September 27, 2016

Tuesday’s action had the S&P 500 up 0.6% while Toronto was down 0.4%.

Liquor Stores N.A. was up 3.0% to $10.51. I had rated this a Sell last year at $8.55. Since then it cut its dividend and has had higher sales and relatively flat profits but the stock price has increased. The Liquor Store business in Alberta seems to be increasingly competitive. Despite its scale advantages Liquor Stores N.A. appeared to me to be losing ground, at least where I live. Within the past week I noticed that two stores near me have paper signs indicating “new lower prices”. I don’t know if this applies to all their stores. But it could be that they are recognising that they need to lower prices in order to compete. I don’t see that as a recipe for an earnings increase. However, they did just raise some new convertible debt at just 4.7% with a conversion price of $14.60. The dividend cut would have made the debt safer since less money is going out the door for dividends. They have also bought a few stores in the U.S. and that could push up earnings. I have not updated the report for this company since lass Fall and will likely remove it from the list as I have lost faith in management.

Wells Fargo’s CEO has volunteered to forego all unvested stock options worth some $41 million. In addition he will receive no bonus for 2016 and no salary until the account opening scandal investigation is completed. (The independent Board members are leading that investigation). The retiring head of retail banking will give up some $21 million in stock options, will get no bonus for 2016 and will receive no severance pay or retirement allowance.

This whole matter still has a long way to go but the actions announced after the close today are a good start and may lead to a stock price increase tomorrow. Will this be enough to satisfy Wells Fargo’s critics? Of course not, no action would ever satisfy them.

The latest Case-Shiller home price index was released today and shows that U.S. home prices continue to rise although at a slow pace. This should be positive for Toll Brothers.