July 15, 2012 Comments

Costco is updated and rated Weak Sell at $94.81. It also looked expensive at the start of this year but has risen 14%. It’s an extremely good company. But it simply looks expensive. Possibly there is an argument to pay up for quality but there is also a risk that the P/E ratio could decline despite the stores doing very well. I am not a buyer at this price. I might sell or hold if I already held it. I certainly would not “short” the stock.

Wells Fargo is updated and rated (lower) strong Buy at $33.91. While there are always risks, especially in the short term. this bank has competitive advantages and is likely to continue to do well.

This company has been my top holding for some time and represents about 18% of my portfolio. I am wondering if it should be more than that. I did have an order in the trim my holdings by a small amount at $34. That almost got hit on Friday but not quite. I am tempted to pull that sell order but may just leave it in as a matter of prudence.

Friday was a strong day in the markets. China apparently reported lower growth and paradoxically the market took this as a positive signal since the Chinese might then stimulate their economy. At least that is what analysts said happened… The market also reacted positively to J.P. Morgan’s earnings results. Overall, the DOW and S&P 500 were up 1.6% and Toronto was up 0.8%.

On Friday, Wells Fargo reported earnings and rose 3.2%. Bank of America which has been very volatile was up 4.6%

I heard an Analyst on Friday state that the U.S. airlines business was weak due to slow economic growth. That is completely laughable. The airline industry is weak because it is inherently a commodity product with no customer loyalty, and brutal competition. In such an industry it takes cost advantages to make even reasonable profits.

Interest rates are at historic lows and stock markets seem at least reasonably valued. It is dangerous to borrow to invest. Nevertheless, today may represent a generational opportunity to do so.

I have been disappointed with the performance of Canadian Tire. This quarter I understand they will have some unusual losses due to closing some of the sport stores they acquired from Forzani’s. If they do not do quite well other than that, then I may have to re-evaluate my faith. I am starting to wonder if they are competitive enough on their costs. (Some preliminary calculations indicate that their retail mark-ups are far higher than the likes of Walmart. I do think they have the opportunity to realize value by selling and leasing back stores. But there is no indication that they will do so.