May 31, 2017

On Wednesday, the S&P 500 was down 0.1% and Toronto was down 0.2%.

Alimentation Couche-Tard was a bright spot rising 2.3% to $63.58. This is an exceptionally well managed company and is likely to continue to do well over the years.

Costco reported stellar same store sales growth for May. At 31 times trailing earnings it seems quite expensive but has continued to power ahead.

Wells Fargo was down 2.0% and Bank of America down 1.9%.

Canadian Western Bank was about unchanged at $24.27 but had been down 2% at times today. I added to my position. This bank is now trading at about its book value. It does not feel great to hold this and see it sink like it has. It was about $31 three months ago and looked like god value at that time. In some cases, book value is meaningless as a value indicator. However, book value and especially tangible book value is a very relevant measure for banks. CWB is trading at about 112% of book value. I have its most recent ROE at 9.7%. If it continues to make that level of ROE then buying it around book value is going to work out well.

CWB reports Q2 earnings on Thursday morning and unless the results have leaked it seems logical that the stock price will move on the news. I understand it has not reported a loss in any quarter in over 25 years. Such a record will likely come to an end at some point. It’s always possible that it will report large loan losses tomorrow but I don’t think it is likely to report a loss. The Bank has been cautious in trying to build up and not deplete its equity level and so it may not buy back any shares despite the low price and it may hesitate to increase the dividend. The current yield is 3.8%. CWB’s Q2 last year was quite weak and so perhaps the bank will be able to report an increase in earnings. That will depend on what it reports for loan losses.