
understanding of its bankruptcy proceedings is that current shareholders will
get 0.1% of the value of a new Air Canada, and that equates to at most, a value
of 2 cents per share. I have had a moderate short sale position in Air Canada
for several months now and I mentioned in the
January 4 newsletter
that risk tolerant investors could consider it as a short sale.


For Performance tracking I believe that is fair to show Air Canada as a
Strong Sell on January 1as I had mentioned it as a Short sale on January 4 and
because I was actually short the stock for some months. It’s definitely NOT my
practice to ever try to retroactively change my picks or insert new picks
retroactively. In this case I had simply neglected to include Air Canada as a
Strong Sell for the beginning of 2004, even though I have been Short the stock
for months and had mentioned it in the January 4 newsletter. Also note that the
current close on Friday is higher than the Dec 31 close, whereas I am betting
that the stock should decline to near zero.



January 17, 2004


Sportscene Restaurants is updated for an earnings release and maintained a
Strong Buy.


Kingsway Financial fell in price last week after a releasing the strange
statement below:


        Kingsway announces consolidation of reporting
(Jan 13)



Kingsway Financial today announced the consolidation of the reporting
structures of both its U.S. and Canadian operations through the Toronto based
holding company. Henceforth, the presidents of all U.S. Subsidiaries will
report directly to Mr. Bill Star, Chairman, President and Chief Executive
Officer of the corporation. As a result of this restructuring, Mr. James
Zuhlke has decided to tender his resignation as an officer and director and
will pursue other interests.


Mr. Zuhlke has been a director of Kingsway Financial since 1989 and
President and Chief Executive Officer of Kingsway America since 1998. The
Board of Directors would like to thank Mr. Zuhlke for his contributions as a
director and executive and wish him success in the future.


Brian Williamson has assumed the primary responsibility for the Kingsway
America office and has been appointed Vice President and Chief Financial
Officer of Kingsway America Inc. Pursuant to the restructuring, Brian’s
primary responsibility will be the consolidation of the financial reporting
for the U.S. subsidiaries and Brian will report directly to Kingsway



Effectively, it looks like they have fired the CEO of their American
operations. But they claim it is simply a consolidation of reporting
relationships. Naturally, investors now expect that there was some big problem
with the American operations that is yet to be revealed. It’s hard to say what
to do, the stock still looks like a bargain to me but in the short term could
certainly fall if there is some bad news released. Certainly the company could
be more straight-forward in its press releases. At this point I am waiting for
the Q4 results.


January 11, 2004


InvestorsGroup returns to active coverage as a Strong Buy. I like for
similar reasons as AGF.


I plan to buy shares tomorrow. I also recently bought shares of AGF and
Sleeman and added to my position in Northbridge ( at $22).  I recently sold most
of my remaining Sino-Forest as well as MapleLeaf Foods, as those were rated Sell
in my year end review.


There will be no further updates until at least Friday as I am out of town.
After that I expect to resume a more active pace including updates for the 2003
earnings as they roll in and also probably some new picks.


The Model Portfolio was identified over the January 3,4 weekend and will
therefore be tracked based on the opening prices on January 5.


January 1, 2004


Capital Group is updated due to its price increase since the last rating. I
rate it a Weak Sell/ Hold.


Financial is updated for its rise in price since it was last rated. I note
that five insiders have bought and only 1 has sold shares in the past 2 months.
My rating is unchanged as Speculative Strong Buy.


Developments (an Alberta residential land developer) is updated to reflects
its price increase since the last rating. I rate it a Strong Buy.


Corporation is updated due to its recent sharp price rise. This stock
finally gave me a good run in 2003. I had called it a Strong Buy for four years
due to its compelling valuation at the time. With the huge price increase of
341% in 2003, the valuation still looks okay. But given that the four insiders
sold heavily at lower prices and given the location in China, I am now calling
this a Sell. I think it has now reached the point where the stock price is going
up on momentum. China has fantastic potential and this stock may continue to be
a good investment. But I am simply no longer comfortable holding it.


Restaurants is updated for a price decline. At the lower price, I upgraded it to
a Strong Buy.


I’ve now reviewed all the ratings above and updated as necessary. However, I
may add a few more stocks to my beginning 2004 picks over this coming weekend.
The 2004 model portfolio will also be identified over this coming weekend.


December 31, 2003


What a year! The seven Strong Buys were up an average of 78.8%. My personal
portfolio was up by 40.6%.


Loblaw is
updated. A great company but it seems fully valued, and I rate it Weak Buy /


The TSX Group
is updated and down-graded to Weak Buy / Hold. This stock is up 49% (counting
the $5.00 special dividend as effectively a reduction from the initial price)
since I first added it to this site on Nov 12, 2003 calling it a Buy. It is a
great company but given that kind of price appreciation, it may be time for a
breather. Although it may even jump a bit more yet if as expected the Q4
earnings are very strong. But the current numbers would say hold. I hold some
shares and would not mind much if the price dropped significantly because then I
would buy more as I am very confident in this stock for the long-run due to its
near (unregulated) monopoly status.


December 29, 2003


Just two trading days left to close-out a very good year for our Stock Picks.


AGF Management
is updated. No new earnings were released and we are now awaiting the year-end
figures from November 30. I am a lot more bullish on this stock than I was when
I last looked at it in September. Its earnings go up almost automatically with
the level of the market because much of its revenues are charged as a percentage
of assets under management. Given the very strong stock market increases of the
last 4 months, earnings will be improved in Q4 compared to Q3 and possibly on a
year-over-year basis as well. And the very strong December markets will give it
a good start on earnings for fiscal 2004. I think it is a Buy at this price. I’m
tempted to say strong Buy, but the numbers don’t indicate that as yet. On a
trailing earnings basis it would probably be a (lower) Buy. But knowing that the
markets have risen sharply and understanding how that will automatically lift
earnings on existing assets and will also draw more people into the market so
that they can once again get into a net sales position, I think it qualifies as
at least a Buy.



December 28, 2003


Canadian National
Railway is updated and rated as Weak Sell.


December 26, 2003


Restaurants is updated and upgraded to (higher) Buy. Note that this company
is very small and the trading liquidity is very poor.


WinAlta Inc. is removed from the stock list above because it was out of date
and I can’t update it because it has partially announced a pending write-off of
a U.S. asset  but has not released all details. Also the 2003 fiscal results
from October are pending. In addition with a market cap around $17 million, this
company is really too small for most investors because of trading liquidity
problems and higher risks. I own a few shares and I may re-visit this analysis
when the fiscal 2003 figures are released.


Sleeman Brewery
is updated and upgraded to Buy.


Tire is returned to the list of stocks covered. Last year at this time I
called it a Weak Sell/hold partly because of competitive threats. But the
company has done very well in all its divisions. The stock does not look cheap,
but on the theory that winners tend to keep winning (while losers find a way to
keep losing), I think it is worth considering. Certainly, I would not bet
against it this year.


Maple Leaf
Foods is returned to the list of stocks covered. I had owned it for about
five years but have now sold it. I am tired of waiting for this company to turn
around and lately earnings are quite disappointing. It has a great brand name
and lots of potential. I would have  thought that their investments in
advertising and R&D would pay off, but it never seems to. This seems to be an
extremely tough industry. Maybe they will finally turn around in 2004, but I
decided not to wait and see. I rate it a Sell. Current earnings do not support
the recent share price and therefore I conclude that this stock can only be held
as a speculative pick.


December 24, 2003


The TSX and DOW were both up 0.3%, this short trading week. Meanwhile our
Strong Buys jumped another 3.0% to 67.4% for 2003. The model portfolio went up
0.9% to 35.9%. I’ll wit until the 31st before I update the Performance figures.


I’m quite eager now to for the year to end so that I can officially close off
my performance figures for the year, which I never expected would be this high.



December 19, 2003


Another strong week in the markets with the TSX up 1.7% and the DOW rising
2.4%. The model portfolio edged up slightly to 35.0%. The Strong Buys from
January 1 2003 are now up an average of 64%. My own portfolio is up 37.5%,
lagging the Strong Buys because I did not hold exclusively the Strong Buys and
because I took partial profits on some of the best performers to lock-in gains.


December 17, 2003


Cognos is
updated for another strong earnings release. This is a company that I always
hope will come out as a Buy. It has a lot of the features of a truly great
investment including strong growth, high profitability, no debt. But it usually
seems to be too expensive. It may be a case where the earnings are somewhat
understated due to all the R&D expense. I am comfortable holding a small amount
and would like to Buy more if the price falls materially to about $36. The
earnings were released after market so we may see the price rise tomorrow.


A lot of good things are happening with my picks lately…


CML Healthcare which I introduced as a Strong Buy, July 2001 at $18.10 was
recently at about $35 but then announced it will convert to an Income Trust and
promptly rose to about $46. I hold the stock and have now made over 150% on this
particular investment in about 30 months.


Here was my most recent rating on it, from August 2003


RATING: Value ratios indicate a Weak Buy /
Hold. The industry outlook and structure is attractive. Seems to pass most of
Warren Buffett’s tenets. The fact that the company is managed by the founder and
major shareholder is also a plus. Earnings are conservatively stated due to
existence of large R & D expense. This company has an excellent history of
profitability and cashflow. My belief is that earnings may grow substantially in
the next 12 months and that this stock may be a good investment at this time. If
the past is any indication, we will not see the Sept 30 year end earnings until
early February and so there may be little to drive the stock until then. And the
latest quarter was not strong and so now the price is looking a little high.
Overall I rate this a Weak Buy / Hold at this time.


I had actually emailed the company in March suggesting they convert to a
Trust and they argued that it would not be a good fit! I rebutted their
arguments in some detail. I can only wonder now if my suggestion had some
impact, though I am sure I was not the only one thinking they should go that


Recent Strong Buys and Buys have been doing well as reflected in the
Performance figures, which I will update on Friday or Saturday.


December 13, 2003


A mixed week in the markets with the DOW up 1.8% on the week and closing
above 10,000. The TSX was about flat on the week. The Strong Buys and the model
portfolio of this Site, did not change much during the week. At this point it
certainly looks like the 2003 will go into the books as a very good year in the


Transcontinental is updated for Q4 earnings. This company prints both of
Canada’s national business newspapers (in parts of the country) and yet is
relatively unknown to most investors. I rate it a Buy.


Technologies is updated for Q2 earnings. This is a company that seems like
it should be a Buy because of its strong growth. But when I crunch the numbers
it seems a bit expensive. It may be a case where the company is better than the
numbers suggest. However in Q3 I expect it to again be hit by the higher
Canadian dollar and so I am inclined to hold my small position and not buy more
unless the price drops or until earnings per share starts growing again to match
the growth in total earnings and revenue.


Western Bank has declined to $38.70 from a recent high of just over $42. I
had taken some profits at $42 and bought most of that back now at $38.50. I
think it is worth considering at this price and certainly I think it would be a
good investment if it falls to $37 or below.


Melcor has
done very well  but is very thinly traded. The last trade at $48 is probably not
realistic. The bid is only at $44.05. A more realistic price to try to buy the
stock is probably about $45 to $45.50. Although it does seem to offer very good
value, one has to cautious of over-paying on such a thinly traded stock with its
wide bid-ask spread.



December 7, 2003


Financial is added as a new company and I gave it my highest rating
“(higher) Strong Buy”. I could have thrown a “speculative” label on it as every
stock is to some degree speculative. But it becomes meaningless if I throw that
label on everything and this stock looks to me like it has a lot of up-side
potential and (unless disaster strikes) not that much down-side risk.


Northbridge is a property and casualty insurance company. In discussing
Kingsway, I
mentioned that I really like the insurance industry. Northbridge is much more of
a main-line insurer than Kingsway (which insures high-risk drivers). I believe
that insurance is a complicated business. I believe that I understand the
business to some degree but I also may be missing some of the risks. Certainly,
the market does not seem to share my enthusiasm for this stock (hence the
opportunity to buy at what seems to be a cheap price).


In the ideal scenario, insurance companies take in premiums and build up
large amounts of cash and liquid investments. They have to dole out money as
claims come in and they are never certain if they are charging enough, until
after the fact. Still, even when an insurance company reports a loss, it is
usually on an estimated basis, and usually the cash is still growing ever
larger. Insurance companies hope to make a small reported profit on the actual
insurance business and then augment that by investing the insurance premiums
that they hold prior to paying out claims.


Ideally an insurance company prices its products properly, conservatively
estimates its claims and builds up an ever growing mountain of cash and


The risks include the fact that claims might grow a lot higher than ever
imagined and could ultimately bankrupt the company. I understand that a number
of U.S. insurers went bankrupt over asbestos liability claims.


I suppose this is why insurance is usually considered risky and rarely trades
at high multiples. For this reason, we may not see a large price increase here
in the short term, even if earnings stay strong, but if the earnings do stay
strong then this will be a good investment if held for several years.


My strategy is to get a fairly significant exposure to several insurance
companies but not to get overly exposed to the segment.


December 6, 2003


Western Bank is updated for its Q4 and year-end results. This stock has done
very well since I rated it a (higher) Buy on Sept. 4 at $33.10. It is now at
$40.00. It got as high as $42.50. It has fallen a bit in the last few days after
the earnings release. This is typical because the market was pricing in very
good results and although the Bank delivered, the moderate pull-back is not
surprising given the big run-up. I definitely like this stock long term. Right
now I call it only a (lower) Buy. If I did not own any, I might buy some at this
price and then hope for a further pull-back perhaps to the $38.50 range. I
recently took partial profits at $42.00 and I would be inclined to buy that back
at $38.50. I am also quite comfortable holding a position at this price.


December 5, 2003


The TSX and DOW were up 1.7% and 0.8%, respectively this week. The
Performance page of
this site is updated. The Strong Buys had a banner week rising almost 9% for an
astounding average gain of 58.9% in 2003. My own portfolio is up 35.4% this year
and the model portfolio is up 34.1% in 2003.



November 29, 2003


Forzani is
updated for Q3 earnings. Results were disappointing and the stock has fallen
from $18.99 when I rated it a on August 26, to $16.51 on Friday. Perhaps most
troubling is the fact that in Q2  it looked quite  apparent that they would not
make their full year guidance number of $1.35 per share and yet they did not
update guidance. Now they have lowered it sharply to $1.01. But that still will
require a big earnings increase in Q4, and I am beginning to doubt their
credibility. I have been guilty of holding stocks on the way down at times, but
this is one case where I was able to sell at a profit and avoid the decline.
Ultimately, their growth will likely resume but I would either wait for a
decline to about $14 and buy on speculation at that point or wait until the
year-end numbers are out around late February, to see where things stand.


Performance data
is updated and has improved once again.


A strong weak on the markets, the TSX and DOW were up 1.0% and 1.6%. The
model portfolio was up 2.6% to 34.0% on the year. My own portfolio was up 1.8%
to 33.7% on the year. At this point I am eager for the year to end, hopefully
without any pull-back, but one never knows what the market will do in the


November 23, 2003


Transcontinental Inc. is added as a new stock pick. This company is mostly a
printer of newspapers and also a creator and distributor of flyers. Thus it is
mostly a company that other companies use to outsource their printing and direct
marketing needs. However, it also publishes some of its own newspapers and
magazines. A good cash generating company. The market capitalization of equity
is near $2 billion, however the company seems to fly below the radar screen and
may not be familiar to most of you. It came to my attention be screening for
companies with high returns on equities combined with reasonable price to
earnings ratios. I like it at this price. Although not considered in my
analysis, there is always the possibility that it will spin off some or all
assets into an income trust structure. That would likely cause a significant
jump in the stock price if it were to be announced.


November 21, 2003


Performance is
updated. The TSX was up 0.4% this week while the DOW fell 1.4%. The Strong buys
fell back a bit but are still up 49.2% this year. The model portfolio did well
this week, climbing another 1.8% and now up 31.4% in 2003. My own Portfolio also
did well this week and is now up 31.9% in 2003.


November 20, 2003


(up 173% this year) is updated for Q3 earnings. The earnings release was quite
strong but the stock fell moderately as it was already pricing in a lot of good
news this year. The value ratios look very good. However, due to the location in
China and rather infrequent press releases I have to call it highly speculative.
But the speculative nature is mitigated somewhat by the low price to book and
low P/E ratio. I was tempted to call it a highly speculative Strong Buy, but it
bothers me that a major shareholder has been a consistent seller and that the
insider trade reports were filed late according to the dates shown on SEDI. The
recent conversion of the multiple voting shares to standard shares is very
positive. Maybe they are close to getting a Hong Kong stock listing. I would not
take a big position in this stock, but it does look like a reasonable
speculative pick, especially for those looking for some exposure to China.


As hoped Melcor
has moved up a fair bit since my last update. However, the volume is very thin.
Use caution in placing orders, it may pay to be patient. (See also comments
under Oct 30 below)


November 15, 2003


Dalsa is
updated for Q3 earnings. The company has almost no debt and as a high-tech
company there is potential for accelerated growth or a buy-out. However, on
fundamentals it seems fully valued and I expect Q4 could be hit hard by the
sharp rise in the Canadian dollar this quarter. Therefore, I believe that this
company is worth keeping track of as it might become a bargain in future, but
for now I consider it a Speculative Hold.


Western Bank has really soared to $41.50 since I rated it a  (higher) Buy at
$33.10 just 6 weeks ago. I did not expect this kind of fast rise. I am almost
tempted to reduce my position at this level but then again I still expect this
stock to continue to rise in the long term, even though it could very well fall
in the short-term. I would be a little hesitant to Buy at this level.


November 14, 2003


A weak week in the markets, however the Strong Buys continue to perform and
are now up 51.8% in 2003 and the Model Portfolio edged up to 29.6%. My personal
portfolio slipped a bit during the week but remains at an impressive 30.1% gain
in 2003 to date. Despite the comment under Nov 7, the Performance page was in
fact updated for Nov 7, but is not updated today for Nov 14, I expect to update
for Nov 21.


Financial is updated. It’s P/E and basic fundamentals suggest that it is a good
buy at this price. However, when I think more deeply about its earnings, I
realize that my understanding of all of the estimates that go into its earnings
is limited. It’s not clear to me how much discretion management has in
determining the earnings which are based in part on actuarial estimates and
which include certain smoothing aspects. Life insurance companies are very
different from “normal” corporations in that they typically collect premiums for
many years before the associated death penalty is paid out. Based on the
reported earnings and the track record, and not having any reason to doubt the
validity of the reported earnings, this looks like an attractive investment.


The TSX Group
is updated. This has performed well beyond my expectations and is up 27% to
$42.95 since I rated it a Buy on October 11 at $33.85. As expected the earnings
released on October 28, were strong due to strong stock market activity. The
shares got about an extra (and unexpected) $5.00 boost from an announced special
$5.00 dividend. In this case the cash was relatively idle and earning very
little and so distributing this cash will not affect earnings materially. Again
it does not look like a bargain and will have to grow earnings to justify its
price. But I continue to believe that this company is a near-monopoly and I
expect earnings to grow fast enough to justify its current price. Of course the
stock price should fall about $5.00 on Nov 29 since shareholders of record on
Nov 28, will get the $5.00 dividend.


November 7, 2003


Another strong week in the markets. The 7 Strong Buys from January 1 are now
up an almost unbelievable average of 50.4% since January 1. The model Portfolio
is now up 29.2%.  My own portfolio is up 30.4%. I have not updated the
Performance page since I typically do that only every second week.



November 4, 2003


Stantec is
updated. This is a great company but I believe that it may be fully valued at
this time.



November 1, 2003


Performance is
updated and is very strong. The last two weeks were particularly good.


October 31, 2003


Note that there are some updated comments on the model portfolio above.


I was hoping that I would not have to say anything about
Kingsway for a
while. But then today just as the market closed, S&P downgraded their debt one
notch to BBB- from BBB. They did say the outlook was now stable. S&P is
concerned that certain segments of the business will remain problematic and that
further reserve adjustments may be needed in 2004. On a positive note, S&P
indicated that Kingsway’s subsidiary’s $100 million issue of Trust Preferred
will soon go to market and will be rated BB. I spoke to Kingsway’s CFO and he
confirmed my understanding that the company is sitting on a huge amount of
liquid assets and has great cash-flow. I have trouble understanding how there
could be a credit problem when they have all that cash. Possibly S&P is just
being very cautious. It is a fact that a liability insurance company always has
a great deal of uncertainty over its ultimate pay-outs to customers. But
management seems sincere it its belief that it is now adequately reserved. With
all that liquidity, I don’t think that the company will run into financial
trouble. The worse case in my mind, is a share issue at a low price that dilutes
EPS but which would also shore-up the company. According to management’s
figures, the company has been strongly profitable on 2003 business and it was
pre-2003 business that is (or hopefully was) causing a problem. I’m not sure
what the market reaction will be on Monday but it could be quite negative.


October 30, 2003


Melcor is now
updated. This is just a boring company that makes money year after year. ROE is
currently running at over 16% and yet the P/E is about 7. Here we have a highly
profitable company with strong assets that could be converted to cash if needed
and yet you are able to buy it just under book value. Historically, it has
traded at even lower multiples of book value, but I think as the company’s
market cap grows through increased book value, the multiples are also
increasing. Previously I called this stock speculative. It is thinly traded and
not suitable for short-term trades. But every stock is speculative to some
degree. In this case I think Warren Buffett would ask us to think where is the
risk in buying a high quality cash generating company at just under book value?
Maybe the stock price will not move up in the short-term, but over the next 5
years I think it has a solid chance of doubling or tripling. Note that it is
thinly traded. I definitely like this stock, but as always, you trade at your
own risk!



October 29, 2003


SICO is updated
for earnings released yesterday. The Q3 earnings were quite strong if a
restructuring charge is ignored. In this case the restructuring charge relates
so scaling down he much smaller and less profitable industrial coatings
division. Also it elates to plant closing and a rationalization of customer
service and distribution, after acquiring a competitor. This is rational and is
exactly what we would hope for after an acquisition. This stock is up about 12%
since we rated it a (lower) Strong Buy in August. I am now rating it a Strong
Buy since it is executing well and the outlook seems positive. I am not calling
it speculative because operationally it looks pretty safe. However, it does
have  history of price volatility and that is always a risk. All stocks are
risky to some degree… It may be remote, but there is even the possibility that
this could go the Income Trust route since it seems to generate strong cash
flows and since it pays a cash income tax rate recently around 36% based on
2002. I own shares and may buy a few more.


October 28, 2003


Note, I sent an email to subscribers on October 28 at 11:15 pm Mountain time
to notify you about this update. If you did not get that email let, me know.
There was also an email on Sunday October 26 at 9:47.


Wow, a number of my picks are doing great things.


Melcor (MRD
Toronto last at $39)  just announced a great quarter. 2002 was a record
cyclically high year for them at $7.41 per share, diluted. They had forecast
$5.18 for this year. They are already at $4.03, and last year Q4 was the biggest
quarter. If they hit $6.50 per share that is a P/E of about 6! It trades
slightly under book value and pays a dividend of $1.10 per year. This is thinly
traded and under-followed so it may not move too quickly. I can’t do my full
update until they release the full financials, which did not come out in the
press release. However, I am almost certain I will be maintaining my Speculative
Strong Buy generic rating. Though it’s not really that speculative, the reason
for calling it speculative is the cyclical nature of real estate. But this seems
a pretty safe be to me. I doubt you will get at under $40 tomorrow only 46
shares went today at $39 so the $39 means nothing. The offer is at $41. I may
try to buy tomorrow at about $41. Really there is probably nothing wrong with
paying more than that but it may not be necessary. This is thinly followed so
maybe some will go out at $41 before some sellers even realize the earnings are
out, or it could jump a bit.


On SEDI there is very little insider trading shown. The President exercised
5300 options in June and subsequently sold just 500 shares in September to hold
over 75,000. This looks positive because many executives of other companies tend
to immediately sell all shares acquired on options. No other trades shown.


The TSX group which we
initiated as a Buy on Oct 11 at $33.85 is now at $37.78 and just today (after
close of markets) announced higher profits and announced a special dividend of
$5.00. I have not updated my analysis because I do not yet see the financial
statements, but I think the Buy rating would remain (Higher price but higher


Also Manulife came out today with Strong earnings. The stock rose $1.5 on the
news. Again, I have not yet updated the report. However I would continue to rate
it a least a Buy. The consensus seems to be that it got the John  Hancock
acquisition at a good price not much over book value. As Warren Buffett would
say, when you acquire strong companies at good prices, good things tend to
happen. Insurance company financial statements are very difficult to understand
and so we are trusting in actuaries when we invest in this stock. But overall it
seems like a good business model. Life insurance should be much less risky than
property insurance due the relative predictability of deaths and the fixed
insurance pay-out. I would be quite comfortable buying at this price in a
reasonably diversified portfolio.


Also Sico released earnings and I will update that report soon. Earnings are
up before a restructuring charge and down after the charge. I expect to maintain
the (lower) Strong Buy rating here.


To top off a day of good news,
continues to edge up. I am hoping for more of the same there.


As always, invest at your own risk, all stocks are risky to some degree.


October 24, 2003


Home Capital
is updated. This has been a complete gem, now up 100% this year. However I am
now growing cautious on it. The P/E is 18.9 on trailing 12 month earnings. I am
coming at this now from the perspective of having enjoyed about a 100% gain on
the stock. I recently sold half of my position at $27.50. The trigger for my
selling as noted under October 18, was that I saw some insider selling had
occurred at about $20 and $24. However, on a closer look at insider selling it
was done by very major shareholders and involved only a small portion of their
shares, so perhaps it was just the fact that these people had become
millionaires on this stock, most of their money was tied up in stock and with
only a small dividend they needed some play money.


However, the stock has run up very significantly in the past 3 months. I am a
bit nervous about how their loan loss performance has been so incredibly low.
Clearly if we go into a housing recession their loan losses will rise. Lending
institutions are traditionally very good money makers but are viewed as risky
due to their extreme leverage. They have only about $10 million in general loan
loss provisions (over and above actual non-performing loans) but assets are some
$1.8 billion. They claim that the loan loss provision is adequate and they are
subject to regulations in that respect. However, it still makes me slightly
nervous. I think I was wise to sell half my holdings to reduce my exposure. If I
did not hold shares I might buy some at these prices but I would be hoping for a
pull-back to add to the position. I don’t see the stock moving up much more in
the next three months.


It is curious that with earnings released on Thursday morning the stock
really did not move much. It almost appears as if the results were pretty well
known on “the Street”. It’s not really fair for that to be the case and puts
ordinary shareholders at a disadvantage.




October 21, 2003


Kingsway first opened down about 38 cents but then closed the day up 17
cents. It is remarkable that an earnings report which I am sure contained some
surprises had so little effect. I think maybe the market will take a few days to
digest the numbers and I expect the stock to at least edge up a bit from here.
Ultimately I think it will rise substantially if there are no more reserve hits
in Q4. I listened to the conference call and I believe that management sincerely
thinks that it has taken a “big bath” on reserving in Q3 and that it will not
have to increase reserves in Q4. Despite the apparently good value, management
has definitely lost credibility with analysts and the market will probably be
reluctant to push this stock up very quickly and may wait for proof in the Q4
earnings. Meanwhile I am very comfortable holding the stock but always
recognizing that it is still at risk for volatility. My updated report of
yesterday had my comments truncated in a few areas and I have now fixed this up.



October 20, 2003


Financial is updated for Q3 earnings released today. As all but very new
subscribers will know, this stock fell significantly after I first rated it a
strong buy on August 8 at $17.50. There are two main stories in the Q3 earnings.
The earnings are down significantly from last year due to a fairly massive
“adverse impact” related to increasing the provision or reserve for claims
related to 2002 and prior. If the market focuses on this and believes that there
is more to come then this stock may fall further. However, the other story is
that the earnings in 2003 absent the impact of prior years are very high (about
$1.00 per hare in Q3 alone). If the market focuses on this the stock will rise.


In some ways the adverse impacts related to prior years can be considered an
unusual item. However, I believe that this industry does not treat it as unusual
because it fully expects to make at least some positive or negative adjustment
to prior years claims each year. But the magnitude of the adjustment in Q3 is
unusual in my opinion.


Longer term (and hopefully starting Q4) I expect that the reserve problems
will end and we should be left with high current earnings that justify a much
higher stock price. Despite the reserve increases, the company has grown its
assets at a high rate. On average buying a company like this at book value
should work out very well, but there are no guarantees.


I believe that this company has some leeway in the amount it increases
reserves related to prior quarters. I find it strange that the Q3 report does
not really focus on how high earnings are on 2003 premiums, absent the prior
year impacts. Could it be that the company would not really want to trumpet high
current year earnings right now, when it is trying to negotiate with various
provincial governments for caps on insurance payouts?


I also don’t expect the currently proposed caps on car insurance rates to
adversely affect the company since it will be accompanied by caps on pay outs
for pain and suffering.


If the share price falls tomorrow then it might be wise to try and wait for a
bottom. However, if it starts to rise then I personally would want to buy
(except I already have enough).


October 18, 2003


In case anyone missed it, here is a link to the latest free newsletter from
October 13.
http://www.investorsfriend.com/oct_13_03.htm Most of you would have got
that, but I keep a separate email list for it. Let me know if you are not
getting it and what email you would want it sent to.


The rising Canadian dollar is definitely going to hurt some companies. There
are two impacts.


First are one-time impacts that happen when the dollar rises during a
quarter. An increase in the Canadian dollar during a quarter negatively impacts
the value of U.S. assets and positively impacts the value of U.S. liabilities.
This one-time impact can be quite large, however for many companies it does not
show up as an earnings hit but rather as a separate component of retained
earnings. It reduces the book value of the company. In some cases this may be


The second type of impact is the ongoing “permanent” change that occurs due
to a higher dollar. The worse case is a company with expenses in Canada and
revenues in U.S. dollars. If it competes against U.S. rivals, it probably can’t
raise prices so this could be an extremely major hit to profits as we moved from
a 64 cent dollar to now 76 cents and rising. Small Canadian manufacturers that
have most of their revenue in the U.S. would be hit hard. If this is hedged
against, the hedge is probably only for a year or so at most, but the impact
should be considered permanent. A company that has both expenses and revenues in
the U.S. will hit much less hard (it’s got a built in hedge). A Canadian company
that has revenues in Canada and most expenses in the U.S. would benefit from the
higher dollar. This might include certain retailers.


Out of the Companies that I cover I expect Stantec to take a balance sheet
hit but not much of an earnings hit. I expect BW Technologies to suffer a fairly
significant earnings hit. I expect Kingsway Financial to suffer somewhat on the
balance sheet side. Regarding earnings, it also has significant expenses in U.S.
dollars and so I am not expecting a very large impact. CN would be hurt, mostly
on a balance sheet basis.


Overall, we may see that Canadian companies in general are suffering from the
higher dollar. A lot of the recent rise in the dollar was after Q4 started, so
Q3 may not be that bad, but Q4 could see a major impact.


I have never been very good at predicting the where the market in general is
going, I have better luck in picking individual stocks. However, my sense is
that there is certainly more danger of a general pullback right now, although
the strong earnings reports could see us go up a bit yet.


Today I want to make some comments about a number of companies that have had
good price increases since the date of my report.


Home Capital
has really flown since I called it a Speculative Buy, July 24 at $21.50. It’s
now at $27.50 having got as high as $29.39. The P/E is now around 20 and so I
would not buy at this price. I have not yet taken profits but I have an order in
to sell half of my holdings at $29.75 if it should get there. I hold it in an
RRSP. I would not sell if it were a taxable account. Earnings will be out
Thursday this week after close of markets. At this point we should probably wait
for the earnings but they will have to be pretty spectacular to justify anything
much higher than the current $27.50. Checking insider trading I see a fair
amount of selling with 4 out of 5 officers selling at least some shares
recently, They are also buying under a regular plan, but the selling amounts
appear to be larger. Given the current price and this insider selling I am
inclined to take at least some profits here if held in a non-taxable account. To
lock in gains, I am notionally selling half the Home Capital in the model
portfolio at a limit sell of $26.50. (If the opening price is higher than that I
will use the opening price since that is exactly what would happen if I enter a
limit sell price of $26.50). [Update, the opening price was $27.50]


Western Bank is also up nicely since I called it a (higher) Buy September 4
at $33.10. On Friday it closed at $38.60 and a trailing P/E of about 15.
Checking Insider selling here, I see executives exercising options and then
selling the shares. This is mildly negative but not a big concern. I am
comfortable to hold this and buy on any pull-back to below about $34. I am quite
comfortable that this company will be around and still growing in 5 years time
so It could be bought for the long-term but in the short term seems a bit


fell with its big acquisition of Hancock, since I called it a Buy July 25 at
$40.65. Friday it closed at $38.60 with a P/E of 13. Frankly, I am not in  a
position to really judge the acquisition, but I understand it was at a good
price, only a relatively small premium to book value. I like this company, this
is probably an opportunity to Buy at a good price. I am comfortable with this as
a long term hold. For the model portfolio, I will notionally buy $13,450 worth
at the opening price on Monday.



October 13, 2003


Witness is being bought out at $11.27, a 55% premium by Honeywell. Most
recently I called it a speculative weak buy, but I had it as a speculative Buy
at January 1, 2003. (Unfortunately I initiated this as Buy at $11.50 in early
2002. However, I made money on the company by averaging down).


The TSX Group (Toronto
Stock Exchange) is added as a new company. In my opinion this company has the
features of a great company, given what appears to be a near-monopoly position
in Canada. Also it is the type of business that can grow without much capital
spending, so it tends to generate substantial free cash flow. With no debt and
substantial investments it appears to be quite low risk. The stock price has
already increased substantially from $18 at the IPO in November 2002. The value
ratios alone would not appear to justify a buy rating, however, when I consider
all of the strong qualities of the company and the conservative measurement of
earnings, I believe that a Buy rating is justified. In addition, I would expect
that the Q3 report due out shortly will show a strong quarter which further
justifies the Buy rating. Interestingly this company also seems like a good
candidate for conversion to an income trust structure, however, I don’t expect
that to happen. I intend to purchase some shares tomorrow.



October 9, 2003


Finally, Kingsway is going up the last two days. It appears to be very good
value at this price, but is definitely speculative. AT this point I am waiting
for the earnings release expected on October 20.


Pacific Northern Gas
has just announced that it has a new major shareholder and is looking at
conversion to an income trust structure. The value may “pop” tomorrow, if not I
will be a buyer because this should be a very positive development and one that
I was hoping for.




October 6, 2003


Just to let subscribers know, I plan to be more active with updates by
mid-month as the Q3 reports come in and I am looking at a couple of companies to
add as well.



October 3, 2003


Performance is
updated and certainly was hurt by the big drop in Kingsway Financial. Still,
only 1 of the 7 original Strong Buys from January 1 is down and Kingsway is the
only 1 of 9 stocks that were in the model portfolio that is down. My own
portfolio was also hurt by Kingsway but I still have a more than respectable
gain on the year as detailed in the Performance tab.


The latest with Kingsway is that it issued just $10,000,000 in preferred
shares. It is my understanding that they would not have needed the cash for
liquidity since they hold hundreds of millions in liquid assets. Rather the cash
is needed to satisfy regulatory rules regarding the level of their invested
capital (debt + equity). Insurance companies are unique companies in that they
typically won’t likely run short of cash even if they lose money  because they
are holding premiums collected from customers. But the premiums are ear-marked
for future claims payments. Regulators force insurance companies to maintain a
certain level of equity and the bond rating agencies also demand this. So…
they probably needed to raise the capital for those reasons. They had planned to
raise $50 million preferred in association with a U.S. acquisition. That made
sense –  they needed more capital because of the acquisition. But now that they
are not making an acquisition, the fact that they needed to raise $10 million in
capital is worrying. (see update on this, below) It could be that they will
report a loss in Q3 and a loss erodes capital and therefore they needed more. I
would think that they will report an operating profit in Q3 except it could turn
into a loss if they write-off more reserves. They already announced $20 million
in write-offs. But they said that was off-set with $10 million in investment
gains. If there are no more write-offs, I would think Q3 would still be
profitable. But, then there is the question why did they issue the preferred if
that is the case? With all this uncertainty, I have to consider the stock to be
highly speculative at least until we see the earnings on October 20.


Update to above, on reflection the $10 million for capital could also be
needed because assets have grown through increased business (even just due to
rate increases) so, on reflection this equity issue is not cause for worry.



September 30, 2003


Kingsway has turned into something of a debacle on me having fallen rather


This is a reminder that individual stocks are always risky.


At this point, is Kingsway a bargain?


If you believe in investing with the trend then you would not buy now. If you
believe, as I do, that sometimes the market under-values stocks then you might
buy now.


There are no guarantees. Let’s consider two possible scenarios.


In scenario 1, Kingsway turns out to be a bad investment even at this price.
Given that it is now trading at 6.4 times trailing earnings and at about book
value, this implies that Kingsway is going to lose money this year or  at best
make a small profit. This could happen if Kingsway needs to take a large charge
to increase reserves for existing liabilities. Essentially it means that
Kingsway charged too little in the past and for every dollar in insurance
premiums, its claims plus operating costs are going to amount to more than
$1.00. To some degree this has been happening. The company in its 2002 annual
report indicated that management thought that that problem was behind it. But it
showed up again this year in at least two of its subsidiaries American Country
and Kingsway General. It seems that the  market is very nervous that there is
more of this to come.


In this scenario it turns out Kingsway is really poorly managed. In this
scenario, the likely worse case is that Kingsway has to issue a lot of equity
shares at depressed prices, or it gets taken over at a poor price.


I still don’t see this scenario as very likely though it is certainly


I am more inclined to think in terms of a scenario 2 where Kingsway will turn
out to be a very good investment at this price. Yes Kingsway does seem to have
some issues with past reserves being inadequate. However, it hard to imagine
that the business it is doing right now in 2003 is not going to be very
profitable. We have all heard about huge premium increases. And there are
pressures now to keep court awards from continuing to go much higher. Kingsway
at this point should represent something of a insurance premium machine. I fail
to see why it would not be attractively profitable going forward. If it is
adequately profitable going forward then I would expect the market’s confidence
to return and the share price could rise quickly. Few adequately profitable
companies trade as low as book value.


I certainly can’t say for sure that this will ultimately turn out well. But I
take some comfort from the recent experience of Fairfax Financial which in the
last 12 months fell from about $160 all the way down to $57 and then rocketed
back up above $200.


Certainly a problem with Kingsway is we just don’t know what the next piece
of news will be. It may well have more bad news. Or if the news out of the Q3
results next month is positive, then it could quickly recover. I hold the stock
and I am not going to sell. If I did not hold any, I personally would buy at
this price. As always I would not want to get over-exposed to any one stock.



September 27, 2003


Cognos is
updated and downgraded to weak sell/hold. I like the company a lot but it is
just too expensive.


AGF Management
which owns and manages the AGF family of mutual funds is updated and upgraded to
Speculative (lower) Buy. This is a hard stock to predict but it generates strong
cash flows. It will likely move up if the general stock market rises. Bt it will
likely drop if the market drops. Many stocks are a lot more dependent on their
own operations, this is a company that feeds off the stock market itself.


September 26, 2003


Financial was halted and then released bad news today. They report increased
reserves relating to past periods of $30 million relating to one of their
insurance subsidiaries, which will reduce Q3 earnings by $20 million. I believe
that the reason it hits net income by only $20 million, is that the $20 would be
after income tax. They also announced expected realized gains on investment of
about $10 million for Q3. So this appears to net out to about $10 million which
is significant but not that huge. However, it calls into question if any more
increases to reserves are coming. Frustratingly, the company did not give any
estimate for Q3 earnings but indicated those will be released on October 20. I
was hoping for a very strong quarter due to all the insurance rate increases.
The company does say that it is experiencing strong growth in gross and net
premiums for Q3, and that would seem to suggest that Q3 profits will be good.
At this point I don’t know how much the market will react on Monday when the
stock resumes trading. The stock could even rise if it turns out that in effect
this bad news was already priced in through the recent price drop. The company
still looks cheap on fundamentals. Clearly though it is speculative. I thought
that the recently released S&P report was mildly positive in that it maintained
the company’s credit rating. I suspect that S&P was made aware of this reserve


The company also terminated a U.S. acquisition that it was planning and
aborted a planned preferred share issue. No doubt there will be some expense
written off due to this. Given that the market seemed not to like this
acquisition, maybe this is a positive.


My bottom line is that it looks cheap but is certainly proving to very
speculative. Hopefully the picture will become more clear when the Q3 earnings
are released in 1 month.


My performance took a hit this week, but not a huge hit. I’ll update it next
week as I generally do that every second week. The Strong Buys from the start of
the year are still up an average 43%. The model portfolio , which has a
significant amount of Kingsway Financial, was down about 1.6% this week, but is
still up 25.3% on the year-to-date.




September 22, 2003


Last month I mentioned I had looked at
Sleeman Breweries but had balked at the insider selling by the
founder/president combined with value ratios that were not bargain oriented.
Subsequently, I sent my concerns to the company and John Sleeman took the
initiative to call me. If nothing else it shows he cares what people say about
the company. He provided an explanation that he had bought additional shares
around March and then found he needed cash unexpectedly. That does not fully
allay my concern but mutes it somewhat. Anyhow I finished off the analysis.
Overall I like the company but I am not excited about the stock price just now.
I’ll review again after the Q3 results.


Meanwhile I will keep looking for more stocks that look attractive.


Kingsway Financial, my understanding is that they adjust their reserves for
previous years only at year end. Therefore based on the rate hikes in place and
the strong markets I would certainly expect a strong Q3 from them. There should
be no problems with reserve increases in Q3, it could happen in Q4 but that is
anyone’s guess. However, I am not privy to inside knowledge and anything is
possible. I still think it should prove to be a very good investment. I am
comfortable holding a fairly large position, however it would not be prudent to
get too heavily exposed to any one company. My hope is tat Q3 will be very good
followed by a strong Q4 and hopefully no need to add to prior year reserves.



September 21, 2003


Witness is updated. I definitely like the industry category. They sell high
quality video security systems. However, sales were only about flat this year
and were down in the latest quarter. They have no debt and therefore will almost
definitely survive for the long term. I could easily come up with scenarios to
suggest it is under-valued. However, if sales growth does not recover then it is
not a bargain. Given considerable uncertainty at this time, I would pass it over
and not buy until sales do recover. I do hold a few shares and I don’t intend to
sell, but I will not buy more at this time.



September 19, 2003


Performance is updated and the Strong Buys are up a surprising 45.8% on
average in 2003 to date. These are no longer rated Strong Buy, but in the
interest of transparency, here is a link that tells you the 7 Strong Buys from
the beginning of the year
and how it has done. This link is now available just below the table of
stock picks above. Those of you who were subscribers to the Stock Picks as of
the beginning of 2003 will recognize these picks. Also a number of them were
included in the model portfolio.


Financial recently rated Speculative Strong Buy has been falling in price.
It closed at $16.00 today but the low for the day was $15.26. I don’t have any
reason to change the rating from Speculative Strong Buy. It has a history of
large price fluctuations. The P/E and price to book multiples are very
attractive. I think this may be an opportunity to purchase at an attractive
price. I expect this company to continue to grow and prosper. I think it should
definitely benefit from the large premium increases to its customers. However,
there are no guarantees and certainly this is a speculative pick. The company
recently announced a small issue of preferred shares in the U.S. I don’t know
the reason for that. I checked insider trading and found one executive recently
bought a few shares but I also saw some executives exercising options and then
selling the acquired shares and so there is no clear signal from insider
trading. I don’t expect any news from the company until the Q3 earnings are
released probably around November 7. I would certainly not be surprised if the
share price drops a bit more. However, the fundamentals certainly tell me it is
a Speculative Strong Buy. I am already fairly heavily exposed to the company and
so I will probably not buy any more at this time.


Home Capital
has shot up to $26.00, up 79% this year. I would not likely rate it a Buy at
this price. At the same time I am not that eager to take profits. If I had a
very large position I would likely take some profits, although in a taxable
account I would be reluctant to do so. I am quite content to hang on to this one
although it is now high enough that it could easily pull-back.


September 17, 2003


I note that Sico
announced this morning that it is closing two plants and three distribution
centers and consolidating customer service and taking a $5 million restructuring
charge (write-off). Normally this might be considered very negative. however
this is due to the fact that they had purchased a competitor several months ago.
This kind of rationalization is exactly what should happen to take advantage of
synergies. The share price declined just 10 cents on volume that was twice the
usual daily average. Overall, this announcement does not seem particularly
negative or positive to me and I will see how the next quarterly report looks.



The Nu-Gro
Corporation is added as a new company. I selected this company by screening
for high return on investment combined with a reasonably low P/E and Price to
book ratio. Nu-Gro passes that test. It seems like the kind of fairly obscure,
boring and profitable company that Warren Buffett might like. However, I am
rating it only a (lower) Buy because the recent growth is not strong and the
higher Canadian dollar is affecting the company. I am not going to Buy at this
stage but will wait until the next quarterly result.


I recently looked quite closely at Gaz Metropolitain which trades as
Partnership units (essentially equivalent to an Income Trust). I was very
attracted to the ROE which is reported as being about 18%. Management also seems
very strong. However, the yield is around 6.5% and is not growing. In this case
the company has no ability to compound money at the 18% since it pays out most
of the cash flow. I decided the yield is too low in this case and therefore I am
not adding this company to the Site.


I am continuing to look for value stocks to add.



September 8, 2003


Technologies is updated for earnings released today. Sales growth is
exceptional. Profit declined due to the higher Canadian dollar but growth will
assuredly resume. However I find the stock quite expensive. I am willing to hold
a small amount. If I had a large position I would probably sell some at this


It’s interesting that the price was essentially unchanged today on news of
strong revenue growth but lower earnings. You would think a stock would move in
one direction or the other on this kind of news. Maybe it will move tomorrow


Wow the general markets have really shown strength. Before we get carried
away and become over-confident, it is wise to remember that markets never move
up in a straight line and that the Fall is usually a bad time in the markets.
Prudence would suggest taking some profits and increasing cash holdings at this



September 4, 2003


Western Bank is updated for earnings released this morning. An excellent
quarter. The Bank seems optimistic that growth will continue. I see this as a
good investment that will likely double in a 5 or 6 year period and that has
little down-side risk barring an unforeseen disaster. I may add to my position.



September 2, 2003


Energy Partners which owns 50% of the Alliance Pipeline is updated. The
units are not bargain priced. But they have really performed well in the last 8
months. With a good dividend and with tax advantages this is worth considering
particularly for taxable accounts.


I have added to my position in
Kingsway Financial and continue to think that this will be a very good
investment. But of course there are no guarantees…



August 26, 2003


Forzani is
updated and downgraded from speculative weak buy to Sell. This is a strong
company but earnings per share are about flat in the last 12 months and sales
grew only at about 8% in the latest quarter. This is too small given the P/E. I
now have access to insider trading reports and see that the Chairman and
President and others sold many shares in June and July mostly at prices lower
than today’s price. Given sluggish growth and insider selling, I am out!


On a positive not I understand the company is still projecting a big earnings
growth this year, but I just don’t see the evidence… and I do see the insider
selling, so I am gone! (tomorrow)



August 22, 2003


Performance is updated and is excellent.


The DOW is now up 12.1% on the year and the TSX is up 12.9%


August 9, 2003


Performance is updated and remains
exceptionally strong.


August 8, 2003


The TSX was up 0.5% for a total of 9.6% year-to-date. The Dow was up 0.4%
this week for a total of 10.2%  year-to-date.


The model portfolio fell slightly this week due to profit taking but is

still up 25.1% year-to-date. The Strong buys improved once again to an average
30.8% in 2003 year-to-date.



August 1, 2003


The TSX was down 0.6% on the week for a total gain of 9.1% in 2003. The DOW was
down 1.4% this week for a total gain of 9.7% in 2003.


The model portfolio managed to gain 0.1% this week for a total 25.6% gain in
2003 to-date. Several stocks in the model portfolio fell this week, but others
made up the ground. The model portfolio is 19% in cash due to profit taking. I
intend to re-deploy the cash soon.


The average of the 7 strong buys from January 1, 2003 are now up 30.8%. Full
Performance figures will be updated soon.



July 25, 2003


Performance is updated and is very strong.
Partly, that is due to strong markets, but also our relatively conservative
stock picks (many even pay dividends) have out-performed the market once again.


The TSX was up 2.1% on the week for a total gain of 9.8% in 2003. The DOW was
up 1.1% this week for a total gain of 11.3% in 2003.



July 18, 2003


A volatile week in the markets. The DOW finished up 0.7% and is up 10.1%
year-to-date. The TSX finished up 0.5%.and is up 7.6% year-to-date.


Our average strong buy stock picks from January 1 did not go up this week.
The model portfolio fell this week but only by 0.1%. A full performance update
will be posted at the end of next week.


July 11, 2003


Performance of our stock picks is updated and


The model Portfolio is up 23.4% in 2003-to-date. My own portfolio is up 18.8%
this year-to-date. (I had some investments that were not in the model


Current Stock picks are only available to paid subscribers,
subscribe now to gain immediate access.


The TSX was up 1.1% this week and is now up 7.0% on the year-to-date., while
the DOW was up 0.6% this week and is up 9.3% year-to-date.


July 5, 2003


Not much happening this Holiday week with the TSX up 0.3% and the DOW up


Air Canada shares rose to $1.80. This is driven by sheer idiots (or to be
more kind by people who are horribly uniformed). It is
amazing that there are enough idiots or uninformed to buy 8 million shares today. I can’t
believe that this is from “short covering”. The last I checked the number of
shares sold short was under 20 million. So all of those could buy back and that
would take less than 3 days. Maybe it is short sellers recycling in every few
days but I doubt it. The last time I checked having a lot of people betting that
a stock will go down, does not cause it to go up. I suspect that few people
would willingly cover a short position in Air Canada at $1.80, when the company
itself has
said the shares will be worthless.


I tried to short the pig but TD Waterhouse said if I did, they would
automatically buy me back in after three days. This seems crazy it’s like some
trick by brokerages to earn more fees by letting me sell short and them
almost immediately forcing me to buy back. I would ideally like to hold it short until
it inevitably goes under 10 cents.


Here is a quote from a news source yesterday today:


Friday July 4, 4:18 pm ET

By Charles Grandmont



MONTREAL (Reuters) – Air Canada (Toronto:AC.TO
– News) has dodged another
liquidation bullet with a deal to lower the cost of its airplane leases, and
its stock soared 13 percent on Friday,
even though the airline insists the shares will be worthless after its debt
restructuring is done.



“Buy the bonds at the right price and you are making a
rational investment. Buy the stock and
you are just buying this impossible fantasy,
” said Robert Chapman, a
small U.S. bondholder


How stupid or uninformed can people be to buy this stock when the company “insists the
shares will be worthless”?


The great thing about this is that it proves that the market is clearly not
efficient and there are lots of idiots and uninformed out there and therefore you and I can
beat the market by taking money from idiots who want to throw it away.


Of course a few people actually made money by buying at $1.20 and selling at
$1.75. More power to them, but they are playing with fire.


June 27, 2003


A negative week on the markets with the DOW down 2.3% and the TSX down 1.3%.
The DOW is now up  7.8% in the year to date, while the TSX is up 5.5%. My
stock picks have out-performed with my model
portfolio up 18.2% year to date and my own portfolio up 15.0% year to date. My
seven strong buy picks as at January 1, 2003 are up an average 19.7%



June 21, 2003


The DOW and the TSX were each up 0.9% on the week. However the markets were
weak at the end of the week. The TSX is now up 6.9% on the year-to-date while
the DOW is up 10.3%. My sense is that the next move will be downward from here.
However, the expected Fed rate cut could fend off a decline. Second quarter
earnings reports will be coming out very shortly and will have an impact on the
market. It seems to me that the market has already priced in strong second
quarter results  and so there is not much up-side left but there is
down-side if the earnings are weak.


Air Canada continues to provide amusement. The company has said that is
unlikely that there will any meaningful recovery on the existing equity. That
translates to the current stock being near worthless and yet it trades at over
$1.00. Clearly this is irrational. The good news is that in order to make excess
returns in stocks someone else has to lose. Those who are long the Air Canada
shares prove that there are lots of people prepared to lose money in the


Air Canada is talking about coming out of bankruptcy after raising about $1.2
billion in new equity and debt. My fearless prediction is that they will emerge
and that they will be bankrupt again within two years. With the same management
in place it is almost inevitable. Even with good management, it would be tough
going. I believe that their pension plan will soak up any available profits in
short order. At the end of 2002, they had a 1.1 billion pension deficit. And the
liabilities were calculated using a discount rate of 6.5%, unchanged from 2001.
But interest rates continue to decline precipitously and a more conservative
discount rate would could easily add another billion to the deficit, in my
opinion (this is rough I don’t have the information to calculate accurately).
How will a smaller Airline ever reverse this deficit?, in my opinion it won’t be
able to.


And here is something hilarious, on their balance sheet they actually show a
$550 million pension surplus, but the notes indicate that unrecognized items
bring the real figure to the $1.1 billion deficit. Is n’t pension accounting



June 13, 2003


Performance is updated and has improved again. The model Portfolio is now up
18.9% since January 1 this year. The average stock in the Model Portfolio is up
26.3%. The model portfolio lags this due to profit taking.


This week began strong but ended weak. The TSX was down 0.5% while the DOW
was up 0.6% on the week. The TSX is now up 6.0% on the year to date, while the
DOW is up 9.0% on the year to date.



June 6, 2003


An exceptionally strong week on the markets with the DOW up 2.4%and the TSX
up 2.7%. The Dow is now up 8.6% on the year-to-date while the TSX is up 6.5% on
the year-to-date.


My model portfolio declined 0.1% this week but is still up 17.2% on the


June 1, 2003


Performance figures are updated and have
improved once again.


May 31, 2003


A good week in the markets with the DOW surging 2.9% and the TSX up 1.1%.


The DOW is now up 6.9% on the year-to-date while the TSX is up 3.7%


My model Portfolio is now up 17.3% year-to-date and my strong buys are up an
average of 18.7% year-to-date.



May 24, 2003


The TSX was up 0.6% on the week while the DOW was down 0.9%.


The TSX is up 2.5% on the year and the DOW is up 3.1%.


The Performance figures on this site are not
updated for this week’s changes. But the model Portfolio is now up 16.5% on the
year with all 7 stocks in that portfolio being up and with 35% of the original
investment now temporarily sitting in cash to lock in profits. The average stock
in the model portfolio has risen 22% in 2003 but the portfolio itself is below
that due to unequal weightings in each stock, trading costs and some prudent
profit taking.


The Strong Buys are up an average 17.5% though two of those Seven are down


May 16, 2003


Performance of my stock picks has been
excellent in 2003. The 7 stock model portfolio is now up 15.7% in 2003 to date.
This beats the 15% goal I had set for this relatively conservative portfolio for
the entire year. All stocks in the model portfolio are up with gains
ranging from 3.5% to 64% and with 4 of the 7 stocks showing double digit gains.
And 5 of these 7 stocks also pay a dividend as well! This all-Canadian TSX
portfolio was reasonably conservative although one of the stocks is a very small
cap with operations located in the far-east. 3 of the 7 are definitely blue-chip
quality, 3 more are value based small caps. This model portfolio saw moderate
gains even as the TSX was declining earlier this year. Now it has been really
driving up-ward as the market has rebounded.


I can in no way promise that my current picks will perform similarly but I
can promise that my current picks will be chosen following the same
comprehensive growth-at-a-reasonable-price and value oriented analysis. The
model portfolio is available to paid subscribers (sign
up now by clicking here) for CAN $10.00 per month with no obligations, you
can quit paying at any time.


My Strong Buys from January 1, 2003 are up an average 15% and my Buy picks
are up an average 6%.


I will not kid you (or more importantly myself), this strong performance was
partly due to good luck. But when I see 7 out of 7 stocks in the model portfolio
being up, and when I look at my record of beating the TSX by an average of 25%
annually in the last 3 years plus 2003 to-date I can also give substantial
credit to my stock-picking methodology. My own portfolio “only” beat the TSX by
an average 13% annually because I made bigger bets on some small caps that did
not work out (yet?) and was holding some “legacy” stocks that came from broker
recommendations rather than my own research. More recently I am trying to
concentrate my own portfolio more towards my own strong buys and I am trying to
have the discipline to sell stocks that I no longer rate as buys.


Meanwhile… the TSX was up 1.8% this week and only 1.9% in 2003 to-date. The
DOW was up 0.8% this week and 4.0% in 2003 to-date.



May 9, 2003


Performance figures for this Site are updated
and have strengthened again. The model portfolio has really had a good run and
is now up 13.0% in 2003.


The market was up moderately this week. Most of my stronger picks are up this
year while the market overall is almost flat. This suggests to me that higher
quality companies that were well priced have done well, while lower quality
companies have fallen. This is a pattern that I talked about last time, winners
tend to keep winning and losers tend to keep losing.



April 25, 2003


Performance figures for this site are updated
and have strengthened since the last update. The model portfolio is now up 8.6%
since January 1.


Markets made gains early in the week but gave it back late in the week to end
down moderately. As earnings reports come in I make the simple observation that
in the market as in life it seems that “winners win and losers lose”. That is,
companies with strong earnings records seem to continue to post earnings while
turn-around plays like Steel companies, Airlines and many high tech companies
continue to post losses. It seems that some companies always seem to mange to
outperform, while other companies always promise that earnings will arrive soon,
but they seldom do.  While there are many exceptions, a good general rule
for both people and corporations is that past performance is the best indicator
of future performance. When it comes to companies though you have to be sure
that not all of the up-side is not already priced into the stock. Good companies
are not necessarily good investments. That is why fundamental valuation analysis
is very useful in the stock market.



April 18, 2003


A strong week in the markets with the DOW and TSX both up about 1.5%. It was
an excellent week for the model Portfolio which is available to
paid subscribers only, now up 8.6% in 2003 to date.
This was meant to be a relatively conservative portfolio and it has proven to be
so, only 1 of the 7 stocks in the model portfolio is down. In comparison, the
DOW and TSX are both down slightly in 2003 to date.


Note also that CN which was recently listed on the home page of this Site as
a free reports rated Buy is up nicely since being listed. The only other free
“Buy” report listed there, Canadian Medical Laboratories is now unchanged from
the date it was last updated.


April 12, 2003


Not a great week with the TSX up 0.6% and the DOW down 0.9%.


It was interesting that the market rallied fairly sharply Monday morning on
positive developments in the War lat weekend. But the rally fizzled in the
afternoon and the market was up only a few points on Monday. Similarly, Friday
morning the market rallied on good economic news but the rally fizzled and
closed essentially flat for the day. I mostly stick to picking individual
stocks, but this overall market behaviour is not showing strength and seems eager
to fall on bad news and much less eager to rise on the good news.


I managed to short some Air Canada shares on Thursday at $1.26. TD Waterhouse
informs me that I am “unprotected”, in that they may force me to buy back these
shares at any time without notice and at the market price.


Logically, these shares should be worthless since Air Canada debts well
exceed its equity. But sometimes logic does not prevail. In the end I very much
doubt that the existing shares will be worth more than a few pennies at most.
But we shall see…




April 4, 2003


Performance figures of the stock ratings are


An okay week, with the DOW up 1.6% and the TSX up 0.2%. The model portfolio
is now up 6.4% on the year. Long-time readers of this Site know that I called
Air Canada a possible bankruptcy candidate two years ago and that I have long
thought that Robert Milton should have been removed for gross stupidity such as
engaging in price wars with lower cost competitors. Air Canada has also had
negative book value for at least 1 year. I last rated Air Canada exactly 2 years
ago calling it a clear sell at that time. Some things are indeed predictable.


March 28, 2003


A bad week partially correcting for the irrational exuberance of the prior
week. The DOW was down 4.4%, TSX which was not quite as irrationally exuberant
last week correspondingly dropped only 2.4% this week. Similarly, my model
portfolio had a bad week and lost 1.7%. But it is still up 6.3% on the year to


Speaking of irrational exuberance I thought that Air Canada might be an
excellent company to sell short. After all, the consensus seems to be that they
will have to go into receivership and “restructure” in order to get clear of
billions in debt and to get the unions to start negotiating wage cuts. “The
market” does not seem to realize that under that scenario the shares should end
up being worthless. Even if the Federal government in a horrifically stupid
moves decides to try to bail Air Canada out, that does not mean that the
existing shares are worth anything.


Anything can happen, but I thought it was a darn good candidate to sell
short. But my broker TD Waterhouse was unable to accommodate my request. I have
never before sold a share short, but it is supposed to be easy. I had lots of
cash in my margin account and was only going to sell a small amount of shares.
TD Waterhouse mumbled about the risks that they would face. I don’t get it. Air
Canada is widely held and surely TD Waterhouse clients hold lots of Air Canada
shares and they could have loaned me those shares for the short sell. It makes
me wonder if there is some kind of conspiracy against small investors selling
short. Everyone hates a short seller and it just seems like they did not want to
accommodate me.


March 24, 2003


Today’s lesson was that when the overall market dives it takes almost
everything with it. Few stocks escaped today.


March 21, 2003


The start of the war created a very big week for the DOW which was up 8.2% on
the week, apparently the largest single week increase in many years. The TSX was
up 3.7% on the week.


My Performance figures are updated. My Strong
Buys are up an average 7.5% on the year and the model portfolio is up 8.0%. This
is well ahead of the TSX, which is down 1.2% on the year.


I don’t particularly expect this war rally to last. The DOW fundamentally is
not under-valued and the rally is likely to fizzle for that reason. However, my
focus is always on finding individual stocks to hold and I don’t concern myself
much with the broader market.



March 14, 2003


By the close on Tuesday, this was looking like a really bad week. But a big
rally on Thursday had the DOW up 1.8% on the week while the TSX was down 0.9%.
My model portfolio was down 1.6% this week but is still up 4.8% on the year.


Clearly the next few weeks are uncertain we could easily see a 10% hit to the
markets if the war starts, but who can predict?


Would anyone like to bet that Air Canada will go into receivership before too
long? I think it probably will at some point. The idea that Aeroplan points
business is worth $1 billion is laughable. It might be if it Air Canada had
given it cash in return for all the points issued. Aeroplan is sitting on huge
liabilities for free flights. I doubt it has the cash to back this up. I doubt
that the sale of 1/3 of Aeroplan to Onex will go through. More likely I would
see Onex buying all of Air Canada at some point probably after a receivership
filing. This is Just my opinion I have not seen the financials for Aeroplan.



March 7, 2003


…and another bad week with the TSX down 3.0% and the DOW down 1.9%. The
model portfolio was down “only” 1.1%.


In 2003 to-date the TSX is now down 3.8% and the DOW is down 7.2%. The model
portfolio has strongly outperformed the TSX and is up 6.4% on the year.


Performance of all of our stock picks on this
site are updated.



February 28, 2003


A bad week with the DOW down 1.6% and the TSX essentially even.


Meanwhile my model portfolio was up again. It is now up 7.5% in 2003 and 6 of
the 7 stocks are up. The 7th stock is down only 2.5% This was meant to be a
relatively conservative portfolio and is performing fantastically. My goal is
15% in 2003 and I am already half way there, if these gains hold.


I will update full performance figures next week.


February 21, 2003


A good week with the TSX up 1.1% and the DOW up 1.4%.


Another excellent wee for the model portfolio which is now up 7.0% excluding
dividends. 5 of the 7 stocks are up and two are down slightly.


Performance figures on the Site are updated.



February 14, 2003


This week the markets broke a 4 week losing streak and were up marginally.
However, the DOW was up 2% on Friday and so at least the week finished strongly.


I have not done a complete Performance update. However, I can report that the
Model Portfolio was up another 1% and is now up 5.9% in 2003, excluding
dividends. About 4% of that is due to one very strong stock but 4 of the 7
stocks are up, 1 is flat and 2 are down slightly, which is not bad considering
the markets are down on the year to date. The strong buys are now up 7% on
average with 5 being up and two down. The complete Performance figures will be
updated on the 21st.


Join the free newsletter list to find out how to
access the model portfolio picks, if you have not already done so.


February 7, 2003


And yet another bad week. The Dow was down 2.4% and the TSX was down 1.4%.


The same comments apply as for last week.


Performance figures are updated. The model
portfolio for 2003 is up 4.9%.


January 31, 2003


Another bad week. The DOW was down 0.9% and the TSX was down 1.4%. Many large
companies have already reported their Q4 2002 earnings and the results were not
as good as the market was “expecting”. Data on the economy has also been
disappointing. On top of that the war threat is weighing on the market. Given
all of these factors it looks more likely that the market will fall rather than
rise. I still think it is very worthwhile to hold individual stocks that seem
under-valued. But I would certainly not be piling in new money aggressively at
this point. Although down for three years, the market is not at all cheap on a
P/E basis and so there certainly remains down-side risk.


On the other hand, when the market turns up, it will be quick. Therefore I
would also not risk getting entirely out of the market.
Subscribe to my free newsletter for much more in depth discussion.



January 24, 2003


My Performance figures are updated and look
very good for 2003 so far.


A bad week with the DOW down about 5.3% and the TSE down 1.3%. The DOW is now
down 2.5% in 2003 to date, while the TSX is up just 0.8%.


Meanwhile, my strong buys held in well this week and are up 4% on the year.
My model portfolio is also up 4% on the year. This was meant to be a relatively
conservative portfolio. 6 of the 7 stocks are up and the 7th is down just 0.3%.


January 17, 2003


This week, the DOW was down 2.3% while the TSE was down 0.7%. Meanwhile my
strong buys were up 1% on average though this was due to one very strong
performer out of the 6. I will update the performance page on the 24th.


We now enter earnings season. The market is expecting earnings to be well
ahead of the Q4 2001 numbers which were depressed by 911. Anything short of
about 12% average earnings growth over last year is going to send the market


But I can’t predict the market. My strategy continues to be to attempt to
identify individual stocks that are priced at a level that will allow me to earn
at least 9% on my money – on average – under relatively conservative



January 14, 2003


Just for laughs – Today I heard that K-mart had dropped 10 cents to 16 cents
on the news that in the reorganization, common shareholders would get
That’s nothing! That would mean the shares are worthless. Yet
people with a lottery ticket mentality are still buying. In the market it is
buyer beware!


In bankruptcy the most normal thing would be shareholders to get nothing.
Debts usually exceed equity. Chapter 11 in the U.S. has subverted this by often
giving something to the shareholders and even, astonishingly, the inept
managers. The Debt holders should be fully paid before any common shareholder
gets a cent, just my opinion.



January 10, 2003


2003 continues to be exceptional, so far. The DOW is up 5.3%, while the TSX
is up 2.8%. My Strong Buys, the 2003 model portfolio, and my own investments
have all outperformed the TSX, so far. See


As much as anything, this illustrates how the noise to signal ratio is very
high. Despite a few strong weeks it would be dangerous to conclude that the
market will continue on this path. However, I do believe that my 2003 model
portfolio will do well and also offers reasonable stability since it includes
some dividend paying stocks.


January 8, 2003


The year is off to a good start. I updated the Performance which shows strong
buys up 3% in the first five trading days.


I believe that the U.S. proposal to cut taxes on dividends has profound
implications. U.S. Stocks which trade on their dividend could easily see price
increases of 20%. Many companies will increase dividends or initiate dividends.
We should see companies issuing more shares to make up for the cash going out
the door. All of this equates to some fairly profound changes in the market.
This could be a real catalyst for the U.S. market. Unfortunately, I don’t see
why it would do much good for Canadian stocks.



January 3, 2003


A strong start to the year. My sense is that January will be a good month.
However, my focus is not on predicting the market. Rather I attempt to identify
under-valued stocks that are likely to perform well in the next 12 months and
that are likely to be good long term holds. You can access my best picks for
2003 through my paid subscription offer.


December 31, 2002


The final numbers show the TSX down 14% in 2002.


I have updated my Performance figures for
2002. My Strong Buys were up 5% on the year, not great, but a lot better than
the market averages.


Week of December 16 -20


Performance is updated and shows that a strategy of investing in the
strong buys on this Site just prior to the start of each calendar year would
have returned a total 53% gain in the last three years, while the TSX lost 22%
and my strong sells cumulatively lost 90%!


There are other ways to track performance but I believe that the above method
is fair and transparent.


With a strong gain on Friday, the DOW, made up for mid-week losses and
finished moderately higher on the week.


If the market grows with the economy, it will only advance about 5 to 6% per
year on average going forward. (Dividends will add another 2% to returns).
However, this will not likely occur in any steady fashion. It’s not that unusual
to see a 5% change in the market in a month or less. It is likely going to
remain difficult to see any underlying trend in the market. In engineering
terms, the “noise to signal” ratio will remain high.


As investors remain in a cautious mood, we may see opportunities to purchase
excellent companies at discount prices. This is what Warren Buffett patiently
waits for. It could be a great company that has some temporary bad news that
drives down the price but where the long-term outlook remains very positive.
These are the kind of companies that I will be looking for – Great companies at
bargain prices.


Week of December 9 – 13


The second straight losing week in the market. I see no particular reason to
think the market would move higher by month’s end.


I plan to send my free newsletter to subscribers within 24 hours. Topics will
include my analysis of which types of stocks I have generally lost money on and
which types I have generally made money on.


Bombardier’s new CEO, Paul Tellier will undoubtedly do good things for the
company. It may be a good time to invest. However, I am going to wait and see
what kind of write-offs he might make in Q4, to clean up the balance sheet.


After experimenting with several formats for selling research including
selling individual mystery company Strong Buy picks, individual company reports
and bundles of reports, I have decided to offer a
Monthly Paid Newsletter Subscription which will also include all my research
reports for $10 Canadian per month. The Free Newsletter will continue unchanged.
The Monthly subscription service insures that I can offer a range of buy and
sell picks and I have no incentive to rate stocks as Strong Buy. This is
important, I am completely independent of the companies and I am trying to
remain as unbiased as possible. The subscription option also fits in better with
Securities Laws since Paid circulation Newsletter editors do not have to be
licensed by the Securities Commission. I can’t offer a discount for a 1 year
subscription since I can’t commit to continuing this Paid Newsletter into the
future. I need to get a minimum number of subscribers to justify my efforts.
Subscribers will pay month to month by credit card and can quit paying at any


Week of December 2 – 6


No surprise, that the markets have finally had a down week.


I don’t have any strong sense of the direction of the market. It’s probably
reasonable for most investors to hedge their bets with some money in the market,
and some in bonds or cash.


I’m tending to become more conservative in my own investing. Topics that I
will address soon in the newsletter include, index
funds, investing in emerging markets, the dangers of lottery ticket type stocks.


Performance figures are updated.


Week of November 25 – 29


Well that makes 8 straight weeks of the DOW going up. I believe we need good
news on earnings guidance to sustain this. I’m not sure that there is much
behind the recent “tech” rally. For example, has anything really changed at
Nortel to justify the increase in that stock? I think the tech rally in
particular could reverse very quickly.


I just completed an analysis of FortChicago Energy partners. This is very
similar to an income trust type investment. I will provide a free link to all
the subscribers of my newsletter in the next issue, which I intend to send out
soon. I am planning to add more Income Trust companies soon. I also just added
some material to my popular article “Understanding
Income Trusts” to address the liability issue and to try to explain why the
yields are all over the map.


As year-end approaches, I am updating many reports and these are available
for a small charge to subscribers to the newsletters (also referred to as
members of this Site). Subscribers can check the “For Sale” link in recent
newsletters. The rest of you can Subscribe now.


I’m also planning to add more material on the topics of income tax and on
Exchange Traded Funds in the next month or so.


Email me with any general
questions or suggestions (but I can’t give specific investment advice)


Week of November 18 – 22


Another positive week in the markets.


Performance on this Site is updated.


In the latest newsletter, I emailed to members a link to many company reports
that I have for sale for $5.00 each or 3 months access for $30.00. There was
very little interest, perhaps because you could not see if each report was a buy
or a sell until you bought the report. (Not wanting to tip my hand). But since
there was so little interest in that method, I have now indicated which reports
are buys and strong buys etc. Also I am adding more reports. Members can check
the latest newsletter for the link to the reports for sale. Non-members can get
access by joining.


TransAlta announced some write-offs today. That company seems to constantly



Week of November 11 – 15


The Dow was up for the sixth straight week.


I was surprised that the market did not fall on the FBI’s warning of a
terrorist strike. If a large terrorist attack occurred in North America, I am
almost certain that the markets would fall at least 10% and quite likely much
more than that. It’s not a happy thought.


Right now, I am working on or have completed reports on Stantec, Boardwalk,
TranAlta, Dalsa, Mullen Transport, Steeplejack and more. Among these are some
good buys in my opinion. I will be contacting my newsletter subscribers (also
called members of this Site) soon with more details.



Week of November 4 – 8


For the first time, I have added the return figures for my own personal
investment portfolios to my Performance page.
Previously I tracked all my stock picks for you, now I am showing you exactly have I
done following my own analysis. My portfolio is strictly long-term and has
always been 100% equities. I have done quite well in the face of the bear
market. I can’t claim outrageous returns, but I have made consistent returns that
are substantially higher than the market averages.


The TSX index is down 24% cumulatively since the beginning of year 2000. My
own 100% equity portfolio is up 21% over that period. Therefore, I have beaten
the index by 45% over the almost three years since the start of year 2000.
After considering dividends estimated at 2% on the TSX index, I have beaten the
index by about 39% over the almost three years since the start of year 2000.


Certainly, not all of my picks have worked out, particularly in the last
12 months, but on average my record is quite strong.


Markets (TSX, DOW) rose early in the week, but then fell back to end only
very moderately higher than last week. The fact that the market did not respond
to the large interest rate cut in the U.S. is not a positive sign.


I don’t expect to see any big market rally at all. I continue to look for
individual bargain priced stocks.


Week of October 29 – November 1


Performance figures for the ratings on this
Site are updated.


The TSE trended steadily down for four days but rebounded 1.2% on Friday, but
was still down 1.3% for the week. The DOW Jones Industrial Average was up
slightly for the week.


I have no ability to predict the overall market, but with earnings season
mostly over, and some weak economic figures released. I would suspect that the
market will trend down somewhat through December.


This would create a buying opportunity. Given the difficulty of such
predictions and my commitment to individual stocks rather than to the market
index, I will remain invested.


One accounting challenge that we will hear a lot more about is pension
accounting. At year end, many companies will revise downward their expectations
for earnings on pension assets. This could cause substantial increases in
pension expenses and therefore lower earnings. Big, old economy company stocks
are vulnerable. More on this in my next newsletter.


Week of October 21 – 25


A positive but volatile week. The Dow ended up with a 1.5% increase. It
appears that investors are not rushing to sell into the recent strong rally.
Still, I remain cautious. I focus on individual companies but larger market
trends do affect most companies particularly in the short run.


I am searching for companies that appear to offer good value even if with a
fairly modest earnings forecast. This provides a strong up-side potential if
earnings should beat my modest forecasts. If we learn one thing from the recent
market crash of 2000 – 2002, it is that we must avoid paying prices that
implicitly incorporate highly ambitious levels of growth
. (which leaves
little up-side potential and huge down-side risk). My
newsletter offers access to a few companies that appear to meet my criteria
at their recent prices.



Week of October 14 -18


A good week. The rally holds. But it certainly may “test” the lows again. I
see the market as about fairly valued and not under-valued. As always I am
looking for individual under-valued stocks.


Week of October 7 – 11


Wednesday the Dow closed at 7286, down 27.3% on the year and down 37.8% from
its historic peak on January 14, 2000.


By Friday the market recovered 7.7% and is now down 21.7% year to date.


I’m not particularly hopeful that the rally will last. But it does illustrate
that when the market turns around, it can do so very suddenly and steeply.


While its tempting to get out of the market and wait for a bottom, a danger
is that it will have bounced well off the bottom before most investors conclude
that the bottom was reached.


At this point, I’m almost hoping that the market goes down more so that I can
buy at cheaper prices.



Week of September 30 – October 4


Another week, more losses. Things could (and probably will) get worse before
they get better. The markets seem fairly valued at this point. Fundamentally the
risk is that earnings deteriorate further.


A radio commentator today suggested that if we are losing all this money then
someone else must be making it. Not true. When the stock market goes down the
money we thought we had “in the market” simply vanishes into thin air. It only
takes a few shares to trade hands at a lower price and all the shares are then
worth less money. If the market falls in half, there are just as many shares
outstanding as before. They are just worth half as much. The other half of the
money is gone into thin air. I’m not trying to alarm anyone, but you should know
this is how it works! It’s scary that this popular radio host who has a show on
precious metals does not understand this simple fact of how the markets work.


Disclosure – What a ridiculous system we have. Companies report earnings
usually 3 to 6 weeks after the quarter. If earnings are down we typically hear
nothing until the earnings report comes out. But you can bet that an awful lot
of people know in advance if the sales or profits are down. By the end of the
the second month of each quarter you can just bet that insiders and many of
their contacts know if things are looking bad or good. The result is often a
slow slide in the stock price during the  6 to 10 weeks that the rest of us
wait in the dark while insiders and their contacts enjoy the advantage.


Currently we deal with this by making certain types of blantent insider
trading illegal. But an insider trading at a time when sales are down is
probably not doing anything illegal but he still has an advantage.


The solution is simple – companies should routinely issue a press release in
the middle of each quarter or even monthly that lays out how the quarter is
going. If they can’t comment on earnings until the end of the quarter, there is
no reason that they can’t at least comment on sales. That way we can all have
much the same information at the same time.


It’s about time that the Securities commission moved on this type of common
sense requirement.


Bravo to executives being hauled off to jail, we need that kind of



Week of September 23 – 27


More pain…no end in sight…be cautious…be diversified…don’t panic…if
you are in this for the long haul, the markets will eventually come back…This
magnitude of bear market is nothing new.



September 20, 2002


100 bottles of beer on the wall…take one down, pass it around, announce
your company will now be an Income Trust… 130 bottles are left!


I understand that Big Rock Brewery is changing itself into an Income Trust
and this has boosted the share price in anticipation of the move. As I explained
in my article on Income Trusts, the best way to
make money from them is probably to try to identify )in advance) which companies
are planning to convert and then ride the share price up when the conversion is
announced. Look for companies or parts of companies with stable earnings
and low capital spending needs.


Performance of the stock picks is certainly
not what I would hope for. However, this is to be expected with the TSX down19%
year to date.


Some stocks are surely trading at bargain prices. But I don’t see any quick
relief in sight. The market seems more likely to keep falling as more and more
investors begin to panic, or at least lose faith.


TELUS rebounded after issuing stock and using the money to buy back its own
debt at around 80 cents on the dollar. They will book a $63 million after tax
profit on this which is a nice boost to earnings. This is the smartest thing I
have ever seen this company do. Sadly, they rained on my parade by announcing
that they will start trying to offer cable T.V. over the phone lines. This has
big capital spending and losses written all over it, in my opinion.



September 14, 2002


From now on the home page only has 1 or two example reports. I noticed that
very few people had read the CN and Enbridge reports and a few others so there
is no point keeping them there, particularly since they had gotten out of date.


September 13, 2002


Another down day and I am certainly not convinced that the worse is over. The
lower it goes the better the bargains, it just feels like the opposite. The
trick is always to find the under-valued stocks. Members of this Site were
provided with a link to Buy my most recent research reports in my latest


Those reports included a small financial company and a small electronics
company that were rated strong Buys. I also included a report on Boardwalk which
I think has excellent potential and little down-side risk. Also Maple leaf was
included as a speculative pick. They should be having another good quarter right
now as hog prices have reached 4 year lows. But their stock price is well down
so this could be a good opportunity.


Bank stocks seem cheap now but may get cheaper, the big banks are very hard
to analyse with all their divisions and international operations. I like one of
the small regional banks that does nothing but lend money at a profit. It has
been beaten down with the others and may be a bargain. I will make that report
available to members next issue of the newsletter.


Telus finally raised some equity at $9.65 after apparently having been too
dumb to have done so when their share price was over $40 or even when it fell to
$20. I can’t see much risk that Telus would go broke and in a few years the
stock should be much higher as the cash comes in from the cell phone customers
and all their local services. Recently they were apparently buying back their
own debt in the market at 70 cents on the dollar. By my math that creates 30
cents of gain for every $1.00 bought back for $0.70. I like that a lot as a
shareholder. (Imagine YOUR bank agreeing to take 70 cents on the dollar for your
car loan). Apparently they may not have bought too much at 70 cents, the bonds
are now at 90 cents, but even that gives them a 10 cent gain for every dollar.
With the bonds at 90 cents, (up from 70) the market seems to be signaling that
bankruptcy is not a concern or is a remote possibility.


Some smaller stocks that I follow are suffering from terrible trading
liquidity, with the buy bid at say 20 cents and the sell offer at 30 cents. And
very few trades. With these stocks, you have to commit for the long term. You
can’t count on getting out quickly at all.


September 6, 2002


As stock market sentiment falls, companies with demonstrated earnings and
reasonable valuations should fare well. My goal is to find companies with lower
P/E ratios and high returns on equity and growth prospects. Those companies
should offer good up-side potential with little down-side risk. On the other
hand companies that promise earnings tomorrow but have little or none today may
continue to fall in price if the market continues to become more pessimistic.



September 4, 2002


This bear market is discouraging.


In particular, stocks with very low trading liquidity are seen to trade at
discouraging prices.


The strange thing is that we all felt better about investing near the top of
the market in 2000 because the market had gone up so long. We ignored the fact
it was over-valued (it had been for a long time but had defied gravity for a
long time).


Now, it is a certainty that the market offers much better long-term bargains
compared to 2000 and yet it feels like a horrible time to invest.


I am going to stay the course, stay invested, keep looking for bargains.


We may very well see more pain yet. But I doubt that I could time the market
so I will stay in and I will therefore automatically be in when the market
finally does turn around.


XXX SOME Comments missing here, will
be added if found in my files


Saturday February 15

Telus is updated as a Sell.
I had thought that there was hidden earnings in Telus because it expenses
the costs of customer acquisitions when that spending is expected to create
value over a number of years. Now my closer analysis indicates that the $56
monthly revenue from customers at a reported EBITDA margin of 18% will take
4 years to pay-back the cost of customer acquisition at $502 per customer.
This is bad enough, but consider that with a customer churn rate of 2% per
month, the average customer will not be there for four years. Furthermore
management is projecting core earnings of just 20 cents per share in 2002. I
start to wonder if the dividend will be kept. While it is possible that the
growth will eventually pay off, I rate it a sell at this time. And note that
I hold 100 shares which I plan to Sell on Monday.



Wednesday February 13


Star performer Contrans
is up 81% since I first called it a Buy on October 5th. Not bad for a boring
trucking company. I still rate it a Buy at today’s $23 but would change to
Hold at about $25 and begin to take profits by $28. Although the value in
October clearly suggested the stock should rise, I am a bit concerned as to
exactly why it has been rising so very fast recently.


Several times recently I have mentioned that
Boardwalk should do well
as it benefits from rental increases. The past few days the stock is moving
up a bit. I’m thinking it is a Buy. I’m looking forward to their next
earnings report



Wednesday February 13


New research offered for sale. After over 2 years of providing free
independent research I am now charging a small fee for my best picks. 1 new
company report has been added to the
Reports For Sale area. 1
existing report has been updated. In total three reports are for sale and
there is a special half price deal if all three are purchased.


In considering this purchase please examine the free reports offered here
and the Performance of
past picks and consider the unique quality of analysis offered. While these
for sale picks may or may not do as well as past picks, the concise but yet
relatively in depth analysis offered may be of substantial assistance as you
make your investment decisions.


Sunday February 10


TransCanada is
updated. I rate it only a weak buy/hold.


Tuesday February 5


With accounting issues all the rage it may be time to review my articles
on the subject. See articles on accounting disclosure and executive



Read about GAAP versus pro-forma accounting.



In a flight to quality you have to understand how to recognize quality.



Sunday February 3


Two energy infrastructure companies are updated for year 2000 results.
This is a tale of two companies, one well managed –
Enbridge and one not so
well managed – TransAlta



Transat A.T. (Air
TransAT) is updated. I thought this might be a good bet given that the
vacation travel industry has recovered very strongly in January at least
here in Edmonton where it has been very cold. But the write-off in Q4 2001
were staggering and call into question the credibility of earnings. I am
unable to even guess at what the current earnings “run rate” is at this
time. Therefore I rate it only a speculative weak buy. Braver souls could
use the stock to speculate that the airline travel industry has or will soon
largely recover from September 11.


The two research reports
for sale on this Site are still Strong Buys in my opinion at this time
since the price has not changed much since those reports were issued.


Buhler industries is
updated. I rate it only a weak buy but would personally consider buying Buy
a few shares at around 3.50 (now at 3.81)



Wednesday January 23 at 10:45 pm


CN is updated for another
great quarter and the 2001 year end. I definitely like the company. But I’m
not too excited about the stock price and rate it as a Buy at the current
stock price but would not want to pay any more than about the current price
around $75. It has tended to surprise on the up-side through cost cutting,
but the lack of revenue growth suggests recent strong earnings growth is not


Please check other sources, I provide generic ratings, and not specific
individual investment advice.



Thursday January 17, 2002


Trucking company Contrans
at $17.50 is now up about 35% since I rated it a Buy at $13 on October 4.
They just released earnings up about 25% in the quarter ended November 30.
The P/E is quite low with Yahoo showing it just under 6. With the strong
earnings release I would be comfortable Buying at this price.


I find it a bit surprising that a trucking company is this profitable
since I understood trucking to be a very competitive industry. However, I
have also heard of shortages of truck drivers at this time, so it would seem
times are good in the industry.


Wednesday January 16, 2002


I’m planning to implement password access so that only members of the
Site can view the current research reports. I’ll do this as soon as I figure
out how to do in FrontPage 2002. All existing members will receive the
password with the newsletter when I implement that system. Any casual
visitors to the Site who are not already receiving the newsletter (latest
edition was send Saturday January 12) should join the
membership to insure
continued access to the latest research.



Sunday January 13, 2002


Canadian Medical
Laboratories was up again on Thursday and Friday. This was my strongest
and safest pick late last summer. It did not decline much after September 11
(indicative of its relative safety) and is now up 25% since I first analyzed
it as a strong buy last July. It may keep going but due to the price rise I
would now call it a Buy rather than a strong buy. (By the way, with my
system, “Buy” means I personally would Buy it, particularly if I did not
already hold some, “Buy” is not a code-word for “hold”).
As always I am not giving you
personal advice, check with your own advisor or make your own decisions. 


Biovail is added to the
Site as a new listing.  I find the price too high for my liking. It seems to
be pricing in a lot of growth and so it has to deliver very strong growth to
maintain and grow its share price. It’s a great company but it’s one
“everybody” knows about so the easy money has already been made. There is
still certainly potential up-side here but also lots of downside if growth
should falter.


Wednesday January 9, 2002


Canadian Medical
Laboratories is updated for its just released year ended Sept 30
figures. I’m still calling it a strong Buy but I did revise my growth
projections down to be conservative. I like the company and I think it
should provide a strong return as it begins to realize value on its DC
DiagnostiCare purchase. Also I think the stock has a relatively low
down-side risk in the longer term (though any stock can potentially go
completely bust if unforeseen things happen). I’m in for the long term.


Sino-Forest is
showing surprising strength lately for reasons unknown. (Note my last update
is from November 30) Based on it’s latest published results I still thought
it was undervalued but I recently thought the stock might temporarily stay
back at the $1.05 level, lately it seemed to sustain a move towards the
$1.18 range. Possibly a good sign, but I am not so sure that it won’t sink
back due to perceived risks of operating in China and other reasons. I still
have faith for the long term but this is a risky stock.


Thursday January 3, 2002


Please remember that my stock analysis is a generic rating. It is
absolutely not advice to you since I don’t know your circumstances and in
any event I am not licensed to give advice. The efficient market theory
holds that all stocks are fairly priced at any given time and that stocks
rise or fall based on new information which is completely random and
unpredictable. Stock pickers believe that they can beat the market. Even the
best stock picker will often get it wrong. There is in fact a lot of
randomness in the market. The point is, we all must ultimately invest at our
risk. If you are not completely confident in making your own investment
decisions then please consult a financial advisor.


CN which I most recently
rated a Buy at about $62 ran up to about $78 and is now at about $76. I like
the stock but consider it somewhat expensive now, if I had a large amount I
would consider taking some profit.


Canadian Medical
Laboratories has done reasonably well and I still consider it at least a



Wednesday January 2, 2002


Performance data is
updated and includes performance for year 2000, year 2001 and for the entire
period since each stock was rated. In all three time periods, the
performance was excellent. However, past performance does not necessarily
predict future performance.



Saturday December 23


Cognos is updated as a
Weak Buy. I like the company but is seems to be be priced high at this time.
Can be bought or held for speculation but not as a safe investment.


Buhler Industries is
updated as a Weak Buy. Small cap tractor and farm implement manufacturer.
Good company but seems fully valued at this time.


I am discontinuing coverage of Research in Motion. The company is losing
money on operations. Valuation is very speculative and anyone’s guess. I
like the product and I am willing to hold some shares for speculation. But I
have no ability to estimate its true value in the absence of earnings. I do
note it has essentially no debt and has substantial cash holdings, which
means there is little risk that it will run into a cash problem.



Wednesday December 19 at 8:00 p.m.


So…Canadian Tire is buying Marks Work Wearhouse. This is supposed to be
a good fit because the customer base is similar. I don’t buy it. Analysts
seem to miss the fact that Canadian Tire stores are all Dealer owned and
operated. Canadian Tire has no experience in managing company
operated stores. Marks Work Wearhouse has some 325 stores across Canada and
is operating at only a slight profit of $1,000,000 in the last 3 quarters.
In my opinion this is negative for Canadian Tire.


Monday Dec 11 at 9:00 p.m.


Top pick Canadian
Medical Laboratories is up nicely on good volume ahead of its Q4 results
soon to be released.



Tuesday Dec 4 at 9:30 p.m.


Interesting move up on
Contrans last week and yesterday. It’s thinly traded and so a price
increase could be short lived. But the stock was clearly under-valued and so
perhaps the market is starting to recognize the value. This stock was rated
as Buy in my newsletter sent to members (only) of this site just 2 months
ago at $13 and now it is at $17.25. That’s pretty good for a safe stock.


Clemex was up nicely to
35 cents today in reaction to recent good earnings. But this one is very
volatile and I expect to see trades below 30 cents again. I see it possibly
heading back to $1.00 by late Summer 2002 but that is only if we get two
more good quarters reported. Who knows, if you put in a buy in the mid to
low twenty cents you might just pick some up and I think it’s an intelligent
speculation for sure at that price. Still, it is very small and there are
always risks and the buy/sell spread makes it hard to sell at a good price.


Saturday December 1


Clemex is updated. It
now has two quite good quarters behind it. I expect it to be profitable as
well in the next two quarters in which case it will look quite attractive at
today’s price. It’s very small and thinly traded and it might still be
possible to purchase for say 25 cents. I think it makes for an intelligent
speculation and could easily double in price in 6 months or less. But the
thin trading makes it unsuitable for short term trading. (Note that I hold a
substantial number of shares).


Canadian Medical
Laboratories yesterday discussed its purchase of DC diagnosticare. They
expect this to be immediately accretive to their earnings. I like this
company and may increase my investment in it.


JDS Uniphase is
updated. With no current earnings it seems to me that the market is totally
guessing at what its price should be. With one of the biggest losses in
corporate history combined with obscene executive compensation, I have
absolutely no respect or trust for management. I would not hold this stock.
It seems suitable only for pure speculation.


Celestica is updated.
It seems to be somewhat over-valued given the telecom crash. But is does
have a strong balance sheet and excellent management so it may not be a bad
thing to hold a few shares.


Bombardier is
updated. The raw numbers suggest this is great time to pick up some BBD on
the cheap. But this is a complex company. I think it may possibly face huge
risks not only of a slow-down in orders for aircraft but credit problems in
getting paid for existing work in progress and even for past sales which it
financed.  It’s not unreasonable to have some position in the stock but I
would not load up on the stock at this point.


A new article in Fortune indicates that Warren Buffett predicts that a
reasonable expectation for stock returns going forward is about 7% and
absolutely not the double digit increases of the 80s and 90s. (The good news
is that in late 1999 he was predicting only 6% , due to the decline in stock
prices, he now sees 7%). I used similar logic to his is laying out my
article on why
average returns will be lower in future than in the 80s and 90s.  Warren
knew the stock market was over-valued in late 1999, but he did not predict
the crash of 2000. He indicates that he has no ability to predict short term
market moves but that longer term trends are more predictable. (An
over-valued market will eventually correct but he can’t say when).



Wednesday November 28 at 9:00 p.m.


Power Financial
is updated. Has an excellent history, but the company is quite complex and
earnings are determined on an actuarial basis for insurance and therefore
the company is somewhat risky due to the potential for actuarial adjustments
to liabilities due to lower interest rates on its investments.



Monday November 26 at 10:00 p.m.


The apartment vacancy rate in Edmonton is under 1% for the first time in
a generation. Boardwalk
seems bound to benefit from this since it has over 9 thousand apartments in
Edmonton. Also the national vacancy rate is down to 1.4% so Boardwalk should
be able to continue to increase rents in all markets.


Duke Energy is added to
the Site as a new listing but only as a Weak Buy / Hold.


Wednesday Nov 21 at 9:00 p.m.


Enbridge is returned
to the Site as a Buy. The stock does not seem particularly cheap, but this
company has a tremendous record of solid steady growth and I expect this to


Tuesday November 20


Sino-Forest has been
updated, still looks like good value, but I don’t necessarily expect any
quick rebound in the price.



Sunday November 18


Stantec was updated.
Great company, I called it only a weak buy though it was close to the line
and could be considered a Buy. It’s pricing in a lot of growth and my
calculations indicate it could be a solid investment if the historic strong
growth continues, but if growth falls to about 10% then it would not be a
very good investment. So, I ended up calling it a Weak Buy but will keep an
eye on it and Buy if the price drops below say $22. I hold a few shares and
would certainly not be a seller.


Thursday November 15 at 9:00 p.m.


Boardwalk released
earnings today. As expected a big write-off on ill-fated telecommunications
investment. But strong increases in income from the rental properties. It’s
hard to analyse this company partly due to fast growth. But I think the
rental properties will become more and more profitable as the properties are
stabilized and there is less need for capital upgrades. This should start to
result in more free cash flow.


Wow, Precision
Drilling really dropped with the oil/gas price collapse of last two
days. Commodity linked stocks are notoriously hard to judge but I will be a
buyer of PD at this price. The company tends to  weather down-turns fairly


Nortel showing
surprising strength. It’s another company that is very hard to predict.
Without a sense of where earnings (if any) are going to be the market is
just guessing at the price this thing should trade at.



Thursday November 15 at 7:00 a.m.


I keep thinking the market will take a pause, but so far so good. Blue
chips and dividend stocks doing very well.



Monday November 12 at 3:30 p.m. eastern time


The markets are showing amazing strength in the face of the airplane
crash in New York today, perhaps assuming it’s not terrorist related.


I notice Air Canada not down much today and Air Transat actually up,
makes no sense to me, (notwithstanding the demise of Canada 3000) this
latest crash has to be extremely bad news for air travel in my opinion.


Of the stocks I follow, I like Boardwalk right now showing some strength
in front of earnings to be released Thursday, which I expect will be strong
(but I understand they will have a right-off on certain telecommunications


Thursday November 8 at 9:30 p.m.


I’m still quite surprised at how high this market is given the talk of
recession and the threat of more attacks. So far so good, but it can go the
other way quickly.


But even longer term interest rates have fallen and that does definitely
push the market higher.


I bought a bit of TELUS today – should have bought a few days ago. Also
bought some Boardwalk which traded heavy volume today. They will be out with
earnings on the 15th. I will consider buying
Precision Drilling
particularly if it dips down. It tends to be quite volatile.


Tuesday November 6 at 9:30 p.m.


I’m holding some cash from the buy-out of United Inc. at $1.50. Note that
United Inc was featured on this Site as a Strong Buy for over two years,
mostly at prices under $1.00. We should have got more in the buy-out but it
was still a very good investment. Now I’m trying to be patient and wait for
the best bargains to reinvest.


I have Buy orders in for
Telus and Boardwalk
Equities at this time.


If you are not already getting my free newsletter,
join now to get this
weekend’s edition which will feature a new article on “Cash-flow” and its
many meanings, interpretations and mis-interpretations. Also there will be
links to several new reports that are only available to members of the Site.



Thursday November 1 at 8:00 p.m.


ENRON fell back to $11.99 today as concerns about its problems mount.
Despite apparent good valuation, it appears the free-fall may continue. I’m
not a buyer at this point but will hold my small position.


I may buy a few Telus
shares. Long term it looks like the incumbent telcos are gaining customers
and competition is not as intense as it was.



Wednesday October 31 at 7:30 p.m.


My ENRON trade looks good so far, ENRON was up 25% today. My buy on stop
kicked in  at $12 so I gained 16% with the close at $13.95. I think the
stock is fundamentally worth at least $20 to $30. But that’s based on
management’s projection of $2.00 per share earnings for ’02. But it is
risky, nonetheless since earnings projections don’t always get met.


Check this Site for updates on Quebecor and TransCanada Pipelines coming
very soon.


Tuesday October 30 at 9:00 p.m.


I placed an order to buy ENRON on a $12.00 stop, so I buy at $12.00 only
if the price rises to $12.00 from current about $11.30 (it has been in


My outlook in general is bearish. Only the huge interest rate cuts seem
to be holding this market up, I would not be at all surprised to see a 1500+
point drop in the DOW if there is another terrorist attack. Long term I am
always bullish so I’m not going to panic about any sudden drops.


Monday October 29 at 9:30 p.m.


As bank shares decline, I believe that this will prove to be a reasonable
to time to average into them.


ENRON the giant U.S. energy trading company has been hit hard by some
write-offs and possible accounting concerns. I took a look a the numbers and
ENRON actually looks quite cheap at this time. They are still projecting
$2.00 per share for next year and now trading at about $14. It is risky due
to concerns about the company at this time, but I’m personally comfortable
buying a few shares. I generally eschew technical strategies, but I might
wait until it rises at least $1.00 from the previous day’s close. But I
suspect it’s near a bottom at this time. As always, trade at your own risk!



Sunday October 29 at 8:00 p.m.


Be sure to check the Articles section of this Site, The articles have
recently been re-organized and there is a great deal of useful information
in the articles.



Thursday October 25 at 10:00 p.m.


I believe that TELUS is
worthy of consideration. I’m considering buying on an averaging in basis.



Tuesday October 23, 8:00 p.m.


See updates for TransAlta
(hold) and Canadian National
Railway (Buy).


I remain cautious as we move through earnings season. I’m surprised that
the market recovered to about September 10 levels and there is certainly a
danger that it could fall.


Monday October 22, 7:30 P.M.


Join the membership
now, in order to benefit from a research report expected to be released to
members only within the next 6 days. This is a high tech company with strong
existing profitability.


Banks may decline further but should represent good value to long term


Friday October 19, 9:00 p.m.


My Nortel report has
been updated for Q3. I was right to call Nortel a Sell in late 1999 at about
$70. My timing seemed off as the market ignored fundamentals and pushed the
price to an eventual $124. When it came back to about $70 in late 2000 I
foolishly called it a weak buy. (I did not want to miss the boat if it rose
again and by that time sales and adjusted profit were much higher than in
late ’99). The news since then keeps getting worse. When I apply the tests
that Warren Buffett reportedly uses to pick stocks, it seems to fail every
test. It’s no surprise that Nortel would not be picked by Buffett, but is it
a bit amazing that it actually seems to fail all of his tests. I’m
back to rating Nortel as a Sell.


It can only be bought or held as a speculation not as a safe investment.


As always, invest at your own risk, my stock ratings are generic and are
not to be considered advice for you as a particular investor since I don’t
know your circumstances.



Thursday October 18, 10:30 p.m.


Boardwalk has announced a write-down and no more spending on its Telecom
initiative. My research report has warned about the risk of that initiative
from the start. So, I see this as a positive move. I see Boardwalk as a good
bet at this time.


As to Sino-Forest, I note that the lumber price for Oriented Strand Board
has been in decline recently and is at a very low level. I suspect that this
means that Q3 for Sino will not be too good. Unfortunately, we have probably
not seen the lows on Sino yet. But if they really are a low cost producer
which seems to be the case then I still like the company in the longer term.


A note to Air Canada, among the 400 managers let go, too bad you did not
include Mr. Milton.


Tuesday October 16, 2001


One company that I may add to this Site is CAE inc. I have not analyzed
the company in any detail but at a quick glance it looks good. It got hit
badly after September 11 and has not recovered at all.


So the question is how will they do going forward? The Airline industry
is in for very hard times. But will they cut back all that much on pilot
training? Can CAE make up the slack by training more military pilots?


I’m not at all sure, but given that CAE’s stock price is down
significantly, it might be worth looking at. I always thought that CAE’s
technology would be a natural to leverage into consumer products like
sophisticated airplane simulator games for the home computer or the arcade.
But that has never happened, perhaps it could in the long run.



Monday October 15, 2001 8:45 p.m.


Thoughts for the day


Beware the company that constantly touts it own share price. Some
companies bombard us with press releases trying to get their stock price up.
If management sticks to making money, the stock price will take care of
itself. The odd press release is good, but if they are constantly sending
out releases, I consider that to be a negative indicator.


Warren Buffett is on record as not wanting his company’s stock price to
ever get ahead of its intrinsic value. In the long run the stock will rise
with earnings and value. Pushing the stock past a fair value, means some
investors are going to get hurt.


Beware also any company with a “scarcity” value. What the heck is that? A
stock is valuable for the earnings and dividends it will eventually
generate. A scarcity value automatically implies that the stock is trading
at price that is higher than warranted by fundamentals. When you hear that a
stock has a scarcity value, my advice is simple, SELL.



Sunday October 14, 9:30 p.m.


For the most part I don’t advise trying to time the market. Having said
that, with the talk of Anthrax attacks, I will be very surprised if the
market does not fall Monday and for the week.


Thursday October 11, 9:30 p.m.


My (long term) picks for today are
Canadian Medical
Laboratories and
Boardwalk Equities. Boardwalk is going benefit from the rising rents in
Alberta. I understand that Boardwalk is working on ways to crystallize some
of its value such as creating an income trust unit. Both companies seem
unlikely to be suffer much from the current North American down-turn.


When I look at the
performance of my picks it looks like I should get into shorting stocks.
It almost seems easier to spot the real dogs than it is to spot winners. 5
out of my 11 Sells and Strong Sells are down well over 50%. Still, shorting
is for the really brave and I think I’ll stick with the buy side.



Wednesday October 10, 9:00 p.m.


On Sunday I said TD Waterhouse was a good buy at CAN$10.15. On Monday I
bought some at U.S.$6.27 on New York. Today the buy-out at U.S.$9.00 was
announced, so a quick 43% gain. I hope someone out there listened.
Apparently the TD Bank agrees with me that it was under-valued and now is
buying out the public shareholders.


This is okay for me but what about those who bought at $25 to $30 when it
first traded in Summer of 2000? Is this the thanks that TD gives them for
being loyal shareholders? Being forced to sell at about CAN$14? In my
opinion, this is opportunistic and poor behavior on the part of TD. They
should be working to get these shares back up in the 20’s not trying to grab
the company away from its owners at a bargain price. I intend to vote
against this. In the long term I think TWE is worth more than the amount
being offered. Heck, its only been six months since TWE was over $20 and in
due course it would have gone back up.


Of course shareholders as group could turn this down, but that’s unlikely
and then as individuals we will be forced to sell out. There will be no
other bidders either since TD already owns about 90% of the company. I guess
we all just learned another lesson about buying stocks that have a
controlling shareholder, you are always at the mercy of that controlling
shareholder and if they decide to buy you out at some small premium, there’s
little that can be done to stop it.


Actually, TD shares
might be a good pick, it should become a merger or take-over target at some
point. Check out its Treasury offering of shares announced today. That was
at $36.50, so now they seem to be under-mining their common share holders
too which closed today at $38.15. I really don’t know if I trust these guys
much. If the government of Canada removed the ridiculous restrictions on
share ownership all the Canadian Banks would soon be scooped up by bigger
World-wide banks. But that’s just wishful thinking.



Tuesday October 9 , 9:00 p.m.


I continue to think that Banks will do well. I think Boardwalk Equities
will turn out to be a good pick in the long term due to Alberta’s strong


I have just finished analyzing a company that has very  good fundamentals
and looks like a good Buy. This company will be identified in my newsletter
due out this weekend. Join the free
membership now to
benefit from this brand new research report. 
(If you already get my
emails every two weeks you are already a member) This report will be
available free only to members for one month before being posted to the


I see that TD Waterhouse has a lot of free research on their Site. When I
saw TD advertise their free research I was starting to think maybe I am
wasting my time – how can I compete?. But then I looked up their report on
Boardwalk. It has a bunch of numbers but no recommendation. I found it to be
of little or no use. I know I’m biased but my research format is simply a
lot better than anything I have seen out there. Also most other research
that you will see is biased because the companies are clients of the company
that does the research. And, I don’t see other analysts showing their
performance on past picks. Admittedly there is some other good research out
there, but I think mine is unique and fills a need. So, no I am not wasting
my time.



Sunday October 7


The analysis of TD Waterhouse has been updated and I think it is well
worth considering. It’s trading near book value and I think it has good
up-side potential. Check it out at



Wi-Lan is also updated. You might think it would be a sure thing at this
price but now the danger is that they will run out of money. Overall, it’s
not a bad place to throw some speculative money but I personally would not
place a big bet. See


What do you call it when a company pays out US$300 million to executives
of an acquired company to “revise their employment agreements”? JDS Uniphase
made these payments according to Saturday’s Financial Post. One individual
received US$121.3 million. Do you call this gross mis-management on the part
of JDS? Sadly, it appears that this is legal, shareholders are not protected
if the executives selected by the elected directors absolutely waste
millions or even billions (see John Roth). These kind of pay-outs put
politicians to shame, politicians might help out their friends but never
ever to this obscene extent. It would seem fair to me to charge the JDS
directors with “financial negligence”. Perhaps they think that shareholder
money is just play money.


I’m all for free enterprise, but part of the deal with free enterprise is
that we have to stand up and protest when our executives and directors
commit acts of gross greed and/or stupidity. Multi million dollar pay-outs
to the hired help are not only obscene but they actually put our whole
capitalist system at risk.


In the last 20 years I have certainly seen the gap between the rich and
poor widen. In the U.S., the poor people have guns. How wide does the gap
have to become before the poor people take up their guns and attempt to put
in a new system?


I’m no socialist, neither am I by any means poor, but my sense of
fairness is severely offended by multi-million dollar pay-outs to any one
who is not the business owner and who simply works for wages. Those who
value capitalism and the freedom to be rewarded for working harder than the
next guy, actually need to speak out against the real
excesses. If we let the
rewards to some people (sports stars, executives and movie stars) get too
obscenely high, then is it not predictable that the poor will eventually
take up arms against the system?



Thursday October 4


RIM has been updated. I like the potential there but the fundamentals
still say it is very speculative and is not likely to take off in the short


Canadian Medical Laboratories has purchased DC DiagnostiCare for $19
million in equity plus $34 million in debt. DC has revenues of about $70
million per year in medical imaging. It seems likely that this is a very
astute purchase. DC was financially unhealthy and Canadian Medical has made
an opportunistic purchase. I view this as quite positive for CML. CML seems
like a good recession proof business to me.


See the “About Us” button to read the disclaimer!



Wednesday October 3


Why hasn’t Nortel fired John Roth? How can this greedy failure be allowed
to walk around the company? First he helps to push the share price up to a
ridiculous unsustainable level (probably did not understand himself how
stupid that price was). Then he cashes in on outrageous options. And, he
wastes billions buying companies at probably 100 times their value then is
forced to fire much of the staff and knowledge that he acquired.


I always laugh when I hear about people being held accountable. Almost no
one in the corporate world is accountable for anything. Certainly not Mr.
Roth. He collected the honors and pay on the way up, now he should be man
enough to accept some responsibility for his massive failure. He should
resign immediately and may he be chased through the courts for decades.



Tuesday October 2


Buy the bargains cautiously, expect the market to drop overall as bad
news of Q3 pours in.


Tip: For thinly traded shares never ever place a market order. A case in
point Clemex today was offered at 28 cents and the bid was 15 cents. If you
place a market order to buy you pay 28 cents (or even more if you buy more
if your buy order exceeds the number of shares offered at 28 cents). If you
place a market sell order you would get only 15 cents. You could pay 50% too
much just by placing a market order. With these small cap thinly traded
shares you need to place a limit order at a definite price and then be



Monday October 1, after the close


I attended an excellent speech today by Diane Francis, Editor at Large of
the Financial Post. Her first speech since the attacks.


For investors she warned that her bet is that there will be further
terrorist attacks and that would, of course, be bad for the market. She is
very knowledgeable about the existence of terrorists in North America and
about the motivations of Bin Laden and company. So, that’s one educated vote
on the side of being cautious.


Sunday September 30


There are reports that Bin Laden (spelling?) may possibly be handed over
to the U.S., under certain conditions. This is good news. But in the short
term I believe there is bad news coming in the form of lay-offs and poor
earnings reports. Still, overall I believe that a long term approach is best
and now is a good time to be looking for bargains, notwithstanding that some
of these bargains may well sink lower before eventually recovering. It’s not
such a bad thing to buy a bargain.


See my two new articles on risk and reward:


Practical Lessons
From Modern Portfolio Theory


How to Achieve
Above Average Returns


End of Day Thursday September 27


O.K. so the market has crashed and appears likely to go lower before it
ultimately rebounds.


Let’s look on the bright side. For buy and hold investors we know with
certainty that now is a better time to invest then anytime in the last three


Back when the market was reaching new highs every week we were all
clambering to invest at the top of the market hoping an even bigger
top was still to come. My how we love to buy high. Now that the
market is about 40% below its peak most of us are scared to buy low.


My own excuse for this is a sudden realization that maybe going the 100%
equities route is a bit dangerous.


For anyone smart enough to be following a regular monthly investment
strategy, now is not the time to quit. Just keep buying monthly and enjoy
the low prices, If the market falls some more then, great you can buy it
even cheaper.


As I said earlier, I took a bit of money out after the attacks but I will
be slowly putting it back in over the next 4 months or so.


If we keep our eye on our long term goals and stop looking at our current
net worth then we can focus on doing things that will make us wealthy in the
long run and stop worrying about the bumps along the way.


For young people just starting out in the market, forget about your
losses and rejoice at how cheaply you can buy now. Pray for a bigger crash,
since your main investing years are still ahead.


The level that the market will be at in 15 years is unlikely to be
affected by the current crash, but the crash means you can buy more and have
a higher wealth in the end then you would have obtained without this crash.


It’s a fact that if the market decides that the required rate of return
has increased going forward then the market has to adjust by falling. A
fallen market mathematically guarantees a higher return going forward, all
else being equal.


There is always the Japan example, but that bubble was far worse then our
bubble and they had and have a flawed system with excessive government
involvement in the market.


keep the faith…do not be afraid to buy low… you may lose ground in
the short term but you are likely to win in the long term.


End of Day Wednesday September 26


I still see little or no reason for short term optimism. We might see a
quick jump if America strikes the Terrorists or maybe that will just add to
the fear and cause a drop. Overall, life is returning to normal but the heat
has been turned down several notches and we are mostly likely in a
recession. If nothing else most companies saw a slow-down in sales for a
week or two. I can’t see how Q3 earnings can be anything but a
disappointment in a market that hungers for growth in earnings.


Again, be patient, I would never advise rash moves like jumping entirely
out of the market because when the market eventually goes back up it may do
so very quickly and so I would rather ride it out for the most part.


I did sell a small percentage of my shares just after the attacks. I am
trying to be very patient with that money. I’ll try to hold on to it and see
if the market drops further yet. I’ve learned that in investing patience is
a virtue. If I miss one bargain, another will come along.


The above is a generic statement only, not advice to any individual,
please see my “About”
button to read the disclaimer.



Tuesday September 25


Tip: now more than ever it is important to look at the balance sheet.
Many Tech companies will run out of cash. The best of these will be taken
over at a low price and you may be forced to sell for a pittance. Others
will just go bankrupt. One example of a company nearly out of cash is Wi-Lan.
Hopefully they will not go bankrupt but they are in very bad shape.


Monday September 24, 2001


Saturday I said I was bearish, Monday we got over 4% rise on the DOW.


Well, I did say it was anybody’s guess. I’m still bearish though given
the poor Q3 we are now in.


As a long term investor and a stock picker, I certainly would not
recommend getting totally out of equities for longer term investors I would
not go below 50% equities, I am about 75% equities and will put the other
25% back into the market but I’m in no rush.


September 22, 2001


So…the market has crashed, what to do now?


It’s anyone’s guess but I see little reason for short term optimism. My
sense is that the market is much more likely to fall rather than rise in the
next 2 months.


The New War is not likely to end any time soon. The next move (attack on
Afghanistan) will likely lead to more selling pressure.


Third quarter earnings were going to be bad anyhow, and now we have a big
slowdown in the economy so the news can only be bad when the Q3 reports come
out in October.


I personally sold some of my more liquid stocks just after the attacks.
But that was partly because I was100% in equities. I am still over 75% in
equities. I did not attempt to sell some of my more thinly traded holdings
because jumping in and out of that type of stock would cause a huge loss on
the buy-sell spread.


I am not in any big hurry to get back to 100% equities since I believe
the market will fall more yet.


But I am also not a market timer, I would rather stay mostly in the
market for the long term than try to guess its moves on a short term basis.




The terrorist attacks were really only a catalyst, the blue chip markets
were still fundamentally over-valued prior to September 11 after the
unsustainable rise of the 90’s. The markets were probably looking for an
excuse to fall and now they have that excuse. A recession was also probably
inevitable and now has likely arrived.




The bad news is that the market is down. But this is also good news.


Imagine that the DOW was destined to be at some level such as 25,000 in
the year 2015. The recent crash probably does not change where the DOW or
TSE will be in 15 years.


New money that you invest in the market now will definitely earn a higher
return in the next 15 years than it would have had the market not crashed.
If you intend to be investing for the next 15 years, the loss on your
existing portfolio will likely be only temporary and now you have the chance
to invest now at low prices and earn a higher return. Very young investors
should rejoice at the crash because now they have a much better chance to
earn high returns going forward.


Most investors will have an opportunity to make up lost ground by
investing at bargain prices in the next few months. The only problem is how
to guess when we are at the bottom.


Of course if you are retired and living on your portfolio than of course
their is no silver lining in this crash.




Of the stocks that I cover, my current favorite is Canadian Medical
Laboratories. In a recession, I would not see their revenues falling at all
so they should be a good bet.


I also like Boardwalk due to Alberta’s economy and the fact that rental
accommodation should not suffer much decline in a recession.


I like Maple leaf because I feel that their quality and research
initiatives will pay-off and because people still need to eat even in a


Air Canada is a possible speculative pick since it is now so low and the
Government will likely not let them fail. But I personally am disgusted by
Robert Milton’s greedy plea for aid after his own incompetence has left the
Airline in such bad shape. He competes aggressively on price, preferring to
incur losses rather than see a competitor make a dollar. How stupid is it to
initiate price wars when the competitors have cheaper non-union costs??? I
personally would not buy the stock while Milton still has his job.

5, 2001 newsletter from http://www.investment-picks.com



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stock investor is affected by risk and return and can benefit by a better






have studied and read extensively about risk and return. My conclusion is that a
lot of people know “enough to be dangerous” (to themselves and
others). And I’m not sure if anyone really understands fully the trade-offs
between risk and reward. Many people think that the more risk you take, the more
reward you get. In fact while there is a grain of truth to this, it is more
false than true. There is no reward for taking stupid risks. Most work on risk
equates risk to annual volatility but for longer term investors, risk of long
term growth is much more important than short term volatility.



order to better understand Risk and Return Trade-offs in Stocks and Bonds, I
purchased a copy of the Ibbotson 2001 Yearbook. This book provides indexes of
total returns (with dividends or interest reinvested) for Stocks, Bonds and
Treasury Bills going back to 1926. The index is provided both before and after
inflation. This index data makes it quite easy to create graphs of actual
historical returns for Stocks, Bonds and Money Market funds for any period since
1926. These indexes are proprietary and I could not find them on the internet.
Amazingly this book was not to be found in the Edmonton City or University
library. This classic Yearbook cost $110 U.S. dollars and was well worth it.



graphed the real (after inflation) returns for Stocks, Bonds and Money Market
back to 1926. The return available from a $1.00 invested in Stocks in 1926 (not
long before the great crash) was $266 AFTER INFLATION. This compares to a return
of $7 for Bonds. The performance of Stocks compared to Bonds or Money Market
over the last 75 years is like something from Ripley’s Believe it or Not.



also graphed the comparison for Stock, Bonds and Money Market for 4 different 20
year periods since 1926. Each 20 year period had a quite different story to tell
and I found the results to be remarkable, startling and very informative. Click
here to see the results. http://www.investment-picks.com/asset_performance.htm



the fact that the investment industry generally acknowledges the superiority of
stock returns versus Bonds, the conventional advice is to diversify by putting
some money into Bonds and Cash. Using actual historical data I studied exactly
what would have happened to investors following that advice for different
rolling 10, 15 and 30 year investment periods over the last 75 years of history.
My conclusion is that (for long term investors) the conventional advice is
dangerous to your wealth. See for yourself http://www.investment-picks.com/what_is_risk.htm



do more work on risk and return for future newsletters. For example, the work
above applies to a portfolio of stocks and does not deal with the risk of
investing in say just one stock, which is a huge risk. (Probably a stupid risk).



anyone out there wishes to take issue with my conclusions, please do so, we can
debate the issue particularly if you have the data and are willing to do the



would urge you to also check other sources and do your own thinking on risk as
well. And note that my conclusions apply only to long term investors not to
those who need the money in the next few years or to those who can’t handle the
psychological pain of portfolio volatility.






too many updates this time as I spent my time working with the Ibbotson data to
create the graphs discussed above. More updates coming soon. Check http://www.investment-picks.com



Financial was updated and I consider it to be a strong Buy (but just barely, I
could have called it only a Buy). 



Leaf Foods was updated. On fundamentals it is only a weak Buy but I really like
the potential there and it might be a good speculative pick.






for a recent small flurry of members caused when a Financial Post Columnist
quoted my work, new memberships have slowed to a crawl. With millions of Web
Sites out there it is hard to get noticed.
I hope you will agree that the work I do is credible and trustworthy and
unique and valuable. I do it for the intellectual stimulation and because it
feels good to help others grow wealthy. Please do your friends and contacts a
favour and refer them to this site if they are interested in investing.






email is kept brief and usually only sent once each two weeks. I hope that you
will all stay on the mailing list of this site. However, you can unsubscribe by
simply replying with the word “unsubscribe”. I would appreciate
knowing the reason.






Allen, editor investment-picks.com




21, 2001 newsletter from




receiving this email has registered as a free member of investment-picks.com,
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the new listing for Canadian Medical Laboratories, this company was specifically
selected as an affordable, high growth, high return company. It’s a strong buy. I
bought some the day after I analysed it. See http://www.investment-picks.com/canadianmedical.html



Transat A.T., another new listing, a value stock. I did not rate it a strong Buy
but it is worth considering. http://www.investment-picks.com/transat.html



was updated for its Q2 earnings, a good company but over-valued. http://www.investment-picks.com/celestica.html



Inc was updated and remains a Buy, definitely worth considering. http://www.investment-picks.com/united.html



was updated and is also a Buy and should do well http://www.investment-picks.com/stantec.html



was NOT updated because they don’t include a balance sheet in their earnings
release. At this point Nortel has no earnings and so the balance sheet is very
important. I consider this lack of disclosure to be another slap in the face to
ordinary investors. The balance sheet will appear with their official Q2 report
in August.






    1. As
      a part owner of a profitable company (Fundamentally the source of all gains)


    1. By
      identifying an under-valued company to buy for an extra return compared to

    2. Using
      short term trading strategies to get an extra return compared to 1. 


first way to make money in the market is as a part owner of the company. In this
case your gain depends on the rate at which earnings per share increase. If you
buy a stock at a P/E of 15 and then sell some years later at the same P/E of 15
then your gain is exactly the same as the percent gain in earnings per share.



is the buy and hold approach and is held in some contempt by more
“sophisticated” investors. But, it’s just about guaranteed to work.
Over 20 to 30 years or more the earnings of almost any random diversified
portfolio of companies is going to rise and the investor will make a reasonable
return. For proof of this based on actual historical data see my article on the
10% savings solution. http://www.investment-picks.com/wealthysenior.htm



second way to make money in the market is to find a way to purchase stocks that
are undervalued. Once a value stock is purchased then it can be held for the
very long term unless its stock price gets too high relative to the market. This
method has made Warren Buffet rich and research has shown that over a period of
decades, value investing works well.



third way to make money in the market is to try to predict which way each stock
will move in the short term. Technical analysts and momentum investors use this
strategy. The idea is to make money fast. It involves frequent trading and
keeping a constant eye on the market. This strategy is undertaken to gain an
extra return compared to the buy and hold strategy. In the short term this extra
return from trading must be a zero sum game. Being a zero sum game, we should
expect 50% of traders to beat and 50% to under-perform the buy-and-hold
strategy, over time. But when we add in transaction costs it is clear that less
than 50% will win and more than half of all traders will lose on their trading
strategies. (They may still make money as holders of stock but on the trading
activity it is a mathematical fact (due to transaction costs) that more money
will be lost than gained by investors as a group.)



it is this trading game that gains the most attention. The buy-and-holder plods
his way to riches while the trader may win for a while but in the majority of
(but not all) cases must lose ground over the years to the plodder as his broker
grows rich. Some traders will win but unless you think you have some unusual
skill at it, why choose a method where most folks lose money?



I am content to become ever more the plodder. But I’ll give myself a big head
start by buying under-valued stocks which I will then tend to hold for the long






is true that the extra return made by choosing value stocks rather than random
choices is also a zero sum game. It would appear that the extra return is at the
expense of traders who tend to sell good stocks when their prices drop.















life success comes from a combination of good decisions and from luck. Luck is
random. Sometimes a good decision like buying a value stock has a bad outcome
(earnings decline for some unforeseen reason). Other times a bad decision has a
good outcome. (You buy an obscenely over-valued internet stock but are lucky
enough to sell at a profit before it crashes).



life most people who consistently make good decisions will end up the winners.
Sure a (very) few lay-abouts will end up winning the lottery but it is still a
better decision to not buy lottery tickets. And most gamblers will stay poor. As
will most day-traders, I suspect.



investing the people who make consistently good decisions will tend to win in
the end. I believe that the type of value stock analysis that I provide at
investment-picks.com allows me to select stocks in a systematic winning way.
Buying over-valued momentum stocks does not seem like a good decision to me
(notwithstanding that it gave good outcomes for a number of years). In the end,
value stock picking is a better decision model.



good decisions will lead to bad outcomes, but if you stick with a good decision
model, rather than relying on luck, you will win in the end.






anyone truly understand the trade-of between risk and return when it comes to
stocks versus bonds and growth stocks versus value stocks?



taking more risk always lead to higher returns?



stocks really riskier than bonds over the long term?



exactly is risk? Is it different than standard deviation of returns?



will explore this issue using real data on total returns from stocks, bonds,
T-bills and inflation from 1926 to 2000.






email is kept brief and usually only sent once each two weeks. I hope that you
will all stay on the mailing list of this site. However, you can unsubscribe by
simply replying with the word “unsubscribe”. I would appreciate
knowing the reason.






Allen, editor investment-picks.com



7, 2001 newsletter from http://www.investment-picks.com



receiving this email has registered as a free charter member of investment-picks.com,
This email is never sent to anyone who did not register for a free membership at






have been very few updates to companies recently. This past two weeks I focused
on looking for some low P/E, high growth stocks and have sent for annual reports
of several including Canadian Medical Laboratories. These new companies will be
added in the coming weeks and I expect them to be Buys (but I have not done the
analysis yet).



am expecting to focus more on a smaller number of stronger companies and will
likely drop coverage of some of the weaker companies.






decided to remove the Forum feature due to lack of interest. I recommend www.stockhouse.ca





updated the article on whether or not the TSE 300 is currently (still)
overvalued. This is worth your time to read and study closely. http://www.investment-picks.com/TSE300valuecheck.htm



also added a new article on why the market return in the next 10 to 20 years
will not come close to the returns we saw in the 90’s. That’s not what you want
to hear but that is what my analysis tells me. Hopefully we can beat the market
by picking stocks using the methods of the great value investors like Warren
Buffet as I am attempting to provide on my Site. This is also a very worthwhile
article, see http://www.investment-picks.com/false_expectations.htm



a more optimistic note, I am working on an article that shows that over 30 year
periods the market always seems to out-perform bonds. We won’t get the high
returns of the 90’s but low double digits are possible over most 30 year
periods. More about this next issue.



Management Award:



more kick at Nortel. It now appears that they are low on cash. They were (in my
opinion) complete fools not to have issued a huge pile of equity for cash when
their stock was higher. When a company with an inflated stock price issues
shares for cash then it receives the cash and this is accretive to book value
per share. This puts a floor under the stock price. Instead, it appears that
Nortel issued shares in return for acquisitions of questionable value.
Previously, I knew management was greedy, but now I’m starting to really
question their financial savvy.






email is kept brief and usually only sent once each two weeks. I hope that you
will all stay on the mailing list of this site. However, you can unsubscribe by
simply replying with the word “unsubscribe”. I would appreciate
knowing the reason.






Allen, editor investment-picks.com



24, 2001 newsletter from http://www.investment-picks.com



receiving this email has registered as a free charter member of investment-picks.com,
This email is never sent to anyone who did not register for a free membership at






and Cognos have been updated since my last newsletter. Visit the Site at the
link above to see the updates. More updates are coming, keep checking the site.






TSE is down a sickening 32% from its high of 11,402, to its Friday close of
7740. The Nasdaq is down a wealth destroying 59% from its high of about 5000.



investors had at least some “tech” stocks. In most cases we knew the
earnings did not support their stock prices. But it was hard to resist the whole
sector when it seemed the stock prices could defy gravity and soar ever upward.



did not have a very large exposure to techs, but I had some. Having been burned,
my response has been to be more conservative in my growth projections. I am
constantly reviewing the fundamental principles used by Warren Buffett and Ben
Graham. By applying those principles even more rigorously, I will reduce my
future chance of getting burned.



fact, fundamentals told me that Nortel was a Sell at $74 in 1999 when I first
looked at it. Subsequently it was even more so a sell at $124 in 2000. When it
fell back to $70, fundamentals still said sell, but by being too optimistic on
the growth rate and by being greedy I convinced my self it was a weak buy,
suitable for speculation at $70. And so I did buy some at $60, $45, $30 and most
recently $13.50.



thinking it’s time to adopt a rule of only buying stocks that are clear buys,
not just speculative buys.






one time people bought stocks with the expectation of a steady but quite slow
appreciation in value. Now people seem to think they are like lottery tickets.
We are expecting huge pay-offs in a short time. That is okay, as long as you
understand with stocks like that as with lottery tickets its most likely that
you will lose your entire “investment”.




been guilty of it. Buying a stock like Nortel, not because I think it’s
fundamentally a sound investment but on the basis that it “might”
pay-off in a big way. I buy because I don’t want to miss out if Nortel soars
again. A more prudent strategy is to worry more about losing my investment and
to invest only in stocks which are clearly bargains based on fundamentals.



probably time for most investors to stop worrying about missing out on the next
round of irrational exuberance and to stick with more conservative and more
sound strategies which will probably pay-off bigger in the long term.






Web Site is now two years old. I have decided to focus more on providing you
with Strong Buy and Buy recommendations. I hope to identify more stocks that are
clearly bargains based on fundamentals and current earnings. I will look for
high growth companies. But I will focus on companies that are already very
profitable and not on concept stocks that might do well but are unproven.



Buffet is the most successful investor ever and he uses that type of approach.
He identifies a few great companies selling at bargain prices and then ploughs
in a big investment. That is the strategy which I have been attempting to follow
and which I intend to follow even more closely in future.






site includes coverage of a number of poor performing companies like Air Canada,
Hudson’s Bay, International Properties, Nova Chemicals and others. Most of you
are not interested in these. In order to focus my time and energy on identifying
great investments, I will be removing the poorer companies from my coverage
list. As always, I will continue to include these in my performance results, but
I will not waste my time updating them. It’s been fun to bash them and expose
their weaknesses, but the real goal is to identify winners, not losers.