December 29, 2016

On this second-last day of trading for 2016, the S&P 500 was about unchanged while the Toronto index was up 0.4%.

There were no particularly noteworthy moves in the stocks on our list. (Melcor was up 3.4% but the volume is too low for that move to be significant).

The Canadian dollar is at 74.16 U.S. cents. I completed another sale of U.S. dollars via DLR today. In this case I had bought the DLR.u in the U.S. side of an unregistered account. I then requested these units to be “journaled” over to the Canadian dollar side of that same account. I then waited for the trade to “settle” which it did today. I was a bit surprised to see that when it settled on the Canadian dollar side it was (conveniently) as units of DLR which is the fund of U.S. dollars that trades in Canadian dollars. (I had thought the account would label it as DLR.u trading in U.S. dollars). In any case, I was able to sell this just like selling any stock. The exchange rate that I got was 74.0 U.S. cents per Canadian dollar net of trading fees. Note that the lower the figure here the better.  I did that trade this morning when the Canadian dollar was a bit under 74 cents. All in all, I received very close to the wholesale exchange rate and I am happy with my experience in using DLR.

Canadian National Railway Company updated December 29, 2016

CN Rail is updated and rated (lower) Sell (meaning somewhere between a Hold and an outright Sell rating) at $92.01. CN is a great company with excellent economics and strong management. But it is selling at 20.3 times trailing earnings per share and earnings growth seems likely to be quite a bit lower than the historic level. Earnings had grown faster than revenues for quite a few years due to efficiency gains and I don’t think that can be sustained. In addition, revenues have historically grown faster than the economy for quite a few years despite the number of route miles being little changed and it seems unlikely that this can continue. Over the years the earnings will continue to grow but at this time the stock seems somewhat over-priced.

Currency Transfer using DLR – December 28, 2016

Today, I completed a currency transfer of $25,000 U.S. dollars from the U.S. side of my RRSP to the Canadian side.

The process was to buy DLR.u (an exchange traded fund that simply holds only U.S. dollars) on the U.S. side of the RRSP and have it journaled to the Canadian side and sell it there as DLR which is the same U.S. dollar fund but trading in Canadian dollars. The overall exchange rate that I got after all commissions and any bid/ask spreads was excellent as I got an exchange rate of 73.7 U.S. cents per Canadian dollar. That was very close to the wholesale rate at the time.

The total commission were 9.99 U.S. plus 9.99 Canadian. I was supposed to pay a $43 commission but the TD Direct representative had a work-around that even saved me the $43. But that would not have changed my exchange rate by more than about 0.1 cents.

Overall this was an excellent way to move money from the U.S. side of an account to the Canadian dollar side. I estimate this saved me at least $400 compared to just entering a standard transfer at TD Direct.

I still plan to move some more money in a different account suing the same method. By tomorrow, I should have some DLR (which again is effectively U.S. dollars) settled on the Canadian side of my margin account where I can sell it easily at my leisure.

The TD rep that I spoke to was knowledgeable and helpful and suggested that this whole DLR strategy only made sense for amounts over $5000 due to the fixed Commissions (and there is also the time and hassle of having to call in to do it).

As I have said before, my preferred strategy is just to keep a certain percentage of my accounts more or less permanently in U.S. dollars and not move money back and forth. But given the recent out-performance on the U.S side of my accounts and given a low Canadian dollar, and given I could use some cash on the Canadian side it seemed reasonable to move some money at this time.

As far as paper money for vacations I would just pay the fee at the bank as doing anything else is probably not worth it. For frequent trips to the U.S. get a U.S. dollar account or credit card or find a Canadian credit card that does not charge the standard 2.5% markup on all currency conversion (I believe Amazon offers one through Chase bank for Canadians).

December 28, 2016

On Wednesday, the S&P 500 was down 0.8% and Toronto was up 0.2%.

Rate reset preferred shares were up today. I thought that was perhaps due to a rise in the 5 year Bank of Canada rate but that rate was actually down today.

I notice that more and more web sites have absolutely no scruples when it comes to what kind of advertisements they allow. Yahoo Finance is now filled with advertisements of the most dubious nature. Tons of paid links to weird celebrity news stories and photos, most probably false. Paid links to various scam sites. I just clicked on an ad there for “Canada Goose on Sale”. That got my attention because Canada Goose has long had a strategy of no sales. They do not allow stores that sell their jackets to put them “on sale”. The site advertises prices around one third of retail. I am virtually certain that this site is a scam. It is shameful for Yahoo to be advertising scam sites.

On InvestorsFriend I have for some years run ads provided by They mostly run ads for the Bank of Montreal. They don’t run garbage ads or they would not be allowed on my site. About four months ago I allowed a new Canadian outfit called narrowcontent to run ads. They have promised me the ads would be for reputable products and that has been the case. They have mostly run ads for Amazon Kindle products. You will not see any ads for sites or products that I consider to be dubious on this site. I won’t allow it.

I also have a links page which basically is filled with links to sites that I find useful and that are related to investments in some way. Many times I have been asked to put links there to other investment sites, mostly ForEx trading sites. They would reciprocate with links back to That might drive my traffic up a LOT since Google uses such links to rank where a site shows up in its searches. But I don’t trust ForEx sites and simply will not allow links to them or to any other site that I do not trust.


Amazon updated December 28, 2016

Amazon is updated and remains rated Sell, now at $771.

This company is not well suited to fundamental analysis because its earnings are still low in relation to its stock price. Nevertheless, I wanted to provide some knowledge of the fundamentals of this company. It has probably always looked vastly over-valued based on fundamentals. But those who had faith in it as a growth stock have been rewarded. The company is just completing its 22cnd year and at some point the P/E multiple needs to decline as the earnings either catch up to the share price or the share price possibly declines. But perhaps that day is still some years off. I can not justify buying Amazon based on fundamentals. But that does not mean that it can’t continue to rise. If I owned it I would Sell and and/or make sure that I held only a modest position as a speculative pick.

Costco credit cards comment December 28, 2016

I edited one cell of the Costco report to comment on its switch from accepting only American Express credit cards to only MasterCard (Canada) and only Visa (U.S.A).

Most retailers are virtually forced to accept both Visa and MasterCard, and often American Express as well. And most have very little bargaining power as to the merchant discount fees.

But Costco had HUGE bargaining power. Many Costco members were willing to obtain an American Express card in order to be able to use a credit card at Costco. Because Costco was in a position to accept only one type of credit card it had huge bargaining power to obtain an ultra-low merchant fee. AND because Costco is able to sign people up on a co-branded card it obtains a “bounty” on each new card signup. Costco was even able to negotiate being paid a commission on non-costco purchases on the co-branded cards.

In the U.S. the Costco co-branded Visa card is issued by Citibank. It is a reward card, with the rewards payable in certificates redeemable at Costco for cash or merchandise. The rewards are lucrative, 4% on eligible gasoline purchases (possibly Costco only?), 3% on restaurant and eligible travel purchases, 2% on all Costco purchases and 1% on all other purchases.

It is clear that Costco and the card-holders get huge benefits but it is less clear that Citibank is getting much benefit after paying Costco and paying the rewards. I would think that the VISA card issuers OTHER than Citibank are big winners as ALL Visa cards are now accepted at Costco which increases the spending on those non-costco brand VISA cards. (Same for all MasterCards in Canada)

American Express would seem to be a loser here as they lost a huge amount of spending at Costco. Also, and perhaps more importantly, America Express loses all those new customers who were obtaining America Express cards primarily just to shop at Costco. But perhaps America Express was right not to continue a deal where Costco was getting so much of the benefits. And perhaps these type of customers were not really loyal to America Express at all. If Citibank at some point was offering too good a deal to Costco then American Express may have been right to refuse to match that offer.

All of the above illustrates what a powerful retailer Costco is.

December 27, 2016

On Tuesday, the S&P 500 rose 0.2% while Toronto took the day off.

Toll Brothers was up 1.8% to $31.91.

The Case-Shiller home price index was updated for October today and showed another small increase (See the seasonably adjusted numbers). However the commentary and analysis of the S&P analyst seems to focus on the fact that higher interest rates will cool the U.S. home market. It remains to seen whether home prices will rise due to their strong economy and pent-up demand and a rush to lock in before interest rates go any higher or instead will stagnate or decline due to the higher interest rates. My thinking has been and is that they will continue to rise. I have placed my bet on Toll Brothers to rise.

Walmart updated December 27, 2016

Walmart is updated but is rated Weak Sell. This is a neutral rating with a slight leaning to Sell. In some ways it may be a waste of time to follow such a huge company especially since it is mature and is in low growth period and there is little reason to expect any really big profit increase. But it still deserves respect as the world’s largest retailer. I would not count it out as it is still a low-cost retailer. And occasionally it can get under priced. It was a good investment in July 2011 at $52 as it then got to $86 in October 2014. And, with an equity market value of $260 billion it is a stock that is still owned by millions of retail investors and so may be of interest to some subscribers.

Costco update December 26, 2016

Costco is updated and rated Weak Sell at $162.08. It is clearly a fantastic company. It’s the best in class for warehouse style stores. No retailer relishes competing with Costco. But it is trading at 30 times trailing earnings and the growth is good but not fantastic. I could rate it an outright Sell. But I have respect for its strong business and the fact that it could do things to push up the share price such as increase the dividend or use more debt to leverage and increase earnings per share. It could probably also easily expand more aggressively internationally if it wanted to. So, it will likely do okay in the long term but I would not be a buyer at this time and would likely Sell if I held it to raise cash or move into more compelling investments.

I had rated it a Sell on July 31 at $167.22 and it subsequently got as low as $142 on Friday, November 4. I mentioned then that I would consider buying a small amount at that price. I did not do so, perhaps because it started rising on Monday November 7. It is now apparent that the dip in the market at that time was a buying opportunity for many stocks. A good strategy for those with a lot of cash would be to have “stink bids” in at material discounts (15%?) to current prices on a number of good companies and just let the bid sit there for the maximum allowed 90 days and hope to pick up some stocks on dips. The danger is the dip would deepen after the purchase. But dips tend to be recovered from in the case of “good” companies.

December 26, 2016

I was one of three “stock-pickers” featured in the Edmonton Journal on Saturday as my three stocks picks for 2016, provided to the Edmonton Journal last year, returned an average of 37.5% each (including dividends) from December 14, 2015 to December 16, 2016.

December 23, 2016

On Friday, the S&P 500 was up 0.1% and Toronto was down 0.1%.

Boston Pizza Royalties Income Fund rose 1.4% to $22.94 and is up 28% this year. And it is up 36% since I rated it a (higher) Strong Buy on February 10. This was a very good “call” because this was a low risk entity yielding 8.2% at that time and seemed clearly under-valued. Sometimes the big returns do not require big risks. This was basically a “bargain hiding in plain sight”. It seemed clear that it had little downside risk. One reason I want to build my cash position is to take advantage of opportunities like this when they arise. I did have a very healthy allocation to Boston Pizza though most of it was made at higher prices than the lows certainly. If I’d had more cash I would likely have bought more near the lows.

The Canadian Western Bank preferred share CWB.PR.B was down 2% to $18.85 and got as low as $18.66 today. I believe the decline was related to a slight drop in the 5 year Canada interest rate which in turn was related to the weak GDP numbers. I placed an order at $18.75 as I think this will increase in price in 2017 and probably has little downside risk.

GDP is estimated to have declined 0.3% in October with manufacturing down 2.0%. The lower Canadian dollar has not had the hoped for impact of spurring manufacturing. Somehow though consumer spending has continued to grow modestly. This report is reason to be cautious on the prospects for the Canadian economy.

The Canadian dollar is down to 73.8 U.S. cents. I plan to move some U.S. dollars back to Canadian dollars and perhaps I should have done so today.

FedEx updated December 23, 2016

FedEx is updated and rated (lower) Buy at $192.60 This stock is up 29% in 2016 and we had it rated Buy to start the year. And it’s up 19% since we updated it as a Buy on August 1, 2016. It’s a great company and a valuable contributor to the economy. But it is not a compelling Buy at this time. If I held it I might be inclined to trim the position. But I would likely be a buyer if it happened to sell to the $170 range.

December 22, 2016

On Thursday, the S&P 500 was down 0.2% while Toronto was up 0.2%.

Bombardier was up 3.4%

Statistics Canada reported that that the Consumer Price Index was up just 1.2% year over year in November. Core inflation was apparently somewhere between 1.3% and 1.9% because Statistics Canada is now publishing three different measures of core inflation. While the range is sort of annoying, it probably a lot more realistic. The fact is that measuring inflation is always done on an estimated basis relying on certain baskets of goods that are supposed to be representative. Reporting it as one number like 1.2% gives a false sense of accuracy and precision.

Retail sales were reported and were up modestly although down 0.7% in Alberta year over year. (Which does not seem too bad given the downturn in teh energy sector).

Restaurant sales for October were reported and wee up substantially on a year over year basis although down slightly from September. Overall this report looks like good news for the likes of Boston pizza.

Berkshire Hathaway is up about 25% this year. I believe Berkshire will have a very good Q4 in terms of growth of book value per share (which is how Buffett has tracked progress since 1965). Book value per share will grow due to gains in the investment portfolio. Wells Fargo alone will be up some $5 billion pre-tax (barring a noticeable decline in the next few days). In addition I believe there will be an unusual gain as its Dow Chemical preferred shares were converted to common shares (I am not sure if most of this gain had already been booked on a mark to market basis or not) Also the put options on stock market indexes which are counted as a liability on the books will gain as that liability will shrink by, I would guess a billion dollars or so, with the higher markets and with the reduced amount of time to the settlement date of those puts. Oh, and there was a HUGE gain in the value of its 700 million options on Bank of America (about $4.2 billion pre-tax). Berkshire’s price is up 15% since I recently rated it a Strong Buy but it can probably still be considered a Buy. However, even with a very strong Q4, Berkshire’s gain in book value per share for the year will not likely be higher than 10% or so. That gain stood at only 5.3% as of Q3 which was $13.7 billion. So even with a blow-out Q4, it will be tough to get to the 10% range. It’s just not that easy to grow 10% on a book value of $256 billion. In that regard small investors have a BIG advantage over Buffett.


December 21, 2016

On Wednesday, the S&P 500 was down 0.3% and Toronto was up 0.1%.

Fedex was down 3.3% after releasing earnings. I plan to update that report next.

Statistics Canada reported that rail car loadings for October were down 0.6% versus last year. I use a more up to date source which indicates that:

Canadian rail car loadings had been running slightly higher than last year in October and particularly in November but slipped to equal 2015 in the latest week reported. Intermodal (consumer goods) had been running nicely above 2015 levels but were only equal in the latest week reported (which may have been affected by very cold weather the past week). Petroleum and petroleum products and coal have been particularly weak running well below 2015 levels.

The pattern in the U.S. was somewhat similar.

A report today indicated that “U.S. home resales unexpectedly rose in November, reaching their highest level in nearly 10 years, likely as buyers rushed into the market to lock in low interest rates in anticipation of further increases in borrowing costs.”  That is exactly the scenario that I hope is happening at Toll Brothers.

Regarding strategies for moving currency between Canadian and U.S. dollars within investment accounts, here is my latest attempt: In an RRSP or Margin account that is split into a Canadian dollar portion and a U.S. dollar portion I have used the strategy of buying DLR.u which is a U.S. dollar fund trading on Toronto and then having that “journaled to the Canadian side of the account where it can be sold as DLR to receive Canadian dollars. The minor fly in that ointment was an additional charge of $40 from TD Direct which I believe only applied because I was selling the DLR immediately on the Canadian side even though my purchase of DLR.u would officially take 3 days to settle.

My strategy on this latest attempt is to take some of my U.S. cash and buy DLR. The idea is to do this ahead of the time that I want to do the exchange. Then I can have that “journaled” to the Canadian side (apparently for no fee but requiring a phone call) and effectively have U.S. dollars (albeit in a fund) sitting on the Canadian side of my account where it can be sold for Canadian dollars at any time. I believe this should avoid the $40 fee.

In trying to do this today I placed an order for DLR.u. I noticed that the last few trades had fluctuated between $9.95 and $9.94. I decided to try to buy at 9.94 rather than paying the ask price of $9.95. The result so far is that trade did not go through. This may not have been a wise strategy on my part. Saving 10 basis points is only $1.00 per $1000 or say $25 on $25,000. It also appears that the volume of trade is very low. Basically in using the DLR Norbert gambit one has to be prepared to lose about 20 basis points in hidden costs to the bid/ask spread, 10 basis points on the buy and 10 on the sell. Trying to avoid that takes time and could see a much larger move in the currency go against you.

I really don’t much like to fool around moving money back and forth. My preferred strategy was to allocate say 30% of my portfolio to the U.S. side a few years ago and just leave it there. Permanently. For eventual spending in the U.S. But the slide in the Canadian dollar over the past couple of years and the strong performance of my U.S. stocks has me arguably over-weight the U.S. side and so I am now inclined to move some back to the Canadian side.


December 20, 2016

On Tuesday, the S&P 500 was up 0.4% and Toronto was up 0.1%. And the Dow Jones Industrial Average came withing a whisker of cresting the 20,000 level.

It’s interesting that the markets have risen this week despite the assassination of the Russian ambassador in Turkey, the terrorist attack in Berlin, and an attack in Yemen that left 52 soldiers dead. It seems to me that there are times when market participants are collectively in a jubilant mood wherein bad news is virtually ignored. At other times market participants collectively seem to be in a foul mood whereby the slightest bad news pushes prices down and all good news is shrugged off. This is some version of Benjamin Graham’s “Mr. Market” with the added thought that when Mr. market decides to be jubilant it takes a lot to depress him. I do not however suggest that investors try to anticipate how long the various bouts of jubilance or depression will last. Instead, the more reliable course is simply to react to the mood of the moment such as by trimming positions on rallies and picking up bargains on the days when the market seems overly depressed.

Bombardier was down 6.4% perhaps related to calls from Embraer for governments to agree to limit subsidies and support to aircraft manufacturers.

AutoCanada was up 3.2%. I have been thinking of adding to my position. But, at the same time I want to maintain a significant cash position.

The Canadian Western Bank rate reset preferred share is down under $19 again. It seems reasonably attractive at that level as the 5 year bank of Canada yield seems likely to rise.

A Statistics Canada report shows that new home investment was up in October for Canada as a whole but down 21% in Alberta. This likely suggests another weak quarter for Melcor Developments. (But, arguably, that weakness is already more than fully “priced-in”)

Another report showed that Wholesale trade in Alberta fell 0.4% (which is probably good news as it shows relative stability)

And EI recipients in Alberta increased by 3.0%.

I am focusing on Alberta because several of our stock picks are highly linked to Alberta and because that is the part of the country that has been in recession.

December 19, 2016

On Monday, the S&P 500 was up 0.2% and Toronto was up 0.1%.

Bombardier had a strong day, up 6.8% and the Bombardier pref share that I follow (and own) was up 2.9%.

After rising relatively sharply last week, the 5 year Canada bond yield was down somewhat today. This explains why rate reset preferred shares were generally down today.

December 18, 2016 Bombardier comment and Alimentation Couche-Tard updated

On Friday, the S&P 500 was down 0.2% and Toronto was up 0.2%.

Bombardier had a good day, up 5.1% after holding an “investor day” in New York last week and also providing some updated forecasts.

I am not a fan of such Investor Days since, even when webcast, they provide an advantage to investors present in the room or at least able to listen online. The reason earnings are reported after the close of trading is to eliminate such advantages. Putting out any kind of news or updates during the trading day disadvantages the retail investor.

One of the announcements was that Bombardier will pay $90 million to cover obligations under residual value guarantees for 76 CRJ200 planes owned by Skywest. Other news was that Bombardier hopes that it can begin to sell some C Series planes without the massive (think at least 50%) discounts at which it has so far sold those planes. These items illustrate just what a truly ugly business the manufacturing and sale of commercial jets is: It requires huge investments. Your competitors may be subsidized by governments. You have to discount massively. You may need to help your airline customers finance the purchase which is risky given that airlines typically or often have terrible credit ratings. You have to guarantee the residual or resale value of the planes after the end of their service lives. The product liabilities are likely massive in the event of a technical problem causing a crash. Other than this though, it is a great business to be in! I mean I wish Bombardier the best. I’d love to have a Canadian company be a world leader in this field. The problem is that it is just undeniably a business where it is difficult or impossible to make profits without massive subsidies. That is not to say the share price can’t rise given that the current price is not reflecting much optimism.

Bombardier is also redeeming some debt early Including some 7.5% bonds due 2018 and some 5.5% bonds due 2018. These are being redeemed at full face value plus accrued interest plus a small redemption premium.  The money to redeem these bonds came from new bonds issued at an even higher rate 8.75%, due December 2021. NO, I am not making this up, they borrowed at 8.75% to pay off bonds at 7.5% and 5.5%. The reason for doing this was likely a fear that they might be unable to borrow at the time the 5.5% and 7.5% bonds came due. It can be seen here that Bombardier’s lenders have been making good money. The lenders (bond investors) took a risk but they got paid in full including interest. On that note, I suspect the investors in the Bombardier pref shares that I follow will also ultimately do well. Some investors have a capital loss on these shares, others a gain. As a population, investors have a capital loss as the shares are at $16.28 versus an issue price of $25. But they have never failed to pay the 39 cent quarterly dividend. There is always some risk that Bombardier will eventually go bankrupt but it seems more likely that they will continue to struggle along and that the pref dividends will continue to be paid. It is possible that the pref shares could recover towards $25 if Bombardier’s fortunes improve. As far as the Bombardier 8.75% 2021 bonds, I don’t know how retail investors can buy. I do see that TD Direct does not have them. RBC Direct also does not have them. If your particular broker does have them, they may trade at a premium which would reduce yield and buying them will always involve a hidden fee in terms of the buy/sell spread. When a company seems destined to survive but make very little or no money, it may be better to be a lender or a pref share investor than an owner.

Alimentation Couche-Tard (Circle K) is updated and rated Buy at $62.77. This is a fantastic company. It’s not really a compelling bargain but should continue to do well over the years. I may add a little to my position. It it then goes up, fine. If it happens to pull back 5 or 10% or more which it could do if gasoline margins are low then also fine as I will add to the position.

December 15, 2016

On Thursday, the S&P 500 was up 0.4% and Toronto was up 0.1%.

AutoCanada was up 2.6%. TransForce was up 2.5%. Bank of America was up 2.2%.

Most of the rate reset preferred shares that are trading well below $25 rose about 2% as the Bank of Canada fie year rate rose.

A Home Builder confidence index came in at 70, 7 points higher than the expected 63. On that news Toll Brothers at first gained about 2%. But it ended the day down 0.6%. It seems to me that the consensus opinion is that the prices and demand for new houses will be dampened by the higher interest rates. The home builders however are showing their confidence that this will not happen.

Statistics Canada reported weak manufacturing results for October 

I have removed a few companies from the list on the Subscriber Home page because they were out of date and are not companies that I intend to update for the start of 2017. All of these will be still be tracked as to their return in 2016 and included in the 2016 performance figures. Of course, no company is ever removed from the performance figures for any year in which it was present on our list at January 1.

The removed companies are:

Element Financial  – Has split into two companies and also I had some concerns about their reporting.

Agrium – Has a massive acquisition pending that complicates matters and is a commodity company and I have somewhat lost interest in it. But I may bring this one back in future.

Onex – Is more of an investment fund than a “normal” company and is very complex and I have lost interest

Liquor Stores N.A. I have lost faith that it can compete and it seems over-prices and also was last rated Sell.

Liquor Stores N.A. Debenture – Same reason as above.

Wells Fargo Preferred – Less interesting in a rising rate environment and not of interest to Canadian investors. (Also was rated Sell some time ago)

Removing these companies will allow more time for new additions.




Constellation Software updated December 15, 2016

Constellation Software is updated and rated Buy at CAN $591. Note that the analysis is in U.S. dollars because it reports in U.S. dollars which is appropriate because it earns most of its revenues in U.S. dollars. This is definitely one of the very best managed Canadian companies. The founder and CEO, Mark Leonard is extremely open about his approach to building value with this company. His annual letters are the closest you will see in Canada to a Warren Buffett approach. You can see his annual letters here. (Scroll down and look for Presidents letter published in April or May each year.)

The share are not a screaming bargain and perhaps I should have rated them a (lower) Buy or just a hold. But based on the past results and the continuation of the same approach, the stock price is likely to continue to rise over the years to make this a good investment.

Having regrettably sold this twice in the past I own only a very small amount but intend to buy more and to place an order to add to that on any notable dip in the stock price.

December 14, 2016 – The FED hikes interest rates

On Wednesday, the FED raised its target overnight inter-bank lending rate by 0.25%. This was fully expected. They also indicated they expected three more rate hikes next year instead of the two they previously “saw”. Apparently they see increased risks of inflation.

On this news, the S&P 500 fell 0.8% and Toronto fell 1.2%.

I don’t think this decline is any great surprise. Markets had already “priced in” the rate increase which was considered a virtual certainty. The news that interest rates might go up even faster than expected caused investors to re-think things and no doubt some decided to take profits and so prices fell in order to induce buyers to step in.

Toll Brothers fell 3.0% to $31.20 on fears that the U.S. housing market will cool due to higher interest rates. Maybe so. But I look at the fact that houses are still quite affordable in most of the U.S. and that there should be pent up demand after about eight years where the number of new homes built was far below the historical trend. I also look at the fact that Toll Brothers is selling at a relatively modest 27% premium to book value. We shall see how the future unfolds but I remain comfortable owning this stock. No one has ever beaten the market by always agreeing with consensus opinion. (The best way to invest based on consensus opinion would be to hold a index fund like the S&P 500). On the other hand, it is also true that a passive investors who owns the index never trails the index (other than by the amount of fees paid to hold the index).

Given the rise in interest rates and specifically the rise in the five year Bank of Canada rate we should see some recovery in the rate reset preferred shares. Their projected reset interest rates would be higher now. That, all else equal would push up the price of these shares. However, it is possible that the market yield on new rate resets will also rise and that would offset the expected gain.

In my own trading I sold about 10% of my Boston Pizza units today.

Statistics Canada released a report on new car sales in October. For Alberta the October total was down 1% from the prior year. That appears to be a weak number as September has only been down 10%. This report is probably a bit worse than expected for AutoCanada. I do recall however that October was unseasonably cold in Alberta while November was warmer than average, so perhaps that has an impact (and some sales might have migrated to November). I am inclined to add to my position in AutoCanada particularly on dips.


December 13, 2016

On Tuesday, the S&P 500 was up (another) 0.6% and Toronto was up the same percentage.

Agrium was one of the few decliners, down 3.5%.

I did end up selling the rest of my Wells Fargo today. And, after the close there was news that Wells Fargo had failed to have its “living will” plan passed. However, the stock was down only marginally in after-hours trading so this may not be a big deal.

Tomorrow the FED is expected to raise interest rates. And if they do so it could turn out that my recent selling of U.S. bank shares was a bit premature. In theory, though that news is already “priced in”. But if the FED does raise and depending what they say, there could be yet another boost for stocks, especially bank stocks. Or not…

I have updated the percentage composition of my own portfolio which has been changing due to my recent sales.

Boston Pizza update December 13, 2016

Boston Pizza Royalties Income Fund is updated and rated (lower) Buy at $22.64

Here is some history on this one. In 2013 when it got up around $23 I indicated I was not a buyer at that price. The stock then slipped back to $20 to $21. It got back to $23 in April and May of 2015. On February 8, 2015 I rated it a Buy at $21.80. In March it announced a transaction that would increase the distributions by about 9% and that they would sell new units at $22.10. I thought this was good news and bought in several accounts at $22.10. The price then nose-dived all the way to briefly under $16 in early 2016. I believe part of what happened was that a lot of new investors bought at $22.10 and then as it started to dip they increasingly bailed. In any case about 21 months later the price is back above $22. So, those who bought at $22.10 got what they should have expected which was the monthly distributions. AND the market gave us a golden opportunity to add more shares at what was clearly a bargain price and I pointed that out many times in 2016. These units are up 26% this year and paid an attractive cash distribution as well.

With the units back near $23 and with Alberta just starting to crawl back out of recession I now view these units as being fairly priced but not compelling. I would not be surprised if the distributable cash flow is flat or down a percent or two in Q4 and I suspect they will have difficulty increasing the distributable cash flow per share in 2017. In recent quarters there was an added boost in distributable cash flow per unit caused by share buybacks. But they have not bought back any shares since last February and the share count is only down 0.8% from last year’s Q4 and will be about unchanged in Q1 2017. If there is a little drop in distributable cash flows then the unit price could drop. And there is the new headwind caused by higher interest rates. Still, they may be able continue to achieve small gains in distributable cash flows due to strong sales in Ontario and B.C. The bottom line is that these units are reasonable priced but not compelling at this time.

I may decide to reduce my position since about 11% of my portfolio is in these units and I don’t see much reason for the price to rise much.

December 12, 2016 (with an update for Royal Bank)

On Monday, the S&P 500 was down 0,1% and tronto was down 0.2% (despite a rise in oil prices)

CRH Medical was down 6.8% on Toronto. I am not aware of the reasons for the volatility.

CN Rail was down 2.3% apparently after some allegations against it regarding its freight charges – allegations which may be completely unfounded.

The report for Royal Bank has been updated and it is rated Buy at $90.30. I was almost very badly misled into thinking that the analyst forward P/E was 15.7 as shown on Yahoo Finance Canada. That seemed odd as it was a prediction that earnings would drop about 15% and I had not heard that this was expected. But I looked at the U.S. version and saw a forward P/E of 12 indicating a 13% growth in earnings per share. All in all, the numbers still justify a Buy rating on Royal bank shares. (In fact I probably could have said (higher) Buy) The forward P/E error was probably caused by dividing the U.S. earnings expectation in U.S. dollars into the Canadian dollar price. I still view Royal bank as potentially risky because of its high leverage. But other than trimming excess exposures to it, it is probably safe to hold. (But no stock is ever immune to significant declines.)

In my December 10 post I forgot that I has also sold another chunk of Wells Fargo. And today I sold some Bank of America. I have now reduced my investments in U.S. banks very substantially.

Wells Fargo has more bad news today when Prudential Insurance said it will not longer allow Wells Fargo to sell its products. The account-opening scandal could very well cause another plunge in Wells Fargo before it is done. At $55 and certainly at $57 Wells Fargo no longer looked like a bargain and with the scandal still hanging over it, it seemed wise to sell. My only hesitation was I held it in a taxable account. Since I seem to have gotten into a selling mood, I may just clear out the remainder that I have left.



December 11, 2016

The next update will be for Royal Bank. I just read closely through about 100 pages of its massive annual report. The saying “Too Big to Analyse” comes to mind. Last March 6th I added Royal Bank to the site as a Strong Buy at $71.38. I also noted that it was very highly leveraged and therefore potentially risky. I bought only a modest amount as I had very little cash on hand. It’s now risen 27%. Earnings have not risen much and so the numbers would now likely suggest more like a Buy rating. But it also may face an earnings drag as interest rates rise due to mark to market accounting on some of its assets. Any rise in the Canadian dollar would also hurt reported earnings (and vice versa). I think this will end up being a Buy rating.

Canadian bank shares have done extremely well over the years. As a result many Canadian investors may be over-exposed to the banks. Given their high leverage, which does involve risk, it would be prudent to trim positions that are too large a proportion of the portfolio ( but I am not going to hazard a guess as to exactly what percentage is too much). Especially in non-taxable accounts, I would consider trimming if the exposure seems too high.

December 10, 2016

On Friday, the S&P 500 was up 0.6% and Toronto was up 0.1%.

Agrium was up 2.5% to $144.13. I have not looked at its numbers since early this year. I will likely remove it from the site rather than try to update it. It’s proposed merger with Potash corporation has made it harder to analyse. And its value will always depend on the prices of commodities, notably Potash. I would be inclined to sell or at least reduce my position if I still held it.

Toll Brothers was down 2.5%. This company has been increasing its earnings rapidly for the past five years (although with a pause in 2015). Meanwhile the price has been volatile and is no higher than it was four years ago. And, the price is well below the $40 level it reached in 2015. The P/E multiple and price to book multiple has fallen. “The market” does not give it much credit and seems to continue to fear a housing slowdown in the U.S. With a lack of investor excitement, the stock can still “pull itself up by its own bootstraps”. If it keeps on growing its earnings per share the stock price will ultimately rise as the multiples will not continue to go down indefinitely. If at some point, investors get excited about the stock then the price could rise rapidly.

On Friday, I sold the remainder of my TransForce shares at about $35. I have them rated as only a Weak Buy / Hold at $33.15 and I decided to convert this investment to cash to either hold as cash or use for a higher rated stock pick. It is a great company and I would not mind owning it again if the price dropped. It is hard to believe that this stock dipped to $20 in February.

I also sold a bit more of my Canadian Western Bank shares at $32.10. I had rated it only a Weak /Buy Hold at $29.51 partly because the company did not seem to be expecting much improvement in the next year. In any case I only sold shares that I had a profit on and expect to most likely keep a significant exposure to this bank. If I had not sold any shares recently it would now be almost 15% of my portfolio.

With the strong markets it seems like everything I have sold lately has been a mistake. But that remain to be seen over time. My cash position is still only 16% of my portfolio which is not excessive at a time when the U.S. market is at record highs. I am inclined to trim a few more positions and perhaps sell some lower-rated stocks especially in my registered portfolios where income tax is not triggered by selling. After that I will be looking to add to some higher rated stocks unless I already have a high allocation to them.

The average gain on the stocks rated (lower) Buy or higher from the start of 2016 is now 17.7%. And, only 4 of the 24 stocks are down, with the biggest decline being 7%. This is all excluding dividends. I’d be more than happy to reach the end of the calendar year with these figures intact. (The average for the four Strong Buys is 25.4%, led by TransForce at 49%)


Bank of America updated December 9, 2016

Bank of America is updated and rated (lower) Buy at $23.09. This stock is up 37% this year and started the year at $16.83 rated (higher) Buy. On January 20, it was updated to Speculative Strong Buy at $13.69. Since then it is up 69%. And it is up 187% since it was added to this site as a Speculative Strong Buy on March 11, 2012. The thesis in buying this bank was that earnings would improve substantially as it put the financial crisis behind it and its multiples would also increase. That scenario has now occurred to a significant degree. The process of earnings recovery may very well continue and certainly the stock could move toward $30. The historic high on this stock is about $54 back in 2006. But that is of probably zero relevance given that the share count has increased by 176% since then. Some day it will likely get back to $54 but that will have to be justified by its earnings per share and will not be because it was once at that level.


For those that have made large gains and partly for that reason have a heavy exposure to the stock it seems prudent to sell at least half. The stock could certainly also falter if the “Trump rally” unwinds or there is other bad news. I find its disclosure and reports to be nowhere near as good as that of Wells Fargo. Given the significant rise in this stock I am inclined to further reduce my position. I already sold some last month at $19.86 which now seems rather regrettable but was nevertheless a prudent move. If I had not sold any it would now be 10% of my portfolio.

Dollarama, updated December 8, 2016

Our report for Dollarama is updated and rated Weak Buy at $101.27. I continue to view this as one of Canada’s very best managed companies. It is a tremendous success story. But it always seems too richly priced for me. I believe it will now grow earnings at closer to 15% to 20% rather than the 30% rate of recent years.

December 8, 2016

Thursday was yet another positive day on the markets.

The S&P 500 was up 0.2% and Toronto was up 0.4%.

AutoCanada surged 11.3%. I do not see any news to explain that. Possible some analyst “upgraded” it.

Canadian Western Bank was up an additional 2.2%. I further reduced my position today but still have a large exposure to it.

Costco was up 2.4% after releasing earnings

Constellation Software was down 4.1%.

The recent stock markets gains have certainly been a surprise. So, far trimming positions has seemed counterproductive as the market kept rising. Still, it is prudent to trim larger positions and to have some cash available. Markets do not and will not continue to rise in a straight line for any extended period of time. By no means am I suggesting that investors should sell massively at this time to build huge cash positions. But if a 10% position has become 13%, it seems prudent to trim certainly.

It is staggering to look at the gains in many stocks compared to their lows last January/February. Many stocks on our list (and these are by no means volatile penny stocks) have risen in the order of 50% from their 2016 lows. I was doing some modest buying back then. It certainly would have been nice to have had a more reasonable allocation to cash at that time to facilitate buying. There will be dips in the market in future as well and I hope to have a more substantial cash allocation next time.

December 7, 2016

On Wednesday, the S&P 500 was up 1.3% and Toronto was up 0.7%.

Linamar was up 4.0% for a 20% gain since it was added to this site on November 25.

Wells Fargo was up 3.1% and has staged a HUGE recovery from its lows of October.

As of now, 2016 has been a VERY good year in the markets. I would certainly be very happen to see the year end out at these levels.

I plan to have a fairly steady stream of updates in December as we get set for 2017. There is nothing special about each new year except that I have always tracked my performance on a calendar year basis and so I always try to have the ratings as fresh as I can for each new year.


Canadian Western Bank Preferred Share Updated Dec 7, 2016

The report on the Canadian Western Bank Series 5 rate reset preferred shares is updated. At $19.00 these are rated Buy for a dividend yield of 5.8% which however would reset to 4.9% in about 28 months if interest rates remain as they are now and higher than 4.9% if the 5 year Bank of Canada yield interest rate rises from its current 1.00% level.

I own some of these shares and will likely retain them unless I sell to raise cash.


Toll Brothers updated Dec 6, 2016

Toll Brothers (a luxury home builder) is updated and rated (higher) Buy at $32.40. The recovery in the U.S. home building and home prices continues. Due to contracts already signed Toll Brothers has an earnings increase of about 14 to 18% more or less “baked in” for 2017 (barring unusual write-offs or warranty expenses and the like). However, I understand that this current quarter will not show much increase just due to a lull in contracts in Q2 last year which would show up as weaker deliveries this quarter or next. And, we could get a negative reaction when the U.S. increases interest rates. But overall I feel very comfortable owning this company and expect it to do well over the years. Houses remain very affordable in most of the U.S.

December 6, 2016


On Tuesday, the S&P 500 was up 0.3% and Toronto was up 0.2%.

Notable gainers included:

Linamar, up 4.5%

Canadian Western Bank, up 4.7%. Possibly it rose based on two large propane refining projects that the government of Alberta announced yesterday it would subsidise.

Toll Brothers, up 4.8% on their earnings release. I will update this report on Wednesday and it will remain rated somewhere in the Buy range but perhaps no longer a Strong Buy.

December 5, 2016

Monday was another positive day on the markets with the S&P 500 up 0.6% and Toronto up 0.3%.

Notable gainers included Linamar, up 2.6%, Melcor up 4.6% (but on its usual tiny volume) Bank of America up 2.9% and Toll Brothers up 3.9%.

Toll Brothers reports earnings on Tuesday morning and I expect a good earnings report and a good outlook. That should make for a gain in that stock but we shall see what the day brings.

I sold what amounted to 25% of my Canadian Western Bank shares today. I hold it in several accounts and I sold it where I had a gain as it is always psychologically easier to sell from a gain than a loss, even if that is illogical. Most of this is in registered accounts so taxes were not an issue.

In reviewing the cost of CWB is each of my accounts it would be nice if I could easily see what I paid for each batch of shares. With TD Waterhouse I can easily see my average cost in each separate account but not the cost by batch. If for example my average cost was $30 but I had a batch at $24 I might have been inclined to sell an amount equal to the amount bought at $24. I would only be able to see if I had a batch at say $24 by digging through statements. So, it seems that the likes of TD Waterhouse could improve their system. For one thing they only show about a month of history in the transactions for each account and it would be nice if that was at least 90 days and better if it was at least several years. (I’ll out this on Christmas wish list.)

December 4, 2016

On Friday, the S&P 500 was about unchanged, while Toronto was up 0.2%.

Canadian Western Bank (see the update) fell 2.6%. Presumably the Q4 report was considered less positive after analysts had more time to review it.

AutoCanada was down 3.5%. I may add to my position.

The jobs reports in Canada and the U.S. were moderately positive on Friday.

I have not been following or paying attention to the referendum that took place in Italy on Sunday. The people voted “no” to certain reforms and the Prime Minister is resigning.

The result is viewed as negative for markets. S&P 500 futures are down modestly on the news.

One positive is that the Euro is lower and so vacations to Europe are getting cheaper.

Canadian Western Bank updated Dec 4, 2016

The report on Canadian Western Bank is updated and rated Weak Buy /Hold at $29.51. I had last rated it Buy on September 4 at $26.46. The price is only 11.5% higher now, but the earnings were down in Q4 and the valuation ratios are less attractive for both reasons. Even with the recent pipeline news and the higher oil prices. it looks like 2017 will be a weak year for the bank.  It will still likely do reasonable well long term.

I am over exposed to it as I added shares at lower prices last last year (September 3) and this year January 7, February 24 and June 27. Given the lower rating and given that I am over exposed to it and given that I do have profits on the more recent purchases I intend to trim this position by as much as one third. In retrospect I bought too many CWB shares at prices in the $30’s as it fell from a peak over $40. Until now, I basically considered it to be on my “No Sell” list but given the price recovery this year (up 26% this year) it is timely for me to trim this one.


December 1, 2016

Thursday was a mixed day in the markets as the S&P 500 was down 0.4% (even as the DOW was up 0.4%) and Toronto was down 0.4%.

Some of the notable gainers included: Linamar up 5.4%.  Canadian Western Bank up 3.9% after releasing its Q4 earnings prior to the market opening. Wells Fargo up 2.7%.

It’s not on our list anymore but Liquor Stores N.A. was up 5.0%. I remain skeptical of this company. For several years under current management they seemed to believe that the solution to their low profits was marketing. To that end they hired four expensive V.P.s mostly Americans as I recall. But the issue I saw was excessive competition and the competitors had lower prices. (Competitors included Superstore and Costco and also some smaller aggressive little chains of stores) Now, finally, they have lowered their prices and are doing price matching. I don’t think that will work given that their cost structure seemed too high. (It will increase sales but not likely profits) They do however have the advantage of scale so maybe… But I am not convinced. If I owned it, I would sell.

Stocks on the decline included: Melcor down 2.9%, Heineken down 3.6%, Couche-[Tard down 2.9% and Visa down 2.4%.

Statistics Canada reports that capital expenditures for the oil and gas extraction industries totalled $9.3 billion in the third quarter, down 29.8% from the third quarter of 2015. To me, the surprise is that capital spending is still running at over $36 billion per year (The peak was around $80 billion, for context, higher than the budget of the Alberta government and completely unsustainable). If oil prices and also natural gas prices were so low why was so much money continuing to be poured into capital spending? I suppose much of it was on projects already underway that could not be stopped. Also there would be maintenance capital expenditures that could not be deferred. The good news (for the economy) here is that there was/is still a lot of activity in the energy patch. A lot of capital spending and of course most of the operating spending continued. Really, the energy recession in Alberta could have been a LOT worse. It was royalties and profits and taxes that took the biggest hit by far. Employment took a hit but could have taken a far larger hit. In any case, the energy recession now appears to have hit bottom and spending is likely to increase if oil remains above $50. Although, once the current large oil sands projects are done we may see a large step decline in capital spending from this industry that will not come back anytime soon if ever.

November 30, 2016

Wednesday was a positive day for the Canadian stock market as the members of the Organization of Petroleum Exporting Countries agreed to curtail production somewhat. This boosted oil prices by about 8% to $49.44. The Toronto Stock index rose 0.5% while the S&P 500 was down 0.3%.

Individual stocks on our list that rose included: Melcor up 3.1% and Agrium up 2.6%. U.S. bank stocks rose with Bank of America up 4.5% and Wells Fargo up 2.0%.

Royal Bank was down 3.4% as its earnings apparently were somewhat lower than analysts had expected.

Statistics Canada reported GDP figures for September and Q3. Most sectors of the economy grew modestly in September and Q3.

Given the pipeline approvals and given the somewhat higher oil price, I believe that the recession conditions have bottomed in Alberta. I believe GDP growth will be positive in Alberta in the coming quarters.

November 29, 2016

On Tuesday, the S&P 500 was up 0.1% while Toronto was down 0.1%.

Oil was down about 4%.

CRH Medical was up 6.8%, partially recovering the big decline of Monday.

Toll Brothers was up by 1.5%.

Bank of Nova Scotia’s earnings were higher than forecast.

The big news today came after the close of trading as the Federal Government approved the Kinder Morgan Tran Mountain pipeline twinning project (which had not been a sure bet) and the replacement of Enbrige’s line 3 (as fully expected). The Northern Gateway pipeline was rejected to the surprise of no one. The Prime Minister praised Alberta Premier Notley and indicated that Trans Mountain would not have been approved in the absence of her carbon tax. There has been a lot of vitriol against Notley. This SHOULD change that but likely won’t because the sort of people who are the most venomous regarding Notley are not the sort of people that would ever be satisfied.

This seems VERY positive for Alberta. Trans Mountain will take years to build but this approval should add a lot of confidence to the oil patch. And construction and related jobs should materialise shortly. Quite possibly some of the Alberta stocks on our list will rise on this news.

I certainly feel better about this made-in-Canada solution to the lower Canadian oil prices than I do about waiting for the OPEC cartel to rescue Alberta. The Trans Mountain pipeline will help to reduce the discount that Alberta oil faces due to lack of export capacity. And, assuming the forecast Alberta oil price is high enough it should spur added investments in  Alberta oil production or at least prevent certain existing projects from closing down. I wonder though how OPEC will feel about the added export capacity.

I updated my TSX valuation article today. Unfortunately, the TSX actual trailing earnings are at such a low level that they cannot possibly represent a normalized level of earnings which could then be forecasted to grow with the economy. And the past TSX earnings are so volatile that it is really difficult to decide what level of earnings would represent a trend line level of normalized earnings. I picked a number but it is only a rough estimate.

My overall conclusion is that the TSX index is simply not a diversified index in the way that the S&P 500 index is. To get equity exposure to Canada would seem to require something beyond investing in a simple TSX index ETF. At least a handful of ETFs would likely be needed to cover different sectors. Of course, my approach, and probably yours, is to select individual stocks.



November 28, 2016

On Monday, the S&P 500 was down 0.5% and Toronto was down 0.4%.

CRH Medical corporation was down 16.2%. It had had a good run. I did not see any news behind the decline but it is a small company and volatility probably comes with the territory.

Bank of America was down 2.7% and Wells Fargo was down 2.0% as the Trump bump is probably unwinding a bit.

AutoCanada was down 0.7% despite announcing the purchase of another dealership in Ontario. I would think that the purchase confirms that the company believes it is strong financially and that its growth-by-acquisition model will continue.

I bought shares in Linamar. Possibly I took too large of a position too soon but I do like to show the courage of my convictions.

The market has gained a LOT since the U.S. election and it is perhaps easy to get over confident. Investors should guard against that.


Linamar added as Strong Buy November 27, 2016

Linamar is added to our list as a Strong Buy at $51.09.

With very strong recent earnings growth and a P/E of 6.7 the numbers suggest this is a strong Buy. This 6.7 seems particularly low given the U.S. stock markets are at a record high with average P/E closer to 20. However, this is my first look at an auto parts company and I do not claim any ability to predict auto sales. This is a somewhat cyclic company in terms of earnings and a HIGHLY cyclic company in terms of the share price. I am also not familiar with its long term history. “The market” apparently believes that its earnings growth is about to stall out and that earnings will be lower in 2017 than in 2016. Based on the numbers, I intend to buy shares Monday morning. Given that it is cyclical, perhaps one has to be prepared to hold for the long term and/or to add to the position on dips.

November 27, 2016

On Friday, the S&P 500 was up 0.4% to another record high. Meanwhile, Toronto was unchanged for the day.

TransAlta was up 17.1% and is up 32% since I mentioned on Monday evening last week that it might be a good speculative pick despite being a horribly managed company. I called this well but probably put too much focus on their poor track record. I did not buy any shares(partly because I had little Canadian cash to do so). That does not bother me much as I think it really does remain a poor company.

November, 2016

On Thursday, the U.S. equity markets were closed for the holiday while Toronto ended the day about unchanged.

TransAlta, which I mentioned on Monday evening as a possible speculative pick was up 7.7%. The increase was related to news that TransAlta (and some other power companies) will receive some compensation for coal-fired power plants that are being forced to close before the end of their useful lives. The compensation is tied to the book value of the power plants.

From what I can see, this news came out only after the end of trading which would mean that the 7.7% rise today was the result of the news leaking out (the trading upon which is illegal). There could be a further gain tomorrow.

Capital Power only rose 2% on the (apparently leaked) news. This makes perfect sense. TransAlta trades at less than book value and therefore being compensated at book value is a bonus. Capital Power, I believe trades above book value and so receiving just book value would not be such good news (although it is far better than no compensation). But there was also related bad news for Capital Power in terms of a payment it must make to the government.



November 24, 2016 11:10 am eastern

As of now, the post-election party in the markets continues for most stocks. (Update 12:15 eastern  with U.S. markets closed we don’t know if stocks in the U.S. would have matched the small gain seen in Canada today.)

This morning Statistics Canada is out with a very positive report about Canadian corporate earnings in Q3. The energy industry continued to post losses but most other sectors had increased profit.

November 22, 2016

U.S. stock indexes set new record highs again today.

The S&P 500 was up 0.2% and Toronto (which is not at a record high) was up 0.4%% (on thin volume, as always

Notable gainers included Canadian Western Bank up 2.8%, Stantec up 2.9%, Melcor up 3.8% (on thin volume, as always).

Not many stocks on our list declined, but AutoCanada was down 2.5% and has not participated in the gains that most Alberta-linked companies have had lately.

With many of our stock picks up so much in the past two weeks, I would be inclined to trim some positions and raise cash. The difficulty is that I hold few or no stocks that I think are at all over-valued. Still, some sales would be prudent and could also facilitate adding to those stocks that seem most under-valued.

Statistics Canada reported retail sales figures for September. Alberta had a slight gain including a gain in sales  at auto dealers. AutoCanada has already reported Q3 sales. Still, this report is positive and shows that in terms of consumer spending, the energy recession has not had a very big impact in Alberta, at least not yet.

Statistics Canada also reported figures for investment spending on new home construction in September. “In Alberta, spending fell 29.0% from the same month in 2015 to $681 million in September, the 15th consecutive month of year-over-year declines. All dwelling types contributed to lower investment in new housing construction, with investment in apartment buildings and single-family dwellings accounting for most of the decrease.” Single-family home investment (construction) in Alberta was about $400 million in September which is down from $672 million two years ago. For Melcor the issue is new lot sales builders which are down even more as builders would tend to use up any existing lots they have and are no drought cautious on buying new lots. I suspect that it is typical now for a builder to wait until they have a contract to build a home before they purchase a lot. I will check into that. The good news is that there is still some home building going on. Even in a recession, there are always some people who want a new home built.

I noticed Amaya gaming was in the news today with a report that one of the indicated investors involved in an attempt by the former CEO (and I believe founder) David Baazof to take the company private through a take-over offer. I have mentioned before that I would not trust either Amaya or (especially) David Baazof. He has been charged with insider trading. And Poker Stars which Amaya bought a few years ago has a checkered history. I would simply stay away from a company like this.

November 21, 2016

Returns are bustin’ out all over… The U.S. stock market indexes are at record highs.

The S&P 500 was up 0.7% (to a new high) and Toronto was up 1.2%.

Most of the stocks on our list were up today.

I added once again to my Melcor Development position today.

Consider Melcor’s share price versus its past earnings. Melcor closed today at $12.62. In the five years ended 2015 its GAAP earnings per share totaled $14.05. And its adjusted earnings per share totalled $9.51. So the stock is trading at 6.6 times its average adjusted earnings in the past five calendar years. On its face that is very attractive. But Melcor’s adjusted earnings in the latest four quarters are only $1.07 and quite possibly will be lower still for calendar 2016. And certainly calendar 2017 could see lower earnings. So, Melcor seems very cheap in relation to past earnings but we don’t know if or when it might once again start earning like it did in recent years. But my thinking is that these past earnings combined with its low price to book value ratio and reasonably strong balance sheet point towards a potential for a strong recovery in the share price (eventually, that is).

I also added to my Toll Brothers position today since it seems quite attractive.

It was announced today that Canada would attempt to phase out coal-fired power plants buy 2030, with certain exceptions. Alberta had already committed to that. One of the companies affected by this is TransAlta. The company indicates that 80% of its plants in Alberta are old and were due to retire before 2030 in any case. But it does have some plants that are affected by the rule. I don’t know if there will be any government compensation. If there is this could work out well for TransAlta investors since from what I understand the share price is already putting little or no value on those plants and instead TransAlta is valued for its part ownership of a related but separate company, TransAlta Renewables. Also TransAlta indicates it will be allowed to convert some of the retired coal plants to natural gas and do so on a cost effective basis. So, the bottom line is that TransAlta might be reasonable speculative pick even though I consider it to be one of Canada’s most profoundly poorly managed large companies.

November 20, 2016 Toll Brothers

Toll Brothers stock price has declined in the past three month and remains well below where it was in 2014 and 2015. And, it did not benefit very much from the Trump bump.

I suspect that there are fears that higher interest rates will lead to a slowdown in new home construction. But interest rates are expected to remain quite low even after the increases. And housing affordability in the U.S. is strong. There could very well be a surge of buyers hoping to beat the interest rate increases.

This weakness in Toll Brothers’ stock price (and that of home builders in general) was not much affected by positive data reported on Friday morning. The summarized the new data as follows:

Housing starts surged by 25.5% in October to an annual rate of 1.32 million units. Single-family housing starts rose by 10.7% to a seasonally adjusted rate of 869,000 units. Data on homebuilding was firm in November and October. The National Association of Home Builders reported that the Housing Market Index stayed at 63 in November.

So, housing starts are “surging” while Toll Brothers stock languishes at a low P/E level and low premium to book value. And Toll Brothers adjusted earnings have been increasing and there appears to me to be a 15 to 25% increase baked-in for the next year based on home building contracts already signed. While there are never any guarantees this looks like a clear investment opportunity to me. It may be a bargain hiding in plain sight.

November 19, 2016

On Friday, the S&P 500 was down 0.2% and Toronto was up 0.3%

Canadian Western Bank was up 2.7% to $27.69. While I think it offers good value at this price, it is interesting to see this stock rising while Melcor Developments continues to decline. One major difference is that Canadian Western Bank is a vastly more liquid stock and has much more interest from analysts. Canadian Western Bank has an equity market value that is close to 6 times larger than that of Melcor but its trading volume is 36 times higher.

Based on an order I had placed a couple of weeks ago, I added modestly to my position in Melcor at $12.25 on Thursday.

AutoCanada was down 2.7%.

Statistics Canada reported CPI figures for October. The report indicated that food prices declined in September and are down 0.7% year over year, the first decline since January 2000. This news brought out some howls of disbelief. There are always those who simply will not trust the government’s numbers. I have no reason not to trust them and in any case there is nothing better available. Those who don’t believe the numbers should first spend some time digging into the details available in the CANSIM tables. There they can see in great detail exactly which categories of food prices went down in October and which went up. However, many people have a strong preference to believe what they want to believe and are not interested in mere facts.

What Alberta Recession?

Today, I was out in the shopping area of my community (a suburb of Edmonton). The stores were busy, the roads were busy, the parking lots were nearly full. Somehow, someway, the economy rolls on and consumer spending continues apace. I am sure the figures will show some little slowdown, but it’s not much.

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 level 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.


November 16, 2016

On Wednesday, the S&P 500 and Toronto were each down 0.2%.

The biggest decliner on our list was Bombardier down 4.5%.

Bombardier has issued new bonds paying 8.75%. According to news reports “The company said it intends to use the net proceeds and cash on hand to redeem its outstanding 7.50 percent senior notes due March 2018 and 5.50 percent senior notes due September 2018.”

Borrowing at 8.75% to pay off debt that costs 7.5% and 5.5%… The brilliance of this is lost on me.

I have not seen any information on how retail investors can buy these bonds. These bonds are some six “notches” below investment grade and so it may be that the discount brokers were not willing to sell these to clients. Possibly, the bonds will go to institutional investors.

Statistics Canada reported a modest improvement in manufacturing sales in September. The low Canadian dollar should keep that story going.

November 15, 2016

On Tuesday, the S&P 500 was up 0.7% and Toronto was up 1.1%.

Some of the U.S. bank shares continued to rise but Wells Fargo was down 1.2% probably due to its unique challenges at this time. yields stopped rising today. It may be that the Trump impact on bonds and stocks is over, at least for now.

Element Fleet was down 6.9%. The former Element Financial recently split into Element Fleet and ECN Capital. I reported I had lost faith.

AutoCanada was up 3.7%. Statistics Canada reported motor vehicle sales for September. Alberta sales at 20,734 were considerably better than August’s level of 18,786 but were down 10% versus September 2015 and down 21% versus September 2014. These figures may indicate that motor vehicle sales have stabilised in Alberta albeit at some 21% lower than 2014. My understanding is that AutoCanada continues to be profitable in Alberta at these sales levels, with the exception of a few of its hardest hit dealers. And motor vehicle sales for the county as a whole were down 1% versus last year and up 3% versus 2014. So the car dealer industry as a whole across Canada remains healthy in terms of sales volumes.

Oil was up about 4% as on-again, off-again rumors that OPEC would start to become effective once again in colluding to push oil prices higher were on-again at least for today. It’s sad that Alberta has to pin its hopes on such collusion. But meanwhile the Alberta oil industry is adjusting to lower oil prices which is a better strategy than hoping for OPEC to come to the rescue. And, it’s possible that new pipelines will alleviate the discount that Alberta producers face due to lack of export capacity. I believe the industry in Alberta had been spending vastly too much on new developments particularly in the oil sands and that level of capital spending will not return. Therefore, Alberta’s economy will likely return to only modest growth even after the current contraction has run its course. But there will likely be some growth and Alberta is not likely to see continued retraction in its economy over the next few years.

Teranet reported its house price index for October. Calgary and Edmonton home prices continue to hold quite steady in recent months. Edmonton is steady over the past year while Calgary is down modestly.


November 15, 2016 11:10 am eastern Enbridge 5.15% rate reset

Enbridge is out with a 5.15% rate reset preferred share that features a minimum 5.15% upon reset. That minimum provides protection in the event the 5 year Canada bond falls back. These could prove unattractive if rates really soar but there is  not much sign of that. I just placed an order for some. In part, I think these IPOs play on the emotion of scarcity since they are likely to sell out fast. It forces me to act faster than I would like to.

Those who wish to take advantage of such IPOs should register for alerts from their broker as the better IPOs sell out very quickly. (Unfortunately, there is not much time to think about it).

November 14, 2016

Monday was a bit of a mixed day in the markets as some stocks had notable increases while others had notable decreases. The S&P 500 was flat on the day while Toronto was up 0.3%.

Canadian Western Bank was up 4.0%. I did not see any news to explain that. After the close CWB announced that it would redeem at par its $105 million of Trust Capital Securities which had been paying 6.2% since 2006. These securities apparently had previously been of some advantage in terms of calculating its capital for regulatory purposes but the rules have changed. The interest rate had been set to decline to bankers acceptance plus 2.55%. These securities had been privately held by institutional investors and did not trade on any exchange. This appears to be a positive development in that CWB is redeeming what was a relatively high cost funding source.

Bank of America was up 5.6% to $20.08. My last update of the company had rated it a (higher) Buy at $15.38 only six weeks ago. Given this sudden rise I sold what amounted to 40% of my position at $19.86. The remaining shares still represent about 6% of my equity position. I was up about 80% in U.S. dollars on the shares sold (which I had held for several years).

Wells Fargo was up another 2.9% to $53.22.Ten days ago this stock had closed at $44.60. And in early October it got as low as $43.55. That is a remarkable turn around fueled solely by the Trump effect.

I would think that this Trump rally must now fizzle and possibly reverse. That is perhaps anyone’s guess but I feel good about having sort of leaned against the rally by selling down some positions which has now given me a cash position in excess of 10% whereas I had been near 0% for quite some time. I don’t necessarily want to rush to completely sell down these winners but certainly some reduction was prudent.

Visa Inc. was down 4.3% to $78.38. I did not see a reason for this but I am sure the analysts have come up with some negative scenario. Certainly VISA’s foreign earnings will be hurt by the higher U.S. dollar. In any case my last rating on it was lukewarm at best as I called it a Weak Buy at $78.94 in late July.

Constellation Software was down 3.3%.

The Canadian dollar is down to 73.8 cents. At this point I am definitely tempted to begin moving some cash back into Canadian dollars. Unfortunately, most of my investments are in RRSP accounts where I am captive to high exchange fees of about 1.4% in each direction. I could try the Norbert Gambit but I have found it to be inconvenient in the past and TD also extracts a high trading fee to do it.




November 14, 2014 10:30 am

TransCanda is out with a 4.9% minimum rate reset preferred share. That seems attractive for a portion of most portfolios. At the moment it was not sold out but likely will sell out very quickly.

U.S. bank shares are up sharply again today. Those holding larger positions might want to consider trimming those positions on this news, especially Wells Fargo which faces unknown fines and troubles due to the unauthorized account opening scandal.

Rate reset shares have increased somewhat due to the recently higher Canada 5 year bond yield. But they may not have reacted fully to the change and many of the issues that are well be $25 and that have at least one year before they reset could certainly increase further if indications continue that interest rates will finally rise. The Canadian Western Bank rate reset share on our list would be an example at its current price of $19.30.


November 13, 2016

On Friday, the S&P 500 was down 0.1% and Toronto was down 1.3%.

Dollarama was down 3.4%. It never seems to be cheap but I’d rather buy it on a dip than after a surge.

Toll Brothers was down 1.6%. I may add to my position.

The breakdown of my own portfolio has been updated.

As of now, 2016 has been a good year for the markets. Toronto is up 12% and the S&P 500 is up 6%. And that excludes dividends.

Statistics Canada reported on the index of new home prices. So far new home prices in Alberta have held up very well with only very minor reductions.

Melcor updated and maintained as Strong Buy – Nov. 12, 2016

Our report on Melcor Developments is updated as a Strong Buy at $12.89. This stock is down 11.5% in 2016 and was down 26% in 2015. And its main business of selling residential building lots is down about 60% in 2016 to date. And any recovery in the business of selling building lots may be some ways off. That’s the bad news. But the good news is that the stock is selling at just 44% of book value. On an enterprise bases (debt plus equity) the company is valued at 66% of the book value of the equity plus debt. And with half of tis assets in the more stable business of commercial rental buildings and with a reasonable debt level, the company is well positioned to easily survive this period of lower revenues. Unless Alberta is going to be in a severe and very prolonged recession, it seems reasonable to expect that this stock will eventually turn out to be a very good investment at this price. But it may continue to require patience. The stock is very thinly traded and is not without risk. Despite this decline the stock is up 258% since it was added to this site in December of 2002. It’s my largest personal position and I am tempted to add to my position.

November 10, 2016 12:45 pm eastern sold some Wells Fargo

Markets are up strongly again today. With Wells Fargo up 6.6% and given its recent troubles and given there may be better stocks to own, I sold more than half my Wells Fargo today. First I sold the small amount in registered accounts. Then, with trigger finger somewhat primed, I decided to let go of half of the amount I held in a taxable account. I hesitated to sell as it will trigger paper work for taxes and the payment of taxes. But I will retain a fairly heavy allocation to Wells Fargo and this frees up cash for other uses.

I can’t predict market rallies. But I can react. My reaction to the increases of the past few days is to be inclined to trim just a little. I am not predicting it, but it is certainly possible that the gains of the past two days are just a little honeymoon for the Trump election.

November 9, 2016 – A Surprise Market Bounce

Few people would have predicted that stock markets would rise on a trump victory. The S&P 500 was up 1.1% on Wednesday and Toronto was up 0.7%. And that was on top of strong gains in the U.S. on Monday and Tuesday which were thought to be attributed to a pending Clinton win.

Futures markets were down close to 5% last night. This is market where the vast majority of retail investors do not participate. This mostly larger and supposedly smarter players. As of now, it appears that they were massively wrong.

Trying to guess major market moves in advance is probably just not a reasonable strategy. Better to have an equity exposure you are comfortable with and then lean somewhat against the market AFTER it moves. Buying low and selling high REQUIRES going against the market to some degree.

Today’s rally may or may not last. It is always possible that the market will turn if it concludes that Trump was serious about all his plans. Not just the ones the market likes. I am not going to try to predict any such moves. Rather I will continue to buy or hold what appear to be good companies available at good or reasonable prices. I avoid stocks that appear to be unreasonably high in price.

Individual winning stocks today included Stantec up 12.1% and Wells Fargo up 5.4%, and Bank of America up 5.7%.

Melcor Developments reported results after the close. Earnings are lower than in Q3 2015. But the company is still profitable even during the Alberta recession conditions. I will update the report after a full reading of its results and after I see how the market reacts.


November 8, 2016 -Trump Wins

My strategy would be to buy the likes of Berkshire and Costco on the dip.

This result is more proof that predictions are very hard. A more realistic strategic is just to react to events rather than try to predict things like this.

The economy and the markets have lived through far worse events than this.




A comment on Valeant – November 8, 2016

I am not surprised by the continuing steep decline in the price of Valeant. In the case of Valeant, the potential bottom is zero. This is because its debt may be larger than the market value of its assets.

In late July 2015, several weeks before it peaked, I added Valeant to this site as a Sell at U.S. $253.91 or Canadian $331.

I noted then that “I rate this a Sell based on valuation and also the fact that I have trouble trusting management due to their aggressive approach to calculating adjusted earnings or “cash EPS” and also their aggressive approach to avoiding income tax.”

Subsequently I learned how they were so aggressive in raising prices (I was initially unaware of that as price increases were barely mentioned in their annual report) and it seemed clear that they were even more unethical than I had thought.

By the end of 2015 it was down about 60%. As of now it is down 94% (6% more from the original price and we hit zero).

On March 15, 2016, I mentioned that Valeant could conceivably go to zero.

On August 9, 2016 with the price at Canadian $36.88 I mentioned: “I note that Valeant jumped after saying  it will sell assets to reduce debt. I would not get too excited about that until we see if they can sell assets for more than they paid or not.”

Today, it is clear that their asset sales will indeed involve huge losses. I have not updated my analysis but given their huge debts compared to equity, I would think that insolvency is possible.

Valeant was one of those cases where it seemed predictable that the stock would fall. And it was clear to me that there were reasons not to trust management. It has played out worse than I expected when I first looked at it, but from the outset it was clear to me that it was risky due to its very weak balance sheet and my concerns about the ethics of management.


November 7, 2016

Markets were very strong on Monday as most investors decided that the end of the FBI’s email investigation, announced Sunday, means that Clinton is more likely to win. The S&P 500 was up 2.2% and Toronto was up 1.0%.

Most stocks were up today.

I am looking forward to the upcoming Q3 report from Melcor Developments. I believe that the market has overreacted to its decline in earnings. Melcor is in the cyclical business of selling home building lots. This is a business that can withstand a decline in sales better than most business. When lot sales are down Melcor can cut back on “production” of lots (development of raw land). Is contracts out the physical work of development and therefore its costs are variable in that regard. It can hang onto developed lots and sell them later. It does face carrying costs on money tied up in unsold lots but it is able to do that. Clearly, lower lot sales is quite negative. But I don’t think it justifies the shares trading at less than half of book value.

Melcor may also report mark-to-market losses on its investment properties. This would be a partial reversal of the gains it has booked in recent years.

Overall, Melcor’s earnings report is likely to weak, and its near-term outlook is also likely to remain weak. But I believe the weakness has already been over reflected in the stock price.

Toll Brothers continues to expand and today announced the acquisition of small home builder.

It’s interesting to see how Berkshire’s earnings were reported in the business press. The early and less informed headlines focused on the 24% drop in GAAP earnings. The later reports were more informed and focused on the 7% increase in operating earnings. One report speculated that lower investments gains were due to a decline in Wells Fargo. This is completely uninformed since changes in the value of the stocks of companies it owns are not reflected in GAAP earnings. From my perspective it is a very good thing that some investors and analysts greatly misinterpret financial reports since it can lead to mis-pricing of stocks resulting in better buying or selling opportunities.



November 6, 2016

On Friday, the S&P 500 was down 0.2% and Toronto was down 0.5%.

Stantec was down 3.7% to $29.09 ahead of its Q3 earnings. It may face some unusual costs in relation to recent large acquisitions. But I believe it will be a good investment at this price.

Costco was down 1.5% to $142.24. I would consider buying a small amount at this price. It’s still not cheap but it rarely ever gets cheap.

The Canadian employment survey was released and was relatively positive.

The FBI today signaled that its new investigation into Clinton’s emails will not result in charges. This could be enough to push momentum back to the Clinton camp. This should also be positive for stocks on Monday.


AutoCanada update November 5, 2016

AutoCanada is updated for its Q2 earnings release and rated Buy.

The earnings results were disappointing and the stock was down 3.0% on Friday and had been down about 7% Friday morning before recovering somewhat during and after the conference call.

This growth-by-acquisition company was once a high flier and reached a needle peak of over $90 in 2014. The stock price has been hammered down due to its concentration of auto dealerships in Alberta. Earnings per share have also declined but not nearly as much as the stock price.

In retrospect, I was too early in adding it to this site as a Buy at just over $40 in 2015. But the relevant question now is whether it offers good value and strong potential returns at its current price.

Despite a drop in its sales and earnings and despite a few unprofitable dealerships it remains strong financially. The company continues to grow by acquisition. It is likely trading at a value that is lower than the amount it could receive if it sold off all its individual dealerships to private owners. In 2014 it was trading at well above such a level.

I believe that the indications are that this company does represent good value at this price. I added to my position on Friday.


US Election

November 5, 2016

Hello All,

You may have noticed that North American stocks have been falling quite consistently lately. In fact, the US S&P 500 has fallen for 9 days straight, the most in 36 years. In light of the surprising Brexit vote, people are obviously quite scared that Trump might actually win the US election.

Read more

November 4, 2016 (8:30 am eastern)

On Thursday, the S&P 500 was down 0.4% and Toronto was down 0.1%.

Canadian tire was up 2.4%.

AutoCanada was down 1.7% and then reported earnings after the close. Adjusted earnings were down 25% and there was a loss after a substantial write-off of goodwill. However, the company remains profitable and continues to plan further acquisitions including in Q4. Excluding the goodwill write-off the company remains profitable. I will update the report and rating for this company after I see how the market reacts today. Given the energy recession in Alberta, the market should not be surprised by the lower earnings.

November 2, 2016

On Wednesday markets were down as oil prices were down and as fears of the election outcome put downward pressure on stock prices.

The S&P 500 was down 0.7% and Toronto was down 1.2%.

AutoCanada was down another 3.0% to $21.42. I added modestly to my position today to take advantage of the lower price. They will report earnings Thursday after the close.

Costco reported October same store sales up 2.0% (adjusted for gasoline prices and currency impacts). This growth is not bad but is probably lower than the stock is pricing in.


November 1, 2016

On Tuesday, the S&P 500 was down 0.7% while Toronto was down 0.1%.

There were no particularly noteworthy moves in the stocks on our list.

Statistics Canada reported August GDP up 0.2%. That is not an annualised number. Overall the report was neither particularly positive nor negative.

The Q3 earnings reports continue to come in and, as always, can move individual stocks.

Beware the email scams

I am a day late to talk about tricks, but watch out for the following one:

I am getting emails purportedly from Canada Revenue with an interact transfer of a refund owing to me.

It might be easy to fall for it in a weak moment if you are expecting a refund. And anyone in particular need of money will be more vulnerable, I suspect.

I think most or all of you would agree that Canada Revenue would never send money by an interac transfer. They use direct deposit or cheque (though they are trying to phase out sending cheques).

This is one of the more legitimate looking emails scams. Be careful. We are all vulnerable in a weak moment when perhaps we were fully expecting to receive money from an organization and there it seems to be.

One little tip is to hover your curser over the “link” they provide. The actual link is usually different than what the text shows or the first part of the link is legitimate but then the end part is suspect and not the real organization, whether Canada Revenue or others.

Overall, I have been on the internet about 20 years and never been scammed but we all need to be careful as the bad guys get trickier.


October 31, 2016

On Monday, the S&P 500 and Toronto were each about unchanged.

Constellation Software was up 3.9%.

TransForce was up 2.8%.

Both TransForce and Constellation have been excellent investors over the long term following a growth-by-acquisition strategy. TransForce has a period of sickening losses from 2006 tto 2009, but has more than recovered all of that loss and also paid dividends. Anyone who bought near the lows in 2009 and has held has had a spectacular investment despite some volatility since then.

AutoCanada was down 3.7% to $22.05. It will release earnings on Thursday. I would definitely consider adding to my position at this price and in fact did by some on Friday in an account I manage for a family member.

Melcor was down to $12.40. I think people are sort of giving away their shares at that price but time will tell if that is correct.

Oil was down about $1.84 today which may explain the negative sentiment for Alberta-linked stocks.

Statistics Canada reported food services and drinking sales for August. These were down in Ontario but up in 1.4% Alberta despite the energy recession.

October 28, 2016

TransForce is up 7.4% to $29.17 on its news that it is making another large acquisition. It’s been a great investment this year given that it got under $20 early this year. They were smart to have bought back substantial shares around $21 earlier this year.

AutoCanada is down 6.9% to $22.65. I did not see any news to explain that. I suspect that AutoCanada will do well over the years.

October 27, 2016

At mid-day Toll Brothers was down another 2.0% to about $27.50. I have almost no U.S. cash available but used what I have to add to my Toll Brothers position. Perhaps I am just being stubborn but I do like to show the courage of my convictions.

I also considered selling some Wells Fargo in favor of more Toll Brothers. But most of my Wells Fargo is in a taxable account and has a large gain since I bought it. I am not inclined to create the work of reporting a gain and don’t want to pay tax so I will not likely sell any in the taxable account. I might lighten up in the non-taxable accounts where I hold it. I have 10% of my portfolio in Wells Fargo. If that fell by half it would be very painful but not disastrous for me. I have a high tolerance for volatility having lived through much volatility only to emerge with a higher portfolio eventually and even most (but not all) individual stocks that I own that crater eventually come back. How far could Wells Fargo fall or will it drop at all? I am sorry but I don’t know. Neither does anyone else. I try to buy/own stocks that appear to be undervalued based on analysis. There are never any guarantees but it tends to work out well over time.

(I wrote and posted the above mid trading day and the remainder of this post after the close)

P.S. I did end up selling some of my Wells Fargo about 90 minutes before the close as it was up a bit and would free up cash for potential purchases.

On Thursday, the S&P 500 was down 0.3% and Toronto was up 0.2%.

CRH Medical was up 5.3% in the U.S. and 3.1% on Toronto. This came after its earnings release this morning.

Canadian Western Bank was up 1.9%.

Constellation Software was up 2.0%.

Toll Brothers was down 3.1%. A recent story on Pulte homes said this of the home building industry: “U.S. homebuilders are struggling to keep up with rising demand as land and labor costs increase, squeezing their margins.”

…so the market is taking “struggling to keep up with rising demand” as a negative? It seems to me that is higher costs due to being so busy led to lower costs then that is easily fixed with higher prices – which rising demand can support.  I would have no concern with lower margins if it was accompanied by higher sales and higher earnings per share.

TransForce is making another sizable acquisition financed by cash and debt (no new shares to be issued). This continues the successful growth-by-acquisition strategy.

October 26, 2016

On Wednesday, the S&P 500 was down 0.2% and Toronto was down 0.4%.

CN Rail was down 3.8% after its earnings release.

Heineken was down 3.6% as it announced 3rd quarter sales volumes and earnings and that it would be hurt by currency fluctuations. I would consider adding to my position on dips such as this.

Boston Pizza closed up slightly at $22.08. It was about 19 months ago that they had a share offering at $22.10. After that the units declined and very briefly were just below $16 in January this year which was a great buying opportunity. For those who bought and held it, this entity has done what we would hope. It is spitting off 6.2% and anyone who bought at $22.10 has received 19 months of dividends and could now sell for essentially the same amount they paid. Despite fluctuations I expect these units to hold their value over the years while continuing to pay the dividend. So, the 6.2% is an attractive yield for those who can commit to holding the units for at least several years. Of course, it is possible that the units could drop back again especially if interest rates rise a lot or if the restaurant sales drop more than a couple percentage points at any time. But I don’t expect interest rates to rise very much anytime soon and I expect Boston Pizza’s same store sales to rise most quarters but not every quarter.

Regarding Wells Fargo’s woes it is hard to say what to do. If someone has none they might want to buy a little amount for speculation. At the same time if you hold a LOT of Wells Fargo you might want to reduce the position. Former employees continue to come forward with tales of poor treatment by management. It all needs to be thoroughly investigated by an outside party. It’s not at all clear that the current (and brand new) CEO will keep that job. Warren Buffett has not yet said anything. He has said he is not saying anything about the election or this or anything else until after the election. People are digging up stories now that prove that concerns about unauthorized account openings and certainly very high sales quotas were around for quite some years. The fact is that analysts (including myself to the extent that I saw any such rumblings) were willing to assume that it just a few disgruntled employees that were complaining. Wells kept presenting itself as always doing the best for customers. With profits growing nicely, it was easy to ignore the critics. But not now. It may be that this mess has a very long way to go.

In other news, VISA’s profits were up nicely. Again. As were Constellation Software’s. Again.


October 25, 2016

On Tuesday, the S&P 500 and Toronto were each down 0.4%.

CRH Medical was up 2.1% to $6.22 in Toronto and $4.75 in the U.S. (The report on this one is in U.S. dollars.)

Toll Brothers was down 1.9% to $28.22. I continue to think this company represents very good value. I expect the U.S. housing market to continue to improve with higher prices. Unemployment int he U.S. is 5% and that is down from 10% at the height of the financial crisis. There is a large cohort of young people that have delayed becoming first-time home buyers due to the bad taste left by the housing crash around 2008. Eventually those people will become comfortable with buying as they see U.S. home prices have risen a lot and will likely continue to rise. While interest rates are likely to rise it seems likely that they will still remain very low. Home affordability remains excellent in the U.S.

CN Rail reported slightly weaker earnings after the close, which was expected. I believe the results were better than expected in terms of earnings and the company have revised its guidance upward.I am not sure if the result was better or worse than expected. In my last update I focused on the weak near-term outlook while noting the company would still likely do well long term. It appears I should have focused more on that long term. CN has been a fabulous investment over the years albeit with some volatility. It provides an essential service and does so in a very efficient manner that allows high profits and reasonable shipping rates at the same time.

October 21, 2016

On Friday, the S&P 500 was unchanged and Toronto was up 0.6%.

The Canadian dollar fell to 0.7% to 75.0 U.S. cents which is the lowest in six months. This increases the value of U.S. investments if measured in Canadian dollars.

Canadian inflation was reported for September and the core annual rate that the Bank of Canada focuses on was unchanged at 1.8%.

Retail sales for August were reported and were somewhat weak.

Investments in new housing were reported. Alberta continues to be far weaker than it was two years ago.

Bombardier announced big job cuts today.

I have been giving thought to the following paradox|:

  1. Per capita wealth increases when products and services are created with fewer employees. (Improved productivity). So for the economy as a whole we might want to cheer all forms of automation and other improvements to productivity in spite of job losses. Only increased productivity can lead to increased wealth per capita.
  2. But the displaced employees are definitely hurt by the job losses and often entire regions. So, we do NOT cheer job losses.

Your “job” can very much determine your share of the total wealth created. Good jobs are hard to get but also unusually hard to lose. The higher the pay and benefits the more the job security, usually.

The ways in which our economy defines and more or less “allocates” jobs is something worth thinking about.

Those with good jobs find it easy to forget that their job would not exist without many other aspects of the economy. They tend not to realise that the pay of particular jobs is often more an accident of history than any true market-driven supply and demand equation.

I hope to think and read more about this and put some coherent thoughts together. How should we think about the benefits of improved productivity when it leads to job displacement?

(As far as Bombardier, they are a financial cripple on life support and have no choice but to cut costs as much as they can.)





October 20, 2016

Posting tonight from Cape Breton, Nova Scotia.

On Thursday, the S&P 500 was down 0.1% while Toronto was about flat.

American Express was up 9.0% to $66.78. That is a huge gain for such a large cap company. The stock is still well down from its highs but the gain is very welcome for those holding it.

TransForce announced strong earnings and a 12% dividend increase after the close.



October 19, 2016

Wednesday’s market saw the S&P 500 rise 0.2% and Toronto rise 0.6%.

Oil was up over 1% and is now at $51.44.

Canadian Western Bank was up 1.5% and Auto Canada was up 1.6%. This may have been related to the increase in oil.

Visa was up 1.5% after releasing earnings and increasing its dividend by 18%. American Express was up 1.9% and then released earnings after the close and was up an additional 5.5% in after hours trading on an improved earnings forecast.

There was a report that U.S. housing starts were down in September. However, single family starts were actually up 8.1% which bodes well for Toll Brothers.


October 18, 2016

Tuesday was an up day in the stock markets with the S&P 500 up 0.6% and Toronto up 1.1%.

Most of the stocks on our list were higher.

The news at Wells Fargo is not getting any better. There is evidence that the CEO was told about fraudulent account openings years ago. It appears that the management was sort of unable to accept the bad news. It seems they dismissed it as isolated incidents. People are curious what Warren Buffett will say. Buffett is extremely loyal to his friends. But his loyalty has limits. He tends to be unforgiving about breaches of ethics. He also does not like to criticise people publicly unless they have attacked him. So, I am not sure that Buffett will say much about Stumpf at all. It will be interesting also what Buffett might have to say about the new CEO, Tim Sloan. He has far less reason to be loyal to Sloan and so I don’t expect him to praise Sloan.

Statistics Canada reported that Canadianm manufacturing activeity was up 0.9% in August. This is not an annualised number but just the increase in the one month. Even Alberta had an increase though that after a similar decline in July. The increase is good news but it should have been prominently noted that the number was actually down 1.0% from August 2015.

Melcor has finally bought back a few shares in the past 10 days or so. There was 1400 shares repurchased last week and 800 on Monday. Apparently they have had  their bid in at just $12.50. It would be clever for them to buy shares at such a low price except that the volume is incredibly tiny and it might have been more clever to pay a bit more but buy more shares. We will see how their sales went in Q3 and what their outlook is. They may continue to think it best to hang onto cash just in case. On the other hand perhaps they will show a bit more confidence with oil recently somewhat higher.

October 17, 2016

On Monday, the S%P 500 was down 0.3% while Toronto was up 0.1%.

Oil has slipped below $50 but is currently at $50.20.

Costco was down 1.0% to $148.70. I would consider nibbling at it at that price.

Bank of America was out with a strong earnings report but rose only 0.3%.



Wells Fargo Report Updated October 15, 2016

Wells Fargo is updated and rated Speculative Buy at U.S. $44.71.

This bank has been very much in the news due to the fact that an audit has found that its branch staff opened some 2 million deposit and credit card accounts without customer authorization. The company has agreed to a fine of $185 million. The size of the fine is not a problem as the company earns about $22 billion per year.

Regulators including the U.S. house of representative and the Senate have expressed extreme outrage. The CEO (who guided the company successfully through the financial crisis and increased its earnings per share greatly) has resigned and has foregone $41 million in unvested options. Another top executive has foregone some $11 million and retired with no severance. But nothing short of jail time (for alleged crimes) would satisfy the harsher critics. The banks sales culture has been demonized although there is nothing illegal or immoral about selling financial services. (There is about opening unauthorized accounts of course.) The executives clearly made mistakes here. And their reaction to the scandal has been too slow. But some of the harsher critics are probably “over the top” in their slanderous statements.

The actual earnings of Wells Fargo are so far almost entirely unaffected and it earned $5.6 billion in Q3. The stock price is down roughly 10% on the news and is down 18% year to date. On the numbers, the stock looks cheap. But the ultimate damage and fines due to this scandal cannot be known.

Investors with a larger risk appetite may wish to buy on the dip. Others may view the risk as far too high and refrain from buying or even sell any shares they hold.

I have about 9% of my portfolio in this stock and have made good gains over the past few years. I am holding that position and have no intention of reducing it. I believe Wells Fargo will recover but this could easily take one to two years and the shares could certainly go lower before they recover.


October 13, 2016

On Thursday, the S&P 500 fell 0.3% while Toronto was up 0.2%.

One of the larger gains was Couche-Tard up 1.7% to $66.35.

Most of our American stocks were down modestly.

Wells Fargo and a couple of other big U.S. banks will report earnings on Friday morning.

Statistics Canada reported that August new home prices were relatively unchanged.


October 12, 2016

On Wednesday, the S&P 500 rose 0.1% while Toronto was up 0.5% and oil hung in just over $50.00.

TransForce was up 1.7% to $27.92. That’s a nice recovery from lows under $19 early this year. It’s a great company but I would not add to my position at this price. I’d probably trim if I held a lot of it.

The Wells Fargo CEO John Stumpf stepped down / retired today in the wake of the accounts opening scandal. He earlier gave up some $41 million in  unvested options covering about the last four years and he will not receive a severance payment. I think he had to go because he missed this bad behavior and he handled the crisis badly. I think he is paying pretty dearly here in lost millions and lost reputation. But no punishment is ever enough for the critics. Already, there is a headline about him “walking away” with $137 million. Well that is money he earned in prior years and even counts his pension. It is sad to see people be so mean and vindictive as to suggest his pension should be taken away or all of his past earnings. ($41 million of which in fact he already gave up).

October 11, 2016

On Tuesday, the S&P 500 was down 1.2% while Toronto was down only 0.1%.

There were no particularly large moves in the stocks on our list.

CMHC reported that housing starts were up strongly in September. In Alberta, single family starts were marginally higher than September last year. As always, we should not read too much into a single month’s report. The impact of last week’s changes to mortgage rules is far from clear but seems likely to be negative for housing starts to some degree.

Oil declined somewhat but remains near U.S. $51.

October , 2016

On Monday, the S&P 500 rose 0.5% while Toronto was closed for the holiday. Markets were positive on the perception that Trump’s chances are diminishing.

CRH Medical (added to the site yesterday) was up 1.8% in U.S. trading and I bought a few shares at around the closing price today.

Donald Trump claimed during last night’s debate that Warren Buffett took a huge tax write-off. Buffett released a press release today showing that he did not take a massive tax deduction and that he has paid federal taxes every year since 1944 and never once had a loss carry forward (like Trump).

Buffett has pledged to donate every dollar of wealth he has invested in Berkshire. (At $100k per year he takes almost no compensation from Berkshire. The income he lives on comes from his relatively small investments outside of Berkshire – small in relation to his Berkshire wealth, but nevertheless amounting to some hundreds of millions.). Some people attack Buffett for donating his wealth rather than realising the gain and paying taxes. It is a bit “rich” to criticise a man for donating billions in order to save the capital gains taxes on those billions. (Do those critiquing donate $1.00 primarily to save fifteen or twenty cents?). Buffett has kept quiet during the election perhaps because his support of Hillary would not play well with many voters. Trump would be wise not to do anything to draw comments from Buffett.

Oil rose to U.S. $51.35. This may be a temporary gain but it should give comfort that Alberta is not about to collapse economically.


CRH Medical Corporation is added to the site October 9, 2016

CRH Medical Corporation is added to our list as a Speculative Buy at U.S. $4.32 or Canadian $5.72. Technically, it is a Canadian company. In substance, it should be thought of by investors as a U.S. company since it earnings all of its revenues in the U.S. and incurs the great majority of its expenses there as well. It reports in U.S. dollars and our analysis is in U.S. dollars.

It is a small medical company. Until December of 2014 it was focused on distributing its patented single-use disposable hemorrhoid banding system. At that time it greatly increased its size and scope by issuing shares and debt to make a very large transformative acquisition to enter the somewhat related field of providing endoscopic anesthetic services. With seven additional smaller acquisitions since then, it now appears to be a growth-by-acquisition company. This appears to be a profitable business. Those buying should perhaps make only a relatively smaller purchase. Be prepared for volatility. The company could issue additional shares which would likely push down the price. But over time the share price will likely rise.

October 8, 2016

On Friday, the S&P 500 fell 0.3% and Toronto was down 0.2%.

There were few larger moves in the stocks on our list. The biggest decline was Canadian Western Bank down 1.8%.

In my own investing I bought 100 shares of HEINY an America Deposit Receipt which represents ownership of 50 shares of Heineken Inc. It has 250 different brand names. In North America the best known (other than Heineken) is Dos Equis. I would be interested in adding to my position if the price drifts lower.

Statistics Canada reports that Canada added 67,000 jobs in September. It’s hard to know what to make of this given that in the past year this report seems to have been particularly volatile. It is subject to statistical error. Certainly, it appears to be good news.

The national unemployment rate at 7.0% may sound high to those who came of age in the mid 2000’s or later. It does not sound high to me probably because I came of age in the late ’70’s and early ’80’s when the unemployment rate was closer to 10%. Based on Statistics Canada data available at the above link, the national unemployment rate topped out at 13.1% in December 1982. And it was FAR higher than that in my home province of Nova Scotia. The national unemployment rate did not get below 7.0% until November 1999 and that only lasted for three months. National unemployment rates below 7.0% existed in most of 2005 through 2008 and again in parts of 2014 and 2016. The lowest figure was 5.8% in October 2007. The fact is that at 7.0%, today’s unemployment rate is a good bit lower than the 8.3% average of the past 40 years.

Statistics Canada also reported on oil and gas production noting that: Production of crude oil and equivalent products rose 1.9% to 213.5 million cubic metres in 2015, marking the sixth consecutive annual increase. Compared with 2014, the value of these products fell 41.4% to $68.4 billion. There is, apparently still a LOT of oil and gas production but the capital investments in looking for new deposits is way down. As it should be in response to lower prices.

Wells Fargo has been a disappointment lately due to revelations of bad behavior in its retail branches and exasperated by a fairly weak response so far combined with a public and political mood that is very unforgiving in such matters. This bank will report Q3 earnings in about a week and we may learn more then. I suspect its operating profits will have been very little affected. But its outlook for the future and its estimates of the costs and lost business will be key. It will have to be convincing regarding taking responsibility for the bad behavior and in making changes.

October 6, 2016

Thursday’s action saw the S&P 500 about unchanged while Toronto was down 0.1%.

Canadian Western Bank was up 2.6%.

Walmart fell 3.2% as it plans to build fewer new stores and to spend more on e-commerce.

AutoCanada was up 4.5% to $24.61.

American Express was down 3.8% due to a negative opinion from a stock analyst at Nomura.

Statistics Canada reported a strong increase in building permits in August. In Alberta there was a strong increase in single family home permits as the number was over 1000 for the first time since January.

Reaction to the new mortgage rules continues and there are reports that certain non-bank mortgage lenders have stopped offering new mortgages or even renewals. If that continues the impact could be quite large. Credit and debt is truly the grease of the economy. I remain curious about where the Bank of Canada got its 4.64% figure for a conventional five year mortgage rate. I understood this was a report based on the average of bank posted rates. But I just checked and the rate was stuck at precisely 4.64% for 10 of the past 12 months. The exception was July and August when it was at 4.74%. That kind of stability seems very strange if it is based on an average of bank posted rates. (Or do the big banks change their posted rates that infrequently?) I have emailed the Bank of Canada late today and asked for the source of their number. It seems to me that this was a sleepy and meaningless little data stream until the government suddenly decided that all CMHC mortgages would have to stress test based on this formerly obscure data series.

In the U.S. initial jobless claims this week were at 263,000 (this is a four week smoothed figure) which is the lowest since 1973. Given the population growth this is remarkable. Despite many denials and much skepticism, the U.S. economy is doing relatively well.

CNN is focusing coverage on Hurricane Matthew. That is to be expected. It looks to be a very bad storm particularly because of the way it is going to skirt up the Atlantic coast rather than hit and move inland.

I was watching for coverage the night the same Hurricane hit Haiti and I could find none. Not on CNN and not even on the weather channel! There are 263 known deaths in Haiti and still very little news coverage on that. (And what coverage there is finally tonight seems more as a warning to America than much real interest about Haiti) I think this lack of coverage on Haiti points out the incredible extent to which the United States focuses on the United States. For better or for worse, the American media does not focus much attention outside the country. (And especially not when it has the American election to consume it full time.) Given the extent to which America focuses on America it is conceivable that it will indeed cut back on trade treaties. America is a country that truly can get by without much international trade if it really wants to. America focuses so much on America mostly because it can. Canada, has no such luxury. I generally consider trade to be a good thing overall. But there is no doubt that millions of American workers as individuals have been hurt by free trade. And they are angry about it. A better answer is to continue free trade and to work on a better distribution of income. But the anti-free-trade forces may win.

October 5, 2016

Wednesday the S&P 500 rose 0.4% and Toronto was up 0.6%.

West Texas Oil came very close to U.S. $50.00 and is currently at $49.74.

Canadian Western Bank recovered some of yesterday’s loss as it gained 3.7%.

CN Rail rose 1.5% to $88.32. Canadian rail traffic was up sharply in the latest weekly report and has been above the 2015 figure in each of the last three weekly reports. In June and July traffic had been well below the 2015 level and so I was rather expecting a weaker Q3 earnings report. But the recovery in September is impressive. It also bodes well for the Canadian economy. The metallic ores and metals freight segment has seen a dramatic increase in the past few weeks, if the numbers are to be believed. You can see the numbers here, but you have to use the button to choose Canada and the various freight segments.

AutoCanada was up 6.3% to $23.55 after announcing that it had purchased a large Chrysler dealership in Guelph Ontario. The dealership sold 968 new and 402 used vehicles in 2015. This transaction provides some comfort that the companies growth-by-acquisition strategy remains in place and provides further diversification outside of Alberta.

Wells Fargo was up 2.8%.

Costco reported September same-stores sales results after the close. The increase was only 1% and there was almost no net impact from currency or gasoline prices. This will likely be taken as somewhat negative.

October 4, 2016

On Tuesday, the S&P 500 was down 0.5% and Toronto was down 1.1%.

Some stocks declined in reaction to the measures announced yesterday to cool the housing market.

Canadian Western Bank was down 4.1% which may have been related to its Optimum Mortgage division which includes an “Alt-A” mortgage business which targets mortgages that are less than traditional prime. This business targets self-employed people and others who do not meet traditional guidelines. Personal mortgages represent 16% of Canadian Western’s loans and about half of those are from the Optimum Mortgage division. Overall, while Canadian Western Bank will likely see a decline in this business due to the new rules it does not look like a serious threat to the bank.

Melcor Developments was down 5.4% to $12.85 which may have been related to fears of lower home building with the impact magnified by its thin trading liquidity. I had placed an order to add to my position at $13.10 and that order was filled today. This demonstrates that I do have the courage of my convictions.

Regarding the mortgage stress test whereby borrowers have to qualify at the Bank of Canada’s reported measure of the posted five year conventional (20% or more down) mortgage rate, currently 4.64%: I looked today and found no one except one person commenting on a blog, that questioned (as I have) where this 4.64% comes from and why the banks could not manipulate that rate lower by simply using posted rates that are closer to the rates that they actually offer. The 4.64% appears nonsensical in the face of advertised rates closer to 2.5%. It remains to be seen whether the new measures will lead to lower home prices. They could and there is some risk that this would lead to a recession in Canada.

October 3, 2016

On Monday, the S%P 500 and Toronto each declined 0.3%.

Heineken was up 2.6%. I have not bought any of this company yet but I would like to grab at least a few shares at some point. (Apparently though, I will NOT then be allowed to write off beer purchases as a research expense).

Constellation Software was up 2.3% as it closed its latest acquisition today.

Comment on efforts to cool the housing market

The Canadian Finance Minister announced today certain measures to cool the hot housing market.

A key point was that those getting a five year locked in mortgage rate and with less than 20% down and therefore needing CMHC insureance will have to be able to afford the mortage if it were at the higher Bank of Canada five-year mortgage rate. Which begs the question: What is the Bank of Canada five year mortgage rate, and why does it exist?

It is the rate for a five-year conventional mortgage (meaning non-CMHC insured, meaning at least 20% down payment). It is published as a data series here. It is not a rate set by the Bank of Canada (which certainly does not offer mortage lending). It presumably is supposed to be the rate that banks are typically charging (or advertising) for a five-year conventional mortgage. Currently it is 4.64% which is however, well nabove the going posted five year mortgage rate at most of the big banks and is higher than the average.

This seems like a bit of a silly rate to use. A better stress test might be 1.0% above the actual rate. Also the banks can likely manipulate (I mean influence) this rate down by simply posting more realistic five year mortgage rates that reflect the lower rates that people actually get. (Some banks post a higher official rate but then give almost everyone a discount).

Another change today was to eliminate the principal residence deduction on houses bought by non-residents. Canadian residents will now have to declare the value of the gain on their house as opposed to the current (rather lax) system of not having to report the gain. It IS an (another) invasion of privacy. It remains better than the alternative of eliminating this exemption.

Today’s moves come on top of BC’s move to impose a special 15% transfer tax on foreign home buyers in Vancouver. Many people predicted that this would not stop foreign buyers as it was said that such buyers were not price sensitive. But it is one thing to pay more for a house in a market where all buyers were paying more and where it was believed that the price paid would be recouped (even after real estate fees and the normal transfer tax) upon sale. It is quite another thing to expect foreign buyers, and only foreign buyers, to pay 15% more and which amount cannot be recouped later as it will not apply to most buyers and therefore the resale prices will not magically increase to allow foreign buyers to recoup the tax. So, it is no surprise that foreign buying in Vancouver has all but dried up. The buyers will look elsewhere or just decide not to buy. It is a matter of opinion as to whether the tax is good or bad but it is a matter of common sense that it would put a real damper on the level of foreign buying and therefore will tend to push down house prices in Vancouver as the foreign segment of the buyers will have been pushed out.

October 1, 2016

On Friday the S&P 500 rose 0.8% while Toronto fell 0.2%.

Part of the reason for Friday’s S&P 500 gain was an unofficial report that Deutsche Bank was about top settle a major U.S. fine for $5.4 billion instead of the $16 billion amount of the fine.

Most financial stocks rose on this news with Bank of America up 3.2%.

Bombardier was up 7.2% to $1.80 on news of some sales in its rail transportation business.

Costco was up 3.4% to $152.51 after reporting better-than-expected earnings. This company always seems to look expensive but is extremely good at what it does. I was at my local Costco today and the place was booming.

The Canadian Dollar

Many companies have had positive or negative affects from the changing Canadian dollar exchange rate versus the U.S. in the past couple of years. Companies like Costco that report in U.S. dollars but which have significant operations in Canada were harmed by the lower Canadian dollar in quarter over quarter comparisons. Companies like Stantec and CN Rail that report in Canadian dollars but have large U.S. operations benefited from the lower Canadian dollar.

In the upcoming Q3 reports there should be little impact and the dollar in Q3 2016 had a U.S. exchange rate very similar to that of Q3 2015. In some cases there may still be significant impacts due to lags in expenses versus revenues.

CN rail may have a hard time showing earnings growth in the face of lower car loads in Q3 and little or no benefit from a lower dollar. However, the market seems to be anticipating that CN’s Q3 earnings will be good (based on the fact that the stock is near a 52 week high). Perhaps the market is predicting a return to car load growth in Q4 and beyond.

Bank of America update September 30, 2016

Bank of America is updated and rated (higher) Buy at $15.38. That was yesterday’s price, the price as I post this is $15.65. Bank of America is a large U.S. bank with a huge branch network serving consumers and small businesses. It also has very large corporate banking activities including investment banking (advising corporations and providing services to issue stocks and bonds for companies). It also has a trading operation for market making and proprietary trades. Activities outside of the U.S. account for only about 8% of its operations. Its earnings are still recovering from the financial crisis and remain volatile with certain non-operating losses or gains most quarters. Overall it appears to offer good value at the recent price.

September 29, 2016

Thursday’s markets saw the S&P 500 fall 0.9% while Toronto was up 0.2%.

U.S. financials stocks fell due to fears of that Deutsche Bank was facing something of a run on certain of its deposits. Banks are always highly leveraged and fears about their financial strength can become self fulfilling.

Wells Fargo was down another 2.1% in part due to the general weak day for financials but in part due to its own problems. The CEO had another weak performance today in testifying to congress. He did not seem on top of his game in that he seemed to lack detailed knowledge about the account opening scandal. It’s also true that the congress members mostly used the session as a chance to make speeches rather than to actually ask any questions and give John Stumpf a chance to reply. At one point he claimed to have no knowledge of whether other banks use cross selling. I suspect Stumpf will be forced out over this scandal.

Costco’s earnings came out after the close of regular trading and were relatively weak but still better than expected and the stock rose in after-hours trading.

September 28, 2016

On Wednesday, markets got a boost from reports that OPEC would plan to reduce production starting in November. Some Canadian stocks such as Stantec were also boosted by news of the conditional approval of a large LNG project.

The S&P 500 ended the day up 0.5% while Toronto was up 1.2%.

Individual stocks on our list were mostly up with gains such as Stantec up 2.8% and Element Financial up 2.7%. But Couche-Tard was down 1.8% (which may have been partly due to the higher Canadian dollar).

Oil was up about 5% on the possible deal to cut production.

Costco was down 0.7% to $149.41. We rated it a Sell on July 31 at $167.22. It’s a great company and so those who would like to own it could consider taking a small position at this time. It will release earnings tomorrow.

There seems to be some confusion about the cost of the LNG project conditionally approved yesterday. When I first heard of this proposed project a few years the cost of about $36 billion was mentioned for an LNG terminal. I immediately thought that was preposterously high and it would never happen. Yesterday the $36 billion was mentioned again. But now I understand that this includes the terminal at “only” $11 billion and pipelines at $7 billion and some gas production that has already taken place and some planned gas production and even the cost that the proponents paid to acquire a company (progress Energy) in 2012. The project is FAR from certain to happen but at least $11 billion for the terminal is (maybe) within the realm of reason. There is however no way that more than one or two large export terminals will ever be built. (I believe there are many proposals).


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.


September 26, 2016

On Monday, investors bid down the price of stocks as the S&P 500 fell 0.9% and Toronto fell 0.5%.

Futures rose this evening as the consensus appears to be that Clinton won the debate handily.

I am tempted to add to positions in my American stocks including Toll Brothers, Wells Fargo and Bank of America. I sold today the small amount of a Japan equity fund that I have held in an RRSP account for quite a few years. This will give me a few U.S. dollars to add modestly to my U.S. stock positions, perhaps on the next down day.

September 25, 2016

On Friday, the S&P 500 was down 0.6% and Toronto was down 0.7%.

Most of the stocks on our list had modest moves such as plus or minus 1.5% or less. Bombardier was down 1.8% to $1.60 as S&P downgraded its credit rating to single B minus. That is an extremely poor credit rating reflecting a risk of insolvency. I am not sure that is justified given the government support the company has gotten. I finally sold my shares recently just over $2.00.

On Friday, statistics Canada reported the inflation numbers for August. The media focused heavily on the headline 1.1% year-over-year number and pointed to a weak economy. But the core number was still up 1.8% year over year. However, the core index was flat in August. Given seasonal adjustments and statistical measurement uncertainty I am not going to read much of anything into this.

But retail sales for July were also reported and indicated weak growth in July versus June although the growth remained relatively strong year over year. Alberta was down 3.8% year over year which is decidedly weak.

Meanwhile it is reported that in Fort McMurray there is a real shortage of staff for places like fast food outlets. So, apparently the economy is not so bad there.

Melcor REIT added to the list, September 25, 2016

The Melcor Real Estate Invest Trust entity is added to our list and rated Buy at $8.63. Based on the 7.8% distribution yield it looks attractive. But I also wanted to understand the properties it owns and to understand its accounting. These and other factors are covered in our report. It should be a stable source of distributions. However, there is some risk associated with the Alberta economy. At the moment it appears to be an opportunity to buy into the equity of its portfolio of properties at a discount of about 27% to the book value. This discounts reflects fears about the Alberta economy and possible market value declines of its buildings (which could be driven by vacancies if vacancies increase). The current unit price ascribes essentially no value to the claimed ability of the REIT to grow in a manner that is accretive to earnings per unit. I would be comfortable buying some of these units although in my own case I already have a large exposure to Melcor and a very large exposure to Alberta and due to that exposure I may not buy any.

September 22, 2016

Thursday was a strong day in the markets as the S&P 500 and Toronto were each up 0.6%.

AutoCanada was up 1.9%.

This morning I had a notice from TD Direct that Capital Power had  a new issue out of a rate reset preferred share paying 6.0%. That sounded good to me although the reason it is higher than the banks pay on rate resets is because Capital Power is considered more risky. I would not have had any time to analyse the company or the risk. With IPOs you pretty well have to decide instantly if you want it. You can sign up with your broker to receive notice of IPOs. I was going to buy some of this Capital Power issue but I had not checked my emails until 8:45 am Mountain time (10:45 eastern) and by then the issue was sold out. This means the market in general found the 6.0% to be attractive.

Statistics Canada reported the number of people collecting Employment Insurance in July. They also warned that comparisons to past months could be misleading because Ottawa extended EI benefits in certain areas that had higher unemployment. So, the increase in Alberta is even higher than it would have been absent the extended benefits. But any way you look at it, Alberta has seen a huge increase. In 2014 the number of people collecting EI was roughly 30,000 each month of the year. Throughout 2015 the number climbed steadily reaching 63,000 by December. In 2016 the steady increase continued and the number reached about 80,000 in May and June. In July there was a sudden jump to 99,000 though the extended benefits may explain much of the jump.

It seems clear that severance packages have run out for many people and they are now turning to EI. Perhaps now we will start to see a bigger impact on consumer spending in Alberta.

I don’t envy the Board members at Wells Fargo at this time. Normally, the company runs smoothly and the role of Board member is a part-time activity which is not too taxing. But now they have to deal with whether of not the CEO should be dismissed or have his pay cut sharply. And they have to decide whether some of the pay of the recently “retired” head of retail banking needs to be clawed back. They need to look into what went wrong with Wells Fargo’s culture. And, oh yes, they are being sued personally by some investors. A few of the Board members have full time jobs as CEOs of other companies (This includes John Chen of Blackberry). Most are retired executives. Most of these Board members would be independently wealthy and so are in a position to act more independently as they are not relying on this Board member job for their living.

September 21, 2016

On Wednesday, the S&P 500 rose 1.1% and Toronto rose 1.3%.

The FED kept its target interest rate unchanged.

FedEx was up an impressive 6.9% after releasing a strong earnings report.

Wells Fargo was down 1.6% as the fallout over its account opening practices continues. I think its CEO may have to go. Warren Buffett has written that CEOs should be candid in their reporting. It is now revealed that the retail banking executive who “retired” recently was actually forced to do so. The CEO was not candid about that. And, he does not seem credible in indicating that he knew nothing of the account opening problems until recently. And if he did not know then it may be because he put in place a culture that kept bad news away from him. Warren Buffett has said he is not making any comments on this or the election or anything else until after the election.

I listened to the FED chair’s question and answer session today. My impression is that Janet Yellen is sincere and candid in here assessment of the situation. She explained that the decision to raise rates is not an easy one based on the data. She also gave every indication that the rate will most likely be increased by the end of this year. Many will disagree with her and question her motives. But I believe she is sincere.

Statistics Canada reported the investment in new housing as of July. While investment or spending on new house construction increased for Canada as a whole, it was down in Alberta. For single-family homes the decline was 31% versus July of last year and 44% versus July of 2014. Melcor is obviously going to continue to have weak sales of residential building lots. However, Melcor will weather the storm and is not likely to experience any financial difficulty. Melcor is also unlikely to experience an operating loss. However, it could experience an accounting loss as much of its assets are subject to mark-to-market rules. So far, market prices of building lots and commercial property do not appear to have declined very much.

September 20, 2016

On Tuesday, the S&P 500 was about unchanged while Toronto was up 0.2%.

Bombardier was down another 5.1%. This was reportedly due to fears of weak sales and weak deliveries of aircraft.

Element Financial was up 2.0% on news that its split into two separate companies had been approved by shareholders.

The Wells Fargo CEO faced questions from a U.S. Senate hearing today. Even as an owner of and supporter of Wells Fargo, I have to admit the CEO seemed evasive. But some of the questions were just lectures and the CEO was not even permitted to answer in a number of cases. The CEO may lose his job over this unauthorized account openings mess. Some analysts are wondering what Warren Buffett thinks of all this. This is a tough situation for Buffett. He tends to be very loyal and to follow a practice of criticise in private, praise in public. Also, it is not his habit to be available for comments. If he wants to say something publicly he will do so.

FedEx was out with a strong earnings report after the close.

September 19, 2016

On Monday, the S&P 500 was unchanged and Toronto was up 0.3%.

The biggest gainer on our list was Constellation Software, up 2.0%.

Bombardier was down 4.9% to $1.75. I did not see any news to explain the sharp drop.

Oil has slipped down to $43.13. Hopes that OPEDC would be able to get its members to agree to production cuts to boost the price seem to be fading as it was indicated that an upcoming meeting will be for discussions only and not for decision making. Also Venezuela said that it believes the Oil market is 10% over-supplied. In the absence of collusion among producers to lower production it would logically require a price drop to achieve a production cut.

I saw a report today where A Canadian Senator lamented that Alberta has lost $50 billion in capital spending due to a lack of pipelines. I don’t know if that figure is accurate. I do certainly agree that Alberta would benefit from added pipelines to get the oil out. The Alberta oil price is apparently lower than the world price due the pipeline bottleneck.

However, I do not agree that additional billions should have been invested into Alberta oil production. And certainly not unless it could be profitable at current oil prices. Additional investments would lead to more production and lower oil prices. Every dollar of capital spending may add to GDP. But that does not mean that such investment would be a good thing for either the investors or the wider economy.


September 17, 2016

On Friday, the S&P 500 and Toronto were each down 0.4%.

TransForce was up 1.9% to $26.76. It is a very well managed company and likely to continue to do well.

Wells Fargo was down another 1.6% to $45.43 as the fallout from the fact that its employees were opening unrequested accounts for customers continues. While it the price may decline further before this is resolved, I am confident that it will recover and continue to grow in the long term.


September 15, 2016

North American markets rebounded on Thursday with the S&P 500 and Toronto each up 1.0%.

Element Financial was up 5.5%. It is splitting into two separate companies. The hope being that one divided by two will equal more than 0.50.

Toll Brothers was up 2.4%.

Statistics Canada released figures for new car auto sales in July. For Canada as a whole, the number of motor vehicles sold was down 2.9% versus July 2015. For Alberta the decline was 14.2%. And that was compared to July 2015 which was already doen 16.7% versus July 2014. Based on this AutoCanada is likely having another tough quarter and will have to rely on cost cuts. Nevertheless AutoCanada has remained profitable and is likely to continue to do so.

A week or so ago I placed an order for 800 of the 4.85% rate reset shares issued in an IPO by Bank of Nova Scotia. I was only allocated 200 shares. This was a bit of a waste of time and tied up some funds as I had to have the cash on hand in case I was allocated all 800 shares. But the positive takeaway is that investors now (and once again) consider 4.85% on a bank rate reset share to be quite attractive. This bodes well for the value of all the existing rate reset shares.

September 14, 2016

On Wednesday, the S&P 500 was down 0.1% while Toronto was up 0.1%.

Element Financial was the largest gainer, up 2.4%. I have been corresponding with Element trying to understand their income taxes which seem rather complicated. They have been friendly and helpful. But I am still confused by aspects of their income tax. I also just realised that they report net income before deducting preferred shares dividends. Most (but certainly not all) companies add a line for net income to common share holders when they have preferred dividends. My view is that Element’s approach, while completely acceptable to regulators is not best practice. (The net income is to common is somewhat lower than I had thought because I missed making the deduction for pref shares)  All in all, Element is complex and seems aggressive in how they define adjusted earnings. I am basically not quite willing to trust them. So I sold the rest of my shares. I only had a small position so it won’t make much difference. Element could very well gain when it splits into two companies in October. But I just decided I am out of this one.

Wells Fargo’s issues (with its employees having opened bank accounts without customer authority in order to meet sales totals) continue to be in the financial news and are not going away. The company is very strong and will get past this. But it’s unclear what the damage will be.

The Canadian Bankers Association came out with the 90 day mortgage delinquency figures for May. (They have a long lag in reporting). The delinquencies in Canada remained stable. But they have started to creep up in Alberta although they still remain very low. I have long been suspicious that the Banks are essentially manipulating these numbers but I cannot be sure of that. No bank wants to see its numbers turn bad. Therefore the banks have an incentive to sort of sanction late payments and try to keep people off the 90 day list. I fully agree that people should be given a chance to pay and should not be immediately foreclosed on. But if banks are getting way more generous in allowing deferred arrangements to pay and allowing skipped payments, (and they are)  then the 90 day delinquency figures of today are not comparable to the figures of 20 years ago assuming the banks were less generous back then (and they were).

Also today, unlike 25 years ago, anyone unemployed and unable to pay their mortgage from wages  likely has the ability to take money out of a line of credit to make the payment. In that case the bank may not notice the customer is unemployed.  I have suspected for years that the early warning system regarding job loss that existed 25 or 30 years ago is gone. It is likely much easier today to rack up huge debts while unemployed without the bank noticing. But so far everything has worked out. Things will not work out so nicely if we get a long recession. I think the last deep recession in Canada was around 1991. We have not yet had a long and deep recession with double digit unemployment levels in the age when large lines of credit became so ubiquitous.



Boston Pizza updated September 13, 2016

The report on Boston Pizza Royalty Income Trust units is updated and now rated (higher) Buy at $21.00 to yield 6.6%. Because this is a top-line entity where you are essentially just buying a piece of the franchise fee, the yield is the biggest driver by far in its valuation. Read the report for more details. But essentially my thinking is that with a 6.6% cash yield and where the distribution is likely (although not guaranteed) to rise over the years, what is not to like? There would be room in most portfolios for this investment I think.

Our last update for these units was February 10 at $16.90 when they received our highest rating, the rare (higher) Strong Buy. Since then they are up 24%. This Spring I mentioned these units numerous times. Year to date they are up 17%. Even if the units had not increased at all the yield made the investment worthwhile.


September 13, 2016

Tuesday was a down day in the markets with the S&P 500 falling 1.5% and Toronto down 1.7%.

A drop in oil prices was identified as part of the reason for the market drop.

Some of the bigger moves down were:

Bombardier down 4.1%
Agrium down 3.6%
Wells Fargo down 3.3%
Element Financial down 2.9%

Wells Fargo has paid a large fine and admitted that its employees opened some  2 million accounts that customers had not asked for. They did this to meet sales targets.

Wells Fargo is a sales and goal driven company. And there is a saying: “What gets measured gets done”. Unfortunately there are also other sayings such as “What gets measured gets manipulated” And what gets measured and rewarded or punished is most certainly at risk for manipulation.

This is a big deal for Wells Fargo. But they will fix the problem and move on.

The Canadian dollar fell almost 1% to 75.9 U.S. cents This cushioned the losses (as measured in Canadian dollars) for those holding U.S. investments.

I am not inclined to move money into U.S. investments at 75.9 U.S. cents. If I had U.S. cash I might move some of that back to Canada especially if I could get a good exchange rate.

For the most part I am holding my investments and not trading that much. I will look to put the small amount of Canadian cash I have into investments if the market continues to decline.

September 12, 2016

On Monday, the S&P 500 rose 1.5% while Toronto was up 0.4%.

Walmart was the highest gainer on our list, up 2.3%.

Agrium was down 2.5% after making official its plans to merge with Potash Corporation in an all stock deal. It’s hard to imagine that the competition Bureau would allow it.

I sold some Canadian Western Bank preferred shares in an RSP account  today at $18.00. The reason for this sale was to get cash to pay for a new issue of TD Bank preferred shares that I had agreed to buy.



September 11, 2016

On Friday, the S&P 500 fell 2.5% and Toronto was down 1.8%.

Apparently this was due to fears of a FED interest hike in September and North Korea’s Nuclear test.

In any case fluctuations like this simply come with the territory for stock investors and should not be of any real concern. The best investors simply take advantage of volatility rather than fearing it.

The hardest hit stocks on our list included Toll Brothers down 4.1%and AutoCanada down 3.9%. Many others were down 2 to 3%.

Toll Brothers updated September 11, 2016

Toll Brothers is updated and rated Strong Buy. As we expected, earnings are up very sharply in 2016. The price to book value ratio at 1.22 is very attractive for a company with that has a long history of profitability (albeit it did lose money during the financial crisis years). The P/E of 12.2 is attractive considering that earnings are expected to rise 15 to 25% in the next year and housing construction remains well below historical levels in the U.S. This company represents about 11% of my portfolio but nevertheless I would consider adding to that at the recent price. Canadian investors may wish to consider that there is currency risk unless they are investing dollars that have been more or less permanently moved into U.S. funds and which might eventually be spent in the U.S. in which case the currency risk is more apparent than real.

AutoCanada updated September 10 2016

AutoCanada is updated and rated Buy. Although its sales in Alberta are weak the stock price already reflects that. And despite lower sales the individual dealerships continue to be profitable in virtually all cases. The long-term strategy of growing earnings by acquiring more dealerships appears to be intact.

September 8, 2016

On Thursday, the S&P 500 fell 0.2% while Toronto was about unchanged.

Oil rose due to a decline in inventories (albeit a decline that was apparently linked to storms preventing oil from being unloaded from tanker ships into storage tanks). Oil is at $47.28 at the moment.

Toll Brothers was down 1.4%. It seems that the home building segment is just not that popular with investors at this time. However, if, as expected, the company continues to post better quarterly earnings then the stock price will eventually respond.

TransForce was up another 1.6% to $27.59.

Yesterday I placed an order for the new Bank of Nova Scotia rate reset preferred share that was offered at 4.85%. It’s only an “okay” return. If it happened to trade at $26 or more  I would likely sell and take the 4% gain. This is in a non-taxable account.

Alimentation Couche-Tard update September 8, 2016

Our report on Alimentation Couche-Tard is updated with a Buy rating at $65.50.

This stock is up 1029% since it was first added to this site rated (lower) Strong Buy on March 31, 2005. Of course the stock did not increase in a straight line. But it would have been a great stock to simply buy and hold. I certainly would not expect another 1000% gain in the next 10 years. But due to acquisitions it does appear set to continue providing good returns.

September 7, 2016

On Wednesday, the S&P 500 was unchanged while Toronto was down 0.1%.

Oil rose this evening to $46.24.

Couche-Tard was down 2.2% today. I just completed but have not yet posted an update on this company and it will be rated Buy.

Yesterday, after seeing the latest bit of bad news from Bombardier I decided to sell the remaining few shares I held. The problems it has in securing enough engines for its new C Series planes may not be its fault. But given the track record I would not be surprised if Bombardier was partly at fault for the situation or at least for not knowing about the issue until now.

Also yesterday, an order I had placed earlier to add to my position in its preferred shares was filled. Those shares are not without risk. But they do come with an expectation that Bombardier will not be allowed to fail and default and on that basis I am happy to collect my 9% or so yield.

September 6, 2016

On Tuesday, the S&P 500 was up 0.3% and Toronto was up 0.1%.

Amazon was up 2.1% today.

Constellation software was down 2.7%.

Enbridge is buying Spectra for about $36 billion in Stock. Enbridge had been a fantastic investment and a well run company over the long term. This is probably a good deal for Enbridge that will benefit shareholders.

One mews story noted: “Shareholders of the Canadian acquirer will own about 57 per cent of the combined company.”

That is an important point, Warren Buffett would describe this as the existing shareholders of Enbridge trading 43% of Enbridge for 57% of Spectra . Plus the Enbridge shareholders will get 57% of any savings through synergies.

On the other hand Enbridge has said the deal allows it to commit to targeted dividend increases of 10 to 12% for the next eight years. From that point of view shareholders may not care what they own as long as it produces the dividend increases.

Canadian Tire update September 5, 2016

Canadian Tire is updated and rated Buy at $136.72. Its Q2 earnings report was yet another quarter of strong growth. In a strange development, despite recent very strong results, they ousted their CEO after only 18 months in the top job (he had been promoted from within) to bring back the prior CEO who wanted more emphasis on e-commerce. This shows the danger for any CEO when the former CEO remains on the Board.

September 4, 2016

On Friday, the S&P 500 was up 0.4% and Toronto was up 0.8% (as oil prices recovered somewhat).

Our top gainer was our only European stock, Heineken, up 2.9%.

Friday’s U.S. jobs report was lukewarm – which allowed the market to largely shake off fears of a September interest rate hike.

Statistics Canada reported that spending on residential construction in Q2 was up strongly in B.C. but down 17% in Alberta. For single family homes in Alberta, the decline was 34%.

Statistics Canada also reported gains in Exports for Canada in July.

Canadian Western Bank update September 4, 2016

Canadian Western Bank is updated and rated Buy at $26.46. While there is always a chance that this bank could suffer very harmful loan losses, the bank is not expecting this to be the case and overall appears to represent a good risk/reward. These shares are up 13% in 2016 but remain well below their historic peak of $43 which occurred two years ago.

The Canadian Western Bank Series 5 preferred shares are also updated and rated Buy at $18.25 to yield 6.0% (But they are projected to reset at 4.7% if interest rates and their price were unchanged in April 2019). These shares have gained 9.9% since we rated them a (higher) Buy at $16.61 on March 13.

August 31, 2016

On Wednesday, the S&P 500 was down 0.2% and Toronto was down 0.6%. Oil is down to $44.90.

Bombardier was up 2.9% to $2.15. This stock can certainly gain on news. But I am not convinced it will gain much since each quarter when it reports earnings the results are likely to be disappointing. More importantly, I am not convinced it is worth $2.15  given its negative book value per share and given that it would take years to work back to even a zero book value at the kind of profit levels it appears to be projecting.

After the close, Costco reported same-store sales for August. The unadjusted number was 0% but was 2% after adjusting for currency and gasoline price changes. This is a bit weaker than the historic average for Costco and the weakness have been occurring for several months. It’s not a bad result but given Costco’s high P/E ratio and high expectations the market may take this as a negative.

The Second quarter GDP report and the interpretation thereof was a bit confused today. The main GDP by industry press release did not even actually state what the quarterly number was. The press release on how the GDP was consumed indicated that the second quarter decline was 0.4%. This was widely reported as a decline of 1.6%. But really it was a decline that if continued at that rate for a full year would be minus 1.6%. But no one expects that. All in all the GDP change is subject to measurement error and also is not the only measure of economic activity. Given that the second quarter was heavily affected by the temporary oil shut down in Alberta, I would not read much into this GDP figure.

On Monday, the TD Bank issued rate reset preferred shares at a yield of 4.85%. That is down from the approximate 5.5% rate that applied to bank rate reset shares earlier this year. But it is still much higher than the 4.0% and lower rates that applied a few years ago. This decline in the market yield bodes well for all those existing rate reset shares that have fallen well under $25. If market yields were to move back to and under the 4% level then many of the existing rate reset shares would rise in price.

August 30, 2016

On Tuesday, the S&P 500 fell 0.2% while Toronto was about unchanged.

Agrium was a big gainer, up 7.3% on news it may merge with Potash Corporation. I would wonder if the competition Bureau of Canada would allow this merger. Kevin O’Leary stated today that the price of potash in Canada is set on world markets. If that is true then perhaps there will be no issue. I am not familiar with whether or not there are duties on potash imports or if the cost of freight on imports makes for a made-in-Canada potash price. The farmers who buy potash in Canada may oppose the deal if they believe it will raise prices through lower competition. The Saskatchewan Premier indicated he would be okay with the deal as long as jobs are not reduced in Saskatchewan. Well, that is probably wishful thinking. The main benefit of doing the deal is likely to reduce duplication and jobs. That is called efficiency and productivity. Another possible benefit of doing the deal is to raise prices but the companies will not be admitting to that.

The European Commission ruled today that Apple has to pay some $14.5 billion U.S. in additional tax dollars to Ireland. This because Apple had been able to “move” most of its non-U.S. profits to Ireland. I believe this was achieved through transfer pricing and by locating its intellectual property (which is intangible”) in Ireland. They faced a tax rate around 0.5% in Ireland due to an agree ment with Ireland. That country does not want the money. They want to honor their low tax rate. The European Commission wants the taxes paid at normal tax rates.

I have absolutely no sympathy for Apple for several reasons. First, as a citizen and taxpayer, I believe that corporations should pay their fair share of taxes and that countries should not compete to attract companies with artificially low tax rates. Second, I think the accounting that results in moving the profits to Ireland are gimmicky and without real substance.

In addition, as an investor, I take it as a negative sign when I see aggressive tax avoidance. I figure that the management that tries to cheat the tax man today may cheat the share owners tomorrow. Last August, one of the negatives I noted about Valeant was aggressive tax avoidance. Years before its demise I saw it as a negative that Sino Forest paid no cash taxes and had dozens of subsidiaries in the British Virgin Islands (known tax havens). Just last week, I sold most of my Element Financial shares after they were unable to answer my questions about their income tax reporting and situation. Element may be fine, we shall see.



August 29, 2016

Monday’s action saw the S&P 500 rise 0.5%. Toronto was up 0.3% despite a modest drop in oil prices.

Wells Fargo was up 2.2%.

I sold about two thirds of my Bombardier shares today. I kept the one third in the hopes of getting a higher price. In any case my position was small and was never going to make any material difference to my portfolio.


I am going to look at the financials for the Melcor REIT. This would be primarily to get a better understand of that component of Melcor Development’s business but I may also add the Melcor REIT to our list.

Speaking of REITs… one of the very first investments I ever bought was something called the Canadian Property Investors Trust. This was around 1982. It would have been a REIT before the term REIT was even invented I believe. They had properties in Alberta including the Fort Saskatchewan shopping mall. Oil prices had fallen hard due to the National Energy Program. They assured that they had leases in place and so all was good. But it was not and the Trust went bust albeit with some recovery of money. I only invested about $1400 and I may have got back about half that. It was probably a cheap education. I don’t think there is any sign of problems at the Melcor REIT. But it is wise to remember that bad things can happen and that leases can’t always protect a property owner. However, so far at least, Alberta’s problems in 2016 are no where close to the situation around 1981.



August 28, 2016

On Friday, the S&P 500 was down 0.2% while Toronto was up 0.1%.

Our biggest gainer was Bank of America up 1.7%.

Toll Brothers was down 1.6%. I have confidence that the continued improvement in the U.S. housing market and Toll’s earnings over time will push this stock price up.

This week we will have the last of the big 5 banks reporting and also some smaller banks including Canadian Western Bank.

Regarding Element Financial, I have been trying to get the company to explain its income tax situation to me. They have not been able to do so. For that reason and my general lack of respect for its management, due to their aggressive view of adjusted earnings, I sold most of my shares last week. Its rated Speculative Buy. In this case I decided against speculating.


Bombardier update August 27, 2016

Our report on Bombardier is updated and the stock is rated Sell at $2.05 Canadian. (Our report converts that to U.S. $1.58 because the company reports in U.S. dollars).

Our last update was on October 29,2015 when we rated Bombardier a Highly Speculative (lower) Buy at $1.42 Canadian. A lot has changed since then. At that time Bombardier was still profitable on an adjusted basis. Now it is not. And it has now projected that it will not be cash flow positive until about the year 2020. And it was not clear if there would be accounting profits until then either, even on an adjusted basis. The share price is also higher now. Investments that Bombardier has received from the Quebec government and the investment arm of the Quebec government probably make it less likely that the company will go under. But these investments also require that any future profits be shared with Quebec reflecting its investment.

At this time considering all the factors, it seems that the appropriate rating for this stock is “Sell”. I plan to sell some of my position immediately but I may place an order to try to get a higher price for some of the shares as it can always bounce up on good news. I may deploy some of the cash received into Bombardier pref shares, which I consider a better investment (see below).

It’s interesting to think about how shares that have a book value of NEGATIVE U.S. $1.81 or Canadian negative $2.36 can trade at positive $2.05. Firstly, most companies trade for their earnings not their asset book values. Asset values can place a FLOOR on share values but seldom a ceiling. However, Bombardier has negative earnings and this could continue for some time. But common shares always have a floor price of zero. If the company loses MORE than all the common equity then debt holders and credits share in the loss. Common shares never go below zero. As long as a company has not actually gone bankrupt there is usually some non-zero chance of earnings eventually returning or someone buying out the shares. In the case of Bombardier it appears that the share price is partly a reflection of estimates of future earnings and perhaps partly a lottery ticket sort of premium for the small chance that it could someday be a very profitable company. Overall, at the moment the market may simply be paying too much for these shares. The marginal buyer of these shares may be over estimating future earnings. Investors are probably confident that the company will sell C Series planes. They may be less aware that the sales will likely be at a loss for about the next five years.

Our report on the Bombardier Series 4 preferred shares is also updated and rated Highly Speculative Buy at $17.25. While the company is very weak, it appears likely it will continue to pay the dividend on these shares.

August 26, 2016 9:45 am eastern

Markets are reacting to a speech this morning from the FED chair after a meeting taking place at Jackson Hole, Wyoming.

Oil is at U.S. $47.82 or $61 Canadian dollars, a level that is not high but which is also not really low in the context of even the past 15 years. It’s just low compared to peak prices. This week, the Saudi energy minister made comments that lowered the expectation of a resumption of production declines (collusion price-fixing) by OPEC. Perhaps the oil industry has to learn to deal with something closer to the free market in oil that it has pretended has existed all along.

Canadian bank earnings continued to be surprisingly strong with lower than expected loan losses.

August 24, 2016

Wednesday was a mostly negative day in the markets. The S&P 500 fell 0.5% and Toronto fell 0.9%.

The only stock on our list with a notable gain was Alimentation Couche-Tard, up 2.5%.

Toll Brothers was down 2.8% giving back some of the big gains it made yesterday. A possible contributor to this was a report that existing home sales in the U.S. were down 3.2%. I continue to view Toll Brothers as being under-valued.

Canadian Western Bank was up 0.9% which was possibly related to the news that Royal Bank was able make a lower loan loss provision this quarter due to the oil and energy related loans not being as bad as earlier feared. That is good but CWB has its own mix of customers. Those considering adding to CWB should probably wait and see how their earnings and loan losses look when they report next week.

August 23, 2016

On Tuesday, the U.S. markets closed near record highs with the S&P 500 up 0.2% to 2187. And Toronto was up 0.1% to 14,765.

As hoped and expected, Toll Brothers had a very strong day and gained 8.8% to $31.91. Interestingly it started off the day only up a bit over 2% around the first hour of trading. The earnings per share were up over 50% although somewhat less than that on an adjusted basis. Overall, the company and the U.S. home building industry are firing on all cylinders and it seemed clear that this stock was under-valued. I don’t see any reason why it should pull back now. I would think it should make further gains (at least relative to the overall market) in the next few days as analysts digest the strong earnings report. Despite the strong report there is always someone viewing things negatively and some headlines have suggested that the company “missed earnings expectations”.

Bank of Montreal reported better than expected earnings today. That is positive for Canadian banks in general except that it did also report significantly higher loan losses and its added profits came from the U.S. operations and capital markets and not domestic lending. Banks more focused on the Canadian household and commercial market may not fare as well this reporting season.

August 22, 2016

On Monday, the S&P 500 fell 0.1% and Toronto rose 0.4%.

A big mover today was Alimentation Couche-Tard, up 7.4% to $66.78. This was due to the announcement of a very large acquisition. I have long said that this is one of Canada’s very best managed companies. Our last rating on this stock  was Buy at $56.37 dated May 23.

Statistics Canada reported investments in new housing construction as of June. This is of great interest to those holding Melcor shares. The single family housing investment in Alberta in June was 33% lower than June of 2015 and 40% lower than June of 2014. There is no doubt that Melcor is selling a LOT fewer building lots. (Lot sale numbers were down 56% in Q2, but the average selling price was up 17% such that lot sale revenues were down “only” 25% and this activity remained profitable.) The shares certainly seem undervalued on the basis that they are selling at just over half of book value. But the stock market does not tend to be kind to a company with such cyclic earnings. On top of that the very low trading liquidity contributes to the low share price. I will update the report on Melcor soon but it seems clear that investors will have to be patient.

August 21, 2015

On Friday, the S&P 500 and Toronto were each down 0.1%.

The biggest move on our list was Walmart, down 2.0%.

Statistics Canada reported July inflation numbers. There is a lot of data in the report. You can click to the source CANSIM tables to see vast amounts of underlying data. For example you could drill down to see the specific inflation rate for bananas or potatoes if you wish. But the most important number is the Bank of Canada Core Index which was at 2.1%. This means that the Bank of Canada considers that the best estimate of the underlying inflation rate after stripping out the volatile food and energy price changes is 2.1%.

It does NOT mean that anyone ifs ignoring those volatile categories. Headline actual inflation is also reported and was 1.3%. As I have stated before, back when actual inflation was HIGHER than the core inflation there was always a chorus of people chanting that Statistics Canada and the Bank of Canada were ignoring the high inflation numbers by looking only at core inflation. Now that core inflation is actually higher than headline inflation, the chorus has gone silent.

Toll Brothers are expected to report strong earnings growth on Tuesday morning. The big Canadian banks also start to report earnings this week. The focus will be on loan losses and the outlook for loan losses. This will be even more the case when Canadian Western Bank reports earnings on September 1st. So far CWB has acknowledged that its loan losses on oil and gas production loans are up significantly but has not indicated that there would be much contagion to other customers. That may or may not remain the case.

August 18, 2016

On Thursday, the S&P 500 rose 0.2% while Toronto was flat.

Oil is at just shy of $49 and the Canadian dollar is at 78 U.S. cents.

Walmart was up 1.9% today and is up 21% this year. But that came after a 29% decline in 2015.

It’s hard to say where the Canadian dollar is headed next. (If oil keeps rising the Canadian dollar will likely keep rising) My strategy would be to think about moving Canadian dollars into U.S. investments slowly if and as the Canadian dollar rises and do the opposite as it falls.

Statistics Canada today reported the number of people collecting “Employment Insurance” in June.

The Alberta number was about unchanged versus May although up 40% year over year.

I saw with interest that the number in Cape Breton, Nova Scotia was down 4.5%. That may have been a statistical anomaly such as an imperfect seasonal adjustment. I doubt that it was due to any increase in employment. It could mean people left the area although I was under the impression that the flow of people was more so back from the oil patch rather than toward the oil patch. It could also reflect EI claims running out and I suspect that is the case.


August 17, 2016

Wednesday’s action saw the S&P 500 rise 0.2% while Toronto was about unchanged.

Stantec was up 3.0%.

Oil is now at $46.78

There was a report that U.S. housing starts increased more than expected in July. That bodes well for Toll Brothers.

See the post below this one for the update on Element Financial.

August 17, 2016 – Element Financial Updated Report

Our report for Element Financial is updated with a rating of Speculative Buy at $13.60 (It closed today at $13.55).

I have  a mixed message here. Based on the numbers, Element looks like good value. And it is about to split into two separate companies on October 3 specifically to try to increase the share value. And it is likely to continue to grow.

However, I have a hard time getting past the incredibly high executive compensation and especially management’s aggressive view of adjusted earnings which adds back very considerable amounts of non-cash equity compensation as if it were not a cost of doing business, and they also appear to even add back the preferred share dividends and all income taxes. And this quarter with the higher Canadian dollar which lowered their numbers they provided growth on a currency neutral basis. But they did not do that when the currency was moving in their favour. All in all, I found I was not willing to trust this management.

Still, I will hang onto my shares at least until we see if the split in the company increases its value this Fall.

It is remarkable that Element was able to raise equity and borrow billions of dollars to grow so fast. Another worry though is that in the finance business it is easy to grow by purchasing loans. And that has apparently worked out well with a bonus as interest rates fell. But it can also work out badly. In the world of lending money, profit is not really known until the loan is paid back (since there could be bad loans). Element does appear to be reasonably profitable and with profit ratios trending up. But the possibility of bad loans always lurks.

August 16, 2016

On Tuesday, the S&P 500 was down 0.6% and Toronto was down 0.5%.

Alimentation Couche-Tard was up 3.1% on rumors that it will announce a major acquisition.

Statistics Canada reported June auto sales. In Alberta the June sales were up slightly versus last year though still down 17% versus 2014.

For Canada overall, the June sales were up 7% versus 2015 which in turn had been up 1% versus 2014.

While AutoCanada is concentrated in Alberta, these numbers don’t look bad at all. Alberta auto sales are down 17% versus 2014 but that would seem to be more than fully reflected in the share price decline.

Statistics Canada also reported that manufacturing sales in Canada rose moderately in June following a similar sized decline in May.

Oil is trading above $46.

August 15, 2016

The U.S. markets closed at record highs on Monday with the S&P 500 up 0.3%. Toronto was up 0.2% but is not near a record high.

Our biggest gainer today was Toll Brothers, up 3.2%.

Oil remains above $45.

Warren Buffett and Berkshire Hathaway have taken the extremely rare step of refuting some ridiculous online story that Buffett had made dire predictions about BREXIT. Usually Buffett refuses to comment on all rumors.


August 14, 2016

On Friday, the S&P 500 was down 0.1% and Toronto was down 0.3%.

Element Financial was down 3.5%. I have been reading its annual report and its latest quarterly report. I find management to be very aggressive about adding back things in adjusted earnings. They do that to a point where I definitely would not trust them. They also seem overly concerned with the stock price and are splitting the company in two to try to raise the value that way. It may work. This is a complicated company and at best I would consider it to be a speculative pick. I plan to crunch the numbers and update the report in the next few days.

Oil is at $44.70 which should be positive for our Alberta-based companies.

If I had U.S. dollars available I would add to my Toll Brothers position ahead of its earnings which come out on the 23rd. My understanding is that they will report a good profit gain based on houses they contracted to build last year. That should be baked in unless there are unusual expenses. On top of that I expect that their contracted sales should have been up in the quarter as well, as the U.S. economy has been improving.


August 11, 2016

On Thursday, the S&P 500 rose 0.5% to a new record high close of 2186. The DOW and the NASDAQ also set new record highs.

Are these markets over-valued? Well, they would appear to be based on earnings and based on assuming  future earnings per share growth in the range of up to 5% and using any kind of traditional required rate of return such as 6% or more. But if interest rates are going to stay near zero percent then maybe the required return on stocks is more like 4%. In that case the S&P 500 is not over-valued. Or maybe earnings for the S&P 500 are going to grow at more like 9% because they are currently in a dip or because of technology and growth. In that case the DOW and S&P 500 are not over-valued. But based on conservative figures I would say, yes, the S&P 500 is over-valued at this time.

But that does not mean that individual stocks on our list like Wells Fargo and Toll Brothers are over-valued. Those stocks have P/E ratios far lower than the average for the S&P 500.

The biggest gainer on my list today was the Bombardier preferred share, up 2.3% to $17.94. That has been a wild ride over the past couple of years. These shares still yield a hefty 8.7% at this price and so still have upside if Bombardier’s outlook and finances improve. But they remain risky.

Melcor was down 1.5% after posting Q2 earnings after the close yesterday. It only traded 1016 shares today. It increasingly seems that owning this stock requires extreme patience. It gets very little interest from the market.

Oil was up today on rumors and hopes that OPEC members will agree to freeze production at their September meeting. It is sad to realise that Alberta is so reliant on riding the coat tails of a price-fixing cartel. That aspect of Alberta’s great economic success is not something to be proud of. Alberta and the oil companies did nothing wrong at all by benefiting from the price-fixing collusion of OPEC for many many years. But it is an uncomfortable aspect of that success. An aspect that few in the oil industry in Alberta would be willing to acknowledge. Or maybe they would acknowledge that OPEC colluded to fix prices at artificially high levels but would argue that this was a good thing. It was indeed a good thing for Alberta. But not for the billions of oil consumers around the world. There is a reason that colluding to fix prices is usually illegal.

August 10, 2016

Wednesday saw the S&P 500 down 0.3% while Toronto was down 0.2%.

Boston Pizza Royalties Income Fund was out with Q2 earnings this morning. Distributable cash per unit was up 1%. I thought distributable cash per unit might fall this particular quarter due to the business interruption in Fort McMurray. This 1% growth is decent. The units now yield 6.4%. I view this cash yield as low risk. The unit price can certainly move around but the cash yield seems very safe. And I expect that cash distribution to continue to rise albeit quite slowly over the years. To my mind, a 6.4% cash yield that is low risk and is expected to grow remains attractive. Although the lows early this year were a better time to buy, I think BP remains a Buy today. The units basically did not react to the earnings news today.

Melcor released earnings after the close. Their earnings have some confusing and frankly nonsensical non-cash items. When the REIT units of which they own 56% go UP in price, Melcor has to report a loss in earnings and book value on that due the higher liability to the 44% minority interest. This is a nonsensical artifact of consolidation accounting. If they owned 49% and did not consolidate they would book a gain in book value and in comprehensive income when the unit prices rise.

Melcor suggests we focus on Funds from operations per share as a better profit measure. That figure was 25 cents per unit down a penny from last year and comfortably higher than the 12 cent dividend.

These earnings look decent to me given the Alberta recession. We shall see how the market reacts over the next few days.

August 9, 2016

On Tuesday, the S&P 500 was about unchanged while Toronto was up 0.3%.

The rate reset preferred shares seem to be rising the last few days. This despite that the five year government of Canada yield remains low at 0.6%. If interests stay very low then perhaps some of these pref shares that will reset at say 4% won’t look too bad. But each of these has to be looked at individually as the reset premiums over and above the lowly five year yields vary a lot as does the timing of the next reset.

We have a number of earnings reports to look forward to in the next few days.

I note that Valeant jumped after saying  it will sell assets to reduce debt. I would not get too excited about that until we see if they can sell assets for more than they paid or not.

August 8, 2016

On Monday, the S&P 500 fell 0.1% while Toronto rose 0.7%.

The biggest gainer on our list was AutoCanada, up 3.2%.

Stantec was down another 2.6%. Looking at the conference call transcript, analysts asked about the project execution problems in Q2. But the explanation seemed good and it does not sound like a major concern. Analysts were concerned about the ability of the company to show better comparable numbers in the last half of 2016. Stantec explained that certain costs related to acquisitions are not adjusted for. They just adjust for external costs. This means that one could view Stantec’s earnings as being slightly higher than reported on an adjusted basis. Analysts were concerned that certain rsults came in lower than projections. (Perhaps these analysts don’t understand that the business is inherently somewhat cyclic and unpredictable).

Statistics Canada reported June building permits. The statistic that interests me most is the single family permits for Alberta. And those are now running at about 800 per month in Alberta. That’s down from about 1000 last year and closer to 1500 in 2013 and 2014. So that is a big decline. But the good news is that home building in Alberta is still happening. The reality is that that home building and therefore selling single family building lots is a very cyclic business. But Melcor can weather the storm and or adjust to the smaller volumes. And meanwhile its income properties division is much more stable. Melcor also develops commercial buildings. I suspect they will scale back on that. The good news there is that it is a business where they use others to do the physical work so they don’t have a huge amount of fixed costs. Melcor is scheduled to report Q2 earnings after the close on Wednesday. While Melcor is cyclic, it has not had a loss on an annual basis since 1987. And I don’t suspect any such loss is in the cards in the next year or so, although I can’t guarantee that.


August 7, 2016

% to $15.05.

On Friday, the S&P 500 rose 0.9% to a new closing high. This was driven by a strong U.S. jobs report. And Toronto rose 0.8% despite a weak Canadian jobs report.

Bank of America was up 3.9% to $15.05.

Constellation Software was up 3.6%.

Boston Pizza Royalties units were up 2.5% to $21.73. (It reports earnings on Thursday)

AutoCanada was up 3.9% after reporting Q2 earnings.

Stantec was down another 1.5% as further reaction to its Q2 earnings report.

Berkshire Hathaway reported earnings after the close on Friday. It was interesting to see that Berkshire appeared to have no exposure at all to the Fort McMurray fires. I thought it might have a small exposure through its re-insurance operations. Interestingly, Berkshire indicated that it is refraining from accepting certain property catastrophic coverages as it believes market rates for that insurance are too low.

Overall, Berkshire’s report revealed some slowness in the U.S. economy but its manufactured housing sales were up. This bodes well for Toll Brothers which I think will have a good earnings report (on August 23). Toll Brothers could report strong profit growth based on house deals it made last year named may also report strong deals being signed in the latest quarter. Houses remain FAR more affordable in the U.S. than in Canada and U.S. house prices are likely to increase.

Canada’s jobs report was weak and included the following:

After three months of little change, employment declined by 31,000 (-0.2%) in July. The unemployment rate increased 0.1 percentage point to 6.9%.

Full-time employment fell by 71,000 from June to July, while part-time work was up by 40,000.

Compared with 12 months earlier, total employment increased by 71,000 or 0.4%, with all of the growth in part-time work. Over the same period, the total number of hours worked rose by 0.4%. 

In July, employment decreased among youths aged 15 to 24, while it was little changed for the other demographic groups.

Employment declined in Ontario and Newfoundland and Labrador, and increased in British Columbia and New Brunswick.

Fewer people were employed in public administration in July, while employment in health care and social assistance increased.

The number of public sector employees fell in July, and there was little change in the number of private sector employees and self-employed workers.

While this is negative, it is also not really surprising given the down-turn in most commodities. This survey is only accurate to about plus or minus 29,000 and so one month of data should not be taken too seriously. The survey indicated that public sector jobs were down by 42,000 in July. That is more than a little bit hard to believe.

Canada’s trade deficit also widened.

Canada’s imports increased 0.8% to $45.0 billion in June. Import volumes were up 0.7% and prices rose 0.2%. Exports increased 0.6% to $41.4 billion, as prices were up 2.0%, while volumes fell 1.4%. As a result, Canada’s merchandise trade deficit with the world widened from $3.5 billion in May to a record $3.6 billion in June.

In the second quarter, imports decreased 1.4% to $134.7 billion. Exports dropped 4.7% to $124.0 billion, the largest decline since the second quarter of 2009. Consequently, Canada’s quarterly trade deficit with the world widened from $6.4 billion in the first quarter of 2016 to a record $10.7 billion in the second quarter.

This is negative for the economy especially since it seems to be more of a trend and not just a one month report.

August 7, 1016 – Stantec Report Updated

Stantec is updated and remains rated Buy now at CAN $29.95 and U.S/ $22.72. It has suffered a significant decline in adjusted earnings per share in the past nine months due to the weakness that it oil and gas and mining customers are facing. But its recent HUGE acquisition could boost earnings per share significantly in 2017. And it will have “lapped” the poor quarters beginning in Q4. It remains a very well managed company and will likely to continue to grow and achieve new highs over the years. Now that it has reported Q2 results there may be no reason to push the stock up in the next few months however. It may tend to trade in line with the outlook for commodities including especially oil prices.

August 4, 2016

On Thursday, the S&P 500 was about unchanged whil;e . Toronto was up 0.1%.

Canadian Tire rose 4.4% on a strong earnings report.

After the close, Liquor Stores N.A. reported what looks to me like weak results but which they describe as strong.

Also after the close, AutoCanada reported what appeared to me to be decent results.

Stantec declined 6.8% after reporting earnings this morning. I remain confident in this company and I added to my position today. The stock may move in one direction or the other tomorrow as analysts further digest the results including what they learn on the conference call that occurred after the close today.

Most of the preferred shares on our list rose today.

The Canadian Western Bank rate reset preferred share on our list closed at $17.91. Our most recent rating was (higher) Buy at $16.61.

I have a capital gain of 7% on this investment in addition to having earned about a similar amount in dividends. I may sell some or all of this position to raise cash and eliminate my small amount of borrowing. But I continue to see these shares as a decent investment.




August 4, 2016 Stantec Earnings

Stantec is down 6% to $30.65 after releasing earnings that were lower than last year. The market may be over reacting. Earnings are lower mostly due to costs associated with their recent very large acquisition although as well due to some problems on several of their projects. I have not yet looked at the full earnings report but I am inclined to add somewhat to my position at this price and then see where the market settles out as it digests the news. Stantec’s latest large acquisition could result in significant earnings growth in the next few years.

August 3, 2016

On Wednesday, the S&P 500 rose 0.3% and Toronto rose 0.2%.

Oil was up about 3%.

Most of the stocks on our list were up modestly. AutoCanada, which will report earnings tomorrow (Thursday) was down 1.6%.

With the recent weakness in oil prices and with house prices apparently starting to decline and with the impact of the 15% foreign buyer tax in Vancouver it is certainly possible that Canadian Western Bank will come under downward pressure. The same is true of Melcor. Although these companies seem like very good value that does not mean they can’t drop in price.

My own portfolio is highly concentrated and contains very little cash.

As I thought about all of this today I decided that I should sell some of my very large position in Boston Pizza. In a taxable account I had a gain of just over 15% on Boston Pizza. I had bought most of those shares at prices around $19 and some at lower prices. I had used some borrowed money to buy these. I generally don’t really like using borrowed money but this seemed like a safe investment. But these shares had fallen under $16 in January and then had climbed back to about $18.50 and bounced around that level for over three months before rather quickly jumping to the $21 about a month ago. I still like this investment but I decided it was prudent to reduce my BP position. So today I sold the shares in the taxable account where I held about 24% of my BP shares. This was a good investment with a good return. I may sell some in other accounts especially if the price rises. However, I plan to retain perhaps 5% or more of my portfolio in this name.

August 3, 2016 CN rail report updated

The report for Canadian National Railway Company is updated and rated Weak Sell / Hold. In Q2 its carloadings were down 11%. Earnings per share were down 0nly 4% as currency exchange, lower fuel prices and fewer shares along with strong cost management cushioned the blow. However the company is projecting an earnings decline of an average of 4% in each of the next two quarters. And its not clear that the decline in car loadings will be reversed anytime soon. CN is a strong company with an excellent record of creating value for share holders. But it now appears that the risk to the share price is somewhat weighted to the downside.

I had a about 1% of my portfolio in this stock having bought it within about the past year in our Tax Free Savings Accounts. I had a gain of 10% in one account and 13% in the other. I decided to sell these shares given the weak outlook and given a desire to have some cash for other investments.

August 2, 2016

On Tuesday, the S&P 500 was down 0.6% and Toronto was down 0.7%.

Oil closed at $39.50.

Almost all the stocks on our list were down.

July was a very strong month for stocks and it is not surprising to see markets move in the other direction.

I am looking forward now to Q3 earnings reports on Thursday from AutoCanada and Stantec. Melcor and Boston Pizza report next week.

August 1, 2016 FedEx report is updated

FedEx is updated and rated Buy at $161.66. (This was yesterday’s closing price, as I post this it is at $158.78, down 1.8% on a day that most stocks are down).

FedEx has substantially increased its earnings due to cost cutting and due to share buy backs. It has just closed a major acquisition and appears set for continued profit growth in the next few years. However, it also faces the slower growth in the world economy.

FedEx was up 8.5% in 2016 as of yesterday’s closing price. The dividend was recently increased by 60% but the yield remains low at 1% as it retains most of its earnings.

August 1, 2016

On Monday, the S&P 500 was down 0.1% whilke Toronto was closed.

Heineken fell 3.7% after reporting earnings partly due to the forecast impact of the weaker Euro.

Oil is down to about $40 and this could certainly cause Canadian and especially Alberta stock prices to decline.



Costco Report, updated

Costco is updated and now rated Sell at $167.22

Costco is an exceptionally strong company and will certainly continue to grow its earnings per share over the years. But it’s trading at almost 32 times trailing earnings and that is very expensive. It is essentially pricing in most of the earnings growth that we might reasonably expect over the next five years. That does not leave much room for earnings to outperform expectations. At this price I would sell.

Costco almost always seems at least somewhat expensive. But there are occasional dips where the price is more reasonable although not cheap. Last August 24 I reported grabbing some shares at $125 on a panicky day in the markets. I sold those October 22 at $154.90. This May it briefly dipped to $141.

Amazon report, updated

The report for Amazon is updated and is rated Sell at $759.

Amazon has a P/E ratio of 189 times trailing earnings.

There are several possibilities to explain such a high P/E:

i) Perhaps the GAAP earnings are understated – And I think there is some truth to that in that Amazon expenses spending to acquire PRIME customers and other marketing expenses that in substance may be creating assets in that these expenses will benefit future years and yet the total expense is charged in the current period, lowering the net income. However, I’m not sure that are nearly enough of such expenses to explain the P/E.

ii) Perhaps earnings are set to grow dramatically – And there is surely some truth to that. The difficulty however is that with a 189 P/E we are being asked to pay up in advance of these earnings on the assumption that they will materialise. And it is very difficult to guess the growth rate especially when the company remains focused on growth and not profits.

iii) Perhaps the market is simply over-pricing Amazon – And that is possible since with low earnings but huge growth it is difficult for investors to know what the stock is really worth. With the share price not being anchored to earnings it may have free floated to an unsupportable level.

In any case Amazon does not rate a Buy rating using my standard approach. From my perspective it is a speculative stock due to the high stock price. The company itself seems sure to do well, but that may or may not be the case for the stock price.



July 30, 2016

On Friday, the S&P 500 and Toronto were each up 0.2%.

Statistics reported on GDP figures for May. The decline in real GDP was (estimated) at 0.6% annualized with the decline mostly attributed to lower oil sands production due to the Fort McMurray fires. Excluding the oil and gas industry there was still a 0.1% annualized decline as the construction sector contracted. Rail transportation, manufacturing and utilities were also down.

I’d be more concerned about these broader sectors than the oil sands contraction. The oil sands that would have been mined and processed during May would likely have contributed to a surplus and so is not a great loss. Also may of the workers will likely be paid for May even if they could not work. Therefore this particular loss may be more of a loss for the energy companies than for the general economy.

Statistics Canada also reported on food services and drinking places for May. Sales in full service eating places were about unchanged from the prior month. Overall the report would be considered neither good news nor bad news for those who hold Boston Pizza shares.

July 28, 2016

On Thursday, the S&P 500 rose 0.2% and Toronto was about flat.

AutoCanada was down 2.1% perhaps indicating some lack of confidence regarding its Q2 earnings to be released next week.

Amazon came in  with another record quarter. I am going to update my report on Amazon and will consider whether its earnings have been under-stated due to expensing certain marketing or other expenses that are really more in the nature of investments designed to drive future sales for many years.

Heineken is added to our list

Heineken had its start in Amsterdam in 1864 when Gerard Adriaan Heineken, at the age of 22, purchased an existing Brewery.

Heineken N.V. is a very strong company with excellent growth and profitability. Unfortunately, the stock price already reflects this. Still, it s worth considering for diversification including currency diversification. It will report earnings for the first half of 2016 next week.

Heineken (HEIA) trades mainly on the Amsterdam stock exchange (which being founded in 1602 is considered the oldest stock exchange in the world). North America investors will find it more convenient to purchase the America Depository Receipts which trade as HEINY. Two HEINY ADRs are equivalent to one common share.


July 27, 2016

On Wednesday, the S&P 500 was down 0.1% while Toronto was about unchanged.

AutoCanada was down 2.1% to $22.12. It will report earnings on August 4.

Oil is at $42.08. We may see Alberta-based companies decline in price if oil does not bounce back up. So, far our Alberta stock picks have not been much affected by this latest dip in oil prices.

Statistics Canada reported today that Canadian rail car loadings were down significantly in May. In part this was due to the Alberta fire. But the decline has been in evidence in all of 2016. The latest figures from the America Railroad Association show that the decline has continued into July although the decline is not as large in recent weeks.

I have now run some numbers on Heineken as an investment. It’s a great company with strong brands and would likely be a reasonable lone term investment. But it’s not cheap at this time and so is not a compelling Buy. Still, some might be interested for the diversification including currency diversification.

I checked the feasibility of buying shares on the European exchanges and found that the minimum charge at TD Direct was $175 rather than the $10 that I pay for Canadian and U.S trades. On top of that there would be fairly hefty fees for exchanging currency (such as maybe 1.5% over and above the official exchange rate). So, that would prevent most small investors from trading on non-North America exchanges. At least that is the case with TD Direct.

However, Heineken, like many non North America companies trades indirectly in the U.S. in U.S. dollars as an America Depository Receipt (ADR).

In the case of Heineken N.V., we can buy its shares as HEINY on the over the counter exchanges in the U.S. (In that case we are back to paying $10 trading fees) Note however that it takes two shares of HEINY to equate to one actual share of Heineken N.V. It appears to me that Yahoo Finance is showing a P/E level for HEINY that is exactly half the true P/E and a dividend yield that is about double. Yahoo Finance appears to mistakenly assume that one share of HEINY is equivalent to one share of Heineken. Note also that there is a parent company that also trades. Heineken Holdings N.V. owns about half of Heineken N.V. and presumably other assets but is a separate company. My analysis will be for Heineken N.V., not the parent holding company.

By the way, the fact that HEINY trades in U.S. dollars, in no way changes the fact that the underlying investment earns its money mostly in Euros. The currency risk would be the same as if the shares were purchased in Euros with the exception that buying in U.S dollars in a U.S. dollar account avoids exchange fees.





July 26, 2016

On Tuesday, the S&P 500 was about flat while Toronto was up 0.4%.

Stantec was up 2.2% to $33.84. Toll Brothers was up 1.7% to $29.14.

I am looking at adding Heineken to our list of stocks. It trades in Europe but can be purchased in U.S. dollars as an American Depository Receipt. Details to follow. It’s not a cheap stock but it has many popular brands and appears to be a well run company,

July 25, 2016

On Monday, the S&P 500 fell 0.3% and Toronto was down 0.7%.

There were no particularly noteworthy movements in the prices of the stocks on our list.

Oil is down to just over $43 and the Canadian dollar is down to 75.7 U.S. cents.

CN Rail reported better than expected earnings.

Wells Fargo Preferred Share Report, updated

The report on the Wells Fargo preferred share on our list is updated and rated Sell at $26.07.

While the 4.9% yield on these preferred shares may look attractive given the strength of Wells Fargo and given record low interest rates, these shares are callable at $25 only 17 months from now. If they are called at that time, the return realized in the 17 months is going to total about 2.2%. I see no reason to hold these shares.

I had first added these shares to the site in April, 2014 at $21.84. Prior, to that I had mentioned on December 19, 2013 that I was buying these at $19.80. It seems that the price of these shares has sometimes traded to low but now seems too high.

Visa Inc. Report, updated

Our report on VISA Inc. is updated and remains rated Weak Buy at $78.94.

VISA is a very strong company with exceptional economics. But it is also expensive. The amount of payments flowing through its system is sure to grow. But there is also pressure to reduce its charges. We would not be excited about buying it at this point.


TransForce Report, updated

Our Report for TransForce is updated and rated Buy at $24.81.

I like the approach of the founder / CEO of this company which I find to be highly rational and also very open and transparent. His strategy has ben very successful over the years and this will likely continue despite slower periods such as the company is experiencing at this time (mostly due to the weaker Canadian economy).

The stock is down 4% since I added to the site in late October. But it’s up 22% since our last update on February 14th. The stock price declined in early 2016 and bottomed out at just under $19. This volatility provided buying opportunities.

The company will likely report an earnings decline in the next two quarters and so it is certainly possible that the price could dip again. But overall it is reasonably valued at this time and will likely continue to be a good long term investment.

July 21, 2016

On Thursday, the S&P 500 was down 0.4% while Toronto was up 0.2%.

TransForce reported, after the close, earnings that were lower than last year and with a weak outlook. However, this may have been anticipated.

VISA reported lower earnings mostly due to special charges associated with its acquisition of VISA Europe (which previously was a related but separate operation).

American Express fell 1.6% as analysts calculated that its earnings guidance appeared to suggest weaker than hoped for earnings in the back half of 2016. Analysts perhaps were sceptical about the forecast for strong growth in 2017.

Statistics Canada reported that investment in new singly family homes fell 2.6% year over year in May. Investment in new single family housing fell 38% in Alberta. Clearly, Melcor will continue to be in a period of significantly lower lot sales. But the company is well positioned to get through this slower period. To date there does not seem to be any indication that the value of its land holdings and building lot inventory has decreased although presumably the value is down by some small percentage. Meanwhile the stock trades at something close to only half its book value and so that would appear to offer a strong margin of safety.

Statistics Canada also reported that wholesale trade in Canada rose 1.8% in May.

Donald Trump’s speech offered a lot of promises and will appeal to many voters. In fact the promises might appeal to most voters if they believe the promises can be fulfilled. But the speech was short on details and also appears to have generated lots of controversy. Markets may react negatively if it is perceived that Trump could beat Clinton.

Trump speaks of the need for increased law and order. Meanwhile the black community is seeing video of police approaching routine traffic stops of blacks with guns drawn and fingers on apparently hair triggers. Not surprisingly, this approach is leading to shootings.

Trump also spoke of defending the right of Americans to bear arms (which apparently includes the right to bear machine guns which is what assault rifles appear to be).


July 21, 2016

Hey guys,

Been awhile, hope everyone’s doing swell. Quick note on Questrade. The Globe & Mail does brokerage comparisons every year and their 2015 one is here. Didn’t realize I was getting robbed by TD via commissions until I looked at their competitors. Did a bunch more research a found Questrade to be the best value. Some highlights:

Read more

July 20, 2016

On Wednesday, the S&P 500 was up 0.4% to another record high closing. And Toronto was up 0.1%.

Notable gainers included Liquor Stores N.A. up 2.7% and Dollarama also up 2.7%, Canadian Western Bank up 2.2%.

After buying on dips over the last year or so, I have no net cash in my portfolio at this time. I’d like to be holding some cash so that I can take advantage of dips. But I am very reluctant to sell stocks that I think are under-valued in order to raise cash. Logically it should be my rating on the stock that drives my decision to sell a stock, or not. But inevitably, it is also always particularly hard to sell a stock that is lower than the price I paid unless something very negative has happened and I have little expectation of the stock rising. That is I would trim a stock with a high rating if it was a large portion of my portfolio and I was in a gain position but it’s hard to trim a buy-rated stock if I happen to be in a loss position. It’s also hard for me to get myself to trim a Strong-Buy rated stock even if I already have a strong gain on it.  I always like to show the courage of my convictions in that regard.

Given the recent strong gains in Boston Pizza and given that I am in a gain position on that stock (on top of the strong dividend) that is one stock that I may choose to reduce. I have an order in to sell a very small portion of my holdings if it hits $21.50. That sale will be in an RESP account where I particularly need to raise cash.

Overall, I don’t expect to do much selling until and unless the prices of my larger holdings rise more significantly.


American Express Report, updated

The American Express report is updated for yesterday’s earnings release. It is no rated Speculative Buy as opposed to the previous Weak Buy/ Hold. Based on the Q2 report it appears to me that AMEX expects adjusted earnings to rise about 15% in 2017 despite the loss of the Costco business. However, the adjusted earnings figure was not directly provided and so it is not entirely clear what growth the company is expecting. But they do appear to be confident about growth and that combined with the relatively low valuation should make this a good investment going forward.

As a side point, it is certainly unfortunate that the Costco business was lost. I believe the Costco co-brand was a LOT more valuable to AMEX than it is to VISA. That’s because a typical Costco member probably already has a Visa card and so is not a new card holder for VISA. They CAN be attracted to the Citi bank VISA co-brand but only with a very generous reward level. I believe Citi has paid dearly to get the Costco business. In theory AMEX should have been able to out bid Citi. But when a competitor bids an irrationally large amount to get the business it may be wise to let them have that business. A lot of Costco spending is likely to go to non-Citi Bank VISA cards. Citi Bank may have struck a deal with Costco that will primarily benefit other VISA card issuers. All VISA card will likely earn only a small discount rate at Costco. But for non-Citi bank VISA cards it likely comes as incremental revenue at no added cost. For Citi-Bank Costco branded cards it comes as added revenue at Costco and spending outside of Costco but comes at significant cost in terms of rewards to customers. In the case of AMEX many Costco customers were not AMEX cardholders and HAD to become AMEX cardholders in order to use a credit card at Costco. But Costco customers who already have a VISA card can just use that rather than switch to the Citi Bank version.


Wells Fargo Report, updated

Wells Fargo is updated and remains rated (higher) Buy now at $48.53.

As I read the earnings report I was struck by the many positive aspects including robust growth in loans and deposits as well as the large share repurchase program. The earnings report is concise and well organised. (This is unlike the reports of Bank of America and of America Express which I have found to be much less so.) Listening to part of the conference call it was clear that management was confident and that they know their numbers when responding to the questions of bank analysts.

Banking is not as profitable as it was some years ago. Lower interest rates and lower allowed leverage have reduced the return on equity in banking. Nevertheless, Wells Fargo remains a highly profitable bank with a return on equity of about 12%. We have to pay a 40% premium to book value to buy shares but that still means a return on market value of equity of 8.3%. And if the company continues to earn about 12% (which is possible but not guaranteed) then due to retained earnings, long term holders might expect to see a return of more than 8.3% on average over the long term and would approach 12% in the long run. An 8% return is quite attractive in today’s low return environment. Of course, the return in any given year can be negative even when earnings are rising. But over time the return is driven by earnings.

Unless you are someone who is convinced that banks are inherently evil, there is a LOT to like about Wells Fargo. I believe that management sincerely believes that success comes from providing valuable service to customers. I think that one can take pride in owning shares in Wells Fargo which is well managed and which does in fact contribute positively to the economy. (If you think banks are evil, try to imagine an economy without banking. There might not be much debt but the installed base of housing and factories and all manner of productive asserts would be a small fraction of what it is now.)

Wells Fargo is not a stock that is going to double much less triple anytime soon. But it is a solid stock that will likely reward investors over the next few years and beyond.

July 20, 2016 (8:50 am eastern time)

On Tuesday, markets were about flat.

Melcor bounced up 5.0% but this essentially merely offset the decline of the previous day in this volatile and very thinly traded stock.

Bombardier was down 2.9% and faces more negative news today regarding delays in product deliveries and a minor problem that caused its first C-Series jet is service to return to Zurich after a flight from that airport by its initial customer, Swiss Air.

Canada’s enhanced child tax benefit payments begin to be received this week. It should have a positive impact on consumer spending.

Statistics Canada reported yesterday that new auto sales were down 1.6% year over year in May. For Alberta the decline was 9.6%. For AutoCanada I would describe these sales as not so bad and probably better than expected. BC and Ontario where it also has dealerships had small increases. But AutoCanada fell 1.3% yesterday. It will be interesting to see if auto sales get a boost in June or July as destroyed autos in Fort McMurray are replaced.

July 18, 2016

On Monday, markets were up as the S&P 500 rose 0.2% and Toronto rose 0.3%.

A notable gainer was Bank of America up 3.3% despite reporting an earnings decline of 20% in Q2 versus last year. Clearly the decline was expected. Bank of America plans to cut costs. I mentioned in my report that it likely needs to do that and I think it has the ability to do so as banking becomes more and more automated.

Melcor was down 4.4% but as always this is a volatile thinly traded stock and day to day moves in the order of 4% mean very little if anything.

Oil is down to $45.72 which is negative for many Canadian companies.


July 17, 2016

On Friday, Statistics Canada reported that manufacturing activity across Canada was down 1% in May, the third decrease in five months. While there were some temporary factors, it does appear that the trend is negative.

Statistics Canada also reported data on median family incomes by City in 2014. Note that such data can easily be “spun” to argue that family incomes are either low or high. When we say “family” most of us think of our own situation or maybe a couple with children. Those families have higher average income than all “families” since some families are single parent families. People who live alone and are not part of a family as defined by Statistics Canada have lower incomes on average. If you include everyone, than median family incomes are lower than for couple families.

July 17, 2016

I was unable to post for a few days due to lack of a sufficient internet connection. But the market did very well in the meantime reaching new highs in New York.

The terrible attack in Nice, France had no noticeable impact on North American stock markets. Interest rates did rise but that was from record lows. The unfortunate reality is that these attacks are no longer unexpected. But the world at large has to pursue business as usual. I was briefly in western France on the German border the morning after the attack and it was absolutely business as usual there in the tourist area and we did not feel as if the attack had been close by at all. Going about business as usual is perhaps one way that people can do there part to make sure that the terrorists don’t win.

Meanwhile, in the markets Wells Fargo reported earnings about as expected although it fell 2.5%.

Reports show that new house prices have held up very well even in Alberta and that bodes well for Melcor. The market value of its land holdings is likely down by only a small amount. It is well capable of lasting through the slowdown in lot sales. And it has its commercial rental income to provide stability in the meantime.

This week the market will have more Q2 earnings reports to digest.

July 12, 2016

Stocks rose again on Tuesday with the S&P 500 up 0.7% and Toronto up 0.8%.

Bombardier was up 3.3% to $2.16 which is a good recovery from its lows earlier this year. But is has a long way to go if it is ever to get back to the even the $6 level that it was at a few years ago, much less its old peak of over $25 from the year 2000. Unfortunately, of course, when a stock declines it is not the case that it will necessarily ever see the old highs again.

Couche-Tard was up 2.5% and I believe that was before it released earnings after the close. The earnings growth was once again strong.

My interconnection here on the Rhine river is not good as I would have hoped but I can continue to see the market news for the most part. Posting however, is more difficult.

July 12, 2016 2 am eastern time

On Monday, the S&P 500 rose 0.4% to close at a new all-time high. Since stocks do not rise in a straight line, a new high is not something that can or should happen every day or every month or even every year. But a new all-high is also not at all unusual. Even with slower growth the U.S. economy is growing almost every year. The economy does grow in almost a straight line when plotted on a log chart. (My S&P 500 valuation article has the chart). So, it is perfectly natural that the S&P 500 index of 500 of the largest publicly traded companies in the U.S. reaches new highs periodically and relatively frequently.

The S&P 500 index is no where close to a straight line because the valuation ratios such as the price to earnings ratio changes frequently with investor optimism. Earnings can be rising while the stock index falls and the reverse is also true.

Alimentation Couche-Tard was up 4.1% in advance of its Q4 earnings release. (Stocks should really rise or fall just AFTER earnings releases not just before but can rise before on speculation or due to a leak of information.)

This week I am on a Viking river cruise on the Rhine river, and in Germany at the moment near Cologne. The internet connection on board is not bad.


July 9, 2016

On Friday the markets added to what was already a strong week. The S&P 500 rose  1.6% and Toronto was up 0.9%.

A strong U.S. jobs report helped push markets higher.

A top gainer was Toll Brothers, up 3.7%.

July 7, 2016

On Thursday, the S&P 500 was down 0.1% and Toronto was down 0.7%.

Oil was down 4.7% to $45.21.

Costco was up 4.9% on a positive June sales. It seems expensive at 30 times earnings but people keep paying up for its high quality.

Insured losses in Fort McMurray are estimated at $3.6 billion. Apparently most will be borne by reinsurance companies. But  I expect that it will be revealed that some small Alberta insurance companies such as Peace Hills will face major hits. (Maybe crippling hits)



July 6, 2016

On Wednesday, the S&P 500 was up 0.5% and Toronto was up 0.1%.

AutoCanada was down 3.6% to $21.71. I did not see any news that “caused” that but stocks don’t always need a reason to move (much less a valid reason).

Toll Brothers was up 2.4% to $27.08.

My favorite income pick, Boston Pizza, was up another 1.5% to $20.67.

With the Bank of Canada yields down at 0.50% for five year and 0.99% for ten year, the rate reset preferred share prices are down. It is possible that the yield on new rate rest preferred shares could fall to reflect lower interest rates, which would increase the price of existing issues. But the market for these probably remains weak as retail investors felt so stung by the past declines in the rate resets.

I am in Amsterdam for the next three nights.



July 5, 2016 2:15 pm eastern time

After last week’s rebound, it seems the U.S. market returned from yesterday’s Holiday in a bad mood about BREXIT which dragged down the Canadian markets as well. West Texas Oil is at $46.54.

Canadian interest rates which were already impossibly low are setting new record lows today. Some British mutual funds have suspended redemptions.

Markets always have things to worry about. But there is almost always some good news to look at as well. So, markets fluctuate.

Stock markets have never been a place for the faint of heart or those that can’t live with declines in stock prices. Stock prices never go up in straight lines.




July 4, 2016

On Monday, the Toronto Stock Exchange index was up 1.4% while the U.S. markets were closed.

It is somewhat welcome to see that Melcor rose 3.5% to $15.00. But it is thinly traded and its stock price is relatively volatile. One or two eager buyers or eager sellers can easily push the price several percentage points either way on any given day.

Boston Pizza edged up another 1.3% to $20.25. The yield is still 6.8% which is attractive. If I did not already own it, I would be a buyer at this price.

Tomorrow I leave for Amsterdam and so my posts may be at different times of the day for the next two weeks but I still expect to be able to keep an eye on investments and to post my thoughts. By mid-July the Q2 reports will start coming in for U.S. companies and a week or two later for Canadian companies.


The Hershey Company

When I heard that some company had a made a bid to buy the Hershey company, I wondered it might be Berkshire Hathaway. Buffett has frequently used the Hershey chocolate bar brand as an example of a powerful and enduring brand. It turned out to be Mondelez International which was the bidder. Mondelez, maker of various cookies, chocolate, beverages and candy brands was spun off of Kraft some years ago. Berkshire at one time had a large holding in Kraft but had a disagreement with management strategy around acquisitions some years ago and sold some or all of its shares in Kraft.

Buffett likes Hershey but might not like the price. Also he avoids getting into bidding wars. I think he would only be a buyer if he liked the price and Hersheys was very supportive of his bid and if there were a very large break fee in  the event Mondalex or other out bid him. Given the size of Mondalez, it is unlikely that they would invite Berkshire to assist in financing such as through a preferred share investment.

July 3, 2016

On Thursday, the S&P 500 was up 1.4% while Toronto was up 0.2%. On Canada Day the S&P 500 rose another 0.2%.

With the year half over, the S&P 500 is up 2.9% and Toronto is up 8.1%. (Neither of these figures include dividends)

Our Stock Picks are up an average of 3.8% (not including dividends). The highly Speculative (lower) Buy rated Bombardier was the top gainer at 55%. Other gainers include the Bombardier pref share up 26%, RioCan units up 24%, A RioCan rate reset pref share that was inexplicably or at lease very surprisingly redeemed at $25 for a 37% gain, Walmart up 19%, and Canadian Tire up 19%.

Our four Strong Buy rated stocks (from January 1) are up an average of 4.5%. And that is not including dividends and each of the four have good to excellent yields.

However some higher Buy and Buy rated stocks have declined including Toll Brothers down 19%, Bank of America down 22% and Wells Fargo down 13%. Each of these stocks have a good potential to rebound significantly before long and in any case are likely to do well over the longer term.

My own portfolio is down 3.4%. About 2% of the decline would be due to the fact that the Canadian dollar rose 7.2% since January 1 and I have a significant exposure to America stocks. I also have large exposures to Wells Fargo, Toll Brothers and Bank of America. The declines there offset my gains on the four strong buys which I also have large exposures to (except my investment in TransForce is small). My long term returns remain well ahead of the market.

Note that yesterday I sent out an edition of the free newsletter by email.

P.S. The breakdown of my personal (total household) portfolio is updated.


June 29, 2016

What BREXIT Market correction?

On Wednesday, the S&P 500 rose 1.7% to 2071. Toronto rose 1.4%.

Last Thursday, before the vote, the S&P 500 closed at 2113 as it rose that day and the day before in anticipation of a “stay” win. The S&P 500 had closed at this same 2071 of today on Friday June 17. So, it seems fair to say that BREXIT was just a little blip and has essentially been fully recovered from in the S&P 500. And oil was briefly back to $50 today and sits at $49.45. Bank stocks however are still down on BREXIT due to the view that interest rates will continue to be lower for longer.

BREXIT is still a BIG deal for the U.K and for Europe but as I suggested earlier it is apparently not a big deal for North America markets.

Individual stocks which closed higher today included Bank of America up 3.9%, American Express up 3.5% and AutoCanada up 2.9%.

Boston Pizza managed to climb over the $20 mark, closing at $20.03. This has been a bright spot in a year that has seen a lot of stocks decline. My timing was not good when I bought Boston Pizza when it had an offering of shares at $21.10 in 2014. And buying a lot more at prices over $19 in 2015 also looked questionable for quite a while. But it seems I was right to keep the faith and to also buy more at prices under $17 in January. Given the dividend I have done okay on this investment. Anyone who loaded up at prices in the $16s in January certainly did very well. Pity the folks who sold on January 15 when it closed at $15.15. The unit prices could certainly fall again, but the distributions have marched steadily although slowly upward and that should continue.

Bank of America passed its stress tests and will raise its dividend by 50%. It will still only pay 30 cents per year. But this is a very positive indication. And it will also buy back about $5 billion in shares (presumably depending on the price not getting too high) which is about 3.7% of the shares at the current price. We could  finally see the start of a sustained and material recovery in this stock.

Wells Fargo similarly easily passed its stress test. But they were in a position to hold off on any immediate dividend increase. They will adjust their dividend in due course depending on earnings.

I recognise that I need to get some updates done. I was about to update FedEx this morning when I discovered a very strange thing. They apparently accidently omitted the recent 2016 Q4 balance sheet from their June 21, 2016 earnings release and statistical package. They accidently gave the 2013 to 2015 figures instead of 2014 to 2016. I have never seen this happen before (at any company). While mistakes do happen, this seems sloppy and it seems even worse that they have not corrected the release. I called and emailed their investor relations department and they simply said they will provide the figures when they file their more formal earnings figures with the Securities and Exchange Commission. They ignored my question about how it happened or if anyone else had even noticed. The American system is a bit strange. They typically release abbreviated earnings reports (often without a balance sheet on purpose) quite quickly but the details follow some weeks later. I prefer the Canadian system where we get the info all at once (as long as it can be kept confidential until released). I suspect I would rate FedEx a buy but I will likely wait now for its full earnings report. FedEx appears to be a well managed company and so perhaps this one strange mistake is no big deal. Most analysts don’t care about the balance sheet anyhow, but I do.





June 28, 2016

On Tuesday, the S&P 500 rose 1.8% and Toronto was up 1.1%.

Almost all stocks were up.

With the five year government of Canada yield once again plumbing pretty much record lows, the rate rest preferred shares once again may suffer as the outlook for higher resets dims. This is especially true for any rate reset share that will reset within the next 18 months or. The prospect of higher rates always seems to get pushed out further into the future. (Until, perhaps one day rates will suddenly go up just when we least expect.)

Bombardier’s Investor Relations people called me today to respond to a voice message I left them questioning why they were wasting their time last week disagreeing with a Moody’s downgrade instead of getting on with actually making some money and also facing up to the fact their common equity is negative $3.8 billion and that their Board of directors are a big problem.

They were friendly enough and admitted their finances are a mess. But they did express a lot optimism about turning things  around in the next few years. They are not desperate for a federal government investment at the moment and so it’s not clear if that will happen.

Maybe they will turn things around, but the problem is that they are in a horrible industry and have a Board of directors with a long and horrible track record.

Still, I do think their pref shares will turn out to be a good investment. The common, I don’t know. It is so far down it could bounce back but it’s an awful big hole to dig out of.

I am actually not a fan at all of talking to management of companies. They will pretty much without exception paint a rosy picture. And once an analyst gets friendly with management, it’s harder to be critical of them. I tend to limit communication to the odd email and I never rely on management to give me any information. I use only publicly reported information.




June 27, 2016

On Monday, the S&P 500 fell 1.8% and Toronto was down 1.5%.

Most stocks were down including Stantec down 5.1% and Canadian Western Bank down 4.6%. And Bank of America was down 6.3%.

There are signs that Tuesday will be a better day. Oil is up 1.5% on Monday evening and the S&P futures are up about 0.8%.



June 27, 2016 noon eastern

Markets are down again today with the S&P 500 down 1.7% and Toronto down 1.6%.

The U.S. bank stocks have been hit hard. If I had U.S. funds available I would add to my Bank of America and Wells Fargo positions.

On Wednesday this week the FED will release detailed results of its annual stress tests. I understand all the banks passed the test. This could lead to a dividend increase by Bank of America and also a general increase in confidence regarding the financial strength of the banks.

Other U.S. stocks that I would consider buying include Toll Brothers and Berkshire Hathaway.

In Canada the decline in the stocks I follow has not be as deep. But I did add a small amount to my Canadian Western Bank position this morning. I would also consider AutoCanada and Stantec.

I would not be buying the likes of Boston Pizza or RioCan today since they have not declined and it seems more sensible to look for stocks that have dipped materially on BREXIT.

I don’t think anyone can predict whether the market will continue going down in the short term or instead turn around. My strategy has always been to continue to try to buy stocks that appear to offer good value.

June 26, 2016

So, the surprise BREXIT result pushed the S&P 500 down 3.6% and Toronto down 1.7%. And it pushed oil down to $47.09 and the Canadian dollar down to 76.6 U.S. cents.

Notable decliners included Bank of America down 7.4%, Wells Fargo down 4.6%. Many stocks were down 2, 3 or 4%.

Some higher yielding stocks managed to rise including Boston Pizza and RioCan.

I don’t think Brexit will have a long-lasting impact on North American stocks. There are many other factors to drive stock prices including Q2 earnings, economic data and the presidential race. It is ALWAYS the case that stock market directions are uncertain in the short term.

You can be just about guaranteed that Warren Buffett was buying stocks on Friday and that he slept well over the weekend.

Stock futures at the moment are suggesting stocks will open lower on Monday. That does not mean they will or that they won’t close higher.



June 24, 2016 11 am eastern

Markets are down on the BREXIT leave vote.

But with the S&P 500 down 2.3% it’s really not that big of a decline. Toronto is down 1.3%.

If I had spare cash in my U.S. accounts I would buy some U.S. shares such as Bank of America, Wells Fargo and Toll Brothers.

This vote is surely a very big deal for the U.K. and for Europe. But I don’t think it is such a big deal for North America and certainly I don’t think it is a reason to sell stocks.


June 23, 2016

Markets rose today on speculation of a remain vote win in the U.K. The S&P 500 was up 1.3% and Toronto was up 0.9%. The great majority of stocks rose today.

Friday’s market direction will likely depend on the Brexit vote.

Bombardier was in the news for several reasons:

The terms of a $1 billion dollar investment by Quebec were finalised. Quebec gets just short of half of the C-Series program plus warrants to buy about 4.26% of Bombardier at a price of U.S.  $1.72 which is a premium to the recent price of about $1.52. Quebec also got a 20 year commitment that certain C-Series jobs remain in Quebec. While the money was needed due to the dire straights of the company, this was not a great deal for Bombardier. Bombardier had invested $5.4 billion in the C-Series by February 2016 according to Wikipedia. Selling half of that (and with strings attached) for $1 billion is a testament to failure. The C-Series has so far destroyed at least $3.2 billion of share owner’s money.

Bombardier also announced it is delivering the first plane. Not date was mentioned but it is presumably in the next few days.

Moody’s raised the outlook on some of Bombardier’s debt or its overall corporate rating from negative to stable. But Moody’s also lowered the rating on senior unsecured debt to B3 from B2. Bombardier then issued a press release disagreeing with the downgrade and indicating that Moody’s was not giving the company credit for recent progress. It is always sad and a red flag when a company starts to argue against a credit rating agency. In my view Bombardier refuses to accept and acknowledge the horrible state of its finances. It’s own balance sheet shows that the company’s common share equity is NEGATIVE $3.8 billion dollars (After deducting preferred equity from total common equity). I am disturbed that the company would argue with Moodys. The financial mismanagement of this company can certainly not be cured while it remains unacknowledged. The Board of directors that presided over this debacle for years remains largely unchanged. Still, I do think that the preferred shares will most likely continue to pay their dividend and may rise in price and the common may also eventually rise though that is far from certain.



June 22, 2016

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

The markets are waiting now to see how the BREXIT vote goes. It will be known on Friday morning.

Boston Pizza was up 0.6% to climb back above $19.00 for the first time since August of last year. With a distribution of $1.38 per year it is still yielding 7.2%. I view that $1.38 as unlikely to be cut and likely to grow slowly (say 2%) with food price inflation. If that is the case then this will prove to continue to be a strong long term investment. I don’t see why the price can’t rise to about $23.00 where it would still yield 6.0% which seems attractive in today’s interest rate environment. Obviously, there are risks as investors can always get nervous and push down the unit price. Boston Pizza could certainly report a bad quarter or a year with declining sales. But overall, the risk reward trade-off here appears to be good.

Fedex was down 4.5% today apparently linked in part to a loss recognised in relation to pension obligations. I will update Fedex in the next few days.

AutoCanada was down 3.4% giving back most of large gain it made a few days ago. It will be interesting to see if there is a bit of a surge in auto sales in Alberta this month or next to replace vehicles lost in the Fort McMurray fires.

June 21, 2016

On Tuesday, the S&P 500 rose 0.3% while Toronto was about flat.

Toll Brothers Fell 1.2% despite the fact that Lennar, also a home building company reported an earnings gain and strong new home orders today. After the close, KB Home reported better-than-expected results.

Statistics Canada reports that investments in new homes in this country are up substantially although down substantially in Alberta.

June 20, 2016

On Monday, the S&P 500 was up 0.6% and Toronto was up 0.8%.

Most stocks were up.

AutoCanada was up 4.4%.

Stocks that I would buy if I did not already own them include Bank of America, Melcor, Toll Brothers and Boston Pizza.

Bank of America could get a boost on Thursday when it receives a stress test report from the FED.

American Express Update

Our report American Express is updated and rated Weak Buy / Hold at $62.30.

America Express is forecasting little to no earnings growth for this year and next. The credit card business is facing pressure to lower the fees charged to Merchants. American Express may need to cut cost dramatically (which it probably can do). It’s still a powerful brand and has potential but for the near-term is facing difficulty. It is expecting to report a large unusual gain next month on the sale of its Costco-related receivables and that could provide a boost although that should already be priced into the stock.

June 19, 2016

On Friday, the S&P 500 was down 0.3% while Toronto was up 0.1%.

The Bombardier Series 3 preferred share was up 4.4% to $15.25. This is a very weak company. Still, the preferred share dividend is likely to continue to be paid and governments seem unlikely to let the company go under. These shares are not without risk but should still rise once the pending government investments are finalised.

Our report for Canadian National Railway Company is updated and rated (lower) Buy. Carloadings have been declining and the company appears to be forecasting an earnings decline of an average 5% in the remaining three quarters of 2016. The CEO is resigning due to health reasons and will be replaced by the CFO. I do not view that as a concern as the management approach is unlikely to change. CN has been extremely well managed and has been an excellent investment since its IPO about 20 years ago. Carloadings do vary with the economy and will recover.


June 16, 2016

On Thursday, the S&P 500 ended the day up 0.3% while Toronto was down 0.3%.

After the close, Canadian Western Bank announced a common share issue at $24.50 which sold out very uickly. This will increase the share count by about 7.2%. I have written before that banks operate with high leverage (low common equity). I think it is prudent of CWB to issue common equity and strengthen its balance sheet at this time when it is facing higher loan losses. It is unfortunate that they did not issue equity when the share price was closer to $40. But it is prudent for any bank to issue equity at the FIRST sign of larger loan losses to insure that such losses will not threaten the company. There is every indication that CWB will continue to be profitable and that its loan losses will be manageable. But the share issue provides added insurance. CWB references growth as a reason for the share issue but they also note that their common equity ratio will be increased.

Canadian Interest rates are once again plumbing new lows. This is negative for rate reset preferred shares but, all else equal, is positive for stock prices.

Canadian Western Bank updated

Canadian Western Bank is updated and rated Buy at $25.91. This is an almost pure lending bank (The big banks derive only about half their revenues from interest on loans). While it is headquartered in Alberta, 35% of loans are in BC and in total 60% of loans are outside of Alberta. It has a long history of success and growth. However, it is currently facing higher loan losses.

June 15, 2016 9:20 am eastern

Tuesday was a negative day as the S&P 500 was down 0.2% and Toronto was down 0.8%.

American Express got spanked down 4.2%.

CN rail notes that inter-modal shipping container movement across North America is down about 7% and suggests this indicates weaker consumer spending. Warren Buffett has said that he considered rail car shipping numbers to be a key economic indicator. (He also has always said that he buys companies for the long term and does not base investments on short-term economic conditions).

Today’s market mover will likely be the FED announcement on interest rates.

I will have some updates to the reports in the next few days.

June 14, 2016 9:30 am eastern

On Monday the S&P 500 was down 0.8% and Toronto was down 0.3%. There were no particularly notable moves in our stock picks.

Boston Pizza is at $18.67. I bought some of my BP units at about $21 and some over $19. But I also bought in the $16s when it fell and so I am currently showing a modest gain on this holding. And that’s on top of the yield which is currently 7.46%. A modest gain on these units is quite acceptable given the yield. I’d like to see it get back over $19 and I suspect it will get there. I’d certainly be a buyer now if I was sitting on “excess” cash that I wanted to invest for yield. Clearly it can decline if the overall market goes down or the BP sales go down but I think the risk reward relationship is strong.

Statistics Canada reported April new auto sales this morning. For the country as a whole they were up a hefty 5.6% in units and 8.1% in dollars.

For Alberta, they were down 9.1% in units and about the same dollars. That really does not look so bad for AutoCanada. AutoCanada remains solidly profitable although profits are down.

I notice that a Global Edmonton News report on Walmart Canada dropping Visa completely missed the point that debit cards impose FAR less costs on retailers than do credit cards. I don’t think many consumers know this. Global chose to focus on some quirky diner that accepts cash only (foolish, in my opinion unless done to evade taxes). Debit cards ARE cash to the retailer (less about 10 cents per transaction and $40 per month for the debit machine). The report completely missed the point that credit cards companies siphon off some 1 to 2% of total retail sales and do so at MASSIVE profits (while boldly claiming they face stiff competition). I am all for free markets but credit card companies like VISA and MasterCard essentially became monopolies (which should be regulated). (I wish I had held my VISA shares that I bought some years ago) And I am certainly ALL for Walmart attempting to see if it can live without VISA.



June 13, 2016 11: 30 eastern

On Friday, the S&P 500 was down 0.9% and Toronto was down 1.4%. Accordingly, most of our stocks were down. Melcor was down 6% which is probably explained by its extremely low trading liquidity. It’s certainly not a stock for short-term trading.

Some interesting news today…

Microsoft buying Linked in for $26 billion. That seems like a huge price to pay. The company apparently makes losses rather than profit. I have been registered with Linked In for years and found very little to almost no value in it save one in a while using it to message a business acquaintance. The transaction shows that there is a continued appetite for companies to buy other companies and to pay a high price. That is supportive for stock prices.

Wal-Mart Canada to stop accepting Visa cards. That is big news. For many years VISA and MasterCard have been getting high fees from retailers. As transactions became 100% electronic the costs faced by the card issuers came down but fees did not. In fact fees went up as card companies issued reward cards with higher fees. Most retailers were powerless and had no real choice but to accept the cards and pay the fees. This may be a turning point in getting card companies to lower fees.

In Canada, the fees paid on debit cards have been ultra low. But the credit card companies have issued debit cards with higher fees outside the interact network.

I have always said that Visa and MasterCard were basically monopolies (duopoly for the consumer but monopoly for the retailers who had no real choice really but to accept both). Historically monopolies need to be regulated as to price but credit card companies were largely unregulated. Hence they made outrageous profits. Accordingly, they have been fantastic investments but did face the risk of increased regulation. The credit card industry is ripe for change.

June 10, 2016 5 am eastern

In Glasgow now and fly out tomorrow morning. In two weeks in the U.K. I saw about a half hour of light rain while driving and other than that a half day of overcast and the rest was basically bright and sunny and temperatures of mid twenties. Apparently the best start to summer in years.

On Thursday, the S&P 500 was down about 0.2% and Toronto was down 0.5%. Canadian Tire was down 2.0% to $138.

European interest rates are once again plumbing new lows with the German 10 year bond yielding 0.16% and with talk of it going negative. I came to accept the logic of a negative short term government bond under one year since a company with millions in “cash” can’t very well keep that in the office safe and so they might accept negative rates for the safe-keeping. But to lock in 10 years for negative rates or even very very low seems crazy. If it is for ten years they ought to be able to find safe storage for and convert to paper currency? Or perhaps that is too old fashioned. Any company investing in a ten year bond must feel that simply going with a one year and rolling that over will result in even lower returns. It is indeed all very strange.

Meanwhile in the U.S the ten year is far higher at 1.68% and is down only quite modestly in the past month.

It would be nice if the FED would raise rates this month to begin to end this madness of ultra-low interest rates.

I would say with rates so low, the value of stocks can certainly go higher if it is expected that rates will stay low. I am happy with the yield on Boston Pizza for example given these low rates. Even if rates rise a little stocks could stay high as they never were pricing in these rates to continue for a long time.

June 9, 2016 5 am eastern

Posting from Inverness Scotland today…

Apologies for lack of posts due to technology issues. Meanwhile the market seems to be going along well with no major developments that I am aware of. Oil is at $51.29 which is of course good news for a number of our stock picks.

Sometimes the best course of action is “Don’t just do something!, Stand There!”

June 6, 2016

It seems the markets managed to do okay today despite me not looking in until after the close.

Canadian western bank up 2.4%.

Melcor up 2.0% to $15 adding to recent gains. But trading is so thin that I won’t get too excited about it.

My travels now have taken me to the island of Skye Scotland. Almost everyone in the U.K has been SO nice. Canadians think we are so friendly but I tell you from my experience most hotel staff and other service staff in Canada are simply not as friendly and helpful as here in the U.K. and, interestingly, tips are NOT the norm here. I will say that giving friendly gets back friendly, but still, the service here has been exceptional almost without exception.

June 4, 2016 4:45am eastern

Saturday is yet another warm sunny day here on the Isle of Man (our last day here). Liverpool then Western Scotland.

Our stock picks were mostly down yesterday after a weak U.S. jobs report. Stantec down 2.8%, Wells Fargo down 1.8%, Bank of America down 3.5%. Jobs data are subject to statistical error as well as errors in how to seasonally adjust. I would not read anything into this unless confirmed next month.

Trade figures are here for those interested. A small improvement from last month.

Canadian labour productivity was improved in the latest report yesterday.

June 3, 2016 5 am eastern

Markets on Thursday were up modestly as were most of our stocks with no big moves either way. Oil is a bit over $49.

Canadian Western Bank’s earnings report must have been about as expected as the stock did not move on the news.

National Bank is out with a rate reset at 5.4% and will reset after five years at the five year Canada rate plus 4.66%. This is interesting because it is I am fairly sure, a good bit below what was paid on these rate reset shares at the peak a few months ago. Perhaps a sigh that interest rates will finally start to rise. This would also indicate that concerns about National Bank’s loan losses are not too serious.

The Canada five year bond is at 0.72% and recently about stable but above lows of a few months ago at about 0.5%.

Statistics Canada reports that investment in residential construction (includes renovations) was up about 11% in Ontario and 10% in B.C. but down 16% in Alberta. That is really not a huge decline for Alberta considering the energy price drops but this does include both renovations and new construction.



June 2, 2016 4:30 am eastern

It’s another sunny day on the Isle of Man though a bit windy.

On Tuesday our stocks were mostly up.

Canadian Western Bank will report shortly, perhaps today. The headline number will be well down because they had a large special gain last year this time and they already said there will be big loan losses this quarter – but still a profit. What will affect the stock price is how the earnings and especially the outlook compare to expectations.

Statistics Canada reported capital spending in the energy sector for Q1. Down almost 50%. I would have thought they should cut more than that. Lower capital spending would lead to lower production and help push up prices.

I see Trican Well Services is selling stock at about $1.60. It’s not what current owners would like to see but it is probably a very wise move. Probably necessary for survival. Any company in trouble is wise to issue new shares even at low prices if necessary for survival.

GDP was reported Tuesday. I think the figures understate the decline in energy because of  using something called 2007 chained dollars. It’s basically a volume measure which measures activity, which is important, but an alternative measure in current dollars would show a far bigger decline.

June 1, 2016 7:15 eastern

Greetings now from the Isle of Man where a famous motorcycle race event is taking place. The weather is remarkably good here, sunny highs around 20.

Nothing too exciting happening in the markets that I know of. |Stocks set to open somewhat lower today though.

From talking to people the economy is pretty good in England and thousands of very regular people have flown in from many countries for this isle of man event.



May 30, 2016

Greetings from Morecambe, England. A tourist area on the western sea. Not far from Scotland. Quite an older area which makes it more interesting.

On Friday, markets and our stocks were mostly up modestly. Oil is hanging in at over $49 as of early Monday.

A story today suggests Boeing and Airbus will lose their duopoly on aircraft of the size of Bombardier’s C series (about 100 to 150 seats). If so, it has been a weak duopoly in any case as legend has it that competition has always been fierce with discounts and rumored government assistance.

The level of profit in an industry is not always that much affected by the number of competitors. For example, people claim that Canadian bank profits are high due to the low number of banks. In fact we have a large number of banks but the profits come from the way we are tied into our banks. We tend to stick with the same bank for years and decades due to convenience and it is that characteristic which is more responsible for the way they can make profits on fees than any lack of competitors.

May 26, 2016

On Thursday, the S&P 500 and Toronto each ended the day about flat.

See my previous post for two updated reports. As noted in an earlier post, I am traveling in the U.K. starting Sunday and may not be able to post much especially next week.



Toll Brothers is updated and rated (lower) Strong Buy at $29.46. (It’s currently at $29.00 as I post this). Earnings per share were up sharply in it’s Q2 earnings report released this week. I had expected that based on houses it contracted to build last year. And its existing backlog should lead to double-digit earnings growth in the last half of its fiscal year as well.

Canadian Tire is updated and rated Weak Buy / Hold at $143.59. With a P/E of 17 and a strong history it could still be rated Buy or (lower) Buy. But I lowered the rating mostly partly due to continued risks of the impact of the lower Canadian dollar. If I had a large position in it I would sell at least some. In reality I had earlier established quite a large position in mostly around the $65 level or so. I ended up selling too early in a number of sales as the price rose but did make good gains on the stock.

May 26, 2016 11:30 am eastern

I will be traveling in the U.K. for two weeks starting Sunday and so my posts will be less frequent. Particularly next week I may have limited ability to connect to the internet.

This morning the markets are relatively flat overall.

Costco is up about 4% after releasing earnings. I notice that Yahoo Finance is having trouble with the math as it keeps flashing between 4.1% and closer to 6% on my screen (perhaps confusing the dollars and the percent). Yahoo is a company that has most definitely not been “on it’s game” for years. Yahoo finance often refuses to load properly for me until I hit refresh. Occasionally it has data that is plainly wrong. When a web portal company that has been around for over 20 years can’t seem to make its web site work consistently, that is pretty poor. There are rumors that Warren Buffett will back a buyout of Yahoo. If so, expect Berkshire’s financing to be in the form of high rate preferred shares where Berkshire gets paid ahead of the equity partners.

Getting back to Costco, last evening headlines were showing several negative stories including this one about poor same-store sales. The U.S. same-store sales were down simply because of low gasoline prices. And same-store sales from Canada and international were hurt by the higher U.S. dollar and lower gasoline prices. The underlying volumes at Costco however are still increasing at about 3%. On top of that it is opening new stores at a modest pace. The bottom line is that Costco continues to be a fantastic business but its share price seems expensive in relation to earnings. It has had occasional dips that have been buying opportunities although it never gets really cheap looking.

Statistics Canada reported today that Canadian corporate profits were down in Q1. As is always the case there are always some companies doing far better than others.

May 25, 2016

Wednesday was a positive day in the markets with the S&P 500 and Toronto each up 0.7%.

Wells Fargo was up 2.6% after holding an investor day. The presentations are available here. When I looked briefly through the CFO’s presentation I was struck once again by how these people are “on their game”. They know their own numbers and they know the competitors numbers and where they stand – which is basically at the head of the class. In my experience, certainly not every company is on its game.

Oil is currently at $49.62 which is certainly an encouraging sign for many Alberta companies.

May 24, 2016

On Tuesday, the S&P 500 rose 1.4% and Toronto rose 0.2%.

Toll Brothers ended the day up 8.7%. Other gainers included Element Financial up 3.3%. Visa up 2.8%. Alimentation Couche-Tard was up 2.7%. And American Express was up 2.0%.

I spoke to the President of Melcor today about the lack of share buy backs despite the press release that had announced the buyback in March stating, in part:

Melcor believes that its common shares have been trading in a price range which does not adequately reflect the value of such common shares in relation to the business of Melcor and its future business prospects. As a result, depending upon future price movements and other factors, Melcor believes that its outstanding common shares may represent an attractive investment for itself. Furthermore, the purchases may benefit all persons who continue to hold common shares by increasing their equity interest in Melcor. All common shares purchased by Melcor under the normal course issuer bid will be cancelled.

In connection with commencement of the NCIB the Corporation also announced that it has entered into an automatic share purchase plan agreement (“ASPP”) with a broker to allow for the purchase of common shares under the NCIB at times when the Corporation ordinarily would not be active in the market due to regulatory restrictions or self-imposed trading blackout periods.

I viewed that as a very clear indication that the company intended to buy back shares. Today, the CEO explained to me (and I am paraphrasing) That the company was being cautious with its cash and was mindful that the share price had dropped much lower around 2008.

I responded that I thought it was perfectly valid to conserve cash and not buy back shares – but if that were the case it should be explained to the market. I explained that I felt misled by the announcement of the normal course issuer bid with no follow through. Admittedly, the release does not promise there would be a buyback. But I certainly took it that there would be.

In the end, the return on Melcor’s shares will be driven by profits and not share buy backs. Nevertheless, this announcement of a share buyback followed by no action despite the low price detracts from my impression of management.

The president did say that Melcor believes that its shares are very much undervalued.




Alimentation Couche-Tard is updated

Our report for Alimentation Couche-Tard is updated and rated Buy at $56.37. This has been an absolutely tremendous Canadian success story. It’s been one of Canada’s very best managed companies since it came on the stock market in 1986. Today, it is not any screaming buy but I believe it is a buy and will be a good long-term investment. The price could certainly fall if it has a weak quarter or two but I believe any such decline would just improve the buying opportunity.

May 23, 2016 10:45 eastern

U.S. markets are about unchanged this morning while Toronto is closed for the holiday.

I sold my Walmart shares this morning and used the money to add to my Toll Brothers position. Walmart seemed about fairly valued while Toll Brothers appears to be under-valued. It seems to me that Toll Brothers is more likely to be the better investment. Walmart could rise on positive news but I think Toll Brothers is more likely to do so.

I could probably apply the same logic to American Express and trade some of my position in that company for additional Toll Brothers. In that case it would be more difficult to do so since I am in a loss position on American Express. Logically, that is not supposed to matter but emotionally it always does. In addition keeping the American express provides me with more diversification.

May 22, 2016 Walmart updated

Our report for Walmart is updated and now rated (lower) Buy at $69.86. The shares seem about fairly valued but I would lean somewhat towards selling. I own 100 shares in an RRSP account and plan to sell and perhaps use the funds to add to my Toll Brothers position.

U.S. markets are open on Monday while the Toronto stock market is closed.

On Friday, the S&P 500 was up 0.6% and Toronto was up 0.7%.

Toll Brothers was up 3.1%. It will report earnings on Tuesday.


May 20, 2016 11 am eastern

Stocks are mostly higher this morning with the S&P 500 up 0.7% and Toronto up 0.6%.

Statistics Canada reported today that consumer prices are  up an average of 1.7% in the past year but the core rate was 2.2% excluding gasoline and food. That puts inflation very close to the 2.0% target that the Bank of Canada favors.

Investment in new home construction in Canada, as of March, is running at 9.7% higher than it was one year ago. However in Alberta such investment is down 27%.

Retail sales were reported to be down slightly in March. New and used vehicle sales were down but that comes after several months of strong gains. Overall, I would not read anything into the headline figure of sales being down slightly in March versus February on a seasonally adjusted basis. Sales were still up quite strongly on a year over year basis in most provinces although down 3.8% in Alberta.

May 19, 2016

On Thursday, the S&P 500 was down 0.4% and Toronto was down 0.1%.

Walmart ended the day up 9.6%. This was based on an earnings report that was not very strong but which exceeded expectations or fears.

Couche-Tard was up 2.5%.

Toll Brothers announced an extended and increased line of credit. $1.2 billion, unsecured. The company indicated that the increased borrowing capacity would support its growth as the housing market recovery continues. Toll Brothers will release earnings on Tuesday. The stock appears to be priced to provide strong returns.

Oil is currently at $49.24.

The National Energy Board has recommended that the Kinder Morgan Trans Mountain pipeline expansion go ahead albeit with 157 conditions. This is positive news for the oil industry and Alberta though final approval is still a ways off.


May 18, 2016

The S&P 500 was flat on Wednesday and Toronto was down 0.7%.

Wells Fargo ended the day up 2.2% and Bank of America was up 4.8%.

At Melcor Developments, Andrew Melton bought 1000 shares today at $13.45. The particular account was listed as an indirect ownership. Andrew Melton and Tim Melton together own over half the shares or over 15 million shares. On that basis this purchase is immaterial but it still represents a small show of confidence and is positive news.

I understand Walmart will report earnings on Thursday. The results may be viewed as some indication of the American economy and/or of the health of traditional physical store retailers. Walmart was down 3.0% today.

May 17, 2016

Tuesday’s action saw the S&P 500 fall 0.9% while Toronto rose 0.2%.

Some companies in Canada have been active raising new equity money int he past two days. TD Direct was selling e new equity issues in Algonquian Power and Utilites today. And yesterday they were selling Keyera Corp. First Capital Reality, Exchange Income Corporation , Brookfield Renewable Partners L.P., Richmont Mines and Spin Master Corp. There were new issues last week as well. Checking the TD Direct New Issues page, all of these have closed. This indicates that there is a strong appetite for putting new money into the hands of corporations and generally a strong appetite for equity investments.

May 17, 2016 2 pm eastern

The S&P 500 is down 0.5% while Toronto is up 0.3%.

Statistics Canada reported Manufacturing sales for March:

Manufacturing sales decreased 0.9% to $50.0 billion in March, a second consecutive monthly decline. The decline in March mainly reflected lower sales of transportation equipment and primary metals.

Sales were down in 16 of 21 industries, representing 88.3% of Canadian manufacturing.

In constant dollar terms, sales were up 0.1% in March, indicating that higher volumes of manufactured goods were sold. Prices in the manufacturing sector were down 0.6% in March according to the Industrial Product Price Index.

Overall, that seems like a slightly weak report but at least the volumes were not down which means employment would be steady.

Statistics Canada also reported sales by large Retailers in March which showed gains averaging 5.7% year over year which is strong but no doubt reflects inflation due to the lower dollar.

May 16, 2016 11:15 am eastern

This morning, the S&P 500 is up 0.6% and Toronto is up 0.9%.

Oil is up 3.3% to $47.73. This should be good for all the Alberta-based companies on our list.

The Canadian Real Estate Association reports that home prices for existing homes continue to rise in most areas across Canada. And the number of houses trading hands rose 10% year over year.

A leaked climate change plan from the Ontario government suggests that the government plans to absolutely mandate rather than encourage (through carbon taxes) their view of green energy. The level of government regulation and control seems rather frightening.

A report indicates that U.S. home builder sentiment remains positive and is holding steady. The report indicates that new home sales in the U.S. are running at 511,000 per year. That seems remarkably low considering that Canada has been running close to 200,000 new housing units constructed for years. The two numbers may not be directly comparable since the U.S. figure is for sales and would therefore exclude new housing units built for rental but it is well known that U.S. home building remains far below peak levels and far below the number of new household formations. Ultimately we should see an increase in both home prices and volumes in the U.S. which will be good news for Toll Brothers.

May 15, 2016

Melcor is updated and continues to be rated Strong Buy at $13.25.

On Friday, the S&P 500 was down 0.9% and Toronto was down 0.3%. Onex was down 4.8%. Canadian Tire was down 2.9% giving back a portion of recent gains.

May 13, 2016 1:30 pm eastern

The Toronto market is flat at this hour while the S&P 500 is down 0.3%.

Oil is down 1.3% but is still just over $46 which is not so bad.

Natural Gas prices in Alberta have plunged to ridiculously low levels due to the shut-down of the huge gas consuming oil sands operations. The May plunge to levels of $1.00 per giga joule will be temporary but March as about $1.50 and April about $1.25. This could certainly lead to even more layoffs and bad debt and bad loans in Alberta.

Wholesale electricity prices in Alberta are also extremely low. This is partly as a result of low natural gas prices and partly due to higher generation supply. Wholesale electricity prices are running about 1.4 cents per kilowatts hour. (If there is such a thing as a normal wholesale price it might be closer to 4 to 5 cents per kilowatt hour) Much of the supply and much of the demand is hedged at higher prices but certainly some companies are benefiting from the low prices and most owners of generation plants are suffering some pain. The costs of delivering electricity are FAR higher than the wholesale generation costs. Delivery costs are regulated largely on a cost-plus-fair-return basis and have risen dramatically in recent years as delivery companies invested to upgrade and expand the network. This is spite of certain efforts to introduce incentives designed to encourage cost reductions.

Statistics Canada figures for new auto sales show an 8.5% increase in March versus the prior year for Canada but an 8% decrease in Alberta. I would view these figures as better than expected for AutoCanada which is nevertheless down 1.8% today to $19.90. I visited a car dealership yesterday. Based on that and based on AutoCanda’s figures the cars are not “on sale”. But I think the dealerships, via the AutoCanada share price, are “on sale”.

May 12, 2016

On Thursday, the S&P 500 and the Toronto stock index were both about unchanged.

Canadian Tire was up 4.5% on its earnings release.

Stantec was down 3.4% also on an earnings release.

Melcor did not react much to the earnings release and was down 1.5%. The volume was higher than normal. Although it is already my largest position, I added a few shares today. The company still has not reported any share buy-backs through its normal-course issuer bid.

Statistics Canada released certain GDP data by industry by province today.

Alberta’s GDP fell by 4.0% in 2015. This is measured in chained 2007 dollars which effectively attempts to measured the volume of activity while removing the impacts of price changes. Another way to measure GDP is in current dollars. Statistics Canada only reports current dollars after about a 33 month delay due to the difficulty of compiling and estimating the data. Unfortunately when measured in current dollars I expect Alberta’s GDP fell by a lot more than 4%.

Statistics Canada did provide today a table that shows the percentage contribution of each industry to GDP in current dollars. This table indicates that in current dollars the contribution of the energy industry to Alberta’s GDP fell from 30% in 2014 to 22% in 2015. Perhaps it is the volume measure with the 4% reduction that is most relevant. The Energy sector value added is down dramatically. But as long as they keep extracting the oil and gas even at much lower profits, then perhaps the spin-off effects to the rest of the Alberta economy remains very strong. It is hard to imagine that the actual contribution of the energy sector has really fallen to 22% of Alberta’s GDP.

May 12, 2016 1:00 eastern

Markets are down modestly on Thursday.

Canadian Tire is up 2.7% to about $143 after releasing earnings. This company/stock was below $110 most of January (after declining from highs over $135 last Summer) and it was briefly below $105 in January. The company has been extremely well managed.

Teranet is out with its latest existing home price index for April. Edmonton home prices are about stable (down 1% since last year and unchanged in April) while Calgary has seen a modest decline. (down 4% since last year but unchanged in April). So far, nothing in this data would suggest that Melcor’s Alberta land holdings and finished building lots have declined in market value by more than a quite modest amount. Vancouver and Toronto continue to rise sharply.

Statistics Canada has released new home price data for February that shows new home prices to be quite stable across the country although Toronto and Vancouver show gains around 4% in the past year.

May 11, 2016

On Wednesday, the S&P 500 was down 1.0% and Toronto was up 0.1%.

Melcor reported Q1 earnings after the close. (Note that our report is as of Q4) Things were mostly about as expected. The Income property income is still growing modestly. Occupancy is strong at 91%. The residential lot sales were down 48%. They continue to develop new income properties. Melcor posted a GAAP loss. However, there would have been a modest profit if not for the fact that they had to increase the liability for the non controlled interest due to an increase in the value of the REIT units. This was required by some really silly accounting rules. This non-controlled interest has to be shown as a liability on the balance sheet but it’s not a true liability in the sense that it ever has to be paid off. It really seems bizarre to generate a loss because the market value of the REIT units of which they own 56% has increased.

Some quarters the price change in the REIT units adds to income. I have consistently eliminated this fluctuation in the adjusted earnings. On an adjusted basis the earnings were positive but significantly less than last year’s Q1.

Overall, with book value reported as $28.86, Melcor remains very much under-valued.

If it happens that the share price declines on the news of the GAAP loss then I believe that would be an opportunity to buy. Certainly Melcor has been a company that tests the patience of investors. But the value is there.

May 11, 2016 noon eastern

On Wednesday, U.S. markets are down modestly while Toronto is up 0.2%.

Oil is up 2.5% to $45.78. This is positive for Canadian Western Bank and Melcor and AutoCanada.

It is, of course, hard to say how the Fort McMurray situation will affect various companies. Some will receive insurance including business interruption insurance. Others may not have business interruption insurance. Most businesses in the area will likely suffer at least some uninsured losses. Reports are that residents may not be allowed back for at least two more weeks even in the areas untouched by the fire. I would think that the economic damage would be lower, the faster the residents get back home. I don’t know why it would take two weeks before anyone can return. It may have to do with restoring water and electricity and (less urgent) natural gas. Presumably the authorities have good reason and are moving as fast as they can.

May 10, 2016 1 pm eastern

Markets are higher on Tuesday with Toronto up 1.5% and the S&P 500 up 1.0%.

Liquor Stores N.A. is up 6.1% after reporting Q1 results. They seem to be making progress but I am still not a fan given that they lost money in the quarter (albeit Q1 is traditionally a weak quarter). They seem to have finally started to recognise that their administrative costs were too high and that they have some stores that need to close.

Statistics Canada reports that capital expenditures in Canada are expected to decline 4.4% in 2016. This is caused in good measure by the commodity industries. But there are also declines in real estate related areas and in manufacturing.

May 9, 2016

On Monday, the S&P 500 was up 0.1% and Toronto was down 1.0%.

Melcor was down 2.2% to $13.40. They will release earnings on Thursday. It continues to trade at just less than half of book value. Given the quality of its assets and its modest debt , this appears to offer excellent value.

AutoCanada was down 4.0% to $20.73. I have updated the report for this company. I agree with management that cutting the dividend was a rational move. I believe the high dividend policy of this company was a legacy of its previous Income Trust structure where earnings had to be 100% paid out to avoid income tax. But that high dividend policy was never a good fit for a growth-by-acquisition company.

The Q1 earnings report was better than I had expected. I had thought that the decline in earning per share would not be reversed until Q2 or Q3. Instead, due to acquisitions and accost cutting, there was a large increase in earnings per share in Q1 despite  lower-same store sales. The Q1 report appears to illustrates that the company is profitable even with the Alberta recession.

May 6, 2016 noon eastern

Toronto is up 0.8% while the S&P 500 is down 0.2%.

AutoCanada is up 12.5% after reporting earnings. This is despite a 60% cut to the dividend. It appears that “the market” is okay with the dividend cut and so am I. The high dividend on this company was related to its history as an Income Trust and never really made sense for a growth-by-acquisition company. Also I always view earnings as more important than dividends. The earnings report was better than expected and the company expressed optimism. The company did not have any dealerships in Fort McMurray.

The U.S. jobs report was considered weak at 160,000 jobs created in April but the unemployment rate remained low at 5.0%.

In Canada, the jobs report indicated a loss of 2100 in April.

However Statistics Canada also reports that there is “68% chance that the true value of a monthly change in employment is within one standard error of the estimate (+/- 28,900)”

Given that level of accuracy, I don’t think we can really conclude much of anything from the reported decrease of 2100.

The unemployment rate remained at 7.1%.

For Alberta the report indicated:

“Employment in Alberta declined by 21,000 in April. However, the unemployment rate was little changed at 7.2%, as the number of people participating in the labour market also decreased. Compared with 12 months earlier, employment in the province was down 37,000 (-1.6%), and the unemployment rate rose 1.6 percentage points.”

To me, it is surprising that the unemployment rate is only up 1.6% in Alberta in the past year.


May 5, 2016

The main market indexes were about unchanged on Thursday.

Element Financial was up 5.6% but I did not se what news might have caused that.

It will be interesting to see which insurance companies are hit by the Fort McMurray losses. I would think Intact Financial which is already down in anticipation. When the floods hit Alberta  a couple of years ago TD Bank seemed to be the hardest hit due to its insurance operations. Canadian Western Bank at that time escaped much damage although it had insurance arm. It has since sold that business. CWB could still be hit with some loan losses related tot eh fires but I don’t think it would be a large hit. It is the property companies that will take big hits.

May 5, 2016 11:20 am eastern

Markets are moderately higher this morning.

Oil is up 3.5% apparently related to production cuts associated with the Alberta fires.

Costco is down 3.4% on a somewhat weak April same-store sales report. Sales were flat in U.S. dollars but up a respectable 3% after adjusting for currency and lower gasoline prices. The issue with Costco is that the price to earnings ratio is pricing in very robust growth and anything short of stellar growth is a  disappointment. Costco is a fantastic business but always seems expensive. One could perhaps cautiously nibble at it on this decline but I’d like to see a bigger decline before buying.

Toll Brothers continues to languish or decline. And that is despite record  low mortgage rates. Americans can lock in 30 year fixed rates at 3.3%. My understanding is that Toll Brothers should report higher earnings on May 24 based on sales contracts signed last year. And I would expect that current sales and prices should be strong as well. But perhaps there are other factors that will impact the results. In comparison to earnings Toll Brothers appears cheaper than it has been in quite a few years.

May 4, 2016 ended the day on Wednesday with the S&P 500 and Toronto each down 0.6%.

Canadian Western Bank was down another 3.0% to $24.81. The Canadian Western Bank preferred shares Series 5 were down 3.1% to $16.95. The preferred shares are unlikely to ever fail top pay their dividend even if CWB does face heavy loan losses. In that case, CWB would likely issue common equity to shore up the balance sheet which would secure the preferred shares.

The increase in loan losses for CWB points out that banks are always subject to earnings uncertainty for that reason. The equity investment that seems most stable and predictable on our list is probably Boston Pizza Royalties. That is because it is sort of like an income investment. It collects a franchise fee. For any company, revenues are likely to be a lot more stable than net income. The exception would be a company where all expenses vary directly with revenue. Boston Pizza’s net income effectively equals revenues because it is a top line entity. In addition, the revenues at a restaurant chain are less likely to be volatile than the revenues of most companies.

May 4, 2016 11 am eastern

Stocks are mostly down this morning.

One exception is TransForce up 1.4% to $24.00 continuing a recent recovery from a low of just under $19.00.

AutoCanada is down 0.5% to $19.53 despite a new report indicating that April auto sales in Canada were at a record high.

Statistics Canada reported today that Canada’s trade figures deteriorated with both exports and imports declining in March and the trade deficit widening.

Total exports in March versus February were down 4.8% on an annualised and seasonally adjusted basis. Contributing to this decline, ores and non-metallic minerals were down 15.6% in March versus February. Month to month figures appear to suffer from higher measurement uncertainty and the difficulty of making seasonal adjustments.

On a year over year basis total exports were down 5.1%. Big contributors to that were energy down 39% and ores and non-metallic minerals down 24% as well as industrial machinery down 6.5%. These figures are in actual current dollars. It’s interesting to note that GDP figures are initially reported in what Statistics Canada calls 2007 chained dollars which basically assume no price changes for commodities like oil. On that basis the contribution of the energy industry to GDP does not appear to have declined all that much. When the GDP figures in current dollars become available we will see that the contribution of the energy industry to GDP in actual current dollars was down dramatically in 2015. What remains to be seen is how much of a contagion effect that will have on the rest of the economy. Next week Statistics Canada will release the GDP contribution by industry in current dollars for each province (though, strangely, not for the country as a whole). To extent it gets noticed in the press, I do think the decline in the contribution to GDP of the energy industry in Alberta will be shocking. So far, the contagion to other sectors of the economy has been somewhat limited by the fact that there has been no exodus of people from Alberta and the fact that the government continues to spend apace. The ultimate impact on the Alberta economy will depend on where energy prices go and on the ability of the energy industry to reduce costs.

May 3, 2016

Tuesday’s session ended with the S&P 500 down 0.9% and Toronto down 1.1%.

Oil is at $43.57 U.S. and the Canadian dollar fell to 78.6 cents U.S.

Canadian Western Bank was down 6.8% for the reasons mentioned this morning.

AutoCanda was down 5.1% to $19.63.

Statistics Canada reported this morning that: From the late 1990s to 2012, Canadian taxfilers saw their family incomes increase at a faster rate than during the 1980s and the early 1990s.

That rather puts the lie to the often repeated notion that earnings are stagnant.

When I look at the fact that new houses have about doubled in size since I was a child (And with fewer occupants)… That the numbers and sizes and variety of retail stores has exploded in the past forty years. That the number of cars per family has increased and the quality of those cars is significantly better. That almost everyone eats out now and no one I Knew did when I was a kid in the 60’s and 70’s… It’s obvious to me that the standard of living has greatly increased each decade. The improvement in typical living standards is quite vast since the 1960’s and has improved greatly sine the 1980’s as well.

May 3, 2016 12:30 pm eastern

Stock markets are down today. The S&P 500 is down 1.1% and Toronto is down 1.5%.

There are probably a variety of reasons. But the fact is that markets are always volatile.

Canadian Western Bank is down 8% after it pre-announced that loan loss provisions would be materially higher in its Q2 versus normal results. Provisions will total about $40 million which compares to $9 million in the previous quarter. The $31 million increase is related to oil and gas production clients. They indicate that loan loss expectations outside of the production customers remain on track with previous expectation. (This suggests that collateral damage beyond the direct production client loans is minimal – at least based on current expectations.) CWB also indicated that it will still be profitable in Q2 for the 112th straight quarter. That’s 28 straight years without a loss in any quarter. This additional $31 million provision represents a loss of just under 2% in common equity or book value and so this is a set back but not q body blow. At least not yet.

I have always said that banks can be risky but on the balance of probabilities I continue to think CWB will be a good investment.

Meanwhile , Toll Brothers is down 2.1% to about $27. This will likely prove to be quite a good investment at this price. The recent increase in the Canadian dollar also makes it a better time to move some funds to U.S. investments. (Better than January certainly but Canadian still face currency risk as our dollar could certainly rise past current levels. I have no predictions on currency movements. I just tend to react and try to move some money toward the U.S. when the Canadian dollar is higher and back to Canada when lower. I also believe in just keeping a certain amount of funds more or less permanently in U.S. dollars given that I will eventually spend some of my savings / investments in the U.S.).

An article today points out that the U.S. is not building enough houses. That bodes well for Toll Brothers. This article talks about the problem of increasing home prices. That is indeed a problem for buyers. It’s the opposite of a problem for home builders.


May 2, 2016

On Monday, the S&P 500 rose 0.8% while Toronto was down 0.6%

Oil is hanging in at about $45 U.S. dollars and the Canadian dollar is at 80.0 U.S. cents.

Amazon rose 3.7% to $684. This is in addition to gains last week. I had rated it a Sell on December 1 at $680 for the reasons indicated in our report. Subsequently it got as low as about $475. The behavior of Amazon’s stock price provides an opportunity to point out the difference between a Sell rating and a Short-Sell rating. I have never put a short-sell rating on any stock. Some people argue that a Stock that is a Sell should also be a short-sell. I strongly disagree. If you own a stock and sell it you get cash to invest elsewhere. You give up potential gains. That is vastly different than short-selling where you incur unlimited risk of losses depending how high the stock might rise. Even though I thought Amazon was a sell, it is certainly not a stock that I would have sold short. In 30 years of investing the only stock I recall short-selling was Air Canada while it was actually in bankruptcy proceeding and it was well known that the old stock would be worth no more than a penny or two but it kept trading at over a dollar for some reason. And in the end I made very little money even there because TD Waterhouse inexplicably made everyone cover their short positions. (I suspect it was because they never had the shares to lend us, they were allowing naked shorting which is or was legal in Canada but which I believe they decided was risky for them somehow.)

A federal government minister apparently said on Monday that the feds do want to help Bombardier.

Canadian Tire was up 1.7% to $139.07. This stock traded under $60 for several months in 2011 and got as low as about $52. At that point it was trading at not much over book value and was basically a no-brainer investment. See our comments of September 19, 2011.

Today, Melcor is quite possibly a no-brainer investment. That does not mean zero risk, but certainly the balance of probabilities seem very favorable.

May 1, 2016 Berkshire meeting

You can listen to Warren Buffett (and Charlie Munger) answer questions for about five hours at the following link:

There are always valuable nuggets of great wisdom in the responses. This is the first year that the Q&A has been available to anyone not at the meeting. I attended the meeting back in 2003. I’d like to attend again but I think the crowds have gotten too large for my taste.


April 29, 2016 11:30 am eastern

This morning, the S&P 500 is down 0.8% while Toronto is up 0.5%. Oil is at $46.39.

I bought a small amount of Constellation Software today.

Bombardier is down 4.4% to $1.95 as the market perhaps realises that the C Series plane sales required very heavy discounts such that Bombardier will lose money even before amortisation of development costs.

Canada’s GDP was down 0.1% in February versus January. This is in some view of constant dollars (before a measure of producer inflation) and is seasonally adjusted. The measurement error or accuracy would be larger than 0.1% and so I would not take much meaning from this.

Food services and drinking places sales were down slightly in February versus January but were up 5.6% year over year. In Alberta, sales were down 0.3% in February and 2.3% year over year. All of which I think indicates that Boston Pizza should continue toi do well. Perhaps a bit of a slower year including the impact of no Canadian teams in the hockey playoffs but overall Boston Pizza remains a good business.

April 28, 2016

On Thursday, the S&P 500 was down 0.9% while Toronto was about unchanged.

Most of our stocks were down.

Constellation Software was down 5.1% to $487. This is an extremely well managed company and the price decline provides an opportunity to buy.

AutoCanada was down 6.2% to $20.00. This company continues to expand and appears to offer good potential returns at this price.

April 28 , 2016 10:45 am eastern

The big news this morning is that Bombardier announced a firm sale of 75 C- Series planes to delta airlines. Plus options for 50 more. This is certainly good news for the employees. For investors the news may not be as good as it seems. The planes were sold at a large discount to list price. In fact Bombardier announced it will take a $500 million onerous contract charge in association this order and the pending Air Canada order. It is a poor business indeed that requires a $500 million dollar “charge” in association with “winning” two large orders. I listened to three news reports about the sale and none mentioned the $500 million onerous contract charge.

Bombardier also announced that it is on-track to achieve break-even free cash flow for the C Series project by 2020. That means it would still be losing money on the program at that time after accounting for depreciation and amortisation of the development costs. That may be normal in the industry but if so that simply demonstrates what a horrible industry it is.

Bombardier’s B shares are currently up 5.2% at $2.12 (after opening at $2.28). The Series 4 preferred shares are up 5.9% at $16.91. These pref shares could very well continue to rise given that the survival of the company is probably not in much doubt. The common equity shares might get one more bounce if the Federal government makes an investment. But longer term it’s not clear that the common shares will maintain value when the company has apparently locked in losses on the C Series for years to come.

Bombardier holds it annual meeting tomorrow. Despite trying to put on a brave face by holding the meeting in an Aircraft hangar with a shiny plane on display, management will face harsh criticism at the meeting. A significant portion of the votes for directors are likely to be withheld. While all directors will be elected it is a certainly an embarrassment to have say 20% of the votes withheld (if that happens) and might even cause some directors to step down, (or not).

April 27, 2016

On Wednesday, the S&P 500 was up 0.2% and Toronto was up 0.6%.

Oil is at $45.24.

AutoCanada was up 2.8%.

The former Valeant CEO faced the hotseat in Washington today. It is remarkable that this industry which was unregulated as to price in the United States despite the monopoly nature of some of its products basically abused that position so blatantly that they clearly risk price regulation being imposed. I found much not to like about Valeant (tax dodging one for one, basically pretending to be a Canadian company for another) and that was before I knew about the price gouging.


April 27, 2016 11:15 am eastern

The Toronto stock exchange index is up 0.3% this morning while the S&P 500 id down 0.4%.

Oil is up 2.1% to U.S. $44.95. That’s $56.90 in Canadian dollars which is not such a low oil price. This is positive for many Alberta-based companies including Melcor.

I stopped by a new and large Melcor land development yesterday (this one is a joint venture). What I saw was activity. Several dozen houses are under construction including some very affordable duplexes as well as single family homes. Given the partial recovery in house prices and the continued home-building activity in Alberta, the market may be far too pessimistic about Melcor’s outlook.

Bombardier is up 4.8% to $2.08 and the Bombardier preferred share series 4 is up 5.2% to $16.35. These prices are likely to be volatile for the rest of the week as Bombardier reports Q1 earnings tomorrow morning and has its annual meeting on Friday and may announce progress on sales.

Statistics Canada reports that rail carloadings were up 4.5% in February verusus the prior year. However industry data indicates that the carloadings for Canadian railroads are running considerably weaker than 2015 particularly in the latest weeks. This includes the U.S. operations of the Canadian railroads which is a more relevant figure for investors.

April 26, 2016

On Tuesday, the S&P 500 was up 0.2% and Toronto was up 0.1%.

Bombardier was up 10.6% to $1.99. After the close, Bombardier announced that it would release its Q1 earnings the day before its annual meeting rather than the day of. I saw speculation that this means Bombardier will announce a deal for selling some C-Series panes to Delta. I am skeptical about that. If such a deal were firm, Bombardier would probably have to announce it immediately. Earlier this year Bombardier moved the date of the annual meeting by one day. This latest change may be simply to give people time to digest the earnings number before the meeting. Also it may have been done so that the Q1 report does not get too much attention on the day of the annual meeting. Or indeed, there could be an announcement by the time earning are released.

The Bombardier series 4 preferred shares on our list were up 9.8% to $15.54.

I notice the five-year government of Canada bond is yielding 0.92%. That is a sharp rise from the 0.5% level it touched in February. This increase is good news for rate reset preferred shares, especially for any issues about to reset very shortly.


April , 2016 11:45 eastern

Markets are moderatly higher this morning.

Bombardier is up another 7.8% to $1.94. Looking at this I wondered if I should sell some of my position. It’s a relatively small position for me. I don’t recall if my last purchases were above this price or below (which is not supposed to matter in the sell decision, especially in a non-taxable account, but inevitably weighs on my mind). I know my average purchase price was higher than the current price. In the end I decided to sell 20% of my position today at $1.94 and entered an order to sell another 20% at $2.50, if it should hit that price in the next month. This volatile stock is jumping around on news and speculation at this time and certainly could continue to rise from recent depths. But ultimately it is a poorly managed business in a horrible industry and it seems wise to reduce my position. Entering the above-market limit price allows me to proceed to hopefully sell the next 20% without emotion clouding my thinking.

Canadian National is down 6.5% today to $77.44 based on lower profit guidance. History suggest that this decline will ultimately be nothing more than a little blip down on a long upward trend. CN is celebrating having completed 20 years since its IPO in 1995. The IPO price was $2.25 (slit-adjusted) on November 17, 1995. The first trading price shown in Yahoo Finance is $4.60 in November 1996. CN points out that its earnings per share have grown at a compounded average of almost 20% since the IPO. The stock price gain since the IPO is a compounded annual average of over 19% (excluding dividends). Even if bought a couple years after the IPO, CN has compounded share owner wealth at a remarkable rate. Anyone who held for longer periods of time has done very well. So much for the very wrong-headed notion that “buy and hold is dead”.

I first added CN railway to this site on August 27, 1999 at $8.08 (split-adjusted) although rated only Speculative Weak Buy. Over the years I consistently saw it as a strong and well-managed company but it often looked expensive. I did rate it Strong Buy on January 25, 2007 at $26.50 and rated it Buy or (higher) Buy on some other occasions over the years.

CN’s initial huge success was guided by CEO Paul Tellier, a former top ranking federal government employee. It’s sad to note that Bombardier managed to hire Paul Tellier after his retirement from CN but that he ended up leaving apparently, as I understand it, because they refused to let him actually run the company.

April 25, 2016

On Monday, the S&P 500 fell 0.2% and Toronto fell 0.6%.

Most of our stocks were down moderately and there were no particularly notable moves.

The Canadian dollar is at almost 79 U.S. cents and oil is at (U.S.) $43.14.

April 25, 2016 11:15 am eastern

Markets are down this morning. This is despite oil holding in at $43.43.

With Couche-Tard down 1.6% to $53.70 I have added 100 shares to my position. The shares are still relatively expensive but it is a company that seems worthy of accumulating on dips.

Bombardier is up 4.7% to $1.79. It’s basically a penny stock and is subject to significant volatility on rumors of sales or the hoped for federal investment. It’s tempting to consider reducing my relatively small position in this disappointing company.

Statistics Canada reported on airplane fares this morning. The average domestic fare was $175.70, down 6.3% from the same quarter a year earlier, while the average international fare edged up 0.2% to $341.20. To my, thinking $176 for an average one-way fare in Canada looks like a bargain. It looks cheaper than driving. When you consider all of the costs and regulations associated with an airline it seems obvious that flying people around for $176 is a very tough way to make a profit. If you disagree and think that fares are too high especially with the baggage fees then by all means buy some shares in Air Canada and WestJet. I have not looked at their figures but I am doubtful that either will be a good long-term investment.

April 24, 2016

On Thursday night, I sent out an email with a link to the free newsletter. If, by chance, you did not receive it, you can join  the list by clicking the link to the free newsletter from the menu at the top of each page on this site.

On Friday, the markets closed relatively unchanged.

As of Sunday evening, oil is hanging in at $43.08.

I plan to add Extendicare to the list of companies.

April 22, 2016 11:50 am eastern

Statistics Canada has released retail sales figures for February. Within Canada, retail sales were up 0.4% versus the prior year. The increase would have been higher if not for lower gasoline sales. In volume terms sales were up 1.5%, indicating that the Canadian economy continues to grow although slowly.

By segment, used car sales were the biggest gainer, up 24%. This is likely due to people buying used vehicles to send to the United States taking advantage of the currency decline.

Within Alberta, retail sales were down 1.8%. I suspect they would have been up in volume terms after adjusting for gasoline prices which were particularly low in February. Overall, spending in Alberta is really not down very much at all in spite of the recession. At least not yet.

The consumer price index and figures for March were also released. Canadian consumer prices are reported to be up 1.3% year over year, while core prices (excluding volatile food and energy) were up 2.1%. If we don’t make at least 2.1% per year on investments, after tax, then we are falling behind in purchasing power.

April 21, 2016

On Thursday, the S&P 500 was down 0.5% and Toronto was down 0.2%.

Oil was down to $43.18. Actually, that is higher than yesterday but is considered to be down because we have moved to the next months contract. Yesterday’s price on the May contract was higher than today’s. But today’s price on the May contract is higher than yesterday’s price on the now expired April contract. Each month when the old one month forward contract expires and we move ahead one month there is typically a disconnect in the price. Generally the price moves higher simply because we have 31 days left on the new contract whereas the old contract was about to run out. If the oil price is up a dollar simply due to moving ahead one month, that is not considered to be an increase in the price of oil. Obviously this is rather confusing. In any case oil seems to be holding up quite well.

Most stocks were down today. But AutoCanada was up 2.5%.

Couche-Tard was down 3.8% to $55.88 and I would be tempted to add to my position at that price.

April 21, 2016 11:15 am eastern

Markets are flat overall this morning. Canadian Western Bank is basically steady (down four cents) which is impressive after gaining about 12% in the past two days. Toll Brothers is up 2.5% and AutoCanada is up 2.1%.

Statistics Canada reports that investment in new single family homes in Alberta was down 25% in February versus the prior year. While that is negative for Melcor it also means that new home building has not ceased. Melcor could still do quite well with home building at 75% of previous levels. What may be more important is whether or not home building lot prices have dropped very significantly. I don’t think land developers are selling lots at desperation prices.

For Canada overall, investment in new housing was up 5.4% to $3.7 billion. Each month Canadian residents and companies invest substantial amounts into new housing. This leads to an ever improving and growing quantity of housing units in the country. Some would question how an economy can prosper by building houses. But houses are a form of tangible real physical wealth. And the need for and desire for good housing is one of the main factors that motivates people to go out to work and trade their time and skills for money in order to buy housing and all the other things people desire. People trading their time and skills for money to buy things is the essence of any economy.

April 20, 2016

On Wednesday, the S&P 500 was up 0.1% and Toronto was up 0.3%.

It was a better day than that for some of our Stock Picks.

Canadian Western Bank was up 5.0% to $28.90. This stock bottomed at $19.26 earlier this year. AutoCanada was up 4.7%. Canadian Tire was up 3.3% and Bank of America was up 3.3%.

Bombardier was also up. Up 5.4%. Reports indicate that the Federal government wants job guarantees in return for an investment. That’s just great, hobble the company with higher labour costs. That will pretty well doom the company. Better to have fewer jobs at a viable Bombardier than to insure the company remains non-viable by hobbling it.

April 20, 2016 noon eastern

Stock indexes are up modestly this morning.

Canadian Western Bank is up a somewhat immodest 5.1% on top of yesterday’s gain of 6.6%. I suspect some popular analyst or other has “upgraded” the stock.

Bombardier is up 4.8% also on top pf yesterday’s gain of 5.1%. Bombardier however is now a notoriously volatile stock. It’s easier to make gains after falling to basically penny stock status. Still, the gain is welcome.

Statistics Canada reports that pipeline deliveries of crude oil and refined petroleum are up. Exports were up 8.7% to 13.6 million cubic metres, and were the largest contributor to the increase in deliveries in February versus February of last year. (This would be down substantially in dollar value however.) Clearly the Canadian industry is contribution to the over-supply situation.

Director Compensation and deferral of personal income tax

For quite a few years I have seen that directors and executives get paid in some combination of cash and options but also in more exotic things like Deferred Stock Units and various sorts of synthetic stock options. I have not previously bothered to dig into some of these things.

But yesterday I was reading how Stantec is paying its directors almost entirely in either stock (which I like to see) or deferred stock units, and the directors can choose between the two. As I understand it, the benefit to the directors of deferred stock units is that they get to defer income tax on this compensation until they retire from the Board.

I find it rather outrageous that directors can earn in this case about $200k per year and be paid in a deferred stock units and defer income taxes for many years. Most of us pay income tax as we earn income. Why should directors get this special treatment?

I intend to look into this further.

This is not specific to Stantec many or most large companies do this.

Perhaps this is just a useless distraction from the more important job of evaluating whether Stantec and others are good investments. But I find this kind of thing interesting. I question the ethics of assisting directors to defer income tax. With this behavior, is it any wonder that the average citizen views the system as rigged against them?







April 19, 2016

On Tuesday, the S&P 500 was up 0.3% and Toronto was up 1.1%.

Canadian Western Bank was up 6.6%. I am not aware of any news from the company but some analysts may have concluded it was under valued.

Bombardier, which is a volatile “penny stock” was up 5.1%.

Oil was down slightly after hours but generally has held in well. It may be that the low prices have resulted in lower production. The old adage is that the best cure for low commodity prices is low commodity prices. It works the other way too. High oil prices cured themselves by attracting massive investment and production increases in the U.S. and Canada and probably throughout the world.


April 19, 2016 11 am eastern

Statistics Canada reported a survey of large retailers today. A very mixed picture . Liquor up 10%, footwear up 15% on the year (probably due to the lower dollar), Toys games and hobby supplies down 17%. The implication is that some retailers will do very well others will struggle to survive.

Markets are strong this morning as is oil and the Canadian dollar (which is at 79 cents).

April 18, 2016

On Monday, the S&P 500 and Toronto were each up 0.6%.

Brookfield Office Properties came out with a 6.0% rate reset preferred share that will renew at a minimum 6.0% in five years unless the company buys it back at its face value of $25. Unless Brookfield Office Properties runs into severe financial difficulties this should prove to be a very attractive investment. I would have bought some but the issue was filled by the time I noticed the email from TD Direct.

April 18, 2016 12:20 pm eastern

Markets are moderately higher today despite the oil price decline.

TD Direct alerted me to a new issue of rate reset preferred shares at 5.75% with a minimum 5.75% distribution at the reset. It sold out quickly. This was a very attractive return as long as long as there was no real concern about the financial strength of the company. Several fairly strong companies have offered similar terms and I think it would be wise to grab some of these. I was going to place an order for some of the Pembina issue but I was too late. With new issues you have to be prepared to react very quickly.

Statistics Canada reported today that Canadian production of bitumen was up 16% in January. However light and medium crude production was down 14% and heavy crude production was down 10%. Obviously, reductions will be helpful in pushing prices up. Given lower oil prices those companies with lower costs are clearly at a strong advantage. Higher cost producers may not survive.

April 17, 2016

On Sunday, oil fell 7.4% to $38.42 as OPEC talks of a production freeze went nowhere. Reportedly, Saudi Arabia wanted Iran to freeze at January levels. That seems like a nonsense request. Iran quite clearly planned to ramp up production after its sanctions were lifted. It’s not clear what Saudi Arabia is up to but it seems clear they are being less than honest, or at least less than realistic.

In any case, any company or investor or government (like Alberta) that has gotten itself into a place where it must pray for OPEC to curtail production and manipulate oil prices has really gotten themselves into a jam. An OPEC price-fixing collusion may never happen. Nor should it. I have no idea where oil prices are headed. Higher prices would benefit Melcor and Canadian Western Bank. But if it does not happen, I suspect those companies will still survive and grow over the years.


April 15, 2016 noon eastern

Markets are modestly weaker this morning. Oil is down 3.5% to $40.

Bombardier is up 13% on rumors that a deal to sell 75 C Series jets to Delta is close. It’s welcome news although the jets will apparently be sold at half of list price and at a loss. I am tempted to reduce my position but I will likely wait for whatever bounce comes from the expected announcement of an investment by the Federal government. Longer term this company is in an industry that apparently needs government aid (“pay to play”) which is a recipe for poor to negative returns. Basically, investors and government put in money which creates jobs. Customers get planes below cost. Investors, based on past history, simply lose their investment. (Bombardier’s  common equity has a “value” of NEGATIVE $4 billion according to its own books.) Employees and plane buyers should be thankful for investors and government subsidies.

The Bombardier pref share that I follow is up 5.4% to $12.86. I have some faith in this as an investment since I don’t expect the company to go bankrupt. But it has its risks as well.

Statistics Canada reports that non-residential building construction declined in the first quarter.

“In Alberta, spending in commercial building construction was down 6.9% to $1.7 billion in the first quarter, marking the fourth consecutive quarterly decline. This was a result of lower investment in most commercial categories, particularly warehouses and office buildings.” The wonder here is that the decline is only 6.9%. I would have expected a far larger decline. The again, the population of Alberta is still growing at least slowly and so far many parts of the economy are not much affected by the energy price declines. The reality is that people and businesses are never affected equally. Many people and businesses have been absolutely decimated. Meanwhile, the majority of people remain unaffected and even benefit from the lower gasoline and natural gas prices. And many businesses are not very much affected. The notion that Albertans are a monolithic population that sinks or swims together based on oil prices is more false than true. However, over time the effects continue to spread to more people and businesses.

Statistics Canada also reports that in Canada, “Manufacturing sales decreased 3.3% to $51.2 billion in February, following three months of consecutive gains.” Given that results can fluctuate due to reporting errors and due to issues with seasonal adjustments we should not read too much into this report unless a down trend is confirmed in subsequent months.

April 14, 2016

Markets were about unchanged on Thursday.

Bombardier was up 7% on rumors of a sale of C Series jets to Delta but Delta indicated that nothing would be announced one way or the other until next month.

Wells Fargo earnings results were relatively strong.

Melcor was up 3.0% but this is basically meaningless due to the tiny volume.



April 14, 2016 1:40 eastern

Statistics Canada reports that new vehicle sales in Alberta in February were down 9% in units and 4% in dollars compared to February of the prior year. For the country as a whole new vehicles sales were up 9% in units. The Alberta figures are not bad considering the recession and overall these figures might suggest that AutoCanada‘s sales while lower will not be at disastrous levels. I would not read too much into this, but the numbers in Alberta are better than I would have expected.

Wells Fargo is out with earnings that are lower but which are somewhat higher than analysts expected. The stock is about unchanged. Despite headlines about their energy-related loan losses it seems very likely that Wells Fargo is not facing any losses that it can’t handle comfortably.

Bank of America also had a decline in earnings but its stock is up 2.4% on the news which included deeper cost cuts..

April 13, 2016

On Wednesday, the S&P 500 rose by 1.0% and Toronto by 0.7%.

Bank of America was up by 3.9% and Toll Brothers by 3.3%.

Some weak companies also rose. Bombardier was up 5.94% and Liquor Stores N.A. was up by 4.8%.

I have been watching impatiently for Melcor to start buying back some shares as it basically more or less promised in a March 29 press release. To date, it has reported no such buy backs. I now understand that it gave its broker instructions to buy but may have set too low a price. It would be fine if the company wants to conserve cash and not do buy backs. But I don’t think it is fine to announce a Normal Course Issuer bid and then not follow through.

To add insult to injury, an insider sold 4400 shares at $14.60. This was on Friday of last week. It came after exercising options at $12.76. Possibly the options were expiring, in which case the sale is understandable.

April 12, 2016

On Tuesday, the S&P 500 was up 1.0% and Toronto was up 1.2%.

Oil finished at just over $42 and the Canadian dollar is at 78.4 U.S. cents.

Canadian Western Bank was up 3.0% and AutoCanada was up 3.7%.

I received my proxy documents today from Bombardier and promptly voted my shares against all of the long-serving directors. It is REALLY easy to vote online and I hope more owners vote this year. While the controlling family has enough votes to get their way, it is still worth while to vote even the B shares. The more votes that are withheld the louder a message is sent. There was a shareholder resolution to have Bombardier report the results of the B-shares vote separately but the Board was unwilling to recommend it.

April 13, 2016 noon eastern

Markets are strong this morning with the S&P 500 and Toronto each up 0.8%.

Oil is holding at just above $42 although it was down somewhat earlier today.

Toll Brothers is up 3.6%

The reason for higher U.S. markets today probably includes that J.P. Morgan had earnings that were higher than analyst expectations (so-called they beat expectations, but I prefer to say the analysts under-estimated reality). J.P. Morgan also failed to get its “living will” approved by the FED but markets did not seem disturbed by that as it has time to rectify the situation. Wells Fargo also had its “living will” (basically how it would wind down if it did happen to fail) rejected. Again, the market seems unconcerned since the living will can be changed and re-submitted.


April 12, 2016 11:45 am eastern

Markets are strong on Tuesday morning with the S&P 500 up 0.7% and Toronto up 1.0%.

Oil is at $41.12 and the Canadian dollar is at 78.15 U.S. cents.

Melcor, unchanged today at $14.50 appears to continue to offer excellent value.

Boston Pizza has risen from its January lows but has been about flat for the past six week. I continue to think it will offer modest capital gains along with its attractive dividend of about 7.4%.

April 11, 2016

On Monday the S&P 500 was down 0.3% while Toronto was up 0.2%.

The stocks on our list were quiet although Liquor Stores N.A. was up 3.9% to $8.44.

Oil is just over $40 and the Canadian dollar has climbed back to 77.5 cents U.S.

April 11, 2016 11 am eastern

Markets are higher on Monday morning. The TSX is up 0.8% with oil up to $40.3.

Toll Brothers is up 1.7% to $29.23 after some positive comments from Barrons.

AutoCanada is up 3.1%.

Britain is introducing a law to crack down on companies that facilitate clients in evading taxes. For too long some banks (including in Canada) have had what appears to me to be suspiciously large operations in various tax haven jurisdictions. They may regret that soon.

April 10, 2016

The Toronto market was strong on Friday rising 1.0% as oil rose. The S&P 500 was up 0.3%

Canadian Western Bank rose 4.2%.

Along with oil, the big market mover this week might be the several large banks which report Q1 earnings this week.

April 8, 2016, 11:10 am eastern

Markets are strong this morning with oil up 6.3 to $39.60.

Canadian Western Bank is up 4.4%.

Statistics Canada came out with a very positive jobs report for March.

This is welcome news. But we should be a bit cautious given that these figures are based on a household survey and are inherently subject to the error of statistical noise from month to month. On a national basis the employment level is subject to a sampling error of plus or minus 30,000 jobs two months out of three and to a larger error than that the other one third of the time. That is a pretty big error that is often ignored in media reports that often put a lot of weight on an increase of say 20,000 jobs.

I suspect that Alberta’s unemployment rate falling from 7.9% in February to 7.1% in has to be to some degree the result of statistical noise. Nevertheless, the report is a positive indicator for the economy in Canada and particularly for Alberta.

April 7, 2016

On Thursday, the S&P 500 fell 1.2% and Toronto was down 0.6%.

Costco was down 3.0%. I have updated the report for Costco and rated it (lower) Sell at $152.03 (lower) Sell means somewhere between a Sell and a Hold.  The story with Costco has not changed. It’s a fantastic company but almost always looks too expensive.

Bank of America was down 3.2% to $12.85. I would likely add to my position in this stock if I had cash in the U.S. portion of my accounts. It will report Q1 earnings very shortly.

Canadian Western Bank was down 2.7% to $23.54. After the close CWB announced that it will acquire a $350 million loan book and business from GE Capital. This business provides loans to finance franchise businesses across Canada. The price paid was not disclosed. This only adds about 1.5% to CWB’s assets and so is probably not a big deal at all. But it is a positive as it provides growth outside of Alberta. I would not want to see CWB have to issue equity to finance this.

Wells Fargo, which we rate (higher) Buy was down 2.4%. It will release Q1 earnings shortly.

April 7, 2016 – noon eastern time

Markets are down this morning. However Statistics Canada reports that building permits were up significantly in February versus March in Canada. Also commercial rents continue to rise. These factors indicate continued strength in the Canadian economy.

There were rumors today that Bombardier will score an order for its C Series jet from Delta airlines. That is welcome news, if true.

April 6, 2015

On Wednesday, the S&P 500 1.0% and Toronto rose 0.3%.

Element Financial was up 3.3%, Amazon was up 2.7% and AutoCanada was up 2.6%. Toll Brothers was up 1.7%.

Costco reported same-stores sales that, after adjusting for currency and gasoline price fluctuations were up an impressive 4.0%.


April 6, 2016 11am eastern

Statistics Canada has provided an annual review of Canada’s 2015 imports and exports.

Canada had a $23 billion dollar trade deficit in 2015 whereas it had a $4.8 billion surplus in 2014.

The deficit can be attributed to currency fluctuations which made imports significantly more expensive and to lower energy and commodity prices received for exports.

The value of crude and bitumen exports fell 39% due to lower prices even as the volume rose 5.8%. The volume increase would have added to the excess supplies of oil on world markets which has depressed prices.

“The share of energy products of total exports fell from 17.7% in January 2015 to 13.0% by December 2015.”


April 5, 2016

On Tuesday, the S&P 500 fell 1.0% and Toronto was down 0.2%.

Wells Fargo was down 2.0%, Bank of America was down 2.4% and Couche-Tard was down 2.0%.

Before anyone gets too upset about that; here’s another thing that happened today: The companies on the S&P 500 as a group collectively made money today. And each of Wells Fargo, Bank of America and Couche-Tard almost certainly made money today. Not every company makes money every day. But some companies do. Banks in particular, unless they suffer unexpectedly large loan losses, tend to make money like clockwork every single day because the interest accrued on their loans is higher than the interest accrued on their deposits and is also high enough to cover their fixed costs of business.

If you own a diversified group of companies that collectively make money virtually every day then you will tend to make money on your investments over time. The fact that investors bid up and down the price of your stocks on a daily basis will not change that fact. On average for such a group of companies, you will be unaffected by random stock price movements unless you sell at a bad time, which admittedly you sometimes have to do but that is the exception and not the rule. (If stocks end up rising 10% in a particular year, does it really matter what they did on July 10th or any other date? If stocks rise at an attractive rate over a decade or two or three, how important is it for most investors that they fell on a certain day or a certain year?)

The “Panama Papers” stories provided entertaining news today. There will not be much sympathy for anyone exposed to be evading or even avoiding taxes via off-shore accounts. The name given to this story is no-doubt a play on words referring to the Pentagon Papers which were leaked in 1971. Not sure that most of the journalists covering this today will “get” the reference.

Another interesting story today was that the Board members of Pulte Homes have more or less revolted against the founder, Bill Pulte who they said had engaged in an unfair campaign against the CEO. It is very rare indeed for a Board to stand up to a founder like that.  It takes a lot of “independence” to do that. Warren Buffett has written that true independence does not come from being technically merely unrelated to the CEO or Chairman. Rather it requires a mindset and it requires that the Board members not receive Board fees that are an important part of their income. (It’s easy to imagine being independent in the abstract but a LOT more difficult to do if it means risking a salary that is an important part of your living standard). I looked up who is on the Board at Pulte. Sure enough they all appear to be people of substantial financial means (they are all executives and former executives). It’s nice to see a strong Board in action.

April 5, 2016 11:15 am eastern time

Statistics Canada reported today that Canada’s exports were down in February versus January and that the trade deficit has widened.

Some of the notable figures are:

Energy product exports were down 14% in February versus January. This included price declines of 10% and would appear to reflect the low oil prices of January. On that basis, this should improve in March since oil prices have rebounded somewhat. Volume was down 4% perhaps indicating hat the Canadian energy industry is finally starting to reduce volumes in reaction to lower prices. Until now, the figures I had seen indicated higher energy production volumes in Canada as companies presumably needed the cash and had to accept the lower prices. Energy products comprised only 11% of Canada’s exports in February.

Consumer goods exports were down 14% in February versus January. The volume decline was 12%. I suspect that this is related more to random fluctuations or data issues as opposed to a true trend. Consumer products constituted 14% of exports in February.

Imports of energy products were down 29% versus January as eastern refineries sourced more crude domestically. I am not sure how the oil is being shipped but it may have to do with recent pipeline flow reversals in Ontario.

April 4, 2016

On Monday, the S&P 500 was down 0.3% and Toronto was down 0.8%.

Melcor was up 5.2%. However, this was based on the usual very tiny volume for this company and so may not mean anything.

April 4, 2016 noon eastern time

Tax Avoidance and Tax Evasion

The use of tax havens is in the news after a leak of documents.

I don’t have much sympathy for anyone practicing tax evasion or even very aggressive forms of tax avoidance.

When companies report that they have subsidiaries in tax havens that is a red flag to me.

And I have wondered why the big financial institutions would have operations in tax havens. In our Royal Bank report I mentioned that I was concerned abut why they have operations in the Channel islands. Today RBC has had to defend its practices.


Updated Dollarama

Our Dollarama report is updated and rated Weak Buy at $92.13. The story here has not changed. Fantastic company but the stock price is expensive at 31 times earnings. The success of Dollarama in generating earnings growth is very remarkable.

April 1, 2016 12:15 pm eastern

Markets are moderately weak today.

Oil is down 3.8% to $36.88. Despite the difficulties that causes for many, (including to some companies that I own shares in) it is beneficial overall for the citizens of Canada and the world. (At least, if any resulting increased consumption and environmental harms are set aside). High oil prices were greatly beneficial to Saudi Arabia and other countries with less than admirable reputations. When I think about the greater good I find myself less able to cheer for higher oil prices. I would like oil prices to simply reflect market forces and not to benefit from the former price-fixing efforts of OPEC. Alberta might be wise to focus on getting pipelines and not hoping for a return to the former artificially high prices.

Bombardier posted its proposed slate of directors for the upcoming year. New list, same as the previous with one exception. (Correction, there are tow exceptions as the Board was expanded by one) One of the former Canadian Auditor Generals on the Board has apparently elected not to run and is replaced by an academic who holds no shares. It is disappointing that the family feels that it should have no less than five members on the Board despite owning 12.4% of the shares (and about half the votes due to owning mostly multiple voting shares). A few others on the Board who have been there throughout the debacle of the last 15 years at Bombardier also chose not to resign. I don’t think Bombardier can ever fix itself while not admitting that much of the problems were caused by poor leadership at the very top. The refusal to reform the Board even a little bit is also effectively thumbing their nose at the governments that want to see reform and who have been asked to invest in the company.



March 31, 2016

Time marches on and Q1 is now over.

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

AutoCanada was up 5.3%. Dollarama was up 2.8%, a partial give back of recent gains.

Cara is buying St. Hubert…

TD Direct was out with two more secondary share issues, NewAlta and Northwest Healthcare Properties REIT. Both issues are now closed as the money was successfully raised. Again, clearly there are investors with new money to commit to corporations and corporations are active buying each other.


March 31, 2016 11 am eastern time

Statistics Canada reported today that GDP rose a huge (assuming it’s not an annualized figure) 0.6% in January and rose 1.5% year over year.

Some of the figures may be rather puzzling. They report that GDP of the mining, quarrying, and oil and gas extraction sector fell only 1.6% since January of last year. If you thought that the value added dollars generated by those industries must have fallen a LOT more than 1.6%, you are absolutely correct.

GDP is growth is virtually always reported in real terms reflecting volume rather than dollars. For the country overall you then need to add some measure of inflation to get to GDP growth in actual current dollars.

In 2015, the oil and gas industry faced MASSIVE deflation in the prices of their products. The GDP of those industries measured in current dollars has clearly fallen by a HUGE amount (30%? more?).

Even for the country as a whole, I am told that the measure of inflation that they use (and industrial inflation is different than consumers inflation) was probably negative in 2015.

The bottom line is that the GDP figures being reported in “chained 2007 dollars” are overstating the growth in the economy as measured in current dollars and for some industries like oil and gas are vastly overstating the growth (or understating the decline). This is not Statistic Canada’s fault. It is just a result of what is happening in the economy. Also I have looked into it and there are valid reasons why Statistics Canada cannot report GDP by industry in current dollars except after a lengthy lag to collect the data.

So, I’d like to get excited by this positive GDP report, but  the reality is that Canada’s GDP in actual 2016 dollars likely fell in the past year (though it likely rose in January to be sure).


March 30, 2016

On Wednesday, the S&P 500 was up 0.4% and Toronto was up 0.6%.

The Canadian dollar is at 77 U.S. cents. Earlier this year it touched 68 cents and a LOT of people seemed to think it was heading to 60 cents. “Run and get your investments into U.S. dollars” they said. Which has not worked out so well for them.

I would have liked to move more dollars back to Canada in the lower 70’s but found I did not wish to sell the U.S. stocks I held and also I dislike the hefty currency translation fees. In any case, I did move some dollars from the U.S. to Canada, most recently at 73 cents. Overall I moved dollars from the U.S back to Canada too early as I did so as the Canadian dollar fell. But I think doing that made more sense than assuming that it was going to keep falling. The Canadian dollar definitely fell more than I ever expected it to.

Notable gainers on the market today included Stantec up 6.0% to $33.85. Those who contracted to buy the subscription receipts yesterday or perhaps early today at $30.25 have had a good day. I put in for 300 shares and got allocated only 100 shares. That means that this $604 million (with the over-allotment) share issue was fully subscribed and in fact perhaps three times over subscribed. This is $604 million of money flowing into Stantec’s hands. And investors were apparently prepared to invest substantially more than that given the over-subscription. Today TD Direct sent out notices of two more secondary offerings of shares; for Silver Wheaton and for Firm Capital. Clearly, some investors have ample cash and are willing to buy.

Another big gainer was Dollarama, was up 7.5%.

A good day for investors. So much for all those people who avoid stock markets because they mistakenly think it is a zero-sum game or because they think the “market is rigged”.

March 30, 2016 11:30 am eastern

Markets are strong this morning with the S&P 500 up 0.6% and Toronto up 1.0%.

Dollarama is up 6.3% based on its strong earnings report.

Stantec is about unchanged at $31.98 which is impressive given that it just successfully closed an issue of subscription receipts amounting to a 21% increase in its share count at $30.25.

Statistics Canada reports that rail car loadings in Canada were up 3.7% in January and that car loading originating in Canada were up 6.4%. There were gains in both bulk commodities and in inter-modal freight (typically consumer goods). Tonnage arriving from the U.S. was down 18%. Overall, this is evidence of strength in the Canadian economy and domestic production. However I seen other reports that suggest that car loadings in January were slightly lower than in 2015 and that there was a relatively sharp decline in March. So the message here is rather mixed.

March 29, 2016

On Tuesday, the S&P 500 rose 0.9% and Toronto rose 0.3%.

Notable gainers included Toll Brothers up 3.2%,  Melcor up 2.7% (although on thin volume as usual). Constellation Software up 2.8% and Dollarama up 2.3%.

TransForce announced that it managed to buy back $59 million worth or about 2.8% of its shares for $22 in its “Dutch auction” process. Given that the stock price rose to and above $22 after the auction was announced and given the strength of the markets in the past month or so, this is a reasonably good outcome though its only about 28% of the shares that TransForce hoped to repurchase. I believe this buy-back will be beneficial to the continuing shareholders. I do not however view share buybacks as being in any way equivalent to dividends from the perspective of shareholders. With dividends, all shareholders receive cash. In this case exiting share holders received cash (inadequate cash in my opinion) and continuing shareholders did not get any cash but get the benefit of an increased ownership level but now own a company with less cash.

After the close, Stantec announced a massive acquisition that will make Stantec a global engineering firm. (Previously, its international operations were tiny).

The acquisition for U.S. $795 million adds about 31% to Stantec’s enterprise value. To pay for the acquisition, Stantec is issuing shares (subscription receipts) at $30.25. This is a small discount to the existing price which is disappointing but is understandable. The share count will be increased by about 21% (debt leverage is being increased which explains why the share count will not increase by 31%). The employee count will increase by about 45%. The number of office locations will increase by about 75%. This acquisition probably qualifies as “transformative”.

Overall, given Stantec’s very successful history with acquisitions this is probably a very positive development for share owners. I will be adding to my position by participating in the subscription receipts offering.

It’s interesting to observe that while many observers moan about the weak state of the economy, Stantec and others are showing the confidence and the drive to expand. Edmonton is fortunate to retain the head office of this about to be global company.


March 29, 2016 12:30 pm eastern time

The Toronto stock market is down about 0.6% today as Oil is down to $38.

Melcor Developments is out with an announcement of a new Normal Course Issuer Bid whereby it apparently intends to repurchase some shares given that it “believes that its common shares have been trading in a price range which does not adequately reflect the value of such common shares in relation to the business of Melcor and its future business prospects.”

They announced much the same thing last year and then did not follow through except to an extremely minor extent. This time however, they have arranged permission to allow (at Melcor’s discretion) for automated purchases by a broker following certain parameters during “black out periods”. Black out periods occur from the end of each quarter until earnings are released which in Melcor’s case covers perhaps 80% of the year.

Melcor’s press release could be considered misleading in that it indicates permission to repurchase up to 5% of the shares or 1.66 million shares. BUT, it goes on to state that the daily limit is 1433 shares (which would be due to its low Trading volume). That would put the limit at more like 200 times 1433 = 287,000 shares or les than 1% of the shares. Possibly, the limit will increase if the volume increases over the year.

Tentatively, this repurchase plan is good news. Melcor did not follow through last year but that may have been out of caution regarding the low oil prices (Alberta recession) and therefore a need to conserve cash. This year they have cut the dividend by 20% which frees up some cash. Also if they curtail development activities this year that should lead to some buildup of cash as they spend less and collect payments for lots sold last year (there is about a one year lag). Given the low volume, even a modest amount of repurchases could certainly push the stock up somewhat.



March 28, 2016

Markets were tame on Monday with the S&P 500 about unchanged and Toronto up 0.2%.

Reports today indicate that Warren Buffett has continued to add to Berkshire’s massive position in Wells Fargo. At year end he reported an even 500 million shares. I thought he might stop there since he was getting very close to the 10% limit that normally applies to bank ownership and because he likes round numbers. (For a long time Berkshire has owned an even 400 million shares in Coke.). But apparently he has continued to purchase Wells Fargo and may be planning to ask for an exemption from the 10% rule. These purchases should add to the comfort of anyone owning (and let us not say “holding” as we are owners and “holding” sounds very temporary and demeans our position as owners, that is we are share owners, not share holders) Wells Fargo shares.

March 28, 2016 12:25 pm eastern

Market are slightly weak today…

I have added today to my Stantec position. I also started a new position in Royal Bank of Canada which we had rated a Strong Buy.

I am expecting Bombardier to post very soon its circular for its April 28 annual meeting. This will reveal its proposed slate of directors. I am curious to see if any of the incumbents choose to (or have been asked to) not stand for re-election. All of the Board members are either family or in some way “famous” such as a former Quebec Premier, two (two!) former Auditor Generals of Canada, a former Nortel CEO, a former Citibank CEO and (bizarrely) the former Google CFO. Other than the Laurent and Pierre Beaudoin who will want to stay around to try to resurrect their shattered images, I don’t know why any of the rest of them would really want to stay in the job. They don’t seem to need the money and they don’t seem to have contributed anything to the business, so why stay on as Board members where they are sure to be criticised heavily?

Updated Stantec Report

Our report on Stantec is updated with a rating of Buy at CAN $31.33 or U.S. $31.33. Stantec’s earnings declined moderately in 2015 but declined about 30% in Q4. This was due to the down-turn in oil and gas activities and mining activities. And Stantec’s earnings could certainly decline again in Q1 2016. After that it begins to “lap” the quarters where its earnings growth had suffered in 2015. Overall in 2016 the company appears to expect flat revenues from its existing businesses (lower in first part of 2016 with some recovery in later 2016). Additional revenues from acquisitions could lead to modest single digit earnings growth overall in 2016. Longer term Stantec’s long-standing practice of growth by acquisitions should allow a return to double digit earnings growth in 2017. Stantec is a very well managed company and the current lull in earnings and somewhat lower stock price appears to represent a buying opportunity. A reasonable strategy might be to take a modest position or add modestly to an existing position with a view to accumulating more shares if the stock price should decline with Q1 earnings or for other reasons.

Updated AutoCanada Report

Our report for AutoCanada is updated and the stock is rated Speculative Buy at $17.42. It could have been rated higher but I wanted to be conservative given that the earnings could decline in 2016 due to the recession in Alberta where 45% of its dealerships are located. At this point AutoCanada appears to be trading at a discount price that its dealerships would likely fetch if they were sold off. AutoCanada has no intention of doing that but the opportunity to buy a small portion of these dealerships in the stock market at a lower price proportionately than what whole dealerships might sell for seems attractive.

If you think about the most prosperous looking businesses in your Town or City, auto dealerships will usually make that list. I feel good about owning a share of these dealerships.

It is true that AutoCanada has fallen 57% since it was first added to this site rated Buy last July. Many investors would shy away from stocks that have declined. Investors who focus on fundamentals find that stocks get more attractive as they fall in price, all else equal. Of all else is seldom equal and in this case AutoCanada’s earnings are down sinc last July. But our analysis suggests that the price has declined more than the earnings.

March 24, 2016 11:50 am eastern

Markets are down modestly this morning…

Statistics Canada reports that the number of people on EI (Employment Insurance) did not change much in January versus December. In Alberta the change was just 2%. However, on a year-over-year basis the number for Canada is up 7.1% and for Alberta is up 91%. Perhaps the small change in January indicates that the job situation in Alberta has started to stabilise.

March 23, 2015

On Wednesday the S&P 500 was down 0.6% and Toronto was down 0.8%.

AutoCanada was down 3.6% to $16.52. I will update that report within the next couple of days and I believe it is attractive at this price.

I have updated my article on Understanding the Canadian Economy. Due to the dramatic price reduction, Energy is no longer Canada’s largest export by dollar value. Using Q4 seasonally adjusted and annualized figures (so on a run-rate basis) Energy is now number four on the list of exports by dollar value, previously it was number one.

This article also shows how the various industries contribute to Canada’s GDP. Energy has not traditionally been the number one contributor to Canada ‘s GDP. This year it should be even further down my list . But I discovered this year that Statistics Canada was reporting GDP in something called 2007 chained dollars. Chained dollars are a strange concept and do not reflect the drop in energy prices. I am attempting to get the 2015 numbers in current dollars. Shockingly, Statistics Canada publishes these only on a three years delayed basis.


March 23, 2016 11:30 AM

This morning Amaya Gaming is down 22% to $14.50 on news that’s its CEO is charged with insider trading in relation to the stock. I mentioned in my comment of February 1, 2016 that this was not a company or a CEO that I would be prepared to put a lot of trust in. When Amaya bought a much larger company I expressed skepticism about the deal back on June 15, 2014. Basically there were a lot of reasons to be skeptical about this company. Warren Buffett invests only where he respects, likes and trusts management. It’s very difficult for small investors to know if management should be trusted. But sometimes there are clear red flags.

Our investment reports always include a section on management quality. Often I don’t have much knowledge to indicate whether management can be trusted. But my standard template for company reports forces me to give at least give some thought to management quality. Some of the things that I have considered to be red flags regarding trust include excessive compensation, aggressive approach to adjusted earnings (Valeant, any Gold company I ever looked at), lack of transparency (Bombardier traditionally made almost no mention of government assistance), and use of offshore tax havens (Sino Forest and Valeant).



March 22, 2016

On Tuesday, the S&P 500 ended the day down 0.1% while Toronto was down 0.5%.

Rate reset preferred shares have risen as the government of Canada five year bond yield has risen moderately in the past month.

TransForce closed down 1.6% to $21.99. It has offered to buy back a large amount of shares in a “dutch auction” at a price between $19 and $22 depending on how share owners respond to the offer. The offer is only open until Monday next week and my broker indicates that instructions must be given by noon on Thursday. It’s hard to imagine that anyone would tender at a price less than $22 or that many shares at all will be tendered. Possibly there are some big owners who could tender and get out without worrying that selling a large amount of shares would push the price down. But TransForce traded over $30 this time last year, and its earnings have increased, so why sell at $22 now? The whole dutch auction thing is strange because it may have pushed the price up. The shares were closer to $19 and $20 when this auction was announced. Sounds like something dreamed up by an Investment bank to make some fees on. It would likely have been better to just buy as many shares as they could on the open market. What if there were a major market decline due say a terrorist attack? Then TransForce would have been stuck buying back shares at an above-market price.

This share buyback was announced back on February 11, when the shares closed at $19.61. This sort of thing would make a lot more sense if it could be done in closer to seven days as opposed to seven weeks. Apparently TransForce has the ability to vary the offer such as by increasing the price. If they do that then perhaps this whole thing will start to make more sense. At the moment, I see no winner here except the investment banks that dreamed this up and will presumably collect fees regardless of the outcome.

March 22, 2016 10:45 am eastern

Markets are down moderately on the Brussels, Belgium attacks.

It would be understandable if people react be canceling trips to the Netherlands and perhaps to other places as well. But that would seem to allow the terrorists to win.

It so happens that I have a trip planned to the Netherlands in July. I am happy to report that my own reaction is that there is no way I am going to cancel my trip or even be more than a tiny bit afraid. The reality is that the chances of any particular person being harmed in a terrorist attack are very tiny. The overall dangers of life today are far less than they were 50 years ago. The 24-7 news coverage of terrorists attacks inevitably greatly distorts our perception of the danger. We should try to keep this danger in perspective. The terrorists want us to live in fear of such attacks. Let’s try not to let that happen.

March 21, 2016

On Monday, the S&P 500 was up 0.1% and Toronto was up 0.5%.

Yahoo Finance reports Oil (West Texas, May contract) at $41.63.

Bombardier was up 6.2% and the Bombardier pref. share that we follow was up 5.8%. Presumably on hopes for a Federal government investment / bailout.

AutoCanada was down 5.6% to $17.00.



March 21, 2016 11:45 am eastern

In this morning’s news Valeant’s CEO will soon step down and the company has admitted that it has serious problems and has accused a current Board member who was a prior CFO of improper conduct. That Board member has refused a request to step down. This is all very ugly but could be the beginning of the road to some recovery. However, due to its high debt load it is possible that Valeant’s common shares will eventually prove to be worthless.

In other news, Statistics Canada reports that investment in new house construction (single family plus multi family) rose 3.9% year-over-year in January. However, the situation varies greatly by Province. Among the larger provincial economies, Alberta was down 19%, Ontario was up 23%, BC was up 14% and Quebec was about unchanged.

March 19, 2016

On Friday, the S&P 500 rose 0.4% while Toronto fell 0.9%.

Decliners included Couche-Tard down 3.5%, Stantec down 3.2% and AutoCanada down 6.0% on its earnings report. I bought some AutoCanada for a an account owned by relatives of mine.

On Friday, Statistics Canada releases a report on retail sales that was viewed as very favorable and above expectations. New car sales were up 17% in January 2016 versus 2014. Used car sales were up 23% (driven I believe by exports tot he U.S to take advantage of our lower dollar). Furniture sales were up 12.9%. Shoe sales were up 15.2%.

Those are strong numbers. However, I would be a bit cautious given that the figures for any one month could be affected by weather and buy any number of data issues.

Listening to some commentary on this on BNN yesterday from a couple of guests I did not hear any reference to an obvious partial reason for the increase (I may have missed the reference). That would be price increases driven by the low dollar. I suspect that if shoe sales were up 15%, a good part of the reason is that those are almost all imported and the prices may have risen due to the low dollar.

Still, overall, this was a strong retail sales report.

Retailers have often been good investments. Consider that Walmart is one of the most valuable companies in the world. As is Amazon. In Canada, Canadian Tire and Couche-Tard have been excellent investments. Also Dollarama. Some retailers have relatively stable and predictable profits and growth. (Could anyone visiting a Costco doubt their ability to grow?) This predictability is in contrast to the many companies with unpredictable profits linked to commodity prices. Warren Buffett became the most successful investor in history in part by focusing resolutely on predictable companies. He does not mind annual volatility but, when buying, he absolutely insists on businesses in which he has high confidence that earnings will grow over the next decade or longer. Sometimes he is wrong, but he always has that expectation when buying. He famously eschewed technology companies because he was not confident in his ability to predict their earnings growth. For the most part he has avoided commodity-based companies. Some retailers, but certainly not all, may be suitably predictable. Speaking of focus, Buffett and Bill Gates both said that the one word that best described the reason for their success was “focus”.

Updated Melcor Report

Our report on Melcor is updated and rated Strong Buy at $13.82. The stock price has fallen substantially over the course of the developing recession in Alberta since the Spring of 2014. According to the financial statements each share represents equity ownership of $29.37 in assets. The assets consist of roughly equally of rental retail and commercial buildings and land (in various stages of development from raw land to finished lots) for future home building lots. The land and buildings are largely in Alberta. So, this appears to be a chance to buy dollar bills for 47 cents. It is true that the value of commercial buildings and land in Alberta could fall. But there is a considerable margin of safety here. The equity is leveraged by debt but not excessive debt which makes for a better margin of safety compared to highly leveraged equity.

March 18, 2016 12:30 pm eastern

Markets are up modestly in the U.S. but down modestly in Toronto. Oil is at $42.

AutoCanada is down 5.2% on its earnings to $18.14. I’d be tempted to buy at that price.

Statistics Canada reported today that core consumer prices rose 1.9% in the past year. Overall consumer prices before adjustments were up 1.4%. Grocery prices rose 4.4% with fruits and vegetables being a major contributor to that (they rose more but a number was not given in the press release). The rise in core inflation is almost exactly at the Bank of Canada’s target of 2.0%.

March 17, 2016

Markets were strong on Thursdays as the S&P 500 rose 0.7% and Toronto rose 1.1%. Oil (West Texas) is at $41.58 and the Canadian dollar will buy 77 U.S. cents.

Notable gainers today included: Fedex up 11.8%, Stantec up 4.4%, Bombardier up 7.8% and the Bombardier pref share up 7.9%, AutoCanada up 3.2%, TransForce up 2.8% and Canadian Western Bank up 2.9%.

AutoCanada released earnings after the close. As expected, results were down versus Q4, 2014. There was also a write-off. Overall, given low expectations, I am not sure there will be much market reaction but we shall see tomorrow.

March 17, 2016 11:15 eastern

Markets are strong this morning and oil has surged 2.4% to $41.

Melcor’s stock is up 1.7% to $14.00. But that is on its usual tiny volume and is really almost no reaction to the earnings report given that it should be up with the oil prices.

Fedex is up 10.5% on strong earnings. I have not looked at it the report but understand it may have been more on cost-cutting than volume. But in any case it is still one more indication that the U.S. economy is doing okay.

March , 2016 11:45 am eastern

Statistics Canada reports strong manufacturing sales in January:

Manufacturing sales rose 2.3% in January to $53.1 billion, the highest level on record. Higher sales of motor vehicles, food, and motor vehicle parts were largely responsible for the gains. More than 85% of the increase in January came from these three industries. Conversely, sales of petroleum and coal products fell 5.9% as prices continued to decline in the industry.

Constant dollar sales rose 2.4% to their highest level since July 2008, indicating that volumes of goods sold reached levels not recorded since before the 2008-2009 recession.

Sales rose in 16 of 21 industries, representing more than 80% of the manufacturing sector.

Motor vehicle sales increased 9.6% in January to $6.6 billion, the highest level since November 2000. This was the largest increase in the industry since March 2015. The gains in the motor vehicle industry were the result of two key factors: changes in the industry toward higher-end models and the lower value of the Canadian dollar.

There are always those who see only doom and gloom, but this is, I believe, undeniably a positive report.

March 15, 2016

On Tuesday, the S&P 500 was down 0.2% and Toronto was down 0.6% – propelled by Valeant’s 51% face-plant.

Those who emailed me about making sure they are on the list for the free newsletter have been added. (There were more of you than I expected who were not on that list) With the new email system that I will be using within a week or so, it will be easier to join the list and be marked activated or confirmed on the list.

AutoCanada which reports earnings Thursday, after the closer was down 7.9%.

Melcor reports after the close tomorrow (Wednesday).

The big winner tonight is Donald Trump. Any possibility of a Trump Presidency will be bad news for American stock prices. Perhaps corporate America deserves that for failing so many people. But Trump’s anti-trade and anti-immigrant ideas will not be a good solution. I suspect Hillary Clinton would be a better choice for the economy.



March 15, 2016 10:45 am eastern time

Markets are down moderately this morning and oil is down 1.9% to $36.47.

Valeant is down an ugly 34%. Sometimes the mighty do fall hard. The unfortunate fact is that Valeant has a lot of debt and that means the equity could conceivably go to zero. I noted the very high debt level in my report last Summer. A lot of people don’t like Kevin O’Leary but he nailed this one at the first sign of trouble in September when he said it was toxic waste and repeated that yesterday on BNN. I don’t agree certainly with everything O’Leary says but I have always found him to be quite entertaining and have been watching him speak about investments for over ten years now. He nailed Bombardier and Nortel early as well.

In other news Sobeys / Empire is writing off $1.7 billion of its $5.8 billion purchase of Canada Safeway. Sobeys has traditionally been a well-managed company that grew out of a village in my home province of Nova Scotia. Hopefully this is a one-time stumble. I have not looked at its financials and have no opinion on Empire as an investment.

There was also a story this morning that retailers in Malls formerly anchored by Target stores may be able to break their leases. This is (sometimes) allowed when the anchor closes but had been delayed by the bankruptcy. I don’t know if this has any material impact on RioCan but it could be at least a minor negative.



March 14, 2016

On Monday, the S&P 500 was down 0.1% and Toronto was down 0.3%.

There were no big moves in any of the stocks on our list.

My next update will likely be for Stantec. I suspect it will be rated Buy or (higher) Buy. It’s an exceptionally well-managed company that has grown large basically because management was ambitious for growth over the years and they developed a plan to grow by acquisition and they developed systems to manage the ever-larger company. They keep on applying their growth plans and running the company well.

March, 2016 11 am eastern

Stocks are mostly down modestly to start the week.

Statistics Canada has reported new auto sales for January.

For Canada, new auto sales were up a hefty 9.2% versus January last year. (I don’t know if weather played a role in either year).

Ontario was up 18%. This supports the notion that the Ontario economy is strong.

B.C., another strong economy, was up 11%.

In recession-ridden Alberta, new auto sales were down 11%.

Given the low expectations for AutoCanada I would view these results as positive. Certainly AutoCanada’s sales with a heavy (43%) concentration in Alberta must be running lower than the prior year but given that they have 19% of their dealers in B.C. and have a small percentage in Ontario, the situation certainly does not look disastrous. AutoCanada will report earnings this week. I believe they are a well-managed company. The outlook may be more important than the recent sales.

Last week Statistics Canada reported that: “Canada produced 20.2 million cubic metres of crude oil and equivalent products in December, up 3.5% compared with the same month in 2014.” To my mind, the increased production shows that the Canadian oil and gas industry collectively has been completely unable to curtail production in response to low prices. This is not surprising. Every individual company wishes that others including OPEC would curtail, while they themselves find that they need to pump more to pay their bills. It may take bankruptcies to curtail production. But reduced capital spending also eventually leads to production declines.

This morning Teranet released its latest figures for sale prices of existing homes. Prices were up 3.2% versus January in Vancouver. Most other markets were little changed with Toronto and Edmonton about unchanged and  Calgary down 1.2% in February versus January.


Updated Canadian Western Bank Preferred Share Report

Our Canadian Western Bank rate reset preferred report is updated and rated (higher) Buy at $16.61. These shares yield an attractive 6.6%. But at the reset date in three years time if the five year government of Canada yield remains at about 0.70% then these will reset down to a yield of 5.2% – which still seems attractive though it is lower than the 6.25% yield at which CWB just issued some new rate reset shares.

The new preferred shares which CWB just issued and which have not yet started trading yield 6.25% and would reset to 6.17% if the government of Canada five year yield remains at 0.70%.

Both of these issues seem attractive. If the five year rate increases substantially before the reset then the existing shares at $16.61 could increase substantially towards $25. The new shares might increase somewhat but likely not very much given that the bank would likely buy them back in five years at $25 if they were otherwise worth much more than $25.

If you believe interest rates will not rise then the newer issue would be more attractive. If you believe interest rates will rise then the existing issue is likely more attractive. If you believe that we will see even lower interest rates, even negative rates, then you should likely avoid rate reset shares.

A lot of investors were badly burned on rate reset shares as the five year government rate fell substantially in the past 18 months. As a result, these rate reset shares may now be trading at higher yields than they really should be in order to attract investors who are sort of “once bitten, twice shy”. If that is the case, braver investors can take advantage of the higher yields. But the possibility remains that they too will be bitten.

The S&P 500 index appears over-valued

I just sent a note to the free newsletter list that the S&P 500 index is over-valued. You should have received this email as most of you would be on the list for the free newsletter. But it is a separate list. If you did not receive that email, let me know at and I will check if your email is on that list and has been “activated” or confirmed by you (an anti-spam requirement).

My detailed analysis of the valuation of the S&P 500 has been updated.

While the S&P 500 index is over-valued with a P/E of 23.4, I take comfort from the fact that many of the stocks on our list have far lower P/E ratios. The weighted average P/E ratio of my own portfolio is 11.0 according to my latest figures.

March 11, 2016

Stocks were up pretty much across the Board on Friday. The S&P 500 was up 1.6% and Toronto was up 1.1%.

Some of the notable gainers included:

Liquor Stores N.A. was up 5.7% as some investors apparently agree that cutting the dividend could signal more growth and probably just due to getting rid of the prior uncertainty as to when the dividend would be cut.

AutoCanada up 3.7%.

Wells Fargo up 3.2%.

Toll Brothers up 3.4%

Bank of America up 3.9%.

Statistics Canada reports that the Alberta unemployment rate is up to 7.9%.

The Melcor REIT reported strong earnings this morning. Melcor itself reports, I believe, Tuesday of next week. The stock price reaction will likely hinge more on the outlook and fears than on the actual results.

March 10, 2016

On Thursday, the S&P 500 was about unchanged and Toronto was down 0.1%.

Liquor Stores N.A. fell 6.9% due to its poor Q4 earnings report.

This morning Canadian Western Bank announced an  issue of $100 million of 6.25% rate reset preferred shares. TD Bank” TD Direct brokerage was offering these and probably a number of other big brokerages were offering these.

The rate reset pref shares that have been issued by banks lately have certain features that qualify them as Tier 1 capital. Tier 1 capital includes common equity shares and certain other relatively permanent capital. Rules have changed (I won’t pretend I know all the details) such that in order for rate reset shares to qualify as Tier 1 capital they have to be such that the bank can turn them into common equity shares automatically if it runs into certain financial trouble (called a triggering event). This is called the bail-in provision. If the bank’s common shares are trading at $10 at the time of a triggering event you would get 2.5 common for each $25 pref share that you held. If the common are at $5.00 OR LESS, you get 5 common shares per pref. These CWB rate reset shares are also non-cumulative and that may be the case with all the recently issued bank rate reset pref shares. These features are designed to protect bank depositors and the federal deposit guarantee corporation. Anything is possible, but it is unlikely that a triggering event will ever happen or that the dividend would be skipped.

All in all, I would judge these 6.25% rate reset shares to be attractive. The market agreed with that and this issue sold out within about an hour even after being increased to $140 million. Those who want to buy shares when they are initially issued like this unfortunately have to act very fast. There may still be a chance to buy it (close to $25) on the market after it starts trading in a week or so.

It seems somewhat remarkable that this bank needs to pay 6.25% on these shares and Royal Bank had to pay 5.5% on its recent issue. This at a time when a 30 year Canada bond pays only 2%. Two years ago banks were issuing rate reset pref shares (albeit without the bail-in provision) at rates more like 4.0%. In part this is likely due to the fact that a lot of investors got “burned” on previous rate reset preferred shares and now don’t want to touch them unless they get these higher dividends.

The existing CWB rate reset share which is on our list pays only 4.4% and trades at $16.40 (to yield 6.7%). As long as new issues pay 6.25% this existing issue is unlikely to rise very much. But it has three years to go before its reset date and it certainly could rise if interest rates stay low. I would buy the existing shares at $16.40 rather than the new at $25. I am not certain, but I don’t think the existing shares count as Tier 1 capital. For that reason there may be a slim possibility that the bank would want to buy them back and might pay something higher than $16.40, though not likely higher than $20 or $21. And they may not buy back at all because they still qualify as bank capital, even if not Tier 1. Also it is logistically somewhat difficult to buy these back. I also think there is more chance for these existing shares to rise rather than fall whereas the new shares at $25 have little room to rise under any scenario since they can be bought back (by the bank) at $25 in five years. Still, they could temporarily go above $25 if market rates on these rate reset shares drop.



March 9, 2016

On Wednesday, the S&P 500 rose 0.5% and Toronto rose 0.6%.

Canadian Tire rose an impressive 2.9%.

Liquor Stores N.A. released Q4 earnings this evening. Overall the results were awful although there was a marginal increase in same-store sales. And revenue did increase 8.9% partly due to currency impacts. This company has finally accepted the reality that its dividend was too high and so the dividend has been cut from $1.08 per year to $0.36 cents. There is a big goodwill impairment charges. Administrative staff are being reduced. Unfortunately the management team that kept the dividend too high for too long and that added expensive staff to management will still be in charge.

I will re-evaluate our rating on this stock after the price settles out on this news. But in general I have found that investing in poorly managed businesses even at lower prices has not worked out well (Bombardier being a classic example).

March 8, 2016

Just when we were all getting used to the market going up pretty much everyday for the past few weeks, the markets delivered a negative day on Tuesday. The S&P 500 was down 1.1% and Toronto was down 0.5%.

Notable decliners included AutoCanada down 10.7%, Liquor Stores N.A. down 6.4%, Bombardier down 10.3%.

Liquor Stores N.A. reports earnings tomorrow (Wednesday).

Note that I will likely not have morning posts for the rest of this week due to other commitments this week.


March 8, 2016 10 am eastern

Laurentian Bank is out with a offering of five year rate reset shares this morning. Available through TD Direct and probably most of the other big bank brokerages. The yield is 5.65% and then resets to the five year Canada yield plus 5.13% in five years unless called in at $25 at that time. In the unlikely event hat Laurentian Bank gets into severe financial trouble (a triggering event) then these shares would convert to common shares at the market price of the common but with a floor price of $5.00 (So maximum 5 common shares per $25 pref in that unlikely event). These pref shares seem attractive based on the dividend. I would be a buyer if I had the spare cash.

I would have little or no expectation of a capital gain since they can be redeemed at $25 in five years by the company. (Possibly they could trade someone above $25 in certain circumstances, but not a lot above). They could fall in price if the outlook for Laurentian Bank becomes very poor or if five year Bank of Canada rates go even lower or negative. (I suppose, anything is possible but it is not something I would expect or worry about). Since the market yield on rate reset shares remains so high above the five year Canada this means that existing rate reset shares (with reset spreads closer to say 2.5% rather than 5%) which are trading down towards $15 will not likely rebound significantly any time soon. (Not everything in the markets works out as planned.)


March 7, 2016

Monday was a strong day on the markets, particularly in Toronto which was up 1.3%  as oil rose about 5% to $37.90. The S&P 500 was up 0.1%.

Canadian Western Bank was up 3.8%, AutoCanada was up 5.2% and TransForce was up 5.4%.

AutoCanada has not yet released Q4 earnings, so the picture could change when it does. TransForce was hoping to buy back a significant quantity of its shares in a “dutch auction” for prices between $19 and $22. The offer closes on March 28. I am not sure what happens with that if the price stays above $22. It closed today at $22.35. Presumably, they won’t get much response to their offer if the price stays above $22. I don’t particularly think they would up the price. Perhaps they should have just tried to buy what they could in the market.

I added a small amount of Boston Pizza to the account of a family member. I still like it at $18.50, certainly. I don’t normally think in terms of target prices but I don’t see why this can’t trade up to the $23 range which would represent a 6% yield and which seems attractive in this low-interest rate world. However, various fears could certainly keep it from trading that high.



Updated report for Canadian Western Bank

The report for Canadian Western Bank is updated and it remains rated Strong Buy. Their Q1 earnings were about flat compared to the prior year which is good performance given the recession in Alberta. While impaired loans have increased 40% in the past year they still remain low. And management does not expect most impaired loans to ultimately be written off. The provision for credit losses was increased only modestly. The opportunity to purchase this well-managed bank at about book value seems attractive.

Royal Bank added to list as Strong Buy

Royal Bank of Canada has been added to our list and rated Strong Buy. It appears attractive based on a 10.7 P/E ratio, 17% ROE and 4.5% yield. Earnings per share could suffer in 2016 due to energy loan losses, the recession in Alberta and due to the additional shares issued in a recent acquisition of a U.S. wealth management division. Nevertheless, the shares are attractively priced and earnings will almost certainly grow over the years. I would caution however, that banks are always highly leveraged and Royal seems particularly highly leveraged. Banks tend to be like finely tuned instruments that make money literally every day in most economic conditions but there is a small chance of major losses in deep recession conditions or if they loaned too much to companies or sectors that go bad. For that reason, while I would definitely be comfortable holding banks I would be cautions about getting too much exposure to banks.

A Personal Advertisement – Geology Student Seeks Summer Job

Subscribers, please forgive me using this space for a personal advertisement. My son is looking for a summer job position and perhaps one or more of you happen to be looking to hire a geology student this summer, preferably in the Edmonton area.

Logan Allen has completed his third year of a four year program in hard-rock geology (which includes the study of ores, minerals and oil&gas). He is looking for a summer student position involving any of the following: field work, lab work, or in-office analytical work (including GIS software and big data manipulation) or most anything required by a geology oriented company.

He prefers a position near Edmonton but is willing to travel or relocate if necessary.

If anyone is accepting resumes in this regard, please let me know at and I will relay the information to my son, Logan.


March 4, 2016 11 am eastern

U.S. markets are slightly up this morning after a positive jobs report in which the unemployment rate remained at 4.9%. Markets would likely be higher except the worry now is that the FED will have more leeway to raise interest rates.

Meanwhile, Statistics Canada reported merchandise trade figures for January. Exports of consumer goods were  a massive 59% higher than January of 2015. The sharply lower Canadian dollar is having a major impact on trade. Also notable, even shocking, is the fact that exports of consumer goods were moderately higher than exports of energy products and exports of motor vehicles and parts were significantly higher than exports of energy products. (However, that may misleading because consumer goods and motor vehicles may reflect a lot of foreign content whereas energy does not.


March 3, 2016

Thursday was a positive day in the markets with the S&P 500 up 0.3% and Toronto up 0.8%.

Oil is at $34.68 and the Canadian dollar is at 74.5 cents U.S.

Canadian Western Bank ended the day up 2.9%.

AutoCanada was up 8.2%. I don’t know if that is just a bounce off unrealistic low, the result of an analyst report, or the result of an earnings leak or what. The fact is stocks go up when some buyers bid up the price and their reasons are often not evident.

Stantec was up 3.8%.

Element Financial was up 3.8%.

Bombardier bounced up 9.9% after Trudeau talked kindly about the C-Series plane.

The Q4 investment in home construction was realised by Statistics Canada this morning. Of interest to Melcor owners was the fact that investments in single family homes in Alberta were down 29% versus the year ago quarter. That decline is not surprising. I think Melcor is well capable of adjusting to such a decline. Its profits will be lower but I am fairly certain will still be positive.


March 3, 2016 11 am eastern

The Canadian Western Bank Q1 earnings report was released this morning. The results were relatively good (earnings flat) considering the fears of large loan losses. The stock is up about 4.6%. I suspect that the difficulty (why the stock is not higher) is that when they reported good results, “the market”, being fearful then suspects that the loan losses simply have not shown up yet but will come. That is certainly partly true but the bank continues to forecast that loan losses will not be at a threatening level though they could certainly lead to a year of low profits.

March 2, 2016

On Wednesday, the S&P 500 rose 0.4% while Toronto was up 0.3%.

AutoCanda was up 5.6% but that of course is after months of declines… I eagerly await their Q4 earnings report to see where things stand.

Canadian Western Bank was up 4.7% and releases earnings tomorrow.

One interesting piece of news is about some Hedge funds that managed to get back 75% of the face value plus accrued interest on some Argentina government bonds. Some years ago Argentina attempted to force bond holders to accept much smaller payouts and these hedge funds snapped up the debt at huge discounts. With this settlement one of the funds has apparently made gains of some 392% (but that would sound far less impressive, though still very good if annualised over the period of the dispute). The top gainer was apparently one hedge fund with a 952% gain on the original investment. Argentina had wanted to do this discount deal years ago without being declared in default. And most of the bond holders agreed years ago to a far smaller payout. But these hold out hedge funds had refused to agree to a settlement and held out for more money. These hold out hedge funds have been vilified in some circles as opportunists or vultures or some such thing. But the fact that the hedge funds bought this debt cheaply has no relevance whatsoever to the amount they were owed. They were owed the full face value plus accrued interest, though they have now settled for 75% of that amount. It took 14 years for this settlement to be reached. And they don’t quite have the cash in pocket just yet. The hedge funds took the risk of buying this debt and those who sold it to them got at least some cash immediately. And it was a large risk; the former President of Argentina was adamant about not paying and it is hard to force sovereign nations to do things. The new President basically wanted to restore Argentina’s credit rating to some degree. What the hedge funds did was simply part of how the market works. I would congratulate them on their gains.


March 2, 2016 11:00 am eastern

Statistics Canada reports this morning that capital spending in the oil and gas extraction industries in Canada was down $10.3 billion to $11.9 billion in Q4 or down 46.4% from the prior year.

That is clearly a HUGE decline. To put this in perspective, Canada’s total GDP as reported yesterday is about $1997 billion, so about $500 billion per quarter. And capital spending is a component of GDP although the addition to GDP is likely somewhat lower after deducting related purchases from other companies, to avoid double counting. Without making that deduction this $10.3 billion reduction amounts to 2.1% of Canada GDP in the quarter! I am not sure what deduction should be made for the double counting issue but in any case, the impact on GDP is not tiny and in particular the impact on GDP growth which runs at say 4% in nominal dollars (prior to this reduction) is HUGE.

This reduction in capital spending by the oil and gas extraction industries was absolutely what needed to happen. Companies needed to cut spending to survive. Current prices make much of the potential investments in oil and gas extraction uneconomic. And there is really nothing that can be done about it until prices rise. Lower capital spending by these industries world-wide is the surest means of getting prices to rise as supply would start to drop off. Another means would be the OPEC production-curtailment-and-price-fixing cartel but that appears to not to be functioning at this time. Pipelines could help increase local prices in Alberta, at least marginally, but those are years away.

For Canada and Alberta the unfortunate reality is that capital spending (and operating spending) in the oil and gas extraction industries is absolutely required to be reduced at this time. And the 46% reduction of Q4 may not be enough.





March 1, 2016

On Tuesday, the S&P 500 surged 2.4%. “Strangely”, I don’t think you will hear very many investors at all complain about this type of “volatility”. It’s only downward volatility that tends to draw complaints. Toronto was up 0.9%.

Some of the more notable gainers included, Bank of America up 5.3%, Wells Fargo up 3.8%, Toll Brothers up 3.6%, and Visa up 3.1%.

March 1, 2016 11:15 am eastern

Markets rose this morning due to positive economic reports. Note that, unlike analysts in the media, I will NEVER say that markets are rising since that implies they will keep doing so and my view has always been that markets can change direction anytime. It is always okay to say that markets have risen or have fallen. In my view, it is never okay to claim that they are rising or are falling since that implies knowing the future even if only the very immediate future.


Canada’s GDP was reported by Statistics Canada this morning.

Press release:

Main data table:

December and Q4 were weak but perhaps a bit better than expected as December had 0.2% growth. And, recall that GDP growth is (virtually) always discussed in real after-deducting-any-inflation terms. Canada’s GDP grew 0.5% in 2015. And inflation in 2015 was reported as 1.6%. That means that in nominal dollars the economy grew 2.1% in 2015 but in real dollars after deducting inflation it grew 0.5% according to these figures.  A common mistake is for people to hear that GDP rose at say 2% and to conclude that this would be zero after say 2% inflation.

I have recently become aware of what I think is a major flaw in the way that the GDP growth of individual industries is reported. The problem does not affect the growth rate of the overall economy but affects the reported growth rate of individual industries.

For example the decline in GDP of the Mining, quarrying, and oil and gas extraction sector is reported as a decline of 3.2%. If one were to add back 1.6% inflation that might seem to incline that the output of the Mining, quarrying, and oil and gas extraction sector fell just 1.6%. Would that it were so!. A closer look reveals that the 3.6% was a decline as measured in 2007 chained dollars. I always assumed (oops!) that 2007 chained dollars meant basically 2007 real inflation-adjusted dollars. Instead, it means basically dollars adjusted for the specific inflation associated with this sector. It attempts to measure the activity or volume in the sector as if there was no change in prices for the output of that sector (i.e. no change in oil prices!). And certainly that is a useful number. But I don’t think the reported 3.6% decline in the Mining, quarrying, and oil and gas extraction sector in any way reflects the large decline in that sector in 2015 as measured in nominal or adjusted-by-CPI dollars. Statistics Canada experts that I talked to today acknowledged that the concept of chained dollars is very confusing.

In fairness, Statistics Canada sometimes provides the option to view this data in nominal dollars but not all tables are available that way. And, this one is not.

Overall, I believe the GDP growth figure being reported for the Mining, quarrying, and oil and gas extraction sector is extremely misleading when presented in “2007 chained dollars”.

On the Statistics Canada site there is no definition of chained dollars in their glossary’. There is a rather opaque definition of a chained index: An index which is rebased on a period to period basis, accumulated multiplicatively from a base period value. For example, the chain Fisher volume index calculates the Fisher volume index in each pair of consecutive quarters, treating the earlier quarter as the base period.

Warren Buffett’s Interview on CNBC

Warren Buffett was the guest for a full three hours on CNBC’s Squawk Box this morning. This was from 5 am to 8 am at Buffett’s Omaha location. I am not sure how many 85 year olds would or could go on live T.V for three hours starting at 5 am twice a year as Buffett does.

Some of the more interesting comments from Buffett were that:

Low oil prices are unambiguously good for the United States as an oil importing country. However the negative impacts of the loss of capital investment value and the loss of profits occur more or less immediately while the benefits are slow to be realised as consumers save money over time on gasoline.

Negative interest rates are unprecedented and none of the economists of the past even contemplated that negative interest rates could be sustained. We are therefore in uncharted waters. Negative interest rates drive up the value of all income-producing assets. (He mentioned or alluded that there is really no upper limit to asset prices if investors could borrow at negative rates to invest — which, however, they can’t do).

He included his long-standing advice that investors should stop looking so frequently at stock prices. He also mentioned that it was strange that people seemed to worry so much about the predictions of economists when he did not know of any economist who had gotten rich in securities by following their own predictions about the economy.

February 29, 2016

On Monday, the S&P 500 ended the day down 0.8% while Toronto gained 0.5% as oil rose to $33.75.

Constellation Software was up 1.9% to $565. We last rated this a Speculative (lower) Buy on December 15 at $580. Basically, a great company but it looked somewhat expensive. The stock fell fairly steadily after about December 29th and it bottomed out below $450 on February 8th. It now appears that those who bought at lower prices such as under $500 made a wise choice. And so much for those who put in a “stop loss” order as it now appeared that they instead got a “stop profit” order or at least a “lock in a loss” order. I thought about buying when it was under $500 but did not. In part this was due to lack of cash. But also I think it was because I have owned it twice in the past and sold too early at far lower prices than this and while logically that is irrelevant at this point, in practice it makes it harder for me to buy it now.

Berkshire was up 1.7% after its Q4 earnings release.

Boston Pizza was up 1.8% to $18.48. These units got as low as $15.02 in January. That was despite its high cash dividend and the relatively stable and predictable nature of this entity based on it being a “top line” type of entity (in that it just takes a large portion of the franchise fees and is not directly exposed to the operating costs of the restaurants) and based on the restaurants themselves having a long history of relative stability of revenues and relative lack of closures. Again, so much for those who used stop-loss orders. Admittedly this entity is still down substantially from its 52 week high of $23.49. So some who used stop losses may still be  happy with that move but selling investments just because they decline in price seems unlikely to work out well in the long term.

Valeant Pharmaceuticals is no longer on our list but it was down 14% today to $94 (U.S. $66) on news or rumors of an SEC investigation. At the risk of repeating this too often, I take some satisfaction from the fact that we rated this a Sell last July at U.S. $234 and indicated concerns about the trust factor of management and about its aggressive view of adjusted earnings. This company may be on a path to proving once again the old adage about there never being only one cockroach in the kitchen. When Valiant first came under fire last Fall it was amazing to see how Business News Network was quick to blame the short-seller and call into question his the motives. The short-seller appears to have been well vindicated. It is amazing that no one ever seems to mind if an analyst with a positive report is “long” a stock but heaven help the analyst with a deeply negative view who is “short” the stock.

Warren Buffett’s Annual Letter

Buffett’s annual letter was posted today.

He once again expressed confidence in the future, noting that today’s crop of new babies is the luckiest in history and will live better than their parents, on average.

He explained that increasing productively is the reason for this and also provided very clear examples of productively improvements in the past. At the same time, he acknowledged that the distribution of wealth has lately favored the rich and is likely to remain controversial.

The following are my thoughts, after reading Buffett’s thoughts.

Average living standards are dependent on the output of desired goods and services of the economy per person and not the number of “jobs” as such. Median living standards, and the living standards of the various economic “classes” of people (no income, low income, middle income, high income, rich)  are dependent on both the total output and, importantly, on how the output of the economy is distributed.

Popular opinion can get fixated on jobs, as if producing less with more people is the road to riches. Individual farm workers displaced by tractors early in the last century would not have believed that this was ultimately to their benefit in most cases, although not all individual cases, or that it was unambiguously beneficial to the population and humanity as a whole. The same will apply to workers displaced by technology today. It may be very unfavorable to those individuals displaced at least temporarily, and permanently for some. But technology and productivity improvements will continue to be unambiguously beneficial to average living standards. However, changes in the distribution of wealth may be needed to insure that the benefits are not unfairly concentrated among the richer members of society.

Buffett’s comments on productivity and prosperity with his usual clear examples can be found at pages 7 and 8 and 21 to 23 of his letter. Buffett raised this issue in response to those who believe that our economy is no longer delivering increasing living standards and also in response to criticism of his business partners at 3G (owners of Heinz, Burger King, Tim Hortons and Kraft Foods) who are known to be quite ruthless in slashing jobs when they take over a business. While detractors will seldom be appeased by mere facts, evidence and logic, I think Buffett does a great job of explaining his position on the matter.

Buffett has also come under criticism in regards to the lending and foreclosure practices of his Clayton Homes division. Buffett sets the record on that matter straight at pages 17 to 19.



Updated Toll Brothers Report

Our Toll Brothers report is updated and the stock is rated (lower) Strong Buy. I was disappointed that the earnings were down modestly in its latest report and that the number of homes delivered was down 3%. However, this is basically a timing issue. Toll Brothers’ backlog of houses that it has contracted to deliver and that are under construction is up substantially in the past year. And the value of these homes in dollars is up even more (about 28%). I had thought that the revenue and profit increase would start to show up in Q1. I was wrong on the timing, but I am confident that the revenues will increase sharply in the remainder of 2016 and this should also lead to substantial earnings gains. Meanwhile, the stock price fell quite substantially in December through to February 10, from about $38 to a low of about $24. This was based on Q4 earnings that were apparently lower than expected and perhaps based on various reports of overall housing starts and home builder sentiment and the generally poor markets in January. Now, Toll Brothers has a backlog of contracted-for homes that seems sure to result in a an earnings increase in 2016 of at least 15% and possibly more like 25%. And it is selling at a modest 21% premium to its accounting book value and at a P/E ratio of 13.6 trailing. The company has also been quite aggressively buying back shares in response to the lower price. Given the expected strong near-term earnings growth, the quality of the company and the relatively modest valuation ratios, I believe this stock merits a rating in the Strong Buy range. But read our full report to better understand our view of this company.

February 26, 2016 11 am eastern time

Life expectancy was addressed today in a new Statistics Canada report. Life expectancy is, of course, a major factor in retirement planning and in the solvency calculations of pensions.  One fact that is sometimes forgotten or not understood is that a 65 year old can expect, on average, to die at an older age than say a 35 year old. That’s because the 65 year old has already gotten from 35 to 65 without dying, something which not all 35 year olds will achieve. Also  an average  93 year old person obviously has a much higher chance of reaching 94 than does a typical 65 year old since they have already managed to make it through their 80’s and early 90’s without dying.

“In 2009–2011, 65-year-old men were expected to live until they were 83.8, while 65-year-old women were expected to live until the age of 86.7.”

These figures are only averages. Obviously those active 65 year olds in good health and with no family history of dying unusually young can expect to live longer than the average 65 year old.

In planning for retirement, one of the key benefits of most pension plans is that the plan can fund for average life expectancy of the plan members where as individuals funding their own retirements should plan for the maximum age that they might expect to live to.


Markets are generally moderately positive this morning. However, Stantec is down 2.8% in further reaction to its earnings release. I added a small amount to my position on the basis that Stantec is still going to grow significantly over the years even if its profit declines in 2016 due to the energy patch woes.

Bombardier is down 5.6% on the news that its largest C-Series customer is entering bankruptcy. However this development was expected. A silver lining here is that Bombardier can perhaps now sell these earlier production slots to new customers. That is, the first several years of production has been spoken for and so any new order was going to be for delivery in say three to five years down the road. This development might open up much more timely slots if a major airline is interested in making a purchase. I suppose there will also be a battle now in that Bombardier likely is holding substantial deposit money from the bankrupt customer. Bombardier could argue that it is a creditor in the sense that the airline has contracted for the planes. But I suspect that kind of obligation ranks far down on the priority list in bankruptcy and I suspect that the other creditors will argue for Bombardier to pay back the deposits. The Bankrupt airline may also have the option to sell its C-Series production slots to another airline, if there happens to be an interested buyer.


February 25, 2016

On Thursday, the S&P 500 rose 1.1% to 1952. This puts it 8.5% below its all time high. That is really not that much below the peak considering the inherent volatility and nature of stock markets. Toronto was up 0.1% to 12,754 and is about 18.5% below it’s all time peak reflecting far lower commodity prices.

The Canadian dollar rose 1.3% to 73.9 cents. It’s hard to know if that trend will continue.

As I thought it might, Toll Brothers had a good day, up 3.3%.

Bombardier was down 8.5%. I read something today about how if the Federal government invests in the C-Series then Bombardier will lose voting control of that project which now has a separate “Board” with membership from the Quebec government. It’s hard to see that news as a revelation given that Quebec owns 49.5% of the C-Series project and so if the Federal Government got the same deal, then Bombardier would own 1% – which would seem to be a very odd form of “bail-out”, more like a selling the project. I don’t think the federal government will get 49.5% since that makes little sense for Bombardier which would be left with only the 1% plus perhaps some options to buy back in. Did I mention Bombardier is one of the poorest-managed large companies ever?

February 25, 2016 11 am eastern time

Stantec is down 3.8% after releasing Q4 earnings that were down 33% mostly due to lower oil and gas and mining activities. Stantec is an exceptionally well managed company and will continue to grow. I would be comfortable adding to my position.

Stantec released earnings before the opening. I would prefer companies to release after the close to allow more time for analyst to digest the news and for the price to more fully adjust at the opening. But at least companies no longer release during the trading day, which is a completely unfair process. Some years ago I complained to the regulator and the TSX about that and my complains were part and perhaps the largest part of the reason the practice was stopped. My (insincere) apologies to Board members who must now assemble at 6 am or whatever.

Royal Bank has issued a new rate reset preferred share at 5.5%. The reset will be 4.80% above the five year Canada bond yield in five years. (Of course if that is a juicy and attractive yield at that time then the bank can redeem these shares at $25). You can see why existing rate reset shares that are due to reset at more like 2.5% (it varies) over the 5 year bank of Canada yield are now at a disadvantage in the market and therefore trade at steep discounts. The good news (for those buying at the discounted price) is that there is a chance that market yields will change and these discounted preferred will move back towards $25 or like in the RioCan situation could possibly be redeemed at $25 (though I would not count on that). In the case of the Royal Bank preferred shares they are subject to being converted to common shares if the bank runs into trouble. That is always possible given the high leverage of banks but nevertheless is unlikely. And you would still get $25 worth of common shares. I would be comfortable buying these new Royal Bank referred shares as part of a portfolio. However, being short on cash and given other opportunities, I will not be buying.



February 24, 2016

On Wednesday, markets closed relatively unchanged after a very weak start to the day. The S&P 500 was up 0.4% and Toronto was down 0.2%.

After the close, Enbridge announced an equity raise of $2 billion dollars at $40.70 per share. For context, Yahoo Finance indicates Enbridge has an equity market value of $37 billion, so in that sense it is not as big of an equity raise percentage wise as it might appear. It’s unfortunate that the shares are being issued at this price when the stock had traded over $50 for much of the past two years and as high as $65. But hindsight is 20/20.

I was thinking that this equity raise might be positive for the Enbridge preferred shares. But it does not look like it is large enough in relation to Enbridge’s debt to have all that much impact.

The report for Canadian Tire is updated and the company is rated Buy. I have been wrong so far in my idea that the lower Canadian dollar was going to be a big issue for them. And they seem confident that it will not be in a problem in 2016 either. While there are always bad things that can happen such as losses on credit card receivables, the numbers suggest that this company is a Buy.

February 24, 2016, 11:20 eastern

Markets are down this morning partly due to Royal Bank’s earnings not being as good as hoped with concerns about loan losses in the energy sector and also oil down again. Negative days in the market are nothing unusual of course.

I grabbed a few more Canadian Western Bank shares on the decline. They report earnings next Thursday.

The Statistics Canada report today included rail car loadings. Rail car loadings were down 5.4% in December versus the prior year with intermodal (containers) down 2.2% and regular freight cars (commodities, mostly) down about 7%. Of interest, traffic from the United States in December was down 27% perhaps reflecting the low dollar. Checking a more up to date source rail car loadings tracked much lower in January than the prior year (perhaps 5%) but in two of the past three weeks were equal to the prior year.


February 23, 2016

Tuesday’s action had the S&P 500 down 1.3% and Toronto was down 0.6%.

Most stocks were down but Bombardier was up 4.8% and Toll Brothers was up 3.8% on its earnings release. I thought Toll should be up more than that. Perhaps it will rise again tomorrow as analysts digest the results and outlook.

Our report for Canadian Tire will be updated soon and it will be rated either Buy or (lower) Buy. It’s a strong company.

AutoCanada announced that it is selling a Infiniti / Nissan dealership in Newmarket Ontario. They say they got an unsolicited offer and that this allows them to pay some debt and also rid them of an obligation to build a separate Infiniti dealership at a time when they are being cautious with capital spending. They did not say if there is a gain so I suspect possibly a modest loss on the sale. Still, I don’t think this is particularly bad news. Instead it shows that the company is actively managing the business and reacting to the realities of the market at this time. Nevertheless the market may react negatively.

A detailed comment on Rate Reset preferred shares:

Rate reset preferred shares were down on the order of 4% in a few cases today.

There seems to be a disconnect between what companies are willing to pay on Rate reset preferred shares and the yield that investors demand. Also a disconnect between the yield on these versus five year bonds.

I talked to RioCan today and they confirmed that they chose to redeem the preferred series A preferred shares at $25 because they had the money to do and the rate they would pay was more expensive than they would pay on debt.

Due to the reset feature, and the low yield on 5 year government bonds, these shares would have been reset to pay only about 3.4% on a $25 face value. Just prior to the surprise announcement that they would be redeemed at $25, they were trading at about $16 which would be a yield of about 5.3% (after the March 31 reset).

RioCan believed that, upon reset, most holders would have taken the floating rate option with an initial yield of 3.1%.

Recently issued rate reset preferred shares are yielding about 5.5% or higher.

The disconnect that I see is that while investors won’t buy rate reset shares unless they yeild about 5.5% or higher, RioCan was not interested in exercising its right to keep these shares outstanding even at 3.4% fixed or 3.1% floating.

Perhaps RioCan feared most investors would take the floating optional then rates would rise.

Meanwhile Investors want 5.5% on the fixed resets because they fear rates will go even lower, possibly negative and the resets will be even lower.

Overall, with a five year government bond paying 0.60% and high quality five year corporate bonds paying 2.2% to 3.3%, rate reset shares that yield 5.5% and qualify for the dividend tax credit would seem more attractive. But, of course, the bonds have the advantage of a known maturity price.

Overall the rate reset shares on our list that are down in price, Canadian Western Bank preferred and Enbridge preferred seem attractive to me. But I also thought they were attractive at higher prices. These shares could fall even further if negative interest rates become a reality. For that reason I would prefer Boston Pizza to these, but I hold some of each.




February 23, 2016 noon eastern

Markets are down this morning with weaker oil prices.

Toll Brothers came out with earnings. The stock at first dropped but now is up 4%. The profit was lower than expected and I will try to understand why the much higher contracted home sales of a year earlier did not turn into bigger profits this year. In any case revenues were up and contracted home sales (which turn into revenue about a year later) were up substantially. The press release seemed very upbeat, The company has been buying back stock which they do selectively when the stock price is lower, as now. Of the stocks I own, I feel that this is one of the few that has a good chance for a really meaningful gain this year. This is due the more recent price decline and due to the improving U.S. house building environment. I could, of course, be wrong. Other stocks I hold (and are on the list) certainly seem under valued as well , but this is certainly one that comes to mind as having a good chance for a near term increase.

February 22, 2016

Monday was a strong day in the markets with the S&P 500 up 1.4% and Toronto up 0.2%. Oil is at $32.93 having lost some of day’s gain in evening trading.

The reason Toronto was not higher was that Valiant Pharmaceuticals was down 11% to $104. It is apparently looking at restating earnings. It was down another 7% in after-hours trading in the U.S. I am sorry for anyone who bought at higher prices but I am happy that I called this out as a Sell and as a company that I had trouble trusting back on July 30, at $331.

Most of the stocks on our list were up today. This included Bombardier, up 8.8%. A terrible company of course, but perhaps has some life left in it.

AutoCanada was down 0.6% to $17.67. I stopped in at what is probably their largest dealership today. This is Crosstown Motors in Edmonton which has been owned by AutoCanada or its founders since about 1990. On a Monday afternoon this dealership looked busy. They admitted sales are down but in no way did this look like a scene of gloom and doom. Perhaps they are putting on a brave face, but it did look busy and staff seemed upbeat. I think AutoCanada will be a good or perhaps very good investment at this price. It does not report Q4 earnings until mid March.


February 22, 2016 (11:45 am eastern)

Markets are up this morning due to oil being up 5.4% which was in turn due to some new projections about shale supply and drilling rigs.

The finance Minister announced lower growth projections and a higher deficit projections. I am not sure that was news to anyone.

Statistics Canada announced housing construction spending figures for December versus the prior year. Across the country spending was up 4.8% but that was due to multi-family. Spending on single family homes was down 3.4%.

In BC housing spend in total was up 12.6%. However in Alberta it was down 15.8%. Saskatchewan was down 31.3%. (But keep in mind that these figures can be volatile due to large multi-family projects.) Clearly Melcor will be affected by lower single family starts in Alberta. But it does not appear that new home building in Alberta has dried up completely or anything close to that. Melcor is a cyclic company but it is certainly well prepared to survive downturns.


February 21, 2016

I have now listened to Canadian Tire’s conference call. My reason for selling the shares was that I have been expecting for the last year that they would get hurt by the lower dollar as they import a lot of their products. The company constantly said they had found ways to deal with that. But then when our dollar really plummeted of late I thought there is no way they can offset this. But they say that necessity had focused their minds and that they have been able to continue to offset the low dollar and that only a few items will see price increases. To date, they have maintained their margins without price increases and that is impressive. It means they managed to buy at the same average prices despite the higher dollar. This was due to switching suppliers in some cases and asking suppliers to cut the U.S. dollar price in other cases. On top of maintaining the margins they cut overhead costs.

The other reason I sold was that I had good gains on the stock but that is not a very good reason to sell. It was a mistake to sell.

Canadian Tire has been very well managed over the entire 16 years that I have had it on this site. And management seems to have gotten even better recently. These guys have been the real deal.

It probably remains a good long-term investment at the new price around $130. They did however seem to allude that Q1 might be weaker due to added spending to attract more credit card users.

I will work to update the report for this company in the next few days.



February 20, 2016

Friday, the S&P 500 was unchanged while Toronto was down 0.9%.

Canadian Tire was up 3.3% to almost $130. I have not yet had a chance to got through its Q4 results.

Canadian Western Bank was down 2.8% presumably due to lower oil prices and worries about bad loans. They will soon be reporting fiscal Q1 reports but if the market “decides” it is worried about bad loans then the stock may continue to lanquish no matter what it reports or forecasts. In any case I certainly won’t be selling.

Next week will feature a lot of Q4 and 2015 annual earnings reports coming in and also some of the big banks will report their Q1 earnings next week.

I believe Berkshire Hathaway will report 2015 earnings on Friday February 26 or on Saturday the 27th. This will include Warren Buffett’s famous annual letter. In each letter after going through the results of Berkshire’s major segments and its investment portfolio Buffett usually includes a bit of an essay on some topic of general interest to investors. It’s impossible to know what topic he might address this year.

I would love to hear Buffett’s latest thoughts on the extraordinarily low short and long term interest rates and his views on pension funds moving more and more money into these bonds in order to better match their liabilities. I don’t think Buffett would approve of that. Other possible topics include trade deficits, budget deficits and the level of the U.S. dollar. Buffett also traditionally appears on CNBC’s squawk box answering impromptu questions for a couple of hours on the Monday morning after the earnings release. I consider this must-see TV for several reasons. One reason is to marvel at how the 85 year old Buffett can rattle off amazingly detailed facts, figures and names from memory. The main reason is to hear his views on the economy and various matters of interest to investors. He is always optimistic about the future and it can be comforting to hear him express his confidence that investing in corporate America (say the S&P 500) will always work out well over time. Ladies and Gentlemen, set your PVRs.

I would note also those most of Buffett’s many detractors have probably never actually read much of what he writes or listened to him speak because if you do it would simply be hard to be a detractor. His intelligence and integrity shine through his words so brightly that it would be hard to miss. And I would note that when I first heard of Buffett in the early 1990’s my reaction was along the lines of “what does that old guy know”. But upon starting to read his words and listen to him speak it was impossible not to become a fan.

February 19, 2016 11 am eastern

Markets are down this morning. But Canadian Tire is up another 1.9% to $128.

Statistics Canada reports that annual inflation is running at 2.0% as of January and is also at 2.0% on a core basis (strips out volatile food, which is up and gasoline which is down).

The Bank of Canada has really just one mandate and that is to keep inflation within its target band of 1 to 3% with a mid-point of 2.0%. It appears they are doing their job well on that score. The Bank has little or no mandate to control the exchange rate.

Statistics Canada also reported December retail sales for December. That is odd because they also reported this on Tuesday. And some of the numbers are vastly different. I will try to look into what the difference is between the two reports. (Update, Tuesday’s report was for large retailers only)

These figures can be misleading and can be easily “spun” according to tell vastly different stories. For example their release notes that new auto sales were down 4.1%, which sounds like a big decline. But that was 4.1% seasonally adjusted versus November and the detailed tables show that new car sales in December were up 8.9% versus the prior year. So that sounds like tremendous growth. So spin it how you would like, new car sales are either terrible or fantastic.

Used car sales were up 19% year over year and I suspect that has to do with used vehicles being bought for export to the U.S. to take advantage of the dollar exchange rate.

Liquor sales were up 3.5% year over year in December which is the lower than the 9% I mentioned (and questioned) on Tuesday so I am not sure what to believe.

Alberta retail sales were down 5.5% year over year which is another indication that Alberta is in a recession.

I grabbed a few more shares of Bank of America which is down since I recently rated it a Speculative Strong Buy. I like to show the courage of my convictions and it is likely (though not guaranteed) that Bank of America will be a good or very good investment at the recent price. There are fears now about bad loans.




February 18, 2016

In Thursday’s action, the S&P 500 was down 0.5% and Toronto was up 0.5%.

Canadian Tire was up 7.8% on its earnings.

The Bombardier Preferred shares series C shares that I own and follow were up 10.1% to $10.90 to yield 14.3%. That yield signifies risk. However the market today appears to consider that they are a bit less risky than they were yesterday and the day before. Bombardier has the option to convert each preferred share into 12.5 common shares which as of today have a value of (12.5 times $1.12) $14.00. I don’t know if they would do that to end the requirement to pay the dividend on these preferred share, but you never know.

Bank of America was down 2.5% to $12.24 which appears to be very attractive. But banks being highly leveraged can be quite risky. A director of this bank purchased almost one million dollars worth of shares on Tuesday at $12.32. That seems significant given that there were no other insider purchases listed in the data that goes back almost two years.

Constellation Software released strong Q4 earnings after the close yesterday but the stock fell marginally today.

February 18, 2016 noon eastern time

Canadian Tire’s Q4 earnings were strong and the stock is up about 7%. And this on a day when markets are about flat. I sold too early. (They say you can’t go broke taking a profit. But that’s poor advice and you sure can leave a lot of money on the table). The conference call coming up at 1 pm eastern could change the tone a bit. In any case I will plan to update this company by the start of next week. It looks like management here is once again to be congratulated. Like Bombardier this stock has a dual class share structure and is family controlled. Unlike Bombardier it has an outside Chair person and a good Board composition and is well managed. It’s also in a better industry.

Looking at today’s StatsCanada alert I find:

“The preliminary 2014 edition of the Report on Energy Supply and Demand in Canada is now available.” (That sounds less than useful given the energy price changes since 2014 but I suppose it would be of interest to some people).


Wholesale sales were strong in December:

“Wholesale sales rose 2.0% to $57.2 billion in December. Gains were recorded in four of seven subsectors, accounting for 66% of wholesale sales, and were led by the motor vehicle and parts subsector. Excluding this subsector, wholesale sales edged up 0.1%.”

Inflation due to the low Chadian dollar might account for some of this. But overall, it appears that much of the economy is humming along not too badly.

Note that sometimes it is not clear in Stats Canada reports whether they are talking about versus last month or last year. (Which is rather an unforgivable sin, although in their tables as opposed to text it is usually clear) In this case the comparison is to November 2015 and it does not appear that the percentages are annualised.

They also note that wholesale sales in Alberta were down 9.4% versus the prior year. That is ugly. Ontario was up 4.5%.

Unemployment Insurance recipients were up in Alberta in December as well.







February 17, 2016

Wednesday was another interesting day in the markets.

The S&P 500 was up 1.6% and Toronto was up 2.5%. Oil was up sharply and now sits at $31.45.

Some notable gainers on our list included:

Bombardier was up 21% and the Bombardier pref. shares were up 12%. This remains a highly risky company that is technically broke in the sense that liabilities far exceed assets. But, as they like to point out, they still have some cash and some “room” on the their credit card (err credit lines). I plan to update the Bombardier report before long, after the market has a bit more time to digest the latest news.

Element Financial was up 9.1% on further reaction to its plan to split into two companies.

Canadian Western Bank was up 3.6% in reaction to higher oil and the general strong day on the TSX as well as its announcement that it will brand its wealth management operations as CWB Wealth Management.

Currency Exchange using the Norbert Gambit

The following is my story of using Norbert’s Gambit today to change currency, for those interested.

I mentioned I would buy additional Bank of America nd Toll Brothers if I has U.S. cash. With Toll Brothers down about 2.5% this morning I decided to move some Canadian cash back to the U.S. side. And I decided to use the “Norbert Gambit” whereby one buys a stock that trades in both U.S and Canadian dollars. In this case I would buy in Canadian currency and then get the stock “journaled” over to an American dollar account and sell it there for U.S. dollars. There is a Trust unit called DLR that is U.S dollars that trades on Toronto in Canadian dollars as DLR and also trades on Toronto in U.S. dollars as DLR.u

This method of converting money is a bit complicated. It has a cost but is not as expensive as a straight transfer at least not at the rates TD Direct charges (which is about 1.5%, or 150 basis points).

I bought 1800 units of DLR which is U.S. dollars trading on Toronto in Canadian dollars and paid $13.66 per unit for a total $24,588. I paid the standard $9.99 commission to do that online.

Next I called TD and was given two choices:

1. They could “journal” my 1800 units of DLR to the American dollar side of this same investment account. They would do this at no charge. Then after 3 days I could sell that as DLR.u and get the American dollars. , or

2. They would do the journal entry (at no charge) and also enter the sale order now and charge me a special rate of $9.99 (The regular charge due it being a phone order and based on the amount is $107). I would have access to the U.S. cash after three days. I asked what the advantage of this was since I still had to wait three days and it was that I could fix the exchange rate rather than risking how it would change in three days.

I chose option number 2. The agent then sold the 1800 DLR.u in the American side of my account at a price of $9.95. for a total $17910.00, or $17900.01 after the $9.99 commission.

All told, I had converted $24,588 Canadian into $17,900 U.S. so my total exchange rate with commissions was $1.3736. I am not sure what the wholesale exchange rate was at the time but it may have been around 1.37 in which case my cost was 0.36% or 36 basis points. The cost of the Norbert Gambit depends on the buy/sell spread on the stock used, in my case the DLR as well as the Commissions paid. The buy/sell spread is probably often $0.01 or 1 cent per unit of DLR. Since DLR is around $13.66 Canadian that is roughly 7 basis points on DLR and 10 basis points on the 9.95 DLR.u for a total of 17 basis points (or maybe it is 7 each time for a total of 14 basis points in terms of the Canadian dollar) . My $24 or so in Commissions on the $24588 adds another 10 basis points for a total of about 27 basis points. There could be also an additional cost or benefit if the currency was moving even in the few minutes it took to do all this. Given the need to wait three days, the potential for a large commission (my commission was supposed to be $107 but they did it for $9.99 at the discretion of the representative) and the unknown buy/sell spread it is not an ideal solution but it worked out cheaper than paying the standard exchange fee.

I then decided just to try and see if the system would allow me to use the U.S. money today rather than waiting three days. In fact it did allow me to do so. I don’t know why given that the TD representative was quite clear I would have to wait three days.

If the Norbert’s Gambit did indeed come at the cost of waiting three days then it could prove more costly than paying the 150 basis points since the stock I wanted to buy in the U.S. could easily rise more than 150 basis points in that time.

I then added to my position in Toll Brothers.

It’s my view that TD (and the other online brokers) should offer a much lower currency transfer rate for online transfers. Most of the big banks are charging about 150 basis points simply because once our money is in their brokerage account (especially in the case of RRSP money) we are captive customers. Investors should complain loudly until they stop scooping this fat fee. Using Norbert’s Gambit helps but is confusing and inconvenient.




February 16, 2016

On Tuesday, the S&P 500 was up 1.6% and Toronto was up 1.4%.

Most of the stocks on our list were up.

Bombardier, which is priced as if near death bounced up 11% on rumors that there would some improvement to its governance. It will report earnings tomorrow.

Element Financial was up 6.3% after announcing it will split into two companies. I will reserve judgement on that. The company has only been under current management for a few years and is nothing if not aggressive.

Constellation Software was up 5.2%. It will announce earnings on Thursday morning.

I sold half of my remaining Canadian Tire shares today. It reports on Thursday. I keep thinking it is going to get hit hard by the lower Canadian dollar. On top of that there was the weak December Canadian retail sales numbers (which I mentioned in my previous post) for hardware and sporting goods. Canadian Tire has somehow escaped being hurt by the low dollar in its reports to date. It’s very well managed and so it will be most interesting to see the numbers on Thursday.

One insider at Boston Pizza bought about 1900 shares on Friday. Two others bought tiny amounts which seem less meaningful. But the continued insider buying here is definitely a positive indicator.

February 16, 2016 11:20 am

Markets are up modestly this morning but are down from earlier highs. It had been hoped that OPEC meetings would result in some collusion (err agreement) to lower production but instead the agreement was only to freeze production and Iran was not part of the freeze agreement.

Statistics Canada reported retail sales for December. Most of the increases were likely driven by price increases on imported goods due to the low dollar. Liquor sales were up an astounding 11%, (if that can be believed), food sales were up 6%, footwear up 9% (the great majority of footwear would be imported).

Some items decreased in sales dollars either due to price decreases or lower purchase volumes. Electronics were down 14% (probably some price decreases despite the dollar) Hardware and home renovation products were down 14% (that is a scary decrease especially considering there would have been price increases on imported items). Sporting goods were down 8%.

Overall, it is quite a mixed picture for retail.

Statistics Canada also reported that manufacturing sales were up 1.2% in December although down 1.5% for 2015 as a whole. The decline in 2015 may have been due to lower commodity prices. Overall manufacturing is not responding as well to the lower dollar as would be hoped.

February 15, 2016 – Royal Bank

I have been thinking about adding Royal Bank to our list because so many Canadian investors own it and because I don’t have  any of the large Canadian banks on the list.

However, just to read its 215 page annual report is no small task. And it’s probably not feasible to really understand the risks that it faces. At the end of the day it has a very attractive P/E of 10.1 times trailing earnings and 9.4 times forecast 2017 earnings. (Although that implies only about 4% earnings per share growth in each of the next two years, possibly because the 2015 earnings were boosted by some unusual items.) The price to book value is reasonable at 1.64. The dividend yield is very attractive at 4.65%. The ROE is very attractive at almost 17% according to Yahoo and 18.6% according to the bank itself.

The above ratios would indicate a very attractive investment. And it’s unlikely that my analysis methods would change those ratios very much at all (such as by finding some earnings items to adjust for).

A possible concern however is that banks are by nature heavily leveraged. And Royal Bank appears to me to be more leveraged than some other banks.

The bank reports a regulated common tier 1 equity ratio of 10.6%. That is, by bank standards, a relatively strong ratio. It would imply leverage of “only” 9.4 times.

It can be calculated as regulated tier 1 common equity of $43.715 billion divided by total capital risk-weighted assets of $413.957 billion.

But notice the words risk-weighted. What does that mean? Royal Bank’s actual balance sheet assets are not $413.7 billion but are FAR larger at $1074.2 billion. Common equity is actually a bit larger than $43.7 billion and is $58.8 billion. But that is $49.6 billion tangible common equity after deducting $9.3 billion in goodwill.

The straight-up common equity ratio of Royal Bank is $58.8/1074.2 = 5.5%. That’s a leverage of 18.3 times!

And that straight-up common equity ratio compares to a much stronger looking 9.5% for Wells Fargo and 10.9% for Bank of America.

On a tangible common equity ratio basis (after deducting goodwill) Royal Bank is at $49.6/1074.2= 4.6%. That compares to ostensibly much stronger figures of 8.1% for Wells Fargo and 7.7% for Bank of America.

So, on a simple common equity or tangible common equity versus assets basis, Royal Bank looks far weaker than Wells Fargo and even Bank of America. BUT, on a risk-weighted basis Royal Bank is considered well-capitalised with a regulated tangible common equity to risk-weighted assets of 10.6%.

According to page 96 of Royal Bank’s 2015 annual report its (tiny) investments in stocks are weighted at 99% (so basically 100%). In comparison to that its substantial residential mortgage loans are weighted at 6% (low mostly due to CMHC insurance). Its business loans are weighted at 54%, its investments in government bonds are weighted at an average of 12%. Its very large investment in “repo-style transactions” are weighted at just 2%.

The result of these weighting is that Royal Bank is considered to have far less assets on a risk-weighted basis than it actually has.

The bottom line of all of this is that when it comes to the risk of Royal Bank, investors are basically forced to trust that these risk-weightings are appropriate. And they may well be. But the nature of “risk” is that it is hard to measure.  We also have the bond-rating agencies rating Royal bank’s debt very highly at AA or AA minus. (BUT they may be largely relying on the risk-weightings.)

These experts have gotten things wrong in the past. The bonds issued by Greece were once considered to be basically risk-free. Mortgage-backed securities in the U.S. were similarly thought to be basically risk free.

At the end of the day, Royal Bank probably is a very good investment. But it is probably impossible to truly understand its risks. Therefore, it might be wise to limit the exposure to this bank to some figure like 5 or 10% of a portfolio. And in the probably unlikely event that Royal Bank ran into very heavy losses the other Canadian banks might well be facing the very same. So, it might be wise to limit the exposure to Canadian Banks in total to some figure like say 20% of a portfolio.

I am not saying that Royal Bank is likely to be risky. My view is that anything leveraged about 20 times could be risky and in the case of Banks it’s probably impossible for investors to judge the risks or to be 100% sure that the banking regulators are correct in their view of the risks.






February 14, 2016

On Friday, the S&P 500 was up 1.9% and Toronto was up 2.4%.

Oil was up 11% on hopes that OPEC would soon resume the collusion and production curtailment process that in the past kept oil prices artificially high.

This week there are earnings reports to look forward to including Bombardier (which will no-doubt be extremely ugly) on Wednesday and Constellation Software also on Wednesday. Canadian Tire and RioCan will report on Thursday. For Canadian Tire the big story may be whether the dollar is finally start to hurt them or at least cause their prices to rise. For RioCan I am interested in hearing why they bought back those pref shares at par.

North America markets are closed on Monday.


Updated TransForce report

TransForce Inc. is updated and rated (higher) Buy. Earnings from continuing operations will likely decline modestly in 2016 due to weakness in some of its segments and due to the sale of its waste management division. However, the company is very well managed and will likely continue to grow over the years. Also it will report a very substantial gain on the sale of its waste management business in Q1. The gain is about $5.50 per share pre-tax.  And it has announced an auction whereby it will buy back 10% of its shares at a price between $19 and $22 depending on offers. The CEO strongly believes that the shares are under-valued at this time. I am very comfortable owning a modest position in this company.

February 12, 2016 10:50 eastern

Statistics Canada reports that new car sales in December for Canada were down 2%. In Alberta they were down 22%.

TransForce is up 4.6% to $21.50 due to its earnings and its plan to buy back 10% of its shares in an auction process at a price somewhere between $19 and $22 depending on offers. I just added to my position at $21.50.

I added a bit to my position in Couche-Tard for diversification and in anticipation that lower gas prices and the lower Canadian dollar should be beneficial to it.


February 11, 2016

Agrium is updated and rated Speculative buy at Canadian $114 and U.S. $81.25. It’s a tough company to predict since its product prices tend to be quite volatile as are some of its input costs. On top of that the volumes that it sells are dependent on weather and farm crop economics from year to year. It’s a well managed company that looks reasonably priced even though it is projecting a weaker year in 2016. I don’t own it and have no immediate plans to buy.

Thursday was another poor day on the markets with the S&P 500 down 1.2% and Toronto down 0.8%.

Element Financial was down 6.3% as the market perhaps doubts its ability to grow and worries about bad debts.

Bank of America was down 6.8% and appears to represent increasingly good value.

TransForce reported earnings after the close that appear to be relatively good. Also it announced a substantial stock repurchase in the form of a Dutch auction with offers accepted at prices from $19 to $22. All offerings at less than or under the final price will receive the same price. Assuming it enough shares offered, TransForce will be buying back 10 million shares which is 10% of its shares. Given that TransForce is an acquisitive company that normally would like to hang onto its capital, I believe this indicates that management certainly believes that the shares are significantly undervalued. I suspect the shares will rise somewhat on this news.

February 11, 11:15 am eastern

Statistic’s Canada reports that new home prices were about unchanged in December. These prices tend to be stubborn and take a long time to react to a slower economy. Even in Calgary new home prices are down only 1% year over year. That may not account for added incentives outside of the sale price but in general new home prices have not yet adjusted downwards.

TransCanada announced a large $2.5 billion loss in Q4. The stock is about unchanged on the news. That makes sense because the loss was likely not much of a surprise. With denial of the Keystone application it was inevitable that some of the keystone costs would have to be written off.

Manulife is down about 8% after announcing some unexpected losses. I used to have Manulife on the list here years ago. At that time it was reporting consistent 30% earnings increases despite lower interest rates and a higher Canadian dollar. Then suddenly it had massive losses. I realised that under accounting rules its earnings were fairly meaningless and open to manipulation. It’s a total black box where you have to place faith in actuaries. I have not looked at it in years. I harbour a suspicion that it (probably legally) manipulated its earnings in the early 2000’s but there was never any hint of this in the mainstream media. Instead its CFO received accolades.

Lots of stocks are getting beat down in price. If I had U.S. cash I would be adding to positions in Toll Brothers and Bank of America and Berkshire Hathaway.

February 10, 2016

On Wednesday, the S&P 500 was about unchanged and Toronto was down 0.8%.

Boston Pizza reported basically blow-out results especially given low expectations and rose 3.3%. See related posts just below.

Oil is down 2% on Wednesday evening to under $27 and so it appears that Thursday could be another weak day.

TransForce will report after the close on Thursday. It could be a good report given its U.S. operations and the benefits of lower fuel prices.


Updated Boston Pizza Report

The Boston Pizza report is updated and rated (higher) Strong Buy at $16.90.

Normally I would not expect Boston Pizza to provide much in the way of a capital gain. It’s the yield that is attractive. But given that a more reasonable price (or value) is likely at least $22 it could give a capital gain this year. If not, the 8.2% yield provides plenty of reason to buy.

Warren Buffett always talks about looking for PREDICTABLE companies. I could be wrong but it seems to me to be extremely likely that Boston Pizza will still be around in say ten years and that its distributions per unit will be somewhat larger than today. The royalty units simply skim a franchise fee from food sales and so unless the BP restaurants are going to go out of business there is still going to be franchise fees to collect in ten years and 20 years and probably much longer than that. In a recession its same-store sales might fall but it just does not seem to have the risk that a normnal corporation has. Normally as investors we rely on earnings. Earnings can sometimes fall to zero even while revenues drop only modestly. In the case of Boston Pizza we don’t have to forecast hard things like the price of oil or how wages will compare to revenue or how its rents will increase. We just have to think about whether the restaurants will stay in business and how their revenues might grow or shrink. To my mind, it would take quite a severe recession before same-store sales would fall (on average) by more than say 10% or before we would see restaurant closures exceed new openings.  (And even in that case it would be a set-back, not a disaster) There are never any guarantees and perhaps some strange legal reason could cause a big problem. Or a giant food poisoning scare could happen. But overall I see the cash flows  from Boston Pizza as being among the more predictable investments.

Of course, I also thought it was a decent investment at $22 and a great investment at $18.50. The price fell with the market and due to fears of lower sales in Alberta. Meanwhile same-store sales have continued to grow on average (despite some declines in Alberta). And meanwhile Boston Pizza undertook an unusual transaction that allowed it to bring its share of the franchise fees from 4% to 5.5% (albeit by issuing many new units). Previously the franchise fee above 4% went to basically the founders of BP but now the Royalty entity has purchased a fatter share of the franchise fee.

Boston Pizza today announced a 6.2% increase to its distributions. They would not have done that if they were not confident it could be maintained. I would not count on any further distribution increase for at least another year and possibly longer. But the current distribution seems to more than justify the current price.

It also appears that Boston Pizza is simply not well known and well followed as an investment. With a market cap of just $346 million the big boys simply can’t play here. And with stable cash flows the speculators and hot stock pick folks also are not interested. That leaves small investors who might think that an 8.2% cash yield that might even grow slowly over time is an attractive investment.

This is not a stock to win the lottery on. It would be more of a place to park existing winnings for a decent return.




February 10, 2016 – Gasoline is cheap (at least in Alberta)

Gasoline in Edmonton this morning is selling at 59.9 cents per liter. Deduct 5% GSP and that is 57.0 cents per liter. Deduct 10 cents Federal excise tax and 13 cents provincial gasoline tax and that is 34 cents per liter before tax. THAT is cheap.

There are 3.785 liters in a U.S. gallon so in Alberta the price is now $1.29 per U.S. gallon plus taxes. And it’s $2.27 per U.S gallon all-in after taxes. And that is U.S. $1.63 per U.S. gallon. Albertans certainly have nothing to complain about when it comes to gasoline prices. (Now would be an opportune time for the Alberta government to raise gasoline taxes to deal with its budget problems although such a move would certainly not be popular).

Gasoline in Alberta is roughly half the cost it was a couple of years ago. Someone driving 16,000 km per year at 10 liters per 100 km buys 1600 liters of gasoline per year and is currently saving about $1000 per year compared to when gasoline was $1.20. And many people would be buying twice that amount of gasoline and so saving perhaps $2000 per year, at the current 59.9 cents price.

It’s interesting to think which companies will benefit from lower gasoline and other transportation fuel prices.

Airlines, rail roads and package delivery companies will benefit even net of fuel surcharges.

Gasoline retailers may increase their gross margins which are typically around 5 to 6 cents per liter although that depends on how intense the competition is. Gasoline retailers will also save a LOT of money in credit card fees. Generally, I would expect these lower gasoline prices to be quite beneficial to Alimentation Couche-Tard. Revenues for gasoline retailers will be down but profits will likely rise.

Credit card companies will suffer a loss of fees on the lower gasoline prices. This may be a large enough part of their business to be a noticeable drag on earnings.


February 10, 2016 11 am eastern (Boston Pizza)

The Boston Pizza Royalty units Q4 report out this morning far exceeded my expectations. Same-store sales royalty-eligible sales were up 1.8% despite the slower economy in Alberta. Distributable cash per unit was up a remarkable 13.3% due to a transaction whereby the fund effectively purchased more of the franchise fee from related entities in mid 2015 and did so on an accretive basis. It was also due to buybacks of units. That kind of growth is not sustainable but the BP units are trading at a price that appears to suggest the distribution could fall.

The bottom line is that this entity remains highly attractive unless one predicts a relatively sharp drop in restaurants sales.

P.S. I forgot to mention when I posted this that the distribution has been raised 6.2% to $1.38 per unit per year for a current yield of about 8.2%.

February 9, 2016

Tuesday’s markets had the S&P 500 down 0.1% while Toronto was down 2.0% as oil slid about 5%.

It’s human nature to focus on the recent declines in stock market prices. It’s impossible not to see the gloomy news about declines.

However, what really matters more is the outlook for profits on various companies over the longer term.

As long as most of the companies that we are own are not going to see their earnings slump and virtually never recover then we are likely to do well over the longer term.

Each time markets decline it tends to feel very painful. But typically, some time later most periods of market decline are proven to be short-lived or not of great consequence in the long term.

Q4 earnings reports continue to come in and typically include some views on the outlook for 2016 and beyond. These reports are likely to offer a lot more insight than is focusing on the latest stock price movement.

Boston Pizza Royalties Units are down 30% from their high. I feel quite confident that their distributable cash flows to be reported tomorrow will not be down anything close to that amount. (My guess is that distributable cash flow per unit will be roughly flat or up slightly compared to the prior year and that same-store sales will be down maybe a couple of percentage points.)


February 9, 2015 11:45 am eastern

Statistics Canada reports that:

“Canada produced 19.2 million cubic metres of crude oil and equivalent products in November, up 3.6% from the same month a year earlier.”

The solution to lower oil prices is lower world oil production. Canada’s oil production industry is apparently doing nothing to help itself in that regard. This may be the nature of the market. All players wish others would curtail but meanwhile each pumps even more because they need the money. It appears that it will take bankruptcies before there are any noticeable production cuts. Or perhaps the impact of lower capital spending will slowly lead to production cuts over time.

This morning I added modestly to my position in AutoCanada.

February 8, 2016

Monday was a negative day in the markets with the S&P 500 down 1.4% and Toronto down 1.8%.

Among the bigger decliners were Element Financial down 6.2%, Couche-Tard down 6.0%, Bank of America down 5.3%, Visa down 5.3% and Dollarama down 3.8%.

I am surprised to see Toll Brothers down at $25.13. This puts the price back to where it was four years ago when its earnings were negative as it was emerging from the housing crash in the U.S. I added Toll Brothers to this site in 2011 at $21.03 as a way to benefit from the recovery in the U.S. home building industry. Since then Toll’s earnings have gone from negative figures to positive. Over most of that period Toll Brothers was improving but its P/E ratio was still relatively high. Now, Toll Brothers is starting to look very much like a value stock with a trailing P/E of 12.8 and a price to book value of 1.1. And it appears that its profits will be sharply higher in 2016 based on homes it already contracted to sell in 2015.

February 8, 2015 (11am eastern)

Oil is below $30. And with few signs of supply reductions oil could certainly remain low.

Financial stocks are down this morning with Bank of America down% to $12.26 and Element financial down 4%.

It’s tempting to add to positions but also, of course, it is difficult to be brave and do so.

In Canada, Statistics Canada reports that:

“The total value of building permits issued by Canadian municipalities rose 11.3% to $6.9 billion in December, following a 19.9% decline the previous month. Higher construction intentions for multi-family dwellings in Quebec, Ontario, British Columbia and Alberta explained the advance.”

Surprisingly, Alberta posted the largest gain.

This is welcome news for the economy but may simply reflect the volatility in these numbers and also the lag in that certain projects were likely planned well before the recent down-turn especially in Alberta.



February 7, 2016

On Friday, the S&P 500 fell 1.9% while Toronto was down 0.1%.

Bombardier fell 8% while its preferred shares fell 9%.

I have updated the composition of my own portfolio to show what I own at this time.

This week I am looking forward to several Q4 earnings reports including, Particularly for The Boston Pizza Royalty Income Fund on Wednesday morning.


February 5, 2016 10:45 am eastern

The U.S. added only an estimated 151,000. This was weaker than the expected 190,000. But the official unemployment rate fell to 4.9% which while not a record low is in fact quite low. Overall, the American economy is still growing although slowly.

In Canada it was estimated that the jobs declined about 6000 and the unemployment rate edged up to 7.2%. Alberta lost an estimated 10,000 jobs and had an unemployment rate of 7.4%. Ontario gained 20,000 jobs and had unemployment of 6.7%.

In my own trading I may wait and see how the Q4 earnings numbers come in from various companies.

Boston Pizza reports next week and while same store sales may be down somewhat, it is unlikely that the distribution would be cut  and in fact it could possibly be raised. Boston Pizza continued to buy back shares as well at the maximum of about 7200 per day.



February 4, 2016

On Thursday, the S&P 500 was up 0.1% and Toronto was up 1.4%.

Costco was down 2.3% after reporting same-store sales up 1% in the U.S. in January.

Its same store sales in Canada were down 6% but were up 11% after adjusting for currency and gasoline prices.



February 3, 2016

With a late in the day rally, the S&P 500 finished Wednesday up 0.5% and Toronto finished up 1.2% as oil rose 9.6% and the Canadian dollar rose  1.32 U.S. cents or 1.9%.

Regarding the RioCan preferred A share that will be deemed at $25 on March 31: I sold my shares today for $25.11. If you hold on, then they will automatically be sold out of your account on March 31 for $25.00 but you will then also get one last dividend of $0.328 per share. Those who wish to redeploy the money will likely be inclined to see now.

I also reduced my Canadian Tire holdings today. I had sold most of my Canadian Tire quite some time ago but held on to some that was in a taxable account. It may continue to do well but I am wondering about the impact of the sharply lower dollar. Also with the markets being so volatile this gives me some cash for possible buying.

February 3, 2016 11:45 eastern

In the news this morning:

Rona Inc. is up about 100% after agreeing to a takeover deal from Lowes. this deal raises a few interesting points:

The stock jumped in a step fashion from the close yesterday at $11.77 to the opening price today at about $23.30. When news like this comes out, as it did, when the market is closed, the price is able to adjust in a step fashion and on one benefits by being the first to hear the news. This is why all major announcements from companies should be made wile markets are closed including during a halt.

The trading action over the past days and weeks shows that there was no leak of this deal as talks progressed. That adds to fairness and the companies and their advisors did the right thing by keeping it totally secret.

A deal like this at a 100% premium illustrates that some stocks are certainly trading below what they would be worth in a takeover. One of Warren Buffett’s key strategies much earlier in his career when he was a smallish investor was to buy shares that were trading far below what they would be worth to a what he called a private owner (which was what they might fetch in a takeover deal).

Rona was in the news in 2012 and I mentioned it in the August 8, 2012 comment when it was rejecting a takeover from Lowes at that time.

Wells Fargo is down 2.5% after announcing it will pay a settlement of $1.2 billion. However, it appears that the hit to earnings will be only $134 million since most of the money had already been set aside in provisions for litigation.

Bank of America is down to $12.86. I have called it Speculative but it does seem cheap. The fear now seems to be bad loans from the energy sector. Banks are always highly leveraged and it is true that bad loans can eat into equity quite quickly. This stock could recover strongly but is not for the faint of heart.

February 2, 2016

Tuesday was a weak day in the markets with the S&P 500 down 1.9% and Toronto down 1.8%. And oil was down to $29.55.

Notable decliners includes AutoCanada down 10.3% to $17.18, possibly due to reports showing that vehicle sales in the U.S. have slowed. One bright spot for Canadian auto dealers may turn out to be American wholesale buyers that are reportedly buying used vehicles in Canada to ship across the border and take advantage of the currency difference.

TransForce was down 6.9%. Element Financial was down 6.6%. Stantec was down 6.7%.

Hopefully some of the companies on our list, including these, can surprise to the upside with their Q4 earnings as they report this month.

One very interesting and unexpected bright spot was the RioCan preferred Share on our list which closed up 57% after RioCan made the surprise announcement that it would redeem (buy back) these preferred shares at $25.00. Absent this redemption these shares had been set to be reset on March 31 from a yearly distribution of $1.3125 to something closer to 80 cents (depending on the level of the 5 year Canada bond on March 31).

I have not seen any news on why RioCan chose to do this. But we do know that RioCan had the ability to do it since it recently agreed to the sale of its U.S. properties for about $2.7 billion Canadian dollars and it already had a strong balance sheet before that sale. Also these preferred shares represent a small dollar amount compared to the common equity.

Riocan’s management may have simply concluded that this was the fair thing to do. Those who bought the rate reset preferred shares from RioCan when they were issued did so in good faith. Basically no one was expecting interest rates to continue to fall such that these shares would be trading at $16 or anything close to that. Instead, the company and investors generally thought that these shares would protect investors from an interest rate rise.

Possibly RioCan could have bought these shares back on the market and booked a gain in doing so. (Each share bought back at say $18 would have wiped out a “liability” of $25). But maybe that would not have been feasible.

In any case this is a most welcome move by RioCan for those who owned these preferred shares. (I own a small amount).

The question now is whether any other issuer of rate reset shares will do something similar as their rate reset shares come up to the reset date. The difficulty is that some of the other issuers may not have the balance sheet strength and cash on hand to simply redeem their rate reset preferred shares. In some cases there might be a concern that doing so would be unfair to the common share owners since they would be forgoing the opportunity to benefit from below market yield rates on their preferred shares. Or perhaps they would decide to instead buy back their preferred shares on the market and book a gain in doing so.

February 2, 2016 11:30 am eastern

Last night it became clear that Bernie Sanders has a very legitimate chance of being the Democratic Nominee. And whoever gets the democratic nomination will likely be the favorite in the run for the Presidency against the fractured republican party. He basically tied Hillary Clinton in the first primary and they will split the delegates from Iowa about Evenly. For the democrats the delegates are split proportionally in all States while for the Republicans the delegates in some States will be awarded on a winner-take-all basis.

Bernie Sanders then delivered a rousing anti-Wall Street speech. He believes that things need to be done to address the wealth disparity and to improve opportunities for ordinary workers. As I listened to his speech I figured the markets would be down at the open today. And they were. Despite his policies being less than business friendly I could not really disagree with much of what he said. Surely, the United States should have universal publicly paid health care or at least something more accessible than they have today. And surely there are opportunities to block tax loopholes for certain large corporations and extremely wealthy people.

In any case, it appears that we could see Bernie Sanders as President and that it would be perceived as negative for business.

I notice one of the harder hit stocks this morning is AutoCanada down about 6%. I am not aware of any particular reason for that.

February 1, 2016

On Monday the S&P 500 was about unchanged and Toronto was down 1.2%. And oil was down about 6%.

TransForce rose 6.2% after completing the sale of its waste management division.

The Boston Pizza Royalties Income Fund rose 3.1%.

I don’t follow Amaya Gaming but it was in the news with a suggestion that its founder /President David Baazov would attempt to take it private for $2.8 billion or $21 per share. The stock jumped 20% to $18 on the news. It’s not a done deal as the financing is apparently not in place. Though based on the acquisition of Poker Stars it appears that the company has access to debt financing.

I mentioned Amaya in these comments on June 15, 2014 when the (then) tiny Amaya bought the vastly larger Poker Stars for $4.9 billion in cash (Some of which was debt) . I was skeptical of the deal at that time. The deal did happen and the shares issued at $20 at first rose but later fell below the issue price.

For whatever reasons it is just not a company (or a President thereof) that I would be prepared to put a lot of trust in. If I owned it I would perhaps sell half on this 20% pop. However, there were also reports that an eventual buyout would occur at above $21. Keep in mind, I don’t follow the company. I am just rather surprised that such a big buyout can be financed. I suppose it depends who the finance partners are.


January 31, 2016


On Friday, the S&P 500 was up 2.5% and Toronto was up 1.8%.

Visa Inc. was up 7.4% on better-than-expected revenues and earnings.

On Friday, Statistics Canada reported November GDP figures indicating a 0.3% gain in Canadian GDP from the prior month.

Looking at the Energy sector, the report indicates a 5.4% decrease from November 2014. However, this very much understates the dollar decline in Energy. The Statistics Canada figures attempt to measure the volume of activity as if prices had not changed. They use something called 2007 chained dollars which appears to assume 2007 energy prices. So, apparently activity is down 5.4%.

Another way of measuring GDP is in current dollars. However, I was not able to find this report in current dollars. Energy sector GDP would likely be down vastly more than 5.4% in dollars of 2015 versus dollars of 2014.


January 28, 2016

Thursday was a positive day for stocks. The S&P 500 was up 0.5% and Toronto was up 1.7%. Oil was up 4.4% to $33.72.

CN rail was up 3.4% on strong earnings driven by lower fuel costs and cost control. Canadian Western Bank was up 3.8%.

Bombardier fell 10% to an embarrassing 89 cents apparently on fears of being expelled from the TSX index. I figure that is the least of Bombardier’s problems. It’s future price depends on its performance not whither or not it is in the index.

Amazon fell to 13% to $550 after hours after its profits and revenues failed to meet expectations.

January 28, 2016 noon eastern

Statistics Canada reports food and restaurant sales in Alberta down 0.2%. So just a tiny decline despite the economy. I continue to see Boston Pizza as strong investment with a good yield around 8% and the distribution unlikely to be cut or if cut due to lower sales I suspect it would be a tiny cut as they distribute close to all distributable cash flow. And, we might even see an increase before long.

The notion (reported by CIBC this week) that Canadians as a population have $75 billion in excess cash savings strikes me as wrong. It would be true for some individuals. But the story seemed to forget that the excess cash would be in the bank and loaned out by the bank. We all know that Canadians as a population have a lot of mortgage debt. And banks usually have deposits about equal to loans. So high mortgage levels require high deposits and deposits are cash savings to someone.

January 27, 2016






A down day on the markets.

I would add to Toll brothers at recent prices.

Bombardier slipped under $1.00, a shameful display of incompetence.

I am in Phoenix this week and due to a new but crappy computer its a hard to post…











January 26, 2016 noon eastern time

Markets are up today. Probably due to some combination of news including earnings reports, higher oil and China “injecting liquidity into its banks”.

OPEC apparently wants a world-wide agreement for oil producers to cut supply. I believe nationally controlled oil producers in Russia and some other countries might be able to agree if they wanted to. North America producers are private companies and I believe it might be illegal for them to agree with other producers to cut production. Every industry would love to be able to openly collude and set production quotas to keep prices high. Free market economies do not allow that behavior (at least not openly, if done it must be done with a wink and a nod). To some degree I believe the OPEC countries are tired of being the group that curtailed production to keep prices high while all producers world wide benefited. Someday international agreements may make the likes of the OPEC price-fixing cartel illegal as well.

January 25, 2016

Monday was a down day in the markets with the S&P 500 down 1.6% and Toronto down 2.0%.

Accordingly, almost all the stocks on our list were down.

A couple of stocks of note:

Toll Brothers is down to $26.95. That makes it more attractive than at any time since I first added it to this site on June 5, 2011 at $21.03. At that time earnings were next to nothing (I had it at 16 cents per share) as it was just crawling out of the housing bust. Its book value per share was $15.27. Subsequently the stock got (briefly) as low as about $14 and as high as just over $40. The price went above $30 in the summer of 2012 and bounced around the low 30’s to about $40 before very recently falling under $30 again. At this time the trailing earnings are $2.04 and the book value is $22.86 per share. So, the trailing P/E ratio is 13.7 and the price to book ratio is 1.18. The analyst P/E ratio based on October 2017 fiscal earnings is shown as 9 implying they expect about a 50% increase in earnings in less than two years.

From 2011 until quite recently, the P/E ratio on this stock was high and the investment thesis was that earnings would ramp up rapidly with the housing recovery. And earnings are a lot higher now although they have also been lumpy with a large spike in 2012.

Toll Brothers is a bit odd in that when it contracts to build a house (sells a house) it does not book the revenue for another 12 months. The result is that the earnings are somewhat predictable for a year ahead and my understand as indicated in the report is that an earnings increase of 20 or 25% is pretty much baked into the numbers for 2016 (that would exclude any special charges).

So, at this point the stock looks like better value than I have ever seen it based on achieved earnings versus price.  Maybe its contracted new sales in 2016 (which will be revenue in 2017) will fall. That is a risk if the U.S. goes into recession. But a lot of forecaster don’t expect that. To me, Toll Brothers looks like quite good value at this price.

Berkshire Hathaway is down to $124.13. Buffett has pledged to buy back shares if the price falls to less than 120% of book value which would be about $120.86. So, I think this puts something of a floor under that stock and it would be entertaining to see it fall to $120 so Berkshire could buy back some shares. Sometimes companies can’t buy back shares when an earnings release is pending so it is possible that Buffett would have to wait until Berkshire releases earnings at the end of February.

It will also be interesting to see what buying Buffett has been doing lately as the market fell. Berkshire will close its largest ever acquisition (Precision Castparts) this Friday at $37 billion (though that included some assumed debt. But with a purchase of $30 billion or whatever, Buffett may not have felt he had enough cash around to buy aggressively on this downturn, as he likes Berkshire to retain maybe $40 billion ($20 billion absolute minimum) as a sort of emergency fund. Cash at Q3 was about $65 billion. Cash, by the way basically means T-bills because you can’t safely keep that much cash in a bank much less in the office safe. If T-bills ever went slightly negative on yield, Buffett might still hold them because there no bank account that is a safe as owning T-bills.



January 25, 2016, A new Rate Reset Share

TD Direct Investing has a new issue out, a 5.75% rate reset preferred share from Empire Life Insurance Company.

The other large bank discounts brokers are also likely offering this. These deals tend to sell out fairly quickly. If you want in on them you should register to receive alerts of new issues from your broker.

This will reset to 4.99% above the five year Canada bond in five years.

An hour or more after I saw the alert, this issue was still open.

Basically investors have little appetite for rate reset shares because many of us got burned by earlier rate reset shares that fell by a third or more in value after the five year Canada bond interest rates fell.

But those older rate reset shares were priced several years ago at spreads of more like 2.5% above the five year rate. These new ones are vastly higher.

Without getting into a lot of detail, and certainly without making any guarantees this new issue looks highly attractive to me, especially for those looking for income.

If the 5 year Canada bond is yielding zero in five years this will reset to pay 4.99%. So I am just not seeing a lot of downside there. And it is certainly quite possible that interest rates will finally rise.

There is always the possibility of credit losses (Empire Life goes broke or gets in financial difficulty). I have not researched its balance sheet but I suspect it is reasonably strong. A fact of life with new issues is that since they tend to be sold out fairly quickly there is usually no time to do much research. But in many cases, as in this case the name of the company is one that you may have heard of. I just took a quick look at their web site and as I expected their credit rating is high (it’s “A” for the issuer, A (low) for subordianted debt from DBRS) so I would not be concerned about them going broke.

In my view, Canadian investors as a population are not acting wisely when they refuse to invest in these newer rate reset preferred shares based on what happened to older issues with FAR lower spreads over the 5 year.

Updated report for American Express

American Express is updated and rated Speculative Buy. This company is down 37% since it was first added to this site rated Buy two years ago. Its earnings per share have grown slightly since then but the P/E multiple came down significantly due to a lower growth outlook. On Thursday’s conference call at least one analyst questioned whether American Express sill deserved a premium valuation given competitive pressures to lower the fees to merchants which is where American Express has traditionally obtained a much larger share of its revenues versus interest charges to customers. The stock decline on Friday may be provide a buying opportunity. (Also the company does not trade at a premium valuation certainly in comparison to VISA so I am not sure what the comment about a premium valuation referred to.) The company believes that it can resume growth but that the next two years will suffer from low growth. Arguably, that is already reflected in its 10.2 P/E ratio.

January 24, 2016

On Friday, the S&P 500 was up 2.0% and Toronto was up 2.9% as oil had a very strong rise of 9.7%. Most of the stocks on our list were up 2, 3 or 4%.

America express however was down 12.1% after reporting earnings which included a lower near-term growth forecast. I am posting separately an updated on the report for American express.

Later Saturday, I sent out the latest edition of our free newsletter which you should have received by email if you are on the list for that.


January 22, 2016 – 11 am eastern (comment on inflation report)

Statistics Canada has reported the December inflation numbers.

The Canadian CPI was up 1.6% from the prior year held down by lower gasoline prices.

Core inflation which strips out the volatile food and energy sectors was up 1.9%. (For years core inflation was lower than the actual all-in headline number and people howled and asked why those items should be ignored, now that core inflation is higher the howlers are silent.)

Grocery inflation is high at 4.1% year over year.

Clothing inflation was surprisingly low at 0.7%. That’s hard to understand given so much clothing is imported. It may be that the Canadian dollar has not lost as much ground to the currencies of the countries that clothing comes form as compared to its loss against the U.S  dollar. Or perhaps the price impact is delayed.

The Bank of Canada government sated emphatically that Canadians should expect 2% inflation. I would have expected a one-time bump of several extra percentage points related to the lower dollar but it is not yet much in evidence. The dollar fell quickly and the full impact has certainly not yet shown up at retail.

We may see substantial inflation in some auto prices in cases where they are manufactured in the United States. It is complex however as car companies need to ain competitive against cars made in other countries against which the Canadian dollar has not had nearly as much depreciation.

January 21, 2016

Thursday was a welcome positive day in the markets.

The S&P 500 was up 0.5% and Toronto was up 1.6%

Bombardier bucked the trend and was down 9% on news that United Airlines had chosen Boeing for a large plane order that Bombardier was hoping to score for the C-Series. South West airlines also announced an order though I don’t recall Bombardier ever being in the running for that one.

What Bombardier does not publicly admit is that airlines are probably afraid to place  a deposit with them or rely on them to deliver and be around for after-sales service for the life of the plane. Also, Bombardier has limited production capacity and new orders placed now will be at the end of fairly big (though not nearly big enough) order book.

It’s a nice gig these Beaudoin’s have as they lose billions of their investor’s money. (And they lose some of their own money too and the family legacy and reputation the family had built earlier, family gatherings must not be much fun.) But they do provide a lot of jobs and they themselves have prestigious jobs and can score amazing photo ops with their money-losing planes. (They do make great products.)

Still, I think Bombardier will muddle through. They will ultimately score some orders and with government assistance will stumble on. They will deliver some C-series planes.

It’s a tough business. Imagine if you hope to sell a plane for an 8% margin but your customer insists on a 15% discount to list price. Believe it or not, Bombardier aspires to raise its EBIT margin to a paltry 8%. Just 8%, before interest and tax,  is their idea of success.

One of these day there will be some good news and the stock could provide at least some bounce.

It will be interesting to see if most of the non-family owners finally vote against the current directors this Spring. It’s one thing for the family to vote for these people but even the external shareholders voted overwhelmingly in favor of the directors last Spring. Surely investors will wake up this time and send a message?

Canadian Pacific was down after reporting its earnings. I am more hopeful for Canadian National because it will benefit from its significant U.S. operations. Also I understand CN is somewhat less dependent on transporting commodities. CN will report lower traffic in Q4 but perhaps the currency benefit will still allow for a strong quarter or at least better than current apparently weak expectations.

As the various U.S. companies report earnings the market seems to be surprised at the negative impact of the high U.S. dollar on the multi-nationals. It should not be a surprise. Correspondingly, some of the Canadians companies should benefit greatly frown the lower Canadians dollar and so perhaps there will some positive earnings surprises.




January 21, 2016 noon eastern time

Statistics Canada reports tthat residential construction in Canada was up 2.2% in November compared to the prior year. But single family construction was down 9.6%.

In Alberta, residential construction was down 15.7% but there was no break-down between single-family and multi-family construction. A decrease of that magnitude in single family would not be problematic for Melcor. However, it seems likely that single family construction will slow considerably. Still, it’s not likely to fall to zero even by 50% unless the low(er) oil prices persist into 2017. I expect Melcor to report a profitable Q4 (unless there is a large market value loss on its rental properties). Their outlook for 2016 will be extremely important. The stock, it seems, has already priced in a very pessimistic scenario.

Statistics Canada also reported that Unemployment Insurance claims in Alberta were double that of last year at 61,300. I understand that this is still lower than the 2008 or 2009 level but it certainly indicates the slower economy in Alberta.

In the U.S. the first-time jobless claims were a little higher than expected but still remained low at under 300,000.

The news of the Potash mine closure in New Brunswick is troubling for several reasons. One, is that Potash appears to have significant market power and even belongs to a price-fixing cartel called CANPOTEX. Potash may be favoring its Saskatchewan operations and I wonder why one company was allowed to have so much market power. Second, this New Brunswick mine is very new and Potash invested $2.2 billion in it and who knows what government assistance was provided. Meanwhile, executives were no doubt paid millions to make the decision to invest in that mine. Presumably they were caught off guard by the commodity price decline. No one can be expected to accurately predict the future. Nevertheless, it appears a huge mistake was made here. New Brunswick and the employees will suffer greatly. Shareholder money has been wasted. But what price will the executives pay?



January 20, 2016

Wednesday was another memorable day in the Stock markets.

The S&P 500 closed down 1.2% and Toronto was down 1.3%. And the lows of the day were far lower than that. Oil was down as well.

My strategy has always been to continue to buy what appear to be under-valued companies as the market declines to the extent that I have funds to do so. I picked up 100 shares of Couche-Tard and a bit more Boston Pizza today.

To the extent that oil producers keep pumping at a level higher than consumption then the excess has to go into storage. It is understandable that at some point if there is little or no storage available then prices can get very low indeed. But at that point (which we may be at or near) then some producers will surely finally throw in the towel and cut back. If it is true that a significant percentage of producers today are struggling to meet variable costs and are far below total costs of production then that is unsustainable and production will decrease which would, at some point, cause prices to rise.

It is true, however that most commodity businesses have a history of providing poor returns for many companies. The very high returns of the entire oil industry in the years from about 2002 to mid 2014 may have been an anomaly created by a temporary shortage which in turn was largely or at least partly created by the OPEC cartel which existed to collude and limit production to keep prices high. If OPEC no longer has the market share, the cohesion and/or the willingness to create an artificial shortage then it would seem that very high oil prices will not be returning anytime soon. In a commodity market, the low cost producers can still make strong profits. Unfortunately, it is not at all clear that Canada has very much low-cost production.

Updated Bank of America

The report for Bank of America is updated with a rating of Speculative Strong Buy at $13.69.

Bank of America reported Q4 earnings per share which were 9% higher than the year ago quarter but which earnings remain affected by various items related to lingering effects of the financial crisis.  The thesis for buying this company is that it trades at a low multiple to book value and at a relatively low P/E ratio while its earnings are expected to rise as it puts the lingering effects of the financial crisis behind it. It did report an increase in bad loans in the energy sector but this did not appear to be a significant matter. It’s quite likely that this Bank will increase its dividend substantially in 2016 as the dividend was cut sharply (or eliminated) during the financial crisis and remains now at a low level.

Given the recent declines in the stock market which certainly includes the stocks that we have rated in the Strong Buy category, it is a good time to consider a number of questions that might come to mind in considering whether to buy any given stock:

1. Will the Stock rise in the short term? With a strong Buy I would hope that would be the case but I never know. Even stocks that seem to be very much under-priced can fall due to a general market decline, a decline in that sector or changes in the outlook for that specific company or various surprise events.

2. Is the stock undervalued considering its value ratios and its outlook for growth and all of the many factors that affect valuation? That is the question that our analysis reports attempt to answer. Those reports provide a lot of data and facts and our interpretation of those facts. Any stock that we rate as a Buy or higher such as (higher) Buy or in the Strong Buy range is a stock that we think is at least fairly valued and that has a good outlook and where our conclusion based on all the factors looked at in the report is that the stock will likely rise in price over the years and provide at least an acceptable return. There are no guarantees. Our performance figures look at whether the stocks that we rate move in the predicted direction over each calendar year. Essentially it is disappointing if any Buy or higher rated stock is lower one year after a rating is applied. I suppose it also disappointing if it is lower after a month but realistically a year is a more reasonable time period over which to judge performance.

3. Given that a particular stock is expected to give a good return, is it the best available investment given consideration of other choices that an investor is aware of and given considerations of asset allocation and diversification? That is something that is always specific to each individual. A stock rated Strong Buy might be suitable for some investors to buy but not others due to different risk tolerances and different portfolio diversification or knowledge of other attractive available investments.


Bank of Canada Interest Rate Unchanged

On Wednesday morning the Bank of Canada left interest rates unchanged. I believe this was good news. But it was over-shadowed by a significant drop in stock markets tied to world events and outlooks.

In regards to the overall stock market declines, I have never claimed any ability to predict such matters, nor do I think anyone else has that ability. I am confident that this too shall pass. But it is never clear how far markets will fall before they turn around.

Statistics Canada reported manufacturing results for November. The lower dollar is benefiting manufacturing in Ontario which rose about 5%. For the country as a whole manufacturing was up 1% versus October but down slightly versus November 2014.

Statistics Canada also reported travel between Canada and the United States. The lower dollar is having an impact. Year over year, 10% more Americans (and others) traveled to Canada while 8% fewer Canadians left this country. This should continue and perhaps sharply so with the rapid fall in the dollar. However, Canada faces a huge travel deficit in that even in Summer more Canadians leave than foreigners arrive. And in Winter, understandably, we travel out at almost three times the rate that the rest of the world travels to Canada.

Statistics Canada also reports that wholesale trade was up 1.8% in November versus October, the first gain in five months.


January 19, 2016

Tuesday ended with the S&P 500 about unchanged and Toronto up 0.5% – despite a drop in oil prices.

Most stocks on our list were up today.

Rate reset preferred shares did well. A Husky preferred share that I own a tiny amount of was up 5.25% (albeit to only $14.43). After the close, Husky announced it was stopping its common share dividend. I would think that could boost the pref shares since it retains more cash.

Husky is also cutting capital spending. That is what the oil industry needs to do. Any oil company that is not profitable at current oil prices should suspend all spending on new production. As the saying goes, the cure for low oil prices is low oil prices. Or maybe the “free-market” oil industry can pray for the OPEC counties to collude and curtail supply to drive prices up. It was great all those years when the free market oil companies benefited from the OPEC collusion but pretended that oil was a freely traded commodity. Alberta really should have been sending lavish thanks to OPEC all those years. That, I believe, is the inconvenient truth of the matter.

I have certainly seen my own investments go down in value due to the collateral damage from the low(er) oil prices. But I really can’t begrudge low oil prices. Most people in the world and in North America benefit from lower oil prices. To the extent that low(er) oil prices are a result of a now more free market in oil, I simply can’t fault it.

Alberta could certainly use more pipelines to lower the costs of getting its oil to market. I hope that can be accomplished.  But Alberta and Canada on their own can do little to push the price of oil up. And the most effective action is a painful one (less drilling and less new production).

A logical oil and gas royalty for Alberta might be one witch expands with the price of oil and contracts at lower prices. That might mean at very low oil prices there would be no royalty due. However, I understand, royalties were in effect collected when the right to drill was auctioned off. At times of low oil prices there would be little interest from companies buying new oil lease rights from the government and perhaps none should be sold.

Alberta cannot rely on oil and gas  royalties to fund program spending. They are far too volatile.

Alberta may as well bite the bullet and impose a provincial sales tax.

The five year bank of Canada yield is up slightly from its lows to 0.57%.

I would think that a Bank of Canada interest rate cut would be a dumb move and I don’t expect one tomorrow. But dumber things have happened….


The Dropping Loonie

The biggest or virtually only reason for the Canadian 69 cent dollar is said to be lower oil prices.

But other factors affect it to.

Every Canadian person, company or government that wants to spend money in U.S. dollars such as for imports, vacations or investments in the U.S. must exchange Canadian dollars for U.S. dollars. The Canadian dollars do not disappear in that process but merely change hands. But an increase in demand for U.S. dollars versus people exchanging money from U.S. to Canadian pushes down the market price of the exchange.

With far lower oil prices America customers pay far fewer U.S. dollars for Canadian oil. And those smaller revenues received are exchanged into Canadian dollars to pay workers, suppliers and taxes in Canada. That lower volume of dollars being exchanged definitely puts downward pressure on the Canadian dollar.

But it is worth looking at what is happening with other import and export flows.

Statistics Canda reported today that:

Canadian investors acquired a record $16.5 billion of foreign securities in November, mainly US securities. Meanwhile, foreign investment in Canadian securities slowed to $2.6 billion, largely on lower acquisitions of Canadian bonds.

As a result, Canada’s international transactions in securities generated a net outflow of funds of $13.9 billion from the Canadian economy in November, following two months of significant net inflows.

So that is a huge imbalance right there. But this is not really normal. Most months, foreign investment in Canadian securities averages about double the amount Canadians invest outside of Canada. In the first 11 months of 2015, the flow was a net $54 billion into Canada and in the same period in 2014 it was a net $48 billion invested in Canadian securities. So most months the flow of foreign investments provides a net demand for Canadian dollars which should push up the price of Canadian dollars. But in November 2015 the flow was a large negative one helping to push down the value of the Canadian dollar.

In November, Canadian investors showed a large appetite for foreign securities and foreign investors lost their taste for buying Canadian securities, especially bonds.

As for oil and other exports; In Q3 total exports were flat year over year at $637 billion despite a $37 billion decline in energy exports. Consumer goods were up by $15 billion (25%!), so yes the lower dollar is having some positive impacts. Overall with flat exports that would not seem to account for ANY downward pressure on the loonie.

Imports in Q3 meanwhile were up $32 billion or 5% which would have put downward pressure on the loonie. A little more than ALL of that increase was due to price increases. Volumes of imports in “2007 chained dollars” were down slightly. That would seem to  suggest that the loonie was pushed down in part because imports were more expensive which was in turn because the loonie was down.

Another reason for the lower loonie could have to do with bets in the futures markets. It may be that financial traders not connected to imports and exports could be causing the loonie to drop. But I suspect that such financial trades would be temporary. Over time the loonie will respond to the real cross border flows of goods and service and to cross border investments.

As the loonie falls, Canada should find its export volumes rising (although they may at first fall in dollar terms) and import volumes falling (but at first rising in dollar terms).

Cross border investment flows may also respond in a similar manner.

The reaction of imports, exports and investment flows should eventually stop the loonie from falling or cause it to rise.

There are other factors that affect the loonie and that affect imports and exports and investment flows, including interest rates and also the competitive of Canadian firms for reasons unrelated to the dollar, principally wages, productivity and taxes of all kinds.


January 18, 2016

On Monday, the U.S. stock markets were closed while Toronto fell 1.1%.

Some of the big questions facing investors are how low will oil go?, how long will it stay down?, to what price might it recover? and how will low oil prices affect other aspects of the economy.

It appears that it takes a quite a few months before the impacts of lower oil prices show up in lower earnings in other sectors. The stock market however, tries to immediately anticipate and estimate the full impact on all future earnings and is capable of making the entire adjustment virtually instantly. It is also quite capable of getting its estimates very wrong. Stock market valuations tend to over-shoot to the upside when optimism abounds and to over-shoot to the downside when fear takes over. Where we are at the moment is a matter for debate.

Economists appear to think that the impact of lower oil prices on Alberta’s economy in 2016 will be rather tame. An ATB financial report dated January predicts that the Alberta’s GDP will decline in 2016, but only by 0.5%.

Given that energy was 25.5% of Alberta’s GDP in 2014 and construction was another 10.8%, it’s hard to believe that the GDP will basically be unchanged in 2016.

I believe the tiny dip in projected GDP has something to do with the fact that GDP is measured in “real” dollars. Statistics Canada measures GDP in something called 2007 chained dollars. Chained dollars attempt to remove the impact of inflation. Unfortunately it appears that chained dollars don’t use overall CPI for inflation. Instead it appears to use for energy the change in energy prices. It tries to measure activity and volumes as opposed to price. I suspect that in actual dollar terms Alberta’s GDP will decline more than 0.5% in 2016.

ATB appears to be projecting only a relatively modest decline in new home construction and in home prices. If that’s true then it would seem that the Melcor share price which is down over 50% has probably over-estimated the impact on Melcor’s future earnings.

ATB is also estimating that Alberta’s unemployment rate (now at 7.0%) will peak at something under 8%. That may be quite optimistic.

Overall, even in Alberta there is a certain inertia in the economy. There will not be any mass out-migration of people from Alberta in 2016. Unemployment rising from 4% to even 10% will still leave 90% of the working age population, that actively wants to work, employed. Unemployed workers who remain in the province will not stop spending entirely.

There will be an increase in corporate and personal; bankruptcies. But the vast vast majority of people and companies will not be bankrupt. Canadian Western Bank will face higher bad debt. But they are not projecting anything close to ruinous levels. (They fear lower profits if oil remains low but even in their stress-test case they projected to remain profitable).

Due to the inertia in the system it would likely take several years of low oil prices (such as under $40) before there would ever start to be significant out-migration from Alberta in turn leading to a real dearth of new home construction and sharply lower residential building lot prices.

I suspect that the more likely outcome is that Alberta’s economy will contract somewhat but will remain relatively robust. New home construction will continue. Prices will not likely collapse and Melcor’s share price will likely rise.

As I post this, China has announced that its GDP slowed to “just” 6.9% in 2015. I understand that the market was hoping for at least 7.0%. In any case there are many who will never trust China’s figures. As of right now the DOW futures are up 100 points. So, possibly the market will decide that China’s GDP number is not so bad. Tomorrow will likely be yet another non-boring day in the markets.


AutoCanada Comment

New vehicle sales for November were reported today by Statistics Canada.

For Canada overall, the number of new cars and trucks sold was up 4.45% versus the same month  year ago and in dollar terms were up 6.95%. For Alberta unit sales were down 15.9% and in dollar terms were down the same 15.9%. A 16% drop in sales is painful but it is not afterall, anything close to say a 50% drop in sales.

AutoCanada has about 43% of its 52 dealerships located in Alberta. That is a large part of the reason why its share price has fallen as high as $90 to a recent level of about $21

Clearly at $90, the stock was pricing in a lot of growth and today the earnings are in decline.

But it seems to me that a drop in new vehicle scales of say 20% or even 50%, were that to occur, is not enough to threaten the viability of very many dealerships. After all, there is still significant revenue from servicing vehicles . Also used car sales may not have fallen as much. In fact at least one very large dealership in Edmonton is advertising that it has a large U.S. buyer for used vehicles. U.S. buyers can take advantage of the sharply lower dollar.

And auto dealerships have some ability to reduce staff expenses. They will be paying less in sales Commissions and can reduce the sales staff head count. To date, AutoCanada had been reluctant to let sales staff go but they would do so to insure dealerships remain viable.

Most companies can sustain periods of sharply lower sales if they don’t have excessive debt. AutoCanda does have significant debt but probably not an over-whelming debt level.

Also AutoCanada has so far remained profitable and there is no indication that it will not remain profitable.

It appears to me very likely that AutoCanada will be able to make some adjustments in its costs and will remain profitable.

If you owned two car dealerships in Alberta and one in B.C. and one in Ontario, you would not be having a great year but you would also not likely be panicking. And so why should owners of AutoCanada shares be somewhat panicky?

Auto dealers have been through many recessions and yet they continue to have some of the most prosperous looking businesses around. (I don’t recall ever walking through a new car dealership that looked run-down or down on it’s heels, and that’s even in towns that are otherwise not very prosperous looking.)

For more details see our full report on AutoCanada.

Update for Wells Fargo

Wells Fargo is updated and rated (higher) Buy at $48.82.

The recent markets declines are surely a distraction. But given that overall market declines are unpredictable there is really nothing to be done about the market decline. Investors are supposed to have asset allocations that they can live with. Those who cannot stomach (or better-yet take advantage of) a market decline should not be invested in equities.

Fundamentally, the goal should be to buy at reasonable prices, shares of good quality companies that are very likely to grow earnings per share over the long term at an attractive rate. Such shares can be held for the long term unless something changes or unless they become clearly over-priced in the market.

Wells Fargo is probably an example of such a company. (At least, Warren Buffett has always thought so.) Having reported earnings on Friday morning, it’s our first update for 2016.

January 15, 2016

We are just two weeks into the new year but it feels longer.

On Friday, the S&P 500 was down 2.2% for a total decline this new year of 8.0%. And, Toronto was down 2.1% bringing its decline for the new year to 7.2%.

Many stocks continue to decline despite the fact that they appear to be trading below a reasonable value based on their profits and net assets per share.

In Canada the biggest reason for the decline is the low oil prices.

In the U.S. the decline is partly related to the oil prices and to the low expectations for world growth in 2016. Also the sharply higher U.S. dollar is hurting the earnings forecasts for U.S. multi-national companies.

The Q4 earnings reports have started to be reported in the U.S. and have generally met expectations.

In Canada the energy companies are certain to report poor results. However certain companies that sell into the U.S. market should do well including the forestry sector.

Stantec will suffer on its energy related work but should get a good boost from the dollar on its U.S. work.

Investors wonder how low the market can go. I don’t think anyone knows the answer to that. It could go lower or it could turn around anytime.

The lower market is obviously painful. But for many investors there is at least a silver lining. If cash is available then stocks are on sale. The youngest investors should certainly cheer lower markets since the amount they currently have invested is likely to be small compared to what they will invest in the future, even the near future.

Canadian government bond yields have continued to go lower. The 5 year is at 0.55% and the ten year is at 1.15%.

It seems that the market would prefer to buy a ten year bond that locks in a 1.15% annual yield for ten years rather than take a chance on let’s say Royal Bank which trades at a P/E of 9.75, which translates to an earnings yield of 10.26%. And the dividend yield is 4.53%. One has to be extremely pessimistic to conclude that the Royal Bank shares will not outperform the ten year bond that will, of a certainty, return just 1.15% over its ten year life.

Melcor is trading at 47% of its book value. It is true that Melcor’s earnings could decline precipitously. If home building grinds to a virtual halt in Alberta and if Melcor decides to stop developing new commercial buildings, due to the economy, then its earnings would be very low on an adjusted basis and would be negative on a GAAP basis due to mark-to-market value losses on rental buildings. It would still have some earnings from its rental properties. But Melcor could sit on its land assets and wait for better times. It has a strong balance sheet and can sustain periods of low activity. Its assets are mostly land and buildings. There has been no suggestion that land or commercial buildings in Alberta have declined in value by anything remotely approaching 50%. Melcor represents the opportunity to buy an equity interest in solid land and building assets at a price of less than half the equity that seasoned management team has invested in those assets. In a pessimistic market there is nothing to prevent share owners from continuing to sell the shares at lower prices. But buying an equity interest in these solid assets at half price seems likely to work out well.

The market decline is painful. But we can be certain that the likes of Warren Buffett is out there buying shares rather than worrying about the declines. And he is buying them from investors that have basically been scared out of holding those stocks.



January 14, 2015

On Thursday, the market had its first significantly positive day of the new year. The S&P 500 was up 1.7% and Toronto was up 1.4%.

J.P. Morgan’s earnings were better than expected which may bode well for Wells Fargo’s numbers due out on Friday morning.

Most of the stocks on our list were up today.

However, the rate reset preferred shares were down.

Similarly, Boston Pizza was down 2.1% to $15.97 to yield 8.1%. This decline was on about triple the normal volume. Possibly someone was very eager to unload a larger position. It goes to show that stocks can go down more than would seem logical. Again, this is a “top line” entity that passes through a portion of the franchise fee. The Distributable cash is driven by same-store sales. If same store sales were to fall 5% the distributable cash falls by very close to 5% (and vice versa). I had expected that same-store sales would be flat to down slightly in Q3 but they rose 2.6% despite weakness in parts of Alberta. Certainly same-store sales could have deceased in Q4. Some stores in Alberta will have suffered. On the other hand there may have been menu price increases. In 2016 I don’t see evidence yet that we should necessarily expect a same-store sales decline. Again, Alberta will be weak but I would expect the rest of the country to do well and there would likely be some menu price increases. As noted previously, there has been insider buying. So, while market sentiment can drive the price down, the distributions per unit do not appear to be at risk of a decline. The current unit price would appear to be pricing in some distribution shrinkage rather than any growth. I could be accused of over-doing it but I bought more BP today.

For most companies there will be no insider buying during January or until the company reports Q4 earnings. Generally, insiders are prevented from buying from the end of each quarter ungilt he company reports earnings. However, Canadian Western Bank is in the midst of Q1 and so its insiders are allowed to buy this month. I noted that two insiders had bought shares in January. Yesterday another insider bought 500 common shares and 500 preferred shares. That is not a large amount of shares at all but it does indicate confidence.

TransAlta, a company not on our list but which I keep an eye on is out with news that it is taking certain actions including “revising” its dividend. I suspect they mean lowering. This is a highly speculative and profoundly poorly managed company. But at the recent share price it may be worth a speculative position. I would think the lower dividend might be good news for its pref shares since this means less cash out the door.

January 13, 2016

The 2016 market slump continued on Wednesday. The S&P 500 was down 2.5% and Toronto was down 1.6%.

Almost all the stocks on our list were down today.

So far this month, the S&P 500 is down 7.5% and Toronto is down 6.5%.

Rate reset preferred shares have been especially hard hit and some of these are down about 15%.

The short term direction of the markets is always uncertain. My approach has been to add slowly to what appear to be under-valued stocks when markets decline.

As an equity investor, I am optimistic that the economy will grow over the long term and that stock market index declines will eventually be reversed. Some companies will go broke but most companies will not.

Q4 earnings reports are starting to come in and some of these will be positive. J.P. Morgan reports Thursday morning. Wells Fargo and Citigroup and several smaller banks are set to report on Friday morning.

Bombardier was down 4.1% today after a rather cryptic announcement that it would no longer use a long-time distributor to sell its business jets in the middle east and north Africa and instead would sell direct with its own sales force. Bombardier would take a $278 million pre-tax charge which includes about $133 million in cash payments to cancel the distributor deal. The deal would also see firm orders for 24 business jets canceled and also cancellation of options on 30 additional planes. There was no explanation of why the orders were canceled. Bombardier claims it can sell these planes at a higher margin. It would make some sense if they were paying to remove a “middle man” but why would the orders be canceled? Does Bombardier think it can simply get these customers to place new orders? There was simply no explanation in the announcement.