Our Stock Picks have been firing on all cylinders.
While Toronto was down 1.3% today our stocks did okay. Most notably, Bank of America was up 4.1%, adding to yesterday’s gains and Wells Fargo managed to hang onto yesterday’s big gains.
After the close Melcor released earnings. This stock closed today at $14.50. It’s earnings per share for 2011 were $2.70. On a GAAP basis that would be a P/E of just 5.4. However, much of the earnings were likely from gains in values on its rental buildings. And even its regular earnings from selling building lots tend to be highly lumpy. Nevertheless the earnings are good news. The book value of the company is now about $18.50 per share.
The full earnings have been released on SEDAR but I don’t think the public gets access until tomorrow. The full earnings are supposed to be on their web site but I don’t see them there.
The bottom line is that this appears to be quite good value at $14.50. It is thinly traded so be careful that way.
Tomorrow the stock may not open higher (it should) instead we may get a delayed reaction, or possibly no reaction at all. Melcor is my third largest position. I am not eager to sell any at this time. I would be tempted to buy more shares especially if it stays under $15 tomorrow.
In choosing between REITs like RIOCAN trading at about 150% of book value and Melcor trading at some 78% of book value, for me it is no contest. (Yes, there are other considerations involved than book value, but the bottom line is I would favor Melcor)
Beware of anyone bearing long term bonds
For literally years I have though long-term bond yields were too low and would not invest in them. And interest rates kept going lower and so bond investors did well. At some point that has to come to an end.
Possibly we are at that point. The yield on 10-year U.S. bonds has gone from 2.0% to 2.3% in the past ten days. That creates a capital loss of 2.7% on that bond. The yield on the 30-year has gone from 3.1% to 3.4% causing a quick capital loss of 5.6%.
People who invest in long bonds at these low rates usually intend to sell if rates rise. If so, I hope they sold.
Most commentary blames the U.S. FED for forcing long-term interest rates down to record lows. I have never been convinced it is only the FED since lots of other parties are investing in those bonds and buying them at low yields as well. I did recently find some data however that shows that the FED owns frightenly large proportions of most of the longer term bond issues. (like 20, 40 and even 60% of the total outstanding in some cases). That gives credence to the notion that the FED has indeed been the main buyer of long-term U.S. bonds. Can they continue to hold these rates down? No one knows, but the rates were certainly on the rise this week.