June 1, 2017

Thursday was a strong day in the markets with the S&P 500 and Toronto each up 0.8%.

FedEx was up 2.3%.  Toll Brothers was up 2.3%. Dollarama which we consider to be a great but expensive company was up another 2.5%. Similarly CN was up another  1.4%.

In general the market has continued to push higher many companies that are perceived as as high quality and or high growth. There may be some danger that if market sentiment turns negative then those companies could fall due to “multiple compression” even if their earnings continue to grow. The best approach may be to have a mix of the higher quality but expensive names as well as the names that appear to be bargain priced. My own approach has been more weighted to the value side.

Canadian Western Bank recovered 3.7% after releasing earnings before the market opened. I looked at the earnings release and listened to the conference call. It appeared to me that the earnings report was strong with no sign of any big increase in loan losses on the horizon. Also the analysts on the call did not sound concerned about the bank. Overall, I CWB continues to look like very good value. Banks are highly leveraged which does add to their risks. There can be no guarantees but I do think CWB will provide strong returns over the next several years.

There are always risks. And on the internet you will have no problem finding predictions of doom. But meanwhile the companies on the stock market in aggregate tend to increase their earnings over time. Those who own shares tend to benefit from this in a bumpy and irregular fashion but where the benefits tend to be quite worthwhile over the decades.