October 14, 2014 Comments

On Tuesday the S&P 500 was up 0.2%, while Toronto, playing catch-up (or catch-down) for yesterday’s holiday was down 1.3%.

Wells Fargo ended the day down 2.7% at $48.83. I was surprised they got their earnings out so fast. Seems to be a competition among big companies to see how fast they can report. I find it impressive that a detailed quarterly report can be put together and approved for issuance that fast. I am pretty sure that a lot of people worked late and weekends to get that done. Wells Fargo is now trading at a P/E of 13.0. Now one might argue that the profit has been boosted by low loan losses but even so I don’t think the P/E would be above 14 even adjusting for that although I am not sure. And one could argue that earnings will decline for various reasons. that is always a risk. But this bank has been growing for years and even if earnings do decline (which I have no reason to suspect they will) it would likely recover. The price to book ratio is 1.6 which does not seem excessive. The price to tangible book (after deducting goodwill ) is 1.92 which is not particularly attractive but is also not that high for a best in class bank and one which is earning an ROE of about 13% in a world where 10-years government bonds earn 2.2%. The dividend yield is 2.9%. All in all, Wells Fargo certainly looks attractive to me although there is certainly no guarantee that the price won’t continue to fall.

Toll Brothers rose 2.8% after yesterdays fall of 4.1%.

Stantec was down 1.4% to $67.12 and is worth considering. It’s been a tremendous growth company over the years.

As my own portfolio breakdown indicates, I have a position in the Claymore Oils sands ETF, CLO. I had just let that ride for a long time. Back in June when I updated the list of Canadian ETFs I called that one unattractive and yet I held on to it. The thought of selling it had crossed my mind but I just let it ride. At this point I’d be more interested in buying than selling.

If oil stays down in the low eighties or lower then presumably it will affect the Alberta economy at some point. On the other hand it would likely be good for the much of the North American economy.

I don’t have any particular insight into this market correction. Attempting to guess the market direction has never been part of my strategy at all. I react to where the market is and where stock prices are and try to buy low and then hold or sell high.

Corrections always loom large when we are experiencing them but most turn out to minor in hindsight. But obviously some do extend quite deeply.

I’ve generally ridden through corrections. I try to keep some cash on hand to take advantage of bargains and that has worked for me.

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