March 8, 2018

On Thursday, the S&P 500 and Toronto were each up 0.4%.

Linamar was up 8.4% to $73.75 after releasing a strong Q4 report.

Melcor Developments failed to react to its strong Q4 / 2017 earnings report and closed up 0.5% at $13.97. This for a company that has a book value per share of $30.21 per share and where the assets are solid consisting mostly of land and buildings. Granted, the book value has been boosted by IFRS accounting which marks its rental building up to market value. This is also a company that earned $1.15 per share in 2017 and $1.05 in 2016 (with Alberta in or recovering from a recession).

There is a great deal of commercial building going on near Edmonton. Despite oil prices being lower than 2014 these developers apparently still think that land and buildings in Alberta are a good investment. Those investors are effectively paying 100 cents on the dollar to construct new buildings. Meanwhile the equity of Melcor trades at less than 50 cents on the dollar. It seems to me that buying Melcor at around half of book value is ultimately going to offer a better return than would investing directly in similar land and buildings at market value. But it appears that continued patience will be required. Meanwhile the 3.7% dividend yield is not too bad.

CMHC reported that Canadian housing starts were running at an annual rate of of 230,000 as of February. This is at or about a record pace. Canada has been running at 200,000 or more for years while the U.S. has ten times the population is still building houses are far lower than record levels and is around 1.3 million houses per year. Certainly the pace of new home construction in Canada could slow with higher interest rates and a cooling home resale market. But so far there has been no decline.

Canadian Western Bank was down 0.2% despite posting better-than-expected results this morning. The bank also raised its dividend 4% which is a total increase of 9% in the past year. A CIBC analyst apparently “downgraded” the stock on concerns about the future growth rate albeit with a price target of $40. At one point today the shares were down to about $35 and I added modestly to my fairly large position in this stock, buying at $35.21. I had last rated it Buy at $40.55 and I do like to demonstrate the courage of my convictions.