November 17, 2016

Thursday was a positive day as the S&P 500 rose 0.5% and Toronto was up 0.6%.

CRH Medical was up 4.5% on Toronto to $7.72 and in the U.S. was up 3.6% to $5.70.

Toll Brothers was up 2.8%. Constellation Software was up 2.9%.

Walmart was down 3.1% to $69.19.

Melcor Developments was down 1.9% to just $12.16. I continue to focus on the fact that it has solid real assets that provide a margin of safety. It has a strong balance sheet and can ride out the recession in Alberta. At the same time there can be no guarantee that it won’t start posting losses if it starts to experience higher vacancies in its rental properties. Their occupancy rate at the end of September was 92% and unchanged in the past year.

But if Melcor is not a good investment at about 42% of book value, what would that say about all those Albertans who own houses purchased in the past few years with mortgages often at 80 to 90% of the value? How would their finances look with a 20% drop in value? how about with a 58% drop in value? Why is Melcor worth only 42% of book value when home prices have barely budged downward?

I have seen no indication that Alberta home building lots or commercial spaces are selling at discounts of anything close to 20% let alone 58%.

I suspect that Melcor would be worth at least book value if the controlling family were to sell the business. However, that does not seem to be remotely in the cards. As an investor I will continue to be patient and confident that Melcor’s share price is too low given that it represents the opportunity to buy land and rental buildings at 42 cents on the dollar. But I may have to be patient for some time yet.

TransForce was up 0.8% to $32.93. This is 24% higher than when it was added to this site last year. But more remarkably, it is 65% higher than the $20┬álevel that it inexplicably traded at and even below in February. And it is 50% higher than the $22.00 price at which the company was able to buy back a large amount of shares earlier this year. It’s a great company. But I am starting to be inclined to sell and take the profits of up to 50% that I have in one of the accounts where I hold it. I intend to update the report tomorrow.

I mentioned on Monday that I placed an order for some Enbridge rate reset preferred shares at 5.15%. I committed to 800 shares and was allocated just 200. This is annoying. If I wanted 800 I can’t very well commit to 3200 and hope that I get just 800. I’d rather see them close off the order book a lot faster to avoid this. Then it could be first-come gets much closer to all that they ask for. Possibly I got only 25% because my order came in later than others. But I don’t think it works that way.