June 11, 2018

On Monday, the S&P 500 was up 0.1% while Toronto rose 0.4%.

AutoCanada was up 5.8% after “activist investor” Clearwater Capital Management released a copy of a letter that it sent to the AutoCanada Board basically requesting the company to put itself up for sale. Clearwater said it and other large investors were concerned about the poor margins in Q1 and said that U.S. auto dealer groups operate with higher margins. Clearwater reminded AutoCanada that it had provided suggestions in the past that put AutoCanada on the road to the high share prices of 2013 / 2014.

I am skeptical that this will go anywhere for several reasons. AutoCanada has a different Board chair than it had when Clearwater  was previously involved. It is basically under new management who will want more time to work their strategy. I expect AutoCanada to reject out of hand the idea of putting the company up for sale. Furthermore, I wonder how beneficial was the big run-up in the share price that peaked at, I believe, over $90 in 2014. That became a needle peak in the share price and the shares were probably considerably over-valued. So I would ask: Did Clearwater basically engage in some kind of “pump-and-dump” action at that time? I don’t know since few details were provided.

I think AutoCanada probably is undervalued at today’s close of $17.53. But since I had just last week added to my position only because it dipped to $15.50 I decided to sell today most of the shares that I picked up at $15.50. I sold at $17.49.

Last week I heard an analyst on BNN say that AutoCanada would have trouble making acquisitions because dealers were valued so highly. Since AutoCanada owns 54 dealerships, I would think that such high valuations would not be a bad thing.

I plan to maintain most or all of my remaining AutoCanada shares and see how they do int he next few quarters.

The report for the Canadian Western Bank preferred share on our list is updated and rated Buy at $24.33. It’s not a compelling buy but is a reasonable choice for safer dividend income I believe. But do not expect capital gains (other than very minor at best).