March 12, 2013 Comments

Our banks stocks lost some ground today as did Toll Brothers and Canadian Tire. The noise to signal ratio from this as far as I am cornered is a great deal of noise and no signal. I take signal from earnings reports not stock price blips.

As far as Canadian Tire goes, I like it because (among all the other reasons mentioned in the report) it appears to have decent earnings with a P/E of just under 11. And it trades at just 1.2 times book value. And I suspect some of the assets are quite a bit under-valued. Overall it looks like good value to me with some safety margin that should mean it is quite unlikely (but always possible)  I would take a loss if I held it several years. However there may not be any catalyst to push the price up any time soon. It could take a year or more before the impact from Target is known. On the other hand it has said it will be buying back shares. (none yet reported since the Q1 report came out). There are also possible catalysts in terms of acquisitions and divestitures. Overall I think it has good value and I plan to ride along with it. Around 2002 my feat was that Walmart was then moving out of the Woolco stores into much larger stores. Canadian Tire did not seem to miss a beat on that. Canadian Tire has its large auto service operation. Target is not competing there. (I keep waiting for Canadian Tire to start selling a line if Indian or Chinese cars, low priced ones. They are ideally positioned to do it.)

Speaking of the auto service, I took our 2005 Volvo cross country wagon there last Thursday night because my wife had complained it was making unhealthy noises after starting. They diagnosed the problem in about 30 minutes and explained it was the starter failing to fully retract but did advise replacing the (volvo= expensive) starter yet as the situation was harmless. In fact we then realized it mostly happened when we used the auto starter and we are soon out of that season. My point is, I got excellent very speedy service and no up selling. And I like shopping where I own shares. They charged me the agreed upon diagnosis fee, and I was perfectly happy with that. (Car problem diagnosed = happy wife = happy Shawn)

Retailing can be a tough business. So it’s interesting to observe that the single greatest family fortune in existence is that of the Walton heirs. On billionaire lists they rank as high as number 11 as individuals. Christy Walton $28 billion, Jim Walton $27 billion, Alice Walton $26 billion, Robson Walton $26 billion. All told for the Walton family that is $107 billion and WAY ahead of the ostensible number one, Carlos Slim Helu who scrapes by with $73 billion. Naysayers will complain that the Waltons were retailers who did not add value to the products and who destroyed the Mom and Pop shops. The other side of that argument is that they brought huge economies of scale to retail and have improved the lives of millions upon millions by lowering the cost of everyday goods. I certainly make no apologies for owning some Walmart shares and I hope the Walton’s don’t either. Anyhow, it’s not like that family is ever going claim the $107 billion dollars of goods and services that they could buy and go waste that money. Most of it will go to benefit society one way or the other. Anyhow my intertest in Walmart and its history is to study how retail makes money and how I can apply that in buying shares of other retailers.


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