December 14, 2017

On Thursday, the S&P 500 was down 0.4% and Toronto was down 0.7%.

Linamar was down 2.7% and then, after the close, revealed that it will acquire an Agricultural equipment maker for $1.2 Billion. It is acquiring privately held MacDon of Winnipeg in a deal that it says will be immediately accretive to earnings per share. To put the size of this deal in context, Linamar has an equity market cap of $4.5 billion and assets of $5.9 billion. The $1.2 billion dollar purchase will be financed with debt. (Previously Linamar had a relatively low debt ratio) This is a large acquisition but not overwhelmingly large. Linamar already had what I believe was a relatively small agricultural equipment division in Hungary.

I don’t know how the market will react to this but to me it looks like Linamar taking another step on a growth path that has been very successful in the past. I’m happy to hang onto their coattails as they walk that growth path.

AutoCanada was down 2.6%. Statistics Canada released new vehicle sales figures for October which were lower than September, but that appears to be a seasonal pattern, and year-over-year for Canada sales were up 13% in dollars and 7% in units and for Alberta were up 25% in dollars and 17% in units – all of which seems rather positive for AutoCanada.

Alberta’s economy has been improving. However there were some “layoffs” announced today in the oil patch as some temporary pipeline issues have made the lack of export capacity even worse.

CRH Medical posted some insider trade information today. Two insiders were awarded 30,000 rights each and a third exercised options to buy 25,000 shares at 27.5 cents. So far, no sign of any share buy backs. If no shares were in fact repurchased in November then it would seem to be a mark against the credibility of management.

I was pondering my own portfolio today. I’d like to raise some cash for possible bargains and also possibly to diversify including possibly having some allocation outside of North America likely through ETFs. So, I sold the remainder of American Express shares which were just over 1% of my portfolio and which I had last rated only a (lower) Buy. I had a gain on it and it was in a non-taxable account.

I have what is probably a ridiculously high allocation to Melcor. But it would be difficult for me to trim that given that I am rating it Strong Buy. In fact, stubbornly, I have an order in to grab a little more if it slips to $14.50. It seems to offer an excellent margin of safety from a book value perspective. But it’s not clear when there will be a catalyst to push the price higher. Hopefully they will end up reporting a strong Q4. If that happens AND if the market for new home building lots and land prices in Alberta remains reasonably firm in 2018 despite the new mortgage stress test or other factors then perhaps there will be a share price improvement by the Spring. I did come across some information that home sales are still strong in one of their big subdivisions near Edmonton at this time.