January 8, 2018

On Monday, the S&P 500 ended the day up 0.2% while Toronto was down 0.2%.

Toll Brothers was up another 1.3%. Walmart, which we last rated (lower) Sell, was up 1.5%.

The rate reset preferred shares are generally still edging up and that’s because the five year government of Canada bond yield is now very close to 2%. Six months ago it was just under 1%. That adds 25 cents to the projected reset yield on these type of shares compared to the projection six months ago. Since most of these shares only yield roughly $1.00 to $1.25 , a 25 cent increase in the projected reset yield is significant.

After the close, Laurentian Bank announced it would issue $125 million worth of common shares at $54.80. That’s a bit disappointing to those holding the shares which closed today at $56.83. This is relatively small issuance compared to the Bank’s market cap of $2,214 billion. Laurentian Bank’s equity ratio was low at 7.9% after it recently redeemed some preferred shares. Laurentian also faces some potential costs due to some mortgages that were sold to a third party and for which the proper income verification or related checks were not properly done in all cases. This share issue has already closed out on TD Direct. I have not in any way analysed this bank. But I suspect that buying some shares during this time of what appears to be modest distress will work out well.

Cannabis stocks jumped again today. Canopy Growth (WEED) was the biggest gainer, up 17.2%. Its market cap is now $7,608 million which I notice is more than triple that of Laurentian Bank. I normally would be paying absolutely no attention to these early stage companies but it just so happens I am keeping an eye on four of these. I don’t think the market has much to go on in valuing these stocks. The market caps look very high to me and my suspicion is that these stocks will eventually decline quite a bit. But so far anyone investing int hem has done very well. The Globe and Mail suggested that these stocks could be vulnerable to a “short attack”. However anyone wanting to mount such an “attack” might have to go after the whole sector. And with so much unknown about the future of the industry it might be hard to mount such an attack. I say attack, but if the stocks truly are over-valued I see it as completely legitimate for some analyst to come out and say that even if she could profit as a result. Not much different than promoting that a stock she owns will go up. As long as it is an honest opinion, that seems like fair game to me.

The earnings and revenues of these stocks will also not be impressive when they report Q4 results. But that may not matter at all since the market is looking to sales and profits AFTER legalization.