January 21, 2018

Canadian Western Bank is updated and rated Buy at $40.55. It has already made a strong recovery from the lows it experienced in 2016 due to (apparently unfounded) fears that it might experience problems with sub-prime mortgages similar to the Home Capital situation. It has also made a strong recovery from the lows of 2015 and 2016 that were related to fears about loan losses due to the low oil prices and recession in Alberta. I believe that CWB’s results in 2018 are likely to support further gains in the price.

AutoCanada is updated and rated (higher) Buy at $22.86. It exhibited a strong recovery in earnings and sales in Q3 but the stock price has not made much of a recovery. I expect earnings to grow strongly in the next three quarters as it faces weak comparable quarters in the prior year and as the Alberta economy has improved.

I am also expecting Melcor to do quite well in 2018 although that could be derailed if the new mortgage stress tests have a big impact on new home construction. Also Melcor’s rental buildings which are marked to estimated market value quarterly could see some reduction in value due to higher interest rates and possibly due to vacancies. However, I believe the fact the shares trade at only about 53% of book value provides a large cushion or margin of safety.